Item 1A. Risk Factors
Summary of Risk Factors
This summary does not address all of the risks that we face. You should consider carefully all of the risks described below, together with the other information contained in this Report and the prospectus associated with our distribution, before making a decision to invest in our securities. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In such event, the trading price of our securities could decline, and you could lose all or part of your investment. Our principal risks and uncertainties include, but are not limited to, the following risks, uncertainties and other factors:
Our SPARs are generally non-transferable at all times other than in connection with the SPAR Holder Election Period.
Our company structure is the first of its kind and is subject to market uncertainties that may cause the market price of our SPARs to be volatile.
The quotation of SPARs on the OTCQX marketplace or other quotation service, rather than being listed on a national securities exchange such as the NYSE or the NASDAQ Global Market, may present significant risks to the holders of SPARs, including lower availability and efficiency of market price quotations, significantly less liquidity, increased trading costs, the absence of certain corporate governance protections, and the applicability of state securities laws that could result in restrictions on the sale of our SPARs.
We may fail to maintain the quotation of our SPARs on the OTCQX and an active and orderly trading market in our SPARs may not develop.
We may never enter into a definitive transaction agreement with respect to our business combination, in which case our SPARs will expire worthless.
We expect the receipt of our SPARs to be taxable to U.S. Holders. If a U.S. Holder’s SPARs expire unexercised, the holder’s resulting capital losses may be subject to limitation.
SPAR holders will not be entitled to vote on our proposed business combination, which means we may complete our business combination even if a majority of SPAR holders do not support the transaction.
Past performance by Pershing Square, PSTH, Justice Holdings, Ltd. or our Management Team may not be indicative of our future performance.
Because no minimum subscription is required and because we will not have commitments from our SPAR holders for any amount we seek to raise in connection with the exercise of SPARs, we cannot assure you of the amount of proceeds that we will receive, and accordingly, cannot assure you or our potential business combination counterparty of the funds we will have available for our business combination.
The ability of our SPAR holders to elect not to exercise their SPARs may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into a business combination with a target.
RISKS RELATED TO OUR SUBSCRIPTION WARRANTS
Our company structure is the first of its kind and is subject to substantial market uncertainties, including whether an active and orderly trading market will develop, that may cause the trading price of our SPARs to be volatile.
We have distributed our SPARs and intend to identify a business combination target and raise funds to consummate our business combination through the exercise of our SPARs by our SPAR holders. To our knowledge, there are no comparable companies that have utilized this structure, and no established trading market exists for such subscription warrants. Our SPARs are subject to market uncertainties, including, among others, whether the initial recipients of our SPARs are likely to retain or sell their SPARs during the SPAR Holder Election Period, whether an active and orderly trading market for our SPARs will develop during the SPAR Holder Election Period and whether potential business combination counterparties will find our structure to be attractive. Unlike the shares of a SPAC, which may trade at or below their per-share redemption value due to, among other reasons, a market expectation that its business combination will result in a decline in share price below the redemption value, the equivalent scenario for our SPARs would imply a negative market price. However, our SPARs will only be able to trade at positive prices; accordingly, if the market expectation is that the Public Shares that will be issued in our business combination will trade at a price below the announced Final Exercise Price, it is likely that our SPARs would trade at a very low price, or not at all. The likelihood of an active trading market being maintained during the SPAR Holder Election Period could be impacted by, among other things, developments or rumors regarding our proposed business combination, regulatory developments, or other factors that could cause our SPARs to not maintain a trading price. These uncertainties could cause the trading price of our SPARs to be and you may be to sell our SPARs at an , or any, price.
Our SPARs are generally non-transferable at all times other than in connection with the SPAR Holder Election Period.
Our SPARs are generally not transferable prior to the time at which we have distributed an effective Business Combination Registration Statement, and they will again be generally non-transferable upon the earlier of the submission of an Election or the time that is two trading days prior to the end of the SPAR Holder Election Period. As a result, holders of our SPARs will not be able to trade or sell their SPARs during most periods in the life of our company, even in private transactions. SPAR holders will likely have difficulty determining the market value of their SPARs during these periods. Following the SPAR Holder Election Period, SPAR holders who wish to change their Election decision will not be able to do so, subject to limited exceptions, and will not be able to sell or transfer their SPARs.
SPARs may be transferred: (i) upon death by will or intestacy; (ii) by instrument to an inter vivos or testamentary trust in which the SPARs are to be passed to beneficiaries upon the death of the trustee; (iii) pursuant to a court order; or (iv) by operation of law, including a consolidation or merger, or in connection with the dissolution of any partnership, limited liability company, corporation or other entity.
Quotation on the OTCQX marketplace or other quotation service, rather than being listed on a national securities exchange such as the NYSE or the NASDAQ Global Market, may present significant risks to the holders of SPARs.
Our SPARs will become transferable in connection with the SPAR Holder Election Period. We intend to have our SPARs quoted on the OTCQX marketplace of the OTC Markets Group Inc. or other quotation service. This will require, among other things, that at least one market maker publishes quotations for SPARs, and that a Form 211 is submitted to, and approved by, FINRA. The quotation of SPARs on the OTCQX marketplace or other quotation service, as compared to being listed on a national securities exchange such as the NYSE or the NASDAQ, may present significant risks to the holders of SPARs, including:
a limited availability of market quotations for our securities and reduced efficiency or accuracy of such quotations;
reduced liquidity for our securities;
a determination that our SPARs are a “penny stock,” (if we fail to meet other criteria for not being deemed a “penny stock,” such as the requirement that we have net tangible assets in excess of $5.0 million) which will require brokers trading in our SPARs to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
a limited amount of news and analyst coverage;
a decreased ability to issue additional securities or obtain additional financing in the future;
an inability to offer or sell our securities in certain states due to the applicability of state securities laws; and
the absence of certain corporate governance protections applicable to companies with exchange-listed securities.
If we are unable to maintain the quotation of our SPARs on the OTCQX or another over-the-counter marketplace, your ability to sell your SPARs during the SPAR Holder Election Period will be limited to private transactions, or you may not be able sell your SPARs at all. Transactions effected on the OTCQX will likely have higher transaction costs than those for a listed security, and private transactions may have higher transaction costs than those conducted on the OTCQX.
Our SPARs will be eligible for quotation for a period of 18 months from their initial quotation, pursuant to an exemption from the securities rules governing the publication and submission of quotations by broker-dealers and qualified interdealer quotation systems. If this exemption or any other exemption is not available, the quotation of SPARs will require a broker-dealer or quotation system to comply with certain requirements, which may include, among other things, that we have current financial information publicly available, that such broker-dealer or quotation system has a reasonable basis to believe our information is accurate in all material respects, and that an application be filed with FINRA prior to publishing a quotation. It is possible that any such procedures, if available, would have to be carried out on an ongoing basis. Broker-dealers and quotation systems may be unable or unwilling to meet the requirements for quoting our SPARs following this 18-month period, in which case you will only be able to transfer your SPARs (at a time when they are transferable) in private transactions, if at all.
During 2024, the NYSE had been developing a rule change to the NYSE Listed Company Manual, Section 703.12 Listing Standards for Warrants and Rights. The effect of this rule change, had it been implemented, would have permitted SPAR trading during the SPAR Holder Election Period to occur on the NYSE (rather than over-the-counter or “pink sheet” markets). On August 19, 2024, the SEC instituted proceedings to determine whether to approve or disapprove the proposed rule change. On December 17, 2024, the NYSE withdrew its proposed rule change after discussions with the SEC. On February 4, 2026, the NYSE resubmitted the proposed rule change to the SEC. We are monitoring the developments closely, but no assurance can be given that the proposed rule change will be approved by the SEC and successfully implemented by the NYSE. If the proposed rule change is not implemented by the NYSE, we anticipate that SPARs during the SPAR Holder Election Period would be quoted on the OTCQX marketplace of the OTC Markets Group Inc. or other quotation service.
In addition, although we intend that the Public Shares of the post-combination company will be listed on a national securities exchange, and we expect that such listing will be a closing condition to our business combination, there is no guarantee we will be able to obtain or maintain such listing of our Public Shares. We expect that the initial listing of the post-combination company would have to meet the listing exchange’s initial listing criteria for companies conducting an IPO, which in some cases are more stringent than those applicable to companies carrying out a de-SPAC transaction. If we fail to satisfy a closing condition that requires the Public Shares to be listed on a national securities exchange, we may be unable to consummate our business combination and your SPARs could expire worthless, or the Public Shares you receive may be quoted on the OTCQX marketplace or other quotation service, which may negatively impact your investment for the reasons set forth above.
Because we will not be listed on a national securities exchange, we will not be required to comply with corporate governance provisions generally applicable to other blank check companies.
Although our Charter and SPAR Rights Agreement require us to comply with the corporate governance provisions of the NYSE listing rules, these documents may be amended (in the latter case, with the approval of a majority of the SPAR holders). Unlike most blank check companies, we will not be required to affirm our compliance with these requirements, and will not be subject to delisting in the event we fail to comply with these requirements. Accordingly, we may have less incentive to comply with these corporate governance requirements.
The NYSE listing rules require, among other things, that listed companies have: (i) boards comprised of a majority of independent directors and meet in executive sessions without management; (ii) nomination, compensation and audit committees composed entirely of directors that meet the independence standards applicable to such committee, and an audit committee that includes a financial expert; (iii) corporate governance guidelines and a code of business conduct and ethics that are made publicly available; (iv) meetings of independent directors in executive session; (v) annual meetings of stockholders; and (vi) stockholder approval for certain matters, regardless of whether such approval is required under law or by the company’s governing documents, including the adoption of equity compensation plans, the issuance of common stock in excess of 20% of the company’s outstanding common stock at a price lower than the “minimum price” (generally, the trading price of the common stock at the time of signing a binding agreement in connection with such issuance), the issuance of common stock to related parties and change-of-control transactions. NYSE-listed companies are also generally prohibited from taking actions that would disproportionately reduce the voting power of stockholders, such as the issuance of “super-voting” stock.
We will be subject to the corporate governance requirements of the OTCQX only during the period in which our SPARs are quoted on the OTCQX. During this period, we will be required to have a board with at least two independent directors and a majority of independent directors on the audit committee. The requirements of the OTCQX are significantly less stringent than those of the NYSE or NASDAQ, and may be waived in the sole discretion of the OTCQX.
As a result, market participants may have less confidence in the ability of our board to maintain good corporate governance practices and fulfill its responsibilities, which may negatively impact the willingness of SPAR holders to invest in our business combination, and accordingly may negatively impact the market for SPARs when they become transferable.
SPARs are a novel security, and vendors and other market participants, such as DTC, DTC participants, our securities quotation marketplace, our transfer agent, our custodian, and blue sky and other regulators, and potential business combination counterparties, have no experience in administering or otherwise engaging with SPARs or companies such as ours, which may present execution and other risks to the holders of SPARs.
Our company structure is the first of its kind and involves different phases of operation, including the initial distribution of SPARs, the Search Period, the Disclosure Period, the SPAR Holder Election Period and the Closing Period. In each of these phases, we will engage with vendors and other market participants in distributing and administering our SPARs and in executing our business of engaging in a business combination. Because our company structure has not previously been utilized, vendors and other market participants may not have established procedures for tasks they are contractually obligated, or otherwise wish, to perform. Our transfer agent and DTC participants, in particular, were involved in the Distribution of SPARs, but to our knowledge a similar distribution has not occurred to previous holders of a SPAC and DTC participants may not have previously held similar, non-transferable securities in customer accounts. Similarly, there are no similar instruments quoted on our securities quotation marketplace; blue sky and other regulators will not have familiarity with the SPAR instrument in connection with previous reviews of similar instruments; and our ability to restrict SPARs from trading once an Election is made by such SPAR holder will likely be subject to novel procedures at DTC. Potential business combination counterparties will also be unfamiliar with our structure, which could reduce interest in transacting with us. In each of these instances, the novel nature of SPARs and our company may cause errors in execution, , or other that will not have previously been experienced and solved in connection with the offerings of other similar companies.
Our SPARs, when they become transferable, may be difficult to value, and may be susceptible to rumors and market manipulation, presenting significant risks to investors.
As a blank check company with no operations other than the identification and consummation of a business combination, the value of our securities is largely dependent on market expectations of (i) the value of our proposed business combination (following entry into a Definitive Agreement) and (ii) the likelihood of our consummating the proposed business combination. As such, the market price of our SPARs, which will only be transferable in connection with the SPAR Holder Election Period, could be significantly impacted by rumors regarding the status of a pending transaction. Further, because we expect that the value of our SPARs will reflect the expected per-share value of our business combination in excess of the applicable exercise price, the market price of our securities is likely to be low. Securities that trade at low prices may be more susceptible to market manipulation, which can cause significant changes in market prices to the detriment of other investors. Because we are using a novel structure and issuing a novel security, it is possible that market prices may be less efficient than is the case with conventional blank check company securities and that, even in the absence of manipulation or fraudulent trading practices, the price of our SPARs will not reflect the value of our proposed business combination. Additionally, our SPARs may not necessarily trade at a price that is indicative of the value of the new public company after the completion of the business combination because of uncertainties associated with the conditions and the operation of the combined company thereafter, the of the SPARs to rumors and market , the risks associated with trading on the OTCQX instead of NYSE or NASDAQ, and of interests related to our Sponsor.
We may never enter into a Definitive Agreement with respect to our business combination, in which case our SPARs will expire worthless.
We intend to identify an attractive target business, negotiate a Definitive Agreement, enable holders to exercise their SPARs, and consummate our business combination. If we are unable to identify a suitable business combination target, are unable to negotiate an acceptable Definitive Agreement or consummate a business combination within 10 years of the date on which the SPARs were first distributed, our SPARs will expire worthless. Our ability to accomplish our goal is dependent on numerous factors, many of which are beyond our control, including: general economic and market conditions, such as downturns in the economy and recessions; the level of activity in the mergers and acquisitions and financing markets; market perceptions of other companies formed for the purpose of a business combination (such as SPACs); and market perceptions of our structure, our Sponsor and our management. If our SPARs expire worthless due to our failure to consummate a business combination, the initial recipients of our SPARs who held our SPARs may have the to have sold them at market prices during the SPAR Holder Election Period.
After entering into a Definitive Agreement, we may fail to complete our business combination.
After entering into a Definitive Agreement, it is possible that the Definitive Agreement will be terminated, that our business combination partner breaches its obligations under the Definitive Agreement, that we or our business combination target are unable to satisfy the closing conditions for our business combination, or that we are legally enjoined from or otherwise unable to consummate the transaction. If this occurs other than in connection with a Closing Period Extension, all Elections will be rejected, our SPARs will remain outstanding, will continue to be held by their respective holders and will again become generally non-transferable. In such case, we will search for an alternative business combination, but will have consumed resources and our available time to consummate such a transaction, and may be unable to enter into a new definitive agreement and consummate such alternative business combination before the end of the 10-year period in which our SPARs may be exercised. If the business combination is during a Period Extension, or due to a to consummate the transaction by the Deadline or the date that is 10 years from the date the SPARs were first distributed, all proceeds held in the Custodial Account, with interest (if any), will be returned from the Custodial Account to the holders who have submitted payment on a pro rata basis. In such case, the SPARs will have expired , and our company will . The initial recipients of our SPARs, if still holders at such time, may have the to have sold them during the SPAR Holder Election Period, and purchasers of our SPARs in the secondary trading market will have their entire investment.
Operating a blank check company and consummating a business combination are subject to significant regulatory and litigation risks and there is no assurance we will be able to complete a business combination. PSTH, a SPAC that was sponsored by an affiliate of Pershing Square, failed to complete a business combination, and we may fail to complete our business combination. PSTH was also subject to litigation alleging that it was an unregistered investment company, and we may be subject to litigation with respect to regulatory or other issues.
PSTH, a SPAC that went public in July 2020 and was sponsored by an affiliate of Pershing Square, did not consummate an initial business combination agreement it had entered with Universal Music Group, or any other business combination, within the prescribed time period and redeemed all of its Class A common stock and subsequently dissolved. PSTH decided not to consummate the transaction with Universal Music Group after, among other reasons, the SEC indicated that it did not agree with PSTH’s view that a stock purchase constituted a valid “business combination” under the NYSE rules applicable to SPACs. In addition, PSTH was sued by private plaintiffs who alleged that PSTH was an unregistered investment company. SPARC may face other regulatory or litigation challenges and there can be no assurances that we will be able to complete a business combination.
We may have limited recourse if our business combination partner breaches its obligations under the Definitive Agreement and declines to consummate the business combination.
If our business combination partner attempts to abandon the business combination, we will determine whether or not to pursue any available legal remedies to complete the business combination. Our ability to pursue the business combination will depend on, among other factors, the likelihood of being able to resolve the dispute, the expected time required to do so, and our prospects for identifying an alternate transaction and consummating it prior to the expiration of our SPARs. If such event occurs during the Closing Period, we may determine to abandon the transaction even if we believe we are legally entitled to consummate the transaction, or be forced to abandon the transaction at the Closing Deadline, in which event we would have to liquidate our company. In certain circumstances, this may provide a potential business combination partner with negotiating leverage to obtain an amendment or waiver of terms in the Definitive Agreement in a manner less favorable to us. SPAR holders will not have the right to vote on any amendment to the Definitive Agreement, and we will previously made Elections only in the limited circumstance of a Materially Amendment. Our ability to mitigate this risk will depend, in part, on the remedies for that we are to obtain in the Definitive Agreement, which we cannot predict. As a result, SPAR holders could some or all of their investment, have the to sell their SPARs at a higher price, and may receive a lower or return on their Public Shares once issued.
We expect the receipt of our SPARs to be taxable to U.S. Holders. If a U.S. Holder’s SPARs expire unexercised, the holder’s resulting tax losses may be limited.
U.S. Holders may have recognized ordinary income upon their receipt of our SPARs in an amount equal to the fair market value of our SPARs when received. Because we are not making a cash distribution, some U.S. Holders may be required to fund the tax liability from other sources. Additionally, backup withholding may apply to recipients of SPARs who do not provide the necessary documents and certifications.
Notwithstanding that we expect a U.S. Holder to recognize ordinary income upon receipt of our SPARs, if a U.S. Holder does not exercise the SPARs or they expire, then the U.S. Holder should recognize a capital loss at that time. A U.S. Holder’s ability to use capital losses may be subject to limitations.
The Final Exercise Price, which we may increase at the time we enter into a Definitive Agreement, is not an indication of the likely fair value of shares of the post-combination company.
Our Board will determine the Final Exercise Price in order to provide our company with capital to finance our business combination. There is no maximum to the exercise price we may set, and each SPAR must be exercised in full, for two Public Shares. At the Final Exercise Price, some SPAR holders may be unwilling or unable to pay the Final Exercise Price with respect to all of their SPARs.
SPAR holders who do not wish to exercise all of their SPARs may choose to sell their SPARs, although there is no guarantee that they will be able to do so at a favorable price, if at all. If they are unable to sell their SPARs, their Unelected SPARs will expire worthless. If a significant number of SPAR holders attempt to sell their SPARs as a result of a high Final Exercise Price, this may depress the market price of the SPARs, and result in fewer SPARs being exercised, reducing the proceeds available to fund our business combination, potentially below the amount required to consummate our business combination.
The Final Exercise Price will be determined by taking into account a variety of factors, and is not necessarily an indication of the fair value of shares of the post-combination company, particularly as the valuation of the post-combination business reflected in the Definitive Agreement may not be accurate at the time we enter into the Definitive Agreement, and may not be accurate at the time you submit an Election or receive your Public Shares.
You should not consider the Final Exercise Price of our SPARs as an indication of the value of our company, the SPARs or, once issued, our Public Shares. You should not assume or expect that our Public Shares, once issued, will trade at or above the exercise price paid. We cannot guarantee that an active and orderly trading market will develop in our Public Shares. The market price of our Public Shares may decline after the business combination, and you may not be able to sell such securities at a price equal to or greater than the Final Exercise Price. Prior to the SPAR Holder Election Period, we will provide the holders of our SPARs with information regarding the proposed transaction. You should make your own assessment of our business combination, our prospects for the future, the terms of the proposed transaction and the value of the Public Shares.
Because we have the ability to establish the Final Exercise Price in any share amount equal to or greater than $10.00 without an upper limit, the Final Exercise Price could be established at a price which could require a SPAR holder to make a significant capital outlay. If such Final Exercise Price exceeds the investor’s available funds, they will not be able to exercise the SPARs or participate in any future appreciation.
Because we have the ability to establish the Final Exercise Price at a price greater than $10.00 per Public Share without an upper limit, it may be difficult for certain investors to raise the necessary capital to pay the Final Exercise Price and exercise their SPARs. If investors do not have sufficient liquidity and capital resources to pay such an exercise price, they will not be able to exercise their SPARs and receive their shares of Common Stock upon the closing of our business combination or participate in any future potential appreciation of such shares of Common Stock. If SPARs are not exercised by the end of the SPAR Holder Election Period and the business combination closes, then any unexercised SPARs will expire worthless and the SPAR holder will not be entitled to any additional compensation.
You will not be able to revoke your Election to exercise your SPARs or have your exercise payment returned to you, and you will be restricted from transferring your SPARs following the earlier of your Election and the second business day prior to the end of the SPAR Holder Election Period.
A SPAR will become generally non-transferable upon the submission of an Election and, for SPARs with respect to which no Election has yet been submitted, the date that is two trading days prior to the end of the SPAR Holder Election Period. Once you submit an Election and exercise payment with respect to a SPAR, you will not be able to sell or transfer such SPAR, and you will not be able to revoke or change your Election. If a Materially Adverse Amendment is made to the Charter or Definitive Agreement during the SPAR Holder Election Period or the Closing Period, we will cause all previous Elections of SPARs to be revoked, return all funds from the Custodial Account that were tendered at the Final Exercise Price in connection with such Elections and hold or re-open the SPAR Holder Election Period for an additional 20 business days. Our Charter provides that amendments to the Definitive Agreement entered into during the Closing Period in order to permit us to raise additional funds to satisfy financing or other closing conditions set forth in the Definitive Agreement will not be deemed to be a Materially Amendment so long as (i) the additional funds are raised by selling additional Public Shares to third parties (or to the Additional Forward Purchaser or other of our affiliates) in private placements at the Final Exercise Price and (ii) the number of such Public Shares sold, together with the Public Shares issued in respect of Elected SPARs, does not exceed the total number of Public Shares that would have been issued had all SPARs been elected to be exercised.
If a Materially Adverse Amendment to the SPAR Rights Agreement is proposed during the SPAR Holder Election Period or the Closing Period, such amendment must be approved by the holders of a majority of the SPARs present and voting for or against the matter. SPAR holders may choose to vote for or against the amendment or to abstain. In connection with the foregoing, we will revoke all Elections previously made, return all funds tendered, and hold the SPAR Holder Election Period open for an additional 20 business days. In all other circumstances, including amendments other than Materially Adverse Amendments, Elections will be final and irrevocable, unless our Board, in its sole discretion, determines otherwise.
Electing SPAR holders will have agreed to have their exercise payments released to us from the Custodial Account in connection with the Closing, and will not be able to cancel or prevent the exercise of their SPARs, which will occur automatically and concurrently with the consummation of our business combination. Accordingly, if you submit an Election to exercise your SPARs and you later learn information about us or the proposed business combination that you consider unfavorable to the exercise of your SPARs, you may not revoke or change your Election or sell your SPARs and will not be able to have your exercise payment returned to you (subject to the limited exceptions described above). In addition, we cannot predict how these restrictions on transferability and revocation, or other features of SPARs, will impact the trading price of our SPARs during the SPAR Holder Election Period.
Our Board may, in certain circumstances, extend the SPAR Holder Election Period or Closing Period.
Our Board, in certain circumstances, will be required to extend the SPAR Holder Election Period. Our Board will have sole discretion in deciding to extend or postpone the SPAR Holder Election Period, and as to the duration of any extension or postponement (subject to an overall limit that investor funds be held in the Custodial Account no longer than 10 months from the start of the SPAR Holder Election Period). Possible circumstances in which the Board may postpone or extend the SPAR Holder Election Period include, but are not limited to: Materially Adverse Amendments to the Definitive Agreement, Charter or SPAR Rights Agreement; disputes with our business combination partner; and requirements under applicable law. During the Closing Period, our Board may extend the Closing Period if (i) our business combination partner breaches its obligations under the Definitive Agreement in a manner that frustrates the consummation of the business combination and our Board determines to enforce its legal rights under the Definitive Agreement to specific performance or (ii) we are by a governmental authority from consummating the transaction and are permitted under applicable law to appeal such . If our Board determines to do so, rather than the business combination, the Final Exercise Proceeds will be held in the Custodial Account pending resolution of the matter. In no event will we hold investor funds beyond the date that is 10 months from the start of the SPAR Holder Election Period.
The Final Exercise Price of our SPARs will not be determined until the time at which we enter into a Definitive Agreement.
At the time that we enter into a Definitive Agreement with respect to our business combination, we will announce the Final Exercise Price, which will be a minimum of $10.00 per share (or $20.00 to exercise each SPAR) and is not subject to an upper limit. Following this announcement, the Final Exercise Price will be reflected in the Business Combination Registration Statement and will not be further adjusted. Accordingly, during the Search Period, you will not know the exercise price you will have to pay to exercise your SPARs and acquire Public Shares. This, particularly in the absence of a trading market (as our SPARs are generally non-transferable at such time), will result in uncertainty as to the value of our SPARs. At substantially higher Final Exercise Prices, holders who would otherwise wish to exercise all of their SPARs may not have sufficient funds to do so, and would be required to either sell or not exercise a portion of their SPARs, which could depress the trading price of our SPARs or reduce the Final Exercise Proceeds we receive, which may negatively impact our ability to consummate our business combination.
If you do not act on a timely basis and follow the exercise instructions, your Election to exercise your SPARs could be rejected, and if your payment is not received on a timely basis, you may not be issued any Public Shares.
SPAR holders who desire to acquire Public Shares must submit a valid Election and make payment of the applicable exercise price prior to the end of the SPAR Holder Election Period, and must act on a timely basis and ensure that all required forms and funds are actually received by the SPAR rights agent. If your Election and payment are not received on a timely basis, your SPARs will expire worthless. If you are a beneficial owner of SPARs in “street name”, you must act promptly to ensure that your broker, dealer, custodian bank or other nominee acts for you and that all required forms and payments are actually received by the SPAR rights agent prior to the end of the SPAR Holder Election Period. We are not responsible if your broker, dealer, custodian bank or nominee fails to ensure that all required forms and payments are actually received by the SPAR rights agent, and all payments clear, prior to the end of the SPAR Holder Election Period.
If you fail to complete and sign the required forms, send an incorrect payment amount or otherwise fail to follow the procedures that apply to the Election and exercise of SPARs, or your payment does not clear prior to the end of the SPAR Holder Election Period, the SPAR rights agent may, depending on the circumstances, reject your exercise notice or accept it only to the extent of any payment that was timely received and cleared. Neither we, nor the SPAR rights agent, undertakes to contact you concerning an incomplete or incorrect subscription form or payment, nor are we or the SPAR rights agent under any obligation to correct such forms or payments. We have the sole discretion to determine whether the exercise of your SPARs properly and timely follows the exercise procedures.
In addition, in connection with a Materially Adverse Amendment to the SPAR Rights Agreement during the SPAR Election Period, you must submit your vote on a timely basis in order for it to be counted.
Prior to the SPAR Holder Election Period, we will file the Business Combination Registration Statement, which will include detailed instructions on how to exercise your SPARs.
There may be delays in the issuance of our Public Shares or the return of exercise payments.
We intend to issue our Public Shares concurrently with the consummation of our business combination, and we expect that the Closing will occur approximately 10 business days after the SPAR Holder Election Period ends. However, in certain circumstances, such as a breach by our business combination partner that frustrates the consummation of our business combination, or an injunction against consummating the transaction by a governmental authority that we are permitted under applicable law to appeal, we may seek to pursue our available legal remedies and, in connection therewith, our Board may decide to extend the Closing Period up to the date that is 10 months from the start of the SPAR Holder Election Period. Such an extension could result in a significant delay in the issuance of Public Shares, during which time we will continue to hold exercise payments in the Custodial Account, and which will not give rise to a revocation right other than in certain limited circumstances. In the event that we abandon our business combination, we intend to return payments to electing SPAR holders as promptly as practicable, and in any event within five business days. We , however, that there may be operational experienced by our service providers in administering the Election, payment, exercise and/or refund processes, as there is no precedent for our transaction structure. In such case, electing SPAR holders may experience a in receiving their Public Shares following the consummation of the business combination or having their funds returned to them.
Our Sponsor will have the right to elect all of our directors prior to our business combination, and holders of our SPARs will have no ability to elect our directors.
Our Sponsor does not presently intend to issue Common Stock to third parties prior to the consummation of our business combination, and will be restricted from transfers of its Common Stock other than to Affiliate Transferees. Any such transferee will be subject to the transfer restrictions in the subscription agreement between us and our Sponsor and will be required to vote any such shares in favor of any business combination that we negotiate and submit for approval to our stockholders. Accordingly, our Sponsor (or its Affiliate Transferees), as holder of the Sponsor Shares, will be our only stockholder and will have the exclusive right to elect all of our directors prior to our business combination, and will be the sole party entitled to vote on the removal of directors prior to our business combination.
Our public investors will not have the opportunity to vote on our proposed business combination or any other matter submitted for stockholder approval prior to the consummation of our business combination, which means we may complete our business combination or amend certain agreements even if a majority of holders of our SPARs do not support the transaction or such amendment.
Holders who have elected to exercise their SPARs will not be issued any Public Shares until the consummation of our business combination, and accordingly, have no rights as stockholders of our company until the business combination has been consummated. Prior to the consummation of our business combination, our Sponsor will be our sole stockholder. As a result, any stockholder approval required by applicable law or exchange rules will be satisfied by the vote of our Sponsor. Accordingly, we may enter into or amend agreements, including the Definitive Agreement, for which stockholder approval is required and complete our business combination even if a majority of SPAR holders do not support the transaction. If holders of a significant number of our SPARs were to sell their SPARs during the SPAR Holder Election Period because they did not support the transaction, the trading price of our SPARs may be reduced and it is possible that fewer SPARs would be exercised, reducing the capital available to fund our business combination and possibly causing us to be unable to complete our business combination.
If you do not support the business combination, your recourse will be limited to (i) declining to submit an Election, if you have not already done so, in which case your SPARs will expire worthless, or (ii) selling your SPARs, if they are unelected and it is prior to the second trading day before the end of the SPAR Holder Election Period. In all other circumstances, if we decide to proceed with the business combination, your exercise payment will be released to us and your SPARs will be exercised.
You will have no approval rights in connection with amendments to our Charter or the agreements to which we are a party prior to the SPAR Holder Election Period (other than a Materially Adverse Amendment to the SPAR Rights Agreement), and only limited rights in connection with amendments to the Charter and certain of those agreements during the SPAR Holder Election Period and Closing Period.
The Registration Rights Agreement, the Forward Purchase Agreements, the Sponsor Warrant and the Advisor Warrant, and our Charter, Bylaws and the Definitive Agreement (when entered), can be amended prior to the SPAR Holder Election Period without the approval of SPAR holders. These agreements contain, or will contain, various provisions that our SPAR holders might deem to be material. For example, certain of these agreements may contain certain lock-up and transfer restriction provisions with respect to our securities, or could have a negative impact on the ownership interest that electing SPAR holders would have in the post-combination company. Amendments to our Charter or such agreements prior to the SPAR Holder Election Period would require the consent of our stockholders (but not SPAR holders) or the applicable parties thereto, respectively, and would need to be approved by our Board, which may do so for a variety of reasons, including to facilitate our business combination, consistent with our directors’ obligations under applicable law. While we do not expect our Board to approve any amendment to our Charter or any of these agreements prior to the SPAR Holder Election Period, it is possible that our Board, in exercising its business judgment and subject to its fiduciary duties, chooses to approve one or more amendments to any such agreement. Any such amendment will be disclosed in our Business Combination Registration Statement related to our business combination and otherwise filed with the SEC in accordance with applicable law. If you do not support an amendment to our Charter or any agreement to which we are a party prior to the SPAR Holder Election Period, your recourse would be limited to to submit an Election or to sell your SPARs during the SPAR Holder Election Period.
During the SPAR Holder Election Period and Closing Period, SPAR holders will have only limited rights in connection with amendments to these documents and to the SPAR Rights Agreement, and then only if any such amendment, in the reasonable, good-faith judgment of our independent directors, would have a materially adverse impact on SPAR holders. We refer to such amendments as Materially Adverse Amendments. Although we do not expect to amend these documents once the SPAR Holder Election Period has begun, and the Definitive Agreement will likely restrict our ability to amend the Charter or SPAR Rights Agreement, we cannot guarantee that no Materially Adverse Amendments will be made or proposed. In addition, our Charter provides that amendments to the Definitive Agreement entered into during the Closing Period in order to permit us to raise additional funds to satisfy financing or other closing conditions set forth in the Definitive Agreement will not be deemed to be a Materially Adverse Amendment so long as (i) the additional funds are raised by selling additional Public Shares to third parties (or to the Additional Forward Purchaser or other of our affiliates) in private placements at the Final Exercise Price and (ii) the number of such Public Shares sold, together with the Public Shares issued in respect of Elected SPARs, does not exceed the total number of Public Shares that would have been issued had all SPARs been elected to be exercised.
In the event of a Materially Adverse Amendment during the SPAR Holder Election Period and the Closing Period, we will (i) file a post-effective amendment to the Business Combination Registration Statement to disclose the Materially Adverse Amendment in accordance with applicable securities laws, (ii) cause all previous Elections of SPARs to be revoked, (iii) return all funds from the Custodial Account that were tendered at the Final Exercise Price in connection with such Elections and (iv) hold or re-open the SPAR Holder Election Period for an additional 20 business days, during which we anticipate the SPARs will trade on the OTCQX marketplace of the OTC Markets Group Inc. or other quotation service. If you do not support a Materially Adverse Amendment, your recourse would be limited to declining to submit an Election or to sell your SPARs during the additional SPAR Holder Election Period.
You will not be entitled to the same protections applicable to investors in blank check companies subject to Rule 419 of the Securities Act, and the application of other proposed rules to our company is not clear and may adversely affect our ability to negotiate and complete our business combination.
Because our company has been formed to carry out a business combination with a target business that has not been identified, we may be deemed to be a “blank check company” under the United States securities laws. However, because we have net tangible assets in excess of $5.0 million as a result of depositing at least $5,000,001 of the proceeds from the sale of the Sponsor Shares and the Sponsor Warrants in cash in the Segregated Account, and have filed an amendment to the Registration Statement prior to effectiveness that included an audited balance sheet that reflects having such assets, we are exempt from rules promulgated by the SEC to protect investors in blank check companies, such as Rule 419. Accordingly, investors will not be afforded the benefits or protections of those rules. Among other things, this means we will have a longer period of time to complete our business combination than do companies subject to Rule 419.
On January 24, 2024, the SEC adopted a series of new rules relating to SPACs requiring, among other items, (i) additional disclosures relating to SPAC business combination transactions; (ii) additional disclosures relating to dilution and to conflicts of interest involving sponsors and their affiliates in both SPAC initial public offerings and SPAC initial business combinations (the “de-SPAC transactions”); (iii) the use of projections by SPACs in SEC filings in connection with proposed business combination transactions; and (iv) both the SPAC and the target company’s status as co-registrants on de-SPAC transaction registration statements. In addition, the SEC’s adopting release provided guidance describing circumstances in which a SPAC could become subject to regulation under the Investment Company Act, including its duration, asset composition, business purpose, and the activities of the SPAC and its management team in furtherance of such goals. Although we will seek to comply with such rules to the extent applicable, it may be unclear how such rules would apply to a company that issues subscription warrants, rather than stock, for the purposes of an acquisition. These rules may materially adversely affect our ability to negotiate and complete our business combination and may increase the costs and time related thereto.
You will not be a stockholder of our company until you have been issued Public Shares in connection with our business combination.
If you exercise your SPARs, you will not be issued Public Shares until the consummation of our business combination, and you will have no rights as a stockholder with respect to the Public Shares until they are issued to you. Accordingly, among other things, you will not have the right to vote on any matter presented to our stockholders for their approval, you will not have the right to elect directors and you will have no right to liquidating distributions from the funds held outside the Custodial Account.
RISKS RELATED TO OUR PUBLIC SHARES AND OUR BUSINESS COMBINATION
Past performance by Pershing Square, PSTH, Justice Holdings, Ltd. or our Management Team may not be indicative of our future performance.
Any past experience and performance of Pershing Square (and the investment funds and SPVs that it manages or has managed), PSTH, Justice Holdings, Ltd. or our Management Team is not a guarantee (i) that we will be able to successfully identify a suitable candidate for our business combination; or (ii) of any results with respect to any business combination we may consummate. You should not rely on the historical record of Pershing Square, PSTH, Justice Holdings, Ltd., or our Management Team’s performance as indicative of the future performance of an investment in us or the returns we will generate or are likely to generate going forward. An investment in us is not an investment in Pershing Square.
Because no minimum number of SPARs will be required to be exercised, and because we will not have commitments from our SPAR holders for any amount we seek to raise in connection with the exercise of SPARs, and because we may increase the exercise price of our SPARs, we cannot assure you of the amount of proceeds that we will receive, and accordingly, cannot assure you or our potential business combination counterparty of the funds we will have available for our business combination.
We are not conditioning the exercise of our SPARs on any minimum number of SPARs being exercised. We do not currently have any commitments from any entities to which we have distributed SPARs that they will exercise our SPARs. Although we may increase the exercise price above the Minimum Exercise Price, which would increase the maximum possible amount of capital we will raise, it is possible that no SPARs will be exercised in connection with the offering. As a result, we cannot assure you or our business combination partner of the amount of proceeds that we will receive from the exercise of SPARs, and therefore, the amount we will have available to consummate our business combination.
In evaluating a prospective target business for our business combination, our management will rely in part on the availability of the funds from the sale of the Forward Purchase Shares to be used as part of the consideration to the sellers in our business combination. If the sale of the Forward Purchase Shares fails to close, for any reason, we may lack sufficient funds to consummate our business combination.
On September 29, 2023, we entered into a Forward Purchase Agreement with the Forward Purchasers (affiliates of our Sponsor), pursuant to which the Committed Forward Purchasers are obligated to purchase an aggregate of at least $250.0 million of Public Shares, at a per-share price equal to the Final Exercise Price. The amount of the Committed Forward Purchase will be proportionately higher to the extent that the Final Exercise Price exceeds $10.00 per share, up to a maximum of $1.0 billion at a Final Exercise Price of $40.00 per share or greater.
The funds from the sale of the Committed Forward Purchase Shares are expected to be used as part of the consideration to the sellers in our business combination, to pay expenses in connection with our business combination, and may be used for working capital by the post-combination company. If the sale of the Committed Forward Purchase Shares does not close by reason of the failure of the Forward Purchasers to fund the purchase price, for example, or for any other reason, we may lack sufficient funds to consummate our business combination. In addition, the Committed Forward Purchasers’ obligations to purchase the Committed Forward Purchase Shares are subject to fulfillment of customary closing conditions, including that our business combination must be consummated substantially concurrently with the purchase of the Committed Forward Purchase Shares. In the event of any such failure to fund, any obligation being so terminated or any such condition not being satisfied and waived by such party, we may not be able to obtain additional funds to account for such shortfall on terms favorable to us, or at all. In addition, because the Committed Forward Purchasers are affiliates of our Sponsor, we may face a of interest in determining whether to pursue any legal action relating to the Committed Forward Purchase.
Any such shortfall would also reduce the amount of funds that we have available for the completion of our business combination or working capital of the post-combination company.
Our business combination will require approval of a majority of our disinterested independent directors, which we might not obtain.
Our Charter requires that our business combination be approved by a majority of our disinterested independent directors. Unless we receive the requisite board member approvals, we will not be able to enter into a definitive merger or similar agreement relating to our business combination.
The ability of our SPAR holders to elect not to exercise their SPARs may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into a business combination with a target.
We may seek to enter into our business combination agreement with a prospective business combination partner that requires as a closing condition that we have a stipulated minimum amount of cash. If holders of a significant number of our SPARs were to decide not to exercise their SPARs, and we do not obtain sufficient funds from the sale of our Forward Purchase Shares or from third-party financing, we would not be able to meet such closing condition and, as a result, would not be able to proceed with our business combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into a business combination with us.
If holders of a significant number of our SPARs were to decide not to exercise their SPARs, we may not be able to optimize our capital structure.
At the time we enter into a Definitive Agreement, we will not know how many of our SPARs will be exercised, and therefore will need to structure the transaction based on our expectations as to the number of SPARs that will be exercised. If the Definitive Agreement requires us to have a minimum amount of available cash at closing, we may need a larger portion of the Additional Forward Purchase to be exercised or arrange for third-party financing, neither of which may occur, or we may need to restructure the transaction. Raising additional third-party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels, which would limit our ability to optimize our capital structure.
The Additional Forward Purchaser has the right to purchase Additional Forward Purchase Shares up to an aggregate Forward Purchase of $3.5 billion, but has no obligation to make such purchase. At the time that the Additional Forward Purchaser commits to the size of its investment (if any), it will be acquiring shares of our company at the Final Exercise Price, rather than the price that would result from an arm’s-length negotiation with a third party or would be reflected in the market if the SPARs were transferable at such time.
The Committed Forward Purchasers have committed to purchase no less than $250.0 million of Forward Purchase Shares at the time of our business combination, and the size of this committed amount will increase proportionately to the extent the Final Exercise Price exceeds $10.00 per share, up to a maximum of $1.0 billion at a Final Exercise Price of $40.00 per share or greater. The Additional Forward Purchaser is entitled, but not obligated, to purchase the amount of the $3.5 billion Forward Purchase not allocated, in each case at the Final Exercise Price, to the Committed Forward Purchasers at the Final Exercise Price. The Public Shares purchased pursuant to the Forward Purchase Agreements will be purchased at a per-share price equal to the Final Exercise Price at which SPAR holders will purchase Public Shares. However, at the time that the Additional Forward Purchase amount is announced, and at the time the Forward Purchase is exercised, the value of our Public Shares could be higher or lower than would be obtained in an arm’s-length negotiation with an independent third party carried out at such time, or as would be implied by market prices if SPARs were transferable at such time. In such case, the Committed Forward Purchasers will be required to purchase, and the Additional Forward Purchaser might seek to buy, Forward Purchase Shares that the Company would be obligated to sell, even though the Company may be able to obtain equity financing from other sources at a higher price per share. Accordingly, we may be required to sell Forward Purchase Shares at less than their market value. In addition, we will determine the Final Exercise Price based, in part, on the size of the Additional Forward Purchase. Because the Additional Forward Purchaser is an affiliate of our Sponsor, we may face a of interest in determining whether to allocate this investment to SPAR holders or the Additional Forward Purchaser. The foregoing factors could potentially decrease the willingness of SPAR holders to elect to exercise their SPARs during the SPAR Holder Election Period and reduce the capital we have available to consummate our business combination.
Our ability to raise additional capital or consummate our business combination may be adversely impacted if the Additional Forward Purchaser declines to exercise its right to purchase Forward Purchase Shares.
The Additional Forward Purchaser has the right, but not the obligation, to purchase the amount of the Forward Purchase (a total of $3.5 billion) that is not allocated to the Committed Forward Purchasers. If our Board determines that our business combination requires additional capital, and the Additional Forward Purchaser (or Affiliate Transferees) does not exercise this right in part or in full at the time we enter into a Definitive Agreement, our ability to consummate our business combination may depend in part on our ability to raise debt financing or additional capital from third-party investors. This could negatively impact the market price of our SPARs and reduce the extent to which SPAR holders elect to exercise their SPARs, which could further increase our need to obtain additional capital in order to consummate the transaction.
If the proceeds of the sale of the Sponsor Shares and the Sponsor Warrants are insufficient, it could limit the amount available to fund our search for a target business or businesses and complete our business combination, and we will depend on additional investments by our Sponsor or Management Team to fund our search for our business combination, to pay our taxes and to complete our business combination. If we are unable to obtain such funding, we may be unable to complete our business combination.
As of December 31, 2025, approximately $20.1 million from the sale of the Sponsor Shares and the Sponsor Warrants, after expenses related to our formation, the Distribution, operating costs and the funding of $5,001,000 held in cash in the Segregated Account, is available to us to fund our working capital requirements. We will hold these funds in cash pending use. Our Sponsor may purchase additional Sponsor Shares in order to fund our operating costs, but has no obligation to do so. If the proceeds from the sale of the Sponsor Shares and Sponsor Warrants are insufficient to fund our operations prior to the expiration of our SPARs, we may require additional funding in the form of additional purchases of our securities by our affiliates, or we may be forced to liquidate. In the event of our liquidation, our SPARs will expire worthless. None of our Sponsor, members of our Management Team nor any of their affiliates is under any obligation to invest funds in us in such circumstances.
It is possible that the proceeds held in the Custodial Account are reduced, and the amount received by exercising SPAR holders in the event of an Early Termination may be less than the exercise price paid by such holders.
Although our company is structured so that investor funds will be held in the Custodial Account for only a brief period of time, and because we will seek to enter into agreements with third-parties only if they provide a waiver with respect to any claim to funds held in the Custodial Account, there are circumstances that could reduce the funds available to return to electing SPAR holders in the event that we abandon or are unable to consummate a business combination. For example, the funds held in the Custodial Account may be invested in U.S. Treasury obligations or certain money market funds, which could bear a negative interest rate or have a negative rate of return. We may not succeed in obtaining waivers from third parties from claims to the funds held in the Custodial Account, or such parties may assert claims despite such a waiver. In the event that a third party does successfully bring such a claim, our Sponsor is not providing us with any indemnification for a reduction of the assets held in the Custodial Account below the aggregate exercise prices paid.
If, before distributing the proceeds in the Custodial Account in connection with the abandonment of a business combination or the liquidation of our company, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the Custodial Account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of electing SPAR holders. To the extent any bankruptcy claims deplete the Custodial Account, the amount that would otherwise be received by our electing SPAR holders in connection with our liquidation may be reduced.
The risk of any such reduction occurring will increase if and to the extent that we extend the Closing Period, which may result in us holding investor funds for as long as 10 months.
We may not have sufficient funds to satisfy indemnification claims of our directors and officers.
We have agreed to indemnify our directors and officers to the fullest extent permitted by law and we may purchase directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our directors and officers. However, any such insurance may not be available, upon commercially reasonable terms or at all, or sufficient. Any indemnification provided by us will be able to be satisfied only if (i) we have sufficient funds, or (ii) we consummate our business combination. Our obligations to indemnify our directors and officers may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers even though such an action, if successful, might otherwise us and our stockholders. Furthermore, a stockholder’s investment may be affected to the extent that we may incur the costs of settlement and awards our directors and officers pursuant to these indemnification provisions.
If we are alleged or deemed to be an investment company under the Investment Company Act, we may be subject to litigation costs and/or required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our business combination.
If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including:
restrictions on the nature of our investments; and
restrictions on the issuance of securities, each of which may make it difficult for us to complete our business combination.
In addition, we may have imposed upon us burdensome requirements, including:
registration as an investment company;
adoption of a specific form of corporate structure; and
reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations.
In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are not, and do not hold ourselves out as being engaged primarily, or propose to engage primarily, in the business of investing, reinvesting or trading in securities, and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will be to identify and complete our business combination and, thereafter, to the extent we are able to influence the management of the post-combination company, to operate the post-combination business or assets for the long term. We do not plan to buy businesses or otherwise buy securities with a view to resell or profit from their resale. We do not plan to buy unrelated businesses or securities or to be a passive investor.
In the context of SPACs, private litigants have claimed that a SPAC’s customary investment of escrow account funds in U.S. Treasury obligations with a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7, constitutes engaging primarily in the business of investing in securities, and that accordingly SPACs that hold their escrow accounts in such securities (rather than cash) are subject to registration as an investment company under the Investment Company Act. As described elsewhere in this Report, we may elect to hold funds received in connection with the submission of Elections in cash or, at our election, in such U.S. Treasury obligations and/or money market funds, and we expect to make and announce the decision to hold the funds in cash, or such U.S. Treasury obligations or money market funds, in the Business Combination Registration Statement, based on market, legal and other factors at such time, including (i) the relative interest rates for cash accounts and other such instruments, (ii) then-existing market practice and legal and regulatory considerations with respect to custodial accounts for SPACs and other similar vehicles (including whether holding the funds in such U.S. Treasury obligations or money market funds would require us to register as an investment company under the Investment Company Act), (iii) the willingness of banks and other depositary institutions to hold large sums in cash in light of their regulatory and business requirements, and (iv) our assessment of the credit profile of any such bank or other depositary institution willing to hold a cash account. If we elect to hold funds received in connection with the submission of Elections in U.S. Treasury obligations and/or money market funds rather than in cash, we will subject ourselves to the risk that we will face or other from the SEC and/or private that we are operating as an unregistered investment company or be required to register as an investment company. While we believe that receiving and holding funds in U.S. Treasury obligations and/or money market funds for a short period of time and only after a specific operating business has been identified and to investors is a significant differentiating factor of SPARC relative to typical SPACs, and that SPARC should be deemed to be engaged primarily in the business of pursuing and consummating a business combination with an identified operating business (and not engaging primarily in the business of investing, reinvesting or trading in securities within the meaning of the Investment Company Act), we are not aware of any court decisions espousing this view and the SEC and/or private may take a different view.
We also believe that, even if we (i) elect to hold funds received in connection with the submission of Elections in such U.S. Treasury obligations and/or money market funds and (ii) are deemed as a result to be engaging primarily in the business of investing in securities, SPARC would likely qualify as a “transient investment company” under Rule 3a-2 under the Investment Company Act. The purpose of that rule is to provide temporary (one-year) relief from Investment Company Act registration for companies that could be deemed to be an investment company because of a temporary situation which (but for Rule 3a-2) would trigger Investment Company Act registration. Because under no circumstances will SPARC hold investor funds for longer than 10 months from the end of the Election Period, we believe SPARC would likely qualify as a transient investment company under Rule 3a-2. However, in the context of a novel vehicle such as SPARC, the SEC and/or private litigants may take a different view.
We do not believe that our anticipated principal activities will subject us to the registration requirements of the Investment Company Act. If we were alleged or deemed to be subject to such requirements, we will likely be subject to litigation and administrative costs, and compliance with the additional regulatory burdens of the Investment Company Act would require additional expenses for which we have not allotted funds and may hinder our ability to complete our business combination or result in our liquidation. If we are unable to complete a business combination, our SPARs will expire worthless and, if we were to liquidate after our business combination, our public stockholders may receive less than the exercise price paid.
We may not be able to complete a business combination with a U.S. target company if such business combination is subject to U.S. foreign investment regulations and review by a U.S. government entity such as the Committee on Foreign Investment in the United States (“CFIUS”), or ultimately prohibited.
CFIUS is an interagency committee authorized to review certain transactions involving acquisitions and investments in the U.S. by foreign persons in order to determine the effect of such transactions on the national security of the U.S. CFIUS has jurisdiction to review transactions that could result in control of a U.S. business directly or indirectly by a foreign person, certain non-controlling investments that afford the foreign investor non-passive rights in a “TID U.S. business” (defined as a U.S. business that (i) produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies; (ii) owns or operates certain critical infrastructure; or (iii) collects or maintains directly or indirectly sensitive personal data of U.S. citizens), and certain acquisitions, leases, and concessions involving real estate even with no underlying U.S. business. Certain categories of acquisitions of and investments in a U.S. business also may be subject to a mandatory notification requirement.
Our Sponsor is wholly owned by the Pershing Square Funds, one of which owns an approximately 88% membership in our Sponsor and, as a Guernsey company, is a non-U.S. person. Accordingly, although our Sponsor is not controlled by a non-U.S. person (it is managed by PSCM and not by its members), our Sponsor does have substantial ties with a non-U.S. person. Although we intend to enter into a business combination in which our investors, both our Sponsor and its affiliates as well as our public investors, would own a minority of the post-combination company, we cannot guarantee that this will be the case. In addition, we cannot predict whether there will be significant ownership by non-U.S. persons among the exercising SPAR holders, among other factors that could affect the likelihood of a CFIUS or similar review.
If our business combination with a U.S. business is subject to CFIUS review, we may determine that we are required to make a mandatory filing or that we will submit a voluntary notice to CFIUS, or to proceed with the business combination without notifying CFIUS and risk CFIUS intervention, before or after the Closing. CFIUS may decide to block or delay our business combination, impose conditions to mitigate national security concerns with respect to such business combination, or order us to divest all or a portion of a U.S. business of the combined company without first obtaining CFIUS clearance. As a result, we may exclude companies in certain industries from consideration as potential business combination partners, and companies in those industries may not view us as an attractive business combination partner, reducing the pool of potential target companies, and reducing the likelihood that we complete a business combination. We may be adversely affected in terms of competing with other blank check companies or investment partners that do not have similar foreign ownership issues.
Moreover, the process of government review, whether by the CFIUS or otherwise, could be lengthy, and we may have limited time to complete our business combination due to the terms of the Definitive Agreement, the 10-year term of our company, or the maximum period of 10 months that we may hold investor funds in the Custodial Account. If the review process extends beyond such timeframe or our business combination is ultimately prohibited by CFIUS or another U.S. government entity, we may determine to abandon the business combination and liquidate our company. In such circumstances, our SPARs will have expired worthless.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our business combination, and our results of operations or the results of operations of the post-combination company.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. In recent years, changes in accounting interpretations for SPACs have resulted in financial restatements and delayed periodic filings, and have resulted in increased operating and compliance costs on an ongoing basis. As discussed above, the SEC has adopted a series of new rules, which set forth disclosure and other requirements with respect to SPACs, including rules that may affect the willingness of investment banks to participate in obtaining third-party financing, which may also apply to or affect the financing of SPARC. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our business combination, and our results of operations or the results of operations of the post-combination company.
The grant of registration rights may make it more difficult to complete our business combination, and the future exercise of such rights may adversely affect the market price of the Public Shares.
On September 29, 2023, we entered into a Registration Rights Agreement with our Sponsor, the Forward Purchasers and our Advisors, pursuant to which we will be required to use commercially reasonable efforts to file a registration statement within 120 days of our business combination, and use our best efforts to cause such registration statement to be declared effective as soon as practicable (but in no event later than 60 days) thereafter, providing for the resale, under Rule 415 of the Securities Act, of (i) the Sponsor Shares, (ii) the Public Shares issuable upon exercise of the Sponsor Warrants, (iii) the Public Shares issuable upon exercise of the Advisor Warrants, (iv) the Public Shares issued pursuant to the Forward Purchase Agreements and (v) any other shares of the company that the parties to the Registration Rights Agreement have purchased on the open market, subject to certain conditions as provided in the Registration Rights Agreement. The parties to the Registration Rights Agreement, and their permitted transferees, will be entitled to make up to 10 demands that we register these securities, and will have certain “piggyback rights” with respect to other registration statements filed by the company. The post-combination business will bear the cost of registering these securities. The registration and availability of such a significant number of securities for trading in the public market (to the extent any such securities are not subject to transfer restrictions) may have an adverse effect on the market price of the Public Shares. In addition, the existence of the registration rights may make our business combination more or to conclude. This is because the stockholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the impact on the market price of the Public Shares that is expected when such securities are registered.
We may be affected by numerous risks inherent in the business operations with which we combine and we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence.
If we consummate a business combination, we may be affected by numerous risks inherent in the business operations with which we combine. Although our directors and officers will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our Public Shares will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a business combination target. Our investors will not be stockholders of our company prior to the consummation of the business combination, and accordingly, will not have any rights as stockholders, and our Board will not owe any fiduciary duties to them. Accordingly, any security holders who become security holders upon our business combination and suffer a reduction in the value of their securities below the exercise price will not have a remedy for such reduction in value unless they are to bring a private claim under securities laws that the Business Combination Registration Statement or other solicitation materials relating to our business combination constituted an actionable material or .
Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our business combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our business combination may not have attributes entirely consistent with our general criteria and guidelines.
Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our business combination will not have all of these positive attributes. If we complete our business combination with a target that does not meet some or all of these criteria and guidelines, such combination may not be as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective business combination with a target that does not meet our general criteria and guidelines, fewer SPAR holders may exercise their warrants, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum amount of cash.
We may issue additional Common Stock or preferred shares to complete our business combination or under an employee incentive plan after the completion of our business combination, and may do so without the approval of SPAR holders. Any such issuances would dilute the interest of our public stockholders and likely present other risks.
Our Charter authorizes the issuance of up to 3,000,000,000 shares of Common Stock, par value $0.0001 per share and 1,000,000 shares of preferred stock, par value $0.0001 per share. Following the Distribution, 2,999,577,467 authorized but unissued shares of Common Stock and 1,000,000 authorized but unissued shares of preferred stock will be available for issuance, reflecting the issuance of 422,533 shares of Common Stock to our Sponsor. Because our sole stockholder prior to the consummation of our business combination will be our Sponsor, we will be able to amend our Charter in the future without the approval of SPAR holders or any other parties to, among other things, increase the number of authorized shares.
We may issue a substantial number of additional shares of Common Stock or preferred shares to complete our business combination or under an employee incentive plan after the completion of our business combination.
The issuance of additional common stock or preferred stock:
may significantly dilute the equity interest obtainable by electing SPAR holders upon issuance of Public Shares, or the value thereof to the extent that such shares are issued at a price lower than the Final Exercise Price;
may subordinate the rights of holders of Common Stock if preferred stock is issued with rights senior to those afforded our Common Stock;
could cause a change of control if a substantial number of shares of Common Stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our directors and officers; and
may adversely affect prevailing market prices for our Common Stock following the business combination.
Resources could be consumed in researching business combinations that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention, and substantial costs for accountants, attorneys, consultants and others. If we decide not to complete a specific business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business.
Our ability to successfully effect our business combination and to be successful thereafter will be totally dependent upon the efforts of key personnel. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
Our ability to successfully effect our business combination is dependent upon the efforts of key personnel. The role of key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or advisory positions following our business combination, it is likely that some or all of the management of the target business will remain in place, particularly if we purchase a minority interest in a business as we expect. To the extent we have any ability to participate in the decision-making of the post-combination company, we intend to closely scrutinize any individuals employed following the business combination, but we cannot assure you that we will be able to so participate, or that our assessment of these individuals will prove to be correct.
In addition, the directors and officers of a business combination candidate may resign upon the completion of our business combination. The departure of our business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. The role of our business combination candidate’s key personnel upon the completion of our business combination cannot be ascertained at this time. Although we contemplate that certain members of our business combination partner’s management team will remain associated with the company following our business combination, it is possible that some will not wish to continue their employment. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
We are dependent upon our directors and officers and their departure could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, directors and officers. We believe that our success depends on the continued service of our directors and officers, at least until we have completed our business combination. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or officers. The unexpected loss of the services of one or more of our directors or officers could have a detrimental effect on us.
Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following our business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our key personnel may be able to remain with us after the completion of our business combination only if they are able to negotiate employment or consulting agreements in connection with our business combination. Such negotiations would take place simultaneously with the negotiation of our business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the completion of our business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business. However, we believe the ability of such individuals to remain with us after the completion of our business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination. There is no certainty, however, that any of our key personnel will remain with us after the completion of our business combination. We cannot assure you that any of our key personnel will remain in senior management or advisory positions with us. The determination as to whether any of our key personnel will remain with us will be made at the time of our business combination.
We may have limited ability to assess the management of a prospective target business and, as a result, may effect our business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company, which could, in turn, negatively impact the value of our stockholders’ investment in us.
When evaluating the desirability of effecting our business combination with a prospective target business, our ability to assess the target business’s management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any security holders who choose to remain security holders following the business combination could suffer a reduction in the value of their securities. Such stockholders are unlikely to have a remedy for such reduction in value.
Our management may have limited influence over or control of a target business after our business combination.
Our business combination may be structured in a variety of ways, including, but not limited to, a merger, capital stock exchange, asset acquisition, stock purchase or reorganization. We are not able to predict the form that our business combination will take. It is likely that our stockholders (including the Forward Purchasers and our Sponsor) will own a minority share of the post-combination company or the target business. In addition, other minority stockholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the target company’s stock than we initially acquired. Accordingly, our management may have limited ability, if any, to influence or control the target business. We cannot provide assurance that we will maintain representation on the board of directors of the post-combination company, or that we will have sufficient influence to ensure that the management of the target business will possess the skills, qualifications or abilities necessary to profitably operate such business.
Members of our Management Team and Investment Team will allocate their time to other businesses, thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our business combination.
The members of our Management Team and Investment Team are not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our search for our business combination and their other businesses. We do not intend to have any full-time employees prior to the completion of our business combination. The members of our Management Team and Investment Team may be engaged in other business endeavors for which they may be entitled to substantial compensation, and our officers are not obligated to contribute any specific number of hours per week to our affairs. The nine members of our Investment Team will allocate their time between fulfilling their duties to us and to PSCM (including for this purpose any acquisition companies sponsored by affiliates of PSCM). Our directors may also serve as officers or board members for other entities. If such persons’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs, which may have a negative impact on our ability to complete our business combination. For a complete discussion of our officers’ and directors’ other business affairs, please see Item 10 of this Report entitled “ Directors, Executive Officers and Corporate Governance .”
Certain of our directors and officers are now, and all of them may in the future become, affiliated with entities engaged in business activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in allocating their time and determining to which entity a particular business opportunity should be presented.
Until we consummate our business combination, we intend to engage in the business of identifying and combining with one or more businesses. Our Sponsor, directors and officers are, and may in the future become, affiliated with entities that are engaged in a similar business.
Our affiliate, PSCM, manages or advises several funds. PSCM and its affiliates may form and manage other investment vehicles investing in public or private companies at any time prior to the announcement of our business combination, including, but not limited to, private or public investment vehicles that may invest side-by-side with our company. In any of the foregoing circumstances, a conflict of interest may arise. To the extent any such conflicts arise, we cannot guarantee that they will be resolved in our favor.
Our directors and officers currently have, and any of them in the future may have, additional fiduciary or contractual obligations to another entity pursuant to which such officer or director is or will be required to present a business combination opportunity to such entity, including, without limitation, funds managed or advised by our Sponsor or its affiliates, subject to their fiduciary duties. If any of our directors or officers becomes aware of a business combination opportunity that falls within the line of business of any entity to which he or she has pre-existing fiduciary or contractual obligations, he or she may be required to present such business combination opportunity to such entity prior to presenting such business combination opportunity to us. Our directors and officers also may become aware of business opportunities which may be necessary or appropriate for presentation to other entities to which they owe certain fiduciary or contractual duties. Any presentation of such opportunities to such other entities may present additional conflicts.
Accordingly, our directors and officers may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation to us. Our Charter provides that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation.
None of the members of our Management Team or Investment Team are required to commit his or her full time to our affairs. The members of our Investment Team are employed by PSCM. While the members of our Management Team intend to devote as much of their time as they deem necessary to our affairs, and while we believe the nine members of our Investment Team will be able to allocate their duties to us and to PSCM (including for this purpose the acquisition companies sponsored by affiliates of PSCM) in a manner that allows them to provide us with the resources and support we require while also fulfilling their responsibilities to PSCM, such persons may have conflicts of interest in allocating his or her time among various business activities.
In addition, although we have adopted a Code of Conduct and Ethics pursuant to which, among other things, our audit committee must approve any related-party transaction, this policy will not apply to the agreements and transactions with our Sponsor and its affiliates entered into prior to September 29, 2023. As a result, the purchase of the Sponsor Shares, the Forward Purchase Agreements, the sale of the Sponsor Warrants and the issuance of the Advisor Warrants are not and will not be subject to any audit committee review.
For a complete discussion of our officers’ and directors’ business affiliations and the potential conflicts of interest that you should be aware of, please see Item 10 of this Report entitled “ Directors, Executive Officers and Corporate Governance ” and Item 13 of this Report “ Certain Relationships and Related Transactions, and Director Independence .”
Our officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. It is possible that we enter into our business combination with a target business that is affiliated with our Sponsor and/or its affiliates, our directors or officers. We do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
We may engage in a business combination with one or more target businesses that have relationships with entities that may be affiliated with our Sponsor, officers, directors or existing security holders which may raise potential conflicts of interest.
In light of the involvement of our Sponsor, directors and officers with other entities, we may decide to acquire one or more businesses affiliated with our Sponsor, directors or officers. Our directors and officers may also serve as officers and board members for other entities, including, without limitation, those described under Item 10 of this Report entitled Directors, Executive Officers and Corporate Governance —Conflicts of Interest . Such entities may compete with us for business combination opportunities. Our Sponsor, directors and officers are not currently aware of any specific opportunities for us to complete our business combination with any entities with which they are affiliated, and there have been no preliminary discussions concerning a business combination with any such entity or entities. Although we will not be specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria for our business combination as set forth in Item 1 of this Report entitled Business—Selection of a Target Business and Structuring of our Business Combination and such transaction was approved by a majority of our disinterested independent directors. Although we are required by our Charter to obtain an opinion from an independent investment banking firm that is a member of FINRA or from an independent accounting firm regarding the fairness to our company from a financial point of view of a business with one or more businesses affiliated with our directors, officers, or current stockholders, potential of interest still may exist and, as a result, the terms of our business combination may not be as to our SPAR holders as they would be absent any of interest.
Our Sponsor Warrants and Advisor Warrants may create an incentive for our Sponsor and advisory board members to identify and advocate for a business combination that may not be in the best interests of SPAR warrant holders.
Our Charter provides that entering into our business combination requires the approval of a majority of our disinterested independent directors, each of whom is being compensated solely in cash for their board service and has not been issued Sponsor Warrants or Advisor Warrants. However, our Sponsor and advisory board may play a significant role in identifying potential business combination targets and negotiating the terms of any proposed potential business combination. Because our Sponsor and the members of our advisory board hold Sponsor Warrants and Advisor Warrants, respectively, they may have an incentive to identify and advocate for a business combination that may not be in the best interests of SPAR holders. In particular, even though the Sponsor Warrants and Advisor Warrants are not “in-the-money” until the share price of the surviving entity of the business combination is at least 20% higher than the Final Exercise Price, the Sponsor Warrants and the Advisor Warrants have a term of 10 years from the consummation of the business combination, which could incentivize our Sponsor and advisory board members to identify and advocate for a business combination with a value at the time of the business combination below the Final Exercise Price, if such parties believed that over the 10 year term of the Sponsor Warrants and Advisor Warrants, a value in excess of the exercise price of the Sponsor Warrants and Advisor Warrants could be achieved.
We may issue notes or other debt instruments, or otherwise incur substantial debt, to complete our business combination, which may adversely affect our leverage and financial condition and thus negatively impact the value of our stockholders’ investment in us.
Although we have no commitments as of the date of this Report to issue any notes or other debt instruments, we may choose to incur substantial debt to complete our business combination, which could have a variety of negative effects, including:
default and foreclosure on our assets if our operating revenues after our business combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
our inability to pay dividends on our Common Stock;
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common shares if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements and execution of our strategy; and
other disadvantages compared to our competitors who have less debt.
Subsequent to the completion of our business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our share price, which could cause you to lose some or all of your investment.
Even if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this due diligence will surface all material issues that may be present inside a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write down or write off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining debt financing to partially finance our business combination. SPAR holders will have no rights as stockholders prior to our business combination, and will not be owed any fiduciary duties by our Board. Accordingly, any security holders who exercise their SPARs and a reduction in the value of their shares below the exercise price paid are unlikely to have a remedy for such reduction in value unless they are to bring a private claim under securities laws that the Business Combination Registration Statement or other solicitation materials furnished to them, as applicable, relating to our business combination, constituted an actionable material or .
We intend to complete only one business combination, which will cause us to be solely dependent on a single business which may have a limited number of products or services and limited operating activities. This lack of diversification may negatively impact our operating results and profitability.
We intend to effect our business combination with a single target business. However, we may seek to effect business combinations with multiple target businesses simultaneously or within a short period of time, which we may not be able to do as a result of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By completing our business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry.
We may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder our ability to complete our business combination and give rise to increased costs and risks that could negatively impact our operations and profitability.
If we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete our business combination. We do not, however, intend to purchase multiple businesses in unrelated industries in conjunction with our business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.
We are likely to attempt to complete our business combination with a private company about which little information is publicly available, which may result in a business combination with a company that is not as profitable as we suspected, if at all.
In pursuing our business combination strategy, we are likely to seek to effect our business combination with a privately held company. Very little public information generally exists about private companies, and we could be required to make our decision on whether to pursue a potential business combination on the basis of limited information, which may result in our business combination with a company that is not as profitable as we suspected, if at all.
We may be unable to obtain additional financing to complete our business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination.
Because we have not yet identified a prospective target business, we cannot ascertain the capital requirements for any particular transaction. If the net proceeds of the sale of our Sponsor Shares, Sponsor Warrants, Committed Forward Purchase Shares, any Additional Forward Purchase Shares and our issuance of the Public Shares upon exercise of our SPARs proves to be insufficient to complete our business combination, either because of the size of our business combination, the depletion of the available net proceeds in search of a target business, the failure of a significant number of SPAR holders to exercise their SPARs or the decision of the Additional Forward Purchaser not to purchase any or a sufficient number of Public Shares, we may be required to seek additional financing or to abandon the proposed business combination. We cannot assure you that such financing will be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to complete our business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. In addition, even if we do not need additional financing to complete our business combination, we may require such financing to fund the operations or growth of the target business. The to secure additional financing could have a material effect on the continued development or growth of the target business.
We are an “emerging growth company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, holders of SPARs or our Public Shares may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Common Stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more .
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Because we have up to 10 years to consummate our business combination, it is possible that we will lose our status as an emerging growth company prior to consummating our business combination. The increased compliance and disclosure requirements that would apply to us could increase our operating costs, and reduce the working capital available to pursue a business combination, and will also require the time and resources of our Management Team that would otherwise be allocated towards consummating a business combination.
Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate our business combination, require substantial financial and management resources, and increase the time and costs of completing our business combination.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls. Only in the event we are deemed to be a large accelerated filer or an accelerated filer will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. Further, for as long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. Compliance with the requirements of the Sarbanes-Oxley Act could be particularly burdensome on us as compared to other public companies because a target company with which we seek to complete our business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such business combination.
Provisions in our Charter and the DGCL may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Common Stock or Public Shares and could entrench management.
Our Charter contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
Section 203 of the DGCL affects the ability of an “interested stockholder” to engage in certain business combinations, for a period of three years following the time that the stockholder becomes an “interested stockholder.” We will take all necessary corporate action to ensure that our Sponsor, its affiliates, and their transferees will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and will therefore not be subject to such restrictions.
Our Charter requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware or, if that court lacks subject matter jurisdiction, another federal or state court situated in the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our Charter. This exclusive provision forum will not apply to suits arising under the Exchange Act or state securities laws and any other claim for which federal courts have exclusive jurisdiction. In addition, our Charter provides that the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action under the Securities Act.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our Charter to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
Cybersecurity incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss.
We depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of third parties with which we may deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data. While we expect to have access to certain resources of PSCM, including information technology, as an early stage company without significant investments in data security protection, we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or to investigate and remediate any vulnerability to, cybersecurity incidents. Cybersecurity threats are constantly expanding and evolving, becoming increasingly sophisticated and complex, increasing the of detecting and them and maintaining security measures and protocols. It is possible that any of these occurrences, or a combination of them, could have consequences on our business and lead to financial .
We may reincorporate in another jurisdiction in connection with our business combination and such reincorporation may result in taxes imposed on stockholders.
We may, in connection with our business combination and subject to requisite stockholder approval under the DGCL, reincorporate in the jurisdiction in which the target company or business is located or in another jurisdiction. The transaction may require a stockholder to recognize taxable income in the jurisdiction in which the stockholder is a tax resident or in which its members are residents if it is a tax transparent entity. We do not intend to make any cash distributions to stockholders to pay such taxes. Stockholders may be subject to withholding taxes or other taxes with respect to their ownership of us after the reincorporation.
If we effect our business combination with a company with operations or opportunities outside of the United States, we would be subject to a variety of additional risks that may negatively impact our operations.
If we effect our business combination with a company with operations or opportunities outside of the United States, we would be subject to any special considerations or risks associated with companies operating in an international setting, including any of the following:
higher costs and difficulties inherent in managing cross-border business operations and complying with different commercial and legal requirements of overseas markets;
rules and regulations regarding currency redemption;
complex corporate withholding taxes;
laws governing the manner in which future business combinations may be effected;
tariffs and trade barriers;
regulations related to customs and import/export matters;
longer payment cycles and challenges in collecting accounts receivable;
tax issues, such as tax law changes and variations in tax laws as compared to the United States;
currency fluctuations and exchange controls;
rates of inflation;
cultural and language differences;
employment regulations;
crime, strikes, riots, civil disturbances, terrorist attacks, natural disasters and wars;
deterioration of political relations with the United States; and
government appropriations of assets.
We may not be able to adequately address these additional risks. If we were unable to do so, our operations might suffer, which may adversely impact our results of operations and financial condition.
After our business combination, it is possible that a majority of our directors and officers will live outside the United States and all of our assets will be located outside the United States; therefore, investors may not be able to enforce federal securities laws or their other legal rights.
It is possible that after our business combination, a majority of our directors and officers will reside outside of the United States and all of our assets will be located outside of the United States. As a result, it may be difficult, or in some cases not possible, for investors in the United States to enforce their legal rights, to effect service of process upon all of our directors or officers or to enforce judgments of United States courts predicated upon civil liabilities and criminal penalties on our directors and officers under United States laws.
If our management following our business combination is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws, which could lead to various regulatory issues.
Following our business combination, our management may resign from their positions as officers or directors of the company and the management of the target business at the time of the business combination will remain in place. Management of the target business may not be familiar with United States securities laws. If new management is unfamiliar with United States securities laws, they may have to expend time and resources becoming familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues which may adversely affect our operations.
After our business combination, substantially all of our assets may be located in a foreign country and substantially all of our revenue may be derived from our operations in any such country. Accordingly, our results of operations and prospects will be subject, to a significant extent, to the economic, political and social conditions and government policies, developments and conditions in the country in which we operate.
The economic, political and social conditions, as well as government policies, of the country in which our operations are located could affect our business. Economic growth could be uneven, both geographically and among various sectors of the economy, and such growth may not be sustained in the future. If in the future such country’s economy experiences a downturn or grows at a slower rate than expected, there may be less demand for spending in certain industries. A decrease in demand for spending in certain industries could materially and adversely affect our ability to find an attractive target business with which to consummate our business combination and, if we effect our business combination, the ability of that target business to remain or become profitable.
Exchange rate fluctuations and currency policies may cause a target business’s ability to succeed in the international markets to be diminished.
In the event we acquire a non-U.S. target, the majority of our revenues and income would likely be received in a foreign currency, and the dollar equivalent of our net assets and distributions, if any, could be adversely affected by reductions in the value of the local currency. The value of the currencies in our target regions fluctuate and are affected by, among other things, changes in political and economic conditions. Any change in the relative value of such currency against our reporting currency may affect the attractiveness of any target business or, following consummation of our business combination, our financial condition and results of operations. Additionally, if a currency appreciates in value against the dollar prior to the consummation of our business combination, the cost of a target business as measured in dollars will increase, which may make it less likely that we are able to consummate such transaction.
We may reincorporate in another jurisdiction in connection with our business combination, and the laws of such jurisdiction may govern some or all of our future material agreements and we may not be able to enforce our legal rights.
In connection with our business combination, we may relocate the home jurisdiction of our business from Delaware to another jurisdiction. If we determine to do this, the laws of such jurisdiction may govern some or all of our future material agreements. The system of laws and the enforcement of existing laws in such jurisdiction may not be as certain in implementation and interpretation as in Delaware. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital.
Item 1B. Unre solved Staff Comments
None.
Item 1C. Cybersecurity
The Company's information is primarily maintained by PSCM, which has implemented robust information security controls, frequent testing, periodic assessments and advanced monitoring of information security threats to protect the Company's sensitive information. In addition, PSCM has formed an Information Security Committee (the “InfoSec Committee”), which consists of the Chief Technology Officer, the Chief Compliance Officer, the President and a Compliance Officer. The InfoSec Committee is responsible for developing and overseeing the implementation of controls, policies and procedures, evaluating and addressing ongoing information security-related risks and periodically reviewing the effectiveness of the information security policies and procedures that protect the Company's information. In preparing and approving PSCM's information security policies and procedures, the InfoSec Committee has relied upon guidelines published by the National Institute of Standards and Technology and the International Organization for Standardization, guidance issued by the SEC and National Futures Association and industry practice. The InfoSec Committee provides periodic reports to the Board which include updates on cybersecurity risks and threats, system upgrades, assessments of the information security program and the emerging threat landscape.
Additionally, prior to engaging any vendor that will store sensitive Company information, PSCM performs due diligence on the vendor’s information security infrastructure and requires that the vendor agree contractually that the Company’s information will be encrypted in transit and at rest and that the appropriate user access controls will apply. As of the date of this report, we are no t aware of any material risks from cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company, including our business strategy, results of operations, or financial condition.
Ite m 2. Properties
We currently maintain our principal executive offices at 787 Eleventh Avenue, 9th Floor, New York, NY 10019. The space is provided to us at no cost by PSCM, an entity affiliated with our Sponsor and the members of our management team. We consider our current office space adequate for our current operations.
