UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-K/A
Amendment No.1
10-K
(MARK ONE)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20202021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromtoCommission File number:001-39396PERSHING SQUARE TONTINE HOLDINGS, LTD.(Exact name of registrant as specified in charter)Delaware 85-0930174(State or other jurisdiction of
incorporation or organization) I.R.S. EmployerIdentification Number)
787 Eleventh Avenue, Ninth Floor
New York, NY 10019
(Address of principal executive offices)
(212)
813-3700
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, par value $0.0001 per share | PSTH | New York Stock Exchange | ||
Redeemable warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $23.00 | PSTH.WS | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2
of the Exchange Act.Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☒ No ☐The registrant was not a public company at
As of June 30, 2020,2021, the last business day of the registrant’s most recently completed second fiscal quarter, and therefore it cannot calculate the aggregate market value of common stock held by non-affiliates at such time. The registrant’s units began trading on the New York Stock Exchange (“NYSE”) on July 24, 2020 and the registrant’s Class A Common Stock and warrants began trading separately on the NYSE on September 11, 2020. The aggregate market value of the Class A Common Stock outstanding, other than shares held by persons who may be deemed affiliates of the registrant, computed by reference to the closing sales price for the Class A Common Stock on December 31, 2020,June 30, 2021, as reported on the NYSE, was $5,544,000,000.
$4,552,000,000.
As of March 30, 2021,3, 2022, there
were Documents Incorporated by Reference: None
Auditor Firm ID: 688 | Auditor Name: Marcum LLP | Auditor Location: Melville, New York, United States of America |
PERSHING SQUARE TONTINE HOLDINGS, LTD.
TABLE OF CONTENTS
Page | ||||||
| 1 | ||||||
ITEM 1. | ||||||
ITEM 1A. | ||||||
ITEM 1B. | 49 | |||||
ITEM 2. | 49 | |||||
ITEM 3. | 49 | |||||
ITEM 4. | 49 | |||||
ITEM 5. | 50 | |||||
ITEM 6. | 51 | |||||
ITEM 7. | 51 | |||||
ITEM 7A. | ||||||
ITEM 8. | ||||||
ITEM 9. | ||||||
| ||||||
| 57 | |||||
ITEM 9A. | ||||||
| 57 | |||||
ITEM | ||||||
| ||||||
PART III | ||||||
ITEM 10. | 59 | |||||
ITEM 11. | 65 | |||||
ITEM 12. | ||||||
ITEM 13. | ||||||
ITEM 14. | ||||||
ITEM 15. | ||||||
| 72 | |||||
ITEM 16. | ||||||
| 75 | ||||||
Pershing Square Tontine Holdings, Ltd. (the “Company,” “we”, “our” or “us”) is filing this Amendment No. 1 to its Annual Report on Form 10-K/A (this “Amendment”) to amend its Annual Report on Form 10-K for the period ended December 31, 2020, originally filed with the Securities and Exchange Commission (“SEC”), on March 31, 2021, or the Original Filing, to restate (i) its financial statements asTable of and for the period ended December 31, 2020, (ii) its financial statements as of July 24, 2020 (iii) its financial statements as of and for the period ended September 30, 2020 in the accompanying notes to the financial statements included in this Amendment, including describing the restatement and its impact on previously reported amounts.
On April 12, 2021, the staff of the Securities and Exchange Commission (the “SEC Staff”) issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Staff Statement”). In the SEC Staff Statement, the SEC Staff expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to equity. Following the issuance of the SEC Staff Statement, and after consultation with our independent registered public accounting firm, our management and our audit committee concluded that, in light of the SEC Statement, it was appropriate to restate our previously issued audited financial statements as of December 31, 2020 and for the period from May 4, 2020 (inception) through December 31, 2020. As part of such process, we identified a material weakness in our internal controls over financial reporting.
The restatement results from the Company’s prior accounting for its outstanding warrants, as well as the Forward Purchase Agreement and Director Forward Purchase Agreement (collectively, the “FPA”) entered into in connection with its initial public offering in July 2020 as components of equity instead of as derivative liabilities. The warrant agreements include a provision that, in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of common shares, all holders of the warrants could be entitled to receive cash in exchange for their warrants (“Tender Offer Provision”), and in addition the Sponsor Warrants and Director Warrants are exercisable for a variable number of shares. Under the FPA, the Forward Purchasers are entitled to purchase Forward Purchase Units consisting of one share of Class A Common Stock and one-third of one warrant (“Forward Purchase Warrants”). The Forward Purchase Warrants are a component of the FPA and include the Tender Offer Provision under the warrant agreements. Based on the foregoing, the Company’s management concluded that both Warrants and the FPA do not meet the criteria to be classified in equity and should be classified as derivative liabilities. In the process of evaluating the accounting for the Company’s outstanding warrants and FPA, the Company also determined that it was necessary to restate its financial statements to classify all Class A Common Stock as a component of temporary equity. In accordance with the SEC’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity.
As a result of the above, the Company is required to measure the fair value of the outstanding warrants and the FPA at the end of each reporting period and recognize changes in fair value from the prior period in the Company’s operating results.
The Company’s accounting for the outstanding warrants and FPA as components of equity instead of as liabilities did not have any effect on the Company’s previously reported cash flows, cash held in trust or restricted cash.
In connection with the restatement, the Company’s management reassessed the effectiveness of its disclosure controls and procedures as of December 31, 2020. As a result of that reassessment, and in light of the SEC Staff Statement, the Company’s management determined that its disclosure controls and procedures as of December 31, 2020 were not effective, and a material weakness existed in the Company’s internal control over financial reporting. For more information, see Item 9A included in this Amendment.
The Company has not amended its previously filed Current Report on Form 8-K or Quarterly Report on Form 10-Q for the periods affected by the restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Amendment, and the financial statements and related financial information contained in such previously filed reports should no longer be relied upon.
The restatement is more fully described in Note 2 of the Notes to Financial Statements included herein.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by the Company’s principal executive officer and principal financial officer are filed as exhibits (in Exhibits 31.1 to 32.2) to this Amendment, and under Item 15 of Part IV hereof.
Except as described above, this Amendment does not amend, update or change any other items or disclosures contained in the Original Filing, and accordingly, this Amendment does not reflect or purport to reflect any information or events occurring after the original filing date or modify or update those disclosures affected by subsequent events. Accordingly, this Amendment should be read in conjunction with the Original Filing and the Company’s other filings with the SEC. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Original Filing. Unless the context otherwise requires, references to “outstanding warrants” in this Amendment refers to the Company’s Distributable Redeemable Warrants, Sponsor Warrants and Director Warrants (as defined herein).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis annual report on Form10-K/A (this10-K(this “Report”) contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended, (The “Exchange Act”). OurPershing Square Tontine Holdings, Ltd.’s (the “Company,” “we,” “our” or “us”) forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Report may include, for example, statements about:our ability to select an appropriate target business or businesses;our ability to complete our initial business combination, particularly in light of disruption that may result from limitations imposed by theCOVID-19pandemic and existing litigation alleging that we are required to register as an investment company; pandemic;our expectations around the performance of the prospective target business or businesses;our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination;our management team and investment team members allocating their time to other businesses, and our directors and officers potentially having conflicts of interest with our business or in approving our initial business combination, as a result of which they would then receive expense reimbursements;our potential ability to obtain additional financing to complete our initial business combination;our pool of prospective target businesses;the ability of our directors and officers to generate a number of potential acquisition opportunities;our public securities’ potential liquidity and trading;the lack of a market for our securities;the use of proceeds not held in the trust account or available to us from interest income on the trust account balance;the trust account not being subject to claims of third parties; orour financial performance.The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Item 1A. Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.Unless otherwise stated in this Report, or the context otherwise requires, references to:“Additional Forward Purchase Units” are to the up to 100,000,000 units (or such greater amount as determined by mutual agreement of the company and the Forward Purchasers), each consisting of one share of Class A Common Stock andone-thirdof one warrant, that the Forward Purchasers may elect to purchase pursuant to the Forward Purchase Agreement;“amended and restated certificate of incorporation” are to our second amended and restated certificate of incorporation;1
“Affiliate Transferees” are to any entity that is managed by PSCM;
“company”, “our company”, “we” or “us”, are to Pershing Square Tontine Holdings, Ltd.;
“common stock” are to our Class A Common Stock and our Class B Common Stock, collectively;
“common shares” are to the common stock, membership interests, units or other equity security of the continuing publicly traded corporation following our initial business combination, if such post- combinationpost-combination business is not the company, and to our Class A Common Stock if we are the continuing publicly traded corporation following our initial business combination;
“Committed Forward Purchase Units” are to the 50,000,000 units, each consisting of one share of Class A Common Stock and
one-third
of one Redeemable Warrant, that the Forward Purchasers have committed to purchase pursuant to the Forward Purchase Agreement;“Director Forward Purchase Agreement” are to an agreement providing for the sale of an aggregate amount of $6,000,000 of our Forward Purchase Units to certain of our independent directors, in one or more private placements in such amounts and at such time or times as the Director Forward Purchasers determine, but no later than simultaneously with the closing of our initial business combination;
“Director Forward Purchase Units” are to the Forward Purchase Units to be purchased by certain of our independent directors pursuant to the Director Forward Purchase Agreement;
“Director Forward Purchasers” are to those of our independent directors who are party to the Director Forward Purchase Agreement and have agreed to purchase our Forward Purchase Units pursuant thereto;
“Director Warrants” are to the warrants purchased by our directors, other than Mr. Ackman, in private placements which closed simultaneously with the initial public offering, for an aggregate amount of $2,837,500, which will be exercisable for 0.26% of the common shares of the post-combination business (on a fully diluted basis), at an exercise price of $24.00 per common share of the post-combination business. The Director Warrants will have a term of 10 years from the consummation of our initial business combination and subject to certain transfer restrictions and have certain registration rights, and otherwise have terms identical to those of the Sponsor Warrants;
“Distributable Redeemable Warrants” are to the warrants issuable upon exercise of the Redeemable Warrants attached to each unit issued in the initial public offering.
“Distributable Tontine Redeemable Warrants” are to the warrants issuable in respect of those Public Shares that have not been redeemed in connection with our initial business combination;
“Forward Purchase Agreement” are to an agreement providing for the sale of our Forward Purchase Units to the Pershing Square Funds (in their capacity as the Forward Purchasers) or, in the case of the Additional Forward Purchase Units, to the Affiliate Transferees, in one or more private placements in such amounts and at such time or times as the Forward Purchasers determine, but no later than simultaneously with the closing of our initial business combination;
“Forward Purchase Securities” are to the Forward Purchase Shares, Forward Purchase Warrants, and shares of Class A Common Stock underlying the Forward Purchase Warrants;
“Forward Purchase Shares” are to the shares of Class A Common Stock to be issued pursuant to the Forward Purchase Agreement and to certain directors purchasing Director Forward Purchase Units, which will generally have identical terms to those of the shares of Class A Common Stock issued in the initial public offering, except as described herein;
“Forward Purchase Warrants” are to the warrants to be issued pursuant to the Forward Purchase Agreement and to certain directors purchasing Director Forward Purchase Units, which will generally have identical terms to those of the Redeemable Warrants issued in the initial public offering, except as described herein;
“Forward Purchase Units” are to the Committed Forward Purchase Units and the Additional Forward Purchase Units issuable pursuant to the Forward Purchase Agreement, and the Director Forward Purchase Units issuable to the Director Forward Purchasers;
“Forward Purchasers” are to the Pershing Square Funds and, for the avoidance of doubt, such term does not include the Director Forward Purchasers;
“Initial Business Combination Redemption Time” are to the time at which we redeem the shares of Class A Common Stock that the holders thereof have elected to redeem in connection with our initial business combination, which will occur prior to the consummation our initial business combination;
“Pershing Square” or “PSCM” are to Pershing Square Capital Management, L.P., a registered investment adviser under the Investment Advisers Act of 1940.
2
“Pershing Square Funds” are to Pershing Square, L.P., a Delaware limited partnership, Pershing Square International, Ltd., a Cayman Islands exempted company, and Pershing Square Holdings, Ltd., a Guernsey company, which funds are managed by PSCM and are, collectively, the members of our Sponsor and the Forward Purchasers;
“Public Shares” are to the shares of Class A Common Stock included in the units issued in the initial public offering;
“Public Stockholders” are to the holders of the Public Shares, including our Sponsor and its affiliates and our management team, to the extent that such persons or entities acquire Public Shares (whether during or after the initial public offering), provided that such status as a “Public Stockholder” shall only exist with respect to such shares;
“Redeemable Warrants” are to our Distributable Redeemable Warrants included in the units issued in the initial public offering and to the Distributable Tontine Redeemable Warrants issuable to the remaining holders of our outstanding shares of our Class A Common Stock issued in the initial public offering (after we redeem any shares of Class A Common Stock that the holders thereof have elected to redeem in connection with our initial business combination), and, for the avoidance of doubt, the term “Redeemable Warrants” does not include the Forward Purchase Warrants;
“Registration Rights Agreement” are to an agreement requiring the company, following our initial business combination, to register for resale certain securities held by our Sponsor, directors, the Forward Purchasers and their permitted transferees;
“Sponsor” are to Pershing Square TH Sponsor, LLC, a Delaware limited liability company;
“Sponsor Warrants” are to the warrants purchased by our Sponsor in a private placement simultaneously with the initial public offering that will generally not be salable, transferable or exercisable until three years after the date of our initial business combination, and will only then be exercisable for that number of common shares constituting 5.95% of the common shares of the post-combination business on a fully diluted basis as of the time immediately following our initial business combination, at an exercise price equal to $24.00 per common share of the post-combination business. The Sponsor Warrants will have a term of 10 years from the consummation of our initial business combination;
“Tontine Distribution Time” are to the time at which the Distributable Tontine Redeemable Warrants will be distributed, which will occur immediately after our initial business combination Redemption Time and immediately prior to the closing of our initial business combination; and
“Warrants” are to our Redeemable Warrant, Forward Purchase Warrant, Sponsor Warrants and our Director Warrants, collectively.
3
PART I
Introduction
We are a blank check company incorporated in Delaware on May 4, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”).
We completed our initial public offering on July 24, 2020.
Our Sponsor is advised by Pershing Square Capital Management, L.P. (“Pershing Square” or “PSCM”), a registered investment adviser under the Investment Act of 1940, as amended, and the members of our Sponsor are the Pershing Square Funds.
Our management team is led by William A. Ackman, our Chairman and Chief Executive Officer, who works closely with the PSCM investment team and the other employees of, and resources available to, PSCM to fulfill our corporate mission. Mr. Ackman has spent 2930 years in the investment management industry, the last 1819 years as CEO of PSCM. PSCM’s investment strategy involves the purchase of large minority stakesinvestments in high-quality, large capitalization, growth companies during periods when they have underperformed their potential. By working with management teams and boards of directors, PSCM has assisted its portfolio companies in creating substantial long-term value.
The Pershing Square investment team is comprised of seveneight investment professionals, withseven of whom have tenures at Pershing Square of 45 to 1718 years, who prior to Pershing Square, served in analyst and associate roles at Apollo, Blackstone, KKR, Goldman Sachs, and Hellman & Friedman.Friedman and Warburg Pincus. PSCM has 3233 other accounting, legal, finance, technology, and administrative professionals who support our company on an
as-needed
basis.We believe that we have substantial competitive advantages when compared with other blank check companies and other sources of equity capital, such as private equity, growth equity and hedge funds, among others. We have these competitive advantages because of the amount of committed capital we have, our willingness to acquire a minority stake, our ability to give a private company access to the public equity markets and the lower cost of capital of our structure compared to other blank check companies.
We have the largest amount of committed capital of any blank check company.company currently pursuing a business combination. As a result of our initial public offering and the Committed Forward Purchase Units, we have a minimum of $5,000,000,000 in equity capital for use in our Initial Business Combination (assuming that the Additional Forward Purchase is not consummated and assuming no redemptionsnone of theour Class A Common Stock)Stock is redeemed in connection with an initial business combination), and as much as $7,000,000,000 (assuming the Additional Forward Purchase is consummated in full and assuming no redemptionsnone of the Class A Common Stock)Stock is redeemed), in each case, before expenses and not including the $6,000,000 of Forward Purchase Units certain of our directors have agreed to purchase.
We intend to merge with one company through a transaction in which our stockholders (just prior to the Initial Business Combination) will own a minority interest in the company that is createdsurvives as a result of the Initial Business Combination. We believe that a substantial majority of other investors in private companies are not prepared to (or are not able to) deploy $5,000,000,000 or more of cash in the acquisition ofacquiring a minority interest in a company. While comparably sized or larger investment funds generally seek to acquire controlling or 100% interests in one company, we are willing to execute a transaction in which our stockholders will own collectively a minority stake in a large-capitalization private company as part of its transition from a private company to a public company. As a result, we believe we will beare one of the largest sources of cash equity capital for a private, single-company, minority investment in the world.
As the largest blank check company currently pursuing a business combination, we can offer a larger-capitalization private company (with market capitalization of $10,000,000,000 or more) the opportunity to gain access to the public equity markets, without the company having to conduct its own initial public offering (“IPO”). Through a merger, we will be, in effect, facilitating the IPO of a large private company, enabling a private business to avoid the inherent costs and risks associated with the traditional IPO process.
We intend to pursue merger opportunities with private, large capitalization, high-quality, growth companies. We willhave continued to use PSCM’s substantial experience in identifying, analyzing, and determining business quality and the sustainable competitive advantages of a target company, as well as PSCM’s due diligence and negotiation expertise in executing a transaction.
Nearly eight months since our launch, based on our experience and progress to date, we continue to believe an investment in our Company will generate highly attractive long-term returns.
The past experiences and performances of the members of our management team is not a guarantee (i) that we will be able to identify a suitable candidate for our Initial Business Combination or (ii) that we will provide an attractive return to our stockholders from any business combination we may consummate. You should not rely on the historical record of PSCM, the Pershing Square Funds and our management’s performance as indicative of our future performance.
4
Recent Developments
Proposed and Subsequent Cancellation of an Initial Business Combination
Below is a description of the proposed Initial Business Combination, which was ultimately not consummated.
On June 20, 2021, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Vivendi SE to purchase a number of ordinary shares, par value €10 per share (the “UMG Shares”), representing approximately 10% of the share capital and voting rights, on a fully diluted basis, of Universal Music Group (“UMG”) for approximately $4 billion (the “Share Purchase”), with the expectation that the Company would distribute the UMG Shares to its Public Stockholders (the “Distribution” and together with the Share Purchase, the “Proposed IBC”). The Company expected that the Share Purchase would be consummated in the third quarter of 2021 and the Shares held in trust under the Distribution which would occur in November or December 2021.
In connection with the Proposed IBC, the Company and Vivendi also entered into an indemnification agreement pursuant to which the Company agreed to indemnify Vivendi and certain of its related parties for certain potential liabilities in connection with the Company’s redemption tender offer, the warrant exchange offer and the Distribution (each as further described below).
Also on June 20, 2021, the Company, the Sponsor, the Pershing Square Funds and the Company’s independent directors entered into the Pershing Entities Letter Agreement, pursuant to which:
The Company and the Pershing Square Funds agreed to amend and restate the Forward Purchase Agreement concurrently with the closing of the Proposed IBC, pursuant to which the Forward Purchasers would exercise their right to purchase an aggregate amount of $1.6 billion of Forward Purchase Units ($1.0 billion of Committed Forward Purchase Units and $600 million of Additional Forward Purchase Units). The price per share at which the Pershing Square Funds would have exercised such amended Forward Purchase Agreement would be equal to RemainCo’s (defined below) net asset value at the time of such purchase;
The Company and the Sponsor agreed to amend the Sponsor Warrants concurrently with the closing of the Proposed IBC, such that the Sponsor Warrants would not be exercised or otherwise participate in the Proposed IBC. Instead, they would remain in place, but the exercise price would be adjusted to equal 120% of RemainCo’s net asset value immediately prior to the time it completed its anticipated future business combination with an operating business; and
The Company and its independent directors agreed that the Director Warrants would not be exercised in connection with the Proposed IBC, and would be amended concurrently with the closing of the Proposed IBC. The result of such amendment would have been that, (i) the holders of the Director Warrants would receive shares in the Company in exchange for approximately 72% of the fair market value of the Director Warrants (as determined by a third-party valuation firm), to compensate for the fact that they would not participate in the Proposed IBC as originally envisioned, (ii) such shares would participate in the Distribution and (iii) the roughly 28% of the value of the Director Warrants would remain in place with their exercise price adjusted in the same manner as the exercise price of the Sponsor Warrants as explained above.
The Company further announced that it expected to undertake a 1:4 reverse stock split following the issuance of the Distributable Tontine Redeemable Warrants, all warrants in respect of the Forward Purchase Agreement and Director Forward Purchase Agreements and the Distribution to target a net asset value (“NAV”) of approximately $22 per share.
Pursuant to the Proposed IBC, following the Distribution, the Company would have continued to exist and it would not have disappeared into UMG nor would it have been liquidated. The Company that would have continued to exist is referred to herein as “RemainCo”. RemainCo would have been the same corporate entity and it would have continued to be named Pershing Square Tontine Holdings, Ltd. The Public Stockholders would have continued to own shares in RemainCo, and it was intended that RemainCo would pursue a traditional business combination with an operating business (RemainCo’s “Future Business Combination”).
On July 8, 2021, the Company launched (i) a redemption tender offer which was intended to provide Public Stockholders with the opportunity to exercise their right to redeem their shares of Class A Common Stock in connection with the Proposed IBC and (ii) a warrant exchange offer which provided holders of the Company’s currently outstanding Distributable Redeemable Warrants the opportunity to exchange those warrants for shares of Class A Common Stock at a ratio of 0.2650 shares per warrant.
On July 19, 2021, the Company announced that its board of directors had unanimously determined not to proceed with the Proposed IBC and the Company had agreed to assign its rights and obligations under the Share Purchase Agreement with Vivendi to Pershing Square Holdings, Ltd. and certain of its affiliates (the “Assignees”). The Assignees agreed to purchase or cause to be purchased
5
at least 5% of the share capital of UMG on the terms and subject to the conditions of the Share Purchase Agreement and Vivendi acknowledged that if the Assignees purchased at least 5% of the share capital of UMG, the Share Purchase Agreement would be of no further force with respect to remaining UMG shares to be purchased under the Share Purchase Agreement. In addition, the Assignees, severally in accordance with their obligations to purchase UMG shares, agreed to assume and reimburse the Company forexpenses incurred to that time by the Company in connection with transactions related to the Proposed IBC, which totaled $25.1 million. The Assignees also assumed, severally in accordance with their obligations to purchase UMG shares, the Company’s obligations under the indemnification agreement, between the Company and Vivendi.
out-of-pocket
On July 21, 2021, the Company terminated its redemption tender offer and warrant exchange offer, and no shares were redeemed from the Company. As a result of the termination of these offers and the cancellation of the Proposed IBC, the Pershing Entities Letter Agreement did not come into effect and there have been no changes to the instruments discussed as exhibits to such letter agreement. The FPA, Sponsor Warrants and Director Warrants remain as initially issued as of June 21, 2020 and July 21, 2020, respectively.
The Company continues to seek an initial business combination.
On August 10, 2021, the Assignees completed an initial closing under the Share Purchase Agreement, as a result of which the Company was released from its obligations under the Share Purchase Agreement and the indemnification agreement described above (which indemnity was allocated without the participation of the Company, among the Pershing Square Funds). Also on August 10, 2021, the Company entered into an assignment of the registration rights agreement to the Assignees, at which time the registration rights agreement was amended to provide, among other things, the Assignees certain rights to register UMG shares for a public offering no earlier than 2023 rather than providing for the Distribution that the Company originally envisioned.
Our Business Strategy
Our business strategy is to identify and complete a business combination that creates substantial long-term value for our stockholders. We are seeking target companies that demonstrate the characteristics set out under “Our Acquisition Criteria” below. We believe our investment team’s operational, financial and transaction experience across economic cycles and our broad network of relationships, along with our deep understanding of the equity and debt capital markets, allow us to effectively and efficiently identify and evaluate potential opportunities for our Initial Business Combination.
We are considering companies in a wide range of industries, but generally seek to acquire a simple, high-quality, high-return on capital business that generates predictable growing cash flows that can be estimated within a reasonable range over the long term. We prefer targets that have low sensitivity to macroeconomic factors, with minimal commodity exposure and/or cyclical risk. We are willing to accept a high degree of situational, legal, and/or capital structure complexity in a business combination if we believe that the potential for reward justifies this additional complexity, particularly if these issues can be resolved in connection with and as a result of a combination with us.
To achieve a successful Initial Business Combination, our investment team will leverage its experience to identify a company with a strong competitive position that can benefit from being a public company in the execution of its growth and value-creation strategy. We believe our scale and structure, coupled with our investment team’s background and experience, make us an attractive partner for high-quality management teams and owners.
Our Acquisition Criteria
Consistent with our core investment principles and business strategy, we are seeking to enter into an Initial Business Company with a company which has characteristics that we have outlined below. We use these criteria and guidelines in evaluating acquisition opportunities, but we may decide to complete our Initial Business Combination with a target business that does not meet all of these criteria. We are seeking to acquire a company that has the following characteristics:
Simple, predictable, and free-cash-flow-generative.
Formidable barriers to entry.
6
Limited exposure to extrinsic factors that we cannot control
Strong balance sheet
de-leveraging
effects of the Initial Business Combination;Minimal capital markets dependency
Large capitalization
Attractive valuation
Exceptional management and governance
These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular Initial Business Combination may be based, to the extent relevant, on these general guidelines, as well as other considerations, factors and criteria that our management and our investment team may deem relevant. In the event that we decide to enter into our Initial Business Combination with a target
business that does not substantially meet the above criteria and guidelines, we will disclose that the target business does not substantially meet the above criteria in our stockholder communications related to our Initial Business Combination, in the form of tender offer documents or proxy materials that we would file with the SEC.
Securities and Exchange Commission (“SEC”).
Our Acquisition Process
In evaluating a prospective target business, we expect to conduct a detailed due diligence review of the issues that we deem important in order to determine a company’s business quality and estimate its intrinsic value. That due diligence review will include, among other things, financial statement analysis, detailed document reviews, meetings with incumbent management and employees, consultations with relevant industry experts, competitors, customers and suppliers, as well as a review of additional financial, legal and other information that we will seek to obtain as part of our analysis of a target company.
We are not prohibited from pursuing an Initial Business Combination with a company that is affiliated with our Sponsor, officers or directors. In the event we seek to complete our Initial Business Combination with a company that is affiliated with our Sponsor, officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm which is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) or an independent accounting firm that our Initial Business Combination is fair to our company from a financial point of view.
Each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors is included by a target business as a condition to any agreement with respect to our Initial Business Combination.
Members of our management team are not obligated to devote any specific number of hours to our matters, but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our Initial Business Combination. In addition, we have an investment team comprised of seveneight members, who are employed by PSCM. We believe our investment team members are able to allocate their duties to us and to PSCM amongst themselves in a manner that allows them to provide us with the resources and support we require while fulfilling their responsibilities to PSCM. The amount of time that any such person devotes in any time period will vary based on whether a target business has been selected for our Initial Business Combination and the current stage of the business combination process.
Although PSCM is the investment adviser to the Pershing Square Funds, we do not believe that PSCM’s activities present significant conflicts of interest with respect to our pursuit of an acquisition target, because we intend that our acquisition target will be a privately owned company, and the Pershing Square Funds are not permitted by their constituent documents to make investments in the equities of companies whose securities are not publicly traded (except that they may make investments in public companies that issue private securities).
PSCM and its affiliates may form and manage other investment vehicles investing in public companies at any time prior to the announcement of our Initial Business Combination, including, but not limited to, investment vehicles that may investwith our company.
side-by-side
7
Our amended and restated certificate of incorporation 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. Neither the affiliates of our Sponsor nor members of our management team who are employed by our Sponsor or its affiliates have any obligation to present us with any opportunity for a potential business combination of which they become aware. However, absent a significant conflict of interest with respect to our pursuit of an acquisition target, we expect opportunities with respect to potential targets that are private companies would expect such opportunityas a matter of course typically be made available to be provided to us, as such potential target company would be a private company.
us.
Each of our directors and officers currently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities (including current or future investment vehicles of our Sponsor) pursuant to which such director or officer is or will be required to present business combination opportunities to such entity. Therefore, our directors and officers may be required to present potential business combinations to the related entities described above before they present such opportunities to us. Accordingly, in the future, if any of our directors or officers becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor these obligations to present such opportunity to such entity first, and only present it to us if such entities reject the opportunity and he or she determines to present the opportunity to us. Any presentation of such opportunities to entities other than us, or affiliates of our Sponsor, may present additional conflicts.
Although the current and future fiduciary duties or contractual obligations of our directors or officers could materially undermine our ability to complete our business combination, we believe this risk is partly mitigated for the following reasons. As stated above, our Sponsor and its affiliates currently do not make, or are not permitted to make, investments in private companies. Further, each of our directors and officers has agreed not to become a director or officer of any other special purpose acquisition company with a class of securities registered under the Exchange Act, until we have entered into a definitive agreement regarding our Initial Business Combination or we have failed to complete our Initial Business Combination within 24 months (or 30 months from the closing of the initial public offering if we have executed a letter of intent, agreement in principle or definitive agreement for our Initial Business Combination within 24 months from the closing of the initial public offering, but have not completed our Initial Business Combination within such24-monthperiod) of the closing of the initial public offering (the “Combination Period”). With respect to a potential business combination as to which a director may be “interested” or have a potential conflict of interest, we may take steps including, but not limited to, requiring the review of our audit committee pursuant to our related party policy, the recusal of such director with respect to such transaction, the appointment of a committee of independent and disinterested directors, or, as described above, the use of an independent accounting firm to ensure that a potential business combination is fair to our stockholders.
Initial Business Combination
So long as we maintain a listing for our securities on the NYSE, our Initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the trust account (excluding the amount of any deferred underwriting discount held in trust) at the time of our signing a definitive agreement in connection with our Initial Business Combination. If our securities are no longer listed on the NYSE, we will not be obligated to satisfy such 80% test. The fair market value of the target or targets will be determined by our board of directors based upon one or more standards generally accepted by the financial community, such as discounted cash flow valuation or the value of comparable businesses. If our board of directors is not able to independently determine the fair market value of the target business or businesses, we will obtain an opinion from an independent investment banking firm which is a member of FINRA or a valuation or appraisal firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board will not be able to make an independent determination of the fair market value of a target business or businesses, it may be unable to do so if the board is less familiar or experienced with the target company’s business, there is a significant amount of uncertainty as to the value of the company’s assets or prospects, including if such company is at an early stage of development, operations or growth, or if the anticipated transaction involves a complex financial analysis or other specialized skills and the board determines that outside expertise would be helpful or necessary in conducting such analysis. Since any opinion, if obtained, would merely state that the fair market value of the target business meets the 80% of assets threshold, unless such opinion includes material information regarding the valuation of a target business or the consideration to be provided, it is not anticipated that copies of such opinion would be distributed to our stockholders. However, if required under applicable law, any proxy statement that we deliver to stockholders and file with the SEC in connection with a proposed transaction will include such opinion.
We anticipate structuring our Initial Business Combination so that our stockholders (including our Sponsor, the Forward Purchasers, directors, officers and our Public Stockholders) will own a minority stake in the post-combination business, which post-combination business we anticipate will own or acquire 100% of the equity interests or assets of the target business or businesses. We may, however, structure our Initial Business Combination such that the post-combination business owns or acquires less than 100% of such interests or assets of the target business for the post-combination business to meet certain objectives of the target management team or stockholders or for other reasons, but we will only complete such business combination if the post-combination business owns or
8
acquires 50% or more of the outstanding voting securities of the target or otherwise acquires an interest in the target or assets sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-combination business, the portion of such business or businesses that is owned or acquired is what will be valued for purposes of the 80% of net assets test. If the business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the target businesses and we will treat the target businesses together as the Initial Business Combination for the purposes of a tender offer or for seeking stockholder approval, as applicable.
Effect of Sponsor Warrants and Director Warrants on Ownership
The unique structure of our Sponsor Warrants and Director Warrants, which provide our Sponsor and directors with a fixed percentage of the pro forma post-combination business immediately after the Initial Business Combination, will have different effects on the ownership interest of our Public Stockholders in the post-combination business as compared to the typical structure of blank check companies, in which the Sponsor maintains a fixed 20% interest in the
pre-combination
business. Specifically, the dilutive effect of the Sponsor Warrants and Director Warrants depends on the price of the post-combination business’s common shares at the time of exercise (the “Market Price”), and only exists to the extent the Market Price exceeds the exercise price.Though the number of shares issuable to the holders of the Sponsor Warrants and Director Warrants (for the purposes of this discussion, the “Private Holders”) is calculated as approximately 6.21% of the fully-diluted common shares outstanding immediately following the Initial Business Combination, the actual ownership stake of the Private Holders in the post-combination business upon
the exercise of all warrants will differ significantly. At or below the $24.00 exercise price of the Sponsor Warrants and Director Warrants, the Private Holders will not have any ownership stake. Accordingly, there will be no dilutive effect on the Public Stockholders and the holders of the Redeemable Warrants (for the purposes of this discussion, the “Public Holders”). At higher Market Prices, the ownership stake (and overall dilutive effect) of the Private Holders increases towards its limit of approximately 6.21%.
The following table presents the dilutive effect of the Sponsor Warrants and Director Warrants as (i) the change in the Public Holders’ ownership stake with and without taking into account the Sponsor Warrants and Directors Warrants, as a percentage of (ii) the Public Holders’ ownership stake if the Sponsor Warrants and Director Warrants did not exist. The dilutive effect is shown across a range of transaction sizes and Market Prices at the time of the Initial Business Combination. The scenarios below assume no redemptions of Class A Common Stock and that the Forward Purchasers purchase the $1,000,000,000 of Committed Forward Purchase Units (50,000,000 Forward Purchase Units).
If the post-combination business’ equity is valued at $10 billion and the Market Price is $20.00, the $4 billion of value represented by the shares of Class A Common Stock gives the Public Owners an ownership stake of 40.0% in the post-combination business, whether or not the Sponsor Warrants exist (as none of the warrants are exercisable at this Market Price). At a Market Price of $36.00, the Public Owners have an ownership stake of 42.3% (reflecting exercise of their Redeemable Warrants), without taking into account the Sponsor Warrants and Director Warrants. By including the Sponsor Warrants and Director Warrants, their ownership stake decreases to 41.3%. The dilutive effect, calculated as the 1.0% decline in ownership stake, divided by 42.3%, is 2.4%.
If the post-combination business’ equity is valued at $25 billion and the Market Price is $20.00, the $4 billion of value represented by the shares of Class A Common Stock gives the Public Owners an ownership stake of 16.0% in the post-combination business, whether or not the Sponsor Warrants exist (as none of the warrants are exercisable at this Market Price). At a Market Price of $36.00, the Public Owners have an ownership stake of 17.5% (reflecting exercise of their Redeemable Warrants), absent the Private Holders. Including the Private Holders, their ownership stake decreases to 17.1%. The dilutive effect, calculated as the 0.4% decline in ownership stake, divided by 17.5%, is 2.2%.
As shown below, the size of the ownership stake of all of our
pre-combination
stockholders and warrant holders decreases proportionately with a larger deal size. However, the dilutive effect does not vary significantly with deal size.Dilution from Sponsor and Director Warrants to Public Holders | |||||||||||||||||||||||||||||||
| Share Price of our Class A Common Stock | Post-Combination Business Equity Value at IBC (in millions) | ||||||||||||||||||||||||||||||
| $10,000 | $15,000 | $20,000 | $25,000 | $30,000 | |||||||||||||||||||||||||||
| % Public Holders Equity Ownership Stake at IBC | |||||||||||||||||||||||||||||||
| 40.0% | 26.7% | 20.0% | 16.0% | 13.3% | |||||||||||||||||||||||||||
$20.00 | — | — | — | — | — | ||||||||||||||||||||||||||
$24.00 | — | — | — | — | — | ||||||||||||||||||||||||||
$28.00 | 1.1% | 1.0% | 1.0% | 1.0% | 1.0% | ||||||||||||||||||||||||||
$32.00 | 1.8% | 1.8% | 1.7% | 1.7% | 1.7% | ||||||||||||||||||||||||||
$36.00 | 2.4% | 2.3% | 2.3% | 2.2% | 2.2% | ||||||||||||||||||||||||||
9
Dilution from Sponsor and Director Warrants to Public Holders | ||||||||||
Share Price of our Class A Common Stock | Post-Combination Business Equity Value at IBC (in millions) | |||||||||
$10,000 | $15,000 | $20,000 | $25,000 | $30,000 | ||||||
% Public Holders Equity Ownership Stake at IBC | ||||||||||
40.0% | 26.7% | 20.0% | 16.0% | 13.3% | ||||||
$20.00 | — | — | — | — | — | |||||
$24.00 | — | — | — | — | — | |||||
$28.00 | 1.1% | 1.0% | 1.0% | 1.0% | 1.0% | |||||
$32.00 | 1.8% | 1.8% | 1.7% | 1.7% | 1.7% | |||||
$36.00 | 2.4% | 2.3% | 2.3% | 2.2% | 2.2% | |||||
All warrants are assumed to be exercised by surrendering such warrants for that number of common shares of the post-combination business equal to the quotient obtained by dividing (x) the product of the number of common shares underlying such warrants, multiplied by the excess of the Market Price over the exercise price of warrants, by (y) the Market Price.
Status as a Public Company
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to 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 of 2002, or 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 non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following July 24, 2025, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A Common Stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.
Financial Position
With proceeds from the initial public offering and the Committed Forward Purchase Units, we will have a minimum of approximately $5,000,000,000 in equity capital (subject to redemptions in the case of the Class A Common Stock offered hereby) for use in our Initial Business Combination (assuming that the additional forward purchase is not consummated and assuming no redemptions of the Class A Common Stock), and as much as $7,000,000,000 (assuming the additional forward purchase is consummated in full and assuming no redemptions of the Class A Common Stock), in each case before the payment of fees and expenses associated with our Initial Business Combination. We believe that we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations and strengthening its balance sheet by reducing its debt. Because we are able to complete our business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to tailor the consideration to be paid to the target business to fit owner’s and management’s needs and requirements. We have not, however, taken any steps to secure third-party financing, and there can be no assurance it will be available to us.
Effecting our Initial Business Combination
We are not presently engaged in, and we will not engage in, any operations other than pursuing and reviewing potential opportunities for the Initial Business Combination. We intend to effectuate our Initial Business Combination using cash we hold in trust from the proceeds of the initial public offering and any remaining proceeds from the private placement of the Sponsor Warrants, Director Warrants and the Forward Purchase Units, by issuing shares of our capital stock, incurring debt or a combination of these as the consideration to be paid in our Initial Business Combination. We may seek to complete our Initial Business Combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses.
If our Initial Business Combination is paid for using equity or debt instruments, or not all of the funds released from the trust account are used for payment of the consideration in connection with our business combination or used for redemptions of our shares of Class A Common Stock, we may apply the balance of the cash released to us from the trust account for general corporate purposes, including for maintenance or expansion of operations of the post-combination business, the payment of principal or interest due on indebtedness incurred in completing our Initial Business Combination, to fund the purchase of other companies or make other investments, or for working capital.
In addition to the Forward Purchase Units, we may seek to raise additional funds through a private offering of debt or equity securities in connection with the completion of our Initial Business Combination, and we may effectuate our Initial Business Combination using the proceeds of such offering rather than using the amounts held in the trust account. Subject to compliance with applicable securities laws, we would expect to complete such financing only simultaneously with the completion of our business combination. In the case of our Initial Business Combination funded with assets other than the trust account assets, our tender offer documents or proxy materials disclosing the business combination would disclose the terms of the financing and, only if required by law, we would seek stockholder approval of such financing. There are no prohibitions on our ability to raise funds privately, or through loans in connection with our Initial Business Combination. At this time, other than the Forward Purchase Agreement, we are not a party to any arrangement or understanding with any third party with respect to raising any additional funds through the sale of securities or otherwise.
Selection of a Target Business and Structuring of our Initial Business Combination
We do not intend to purchase multiple businesses in unrelated industries in conjunction with our Initial Business Combination. Our management will have virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses, subject to the 80% NYSE asset test. However, we will not be permitted to effectuate our Initial Business Combination with another blank check company or a similar company with nominal operations.
10
In any case, we will only complete an Initial Business Combination in which we or the resulting company own or acquire 50% or more of the outstanding voting securities of the target or otherwise acquire an interest in the target sufficient for the post-combination business not to be required to register as an investment company under the Investment Company Act. If we own or acquire less than 100% of the equity interests or assets of a target business or businesses, the portion of such business or businesses that are owned or acquired by the post-combination business is what will be valued for purposes of the 80% of net assets test. There is no basis for our investors to evaluate the possible merits or risks of any target business with which we may ultimately complete our business combination.
To the extent we effect our business combination with a company or business that may be financially unstable or in its early stages of development or growth, we may be affected by numerous risks inherent in such company or business. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
The time required to select and evaluate a target business and to structure and complete our Initial Business Combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. See “Risk Factors – Any current work on a potential Initial Business Combination does not guarantee an immediate or timely deal announcement.” Any costs incurred with respect to the identification and evaluation of a prospective target business with which our business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete a business combination.
Lack of Business Diversification
For an indefinite period of time after the completion of our Initial Business Combination, the prospects for our success may depend entirely on the future performance of a single business. By completing our Initial Business Combination with only a single entity, our lack of diversification may:
subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our Initial Business Combination, and
cause us to depend on the marketing and sale of a single product or limited number of products or services.
Limited Ability to Evaluate the Target’s Management Team
Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our Initial Business Combination with that business, our assessment of the target business’ management may not prove to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company.company effectively. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty.is uncertain. While it is possible that one or more of our directors will remain associated in some capacity with us followingthe company resulting from our initial business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our Initial Business Combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business.
We cannot assure you that any of our key personnel will remain in senior management or advisory positions with the combined company. The determination as to whether any of our key personnel will remain with the combined company will be made at the time of our Initial Business Combination.
Following our Initial Business Combination, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you that we will have the ability to recruit additional managers, or that additional managers will have the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Stockholders May Not Have the Ability to Approve Our Initial Business Combination
We may conduct redemptions without a stockholder vote pursuant to the tender offer rules of the SEC. However, we will seek stockholder approval if it is required by law or applicable stock exchange rule, orand we may also decide to seek stockholder approval of our initial business combination for a number of business or other legal reasons. Presented in the table below is a graphic explanation of the types of Initial Business Combinations we may consider and whether stockholder approval is currently required under Delaware law for each such transaction.
Type of Transaction | Whether Stockholder Approval is Required | |
Purchase of assets | No | |
Purchase of stock of target not involving a merger with the company | No | |
Merger of target into a subsidiary of the company | No | |
Merger of the company with a target | Yes |
11
Under the NYSE’s listing rules, stockholder approval would be required for our Initial Business Combination if, for example:
we issue common stock that will be equal to or in excess of 20% of the number of shares of our Class A Common Stock then outstanding (other than in a public offering);
any of our directors, officers or substantial security holders (as defined by NYSE rules) has a 5% or greater interest, directly or indirectly, in the target business or assets to be acquired and the number of shares or common stock to be issued, or if the number of shares into which the securities may be convertible or exercisable, exceeds either (a) 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance in the case of any of our directors and officers or (b) 5% of the number of shares of common stock or 5% of the voting power outstanding before the issuance in the case of any substantial security holders; or
the issuance or potential issuance of common stock will result in our undergoing a change of control (as defined by NYSE rules).
Permitted Purchases of Our Securities
In the event we seek stockholder approval of our business combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our Sponsor, directors, officers, advisors or their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of our Initial Business Combination. However, they have no current commitments, plans or intentions to engage in such transactions, and have not formulated any terms or conditions for any such transactions. In addition, the Forward Purchasers may exercise their right under the Forward Purchase Agreement to acquire the Forward Purchase Securities prior to or simultaneously with our Initial Business Combination. None of the funds in the trust account will be used to purchase our securities in such transactions. Our Sponsor, directors, officers, advisors or their affiliates will not make any such purchases in privately negotiated transaction or in the open market when they are in possession of any material
non-public
information unless and until such information is disclosed to the seller in a private transaction or to the market in the case of an open market purchase, or if such purchases are prohibited by Regulation M under the Exchange Act. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights.In the event that our Sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from Public Stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will comply with such rules.
The purpose of such purchases would be to (i) vote such shares in favor of the business combination and thereby increase the likelihood of obtaining stockholder approval of the business combination or (ii) to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our business combination, where it appears that such requirement would otherwise not be met. This may result in the completion of our business combination that may not otherwise have been possible.
In addition, if such purchases are made, the public “float” of our Class A Common Stock or Redeemable Warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.
Our Sponsor, officers, directors and/or their affiliates anticipate that they may identify the stockholders with whom our Sponsor, officers, directors and/or their affiliates may pursue privately negotiated purchases by either the stockholders contacting us directly or by our receipt of redemption requests submitted by stockholders following our mailing of proxy materials in connection with our Initial Business Combination. To the extent that our Sponsor, officers, directors, advisors and/or their affiliates enter into a private purchase, they would identify and contact only potential selling stockholders who have expressed their election to redeem their shares for a
pro-rata
share of the trust account or vote against the business combination. Our Sponsor, officers, directors, advisors and/or their affiliates will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the other federal securities laws.Any purchases by our Sponsor, officers, directors and/or their affiliates who are affiliated purchasers under Rule
10b-18
under the Exchange Act will only be made to the extent such purchases are able to be made in compliance with Rule10b-18,
which is a safe harbor from liability for manipulation under Section 9(a)(2) and Rule10b-5
of the Exchange Act. Rule10b-18
has certain technical requirements that must be complied with in order for the safe harbor to be available to the purchaser. Our Sponsor, officers, directors and/or their affiliates will not make purchases of common stock if the purchases would violate Section 9(a)(2) or Rule10b-5
of the Exchange Act.12
Redemption Rights for Public Stockholders upon Completion of our Initial Business Combination
We will provide our Public Stockholders with the opportunity to have all or a portion of their share of Class A Common Stock redeemed upon the completion of our Initial Business Combination at a
per-share
price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of five business days prior to the consummation of our Initial Business Combination, including any interest earned on the funds held in the trust account and not previously released to us to pay our taxes, divided by the number of then-outstanding Public Shares, subject to the limitations described herein. The amount in the trust account as of the closing of the initial public offering was $20.00 per Public Share. Theper-share
amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our Sponsor, directors, officers and Forward Purchasers have entered into a letter agreement (the “Letter Agreement”) with us, pursuant to which they have agreed to waive their redemption rights with respect to any Public Shares held by them in connection with the completion of our business combination.Distribution of Distributable Tontine Redeemable Warrants to Holders of Class A Common Stock Not Electing Redemption
Our amended and restated certificate of incorporation provides that an aggregate of 44,444,444 Distributable Tontine Redeemable Warrants will be distributed, at the Tontine Distribution Time, on a
pro-rata
basis only to holders of record of the Public Shares that are outstanding after we redeem any Public Shares that the holders thereof have elected to redeem in connection with our Initial Business Combination (the “Initial Business Combination Redemption Time”). The Tontine Distribution Time will be immediately after the Initial Business Combination Redemption Time and immediately prior to the closing of our Initial Business Combination.Each such remaining Public Share will receive as a dividend that number of Distributable Tontine Redeemable Warrants calculated as the aggregate number of Distributable Tontine Redeemable Warrants (44,444,444 such warrants) divided by the aggregate number of then-outstanding Public Shares (after we have redeemed Public Shares pursuant to the elections of the holders thereof). Accordingly, Public Stockholders who elect to redeem their Public Shares will not receive any Distributable Tontine Redeemable Warrants in respect of such redeemed Public Shares. The contingent right to receive the Distributable Tontine Redeemable Warrants will remain attached to our Public Share, will not be separately transferable, assignable or salable, and will not be evidenced by any form of certificate or instrument.
Our Distributable Tontine Redeemable Warrants are otherwise identical to our Distributable Redeemable Warrants, including with respect to exercise price, exercisability and exercise period. No fractional Distributable Tontine Redeemable Warrants will be issued, no cash will be paid in lieu of fractional Distributable Tontine Redeemable Warrants and only whole Distributable Tontine Redeemable Warrants will trade. The Distributable Tontine Redeemable Warrants will be fungible with our Distributable Redeemable Warrants and we expect that they will become tradable on the first trading day following their distribution, under the same stock symbol as the Distributable Redeemable Warrants.
No Distributable Tontine Redeemable Warrants will be distributed in respect of the Forward Purchase Shares.
Manner of Conducting Redemptions
We will provide our Public Stockholders with the opportunity to have all or a portion of their Public Shares redeemed upon the completion of our Initial Business Combination either (i) in connection with a stockholder meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether we will seek stockholder approval of a proposed business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require us to seek stockholder approval under the law or stock exchange listing requirement. Under NYSE rules, asset acquisitions and stock purchases would not typically require stockholder approval, while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our outstanding common stock or seek to amend our amended and restated certificate of incorporation would require stockholder approval. If we structure a business combination transaction with a target company in a manner that requires stockholder approval, we will not have discretion as to whether to seek a stockholder vote to approve the proposed business combination. We intend to conduct redemptions without a stockholder vote pursuant to the tender offer rules of the SEC unless stockholder approval is required by law or stock exchange listing requirements or we choose to seek stockholder approval for business or other legal reasons. So long as we maintain a listing for our securities on the NYSE, we will be required to comply with such rules.
If a stockholder vote is not required and we decide not to hold a stockholder vote for business or other legal reasons, we will, pursuant to our amended and restated certificate of incorporation:
conduct the redemptions pursuant to Rule
13e-4
and Regulation 14E of the Exchange Act, which regulate issuer tender offers, andfile tender offer documents with the SEC prior to completing our Initial Business Combination which contain substantially the same financial and other information about our Initial Business Combination and the redemption rights as is required under Regulation 14A of the Exchange Act, which regulates the solicitation of proxies.
13
In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule
14e-1(a)
under the Exchange Act, and we will not be permitted to complete our Initial Business Combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on Public Stockholders nottendering more than a specified number of our Public Shares which are not purchased by our Sponsor, which number will be based on the requirement that we may not redeem such shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon consummation of our Initial Business Combination (so that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our Initial Business Combination. If Public Stockholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete our Initial Business Combination.
If, however, stockholder approval of the transaction is required by law or stock exchange listing requirement, or we decide to obtain stockholder approval for business or other legal reasons, we will, pursuant to our amended and restated certificate of incorporation:
conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules, and
file proxy materials with the SEC.
In the event that we seek stockholder approval of our Initial Business Combination, we will distribute proxy materials and, in connection therewith, provide our Public Stockholders with the redemption rights described above upon completion of our Initial Business Combination.
If we seek stockholder approval, we will complete our Initial Business Combination only if a majority of voting power of shares of common stock voted are voted in favor of the business combination. A quorum for such meeting will consist of the holders present in person or by proxy of shares of outstanding capital stock of the company representing a majority of the voting power of all outstanding shares of capital stock of the company entitled to vote at such meeting. Our Sponsor, directors and officers have agreed to vote their shares of common stock in favor of our Initial Business Combination. For purposes of seeking approval of the majority of the voting power of the outstanding shares of common stock voted,
non-votes
will have no effect on the approval of our Initial Business Combination once a quorum is obtained. In addition to the Class B Common Stock held by our Sponsor, we would need 75,000,001, or 37.5%, of the Public Shares to be voted in favor of a transaction in order to have our Initial Business Combination approved, assuming (i) no Forward Purchase Shares have been issued, (ii) the parties to the Letter Agreement have not acquired any Public Shares and (iii) all outstanding shares are voted. We intend to give approximately 30 days (but not less than 10 days nor more than 60 days) prior written notice of any such meeting, if required, at which a vote shall be taken to approve our Initial Business Combination. These quorum and voting thresholds, our ability to consummate the sale of the Forward Purchase Units prior to a stockholder vote, and the ability of the Forward Purchase Shares to participate in such vote, and the voting provisions of the Letter Agreement, may make it more likely that we will consummate our Initial Business Combination. Each Public Stockholder may elect to redeem its Public Shares irrespective of whether they vote for or against the proposed transaction.Our amended and restated certificate of incorporation provides that in no event will we redeem the Public Shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon consummation of our Initial Business Combination (so that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our Initial Business Combination. For example, the proposed business combination may require: (i) cash consideration to be paid to the target or its owners; (ii) cash to be transferred to the target for working capital or other general corporate purposes; or (iii) the retention of cash to satisfy other conditions in accordance with the terms of the proposed business combination. In the event the aggregate cash consideration we would be required to pay for all Public Shares that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed business combination exceed the aggregate amount of cash available to us, we will not complete the business combination or redeem any shares, and all Public Shares submitted for redemption will be returned to the holders thereof.
Limitation on Redemption upon Completion of Our Initial Business Combination if We Seek Stockholder Approval
Notwithstanding the foregoing, if we seek stockholder approval of our Initial Business Combination and we do not conduct redemptions in connection with our business combination pursuant to the tender offer rules, our amended and restated certificate of incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the Public Shares, which we refer to as the “Excess Shares,” unless our board of directors determines, in its sole discretion, to waive or amend such limit with respect to a particular stockholder or “group.” We believe this restriction will discourage stockholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed business combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a Public Stockholder holding more than an aggregate of 15% of the Public Shares could threaten to exercise its redemption
14
rights if such holder’s shares are not purchased by us or our management at a premium to the then-current market price or on other undesirable terms. By limiting our stockholders’ ability to redeem no more than 15% of the Public Shares (except as otherwise permitted by our board of directors), we believe we will limit the ability of a small group of stockholders to unreasonably attempt to block our
ability to complete our Initial Business Combination, particularly in connection with a business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. However, our amended and restated certificate of incorporation does not restrict our stockholders’ ability to vote all of their shares (including Excess Shares) for or against our business combination.
Tendering Stock Certificates in Connection with a Tender Offer or Redemption Rights
We may require our Public Stockholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to our transfer agent prior to the date set forth in the tender offer documents or proxy materials mailed to such holders, or up to two business days prior to the vote on the proposal to approve the business combination in the event we distribute proxy materials, or to deliver their shares to the transfer agent electronically using The Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at the holder’s option. The tender offer or proxy materials, as applicable, that we will furnish to our Public Stockholders in connection with our Initial Business Combination will indicate whether we are requiring Public Stockholders to satisfy such delivery requirements. Accordingly, a Public Stockholder would have from the time we send out our tender offer materials until the close of the tender offer period, or up to two days prior to the vote on the business combination if we distribute proxy materials, as applicable, to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short exercise period, it is advisable for Public Stockholders to use electronic delivery of their Public Shares.
There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $80.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated.
After our Initial Business Combination is approved, we would contact such stockholder to arrange for him or her to deliver his or her certificate to verify ownership. As a result,In this scenario, the stockholder would then hashave an “option window” after the completion of the business combination during which he or she could monitor the price of our stock in the market. If the price rose above the redemption price, he or she could sell his or her shares in the open market before actually delivering his or her shares to us for cancellation. As a result, the redemption rights, which to whichbe exercised require stockholders were aware they needed to commit before the stockholder meeting, would become “option” rights surviving past the completion of the business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a redeeming holder’s election to redeem is irrevocable once the business combination is approved.
Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the tender offer materials or the date of the stockholder meeting set forth in our proxy materials, as applicable. Furthermore, if a holder of a Public Share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of the Public Shares who elect to redeem their shares will be distributed promptly after the completion of our Initial Business Combination.
If our Initial Business Combination is not approved or completed for any reason, then our Public Stockholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable
pro-rata
share of the trust account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares.If our initial proposed business combination is not completed, we may continue to try to complete a business combination with a different target until the end of the Combination Period.
Redemption of Class A Common Stock and Liquidation if No Initial Business Combination
Our amended and restated certificate of incorporation provides that we have only 24 months (or 30 months from the closing of the initial public offering (or 30 months if we have executed a letter of intent, agreement in principle or definitive agreement for our Initial Business Combination within 24 months from the closing of the initial public offering but have not completed our Initial Business Combination within such
24-month
period) from the closing of the initial public offering to complete our Initial Business Combination. If we are unable to complete our initial business combination within the Combination Period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem all the Public Shares, at aper-share
price, payable in cash, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us to pay our taxes (less $100,000 of accrued interest to pay dissolution expenses), divided by the number of then-outstanding Public Shares, which redemption will completely extinguish Public15
Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements
of other applicable law. There will be no redemption rights or liquidating distributions with respect to our Redeemable Warrants, and our Distributable Redeemable Warrants will expire worthless and no Distributable Tontine Redeemable Warrants will have been issued if we fail to complete our business combination within the Combination Period.
If we fail to complete our Initial Business Combination within the Combination Period, our Class B Common Stock will not be able to convert into Class A Common Stock, and therefore will have no rights to liquidating distributions from the trust account in respect of their Class B shares, although they will be entitled to liquidating distributions from the trust account with respect to any Public Shares that they hold (however acquired).
Our Sponsor, directors and officers have agreed, pursuant to the Letter Agreement with us, that they will not propose any amendment to our amended and restated certificate of incorporation (i) to modify the substance or timing of our obligation to allow redemptions in connection with our Initial Business Combination, (ii) to modify the substance or timing of our obligation to redeem 100% of the Public Shares if we do not complete our Initial Business Combination within the Combination Period, or (iii) with respect to any other provision relating to stockholders’ rights or
pre-Initial
Business Combination activity, unless we provide our Public Stockholders with the opportunity to have their Public Shares redeemed upon approval of any such amendment at aper-share
price, payable in cash, equal to the aggregate amount then on deposit in the trust account including any interest earned on the funds held in the trust account and not previously released to us to pay our taxes, divided by the number of then-outstanding Public Shares. However, we may not redeem Public Shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon consummation of our Initial Business Combination (so that we are not subject to the SEC’s “penny stock” rules). If this optional redemption right is exercised with respect to an excessive number of such shares, such that we cannot satisfy the net tangible asset requirement (described above), we would not proceed with the amendment or the related redemption of such shares at such time.We expect that all costs and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts remaining held outside the trust account, although we cannot assure you that there will be sufficient funds for such purpose. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution, to the extent that there is any accrued interest in the trust account not required to pay our taxes as described herein, we may request the trustee to release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses.
Without taking into account interest earned on the trust account, the
per-share
redemption amount received by stockholders upon our dissolution would be approximately $20.00. The proceeds deposited in the trust account could, however, become subject to the claims of our creditors which would have higher priority than the claims of our Public Stockholders. We cannot assure you that the actualper-share
redemption amount received by stockholders will not be substantially less than $20.00. Under Section 281(b) of the Delaware General Corporation Law (“DGCL”), our plan of dissolution must provide for all claims against us to be paid in full or make provision for payments to be made in full, as applicable, if there are sufficient assets. These claims must be paid or provided for before we make any distribution of our remaining assets to our stockholders. While we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims.Although we seek to have all vendors, service providers (other than our independent auditors), prospective target businesses or other entities with which we do business, execute agreements with us waiving any right, title, interest and claim of any kind in or to any monies held in the trust account for the benefit of our Public Stockholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust account, including but not limited, to fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain an advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.
In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party (other than our independent auditors) for services rendered or products sold to us, or a prospective target business with which we have discussed entering into a transaction agreement, reduce the amount of funds in the trust account to below (i) $20.00 per Public Share or (ii) such lesser amount per share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of the initial public
16
offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, then our Sponsor will not be responsible to the extent of any liability for such third-party claims. We have not independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and believe that our
Sponsor’s only assets are securities of our company. We have not asked our Sponsor to reserve for such indemnification obligations. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the trust account, the funds available for our Initial Business Combination and redemptions could be reduced to less than $20.00 per Public Share. In such event, we may not be able to complete our Initial Business Combination, and you would receive such lesser amount per share in connection with any redemption of your Public Shares. None of our officers will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
In the event that the proceeds in the trust account are reduced below (i) $20.00 per Public Share or (ii) such lesser amount per share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, and our Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so if, for example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. We have not asked our Sponsor to reserve for such indemnification obligations and we cannot assure you that our Sponsor would be able to satisfy these obligations. Accordingly, we cannot assure you that due to claims of creditors the actual value of the
per-share
redemption price will not be less than $20.00 per Public Share.We seek to reduce the possibility that our Sponsor will have to indemnify the trust account due to claims of creditors by endeavoring to have all vendors, service providers (other than our independent auditors), prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. Our Sponsor will also not be liable as to any claims under our indemnity of the underwriters of the initial public offering against certain liabilities, including liabilities under the Securities Act. As of December 31, 2020,2021, we have access to up to approximately $24$21 million from funds held outside the trust account to pay any such potential claims. In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, stockholders who received funds from our trust account could be liable for claims made by creditors.
Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions improperly received by them in a dissolution. The
pro-rata
portion of our trust account distributed to our Public Stockholders upon the redemption of our Public Shares in the event we do not complete our business combination within the Combination Period may be considered a liquidating distribution under Delaware law. If the corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a60-day
notice period during which any third-party claims can be brought against the corporation, a90-day
period during which the corporation may reject any claims brought, and an additional150-day
waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’spro-rata
share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred with respect to claims commenced after the third anniversary of the dissolution.Furthermore, if the
pro-rata
portion of our trust account distributed to our Public Stockholders upon the redemption of their Public Shares in the event we do not complete our business combination within the Combination Period, is not considered a liquidating distribution under Delaware law and such redemption distribution is deemed to be unlawful (potentially due to the imposition of legal proceedings that a party may bring due to other circumstances that are currently unknown), then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidating distribution. Unlike in the case of claims against stockholders relating to an unlawful liquidating distribution, however, stockholders are only liable for an unlawful redemption distribution if they knew that the redemption distribution was unlawful. If we are unable to complete our business combination within the Combination Period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the Public Shares, at aper-share
price, payable in cash, equal to the aggregate amount then on deposit in the trust account including any interest earned on the funds held in the trust account and not previously released to us to pay our taxes (less $100,000 of interest to pay dissolution expenses), divided by the number of then-outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Accordingly, it is our intention to redeem our Public Shares as soon as reasonably possible following our 24th (or 30th
) month and, therefore, we do not intend to comply with those procedures. As such, our stockholders could17
potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of such date.
Because we will not be complying with Section 280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time, that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the subsequent 10 years. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses. As described above, pursuant to the obligation contained in our underwriting agreement, we seek to have all vendors, service providers (other than our independent auditors), prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account. As a result of this obligation, the claims that could be made against us are significantly limited and the likelihood that any claim that would result in any liability extending to the trust account is remote. Further, our Sponsor may be liable only to the extent necessary to ensure that the amounts in the trust account are not reduced below (i) $20.00 per Public Share or (ii) such lesser amount per share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case net of the amount of interest withdrawn to pay taxes and will not be liable as to any claims under our indemnity of the underwriters of the initial public offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, our Sponsor will not be responsible to the extent of any liability for such third-party claims.
If we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust 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 our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return $20.00 per share to our Public Stockholders. Additionally, if we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover some or all amounts received by our stockholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, thereby exposing itself and our company to claims of punitive damages, by paying Public Stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our Public Stockholders will be entitled to receive funds from the trust account only upon the earliest to occur of: (i) the completion of our Initial Business Combination; (ii) the redemption of any Public Shares that are properly tendered in connection with a stockholder vote to amend any provisions of our amended and restated certificate of incorporation (A) to modify the substance or timing of our obligation to allow redemptions in connection with our Initial Business Combination, (B) to modify the substance or timing of our obligation to redeem 100% of the Public Shares if we do not complete our Initial Business Combination within the Combination Period or (C) with respect to any other provision relating to stockholders’ rights or
pre-Initial
Business Combination activity; and (iii) the redemption of all of our Public Shares if we are unable to complete our business combination within the Combination Period, subject to applicable law. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account. In the event we seek stockholder approval in connection with our Initial Business Combination, a stockholder’s voting in connection with our Initial Business Combination alone will not result in a stockholder’s redeeming its shares to us for an applicablepro-rata
share of the trust account. Such stockholder must have also exercised its redemption rights as described above. These provisions of our amended and restated certificate of incorporation, like all provisions of our amended and restated certificate of incorporation, may be amended with a stockholder vote.Competition
In identifying, evaluating and selecting a target business for our business combination, we may encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity fund sponsors and leveraged buyout funds, and operating businesses seeking strategic acquisitions. Furthermore, our obligation to pay cash in connection with our Public Stockholders who exercise their redemption rights may reduce the resources available to us for our Initial Business Combination and our then-outstanding warrants, and the future dilution they potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating our Initial Business Combination.
Pershing Square TontineSPARC Holdings, II, Ltd.
We intend
On November 24, 2021, Pershing Square filed an initialsecond SPAC (“PSTH2”Special Purpose Acquisition Rights Company (a “SPARC”) after we complete, specifically (Pershing Square SPARC Holdings, Ltd. or “SPARC Holdings”). We understand that as of a business combination transaction. If we do so, we believe it is appropriate forspecified date to be determined, subject to various approvals that are required to be obtained, SPARC Holdings intends
S-1
to launch a 18
to provide our shareholders, including the Pershing Square Funds, to be ablethe opportunity to invest in PSTH2 without paying a premiumSPARC. SPARC remains subject to its cash-in-trust value. There is no guaranteeSEC and stock exchange review and will take place if and only once the registration statement has been declared effective by the SEC under the Securities Act of 1933. No assurance can be given that weSPARC will complete an Initial Business Combination, and even if we are successful in doing so, that we will launch PSTH2.1 We have always believed in giving our existing investors the right to participate in new Pershing Square opportunities, and we intend to continue this tradition.
be ultimately effectuated.
|
Facilities
Our offices are at 787 Eleventh Avenue, 9th Floor, New York, NY 10019 and our telephone number is (212) 813-3700. We consider our current office space adequate for our current operations. We do not expect to lease alternative office space from an unaffiliated third party.
Employees
We currently have four executive officers. Members of our management team are not obligated to devote any specific number of hours to our matters, but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our Initial Business Combination. In addition, we have an investment team comprised of seveneight members, who are employed by PSCM. We believe our investment team is able to allocate their duties to us and to PSCM amongst themselves in a manner that allows them to provide us with the resources and support we require while fulfilling their responsibilities to PSCM. The amount of time that any such person devotes in any time period will vary based on whether a target business has been selected for our Initial Business Combination and the current stage of the business combination process.
Legal Proceedings
PERIODIC REPORTING AND FINANCIAL INFORMATION
Our Class A Common Stock and Warrants are registered under the Exchange Act and we have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the requirements of the Exchange Act, our annual reports contain financial statements audited and reported on by our independent registered public accounting firm.
We will provide stockholders with audited financial statements of the prospective target business as part of the tender offer materials or proxy solicitation materials sent to stockholders to assist them in assessing the target business. In all likelihood, these financial statements will need to be prepared in accordance with GAAP or IFRS, depending on the circumstances and the historical financial statements may be required to be audited in accordance with the PCAOB. We cannot assure you that any particular target business identified by us as a potential acquisition candidate will have financial statements prepared in accordance with such requirements or that the potential target business will be able to prepare its financial statements in accordance with such requirements. To the extent that this requirement cannot be met, we may not be able to acquire the proposed target business. While this may limit the pool of potential acquisition candidates, we do not believe that this limitation will be material.
As of December 31, 2021, we are no longer an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we will no longer be eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are “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 of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our knowledge,periodic reports and proxy statements, and exemptions from the requirements of holding ais no litigation currently pending against us or anymay be a less active trading market for our securities and the prices of our officerssecurities may be more volatile.
non-binding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there As a large accelerated filer for the fiscal year ending December 31, 2021, the Sarbanes-Oxley Act requires that management conduct an evaluation and provide an assessment of our internal control over financial reporting (“ICFR”), and that our ICFR be audited by an independent registered public accounting firm. Compliance with these requirements of the Sarbanes-Oxley Act may be particularly burdensome in connection with our identification of a target company for our initial business combination because a target business with which we seek to complete our initial business combination may find it difficult to comply with the provisions of the Sarbanes-Oxley Act regarding the assessment of and attestation as to their ICFR. 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 or directors in their corporate capacity in the 12 months preceding the date hereof.may make it more difficult to reach agreement with such a target.
19
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 initial public offering, 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 that 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 Public Stockholders may not be afforded an opportunity to vote on our proposed Initial Business Combination, which means we may complete our Initial Business Combination even though a majority of our Public Stockholders do not support such a combination.
If we seek stockholder approval of our Initial Business Combination, our Sponsor, directors, officers and Forward Purchasers have agreed to vote in favor of such Initial Business Combination, regardless of how our Public Stockholders vote.
Your only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your right to redeem your shares from us for cash, unless we seek stockholder approval of our Initial Business Combination.
The ability of our Public Stockholders to redeem their shares for cash 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 in a timely fashion within the Combination Period.
The ability of our Public Stockholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize our capital structure.
The ability of our Public Stockholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our Initial Business Combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your stock.
The requirement that we complete our Initial Business Combination within the Combination Period may give potential target businesses leverage over us in negotiating our Initial Business Combination and may decrease our ability to conduct due diligence on potential business combination targets, in particular, as we approach our dissolution deadline, which could undermine our ability to complete our Initial Business Combination on terms that would produce value for our Public Stockholders.
We may not be able to complete our Initial Business Combination within the prescribed timeframe, in which case we would cease all operations except for the purpose of winding up and we would redeem our Public Shares and liquidate, in which case our Public Stockholders may only receive $20.00 per share and our Distributable Redeemable Warrants, Sponsor Warrants and Director Warrants will expire worthless, and our Distributable Tontine Redeemable Warrants will never have been distributed.
If a stockholder fails to receive notice of our offer to redeem our Public Shares in connection with our Initial Business Combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed.
We may, but are not required to, obtain an opinion from an independent investment banking firm or from an independent accounting firm, and consequently, you may have no assurance from an independent source that the price we are paying for the business is fair to our company from a financial point of view.
We may only be able to complete one business combination with the proceeds of the initial public offering, the sale of the Forward Purchase Units and the sale of the Sponsor Warrants and Director Warrants, 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.
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 Initial Business Combination.
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.
Since the Forward Purchasers, our Sponsor and directors will lose the investment opportunity presented by the Forward Purchase Units, the Sponsor Warrants and Director Warrants, respectively, if our Initial Business Combination is not
20
|
|
|
|
|
|
|
|
We face litigation claiming that we were required to register as an investment company under the Investment Company Act of 1940 which may, even if meritless make it difficult for us to enter into a business combination with a target in a timely fashion within the Combination Period.We are a newly formed company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.We are a newly formed company with operations limited to pursuing and reviewing potential opportunities for the Initial Business Combination. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our Initial Business Combination with one or more target businesses. If we fail to complete our Initial Business Combination, we will never generate any operating revenues.Past performance by Pershing Square or our management team may not be indicative of future performance of an investment in us.Information regarding performance by, or businesses associated with, Pershing Square or our management team is presented for informational purposes only. Any past experience and performance of Pershing Square (and the investment funds andco-investmentvehicles that it manages or has managed) or our management team is not a guarantee either: (1) that we will be able to successfully identify a suitable candidate for our Initial Business Combination; or (2) of any results with respect to any Initial Business Combination we may consummate. You should not rely on the historical record of Pershing Square 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.Any current work on a potential Initial Business Combination does not guarantee an immediate or timely deal announcement; there is no guarantee regarding the timing of a definitive transaction, whether or not a transaction will be completed, nor whether PSTH2SPARC will be launched.There is no guarantee that we will complete a transaction or that such a transaction will generate attractive long-term returns for our shareholders. In the eventWhether or not we complete a transaction, there is no guarantee that SPARC will be approved or that we will launch SPARC or a second SPAC.While we previously believed that we would be ablehave from time to announcetime announced updates related to our search for a potential Initial Business Combination including our announcement regarding Universal Music Group, we may be unable to enter into and complete a transaction byin the end of this quarter,remaining period before we will not beare obligated to return the funds we hold in a positiontrust to do so.our shareholders We do not intenddisclaim any obligation to make any additional announcements about our transaction progress unless and until we enter into a definitive agreement for a transaction.Our Public Stockholders may not be afforded an opportunity to vote on our proposed Initial Business Combination, which means we may complete our Initial Business Combination even though a majority of our Public Stockholders do not support such a combination.We may choose not to hold a stockholder vote to approve our Initial Business Combination unless our Initial Business Combination would require stockholder approval under applicable law or stock exchange listing requirements or if we decide to hold a stockholder vote for business or other legal reasons. For instance, the NYSE rules currently allow us to engage in a tender offer in lieu of a stockholder meeting but would still require us to obtain stockholder approval if we were seeking to issue more than 20% of our outstanding shares of common stock to a target business as consideration in any business combination. Therefore, if we were structuring a business combination that required us to issue more than 20% of our outstanding shares of common stock, we would seek stockholder approval of such business combination. Except as required by law, the decision as to whether we will seek stockholder approval of a proposed Initial Business Combination or will allow stockholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder approval. Accordingly, we may complete our Initial Business Combination even if holders of a majority of the Public Shares do not approve of the Initial Business Combination we complete. Please see “Item 1. Business” for additional information.If we seek stockholder approval of our Initial Business Combination, our Sponsor, directors, officers and Forward Purchasers have agreed to vote in favor of such Initial Business Combination, regardless of how our Public Stockholders vote.Pursuant to the Letter Agreement, our Sponsor, directors, officers and Forward Purchasers have agreed to vote their Class B Common Stock, as well as any Public Shares that they hold (whether purchased during or after the initial public offering, and including21
in open market and privately negotiated transactions), in favor of our Initial Business Combination. As a result, in addition to the Class B Common Stock held by our Sponsor, we would need only 75,000,001, or 37.5%, of the Public Shares to be voted in favor of a transaction in order to have our Initial Business Combination approved, assuming (i) no Forward Purchase Shares have been issued, (ii) the parties to the Letter Agreement have not acquired any Public Shares and (iii) all outstanding shares are voted. Our Class B Common Stock has, in the aggregate, 20.0% of the voting power of our issued and outstanding shares of common stock. Accordingly, if we seek stockholder approval of our Initial Business Combination, the agreement by such parties to vote in favor of our Initial Business Combination will increase the likelihood that we will receive the requisite stockholder approval for such Initial Business Combination.
In evaluating a prospective target business for our Initial Business Combination, our management relies on the availability of the funds from the sale of the Sponsor Warrants, Director Warrants, and the Forward Purchase Units to be used as part of the consideration to the sellers in our Initial Business Combination. If the sale of the Forward Purchase Units fails to close, for any reason, we may lack sufficient funds to consummate our Initial Business Combination.
We have sold the Sponsor Warrants for $65,000,000 and the Director Warrants for an aggregate of $2,837,500 in private placements, which closed simultaneously with the initial public offering. We have entered into a Forward Purchase Agreement with the Forward Purchasers, pursuant to which they are obligated to purchase an aggregate of at least $1,000,000,000 of Committed Forward Purchase Units, each composed of one share of Class A Common Stock and
one-third
of one warrant, at a price of $20.00 per unit, in one or more private placements that will close no later than simultaneously with the closing of our Initial Business Combination. In addition, certain of our directors have entered into a Director Forward Purchase Agreement, pursuant to which they are obligated to purchase an aggregate of $6,000,000 Forward Purchase Units at a price of $20.00 per unit, in one or more private placements that will close no later than simultaneously with the closing of our Initial Business Combination.The funds from the sale of the Sponsor Warrants, Director Warrants and Forward Purchase Units are expected to be used as part of the consideration to the sellers in our Initial Business Combination, and to pay expenses in connection with our Initial Business Combination and may be used for working capital in the post-combination business. These purchases are intended to provide us with appropriate funding for our Initial Business Combination. If the Forward Purchasers do not agree to fund more than the amount necessary to complete our Initial Business Combination, the post-combination business may not have enough cash available for working capital. If the sale of the Committed Forward Purchase Units does not close by reason of the failure of the Forward Purchasers to fund the purchase price (and/ or the Director Forward Purchasers do not purchase Forward Purchase Units), for example, or for any other reason, we may lack sufficient funds to consummate our Initial Business Combination. In addition, the Forward Purchasers’ and Director Forward Purchasers’ obligation to purchase the Committed Forward Purchase Units is subject to termination prior to the closing of the sale of such units by mutual written consent of us and such parties, or automatically: (i) if our Initial Business Combination is not consummated by July 24, 2022, unless extended in accordance with our amended and restated certificate of incorporation. In addition, such obligations to purchase the Forward Purchase Units are subject to fulfillment of customary closing conditions, including that our Initial Business Combination must be consummated substantially concurrently with the purchase of the Forward Purchase Units (if the Forward Purchasers and/or Director Forward Purchasers have not elected to make such purchase at an earlier date). In the event of any such failure to fund by the Forward Purchasers or Director Forward Purchasers, any obligation is so terminated or any such condition is not satisfied and not 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. Any such shortfall would also reduce the amount of funds that we have available for the completion of our Initial Business Combination or working capital of the post-combination business.
Your only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your right to redeem your shares from us for cash, unless we seek stockholder approval of our Initial Business Combination.You will not be provided with an opportunity to evaluate the specific merits or risks of our Initial Business Combination. Since
Because our board of directors may completeapprove our Initial Business Combination without seekingthe need to seek or obtain stockholder approval, Public Stockholders may not have the right or opportunity to vote on our Initial Business Combination, unless we seek such stockholder vote. Accordingly, if we do not seek stockholder approval, your only opportunity to affect themake an investment decision regarding a potential business combination may be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our Public Stockholders in which we describe our Initial Business Combination.
If you elect to exercise your redemption rights with respect to your shares of Class A Common Stock, you will not receive any Distributable Tontine Redeemable Warrants.
In connection with our Initial Business Combination, and in connection with certain amendments tounder our amended and restated certificate of incorporation, Public Stockholders will have the opportunity to exercise their right to redeem their Public Shares for cash. However, our Distributable Tontine Redeemable Warrants will be distributed only to the holders of record of those shares of our Class A Common Stock that remain outstanding after redemptions in connection with our Initial Business Combination. The Distributable Tontine Redeemable Warrants will be distributed at the Tontine Distribution Time on a
pro-rata
basis in respect of such remaining shares of Class A Common Stock. Accordingly, to the extent that you elect to redeem your Public Shares, you will receive no Distributable Tontine Redeemable Warrants22
in respect of such shares. The contingent right to receive the Distributable Tontine Redeemable Warrants will remain attached to our Public Shares, will not be separately transferable, assignable or salable, and will not be evidenced by any certificate or instrument.
The ability of our Public Stockholders to redeem their shares for cash 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.
target in a timely fashion within the Combination Period.
We may seek to enter into our Initial Business Combination agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain amount of cash.cash at the completion of our initial business combination and after giving effect to redemptions of our Class A common stock. If too many Public Stockholders exercise their redemption rights, and we do not obtain sufficient funds from the sale of our Forward Purchase Units or from third-party financing, we wouldmay not be able to meetsatisfy such a closing condition and, as a result, would not be able to proceed with our Initial Business Combination. Furthermore, in no event will we redeem our Public Shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon consummation of our Initial Business Combination and after payment of underwriters’ fees and commissions (so that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our Initial Business Combination. Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets to be less than $5,000,001 upon consummation of our Initial Business Combination and after payment of underwriters’ fees and commissions or such greater amount necessary to satisfy a closing condition as described above, we would not proceed with such redemption and the related business combination and may instead search for an alternate Initial Business Combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into an Initial Business Combination with us.
The ability of our Public Stockholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize our capital structure.
At the time we enter into an agreement for our Initial Business Combination, we will not know how many stockholders may exercise their redemption rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption. If our Initial Business Combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the trust account to meet such requirements, or arrange for third-party financing. In addition, if a larger number of shares are submitted for redemption than we initially expected, we may need to restructure the transaction to reserve a greater portion of the cash in the trust account or arrange for third-party financing. Raising additional third-party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. The above considerations may limit our ability to complete the most desirable business combination available to us or optimize our capital structure. The
per-share
amount we will distribute to stockholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and, after such redemptions, theper-share
value of shares held bynon-redeeming
stockholders will reflect our obligation to pay the deferred underwriting commissions (which amount may be reduced based upon the number of shares redeemed).The ability of our Public Stockholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our Initial Business Combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your stock.
If our Initial Business Combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a minimum amount of cash at closing, the probability that our Initial Business Combination would be unsuccessful is increased. If our Initial Business Combination is unsuccessful, you would not receive your
pro-rata
portion of the trust account until we liquidate the trust account. If you are in need of immediate liquidity, you could attempt to sell your stock in the open market; however, at such time our stock may trade at a discount to thepro-rata
amount per share in the trust account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with our redemption until we liquidate or you are able to sell your stock in the open market.The Forward Purchasers have the right to purchase up to $2,000,000,000 of Additional Forward Purchase Units prior to or simultaneously with our Initial Business Combination pursuant to the Forward Purchase Agreement (or such greater amount as mutually agreed upon by us and the Forward Purchasers), but have no obligation to make such purchase. Our ability to raise additional capital or consummate our Initial Business Combination may be adversely impacted if the Forward Purchasers decline to exercise this right.
The Forward Purchasers have the right, but not the obligation, to purchase up to $2,000,000,000 of Additional Forward Purchase Units prior to or simultaneously with our Initial Business Combination at a price of $20.00 per unit. In addition, we and the Forward Purchasers may mutually agree to increase the amount of Additional Forward Purchase Units that the Forward Purchasers may choose to purchase. If our board of directors determines that additional capital is needed in order to consummate our Initial Business
23
Combination or for other reasons, and the Forward Purchasers or the Affiliate Transferees do not exercise this right in part or in full, we may not have the capital to satisfy certain conditions to our Initial Business Combination. If the Forward Purchasers do elect to purchase the entire additional amount, they would receive an additional 100,000,000 shares of Class A Common Stock and Forward Purchase Warrants exercisable for an additional 33,333,333 shares of Class A Common Stock (or a greater number of Forward Purchase Shares and Forward Purchase Warrants if we and the Forward Purchasers have mutually agreed to increase the additional forward purchase amount). Depending on the terms of our Initial Business Combination and the value of our securities at such time, this may significantly reduce and/or dilute the economic interest of our Public Stockholders in the post-combination business.
The Forward Purchasers may elect to purchase Forward Purchase Units prior to our Initial Business Combination, which could provide them with substantial influence over, or control of, the outcome of any matter submitted to a vote of our stockholders.
If the Forward Purchasers elect to purchase any Forward Purchase Units prior to our Initial Business Combination, they will have the ability to vote their Forward Purchase Shares on any matter submitted to our stockholders for approval. If the Forward Purchasers were to vote as recommended by us on a matter submitted to our stockholders for their approval (although they are under no obligation to do so), this would substantially increase the likelihood that any such matter would receive the requisite stockholder approval. For example, if the Forward Purchasers acquired all 50,000,000 of the Committed Forward Purchase Units prior to the record date for a stockholder vote on our Initial Business Combination and were to vote their Forward Purchase Shares in favor of such transaction, in addition to the voting power of such Forward Purchase Shares and the Class B Common Stock held by our Sponsor, we would need only 50,000,001, or 25.0%, of the Public Shares to be voted in favor of a transaction for it to be approved. If, prior to such record date, the Forward Purchasers acquired the total 150,000,000 Forward Purchase Units represented by the committed forward purchase and the additional forward purchase, our Sponsor and the Forward Purchasers would together effectively control the outcome of such vote. With respect to certain amendments to our amended and restated certificate of incorporation that require the approval of 65% of the outstanding shares of our common stock, assuming the Forward Purchasers and our Sponsor vote in favor of such an amendment, the approval of such amendment would require (i) the vote of 95,000,001, or 47.5%, of the Public Shares, if only the Committed Forward Purchase Units have been issued, and (ii) the vote of 60,000,001, or 30%, of the Public Shares, if the Committed Forward Purchase Units and Additional Forward Purchase Units have been issued. Each of the foregoing examples assumes that our Sponsor, officers and directors do not acquire any other Public Shares and that all outstanding shares are voted. The amount of the additional forward purchase may be increased by mutual agreement between the Forward Purchasers and us, which could further diminish the influence and/or control of our Public Stockholders. In addition, the Director Forward Purchasers may acquire up to 300,000 Forward Purchase Shares prior to the record date for a stockholder vote on our Initial Business Combination, in which case they would be required to vote such shares in favor of a transaction, which Forward Purchase Shares would have approximately 0.1% of the voting power of the outstanding common stock in the above scenarios.
The requirement that we complete our Initial Business Combination within the Combination Period may give potential target businesses leverage over us in negotiating our Initial Business Combination and may decrease our ability to conduct due diligence on potential business combination targets, in particular, as we approach our dissolution deadline, which could undermine our ability to complete our Initial Business Combination on terms that would produce value for our Public Stockholders.
Any potential target business with which we enter into negotiations concerning our Initial Business Combination will be aware that we must complete our Initial Business Combination within the Combination Period. Consequently, such target business may obtain leverage over us in negotiating an Initial Business Combination, knowing that if we do not complete our Initial Business Combination with that particular target business, we may be unable to complete our Initial Business Combination with any target business. This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due diligence and may enter into our Initial Business Combination on terms that we would have rejected upon a more comprehensive investigation.
We may not be able to complete our Initial Business Combination within the prescribed timeframe, in which case we would cease all operations except for the purpose of winding up and we would redeem our Public Shares and liquidate, in which case our Public Stockholders may only receive $20.00 per share, or less than such amount in certain circumstances, and our Distributable Redeemable Warrants, Sponsor Warrants and Director Warrants will expire worthless, and our Distributable Tontine Redeemable Warrants will never have been distributed.
Our amended and restated certificate of incorporation provides that we must complete our Initial Business Combination within the Combination Period. We may not be able to find a suitable target business and complete our Initial Business Combination within such time period. Our ability to complete our Initial Business Combination may be negatively affected by general market conditions, volatility in the capital and debt markets and the other risks described herein.
If we have not completed our Initial Business Combination within such time period, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than 10 business days thereafter, redeem the Public Shares, at a
per-share
price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any interest24
earned on the funds held in the trust account and not previously released to us to pay our taxes (less $100,000 of interest to pay dissolution expenses), divided by the number of then-outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. In such case, our Public Stockholders may only receive $20.00 per share, our Distributable Redeemable Warrants, Sponsor Warrants and Director Warrants will expire worthless, and no Distributable Tontine Redeemable Warrants will have been distributed. In certain circumstances, our Public Stockholders may receive less than $20.00 per share on the redemption of their shares. See “—If third parties bring claims against us, the proceeds held in the trust account could be reduced and the
per-share
redemption amount received by stockholders may be less than $20.00 per share” and other risk factors below. Additionally, if you elect to exercise your redemption rights in connection with our Initial Business Combination, you will not receive any Distributable Tontine Redeemable Warrants.If we seek stockholder approval of our Initial Business Combination, our Sponsor, directors, officers, advisors and their affiliates may elect to purchase shares or warrants from Public Stockholders, which would reduce the public “float” of our shares of Class A Common Stock or warrants, and the Forward Purchasers and/or Director Forward Purchasers may exercise their respective right to purchase Forward Purchase Units prior to a vote, each of which may influence a vote on a proposed business combination.
If we seek stockholder approval of our Initial Business Combination and we do not conduct redemptions in connection with our Initial Business Combination pursuant to the tender offer rules, our Sponsor, directors, officers, advisors or their affiliates may purchase shares or Distributable Redeemable Warrants, or a combination thereof, in privately negotiated transactions or in the open market either prior to or following the completion of our Initial Business Combination, although they are under no obligation to do so. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. In addition, the Forward Purchasers and Director Forward Purchasers may purchase Forward Purchase Units prior to our Initial Business Combination. None of the funds in the trust account will be used to purchase shares, Redeemable Warrants or Forward Purchase Securities in such transactions.
Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares, is no longer the beneficial owner thereof, and therefore agrees not to exercise its redemption rights. In the event that our Sponsor, directors, officers, advisors or their affiliates purchase shares in privately negotiated transactions from Public Stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of our Initial Business Combination and thereby increase the likelihood of obtaining stockholder approval of our Initial Business Combination, or to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our Initial Business Combination, where it appears that such requirement would otherwise not be met. The purpose of any such purchases of the Distributable Redeemable Warrants could be to reduce the number of such warrants outstanding or to vote such warrants on any matters submitted to
the warrant holders for approval in connection with our Initial Business Combination. Any such purchases of our securities may result in the completion of our Initial Business Combination that may not otherwise have been possible. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent that such purchasers are subject to such reporting requirements.
In addition, if such purchases are made (other than with respect to the Forward Purchase Units), the public “float��“float” of our shares of Class A Common Stock or Redeemable Warrants and the number of beneficial holders of our securities may be reduced, possibly making it difficult to obtain or maintain the quotation, listing or trading of our securities on a national securities exchange.
If a stockholder fails to receive notice of our offer to redeem our Public Shares in connection with our Initial Business Combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed.
We will comply with the tender offer rules or proxy rules, as applicable, when conducting redemptions in connection with our Initial Business Combination. Despite our compliance with these rules, if a stockholder fails to receive our tender offer or proxy materials, as applicable, such stockholder may not become aware of the opportunity to have its shares redeemed. In addition, the proxy materials or tender offer documents, as applicable, that we will furnish to our Public Stockholders in connection with our Initial Business Combination will describe the various procedures that must be complied with in order to validly tender or redeem such shares. For example, we may require our Public Stockholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to our transfer agent prior to the date set forth in the tender offer documents mailed to such holders, or up to two business days prior to the vote on the proposal to approve our Initial Business Combination in the event we distribute proxy materials, or to deliver their shares to the transfer agent electronically. In the event that a stockholder fails to comply with these or any other procedures, its shares may not be redeemed.
25
You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to sell your Public Shares or Redeemable Warrants, potentially at a loss.
Our Public Stockholders will be entitled to receive funds from the trust account only upon the earliest to occur of: (i) the completion of our Initial Business Combination, and then only in connection with those Public Shares that such stockholder properly elected to redeem, subject to the limitation described herein, (ii) the redemption of any Public Shares that are properly submitted in connection with a stockholder vote to amend our amended and restated certificate of incorporation (A) to modify the substance or timing of our obligation to allow redemptions in connection with our Initial Business Combination, (B) to modify the substance or timing of our obligation to redeem 100% of the Public Shares if we do not complete our Initial Business Combination within the Combination Period, or (C) with respect to any other provision relating to stockholders’ rights or
pre-Initial
Business Combination activity, and (iii) the redemption of our Public Shares if we are unable to complete our Initial Business Combination within the Combination Period, subject to applicable law and as further described herein. In addition, if we are unable to complete our Initial Business Combination within the Combination Period for any reason, compliance with Delaware law may require that we submit a plan of dissolution to our then-existing stockholders for approval prior to the distribution of the proceeds held in our trust account. In that case, Public Stockholders may be forced to wait beyond the Combination Period before they receive funds from our trust account. In no other circumstances will a Public Stockholder have any right or interest of any kind in the trust account. Holders of Redeemable Warrants will not have any right to the proceeds held in the trust account with respect to such warrants. Accordingly, to liquidate your investment, you may be forced to sell your shares or Redeemable Warrants, potentially at a loss.The NYSE may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
Our Class A Common Stock and warrants units are listed on the NYSE. Although we expect to continue meeting the minimum initial listing standards set forth in the NYSE listing standards, we cannot assure you that our securities will be, or will continue to be, listed on the NYSE in the future or prior to our Initial Business Combination. In order to continue listing our securities on the NYSE prior to our Initial Business Combination, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity (generally $2,500,000) and a minimum number of holders of our securities (generally 300 public holders). Additionally, in connection with our Initial Business Combination, we will be required to demonstrate compliance with the NYSE’s initial listing requirements, which are more rigorous than the NYSE’s continued listing requirements, in order to continue to maintain the listing of our securities on the NYSE. For instance, our stock price would generally be required to be at least $4.00 per share, our net tangible assets would generally be required to be at least $5,000,000 and we would be required to have a minimum of 300 round lot holders of our securities (or 400 round lot holders following our Initial Business Combination). We cannot assure you that we will be able to meet those initial listing requirements at that time.
If the NYSE delists any of our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect such securities could be quoted on anmarket. If this were to occur, we could face significant material adverse consequences, including:over-the-counter
a limited availability of market quotations for our securities;
reduced liquidity for our securities;
a determination that our Class A Common Stock is a “penny stock,” which will require brokers trading in our Class A Common Stock 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; and
a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our Class A Common Stock and Redeemable Warrants are listed on the NYSE, our Class A Common Stock and Redeemable Warrants will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on the NYSE, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities, including in connection with our Initial Business Combination.
26
You will not be entitled to protections normally afforded to investors of many other blank check companies.
Since the net proceeds of our initial public offering and the private placement sale of the Sponsor Warrants and Director Warrants are intended to be used to complete our Initial 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 $5,000,000, 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, we will have a longer period of time to complete our Initial Business Combination than do companies subject to Rule 419. Moreover, if our initial public offering were subject to Rule 419, that rule would prohibit the release of any interest earned on funds held in the trust account to us unless and until the funds in the trust account were released to us in connection with the completion of our Initial Business Combination.
If we seek stockholder approval of our Initial Business Combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of stockholders are deemed to hold in excess of 15% of our Public Shares, you will lose the ability to redeem all such shares in excess of 15% of our Public Shares unless our board of directors determines to waive or amend such limit with respect to you.
If we seek stockholder approval of our Initial Business Combination and we do not conduct redemptions in connection with our Initial Business Combination pursuant to the tender offer rules, our amended and restated certificate of incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights without our prior consent with respect to more than an aggregate of 15% of the Public Shares, which we refer to as the “Excess Shares,” unless our board of directors determines, in its sole discretion, to waive or amend such limit with respect to such stockholder or “group.” However, we would not be restricting our Public Stockholders’ ability to vote all of their shares (including Excess Shares) for or against our Initial Business Combination. Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our Initial Business Combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our Initial Business Combination. And as a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your stock in open market transactions, potentially at a loss.
Because of the significant competition for business combination opportunities, it may be more difficult for us to complete our Initial Business Combination. If we are unable to complete our Initial Business Combination, our Public Stockholders may receive only approximately $20.00 per share on the redemption of our Public Shares, or less than such amount in certain circumstances, and our Distributable Redeemable Warrants will expire worthless, and no Distributable Tontine Redeemable Warrants will have been distributed.
We expect to encounter intense competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities, domestic and international, competing for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries.
Furthermore, because we are obligated to pay cash for the shares of Class A Common Stock which our Public Stockholders redeem in connection with our Initial Business Combination, target companies will be aware that this may reduce the resources available to us for our Initial Business Combination. This may place us at a competitive disadvantage in successfully negotiating our Initial Business Combination. If we are unable to complete our Initial Business Combination, our Public Stockholders may receive only approximately $20.00 per share, or less in certain circumstances, on the liquidation of our trust account, and our Distributable Redeemable Warrants will expire worthless, and no Distributable Tontine Redeemable Warrants will have been distributed. In certain circumstances, our Public Stockholders may receive less than $20.00 per share, upon our liquidation. See “ —If third parties bring claims against us, the proceeds held in the trust account could be reduced and the
per-share
redemption amount received by stockholders may be less than $20.00 per share” and other risk factors below.If the net proceeds from our initial public offering and the private placement of the Sponsor Warrants and Director Warrants not being held in the trust account are insufficient to allow us to operate until the end of the Combination Period, we may be unable to complete our Initial Business Combination, in which case our Public Stockholders may only receive $20.00 per share, or less than such amount in certain circumstances, and our Distributable Redeemable Warrants will expire worthless, and no Distributable Tontine Redeemable Warrants will have been distributed.
The funds available to us outside of the trust account may not be sufficient to allow us to operate until the end of the Combination Period, assuming that our Initial Business Combination is not completed during that time. We believe the funds available to us outside of the trust account will be sufficient to allow us to operate during the Combination Period; however, we cannot assure you that our
27
estimate is accurate. Of the funds available to us, we could use a portion to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a
“no-shop”
provision (a provision in letters of intent or merger agreements designed to keep target businesses from “shopping” around for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed Initial Business Combination, although we do not have any current intention to do so. If we entered into a letter of intent or merger agreement where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business. If we are unable to complete our Initial Business Combination, our Public Stockholders may receive only approximately $20.00 per share, or less in certain circumstances, on the liquidation of our trust account, our Distributable Redeemable Warrants will expire worthless, and no Distributable Tontine Redeemable Warrants will have been distributed. In certain circumstances, our Public Stockholders may receive less than $20.00 per share upon our liquidation. See “ —If third parties bring claims against us, the proceeds held in the trust account could be reduced and theper-share
redemption amount received by stockholders may be less than $20.00 per share” and other risk factors below.If the net proceeds of our initial public offering and the private placement of the Sponsor Warrants and Director Warrants not being held in the trust account are insufficient, it could limit the amount available to fund our search for a target business or businesses and complete our Initial Business Combination and we will depend on loans from our Sponsor or management team to fund our search for our Initial Business Combination, to pay our taxes and to complete our Initial Business Combination. If we are unable to obtain these loans, we may be unable to complete our Initial Business Combination.
Of the net proceeds of the initial public offering and the private placement of the Sponsor Warrants and Director Warrants, approximately $32 million was available to us immediately after our initial public offering and, as of December 31, 2021 and December 31, 2020, approximately $21 and $24 million was(net of accrued expenses) were available to us, in each case outside the trust account to fund our working capital requirements. We do not expect to seek additional capital due to the amount available to us outside the trust account, but if we are required to do so, we would need to borrow funds from our Sponsor, management team or third parties to operate or may be forced to liquidate. None of our Sponsor, members of our management team nor any of their affiliates is under any obligation to advance funds to us in such circumstances. Any such advances would be repaid only from funds held outside the trust account or from funds released to us upon completion of our Initial Business Combination. We do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account. The Forward Purchasers and Director Forward Purchasers may elect to purchase any or all of the number of Forward Purchase Units they have agreed to purchase at any time prior the Initial Business Combination, which could provide a source of working capital. However, the Forward Purchasers and Director Forward Purchasers have no obligation to make such purchases until the time of our Initial Business Combination. If we are unable to obtain these loans, we may be unable to complete our Initial Business Combination.
If we are unable to complete our Initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. Consequently, our Public Stockholders may only receive approximately $20.00 per share on our redemption of their Public Shares, and our Distributable Redeemable Warrants will expire worthless, and no Distributable Tontine Redeemable Warrants will have been distributed. In certain circumstances, our Public Stockholders may receive less than $20.00 per share on the redemption of their shares. See “ —If third parties bring claims against us, the proceeds held in the trust account could be reduced and theper-shareredemption amount received by stockholders may be less than $20.00 per share” and other risk factors below.
Subsequent to the completion of our Initial 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 stock 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 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 violate net worth or other covenants to which we may be subject as a result of assumingpre-existing
debt held by a target business or by virtue of our obtaining debt financing to partially finance our Initial Business Combination. Accordingly, any security holders who choose to remain security holders following our Initial Business Combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our directors or officers of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy solicitation or tender offer materials, as applicable, relating to our Initial Business Combination, constituted an actionable material misstatement or omission.28
If third parties bring claims against us, the proceeds held in the trust account could be reduced, and the
per-share
redemption amount received by stockholders may be less than $20.00 per share.Our placing of funds in the trust account may not protect those funds from third-party claims against us. Although we seek to have all vendors, service providers (other than our independent auditors), prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our Public Stockholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.
Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption of our Public Shares, if we are unable to complete our Initial Business Combination within the Combination Period, or upon the exercise of a redemption right in connection with our Initial Business Combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within 10 years following the redemption. Accordingly, the
per-share
redemption amount received by Public Stockholders could be less than the $20.00 per share initially held in the trust account, due to claims of such creditors.Pursuant to the Letter Agreement, our Sponsor has agreed that it will be liable to us if and to the extent any claims by a third party for services rendered or products sold to us, or a prospective target business with which we have entered into a written letter of intent, confidentiality or similar agreement or business combination agreement, reduces the amount of funds in the trust account to be below the lesser of (i) $20.00 per Public Share and (ii) the actual amount per share held in the trust account as of the date of the liquidation of the trust account (if less than $20.00 per share) due to reductions in the value of the trust assets, net of the amount of interest which may be withdrawn to pay taxes, provided that such liability will not apply to any claims by a third party or prospective business target who
executed a waiver of any and all rights to the monies held in the trust account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of the initial public offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and believe that our Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. None of our directors or officers will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
The securities in which we invest the proceeds held in the trust account could bear very low or negative rate of interest, which could reduce the interest income available for payment of taxes or reduce the value of the assets held in trust such that the
per-share
redemption amount received by stockholders may be less than $20.00 per share.The proceeds held in the trust account may only be invested in direct U.S. Treasury obligations having a maturity of 180 days or less, or in certain money market funds which invest only in direct U.S. Treasury obligations. While short-term U.S. Treasury obligations currently yield a positive rate of interest, they have briefly yielded negative interest rates in recent years. Central banks in Europe and Japan pursued interest rates below zero in recent years, and the Open Market Committee of the Federal Reserve has not ruled out the possibility that it may in the future adopt similar policies in the United States. In the event of very low or negative yields, the amount of interest income (which we are permitted to use for payment of our tax obligations and up to $100,000 of dissolution expenses) would be reduced. In the event that we are unable to complete our Initial Business Combination, our Public Stockholders are entitled to receive their
pro-rata
share of the proceeds held in the trust account, plus any interest income. If the balance of the trust account is reduced below $4,000,000,000 as a result of negative interest rates, the amount of funds in the trust account available for distribution to our Public Stockholders may be reduced below $20.00 per share.Our independent directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the trust account available for distribution to our Public Stockholders.
In the event that the proceeds in the trust account are reduced below the lesser of (i) $20.00 per Public Share and (ii) the actual amount per share held in the trust account as of the date of the liquidation of the trust account (if less than $20.00 per share) due to reductions in the value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, and our
29
Sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its indemnification obligations.
While we currently expect that our independent directors would take legal action on our behalf against our Sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment and subject to their fiduciary duties may choose not to do so in any particular instance if, for example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to our Public Stockholders may be reduced below $20.00 per share.
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 have purchased 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 or sufficient. Further, our directors and officers have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account and to not seek recourse against the trust account for any reason whatsoever. Accordingly, any indemnification provided by us will be able to be satisfied by us only if (i) we have sufficient funds outside of the trust account, or (ii) we consummate our Initial 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 benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent that we may incur the costs of settlement and damage awards against our directors and officers pursuant to these indemnification provisions.
If, after we distribute the proceeds in the trust account to our Public Stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our board may be exposed to claims of punitive damages.
If, after we distribute the proceeds in the trust account to our Public Stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying Public Stockholders from the trust account prior to addressing the claims of creditors.
If, before distributing the proceeds in the trust account to our Public Stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the
per-share
amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.If, before distributing the proceeds in the trust account to our Public Stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust 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 our stockholders. To the extent any bankruptcy claims deplete the trust account, the
per-share
amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our Initial Business Combination.
We face litigation claiming that we were required to register as an investment company under the Investment Company Act which may, even if meritless make it difficult for us to enter into a business combination with a target in a timely fashion within the Combination Period. 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,
30
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 engaged primarily in a business other than 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 is to identify and complete our Initial Business Combination and thereafter to operate the post-combination business or assets for the long term. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.
We do not believe that our principal activities subject us to the Investment Company Act. To this end, the proceeds held in the trust account may only be invested in direct U.S. Treasury obligations (which are United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act) having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule
2a-7
promulgated under the Investment Company Act which invest only in direct U.S. Treasury obligations. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. The initial public offering was not intended for persons who are seeking a return on investments in government securities or investment securities. The trust account is intended as a holding place for funds pending the earliest to occur of: (i) the completion of our Initial Business Combination; (ii) the redemption of any of our Public Shares that are properly submitted in connection with a stockholder vote to amend our amended and restated certificate of incorporation (A) to modify the substance or timing of our obligation to allow redemptions in connection with our Initial Business Combination, (B) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete ourInitial Business Combination within the Combination Period, or (C) with respect to any other provision relating to stockholders’ rights orpre-InitialBusiness Combination activity; or (iii) absent a business combination within the Combination Period, our return of the funds held in the trust account to our Public Stockholders by redeeming their Public Shares. If we do not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete our Initial Business Combination or result in our liquidation. If we are unable to complete our Initial Business Combination, our Public Stockholders may receive only approximately $20.00 per share, or less in certain circumstances, on the liquidation of our trust account, our Distributable Redeemable Warrants will expire worthless and no Distributable Tontine Redeemable Warrants will have been issued.
Our search for a business combination, and any target business with which we ultimately consummate a business combination, may be materially adversely affected by the recent coronavirus
(COVID-19)
pandemic and the status of debt and equity markets.The
COVID-19
pandemic has adversely affected, and other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) could adversely affect, economies and financial markets worldwide, business operations and the conduct of commerce generally, and the business of any potential target business with which we consummate a business combination could be, or may already have been, materially and adversely affected. Furthermore, we may be unable to complete a business combination if concerns relating toCOVID-19
continue to restrict travel, limit the ability to have meetings with potential investors or limit the ability to conduct due diligence, or the target company’s personnel, vendors and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to whichCOVID-19
impacts our search for a business combination depends on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity ofCOVID-19
and the actions to containCOVID-19
or treat its impact, among others. If the disruptions posed byCOVID-19
or other events (such as terrorist attacks, natural disasters or a significant outbreak of other infectious diseases) continue for an extensive period of time, our ability to consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially adversely affected.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 Initial Business Combination, and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be
31
difficult, time consuming and costly. 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 Initial Business Combination, and results of operations.
Our stockholders may be held liable for claims by third parties against us to the extent of distributions received by them upon redemption of their shares.
Under the DGCL, stockholders may be held liable for claims by third partiescreditors against a corporation to the extent of distributions received by them in a dissolution.dissolution of the corporation. TheHowever, it isIn the event that we do not complete an initial business combination and we liquidate and distribute the funds held in trust to holders of our intentionPublic Shares, however, we intend to redeem our Public Shares as soon as reasonably possible following the end of the Combination Period in the eventPeriod. Therefore, we domay choose not complete our Initial Business Combination and, therefore, we do not intend to comply with the foregoing procedures.
pro-rata
portion of our trust account distributed to our Public Stockholders upon the redemption of their Public Shares in the event we do not complete our Initial Business Combination within the Combination Period may be considered a liquidating distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provisions for all claims against it, including a60-day
notice period during which any third-party claims can be brought against the corporation, a90-day
period during which the corporation may reject any claims brought, and an additional150-day
waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’spro-rata
share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred with respect to any claim commenced after the third anniversary of the dissolution. Because
If we willdo not be complying withfollow the procedures contemplated by Section 280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the 10 years following our dissolution. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the onlymost likely claims to arisewhich we would be subject are claims from our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses. We are also subject to pending and potential litigation claims including a claim that we were required to register as an investment company under the Investment Company Act. If our plan of distribution complies with Section 281(b) of the DGCL, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s
pro-rata
share of the claim or the amount distributed to the stockholder, and any liability of the stockholder wouldlikely be barred with respect to any claim commenced after the third anniversary of the dissolution. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, if we do not follow these procedures, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend beyond the third anniversary of such date. Furthermore, if thepro-rataportion of our trust account distributed to our Public Stockholders upon the redemption of our Public Shares in the event we do not complete our Initial Business Combination within the Combination Period is not considered a liquidating distribution under Delaware law and such redemption distribution is deemed to be unlawful (potentially due to the imposition of legal proceedingslitigation that is pending or that a party may bring or due to other circumstances that are currently unknown), then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidating distribution. Unlike in the case of claims against stockholders relating to an unlawful liquidating distribution, however, stockholders are only liable for an unlawful redemption distribution if they knew that the redemption was unlawful.
We may not hold an annual meeting of stockholders until after the consummation of our Initial Business Combination, which could result in our stockholders attempting to cause us to hold an annual meeting, presenting us with an additional expense.
In accordance with the NYSE corporate governance requirements, we are not required to hold an annual meeting until one year after our first fiscal year end following our listing on the NYSE. Under Section 211(b) of the DGCL, we are, however, required to hold an annual meeting of stockholders for the purposes of electing directors in accordance with our bylaws unless such election is made by written consent in lieu of such a meeting. We may not hold an annual meeting of stockholders to elect new directors prior to the consummation of our Initial Business Combination, and thus we may not be in compliance with Section 211(b) of the DGCL, which requires an annual meeting. Therefore, if our stockholders want us to hold an annual meeting prior to the consummation of our Initial Business Combination, they may attempt to force us to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the DGCL.
Our Sponsor, as the holder of our Class B Common Stock, will have the right to elect all of our directors prior to our Initial Business Combination, which could delay the opportunity for our stockholders to elect directors.
The holders of our Class B Common Stock have the exclusive right to elect all of our directors prior to our Initial Business Combination. Accordingly, we do not expect to hold an annual meeting of stockholders to elect new directors prior to the consummation of our Initial Business Combination. The holders of our Class B Common Stock will also have the exclusive right to vote on the removal of directors prior to our Initial Business Combination.
32
The purchase price for the Sponsor Warrants was not determined on an
arm’s-length
basis.The purchase price for the Sponsor Warrants is the amount determined by us to be the fair market value of such Sponsor Warrants as of the date of our initial public offering. The price of the Sponsor Warrants was not determined by a negotiation between
arm’s-length
third parties, which, had it occurred, may have resulted in a higher or lower purchase price and more or less favorable terms.We have not registered the shares of Class A Common Stock issuable upon exercise of the Redeemable Warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise Redeemable Warrants, thus precluding such investor from being able to exercise its warrants except on a cashless basis. If the issuance of the shares upon exercise of Redeemable Warrants is not registered, qualified or exempt from registration or qualification, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless.
We have not registered the shares of Class A Common Stock issuable upon exercise of the Redeemable Warrants under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement, we have agreed that as soon as practicable, but in no event later than 15 business days after the closing of our Initial Business Combination, we will use our best efforts to file with the SEC a registration statement for the registration under the Securities Act of the shares of Class A Common Stock issuable upon exercise of the Redeemable Warrants and thereafter will use our best efforts to cause the same to become effective within 60 business days following our Initial Business Combination, and to maintain a current prospectus relating to the Class A Common Stock issuable upon exercise of the Redeemable Warrants, until the expiration of the Redeemable Warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. If the shares issuable upon exercise of the warrants are not registered under the Securities Act, we will be required to permit holders to exercise their Redeemable Warrants on a cashless basis. However, no Redeemable Warrant will be exercisable on a cash or cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their Redeemable Warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.
Notwithstanding the above, if our Class A Common Stock is at the time of any exercise of a Redeemable Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Redeemable Warrants who exercise their Redeemable Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, though we will be required to use commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In no event will we be required to net cash settle any redeemable warrant, or issue securities or other compensation in exchange for the Redeemable Warrants in the event that we are unable to register or qualify the shares underlying the Redeemable Warrants under applicable state securities laws and there is no applicable exemption available. If the issuance of the shares upon exercise of the Redeemable Warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant shall not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their Redeemable Warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of Class A Common Stock included in the units. If and when the Redeemable Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If you exercise your Redeemable Warrants on a “cashless basis,” you will receive fewer shares of Class A Common Stock from such exercise than if you were to exercise such warrants for cash.
There are circumstances in which the exercise of the Redeemable Warrants may be required or permitted to be made on a cashless basis. First, if a registration statement covering the shares of Class A Common Stock issuable upon exercise of the Redeemable Warrants is not effective by the 60th 60
th
business day after the closing of our Initial Business Combination, warrant holders may, until such time as there is an effective registration statement, exercise Redeemable Warrants on a cashless basis in accordance with Section 3(a)(9) of the Securities Act or another exemption. Second, if our Class A Common Stock is at any time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Redeemable Warrants who exercise their warrants to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, and will be required to use commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. Third, if we call our Redeemable Warrants for redemption when the price per share of Class A Common Stock equals or exceeds $36.00, we may require any holders wishing to exercise their warrants prior to the date of redemption to do so on a cashless basis. In any of the circumstances described above, each holder would pay the exercise price by surrendering the warrants for that number of Class A Common Stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A Common Stock underlying the warrants, multiplied by the excess of the “fair market value” (as defined with respect to the applicable cashless exercise or redemption provision) less the exercise price of the warrants by (y) the fair market33
value and (B) 0.3611 per redeemable warrant. Fourth, if we call our Redeemable Warrants for redemption when the price per share of our Class A Common Stock equals or exceeds $20.00, holders who exercise their warrants will receive that number of shares set forth in the table as described under “Description of Securities–Redeemable Warrants” in the prospectus. As a result, you would receive fewer shares of Class A Common Stock from such exercise than if you were to exercise such warrants for cash.
The grant of registration rights may make it more difficult to complete our Initial Business Combination, and the future exercise of such rights may adversely affect the market price of our Class A Common Stock.
Pursuant to the registration rights agreement with our Sponsor, the Forward Purchasers and our independent directors, which we have entered into concurrently with the initial public offering, we are required to use commercially reasonable efforts to file a registration statement within 120 days of our Initial 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 Warrants, (ii) the Director Warrants, (iii) the shares issuable upon the exercise of the Sponsor Warrants or Director Warrants, (iv) the Forward Purchase Securities, (v) the shares of Class A Common Stock issuable upon conversion of our Class B Common Stock and (vi) any other shares or warrants 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 such agreement. The parties to the registration rights agreement, and their permitted transferees, will be entitled to make up to 10 demands that we register the foregoing 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. In addition, the Redeemable Warrants have certain registration rights, as described herein. 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 our Class A Common Stock. In addition, the existence of the registration rights may make our Initial Business Combination more costly or difficult 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 negative impact on the market price of our Class A Common Stock that is expected when such securities are registered.
Because we are neither limited to evaluating a target business in a particular industry, nor have we selected any specific target businesses with which to pursue our Initial Business Combination, you will be unable to ascertain the merits or risks of any particular target business’s operations.
We may seek to complete a business combination with an operating company in any industry or sector. However, we are not, under our amended and restated certificate of incorporation, permitted to effectuate our Initial Business Combination with another blank check company or similar company with nominal operations. To the extent we complete our business combination, we may be affected by numerous risks inherent in the business operations with which we combine. Although our directors and officers 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 securities will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a business combination target. Accordingly, any security holders who choose to remain security holders following our Initial 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 unless they are able to successfully claim that the reduction was due to the breach by our directors or officers of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy solicitation or tender offer materials, as applicable, relating to our Initial Business Combination, constituted an actionable material misstatement or omission.
Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our Initial 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 Initial 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 Initial Business Combination will not have all of these positive attributes. If we complete our Initial 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, a greater number of stockholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if stockholder approval of the transaction is required by law, or we decide to obtain stockholder approval for business or other legal reasons, it may be more difficult for us to attain stockholder approval of our Initial Business Combination if the target business does not meet our general criteria and guidelines. If we are unable to complete our Initial Business Combination, our Public Stockholders may receive only approximately $20.00 per share, or less in certain circumstances, on the liquidation of our trust account, our Distributable Redeemable Warrants will expire worthless and no Distributable Tontine Redeemable Warrants will have been issued. In certain circumstances, our Public Stockholders may receive less than $20.00 per share on the redemption of their shares. See “ —If third parties bring claims against us, the proceeds held in the trust account could be reduced and the
per-share
redemption amount received by stockholder may be less than $20.00 per share” and other risk factors below.34
We may, but are not required to, obtain an opinion from an independent investment banking firm or from an independent accounting firm, and consequently, you may have no assurance from an independent source that the price we are paying for the business is fair to our company from a financial point of view.
Unless we complete our Initial Business Combination with an affiliated entity or our board cannot independently determine the fair market value of the target business or businesses, we are not required to obtain an opinion from an independent investment banking firm that is a member of FINRA or from an independent accounting firm that the price we are paying is fair to our company from a financial point of view. If no opinion is obtained, our stockholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our proxy materials or tender offer documents, as applicable, related to our Initial Business Combination.
We may issue additional common stock or preferred stock to complete our Initial Business Combination or under an employee incentive plan after completion of our Initial Business Combination. In addition, we may issue a substantial number of shares of Class A Common Stock upon the exercise of our Warrants for common stock. Any such issuances would dilute the interest of our Public Stockholders and likely present other risks.
Our amended and restated certificate of incorporation authorizes the issuance of up to 3,020,000,000 shares of common stock, consisting of 3,000,000,000 shares of Class A Common Stock, par value $0.0001 per share, and 20,000,000 shares of Class B Common Stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share. As of December 31, 2020,2021, there were 2,800,000,000 and 19,999,900 authorized but unissued shares of Class A Common Stock and Class B Common Stock,
respectively. The amount of Class A Common Stock available for issuance does not take into account the Forward Purchase Shares, shares of Class A Common Stock reserved for issuance upon exercise of any then-outstanding warrants (including the Redeemable Warrants, Forward Purchase Warrants, Sponsor Warrants and Director Warrants) or the shares of Class A Common Stock issuable upon conversion of Class B Common Stock. As of December 31, 2020,2021, there were no shares of preferred stock issued and outstanding. The 100 shares of Class B Common Stock will automatically convert into 100 shares of our Class A Common Stock at the time of our Initial Business Combination.
We may issue a substantial number of additional shares of common or preferred stock to complete our Initial Business Combination or under an employee incentive plan after completion of our Initial Business Combination (although our amended and restated certificate of incorporation provides that we may not issue securities that are entitled to receive funds from the trust account or, other than the Forward Purchase Securities, that can vote with common stockholders on matters related to our
pre-Initial
Business Combination activity).The provisions of our amended and restated certificate of incorporation that enable or limit our ability to issue securities, like all provisions of our amended and restated certificate of incorporation, may be amended with the approval of our stockholders. However, our Sponsor, directors and officers have agreed, pursuant to the Letter Agreement with us, that they will not propose any amendment to our amended and restated certificate of incorporation (A) to modify the substance or timing of our obligation to allow redemptions in connection with our Initial Business Combination, (B) to modify the substance or timing of our obligation to redeem 100% of our Public Shares if we do not complete our Initial Business Combination within the Combination Period, or (C) with respect to any other provision relating to stockholders’ rights or
pre-Initial
Business Combination activity, unless we provide our Public Stockholders with the opportunity to have their shares of common stock redeemed upon approval of any such amendment at aper-share
price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including any interest (which interest shall be net of taxes payable), divided by the number of then-outstanding Public Shares.The issuance of additional shares of common or preferred stock:
may significantly dilute the equity interest of our stockholders;
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 our common stock are issued, which may affect, among other things, our ability to use net operating loss carry forwards, if any, and could result in the resignation or removal of our present directors and officers; and
may adversely affect prevailing market prices for our Class A Common Stock and/or Redeemable Warrants.
Resources could be wasted in researching business combinations that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our Initial Business Combination, our Public Stockholders may receive only approximately $20.00 per share, or less in certain circumstances, on the
35
liquidation of our trust account, our Distributable Redeemable Warrants will expire worthless and no Distributable Tontine Redeemable Warrants will have been issued.
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 Initial 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 Initial 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. If we are unable to complete our Initial Business Combination, our Public Stockholders may receive only approximately $20.00 per share, or less in certain circumstances, on the liquidation of our trust account our Distributable Redeemable Warrants will expire worthless and no Distributable Tontine Redeemable Warrants will have been issued. See “ —If third parties bring claims against us, the proceeds held in the trust account could be reduced and the
per-share
redemption amount received by stockholders may be less than $20.00 per share” and other risk factors below.Our ability to successfully effect our Initial Business Combination and to be successful thereafter will be totally dependent upondepend on the efforts of our key personnel, some of whom may join us following our Initial Business Combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
Our ability to successfully effect our Initial Business Combination is dependent upon the efforts of our key personnel. The role of our 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 Initial Business Combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we employ after our Initial Business Combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements.
In addition, the directors and officers of an Initial Business Combination candidate may resign upon completion of our Initial Business Combination. The departure of our Initial Business Combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. The role of our Initial Business Combination candidate’s key personnel upon the completion of our Initial Business Combination cannot be ascertained at this time. Although we contemplate that certain members of our Initial Business Combination candidate’s management team will remain associated with our Initial Business Combination candidate following our Initial Business Combination, it is possible that members of the management of our Initial Business Combination candidate will not wish to remain in place. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
We are dependent upondepend on 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, our 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 Initial 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 Initial 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 Initial Business Combination only if they are able to negotiate employment or consulting agreements in connection with our Initial Business Combination. Such negotiations would take place simultaneously with the negotiation of our Initial 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 Initial 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 Initial Business Combination will not be the determining factor in our decision as to whether or not we will proceed with any potential Initial Business Combination. There is no certainty, however, that any of our key personnel will remain with us after the completion of our Initial 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 Initial Business Combination.
36
We may have a limited ability to assess the management of a prospective target business and, as a result, may affect our Initial 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 Initial 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 initial business could suffer a reduction in the value of their securities. Such stockholders are unlikely to have a remedy for such reduction in value.
Members of our management team and investment team 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 Initial Business Combination.
The members of our management team and investment team are not required to, and do 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 Initial Business Combination and their other businesses. We do not intend to have any full-time employees prior to the completion of our Initial Business Combination. The members of our management team and investment team may be engaged in other business endeavors for which he or
she 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 seven members of our investment team allocate their time between fulfilling their duties to us and to PSCM. Our directors may (and in some cases do) 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 Initial Business Combination.
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 Initial 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, although each of our directors and officers has agreed not to become a director or officer of any other special purpose acquisition company with a class of securities registered under the Exchange Act until we have entered into a definitive agreement regarding our Initial Business Combination or we have failed to complete our Initial Business Combination within the Combination Period.
PSCM and its affiliates may form and manage other investment vehicles investing in public companies at any time prior to the announcement of our Initial Business Combination, including but not limited to, investment vehicles that may investwith our company.
side-by-side
Though we do not believe that PSCM and its affiliates’ activities present significant conflicts of interest with respect to our pursuit of an acquisition target, because we intend that our acquisition target will be a privately owned company, and the Pershing Square Funds are not permitted by their constituent documents to make investments in the equities of companies whose securities are not publicly traded (except they may make investments in public companies that issue private securities), certain conflicts described herein may still arise.
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
37
another entity prior to its presentation to us. Our amended and restated certificate of incorporation 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 seven members of our investment team are able to allocate their duties to us and to 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.
Please see “Item 10. Directors, Executive Officers and Corporate Governance—Conflicts of Interest” for a discussion of our officers’ and directors’ business affiliations and potential conflict of interest.
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 Initial 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.
Despite our agreement pursuant to our amended and restated certificate of incorporation 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 an Initial Business Combination with one or more businesses affiliated with our Sponsor, directors or officers, potential conflicts of interest still may exist and, as a result, the terms of our Initial Business Combination may not be as advantageous to our Public Stockholders as they would be absent any conflicts of interest.
We may engage in an Initial Business Combination with one or more target businesses that have relationships with entities that may be affiliated with our Sponsor, directors or officers 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 (and in some cases do) also serve as officers and board members for other entities, including, without limitation, those described under “Item 10. 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 Initial Business Combination with any entities with which they are affiliated, and there have been no preliminary discussions concerning an Initial Business Combination with any such entity or entities. Although we are not 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 Initial Business Combination as set forth in “Item 1. Business—Selection of a Target Business and Structuring of our Initial Business Combination” and such transaction was approved by a majority of our disinterested directors. Despite our agreement pursuant to our amended and restated certificate of incorporation 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 an Initial Business Combination with one or more businesses affiliated with our Sponsor, officers or directors, potential conflicts of interest still may exist and, as a result, the terms of our Initial Business Combination may not be as advantageous to our Public Stockholders as they would be absent any conflicts of interest.
Since the Forward Purchasers, our Sponsor and directors will lose the investment opportunity presented by the Forward Purchase Units, the Sponsor Warrants and Director Warrants, respectively, if our Initial Business Combination is not completed. Our Sponsor and directors may have a conflict of interest in determining whether a particular business combination target is appropriate for our Initial Business Combination.
We have entered into a Forward Purchase Agreement with the Forward Purchasers pursuant to which they have agreed to purchase at least $1,000,000,000, and up to an additional $2,000,000,000, of Forward Purchase Units, for an aggregate investment of up to $3,000,000,000 (or such greater amount as mutually agreed upon with respect to the Additional Forward Purchase Units and such aggregate amount). In addition, certain of our independent directors have committed to purchase an aggregate of $6,000,000 of Forward
38
Purchase Units. Each Forward Purchase Unit is composed of one share of Class A Common Stock and
one-third
of one warrant, at a price of $20.00 per Forward Purchase Unit. Purchases of the Forward Purchase Units will take place in one or more private placements at any time prior to, and no later than simultaneously with, the closing of our Initial Business Combination. If we do not complete an Initial Business Combination, the Forward Purchasers will lose the investment opportunity presented by the Forward Purchase Agreement.Our Sponsor purchased Sponsor Warrants for an aggregate purchase price of $65,000,000. The Sponsor Warrants are generally not salable, transferable or exercisable until three years after the date of our Initial Business Combination, and will only then be exercisable for that number of shares constituting 5.95% of the common shares of the post-combination business on a fully diluted basis as of the time immediately following the Initial Business Combination, at an exercise price equal to $24.00 per common share of the post-combination business. The Sponsor Warrants will have a term of 10 years from the consummation of our Initial Business Combination. The Sponsor Warrants will not be redeemable by us and will be exercisable, in whole or in part, on a cashless basis (in addition to being exercisable for cash).
In addition, our directors purchased Director Warrants for an aggregate purchase price of $2,837,500. The Director Warrants will be exercisable for that number of shares constituting 0.26% of the common shares of the post-combination business, on the same terms as the Sponsor Warrants. If we do not complete an Initial Business Combination, or we enter into an Initial Business Combination that is unlikely to result in a price per common share above $24.00, our Sponsor will lose the investment opportunity presented by the Sponsor Warrants, and our directors will lose the investment opportunity presented by the Director Warrants.
Our Sponsor, directors, officers and Forward Purchasers have agreed (A) to vote any Public Shares owned by them in favor of any proposed business combination and (B) not to redeem any Public Shares held by them (whether acquired during or after the initial public offering) in connection with a stockholder vote to approve a proposed Initial Business Combination. In addition, we may obtain loans from our Sponsor, affiliates of our Sponsor or an officer or director. The personal and financial interests of our directors and officers may influence their motivation in identifying and selecting a target initial business, completing our Initial Business Combination and influencing the operation of the business following our Initial Business Combination.
We may issue notes or other debt instruments, or otherwise incur substantial debt, to complete our Initial 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, or to otherwise incur outstanding debt, we may choose to incur substantial debt to complete our initial business.business combination. We have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the trust account. As such, no issuance of debt will affect the
per-share
amount available for redemption from the trust account. Nevertheless, the incurrence of debt could have a variety of negative effects, including:default and foreclosure on our assets if our operating revenues after our Initial 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 stock 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
39
other disadvantages compared to our competitors who have less debt.
We may only be able to complete one business combination with the proceeds of the initial public offering, the sale of the Forward Purchase Units and the sale of the Sponsor Warrants and Director Warrants, 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.
The net proceeds from the initial public offering and the sale of the Sponsor Warrants and Director Warrants provided us with $4,026,337,800, plus an additional $1,006,000,000 to $3,006,000,000 from the sale of the Forward Purchase Units, will be available to complete our business combination and pay related fees and expenses (which includes $56,250,000 for the payment of deferred underwriting commissions). The amount available to us may be less in the event of redemptions.
We may effectuate our Initial Business Combination with a single target business or multiple target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our business combination with more than one target business because 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 Initial 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 Initial 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 Initial Business Combination. We do not, however, intend to purchase multiple businesses in unrelated industries in conjunction with our Initial 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 Initial Business Combination with a private company about which little information is publicly available, which may result in an Initial Business Combination with a company that is not as profitable as we suspected, if at all.
In pursuing our Initial Business Combination strategy, we are likely to seek to effectuate our Initial 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 Initial Business Combination on the basis of limited information, which may result in our Initial Business Combination with a company that is not as profitable as we suspected, if at all.
Our management may have limited influence over or control of a target business after our Initial Business Combination.
We anticipate structuring our Initial Business Combination so that our stockholders (including our Sponsor, the Forward Purchasers, and our Public Stockholders) will own a minority stake in the post-combination business, which post-combination business we anticipate will own or acquire 100% of the equity interests or assets of the target business or businesses. However, we may structure our Initial Business Combination so that the post-combination business in which our Public Stockholders own shares will own less than 100% of the equity interests or assets of a target business, but we will only complete such business combination if the post-combination business owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction that does not meet such criteria. 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. Given that we intend to acquire a minority stake, and based on the foregoing factors, our management may have limited ability to influence or control the target business. We cannot provide assurance that we will have sufficient influence to ensure that management of the target business will possess the skills, qualifications or abilities necessary to profitably operate such business.
40
We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete our Initial Business Combination with which a substantial majority of our stockholders do not agree.
Our amended and restated certificate of incorporation does not provide a specified maximum redemption threshold, other than the requirement we may not redeem our Public Shares in an amount that would cause our net tangible assets to be less than $5,000,001 upon consummation of our Initial Business Combination and after payment of underwriters’ fees and commissions (such that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our Initial Business Combination. As a result, we may be able to complete our Initial Business Combination even though a substantial majority of our Public Stockholders do not agree with the transaction and have redeemed their shares or, if we seek stockholder approval of our Initial Business Combination and do not conduct redemptions in connection with our Initial Business Combination pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to our Sponsor, officers, directors, advisors or their affiliates. In the event the aggregate cash consideration we would be required to pay for all shares of Class A Common Stock that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed Initial Business Combination exceed the aggregate amount of cash available to us, we will not complete our Initial Business Combination or redeem any shares, all shares of Class A Common Stock submitted for redemption will be returned to the holders thereof, and we instead may search for an alternate business combination.
In order to effectuate our Initial Business Combination, blank check companies have, in the recent past, amended various provisions of their charters and other governing instruments, including their warrant agreements. We cannot assure you that we will not seek to amend our amended and restated certificate of incorporation or other governing documents in a manner that will make it easier for us to complete our Initial Business Combination but that our stockholders or warrant holders may not support.
In order to effectuate our Initial Business Combination, blank check companies have, in the recent past, amended various provisions of their charters and other governing instruments, including their warrant agreements. For example, blank check companies have amended the definition of business combination, increased redemption thresholds, and extended the time to consummate their Initial Business Combinations and, with respect to their warrants, amended their warrant agreements to require the warrants to be exchanged for cash and/or other securities. Amending the provisions of our amended and restated certificate of incorporation relating to certain and will require the affirmative vote of 65% of the voting power of our outstanding common stock. Amending the warrant agreement governing our Redeemable Warrants and Forward Purchase Warrants will require the vote of holders of at least 65% of the then-outstanding warrants. Pursuant to the warrant agreement, prior to our Initial Business Combination, the Forward Purchase Warrants will not have the right to vote on any amendments to the warrant agreement, except with respect to certain provisions relating solely to the transfer of Forward Purchase Securities. In addition, our amended and restated certificate of incorporation requires us to provide our Public Stockholders with the opportunity to redeemed their Public Shares for cash if we propose an amendment to our amended and restated certificate of incorporation (A) to modify the substance or timing of our obligation to allow redemptions in connection with our Initial Business Combination, (B) to modify the substance or timing of our obligation to redeem 100% of the Public Shares if we do not complete our Initial Business Combination within the Combination Period, or (C) with respect to any other provision relating to stockholders’ rights or
pre-business
combination activitypre-Initial
Business Combination activity. To the extent any such amendments would be deemed to fundamentally change the nature of any securities offered through this registration statement, we would register, or seek an exemption from registration for, the affected securities. We cannot assure you that we will not seek to amend our amended and restated certificate of incorporation to extend the time to consummate our Initial Business Combination, or seek other amendments to our governing document or warrant agreement in order to effectuate our Initial Business Combination.The provisions of our amended and restated certificate of incorporation that relate to our
pre-business
combination activity (and corresponding provisions of the agreement governing the release of funds from our trust account) including an amendment to permit us to withdraw funds from the trust account such that theper-share
amount investors receive upon any redemption or liquidation is substantially reduced or eliminated, may be amended with the affirmative vote of 65% of our outstanding common stock, and Forward Purchasers may purchase their shares prior to our Initial Business Combination and participate in such vote. It may be easier for us, therefore, to amend our amended and restated certificate of incorporation and the trust agreement to facilitate the completion of our Initial Business Combination that some of our stockholders may not support.Our amended and restated certificate of incorporation provides that any of its provisions related to
pre-Initial
Business Combination activity (including the requirement to deposit proceeds of the initial public offering and certain proceeds of the sale of the Sponsor Warrants and Director Warrants into the trust account and not release such amounts except in specified circumstances, to provide redemption rights to Public Stockholders as described herein and including to permit us to withdraw funds from the trust account such that theper-share
amount investors will receive upon any redemption or liquidation is substantially reduced or eliminated) may be amended by the affirmative vote of 65% of our outstanding common stock, and corresponding provisions of the trust agreement governing the release of funds from our trust account may be amended if approved by the same standard. Any changes to the provision granting the holders of our Class B Common Stock the exclusive right to elect or remove directors prior to our Initial Business Combination must be approved by the affirmative vote of 90% of our outstanding common stock. In all other instances, our amended and restated certificate of incorporation may be amended by holders of a majority of the voting power of our outstanding common stock,41
subject to applicable provisions of the DGCL or applicable stock exchange rules. We may not issue additional securities (other than the Forward Purchase Securities) that can vote on amendments to our amended and restated certificate of incorporation. Our Sponsor, who holds our Class B Common Stock will have, in the aggregate, 20.0% of the voting power of our outstanding common stock, will participate in any vote to amend our amended and restated certificate of incorporation and/or trust agreement and will have the discretion to vote in any manner they choose except as otherwise required by the Letter Agreement. In addition, the Forward Purchasers may elect to acquire Forward Purchase Units in advance of our Initial Business Combination and be able to participate in any such vote to amend our amended and restated certificate of incorporation and/or trust agreement. As a result, we may be able to amend the provisions of our amended and restated certificate of incorporation which govern our
pre-Initial
Business Combination behavior more easily than some other blank check companies, and this may increase our ability to complete an Initial Business Combination with which you do not agree. Our stockholders may pursue remedies against us for any breach of our amended and restated certificate of incorporation.Our Sponsor, directors and officers have agreed, pursuant to the Letter Agreement, that they will not propose any amendment to our amended and restated certificate of incorporation (i) to modify the substance or timing of our obligation to allow redemptions in connection with our Initial Business Combination, (ii) to modify the substance or timing of our obligation to redeem 100% of the Public Shares if we do not complete our Initial Business Combination within the Combination Period, or (iii) with respect to any other provision relating to stockholders’ rights or
pre-Initial
Business Combination activity, unless we provide our Public Stockholders with the opportunity to have their Public Shares redeemed upon approval of any such amendment at aper-share
price, payable in cash, equal tothe aggregate amount then on deposit in the trust account, divided by the number of then-outstanding Public Shares. Our stockholders are not parties to, or third-party beneficiaries of, the Letter Agreement and, as a result, will not have the ability to pursue remedies against our Sponsor, directors or officers for any breach of the Letter Agreement. As a result, in the event of a breach, our stockholders would need to pursue a stockholder derivative action, subject to applicable law.
While our Sponsor may not propose any of the amendments described in the prior paragraph, our Sponsor may vote to approve such amendments, as may the Forward Purchasers if any Forward Purchase Units have been issued as of the record date for such a vote. If no Forward Purchase Units have been issued as of such time, and our Sponsor votes its Class B Common Stock in favor of such matter requiring the approval of 65% of our outstanding common stock, we would need approximately 56.3% of the Public Shares to be voted in favor of such amendment for it to be approved. If the Forward Purchasers were to vote as recommended by us on a matter submitted to our stockholders for their approval, it would substantially increase the likelihood that any such matter would receive the requisite stockholder approval. For example, if the Forward Purchasers acquired all 50,000,000 of the Committed Forward Purchase Units prior to the record date for a stockholder vote on such an amendment and were to vote their Forward Purchase Shares in favor of such transaction, in addition to the voting power of such Forward Purchase Shares and the Class B Common Stock held by our Sponsor, we would need approximately 47.5% of the Public Shares to be voted in favor of such amendment for it to be approved. If, prior to such record date, the Forward Purchasers acquired the total 150,000,000 Forward Purchase Units represented by the committed forward purchase and the additional forward purchase, in addition to the voting power of such Forward Purchase Shares and the Class B Common Stock held by our Sponsor, we would need approximately 30% of the Public Shares to be voted in favor of such amendment for it to be approved. Each of the foregoing examples assumes that our Sponsor, officers and directors do not acquire any other Public Shares and that all outstanding shares are voted. The amount of the additional forward purchase may be increased by mutual agreement of us and the Forward Purchasers, which could further diminish the influence and/or control of our Public Stockholders. In addition, the Director Forward Purchasers may acquire and be able to vote up to 300,000 Forward Purchase Shares prior to the Initial Business Combination, representing approximately 0.1% of the voting power of the outstanding common stock in the above scenarios.
Certain agreements related to the initial public offering may be amended without stockholder approval.
Each of the agreements related to the initial public offering to which we are a party, other than the warrant agreements and the investment management trust agreement, may be amended without stockholder approval. Such agreements are: the underwriting agreement; the Letter Agreement among us and our Sponsor, officers, directors and the Forward Purchasers; the registration rights agreement between us, our Sponsor, the Forward Purchasers, and our independent directors; the Forward Purchase Agreement among us and the Forward Purchasers; the Director Forward Purchase Agreement among us and certain of our independent directors; the Sponsor Warrant purchase agreement between us and our Sponsor; the Director Warrant purchase agreement between us and our independent directors; and the promissory note between us and our Sponsor. These agreements contain various provisions that our Public Stockholders might deem to be material. For example, certain of these agreements contain certain
lock-up
and transfer restriction provisions with respect to our Class B Common Stock, Forward Purchase Securities, Sponsor Warrants, Director Warrants, any shares of common stock issuable upon the exercise or conversion thereof, and certain other securities held by our Sponsor, officers, directors and the Forward Purchasers. Amendments to such agreements would require the consent of the applicable parties thereto and would need to be approved by our board of directors, which may do so for a variety of reasons, including to facilitate our Initial Business Combination. While we do not expect our board of directors to approve any amendment to any of these agreements prior to our Initial Business Combination, it may be possible that our board of directors, in exercising its business judgment and subject to its fiduciary duties, chooses to approve one or more amendments to any such agreement. Any amendment entered into in connection with the consummation of our Initial Business Combination will be disclosed in our proxy solicitation or tender offer materials, as applicable,42
related to such Initial Business Combination, and any other material amendment to any of our material agreements will be disclosed in a filing with the SEC. Any such amendments would not require approval from our stockholders, may result in the completion of our Initial Business Combination that may not otherwise have been possible, and may have an adverse effect on the value of an investment in our securities. For example, amendments to the
lock-up
provision discussed above may result in certain stockholders selling their securities earlier than they would otherwise be permitted, which may have an adverse effect on the price of our securities.We may be unable to obtain additional financing to complete our Initial 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.
Although we believe that the net proceeds from the initial public offering and the private placement of the Sponsor Warrants, Director Warrants and the Forward Purchase Units will be sufficient to allow us to complete our Initial Business Combination, because we have not concluded a definitive agreement with respect to a prospective target business, we cannot ascertain the capital requirements for any particular transaction. See “Risk Factors – Any current work on a potential Initial Business Combination does not guarantee an immediate or timely deal announcement.” If the net proceeds of the initial public offering and the private placement of the Sponsor Warrants, the Director Warrants and the Forward Purchase Units prove to be insufficient, either because of the size of our Initial Business Combination, the depletion of the available net proceeds due to the search of a target business, the obligation to repurchase for cash a significant number of shares from stockholders who elect redemption in connection with our Initial Business Combination or the terms
of negotiated transactions to purchase shares in connection with our Initial Business Combination, 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 Initial Business Combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. If we are unable to complete our Initial Business Combination, our Public Stockholders may receive only approximately $20.00 per share, or less in certain circumstances, plus anypro-ratainterest earned on the funds held in the trust account and not previously released to us to pay our taxes on the liquidation of our trust account, our Distributable Redeemable Warrants will expire worthless and no Distributable Tontine Redeemable Warrants will have been issued. 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 failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors (except with respect to the purchase of $6,000,000 of Forward Purchase Units by certain of our independent directors) or stockholders is required to provide any financing to us in connection with or after our Initial Business Combination.
Our Sponsor may exert a substantial influence on actions requiring a stockholder vote, potentially in a manner that you do not support.
Our Sponsor, as the holder of our Class B Common Stock, holds 20.0% of the voting power of our issued and outstanding common stock. Accordingly, our Sponsor may exert a substantial influence on actions requiring a stockholder vote, potentially in a manner that you do not support, including amendments to our amended and restated certificate of incorporation and approval of major corporate transactions. If our Sponsor or its affiliates purchase additional Public Shares on the NYSE or in privately negotiated transactions, this would increase the influence of such parties. Factors that would be considered in making such additional purchases would include consideration of the current trading price of our Class A Common Stock. In addition, prior to our Initial Business Combination, our directors may be elected and removed only by the vote of the holders of our Class B Common Stock. Accordingly, our Sponsor will continue to exert control at least until the completion of our Initial Business Combination. In addition, if the Forward Purchasers elect to purchase Forward Purchase Units prior to our Initial Business Combination, and vote their Forward Purchase Shares in favor of any matter submitted to our stockholder for approval, although they have no obligation to vote with our Sponsor or as recommended by us, their ability to do so could also exert a substantial influence on actions requiring a stockholder vote.
For example, if the Forward Purchasers acquired all 50,000,000 of the Committed Forward Purchase Units prior to the record date for a stockholder vote on our Initial Business Combination and were to vote their Forward Purchase Shares in favor of such transaction, in addition to the voting power of such Forward Purchase Shares and the Class B Common Stock held by our Sponsor, we would need approximately 25.0% of the Public Shares to be voted in favor of a transaction for it to be approved. If, prior to such record date, the Forward Purchasers acquired the total 150,000,000 Forward Purchase Units represented by the committed forward purchase and the additional forward purchase, our Sponsor and the Forward Purchasers would together effectively control the outcome of such vote. With respect to certain amendments to our amended and restated certificate of incorporation that require the approval of 65% of the outstanding common stock, assuming the Forward Purchasers and our Sponsor vote in favor of such an amendment, the approval of such amendment would require (i) the vote of approximately 47.5%, if only the Committed Forward Purchase Units have been issued, and (ii) the vote of approximately 30%, if the Committed Forward Purchase Units and all Additional Forward Purchase Units have been issued. Each of the foregoing examples assumes that our Sponsor, officers and directors do not acquire any other shares of Class A Common Stock and that all outstanding shares are voted. The amount of the additional forward purchase may be increased by mutual agreement of us and the Forward Purchasers, which could further diminish the influence and/or control of our Public Stockholders. In
43
addition, the Director Forward Purchasers may acquire and be able to vote up to 300,000 Forward Purchase Shares prior to the Initial Business Combination, representing approximately 0.1% of the voting power of the outstanding common stock in the above scenarios.
We may amend the terms of the Redeemable Warrants and Forward Purchase Warrants in a manner that may be adverse to holders of such warrants with the approval by the holders of at least 65% of the outstanding Distributable Redeemable Warrants (prior to our Initial Business Combination) and at least 65% of the outstanding Redeemable Warrants and Forward Purchase Warrants (following our Initial Business Combination). As a result, the exercise price of such warrants could be increased, the exercise period could be shortened and the number of shares of our Class A Common Stock purchasable upon exercise of such a warrant could be decreased, all without your approval.
Our Redeemable Warrants and Forward Purchase Warrants will be issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of such warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires approval by the holders of at least 65% of the outstanding Redeemable Warrants. Pursuant to the warrant agreement, prior to our Initial Business Combination, the Forward Purchase Warrants will not have the right to vote on any amendments to the warrant agreement, except with respect to certain provisions relating solely to the transfer of Forward Purchase Securities. Accordingly, we may amend the terms of such warrants in a manner adverse to a holder if holders of at least 65% of the outstanding Redeemable Warrants and, as applicable,
Forward Purchase Warrants, approve of such amendment. Our ability to amend the terms of such warrants includes, but is not limited to, amendments to increase the exercise price, convert such warrants into cash or stock, shorten the exercise period or decrease the number of shares of our Class A Common Stock purchasable upon exercise of such a warrant. Prior to our Initial Business Combination, there will be 22,222,222 Distributable Redeemable Warrants outstanding, and only such warrants will be able to vote on amendments to the warrant agreement. Following our Initial Business Combination, there will be 66,666,666 Redeemable Warrants outstanding (including the 44,444,444 Distributable Tontine Redeemable Warrants issued in connection with our Initial Business Combination), and (i) if only the Committed Forward Purchase Units have been issued, 16,666,666 Forward Purchase Warrants outstanding and (ii) if the entire amount of the Additional Forward Purchase Units have been issued, 50,000,000 Forward Purchase Warrants outstanding, all of which will have the right to vote on amendments to the warrant agreement. Accordingly, following our Initial Business Combination, the Forward Purchasers will hold between 20.0% and 42.9% of the outstanding amount of redeemable and Forward Purchase Warrants, potentially giving the Forward Purchasers substantial influence over any vote to amend the warrant agreement. If we and the Forward Purchasers determine, by mutual agreement, to increase the number of Additional Forward Purchase Units, the voting power of the Forward Purchasers with respect to the warrant agreement will be correspondingly greater. In addition, the Director Forward Purchasers will have the ability to vote 100,000 Forward Purchase Warrants on amendments to the warrant agreement following our Initial Business Combination. The above descriptions of voting power in each case assume that no Redeemable Warrants or Forward Purchase Warrants have been exercised.
We may redeem your unexpired Redeemable Warrants prior to their exercise at a time that is disadvantageous to you, thereby making such warrants worthless.
We have the ability to redeem outstanding Redeemable Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the reference value of our shares of Class A Common Stock equals or exceeds $36.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like). If and when the Redeemable Warrants become redeemable by us, we may not exercise our redemption right unless (i) a registration statement under the Securities Act covering the issuance of the shares of Class A Common Stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A Common Stock is available throughout the
30-day
redemption period, or (ii) if the warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. We may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Redeemable Warrants could force you (i) to exercise your Redeemable Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Redeemable Warrants at the then-current market price when you might otherwise wish to hold your Redeemable Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Redeemable Warrants are called for redemption, is likely to be substantially less than the market value of your Redeemable Warrants.In addition, we have the ability to redeem the outstanding Redeemable Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.10 per warrant if, among other things, the reference value equals or exceeds $20.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like). In such a case, the holders will be able to exercise their Redeemable Warrants prior to redemption for a number of shares of Class A Common Stock determined based on the redemption date and the fair market value of our shares of Class A Common Stock. This provision could result in the warrant holders receiving less value than they may have been able to obtain if we had not called the warrants for redemption. For example, if we choose to redeem the warrants when the trading price of our shares of Class A Common Stock is less than the exercise price of the warrants, the value warrant holders receive upon exercise may be less than the value they could have received if they were able to wait to exercise
44
until a later time when the trading price of our shares of Class A Common Stock could be higher. In other circumstances, including when our shares of Class A Common Stock has a higher trading price, the amount received by exercising warrant holders pursuant to this provision may not compensate the holders for the value of the warrants, including because the number of shares received is capped at 0.3611 shares of Class A Common Stock per warrant (subject to adjustment) irrespective of the remaining life of the warrants.
Our Forward Purchase Units, Redeemable Warrants, Sponsor Warrants and Director Warrants may have an adverse effect on the market price of our shares of Class A Common Stock and make it more difficult to effectuate our Initial Business Combination.
We have entered into a Forward Purchase Agreement with the Forward Purchasers pursuant to which they have agreed to purchase at least $1,000,000,000, and up to an additional $2,000,000,000, of Forward Purchase Units, for an aggregate investment of up to $3,000,000,000 (or such greater amount of Additional Forward Purchase Units as mutually agreed upon by us). In addition, certain of our independent directors have agreed to purchase an aggregate of $6,000,000 of Forward Purchase Units. Each Forward Purchase Unit is composed of one share of Class A Common Stock and
one-third
of one warrant, at a price of $20.00 per Forward Purchase Unit. Purchases of the Forward Purchase Units will take place in one or more private placements at any time prior to, and no later than simultaneously with, the closing of our Initial Business Combination. If we do not complete an Initial Business Combination, the Forward Purchasers will lose the investment opportunity presented by the Forward Purchase Agreement.We issued Distributable Redeemable Warrants to purchase 22,222,222 shares of our Class A Common Stock as part of the units sold in the initial public offering, and will be distributing Distributable Tontine Redeemable Warrants to purchase 44,444,444 shares of our Class A Common Stock in connection with the closing of our Initial Business Combination, each exercisable for one share of Class A Common Stock at an exercise price of $23.00 per share. In addition, no later than simultaneously with the consummation of our Initial Business Combination, Forward Purchase Warrants to purchase at least 16,666,666 shares of Class A Common Stock will be issued pursuant to the Forward Purchase Agreement (as part of the Committed Forward Purchase Units) and as many as 50,000,000 shares of Class A Common Stock (or such greater amount as mutually agreed upon by us) if the Forward Purchasers elect to purchase the full amount of Additional Forward Purchase Units. In a private placement simultaneously with the closing of the initial public offering, our Sponsor purchased Sponsor Warrants constituting 5.95% of the common shares of the post-combination business on a fully diluted basis, with an exercise price equal to $24.00 per share of the post-combination business, and our directors purchased an aggregate amount of $2,837,500 of Director Warrants, exercisable for approximately 0.26% of the common share capital of the post-combination business on a fully diluted basis, with an exercise price equal to $24.00 per share of the post-combination business.
The potential for the issuance of a substantial number of additional shares of Class A Common Stock upon the issuance or exercise of these securities could make us a less attractive business combination vehicle to a target business. Any issuance of Forward Purchase Units or exercise of Forward Purchase Warrants or Redeemable Warrants will increase the number of issued and outstanding shares of our Class A Common Stock, and may reduce the value of the shares of Class A Common Stock issued, if any, to complete our Initial Business Combination. In addition, if stockholders of a target company are to remain stockholders in the post-combination business, the exercise of any of our warrants would reduce the ownership interest maintained in the post-combination business by such stockholders of the target company. Therefore, our warrants may make it more difficult to effectuate our Initial Business Combination or increase the cost of acquiring the target business.
A provision of our warrant agreement may make it more difficult for us to consummate an Initial Business Combination.
If (i) we issue additional shares of Class A Common Stock, equity-linked securities or any other instrument that is convertible or exercisable into, or exchangeable for, our shares of Class A Common Stock for capital raising purposes in connection with the closing of our Initial Business Combination at an issue price or effective issue price of less than $18.40 per share of Class A Common Stock (with such issue price or effective issue price to be determined in good faith by our board of directors) (the “Newly Issued Price”), (ii) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds (including from such issuances, the initial public offering, the sale of the Forward Purchase Units and any interest thereon, net of redemptions) that are available for the funding of our Initial Business Combination on the date of the consummation thereof and (iii) the daily volume-weighted average trading price of our shares of Class A Common Stock during theperiod starting on the trading day prior to the date on which we consummate our Initial Business Combination (such price, the “Market Value”) is below $18.40 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, the $36.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $20.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 100% of the higher of the Market Value and the Newly Issued Price. By lowering the price at which warrant holders may exercise, this provision may make it more difficult for us to consummate an Initial Business Combination with a target business.
20-trading-day
45
The determination of the offering price of our units and the size of the initial public offering is more arbitrary than the pricing of securities and size of an offering of an operating company in a particular industry. You may have less assurance, therefore, that the offering price of our units properly reflects the value of such units than you would have in a typical offering of an operating company.
Prior to our initial public offering there had been no public market for any of our securities. The public offering price of the units and the terms of the warrants were negotiated between us and the underwriters. In determining the size of the initial public offering, management held customary organizational meetings with the representatives of the underwriters, both prior to our inception and thereafter, with respect to the state of capital markets, generally, and the amount the underwriters believed they reasonably could raise on our behalf. Factors considered in determining the size of the initial public offering, prices and terms of the units, including the Class A Common Stock and warrants underlying the units, include:
the history and prospects of companies whose principal business is the acquisition of other companies;
prior offerings of those companies;
our prospects for acquiring an operating business;
a review of debt to equity ratios in leveraged transactions;
our capital structure;
an assessment of our management and their experience in identifying operating companies;
general conditions of the securities markets at the time of the initial public offering; and
other factors as were deemed relevant.
Although these factors were considered, the determination of our offering price is more arbitrary than the pricing of securities of an operating company in a particular industry since we have no historical operations or financial results.
A market for our securities may not continue, which would adversely affect the liquidity and price of our securities.
The price of our securities may vary significantly due to one or more potential business combinations and general market or economic conditions, including as a result of the
COVID-19
pandemic. Furthermore, an active trading market for our securities may not be sustained. You may be unable to sell your securities unless a market can be established and sustained.Because we must furnish our stockholders with target business financial statements, we may lose the ability to complete an otherwise advantageous Initial Business Combination with some prospective target businesses.
The federal proxy rules require that a proxy statement with respect to a vote on our Initial Business Combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. We will include the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America (GAAP), or international financial reporting standards (IFRS) as issued by the International Accounting Standards Board. Depending on the circumstances, the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB). These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such financial statements in time for us to disclose such financial statements in accordance with federal proxy rules and complete our Initial Business Combination within the Combination Period.
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, our stockholders 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 Class A Common Stock held by non-affiliates exceeds $700 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 volatile.
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.
Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate our Initial Business Combination, require substantial financial and management resources, and increase the time and costs of completing our Initial Business Combination.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our annual report on Formendingended December 31, 2021. Only in the eventAs of December 31, 2021, we are deemed to be a large accelerated filer, or an accelerated filerand will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. Further,Compliance with these requirements could require substantial financial and management resources, reducing the resources available to conduct our search for as long as we remain an emerging growth company, we are not required to comply with such independent registered public accounting firm attestation requirement on our internal control over financial reporting.Initial Business Combination. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because a target company with which we seek to complete our Initial 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 control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such Initial Business Combination.
10-K
for the year 46
Provisions in our amended and restated certificate of incorporation and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A Common Stock and could entrench management.
Our amended and restated certificate of incorporation 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.
Provisions in our amended and restated certificate of incorporation and Delaware law may have the effect of discouraging lawsuits against our directors and officers.
Our amended and restated certificate of incorporation 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 amended and restated certificate of incorporation. This exclusive provision forum will not apply to suits arising under the Exchange Act or any other claim for which federal courts have exclusive jurisdiction. In addition, our amended and restated certificate of incorporation 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.
In recent state court cases, including the March 2020 Delaware Supreme Court decision in, exclusive forum provision providing for claims under the Securities Act to be brought in federal court have been found to be facially valid, including under Delaware law. We intend to enforce this provision, but we do not know whether courts in other jurisdictions will agree with this decision or enforce it.
Salzburg et al. v. Sciabacucchi
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 amended and restated certificate of incorporation 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.
Cyber 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. 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, cyber incidents. It is possible that any of these occurrences, or a combination of them, could have adverse consequences on our business and lead to financial loss.
If we effect our Initial 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 Initial 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 on individuals;
47
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.
Our warrants and forward purchase agreements are accounted for as either derivative assets or liabilities and the changes in fair value of each could have a material effect on our financial results.
On April 12, 2021, the staff of the Securities and Exchange Commission issued a public statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies” (the “SEC Staff Statement”). The SEC Staff Statement regarding the accounting and reporting considerations for warrants issued by SPACs, focused on warrants that have certain settlement terms and provisions related to certain tender offers, or warrants which do not meet the criteria to be considered indexed to an entity’s own stock. The terms described in the SEC Statement are common in SPACs and are similar to the terms contained in the warrant agreements governing our warrants. In response to the SEC Statement, wearewere included on our balance sheet as of December 31, 2021 and December 31, 2020. Accounting Standards Codification (“ASC”) Topic 815,provides for the remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting
re-evaluated
the accounting treatment of our warrants and Forward Purchase Agreements, and determined that they should be classified as either derivative assets or liabilities measured at fair value, with changes in fair value reflected on the statement of operations for each respective period. As a result, derivative assets and liabilities related to our outstanding warrants and Forward Purchase Agreements Derivatives and Hedging,,
non-cash
gain or loss related to the change in fair value to be reflected on the statement of operations. Due to the recurring fair value measurement, we expect that we will recognizenon-cash
gains or losses on our outstanding warrants and Forward Purchase Agreements in each reporting period, and that the amount of such gains or losses could be material.We havepreviously identified a material weakness in our internal control over financial reporting, as of December 31, 2020.which has since been remediated. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us, and materially and adversely affect our business and operating results.
Following the issuance of the SEC Staff Statement, and after consultation with our independent registered public accounting firm, our management and our audit committee concluded that, in light of the SEC Statement, it was appropriate to restate our previously issued audited financial statements as of December 31, 2020, and for the period from May 4, 2020 (inception) through December 31, 2020. As part of such process, we identified a material weakness in our internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We continue to evaluateManagement has implemented remediation steps to remediateaddress the material weakness. These remediation measures may be costlyweakness and thereto improve our internal control over financial reporting.
48
With respect to non-routine transactions, all significant and unusual transactions entered into by the Company are reviewed by the CFO for appropriate treatment in accordance with US GAAP. Where necessary, third-party professionals are consulted regarding the treatment of complex accounting matters to assist management in validating that the correct accounting treatment is no assurance that these initiatives will ultimately have the intended effects.
used.
If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures, and could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
None
We currently maintain our principal executive offices at 787 Eleventh Avenue, 9
th
Floor, New York, NY 10019. The space is provided to us at no cost by Pershing Square Capital Management, L.P., an entity affiliated with our Sponsor and the members of our management team. We consider our current office space adequate for our current operations.On August 17, 2021, a purported stockholder of the Company filed a putative derivative lawsuit in U.S. Federal Court in New York,(S.D.N.Y), against the Company, its independent directors and certain affiliates of the Company’s Sponsor alleging that the Company was operating as an illegal investment company, because among other claims, the Company had invested the proceeds from its initial public offering in securities (in the Company’s case, short-term U.S. Treasury securities and money market funds that own short-term U.S. Treasury securities). The lawsuit also claims that, despite the Company’s stated purpose to search for and complete an initial business combination, the Company has instead been engaged primarily in the business of investing in securities in violation of the Investment Company Act of 1940. An amended complaint filed on October 8, 2021 added direct claims related to the same core allegations. The defendants have filed motions to dismiss, which were fully briefed as of December 13, 2021. On December 16, 2021, the Court stayed discovery in the action pending decision on the motions to dismiss. The Company believes that this lawsuit is no litigation currently pendingmeritless and intends to defend against usthese claims vigorously. Nevertheless, as the Company has previously disclosed, it may be unlikely that the lawsuit, even if meritless, can finally be resolved in the short-term, which may make it more difficult for the Company to complete an initial business combination in a timely manner.
Assad v. Pershing Square Tontine Holdings, Ltd., et al,
The Company has also received requests for books and records from certain purported stockholders pursuant to Section 220 of the Delaware General Corporation Law and has provided or any of our officers or directorsagreed to provide certain information in their corporate capacity.response to those requests.
Not Applicable.
49
PART II
Market Information
Our Class A Common Stock and warrants are traded separately on the NYSE under the symbols “PSTH” and “PSTH.WS”, respectively.
Holders
As of May 24, 2021,March 3, 2022, there was one holderwere three holders of record of our Class A Common stock, one holder of record our Class B Common Stock, one holder of record of our public warrants, one holder of record of our Sponsor Warrants, and five holders of record of our Director Warrants. The number of holders of record does not include a substantially greater number of “street name” holders or beneficial holders whose Class A Common Stock and warrants are held of record by banks, brokers and other financial institutions.
Dividends
We have not paid any cash dividends on our shares of our common stock to date and do not intend to pay cash dividends prior to the completion of our Initial Business Combination. The payment of cash dividends in the future will be dependent upondepend on our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of our Initial Business Combination. The payment of any cash dividends subsequent to our Initial Business Combination will be within the discretion of our board of directors at such time. In addition, our board of directors is not currently contemplating and does not anticipate declaring any share dividends in the foreseeable future. Further, if we incur any indebtedness in connection with our Initial Business Combination, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
Securities Authorized for Issuance Under Equity Compensation Plans
None
Performance Graph
The graph below compares the cumulative total return for our Class A Common Stock from September 11, 2020 (the first day on which our Class A Common Stock detached from our units and started trading separately on the NYSE) through December 31, 20202021 with the comparable cumulative return of two indices: the S&P 500 Index and the Russell 2000 Index. The graph assumes $100 invested on September 11, 2020 in each of our Class A Common Stock and the two indices presented.
50
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 6. Selected Financial Data.
The following table summarizes the relevant data for our business as of December 31, 2020 and should be read with our financial statements, which are included in this Report:
| For the period from May 4, 2020 (inception) through December 31, 2020 | ||||
Income Statement Data: | ||||
Loss from operations | $ | (2,831,597 | ) | |
Income earned in trust account | 1,690,454 | |||
Other loss from outstanding warrants and forward purchase agreement liabilities | (953,450,907 | ) | ||
Net loss | (954,881,205 | ) | ||
| December 31, 2020 | ||||
Balance Sheet Data: | ||||
Cash and cash equivalents | $ | 25,348,287 | ||
Cash and marketable securities held in trust account | 4,001,690,454 | |||
Total assets | 4,029,640,433 | |||
Forward purchase agreement liabilities | 593,893,320 | |||
Outstanding warrant liabilities | 462,704,684 | |||
Total liabilities | 1,114,429,422 | |||
Class A common stock subject to possible redemption | 4,001,401,299 | |||
Total stockholders’ equity / (deficit) | (1,086,190,288 | ) | ||
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations has been amended and restated to give effect to the restatement and revision of our financial statements as more fully described in the Explanatory Note and in “Note 2 - Restatement of Previously Issued Financial Statements” to our accompanying financial statements. For further detail regarding the restatement adjustments, see Explanatory Note and Item 9A: Controls and Procedures, both contained herein.
Overview
We are a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We have not selected any specific business combination target. We intend to effectuate our Initial Business Combination using cash from the proceeds of the initial public offering and the private placements of the Sponsor Warrants, Director Warrants and Forward Purchase Units, our capital stock, debt or a combination of cash, stock and debt. Our Initial Business Combination will be a negotiated transaction, not a hostile takeover.
The issuance of additional shares of our stock in a business combination, including the Forward Purchase Securities:Securities and any private investment on public equity, or PIPE, securities may:
may
significantly dilute the equity interest of investors;
may
subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;
could
cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use net operating loss carry forwards, if any, and could result in the resignation or removal of our present directors and officers;
may
have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and
may
adversely affect prevailing market prices for our shares of Class A Common Stock and/or Redeemable Warrants.
Similarly, if we issue debt instruments or otherwise incur significant indebtedness, it could result in:
default and foreclosure on our assets if our operating revenues after our Initial 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 stock 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;
51
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 purposes and other disadvantages compared to our competitors who have less debt.
We expect to continue to incur costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete our Initial Business Combination will be successful.
Certain Observations
During
Recent Developments
Proposed and Subsequent Cancellation of an Initial Business Combination
Below is a description of the firstproposed Initial Business Combination, which was ultimately not consummated.
On June 20, 2021, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Vivendi SE to purchase a number of ordinary shares, par value €10 per share (the “UMG Shares”), representing approximately 10% of the share capital and voting rights, on a fully diluted basis, of Universal Music Group (“UMG”) for approximately $4 billion (the “Share Purchase”), with the expectation that the Company would distribute the UMG Shares to its Public Stockholders (the “Distribution” and together with the Share Purchase, the “Proposed IBC”). The Company expected that the Share Purchase would be consummated in the third quarter of 2021 and upthe Shares held in trust under the Distribution which would occur in November or December 2021.
In connection with the Proposed IBC, the Company and Vivendi also entered into an indemnification agreement pursuant to today,which the Company agreed to indemnify Vivendi and certain of its related parties for certain potential liabilities in connection with the Company’s redemption tender offer, the warrant exchange offer and the Distribution (each as further described below).
Also on June 20, 2021, the Company, the Sponsor, the Pershing Square Funds and the Company’s independent directors entered into the Pershing Entities Letter Agreement, pursuant to which:
The Company and the Pershing Square Funds agreed to amend and restate the Forward Purchase Agreement concurrently with the closing of the Proposed IBC, pursuant to which the Forward Purchasers would exercise their right to purchase an aggregate amount of $1.6 billion of Forward Purchase Units ($1.0 billion of Committed Forward Purchase Units and $600 million of Additional Forward Purchase Units). The price per share at which the Pershing Square Funds would have exercised such amended Forward Purchase Agreement would be equal to RemainCo’s (defined below) net asset value at the time of such purchase;
The Company and the Sponsor agreed to amend the Sponsor Warrants concurrently with the closing of the Proposed IBC, such that the Sponsor Warrants would not be exercised or otherwise participate in the Proposed IBC. Instead, they would remain in place, but the exercise price would be adjusted to equal 120% of RemainCo’s net asset value immediately prior to the time it completed its anticipated future business combination with an operating business; and
The Company and its independent directors agreed that the Director Warrants would not be exercised in connection with the Proposed IBC, and would be amended concurrently with the closing of the Proposed IBC. The result of such amendment would have been that, (i) the holders of the Director Warrants would receive shares in the Company in exchange for approximately 72% of the fair market value of the Director Warrants (as determined by a third-party valuation firm), to compensate for the fact that they would not participate in the Proposed IBC as originally envisioned, (ii) such shares would participate in the Distribution and (iii) the roughly 28% of the value of the Director Warrants would remain in place with their exercise price adjusted in the same manner as the exercise price of the Sponsor Warrants as explained above.
The Company further announced that it expected to undertake a 1:4 reverse stock split following the issuance of the Distributable Tontine Redeemable Warrants, all warrants in respect of the Forward Purchase Agreement and Director Forward Purchase Agreements and the Distribution to target a net asset value (“NAV”) of approximately $22 per share.
Pursuant to the Proposed IBC, following the Distribution, the Company would have continued to exist and it would not have disappeared into UMG nor would it have been liquidated. The Company that would have continued to exist is referred to herein as “RemainCo”. RemainCo would have been the same corporate entity and it would have continued to be named Pershing Square Tontine Holdings, Ltd. The Public Stockholders would have continued to own shares in RemainCo, and it was intended that RemainCo would pursue a traditional business combination with an operating business (RemainCo’s “Future Business Combination”).
52
On July 8, 2021, the Company launched (i) a redemption tender offer which was intended to provide Public Stockholders with the opportunity to exercise their right to redeem their shares of Class A Common Stock in connection with the Proposed IBC and (ii) a warrant exchange offer which provided holders of the Company’s currently outstanding Distributable Redeemable Warrants the opportunity to exchange those warrants for shares of Class A Common Stock at a ratio of 0.2650 shares per warrant.
On July 19, 2021, the Company announced that its board of directors had unanimously determined not to proceed with the Proposed IBC and the Company had agreed to assign its rights and obligations under the Share Purchase Agreement with Vivendi to Pershing Square Holdings, Ltd. and certain of its affiliates (the “Assignees”). The Assignees agreed to purchase or cause to be purchased at least 5% of the share capital of UMG on the terms and subject to the conditions of the Share Purchase Agreement and Vivendi acknowledged that if the Assignees purchased at least 5% of the share capital of UMG, the Share Purchase Agreement would be of no further force with respect to remaining UMG shares to be purchased under the Share Purchase Agreement. In addition, the Assignees, severally in accordance with their obligations to purchase UMG shares, agreed to assume and reimburse the Company forexpenses incurred to that time by the Company in connection with transactions related to the Proposed IBC, which totaled $25.1 million. The Assignees also assumed, severally in accordance with their obligations to purchase UMG shares, the Company’s obligations under the indemnification agreement, between the Company and Vivendi.
out-of-pocket
On July 21, 2021, the Company terminated its redemption tender offer and warrant exchange offer, and no shares were redeemed from the Company. As a result of the termination of these offers and the cancellation of the Proposed IBC, the Pershing Entities Letter Agreement did not come into effect and there have been no changes to the instruments discussed as exhibits to such letter agreement. The FPA, Sponsor Warrants and Director Warrants remain as initially issued as of June 21, 2020 and July 21, 2020, respectively.
The Company continues to seek an initial business combination.
On August 10, 2021, the Assignees completed an initial closing under the Share Purchase Agreement, as a result of which the Company was released from its obligations under the Share Purchase Agreement and the indemnification agreement described above (which indemnity was allocated without the participation of the Company, among the Pershing Square Funds). Also on August 10, 2021, the Company entered into an assignment of the registration rights agreement to the Assignees, at which time the registration rights agreement was amended to provide, among other things, the Assignees certain rights to register UMG shares for a public offering no earlier than 2023 rather than providing for the Distribution that the Company originally envisioned.
Certain Observations
During the first two months of 2022, we have continued to work on identifying a potential business combination transactiontarget for which we had initiated discussions and began due diligence in November 2020. While substantial progress has been made, significant issues remain to be addressed before a transaction can be announced and consummated, if at all.
an Initial Business Combination. For the periodyear ended December 31, 2020,2021, we recorded net lossincome of $954,881,205,$833,301,124, which was primarily due to anon-cashGAAP chargegain of $953,450,907$836,147,258 related to the change in accounting forvaluations of our Public Warrants, Sponsor Warrants, Director Warrants (“Private Placement Warrants”, collectively with the Public Warrants, the “Outstanding Warrants”) and FPA,the Forward Purchase Agreement and Director Forward Purchase Agreement (collectively, the “FPA”), each of which was previously accounted for as equity.equity on our financial statements through December 31, 2020. The change in accounting was initiated following publication of a statement by the Staff of the Securities & Exchange Commission on accounting for SPAC warrants, which impacted nearly all SPACs. As a result ofwarrants. Following the SEC’s public statement, management along with the audit committee reconsidered accounting issues related to these instruments and have restated our financial statements at December 31, 2020 to account for our Public Warrants, Sponsor Warrants, DirectorOutstanding Warrants and FPA as derivative liabilities. For the periodyear ended December 31, 2020,2021, this accounting treatment has required us to record a large non-cashgain which we believe GAAP loss that does not represent an actual cash loss by the Company, nor doit will not have any effect on our ability to consummate an initial business combination on economically attractive terms.
The revised accounting methodology relatescombination.
Changes in our stock price could lead to certain featureslarge fluctuations of the Public Warrants, Sponsor Warrants, Director Warrants and our FPA (the terms of which entitle the Sponsor and directors to receive warrants in addition to common stock) that are designed to protect the holders of warrants by entitling them to be exchanged for cash in certain events. The revised accounting requires that we account for the Public Warrants, Sponsor Warrants, Director Warrants and FPA as liabilities equal to their fair value at the end of each reporting period.
The impactas a result of this accounting treatment is highly volatile as it is driven by changes in our stock price.treatment. If our stock price increases over a given measurement period, the fair values of our warrants and FPA will also increase in value resultingand result in a larger liability being recorded on our balance sheet and a larger non-cashGAAP loss recorded in our earnings statement for the period, all other things being equal. Conversely, if our stock price declines over a measurement period, we will record a smaller liability or an asset on our balance sheet and report anon-cashGAAP gain in our earnings statement, notwithstanding that our stockholders will be holding shares that have declined in value over the measurement period. Since PSTH is the largest SPAC with the largest Sponsor Committed FPA, and has traded at a significant premium to its cash in trust per share, we expect that our reported loss for the period ended December 31, 2020 will be larger than those reported by other SPACs.
53
Non-cash
GAAP gains or losses due to changes in the fair value of such instruments have no impact onResults of Operations
All activities through December 31, 20202021 were related to the Company’s organizational activities, preparation for the Company’s initial public offering, and subsequently, identifying a target company for a business combination.combination and activities in connection with the Proposed IBC and its subsequent cancellation. We will not generate any operating revenues until after completion of our Initial Business Combination. We generate
non-operating
income in the form of interest and dividends on cash and cash equivalents, and marketable securities held in the trust account. We incur ongoing expenses as a result of being a public company for legal, financial reporting, accounting and auditing compliance, as well as for due diligence and Initial Business Combination related transaction expenses.For the period from May 4, 2020 (inception) through September 30, 2020,year ended December 31, 2021, we had net lossincome of $447,066,761,$833,301,124, which consisted of legal, insurance, research, franchise tax and other expenses totaling $681,646, aliabilitiesliabilities/assets of $231,470,840, a$598,782,500, (ii)$214,771,598, transaction costs attributed to outstanding warrants$237,364,758, (iii) income earned on marketable securities held in the trust account of $912,625$1,850,026, (iv) IBC related fees reimbursement of $1,343,817, and a provision for income taxes of $23,473, offset by(v) interest and dividends earned on marketable securities held in the trust account and operating account of $17,161,$2,146, offset by (a) legal, insurance, research, franchise tax and unrealized gains on marketable securities held in the trust accountother expenses totaling $5,734,774, and (b) provision for income taxes of $776,260.
(i) non-cash
gain related to change in the fair value of Forward Purchase Agreement non-cash
gain related to change in the fair value of Outstanding Warrant liabilities of $307,349.
For the period from May 4, 2020 (inception) through December 31, 2020, and as reported on our statement of operations in Item 15, we had net loss of $954,881,205, which consisted of legal, insurance, research, franchise tax and other expenses totaling $2,833,025, aliabilitiesliabilities/assets of $593,893,320, a(ii)transaction(iii) offering costs attributed to outstanding warrantsOutstanding Warrant liabilities of $912,625, (iv) legal, insurance, research, franchise tax and aother expenses totaling $1,489,208, (v) IBC related fees of $1,343,817, and (vi) provision for income taxes of $289,155, offset by (a) income earned on marketable securities held in the trust account of $1,690,454, and (b) interest and dividends earned on marketable securities held in the trust account and operating account of $1,509,419, and unrealized gains on marketable securities held in the trust account of $182,463.
(i) non-cash
loss related to change in the fair value of Forward Purchase Agreement non-cash
loss related to change in the fair value of Outstanding Warrant liabilities of $358,644,962, $1,428.
Non-GAAP
Financial MeasuresAs noted above, the Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. As such, we believe the amount of committed capital available for an Initial Business Combination is critical to our success as a blank check company. See Liquidity and Capital Resources below for further information on our unrestricted cash balances and funds held in the trust account as of December 31, 2020.2021. In addition, we report adjusted net loss, which is a
non-GAAP
financial measure that is not required by, or presented in accordance with, GAAP. Management uses thisnon-GAAP
measure to evaluate results as it reduces the volatility of operations due to the accounting for our warrants and forward purchase agreements, which are more fully described in Note 2 of the Notes to Financial Statements included herein, and which do not have an impact on the funds held in the trust account or committed capital available for an Initial Business Combination. We believe this information is useful to investors for these reasons. Thisnon-GAAP
measure should not be considered a substitute for the most directly comparable GAAP measures, which are reconciled below. Further, this measure has limitations as an analytical tool, and when assessing our operating performance, you should not consider this measure in isolation or as a substitute for GAAP measures. We may calculate or present thisnon-GAAP
financial measure differently than other companies who report measures with the same or similar names, and as a result, thenon-GAAP
measure we report may not be comparable.Adjusted net lossincome/(loss) represents our net lossincome/(loss) excluding (1) the change in fair value of forward purchase agreement liabilitiesliabilities/assets and the change in fair value of Outstanding Warrant liabilities, which are2020,2021, our Balance Sheet reflectsbalance sheets reflect a net liability of $1,056,598,004$220,450,746 (net of Forward Purchase Agreement assets) (December 31, 2020: $1,056,598,004) related to liabilitiesderivative liabilities/assets which do not impact the funding available for an Initial Business Combination. As can be observed, the value of the liabilities/assets relating to these instruments under GAAP (and the related income/(loss) that flows through the statements of operations) can swing significantly when in fact no economic changes have occurred.
non-cash items, and (2) transaction costs allocable to Outstanding Warrant liabilities, which are not anticipated to recur in the future.
items. As of December 31, FOR THE PERIOD FROM MAY 4, 2020 (INCEPTION) THROUGH DECEMBER 31, 2020
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
54
For the Year Ended December 31, 2021 | For the Period from May 4, 2020 (inception) through December 31, 2020 | |||||||
Net income/(loss) | $ | 833,301,124 | $ | (954,881,205 | ) | |||
Less: | ||||||||
Change in fair value of Forward Purchase Agreement liabilities | 598,782,500 | (593,893,320 | ) | |||||
Change in fair value of Outstanding Warrant liabilities | 237,364,758 | (358,644,962 | ) | |||||
Offering costs allocable to Outstanding Warrant liabilities | - | (912,625 | ) | |||||
Adjusted net loss | $ (2,846,134 | ) | $ (1,430,298 | ) | ||||
Liquidity and Capital Resources
Our liquidity needs had been satisfied prior to the consummation of the initial public offering through a capital contribution of $25,000 by our Sponsor in exchange for 100 shares of Class B Common Stock, and interest-bearing loans of $1,121,120 from our Sponsor under an unsecured promissory note covering expenses related to the initial public offering. The loan was repaid in full on July 24, 2020, inclusive of interest.
As of December 31, 2021 and December 31, 2020, $378,880 was left under the promissory note to be drawn down, and there were no borrowings outstanding, respectively.
On July 24, 2020, we consummated the initial public offering of 200,000,000 Units, at $20.00 per unit, generating gross proceeds of $4,000,000,000. Simultaneously with the closing of the initial public offering, we consummated a $67,837,500 sale of Sponsor Warrants and Director Warrants in private placements.
Following the initial public offering and the private placements of Sponsor Warrants and Director Warrants, a total of $4,000,000,000 was placed into the trust account. We incurred $94,623,187 in offering costs, including $35,000,000 of underwriting fees, $56,250,000 of deferred underwriting fees and $3,373,187 of other offering costs. The per share amount to be distributed to Public Stockholders who properly redeem their Public Shares will not be reduced by the deferred underwriting fees (further discussed below).
As of September 30, 2020,December 31, 2021, we had an unrestricted cash balance of $26,590,385$23,156,677 in the operating account, held outside the trust account to fund our ongoing expenses, as well as cash and marketable securities held in the trust account of $4,000,792,654. Interest and dividend income earned on the balance in the trust account will be used to pay taxes on such income. During the period from May 4, 2020 (inception) through September 30, 2020, we did not withdraw any interest or dividends earned on the trust account.
As of December 31, 2020, we had an unrestricted cash balance of $25,348,287 in the operating account, held outside the trust account to fund our ongoing expenses, as well as cash and marketable securities held in the trust account of $4,001,690,454.$4,002,943,971. Interest and dividend income earned on the balance in the trust account will be used by us to pay taxes on such income. During the period from May 4, 2020 (inception)From our inception through December 31, 2020,2021, we did not withdraw anywithdrew $596,509 of interest orand dividends earned on the trust account.
account to pay our income taxes, of which all were withdrawn during the year ended December 31, 2021.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest and dividends earned on the trust account (less taxes payable and deferred underwriting fees), and the proceeds from the sale of the Forward Purchase Units to complete an Initial Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete the Initial Business Combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions, and pursue our growth strategies.
In order to fund working capital deficiencies or finance transaction costs in connection with an Initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our directors and officers may, but are not obligated to, loan us funds as may be needed. If we complete the Initial Business Combination, we would repay such loaned amounts. In the event that the Initial Business Combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating our Initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our Initial Business Combination or because we become obligated to redeem a significant number of the shares of our Public Shares upon completion of our Initial Business Combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Initial Business Combination. If we are unable to complete our Initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our Initial Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.55
Contractual Obligations
We do not have any long-term debt, capital lease obligations or operating lease obligations as of December 31, 2020.2021.
The underwriters are entitled to a deferred fee of $0.28 per Unit, or $56,250,000 in the aggregate.aggregate payable only upon the completion of our initial business combination. The aggregate deferred underwriting fees includes (i) the deferral of any underwriting fees, other than the retail selling concessions, in excess of $30,000,000 (a deferral of $12,500,000), plus (ii) a 2.0% rate applied to the gross offering proceeds, subject to a $56,250,000 cap on the amount of such aggregate deferred underwriting fees. If the amount of proceeds from the trust account paid in connection with the redemption rights of Public Stockholders, together with the amount of any capital raised in private placements in connection with the Initial Business Combination from investors other than Sponsor or its affiliates (the “Net Redemptions”), results in us having less than $2,000,000,000 of cash available upon consummation of the Initial Business Combination, only 25% of the aggregate deferred underwriting fees will be payable. If such amount of cash available is $2,000,000,000 or greater, 50% of the aggregate deferred underwriting fees will be payable, and the remaining 50% of the aggregate deferred underwriting fees will be subject to apro-ratareduction based on the amount of Net Redemptions as a percentage of the total public proceeds of the initial public offering. The deferred underwriting fees will be waived by the underwriters solely in the event that we do not complete a business combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (GAAP)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for our Class A Common Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” The Company’s conditionally redeemable Class A Common Stock features certain redemption rights that are considered to be outside of its control and subject to the occurrence of uncertain future events. Accordingly, at December 31, 2021 and December 31, 2020, 200,000,000 shares of Class A Common Stock subject to possible redemption arewere presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.
sheets. The Company adjusts the carrying value of redeemable common stock to equal the redemption value of the cash held in the Trust Account net of income taxes payable at the end of each reporting period.
Outstanding Warrants and FPA Liabilities
Liabilities/Assets
We account for our outstanding warrantsOutstanding Warrants and FPA in accordance with the guidance contained in ASCoutstanding warrantsOutstanding Warrants and FPA do not meet the criteria for equity treatment and must be recorded as liabilities.derivative liabilities or derivative assets. Accordingly, we classify the outstanding warrantsOutstanding Warrants and FPA as liabilities or assets with changes in fair value reflected on the statementCompany’s statements of operations at each reporting period. The fair value of the Public Warrants was initially measured using a modified Black-Scholes pricing model and subsequently measured at the closing quoted market price. The Private Placement Warrants and FPA are valued using a modified Black-Scholes pricing model. See Note 87 of the Notes to Financial Statements included herein for further information on the significant inputs to the models utilized to determine the fair valuevalues of the outstanding warrantsOutstanding Warrants and FPA liabilities.
815-40,
under which the liabilities/assets.
Net Income / Income/(Loss) per Common Share
We apply thestockStock subject to possible redemption which is not currently redeemable and is not redeemable at fair value, have been excluded fromcalculated by dividing the calculationallocable income earned on the Trust Account, net of basicapplicable income / (loss) per common share since such shares, if redeemed, only participate in their pro-rata sharetaxes, by the weighted-average number of the trust account earnings (net of income taxes). Our net income / (loss) is adjusted for the portion of income that is attributable to common stockClass A Common Stock subject to possible redemption as these shares only participate inoutstanding for the earningsperiod. Net income/(loss) per share, basic and diluted, for Class Btrust account and not our income or losses.
two-class
method of calculating earnings per share. Net income/(loss) per common share, basic and diluted, for Class A Common non-redeemable
common stock is calculated by dividing the net income/(loss), adjusted for income/(loss) attributable to Class A Common Stock subject to possible redemption, by the weighted-average number of Class Bnon-redeemable
common stock outstanding for the period.
Off-Balance
Sheet Arrangements.As of December 31, 2020,2021, we did not have any
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of RegulationS-K.
56
Recent Accounting Pronouncements.
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on the Company’s financial statements.
As of December 31, 2020,2021, we were not subject to any material market or interest rate risk. Following the consummation of our initial public offering, the net proceeds of our initial public offering and the private placements of the Sponsor Warrants and Director Warrants that are held in the trust account have been invested in U.S. Treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule
2a-7
under the Investment Company Act which invest only in direct U.S. Treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk. However, if the interest rates of U.S. Treasury obligations become negative, we may have less proceeds held in the trust account than initially deposited.This information appears following Item 15 of this Report and is incorporated herein by reference.
None
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In connection with this Annual Report, our management re-evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December 31, 2020, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, due to a material weakness that led to the Company’s restatement of its financial statements to reclassify the Company’s Distributable Redeemable Warrants, Sponsor Warrants, Director Warrants, Forward Purchase Agreements and Class A Common Stock subject to possible redemption as described in the Explanatory Note to this Annual Report, our disclosure controls and procedures were not effective as of December 31, 2020. In light of this material weakness, we performed an additional analysis to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Annual Report on Form 10-K/A present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Report on Internal Controls Over Financial Reporting
This Annual Report
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of December 31, 2021, pursuant to RuleForm 10-K/A does not include a reporttheir evaluation, management concluded that as of management’s assessment regardingDecember 31, 2021, the Company’s internal control over financial reporting orwas effective. Additionally, based on management’s assessment, the Company determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2021.
13a-15(b)
under the Exchange Act. Based on Management’s Report on Internal Controls Over Financial Reporting
Management has completed an attestation reportassessment of ourthe effectiveness of the Company’s internal control over financial reporting as of December 31, 2021. In making the assessment, management used the “Internal Control — Integrated Framework” (“COSO 2013”) promulgated by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the assessment performed, management concluded that as of December 31, 2021, the Company’s internal control over financial reporting was effective as outlined by the COSO 2013 framework. Additionally, based on management’s assessment, the Company determined that there were no material weaknesses in its internal control over financial reporting as of December 31, 2021. The effectiveness of the Firm’s internal control over financial reporting as of December 31, 2021, has been audited by Marcum LLP, an independent registered public accounting firm, due to a transition period established by rules of the SEC for newly public companies.
as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there werewe remediated a material weakness in our internal control over financial reporting. Following this remediation, management concluded that as of December 31, 2021, the Company’s internal control over financial reporting was effective. There has been no changesother change in our internal control over financial reporting (as such term is defined in Rulesareis reasonably likely to materially affect, our internal control over financial reporting, asreporting.
13a-15(f)
and15d-15(f)
of the Exchange Act) that have materially affected, or 57
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
To the circumstances that led to the restatementShareholders and Board of our financial statements described in this Annual Report, had not yet been identified. Management has implemented remediation steps to address the material weakness and to improve our internal controlDirectors of
Pershing Square Tontine Holdings, Ltd.
Opinion on Internal Control over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards, including the identification of third-party professionals with whom to consult regarding theFinancial Reporting
application of complex accounting matters, and engaged third-party valuation specialists to assist management in determining the fair value of the Distributable Redeemable Warrants, Sponsor Warrants, Director Warrants, and FPA. While we believe that these remediation actions will improve the effectiveness of ourWe have audited Pershing Square Tontine Holdings, Ltd.’s (the “Company”) internal control over financial reporting beginningas of December 31, 2021, based on criteria established in
Internal Control-Integrated Framework (2013)
Internal Control – Integrated Framework (2013)
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the balance sheets as of as of December 31, 2021 and 2020, the related statements of operations, changes in stockholders’ equity and cash flows the year ended December 31, 2021 and the period from May 4, 2020 (inception) through December 31, 2020 of the Company, and our report dated March 3, 2022 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the second quarteraccompanying “Management Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of 2021, the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness identified willexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations, internal control over financial reporting may not be considered remediated untilprevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls operate for a sufficient periodmay become inadequate because of time, and management has concludedchanges in conditions, or that these controls operate effectively.degree of compliance with the policies or procedures may deteriorate.
Marcum LLP
New York, NY
March 3, 2022
58
Part III
Our current directors and executive officers are as follows:
Name | Age | Title | ||
William | Chairman and Chief Executive Officer; Director | |||
Ben Hakim | President | |||
Michael Gonnella | Chief Financial Officer | |||
Steve Milankov | Corporate Secretary | |||
Lisa Gersh | Director | |||
Michael Ovitz | Director | |||
Jacqueline D. Reses | Director | |||
Joseph S. Steinberg | Director |
William Ackmanserves asour Chairman and Chief Executive Officer. Mr. Ackman founded Pershing Square in 2003, and is principally responsible for its investment policies and implementation. Mr. Ackman has spent 2830 years in the investment management industry. Prior to forming Pershing Square, heco-foundedGotham Partners Management Co., LLC, an investment adviser that managed public and private equity portfolios. Mr. Ackman is currently Chairman of the Board of the Howard Hughes Corporation, and a member of the Investment Advisory Committee of the Federal Reserve Bank of NY. Mr. Ackman received his Bachelor of Arts degree from Harvard College, where he graduated magna cum laude, and received his Masters in Business Administration from Harvard Business School.serves as our President. Mr. Hakim is a partner at Pershing Square and joined the investment team in 2012. Mr. Hakim was previously a Senior Managing Director at The Blackstone Group, where he worked in the Mergers & Acquisitions group for 13 years. Mr. Hakim received his Bachelor of Science from Cornell University in 1997.Ben HakimservesMichael Gonnellaas our Chief Financial Officer. Mr. Gonnella is the Chief Financial Officer and a partner at Pershing Square. Prior to his appointment as Pershing Square’s Chief Financial Officer in 2017, he served as senior controller of Pershing Square since joining the firm in 2005. Mr. Gonnella received his Bachelor of Science from Seton Hall University in 2002.servesSteve Milankovas our Corporate Secretary. Mr. Milankov is Assistant General Counsel and a partner at Pershing Square. Prior to his appointment as Pershing Square’s Assistant General Counsel, he served as Senior Trading Counsel of Pershing Square since joining the firm in 2013. Mr. Milankov received his Joint MBA and Law degrees from McGill University in 2000. Mr. Milankov worked at the law firm Clifford Chance LLP and most recently at Société Générale prior to joining Pershing Square.Lisa GershLisa Gersh serves as a member of our board of directors. Ms.co-foundedOxygen Media (“Oxygen”) in 1999 and remained its President and Chief Operating Officer until the company’s sale to NBC in 2007 for $925 million. Oxygen was the first-ever multi-platform brand and created content for women, by women, and reached 74 million homes at the time of its sale. Following the sale of Oxygen, Ms. Gersh joined NBC and spearheaded NBC’s acquisition of the Weather Channel, serving briefly as its interim Chief Executive Officer. Also at NBC, Ms. Gersh launched Education Nation, a transformative education initiative that established NBC as the media authority on education. In 2011, Ms. Gersh took over the operations of Martha Stewart Living Omnimedia, Inc. (“Martha Stewart”), first as President and later as its Chief Executive Officer. During her tenure, Ms. Gersh rebranded Martha Stewart, materially reduced its operating expenses, and returned the company to profitability. In 2014, Ms. Gersh transformed Gwyneth Paltrow’s blog, Goop, Inc. (“Goop”), into the first contextual commerce brand. In the process of taking Goop from a collection of recommendations to a freestanding brand, Ms. Gersh oversaw, among other things, the launch of Goop’se-commercestore, skincare and fashion lines, and created Goop’spop-upretail strategy. In 2017, Ms. Gersh was named Chief Executive Officer of Alexander Wang, a global fashion
brand based in New York City. A graduate of Rutgers Law School, Ms. Gersh began her career as a lawyer, first as a litigation associate at Debevoise & Plimpton LLP, and then as a Partner at Friedman, Kaplan, Seiler & Adelman LLP, a boutique law firm specializing in complex litigation and commercial transactions, which Ms. Gershco-founded,and which today has more than 50 lawyers. Currently, Ms. Gersh sits on the board of directors of Hasbro, Inc., where she chairs the Compensation Committee, and Establishment Labs Holdings Inc., where she chairs the Nomination and Governance Committee and Money Lion, where she chairs the Nominating and Governance Committee. She also serves on the board of directors of the Bail Project, Inc. and the Samsung Retail Advisory Board. Ms. Gersh previously served on the board of directors of comScore, Inc.
59
Michael Ovitzserves as a member of our board of directors. Mr. Ovitz
co-founded
Creative Artists Agency (CAA) in 1974 and served as its Chairman until 1995. Over that20-year
period, he grew the agency from astart-up
organization to the world’s leading talent agency, representing more than 1,000 of the most notable actors, directors, musicians, screenwriters and other personalities in the entertainment industry, including Martin Scorsese, Sean Connery, Robert Redford, Paul Newman, Robert DeNiro, Al Pacino, Bill Murray, Dustin Hoffman, Steven Spielberg, David Letterman, Meryl Streep, Barbara Streisand, Michael Crichton and Michael Jackson. In his journey from the mailroom to Who Is Michael Ovitz?
Jacqueline D.Dawn Reses
Joseph S.
Steinberg serves as a member of our board of directors. Mr. Steinberg
Number and Terms of Office of Officers and Directors
Our board of directors consist of five members. We may not hold an annual meeting of stockholders until after we consummate our Initial Business Combination.
Our officers are appointed by the board of directors and serve at their discretion, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our bylaws as it deems appropriate. Our bylaws provide that our officers may consist of a Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Treasurer and such other offices as may be determined by the board of directors.
Committees of the Board of Directors
Our board of directors has three standing committees: an audit committee, a compensation committee, and a nominating and governance committee. Subject to
phase-in
rules and a limited exception, the rules of the NYSE and Rule10A-3
of the Exchange Actrequire that the audit committee of a listed company be comprised solely of independent directors, and the rules of the NYSE require that the compensation committee and the nominating and governance committee of a listed company be comprised solely of independent directors.
60
Audit Committee
Jacqueline Reses, Lisa Gersh and Michael Ovitz serve as members of our audit committee, with Jacqueline Reses serving as Chair of the audit committee. Under the NYSE listing standards and applicable SEC rules, we are required to have at least three members of the audit committee, all of whom must be independent.
Each member of the audit committee is independent and financially literate, and our board of directors has determined that Jacqueline Reses, the Chair of theour audit committee, qualifies as an “audit committee financial expert” as defined in applicable SEC rules.
We have adopted an audit committee charter, which details the principal functions of the audit committee, including:
the appointment, compensation, retention, replacement, and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us;
pre-approving
all audit and permittednon-audit
services to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishingpre-approval
policies and procedures;reviewing and discussing with the independent auditors all relationships the auditors may have with us in order to evaluate their continued independence;
setting clear hiring policies for employees or former employees of the independent auditors;
setting clear policies for audit partner rotation in compliance with applicable laws and regulations;
obtaining and reviewing a report, at least annually, from the independent auditors describing (i) the independent auditor’s internal quality-control procedures and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues;
reviewing and approving any related-party transaction required to be disclosed pursuant to Item 404 of Regulation
S-K
promulgated by the SEC prior to us entering into such transaction; andreviewing with management, the independent auditors, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
Compensation Committee
Lisa Gersh, Jacqueline Reses and Joseph Steinberg serve as members of our compensation committee, with Lisa Gersh serving as Chair of the compensation committee. Under the NYSE listing standards and applicable SEC rules, we are required to have at least two members on the compensation committee, all of whom must be independent. Each member of theour compensation committee is independent. As we are not paying compensation to any employees, and have already determined director compensation, we do not expect the compensation committee will meet for substantive compensation purposes prior to our Initial Business Combination, (other than meeting at least annually for administrative purpose).
We have adopted a compensation committee charter, which details the principal functions of the compensation committee, including:
reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation;
reviewing and approving on an annual basis the compensation of all other officers;
reviewing on an annual basis our executive compensation policies and plans;
implementing and administering our incentive compensation equity-based remuneration plans;
assisting management in complying with our proxy statement and annual report disclosure requirements;
approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our officers and employees;
61
if required, producing a report on executive compensation to be included in our annual proxy statement; and
reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.
Notwithstanding the foregoing, other than reimbursement of expenses, no compensation of any kind, including finders, consulting or other similar fees, will be paid to any of our Sponsor, directors and officers, or any of their respective affiliates, prior to, or for any services they render in order to effectuate the consummation of a business combination. Accordingly, it is likely that prior to the consummation of our Initial Business Combination, the compensation committee will only be responsible for the review and recommendation of any compensation arrangements to be entered into in connection with such Initial Business Combination.
The charter provides that the compensation committee may, in its sole discretion, obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by the NYSE and the SEC.
Nominating and Governance Committee
Lisa Gersh, Michael Ovitz and Joseph Steinberg serve as members of our nominating and governance committee, with Joseph Steinberg serving as chair of the nominating and governance committee.
The primary purposes of our nominating and corporate governance committee is to assist the board in:
identifying, screening and reviewing individuals qualified to serve as directors and recommending to the board of directors candidates for nomination for election at the annual meeting of stockholders or to fill vacancies on the board of directors;
developing and recommending corporate governance guidelines to the board of directors and overseeing the implementation of those guidelines;
coordinating and overseeing the annual self-evaluation of the board of directors, its committees, individual directors and management in the governance of the company; and
reviewing on a regular basis our overall corporate governance and recommending improvements as and when necessary.
The nominating and governance committee is governed by a charter that complies with the rules of the NYSE.
Director Nominations
Our nominating and governance committee will recommend to the board of directors, candidates for nomination for election at the annual meeting of the stockholders. We have not formally established any specific minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders. However, we willdo not haveexpect to hold an annual meeting of stockholders until after we consummate our Initial Business Combination.
Compensation Committee Interlocks and Insider Participation
None of our officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more officers serving on our board of directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons are also required to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of such forms, we believe that during the period from May 4, 2020 (inception) through December 31, 2020,2021, there were no delinquent filers.
Code of Ethics
We have adopted a Code of Ethics applicable to our directors, officers and employees. We have filed copies of our code of ethics and our audit, compensation and nominating and governance committee charters as exhibits to the registration statement in connection with our initial public offering. You will be able to review these documents by accessing our public filings at the SEC’s web site at
62
www.sec.gov. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. We intend to disclose any amendments to or waivers of certain provisions of our Code of Ethics in a Current Report on Form
8-K.
Conflicts of Interest
Although PSCM is the investment adviser to the Pershing Square Funds, we do not believe that PSCM and its affiliates’ activities present significant conflicts of interest with respect to our pursuit of an acquisition target because we intend that our acquisition target will be a privately owned company, and the Pershing Square Funds are not permitted by their constituent documents to make investments in the equities of companies whose securities are not publicly traded (except that they may make investments in public companies that issue private securities).
PSCM and its affiliates may form and manage other investment vehicles investing in public companies at any time prior to the announcement of our Initial Business Combination, including, but not limited to, investment vehicles that may investwith our company.
side-by-side
Our amended and restated certificate of incorporation 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. Neither the affiliates of our Sponsor nor members of our management team who are employed by our Sponsor or its affiliates have any obligation to present us with any opportunity for a potential business combination of which they become aware. However, absent a significant conflict of interest with respect to our pursuit of an acquisition target, we would expect such opportunity to be provided to us, as such potential target company would be a private company.
Each of our directors and officers currently has, and any of them in the future may have additional, fiduciary or contractual obligations to other entities (including current or future investment vehicles of our Sponsor) pursuant to which such director or officer is or will be required to present business combination opportunities to such entity. Therefore, our directors and officers may be required to present potential business combinations to the related entities described above before they present such opportunities to us. Accordingly, in the future, if any of our directors or officers becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor these obligations to present such opportunity to such entity first, and only present it to us if such entities reject the opportunity and he or she determines to present the opportunity to us. Any presentation of such opportunities to entities other than us, or affiliates of our Sponsor, may present additional conflicts.
Although the current and future fiduciary duties or contractual obligations of our directors or officers could materially undermine our ability to complete our business combination, we believe this risk is partly mitigated for the following reasons. As stated above, our Sponsor and its affiliates currently do not make, or are not permitted to make, investments in private companies. Further, each of our directors and officers has agreed not to become a director or officer of any other special purpose acquisition company with a class of securities registered under the Exchange Act, until we have entered into a definitive agreement regarding our Initial Business Combination or we have failed to complete our Initial Business Combination within the Combination Period. With respect to a potential business combination as to which a director may be “interested” or have a potential conflict of interest, we may take steps including, but not limited to, requiring the review of our audit committee pursuant to our related party policy, the recusal of such director with respect to such transaction, the appointment of a committee of independent and disinterested directors, or, as described above, the use of an independent accounting firm to ensure that a potential business combination is fair to our stockholders.
Potential investors should also be aware of the following other potential conflicts of interest:
Members of our management team are not obligated to devote any specific number of hours to our matters, but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our Initial Business Combination. In addition, we have an investment team comprised of seven members, who are employed by PSCM. While we believe that the investment team members are able to allocate their duties to us and to PSCM amongst themselves in a manner that allows them to provide us with the resources and support we require while fulfilling their responsibilities to PSCM, such persons may have conflicts of interest in allocating his or her time among various business activities.
In the course of their other business activities, our directors and officers may become aware of investment and business opportunities which may be appropriate for presentation to us, as well as the other entities with which they are affiliated. Our management may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our Sponsor, directors and officers have agreed to waive their redemption rights with respect to any shares of our Class A Common Stock held by them in connection with the consummation of our Initial Business Combination. If we do not complete our Initial Business Combination within the Combination Period, certain proceeds of the sale of the Sponsor Warrants and Director Warrants held in the trust account will be used to fund the redemption
63
Warrants and Director Warrants held in the trust account will be used to fund the redemption of the Public Shares, and the investment opportunity presented by the Sponsor Warrants, the Director Warrants and the Forward Purchase Securities (with respect to the Forward Purchasers and Director Forward Purchasers) will be lost. With certain limited exceptions in each case, our Class B Common Stock and the Forward Purchase Units will not be transferable, assignable or salable and the shares of Class A Common Stock issuable upon conversion or exercise thereof, as applicable, will not be transferable, assignable or salable until 180 days after the consummation of our Initial Business Combination, and the Sponsor Warrants and Director Warrants will not be exercisable, transferable, assignable or salable until three years after the consummation of our Initial Business Combination. Since our Sponsor, directors and officers may directly or indirectly own common stock and warrants, our Sponsor, directors and officers may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our Initial Business Combination. |
Our directors and officers may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such directors and officers was included by a target business as a condition to any agreement with respect to our Initial Business Combination.
Our Sponsor, directors or officers may have a conflict of interest with respect to evaluating a business combination and financing arrangements as we may obtain loans from our Sponsor or an affiliate of our Sponsor or any of our directors or officers to finance transaction costs in connection with an intended Initial Business Combination.
The conflicts described above are not intended to be exhaustive, and may not be resolved in our favor.
In general, directors and officers of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
the corporation could financially undertake the opportunity;
the opportunity is within the corporation’s line of business; and
it would not be fair to our company and its stockholders for the opportunity not to be brought to the attention of the corporation.
Accordingly, as a result of multiple business affiliations, our directors and officers may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. Furthermore, our amended and restated certificate of incorporation provides that the doctrine of corporate opportunity will not apply with respect to any of our directors or officers in circumstances where the application of the doctrine would conflict with any fiduciary duties or contractual obligations they may have.
We are not prohibited from pursuing our Initial Business Combination with a company that is affiliated with our Sponsor, our directors or our officers. In the event we seek to complete our Initial Business Combination with such a company, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA, or from an independent accounting firm, that such an Initial Business Combination is fair to our company from a financial point of view.
In the event that we submit our Initial Business Combination to our Public Stockholders for a vote, our Sponsor, directors, officers and Forward Purchasers have agreed to vote any shares of common stock held by them in favor of our Initial Business Combination.
Limitation on Liability and Indemnification of Directors and Officers
Our amended and restated certificate of incorporation provides that our directors and officers will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our amended and restated certificate of incorporation provides that our directors will not be personally liable for monetary damages to us or our stockholders for breaches of their fiduciary duty as directors, unless they violated their duty of loyalty to us or our stockholders, acted in bad faith, knowingly or intentionally violated the law, authorized unlawful payments of dividends, unlawful stock purchases or unlawful redemptions, or derived an improper personal benefit from their actions as directors.
We have entered into agreements with our directors and officers providing contractual indemnification in addition to the indemnification provided for in our amended and restated certificate of incorporation. Our bylaws also permit us to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would
permit such indemnification. We have purchased a 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.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though
64
such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
We believe that these provisions, the directors’ and officers’ liability insurance and the indemnity agreements are necessary to attract and retain talented and experienced directors and officers.
None of our directors or officers has received any cash compensation for services rendered to us. No compensation of any kind, including finder’s and consulting fees, will be paid to our Sponsor, directors and officers, or any of their respective affiliates for services rendered prior to or in connection with the completion of our Initial Business Combination. However, these individuals will be reimbursed by us for anyexpenses incurred in connection with activities on our behalf, such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee reviews on a quarterly basis all payments that were made to our Sponsor, directors or officers, or their affiliates.
out-of-pocket
After the completion of our Initial Business Combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to stockholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed business combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely the amount of such compensation will be known at the time of the proposed business combination, because the directors of the post-combination business will be responsible for determining officer and director compensation. Any compensation to be paid to our officers will be determined by a compensation committee constituted solely of independent directors.
We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our Initial Business Combination, although it is possible that some or all of our directors and officers may negotiate employment or consulting arrangements to remain with us after our Initial Business Combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our Initial Business Combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to any agreements with our directors and officers that provide for benefits upon termination of employment.
The following tables set forth information regarding the beneficial ownership of our common stock as of the date of this Report, by:
each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
each of our directors and executive officers who beneficially owns shares of our common stock; and
all our directors and executive officers as a group.
To our knowledge, all persons named in the following table have sole voting and investment power with respect to all shares of common stock beneficially owned by them, except with respect to our Sponsor, the Pershing Square Funds and Mr. Ackman, who have shared investment and voting power with respect to the securities they may be deemed to beneficially own. The following table does not reflect record or beneficial ownership of the Sponsor Warrants, Director Warrants, and, except with respect to our Sponsor, the Pershing Square Funds and Mr. Ackman, does not reflect the Forward Purchase Warrants or Redeemable Warrants, as these warrants are not exercisable within 60 days of the date of this Report.
Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Outstanding Common Stock | ||||||||||
Directors and Executive Officers: (1) | ||||||||||||
Pershing Square TH Sponsor, LLC (Our Sponsor)(2) | 100 | * | ||||||||||
Pershing Square Funds(3)(4) | 200,000,100 | 50.0 | % | |||||||||
William A. Ackman(5) | 200,000,100 | 50.0 | % | |||||||||
Ben Hakim | — | — | ||||||||||
Michael Gonnella | 4,500 | * | ||||||||||
Steve Milankov | — | — | ||||||||||
Lisa Gersh | — | — | ||||||||||
Michael Ovitz(6) | 250,000 | * | ||||||||||
Jacqueline D. Reses(7) | 50,000 | * | ||||||||||
Joseph S. Steinberg(8) | 9,375 | * | ||||||||||
All directors and executive officers as a group (8 individuals) | 200,313,975 | 50.0 | % | |||||||||
Other 5% Stockholders: | ||||||||||||
Guggenheim Capital, LLC (9) | 22,000,000 | 11.0 | % | |||||||||
The Baupost Group, L.L.C. (10) | 12,707,924 | 6.4 | % | |||||||||
Ontario Teacher’s Pension Plan Board (11) | 11,325,000 | 5.7 | % | |||||||||
65
Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Outstanding Common Stock | ||||||
Directors and Executive Officers: (1) | ||||||||
Pershing Square TH Sponsor, LLC (Our Sponsor) (2) | 100 | * | ||||||
Pershing Square Funds (3)(4) | 200,000,100 | 50.0 | % | |||||
William A. Ackman (5) | 200,000,100 | 50.0 | % | |||||
Ben Hakim | — | — | ||||||
Michael Gonnella | 4,500 | * | ||||||
Steve Milankov | — | — | ||||||
Lisa Gersh | — | — | ||||||
Michael Ovitz (6) | 250,000 | * | ||||||
Jacqueline Reses (7) | 50,000 | * | ||||||
Joseph S. Steinberg (8) | 9,375 | * | ||||||
All directors and executive officers as a group (8 individuals) | 200,313,975 | 50.0 | % | |||||
Other 5% Stockholders: | ||||||||
Guggenheim Capital, LLC (9) | 22,000,000 | 11.0 | % | |||||
Allspring Global Investments Holdings LLC (10) | 11,181,934 | 5.6 | % | |||||
| * | Less than one percent |
| (1) | Unless otherwise noted, the business address of each of the persons herein is 787 Eleventh Avenue, 9t h Floor, New York, New York 10019. |
| (2) | Interests shown consist solely of Class B Common Stock. Such shares will automatically convert into Class A Common Stock on a one-for-one |
| (3) | Includes (a) 50,000,000 Committed Forward Purchase Units, (b) 100,000,000 Additional Forward Purchase Units, and (c) 100 shares of Class B Common Stock, which have aggregate voting power equal to 50,000,000 shares of Class A Common Stock, and automatically convert into Class A Common Stock on a one-for-one one-third of one warrant to purchase a share of Class A Common Stock, and the Forward Purchase Units in aggregate are comprised of 150,000,000 shares of Class A Common Stock, and warrants to purchase 50,000,000 shares of Class A Common Stock. The Pershing Square Funds are obligated to purchase the Committed Forward Purchase Units, and may elect to purchase up to the total number of Additional Forward Purchase Units, in one or more private placements to occur no later than simultaneously with our Initial Business Combination. The warrants included in Forward Purchase Units have an exercise price of $23.00 per share and are exercisable upon the later of (i) July 24, 2021 and (ii) 30 days following the consummation of our Initial Business Combination. As of the date of this filing, the Pershing Square Funds have not purchased any Forward Purchase Units. |
| (4) | The Pershing Square Funds may be deemed to be the beneficial owners of such securities in their capacity as the Forward Purchasers, and as the members of our Sponsor, and have shared voting and investment power with respect to such securities. |
| (5) | Mr. Ackman may be deemed to be the beneficial owner of such securities by virtue of his position as Chief Executive Officer of PSCM, the manager of our Sponsor, as well as the investment advisor to each of Pershing Square Holdings, Ltd., Pershing Square, L.P. and Pershing Square International, Ltd., and as managing member of PS Management GP, LLC, a Delaware limited liability company, as to which voting and investment power is shared. Mr. Ackman disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein. |
| (6) | Pursuant to the director forward purchase agreement, Mr. Ovitz has agreed to purchase 250,000 Forward Purchase Units (each of which includes one share of Class A Common Stock). Mr. Ovitz is obligated to purchase such Forward Purchase Units no later than simultaneously with the closing of our Initial Business Combination, and may do so at any time prior thereto at his election. |
| (7) | Pursuant to the director forward purchase agreement, Ms. Reses has agreed to purchase 50,000 Forward Purchase Units (each of which includes one share of Class A Common Stock). Ms. Reses is obligated to purchase such Forward Purchase Units no later than simultaneously with the closing of our Initial Business Combination, and may do so at any time prior thereto at her election. |
| (8) | Reflects 9,375 shares of Class A Common Stock that Mr. Steinberg purchased through a charity trust—Joseph S. and Diane H. Steinberg Charitable Trust. |
66
| (9) | Based upon the Schedule 13G filed by Guggenheim Partners, LLC with the SEC on August 10, |
| (10) | Based upon the Schedule 13G filed by |
|
Our Sponsor has 20.0% of the voting power of the outstanding shares of our common stock through ownership of the Class B shares. Because the voting power held by each share of Class B Common Stock will not be adjusted upon the issuance of any Forward Purchase Units, our Sponsor will have less than 20.0% of the voting power of the outstanding shares of our common stock. Our Sponsor has the right to elect all of our directors prior to our Initial Business Combination. Accordingly, our Sponsor and Forward Purchasers (if they exercise their right to purchase Forward Purchase Units prior to a vote) may be able to effectively influence the outcome of all matters requiring approval by our stockholders, including amendments to our amended and restated certificate of incorporation and approval of significant corporate transactions, including approval of our Initial Business Combination.
Our Sponsor, directors, officers and Forward Purchasers have agreed (i) to vote any shares of common stock owned by them in favor of any proposed business combination and (ii) not to redeem any shares of common stock owned by them in connection with a stockholder vote to approve a proposed Initial Business Combination.
Our Sponsor and our directors and officers are deemed to be our “promoters” as such term is defined under the federal securities laws.
Changes in Control
None.
On May 7, 2020, our Sponsor acquired 100 shares of Class B Common Stock in exchange for a capital contribution of $25,000, or $250 per share. Upon completion of the initial public offering, the Sponsor holds 20.0% of the voting power of our outstanding common stock. Because the voting power held by each share of Class B Common Stock will not be adjusted upon the issuance of any Forward Purchase Units, our Sponsor will have less than 20.0% of the voting power of the outstanding shares of our common stock. Our Class B Common Stock (including the Class A Common Stock issuable upon exercise thereof) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder.
Our Sponsor may, in its discretion, transfer, directly or indirectly, its Class B Common Stock (including the Class A Common Stock issued upon conversion thereof) to any Affiliate Transferee, subject to compliance with applicable securities laws.
Concurrently with our initial public offering, our Sponsor purchased Sponsor Warrants in a private placement for a purchase price of $65,000,000. The purchase price was determined by the company, in consultation with a third-party, nationally recognized valuation firm, to be the fair market value of the Sponsor Warrants.
The nature of the valuation process used to value the Sponsor Warrants is inherently uncertain and imprecise. The Sponsor Warrants’ price was not determined in a negotiation between
arm’s-length
third parties, which, had it occurred, may have resulted in a higher or lower valuation and more or less favorable terms. Although we do not know what prices and terms would have resulted from a negotiation betweenarm’s-length
third parties, we believe that the purchase price of the Sponsor Warrants reflects fair market value.The Sponsor Warrants willare generally not be salable, transferable or exercisable until three years after the date of our Initial Business Combination. The Sponsor Warrants will be exercisable, in whole or in part, for that number of shares constituting 5.95% of the common stock of the post-combination business on a fully diluted basis as of the time immediately following the Initial Business Combination, at an exercise price equal to $24.00 per common share of the post-combination business. The term “fully diluted basis” means the number of shares deemed to be outstanding at such time and will include the gross number of shares issuable upon the exercise of the Redeemable Warrants, the Forward Purchase Warrants, the Sponsor Warrants, the Director Warrants and any other warrants or options of the company, as well as the gross number of shares underlying any other instrument, whether debt or otherwise, that is convertible or exercisable into or exchangeable for, or that tracks the performance of, shares of common stock (including any equity or equity-based award), in each case without regard to whether such warrant, option or instrument is then exercisable or convertible orand without regard as to whether fewer shares of common stock may actually be issued as a result of any “cashless” or “net exercise”
“in-the-money,”
67
procedure. The Sponsor Warrants has been issued pursuant to a Sponsor Warrant agreement between us and Continental Stock Transfer & Trust Company, as warrant agent.
The Sponsor Warrants willare not be redeemable by us (other than as may be required in connection with a merger where the holders receive consideration other than common stock) and will be exercisable, in whole or in part, on a cash or cashless basis beginning three years after the consummation of our Initial Business Combination. The Sponsor Warrants will have a term of 10 years from the consummation of our Initial Business Combination. The Sponsor Warrants will be subject to certain transfer restrictions until the date that is three years after the consummation of our Initial Business Combination. We have granted certain registration rights to our Sponsor, its permitted transferees and any holders of the Sponsor Warrants or the shares issuable upon conversion thereof, as provided in the Registration Rights Agreement, which will permit such securities to be sold on the public market when thelock-upperiod ends, three years after the date on which we consummate our Initial Business Combination.
Also concurrently with our initial public offering, each of our directors, other than Mr. Ackman, purchased an aggregate of $2,837,500 of Director Warrants in a private placement. The Director Warrants have terms identical to the Sponsor Warrants such that the aggregate amount will be exercisable for 0.26% of the common stock of the post-combination business (on a fully diluted basis). The Sponsor Warrants and the aggregate amount of the Director Warrants will be exercisable, in the aggregate, for that number of shares equal to approximately 6.21% of the common stock of the post-combination business on a fully diluted basis. The Director Warrants will be subject to certain transfer restrictions until the date that is three years after the consummation of our Initial Business Combination. We have granted certain registration rights to our directors and their permitted transferees and any holders of the Director Warrants or the shares issuable upon conversion thereof, as provided in the Registration Rights Agreement, which permits such securities to be sold on the public market when the
lock-up
period ends.Until three years after our Initial Business Combination, (i) our Sponsor will be permitted to transfer the Sponsor Warrants only to Affiliate Transferees and (ii) any director owning a Director Warrant will be permitted to transfer such warrant only to our Sponsor, other directors or Affiliate Transferees, with limited exceptions in each case, with any such transferee being subject to the same agreements with respect to such securities as the transferor. Otherwise, the Sponsor Warrants and Director Warrants will generally not be salable, transferable or exercisable until three years after the completion of our business combination. The Sponsor Warrants and Director Warrants will not be redeemable by us and will be exercisable, in whole or in part, on a cash or cashless basis.
Of the proceeds from the sale of the Sponsor Warrants and Director Warrants, $35,000,000 was deposited in the trust account, and the remainder is held outside of the trust account and used to pay expenses in connection with the initial public offering and a potential Initial Business Combination.
Pursuant to the Forward Purchase Agreement, the Forward Purchasers have agreed to purchase an aggregate of $1,000,000,000 of Committed Forward Purchase Units, which will have a purchase price of $20.00 and consist of one share of Class A Common Stock and
one-third
of one redeemable warrant. The purchase of the 50,000,000 Committed Forward Purchase Units will take place in one or more private placements in such amounts and at such time or times as the Forward Purchasers determine, with the full amount to have been purchased no later than simultaneously with the closing of our Initial Business Combination. The Forward Purchasers’ obligation to purchase the Committed Forward Purchase Units may not be transferred to any other parties.The Forward Purchase Agreement also provides that the Forward Purchasers may elect to purchase up to an aggregate of $2,000,000,000 Additional Forward Purchase Units, which will also have a purchase price of $20.00 and consist of one share of Class A Common Stock and
one-third
of one redeemable warrant. Any purchases of the up to 100,000,000 Additional Forward Purchase Units will also take place in one or more private placements in such amounts and at such time or times as the Forward Purchasers determine, but no later than simultaneously with the closing of our Initial Business Combination. We and the Forward Purchasers may determine, by mutual agreement, to increase the number of Additional Forward Purchase Units at any time prior to our Initial Business Combination. The right to purchase the Additional Forward Purchase Units may be transferred, in whole or in part, to any Affiliate Transferee, but not to third parties. The Forward Purchasers’ obligation or right, as applicable, to purchase the Forward Purchase Units will be allocated among the Forward Purchasers from time to time as described herein.Pursuant to the Director Forward Purchase Agreement with certain of our independent directors, the Director Forward Purchasers have agreed to purchase, in one or more private placements in such amounts and at such time or times as each Director Forward Purchasers determines, but no later than simultaneously with the closing of our Initial Business Combination, an aggregate of $6,000,000 of Forward Purchase Units. The Director Forward Purchasers have agreed to purchase the following amounts of Forward Purchase Units: Mr. Ovitz, $5,000,000, and Ms. Reses, $1,000,000. The Director Forward Purchasers may not transfer their obligation to purchase such Forward Purchase Units, other than to our Sponsor, other directors and Affiliate Transferees. Such Forward Purchase Securities will be subject to certain transfer restrictions and have certain registration rights, as described herein.
68
The proceeds of purchases of Forward Purchase Units will not be deposited in the trust account. The Forward Purchase Shares will have no right to receive our Distributable Tontine Redeemable Warrants, no redemption rights in connection with our Initial Business Combination or in connection with certain amendments to our amended and restated certificate of incorporation and will have no rights to liquidating distributions from our trust account in the event that we fail to complete our Initial Business Combination within
the prescribed timeframe. Pursuant to the warrant agreement, the Forward Purchase Warrants will have no right to vote on amendments to the warrant agreement prior to our Initial Business Combination, except with respect to certain provisions relating solely to the transfer of Forward Purchase Securities. The Forward Purchase Securities, as long as they are held by the Forward Purchasers or their permitted transferees, will have certain transfer restrictions and registration rights. In all other respects, the terms of the Forward Purchase Shares and Forward Purchase Warrants, respectively, will be identical to the terms of the Class A Common Stock and the Redeemable Warrants.
The purchases of the Sponsor Warrants, Director Warrants and Forward Purchase Units are intended to provide us with appropriate equity funding for our Initial Business Combination.
We entered into a Registration Rights Agreement with our Sponsor, the Forward Purchasers and our independent directors, pursuant to which we will be required to use commercially reasonable efforts to file a registration statement within 120 days of our Initial 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 Warrants, (ii) the Director Warrants, (iii) the shares issuable upon the exercise of the Sponsor Warrants or Director Warrants, (iv) the Forward Purchase Securities, (v) the shares of Class A Common Stock issuable upon conversion of our Class B Common Stock and (vi) any other shares or warrants 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 the foregoing 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.
As more fully discussed in the section of this Report entitled “Conflicts of Interest,” 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 then-current fiduciary or contractual obligations, including our Sponsor, he or she will honor his or her fiduciary or contractual obligations to present such opportunity to such entity. Our directors and officers currently have certain relevant fiduciary duties or contractual obligations that may take priority over their duties to us.
PSCM provided us office space and general administrative services at no cost to us.
No compensation of any kind, including finder’s and consulting fees, will be paid to our Sponsor, directors and officers, or any of their respective affiliates for services rendered prior to or in connection with the completion of our Initial Business Combination. However, these individuals will be reimbursed for anyexpenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our Sponsor, officers, directors or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement ofexpenses incurred by such persons in connection with activities on our behalf.
out-of-pocket
out-of-pocket
Our Sponsor loaned us an aggregate of $1,121,120 to cover expenses related to the initial public offering and for general corporate purposes prior to our Initial Business Combination, and potential transaction costs in connection with our intended Initial Business Combination. This loan was unsecured, bore interest on a monthly basis at the Applicable Federal Rate, and was payable no later than the end of the Combination Period. We repaid the promissory note upon the completion of our initial public offering.
In order to finance transaction costs in connection with an intended Initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our directors and officers may, but are not obligated to, loan us funds as may be needed. If we complete our Initial Business Combination, we would repay such loaned amounts. In the event that our Initial Business Combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment. The terms of such loans by our directors and officers, if any, have not been determined, and no written agreements exist with respect to such loans. We do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account.
After our Initial Business Combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our stockholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a stockholder meeting held
69
to consider our Initial Business Combination, as applicable, as it will be up to the directors of the post-combination business to determine executive officer and director compensation.
Related Party Policy
We have adopted a formal policy for the review, approval or ratification of related-party transactions. The Company’s directors and executive officers are required to bring any potential related-party transaction to the Company’s attention by informing the Company’s corporate secretary. Any potential related-party transactions that are brought to the Company’s attention are analyzed by the Company’s corporate secretary, in consultation with the audit committee and counsel, as appropriate, to determine whether the transaction or relationship does, in fact, constitute a related-party transaction. In determining whether to approve a related-party transaction, the audit committee considers, among other factors, and to the extent relevant, the following:
whether the terms of the related-party transaction are fair to the Company and whether such terms are no less favorable to the Company than those generally available to an unaffiliated third party under similar circumstances;
whether there are business reasons for the Company to enter into the related-party transaction;
whether the related-party transaction would impair the independence of an outside director; and
whether the related-party transaction would present an improper conflict of interest for any director or executive officer of the Company, taking into account the size of the transaction, the overall financial position of the director, executive officer or related party, the direct or indirect nature of the director’s, executive officer’s or related party’s interest in the transaction, the ongoing nature of any proposed relationship and any other factors the audit committee deems relevant.
An affirmative vote of a majority of the members of the audit committee present at a meeting at which a quorum is present is required in order to approve a related-party transaction. A majority of the members of the entire audit committee constitutes a quorum. Without a meeting, the unanimous written consent of all of the members of the audit committee is required to approve a related-party transaction. We also require each of our directors and officers to complete a directors’ and officers’ questionnaire that elicits information about related-party transactions.
These procedures are intended to determine whether any such related-party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.
Since the completion of the initial public offering, we have adopted a code of ethics requiring us to avoid, wherever possible, all conflicts of interests, except under guidelines or resolutions approved by our board of directors (or the appropriate committee of our board) or as disclosed in our public filings with the SEC. Under our code of ethics, conflict of interest situations will include any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) involving the company.
PSCM and its affiliates may form and manage other investment vehicles investing in public companies at any time prior to the announcement of our Initial Business Combination, including, but not limited to, investment vehicles that may investwith our company.
side-by-side
We do not believe that PSCM and its affiliates’ activities present significant conflicts of interest with respect to our pursuit of an acquisition target because we intend that our acquisition target will be a privately owned company, and the Pershing Square Funds are not permitted by their constituent documents to make investments in the equities of companies whose securities are not publicly traded (except that they may make investments in public companies that issue private securities).
To further minimize conflicts of interest, we have agreed not to consummate our Initial Business Combination with an entity that is affiliated with any of our Sponsor, directors or officers unless we, or a committee of independent directors, have obtained an opinion from an independent investment banking firm which is a member of FINRA or an independent accounting firm that our Initial Business Combination is fair to our company from a financial point of view. Furthermore, no finder’s fees, reimbursements or cash payments will be made to our Sponsor, directors or officers, or their affiliates, for services rendered to us prior to or in connection with the completion of our Initial Business Combination. However, the following payments will be, or have been, made to our Sponsor, directors or officers, or their affiliates, and, if made prior to our Initial Business Combination, will be made from (i) funds held outside the trust account or (ii) permitted withdrawals:
Repayment of $1,121,320 (inclusive of accrued interest) in loans made to us by our Sponsor;
Reimbursement for anyexpenses related to identifying, investigating and completing our Initial Business Combination; and
out-of-pocket
70
Repayment of any other loans which may be made by our Sponsor or an affiliate of our Sponsor or certain of our directors and officers to finance transaction costs in connection with an intended Initial Business Combination, the terms of which have not been determined, and nor have any written agreements been executed with respect thereto.
Our audit committee reviews on a quarterly basis all payments that were made to our Sponsor, directors or officers, or their affiliates.
Director Independence
The NYSE listing standards require that a majority of our board of directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which in the opinion of our board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Mses. Gersh and Reses and Messrs. Ovitz and Steinberg are “independent directors” as defined in the NYSE listing standards and applicable SEC rules. Our independent directors have regularly scheduled meetings at which only independent directors are present.
Fees
The following is a summary of fees paid or to be paid to Marcum LLP (“Marcum”), which has been our auditor since our inception on May 4, 2020, for services rendered.
Audit Fees. Audit fees consist oftable summarizes the aggregate fees billed for professional services renderedprovided to us by Marcum LLP (“Marcum”) for the audit of our year-end financial statementsyear ended December 31, 2021 and services that are normally provided by Marcum in connection with regulatory filings. The aggregate fees billed by Marcum for professional services rendered for the audit of our annual financial statements, review of the financial information included in our Forms 10-Q for the respective periods and other required filings with the SEC for the period from May 4, 2020 (inception) through December 31, 2020 totaled $89,301. The above amounts include interim procedures and audit services in connection with our initial public offering, as well as attendance at audit committee meetings.
Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. We did not pay Marcum for consultations concerning financial accounting and reporting standards for the period from May 4, 2020 (inception) through December 31, 2020.
Tax Fees. We did not pay Marcum for tax return services, planning and tax advice for the period from May 4, 2020 (inception) through December 31, 2020.
All Other Fees. We did not pay Marcum for any other services for the period from May 4, 2020 (inception) through December 31, 2020.
2020:
Fee Category | For the Year ended December 31, 2021 | For the Period from May 4, 2020 (inception) through December 31, 2020 | ||
Audit Fees (1) | $ 101,455 | $ 89,301 | ||
Audit- Related Fees (2) | - | - | ||
Tax Fees (3) | 9,579 | - | ||
All Other Fees | - | - | ||
Total Fees | $ 111,034 | $ 89,301 |
(1) | Audit Fees 10-Q and other services that an independent registered public accounting firm would customarily provide in connection with regulatory and other required filings submitted to the SEC. |
(2) | Audit-Related Fees |
(3) | Tax Fee |
Pre-Approval
PolicyOur audit committee was formed upon the completion of our initial public offering. As a result, the audit committee did notexceptions for
pre-approve
all of the foregoing services, although any services rendered prior to the formation of our audit committee were approved by our board of directors. Since the formation of our audit committee, and on a going-forward basis, the audit committee has and willpre-approve
all auditing services and permittednon-audit
services to be performed for us by our auditors, including the fees and terms thereof (subject to thede minimis
non-audit
services described in the Exchange Act which are approved by the audit committee prior to the completion of the audit).71
Independence Matters
On March 26, 2021, Marcum informed our management of a matter that called into question Marcum’s compliance with SEC rules requiring that Marcum be independent. Rule
2-01(c)(1)(i)(A)
of RegulationS-X
provides that an accountant is not independent when the accounting firm, or any “covered person” in the firm, has any direct investment in an audit client, such as stock or other securities. A “covered person” in the firm includes, among other persons, partners in the office where the lead engagement partner of a client practices in connection with the client.On March 23, 2021, Marcum learned that a tax partner, who we refer to below as the “covered person,person” in Marcum’s New York office had acquired 150 shares of our common stock on November 18, 2020 for an aggregate purchase price of $3,590.50, and sold the shares on January 7, 2021 for an aggregate sales price of $4,109.41, a transaction that was not permissible under Marcum’s internal policies or the SEC’s independence rules.
Marcum has advised our audit committee that it believes that Marcum remains objective and impartial despite this violation of the SEC’s independence rules, and therefore believes that it can continue to serve as our independent auditor. Marcum also advised the audit committee that it believes that in light of its analysis, a reasonable investor possessing all of the facts regarding the matter would conclude that Marcum was and is independent and capable of exercising objective and impartial judgment with respect to our financial statements. Marcum has advised the audit committee that their views and conclusions are based in part on the following considerations:
the “covered person” was a tax partner, not an audit partner, and did not play any role in the conduct of the audit or provide any other services to us;
the “covered person” was not aware, at the time of purchase and sale, that we were a Marcum audit client;
the “covered person” self-reported the violation when the covered person“covered person” became aware that we were an audit client;
the “covered person” practiced in a different physical office from that in which the lead audit partner primarily practices;
no other Marcum personnel were aware of the transaction until it was self-reported by the “covered person”; and
the amount involved in the covered person’s trade was not material in amount.
Our audit committee, with the assistance of management and outside counsel, evaluated the facts and circumstances relating to Marcum’s independence described above under applicable SEC and PCAOB independence rules. After considering all of the facts and circumstances, including those noted above, the audit committee concluded that Marcum violated the SEC’s independence rules, but nevertheless has been and continues to be capable of exercising objective and impartial judgment on all issues encompassed within the audit engagement, particularly in light of the lack of involvement of the “covered person” in the audit or otherwise with respect to us and that the amount involved in the covered person’s trade was not material in amount.
PART IV
The following documents are filed as part of Report:
| (a) | Financial Statements |
| (b) | Financial Statement Schedules. All schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable. |
| (c) | Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Report. |
72
73
| Inline XBRL Instance Document. | |||
| Inline XBRL Taxonomy Extension Schema Document. | |||
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||
| Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||
| Inline XBRL Taxonomy Extension Label Linkbase Document. | |||
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||
| * | Filed herewith. |
|
|
|
|
|
(1) Incorporated by reference to the Company’s Current Report onForm 8-K filedon July 28, 2020.(2) Incorporated by reference to the Company’s Current Report on Form8-Kfiled on June 28, 2021.(3) Incorporated by reference to the Company’s Amendment No. 4 to Registration Statement onForm S-1/A filedon July 20, 2020.(4) Incorporated by reference to the Company’s Amendment No. 1 to Registration Statement onForm S-1/A filedon July 6, 2020.(5) Incorporated by reference to the Company’s Annual Report on Form10-Kfiled on March 31, 2021.(6) Incorporated by reference to the Company’s Quarterly Report onForm 10-Q filedon November 12, 2020.(7) Incorporated by reference to the Company’s Current Report on Form8-Kfiled on July 19, 2021.Item 16. Form10-KSummaryNone74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this Annual Report on Form 10-K/A
10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.May 24, 2021
March 3, 2022
PERSHING SQUARE TONTINE HOLDINGS, LTD. | ||
By: | /s/ William A. Ackman | |
Name: William A. Ackman | ||
Title: Chief Executive Officer, Chairman of the Board of Directors | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form10-K/A
10-K
has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.Name | Position | Date | ||
/s/ William A. Ackman William A. Ackman | Chief Executive Officer, Chairman of the Board of Directors (Principal Executive Officer) | March 3, 2022 | ||
/s/ Michael Gonnella Michael Gonnella | Chief Financial Officer (Principal Financial and Accounting Officer) | March 3, 2022 | ||
/s/ Lisa Gersh Lisa Gersh | Director | March 3, 2022 | ||
/s/ Michael Ovitz Michael Ovitz | Director | March 3, 2022 | ||
/s/ Jacqueline Reses Jacqueline Reses | Director | March 3, 2022 | ||
/s/ Joseph Steinberg Joseph Steinberg | Director | March 3, 2022 | ||
75
INDEX TO FINANCIAL STATEMENTS
Page | ||||
| F-2 | ||||
Financial Statements: | ||||
| F-4 | |||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
| F-8 | ||||
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the StockholdersShareholders and Board of Directors of
Pershing Square Tontine Holdings, Ltd.
Opinion on the Financial Statements
We have audited the accompanying balance sheetsheets of Pershing Square Tontine Holdings, Ltd. (the “Company”) as of December 31, 2021 and 2020, the related statementstatements of operations, changes in stockholders’ equity/(deficit)stockholdersequity and cash flows forthe year ended December 31, 2021 and the period from May 4, 2020 (inception) through December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the year ended December 31, 2021 and the period from May 4, 2020 (inception) through December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
’
Restatement
We also have audited, in accordance with the standards of the 2020 Financial Statementsexpressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of material weaknesses.
Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on
the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013
and our report dated March 3, 2022
,
Emphasis of a Matter
As discusseddescribed in Note 21 to the financial statements, the accompanying financial statementsCompany is a Special Purpose Acquisition Corporation with a scheduled liquidation date of July 24, 2022. The Company must sign a letter of intent to acquire or combine with a viable business acquisition candidate as a condition of December 31, 2020 and forextending the period from May 4, 2020 (inception) through December 31, 2020 have been restated.
liquidation date.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
s
We conducted our auditin accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditalso included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit providesprovide a reasonable basis for our opinion.
s
s
Our audit
s
s
s
F-2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Description of the Matter
The values of Level 3 financial instruments held by the Company at fair value includes a forward purchase agreement net asset amounting to $4,889,180 and warrant liability amounting to $225,339,926. The fair values of these financial instruments, which are not actively traded, were determined using Level 3 valuation techniques. Where a valuation model is used, significant inputs are obtained from valuation specialists and other sources.
The principal considerations for our determination that performing procedures relating to the valuation of Level 3 financial instruments at fair value is a critical audit matter are (i) there was significant judgment exercised by management to determine the fair value of Level 3 financial instruments using valuation models, which include inputs and other estimation assumptions and (ii) there was significant judgement and audit effort to evaluate the evidence obtained related to the valuation models, inputs and assumptions, as well as the audit effort involving the use of professionals with specialized skill and knowledge.
As described in Notes 4 and 10 to the financial statements, the Company entered a forward purchase agreement with Pershing Square, L.P., Pershing Square International, Ltd. and Pershing Square Holdings, Ltd. collectively referred to as the “Purchasers” who are related parties of the Company and its Sponsor Pershing Square TH Sponsor, LLC. The forward purchase agreements provide for the Company to sell and for the Purchasers to purchase 50,000,000 forward purchase units under a firm commitment at any time prior to an initial business combination for aggregate proceeds of $1,000,000,000 and an additional 100,000,000 forward purchase units at the Purchaser’s option for additional aggregate proceeds of $2,000,000,000. The Company also issued $65,000,000 of common stock purchase warrants to Pershing Square TH Sponsor, LLC and $2,837,500 of common stock purchase warrants to certain of its directors.
Significant assumptions used by management in measuring the fair value of the forward purchase agreements include (i) estimating their expected term and (ii) discounting them for their lack of marketability. Significant assumptions used by management in measuring the fair values of the warrants include quantifying discounts for (i) the possibility that a business combination may not occur and (ii) lack of marketability. Further, the quantity of shares issuable upon exercise of the warrants is based upon contractual defined percentages of fully diluted shares that would be outstanding at the time of an initial business combination.
The primary procedures we performed to address this critical audit matter included the following auditing the Company’s classification assessment of the instruments, reading relevant agreements, making inquiries of management regarding the Company’s business combination. We also evaluated the reasonableness of business judgments made by management regarding the expected lives of financial instruments and the manner in which assumptions were developed to estimate the equity value of a potential business target as a way to quantify the likely number shares issuable under the common stock purchase warrants. We also utilized a valuation specialist to assist us in evaluating the appropriateness of the models that were used to calculate the fair values and reasonableness of volatility rates and discounts for lack of marketability and the possibility that a business combination might not occur.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2020.
Houston, TX
New York, NY
March 30, 2021, except for the effects3, 2022
F-3
BALANCE SHEET
DECEMBER 31, 2020 (As Restated)
Assets | ||||
Current Assets: | ||||
Cash and cash equivalents | $ | 25,348,287 | ||
Prepaid expenses | 2,601,472 | |||
Dividends receivable from operating account | 220 | |||
|
| |||
Total Current Assets | 27,949,979 | |||
Cash and marketable securities held in Trust Account | 4,001,690,454 | |||
|
| |||
Total Assets | $ | 4,029,640,433 | ||
|
| |||
Liabilities and Stockholders’ Equity/(Deficit) | ||||
Current Liabilities: | ||||
Accrued expenses | $ | 1,207,263 | ||
Accrued offering costs | 85,000 | |||
Income taxes payable | 289,155 | |||
|
| |||
Total Current Liabilities | 1,581,418 | |||
Forward Purchase Agreement liabilities | 593,893,320 | |||
Outstanding Warrant liabilities | 462,704,684 | |||
Deferred underwriting fees payable | 56,250,000 | |||
|
| |||
Total Liabilities | 1,114,429,422 | |||
|
| |||
Commitments | ||||
Class A Common Stock, $0.0001 par value, subject to possible redemption, 200,000,000 shares at redemption value | 4,001,401,299 | |||
|
| |||
Stockholders’ Equity/(Deficit) | ||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | |||
Class A Common Stock, $0.0001 par value; 3,000,000,000 shares authorized | — | |||
Class B Common Stock, $0.0001 par value; 20,000,000 shares authorized; 100 shares issued and outstanding | — | |||
Additional paid-in capital | 25,000 | |||
Accumulated deficit | (1,086,215,288 | ) | ||
|
| |||
Total Stockholders’ Equity/(Deficit) | (1,086,190,288 | ) | ||
|
| |||
Total Liabilities and Stockholders’ Equity/(Deficit) | $ | 4,029,640,433 | ||
|
| |||
SHEETS
December 31, | ||||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 23,156,677 | $ | 25,348,287 | ||||
Prepaid expenses | 939,289 | 2,601,472 | ||||||
Dividends receivable from operating account | 203 | 220 | ||||||
Total Current Assets | | 24,096,169 | | | 27,949,979 | | ||
Forward Purchase Agreement assets | 4,889,180 | 0 | ||||||
Cash and marketable securities held in Trust Account | 4,002,943,971 | 4,001,690,454 | ||||||
Total Assets | $ | 4,031,929,320 | $ | 4,029,640,433 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities: | ||||||||
Accrued expenses | $ | 1,823,470 | $ | 1,207,263 | ||||
Accrued offering costs | 0 | 85,000 | ||||||
Income taxes payable | – | 289,155 | ||||||
Due to related party | 3,789 | – | ||||||
Total Current Liabilities | 1,827,259 | 1,581,418 | ||||||
Forward Purchase Agreement liabilities | – | 593,893,320 | ||||||
Outstanding Warrant liabilities | 225,339,926 | 462,704,684 | ||||||
Deferred underwriting fees payable | 56,250,000 | 56,250,000 | ||||||
Total Liabilities | 283,417,185 | 1,114,429,422 | ||||||
Commitments and Contingencies | 0 | 0 | ||||||
Class A Common Stock, $0.0001 par value, 200,000,000 shares subject to possible redemption at redemption value | 4,002,943,971 | 4,001,401,299 | ||||||
Stockholders’ Deficit | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; NaN issued and outstanding | 0– | – | ||||||
Class A Common Stock, $0.0001 par value; 3,000,000,000 shares authorized | 0 | – | ||||||
Class B Common Stock, $0.0001 par value; 20,000,000 shares authorized; 100 shares issued and outstanding | 0– | – | ||||||
Additional paid-in capital | 25,000 | 25,000 | ||||||
Accumulated deficit | (254,456,836 | ) | (1,086,215,288 | ) | ||||
Total Stockholders’ Deficit | (254,431,836 | ) | (1,086,190,288 | ) | ||||
Total Liabilities , Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit | $ | 4,031,929,320 | $ | 4,029,640,433 | ||||
The accompanying notes are an integral part of the financial statements.
F-4
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM MAY 4, 2020 (INCEPTION) THROUGH DECEMBER 31, 2020 (As Restated)
Interest and dividends earned in operating account | $ | 1,428 | ||
Legal fees | (1,658,107 | ) | ||
Insurance expense | (743,291 | ) | ||
Research expense | (192,582 | ) | ||
Franchise tax expense | (132,290 | ) | ||
Other expenses | (106,755 | ) | ||
|
| |||
Loss from operations | (2,831,597 | ) | ||
Dividends earned on marketable securities | 16,394 | |||
Realized gains on marketable securities | 1,491,597 | |||
Unrealized gains on marketable securities | 182,463 | |||
|
| |||
Income earned in Trust Account | 1,690,454 | |||
Transaction costs allocable to Outstanding Warrant liabilities | (912,625 | ) | ||
Change in fair value of Forward Purchase Agreement liabilities | (593,893,320 | ) | ||
Change in fair value of Outstanding Warrant liabilities | (358,644,962 | ) | ||
|
| |||
Other loss | (953,450,907 | ) | ||
Loss before provision for income taxes | (954,592,050 | ) | ||
Income tax provision | (289,155 | ) | ||
|
| |||
Net loss | $ | (954,881,205 | ) | |
|
| |||
Basic weighted-average shares outstanding, Class A Common Stock subject to possible redemption | 200,000,000 | |||
|
| |||
Basic net income per share, Class A Common Stock subject to possible redemption | $ | 0.01 | ||
|
| |||
Diluted weighted-average shares outstanding, Class A Common Stock subject to possible redemption | 224,130,690 | |||
|
| |||
Diluted net income per share, Class A Common Stock subject to possible redemption | $ | 0.01 | ||
|
| |||
Basic and diluted weighted-average shares outstanding, Non-redeemable Class B Common Stock | 100 | |||
|
| |||
Basic and diluted net loss per share, Non-redeemable Class B Common Stock | $ | (9,562,825.04 | ) | |
|
| |||
Year Ended | Period From May 4, 2020 (Inception) Through | |||||||
December 31, 2021 | December 31, 2020 | |||||||
Interest and dividend income | $ | 2,146 | $ | 1,428 | ||||
Legal fees | (3,242,404 | ) | (348,159 | ) | ||||
Insurance | (1,653,238 | ) | (743,291 | ) | ||||
Printing | (57,823 | ) | (5,562 | ) | ||||
Accounting | (380,814 | ) | (20,291 | ) | ||||
Franchise tax | (200,000 | ) | (132,290 | ) | ||||
Research | (24,545 | ) | (192,582 | ) | ||||
Other | (175,950 | ) | (47,033 | ) | ||||
Loss from operations | (5,732,628 | ) | (1,487,780 | ) | ||||
IBC related fee s | (23,805,076 | ) | (1,343,817 | ) | ||||
Reimbursement of cancelled IBC | 25,148,893 | 0 | ||||||
IBC related fees | 1,343,817 | (1,343,817 | ) | |||||
Dividends earned on marketable securities held in Trust Account | 99,839 | 16,394 | ||||||
Realized gains on marketable securities held in Trust Account | 1,561,412 | 1,491,597 | ||||||
Change in unrealized gains on marketable securities held in Trust Account | 188,775 | 182,463 | ||||||
Income earned in Trust Account | 1,850,026 | 1,690,454 | ||||||
Offering costs allocable to Outstanding Warrant liabilities | 0 | (912,625 | ) | |||||
Change in fair value of Forward Purchase Agreement liabilities/assets | 598,782,500 | (593,893,320 | ) | |||||
Change in fair value of Outstanding Warrant liabilities | 237,364,758 | (358,644,962 | ) | |||||
Other income/(loss) | 836,147,258 | (953,450,907 | ) | |||||
Income/(loss) before income tax provision | 833,608,473 | (954,592,050 | ) | |||||
Income tax provision | (307,349 | ) | (289,155 | ) | ||||
Net income/(loss) | $ | 833,301,124 | $ | (954,881,205 | ) | |||
Basic weighted-average shares outstanding, Class A Common Stock subject to possible redemption | 200,000,000 | 200,000,000 | ||||||
Basic net income per share, Class A Common Stock subject to possible redemption | $ | 0.01 | $ | 0.01 | ||||
Diluted weighted-average shares outstanding, Class A Common Stock subject to possible redemption | 219,454,901 | 224,130,690 | ||||||
Diluted net income per share, Class A Common Stock subject to possible redemption | $ | 0.01 | $ | 0.01 | ||||
Basic and diluted weighted-average shares outstanding, Non-redeemable Class B Common Stock | 100 | 100 | ||||||
Basic net income/(loss) per share, Non-redeemable Class B Common Stock | $ | 8,317,584.47 | $ | (9,562,825.04 | ) | |||
Diluted net income/(loss) per share, Non-redeemable Class B Common Stock | $ | 2,329,759.47 | $ | (9,562,825.04 | ) | |||
The accompanying notes are an integral part of the financial statements.
F-5
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY/(DEFICIT)
FOR THE PERIOD FROM MAY 4, 2020 (INCEPTION) THROUGH DECEMBER 31, 2020 (As Restated)
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Equity/(Deficit) | |||||||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance – May 4, 2020 (inception) | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
Issuance of Class B Common Stock to Sponsor | — | — | 100 | — | 25,000 | — | 25,000 | |||||||||||||||||||||
Measurement adjustment on redeemable common stock | — | — | — | — | — | (131,334,083 | ) | (131,334,083 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (954,881,205 | ) | (954,881,205 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance – December 31, 2020 | — | $ | — | 100 | $ | — | $ | 25,000 | $ | (1,086,215,288 | ) | $ | (1,086,190,288 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
DEFICIT
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||
Class A | Class B | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance – May 4, 2020 (inception) | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||
Issuance of Class B Common Stock to Sponsor | 0 | 0 | 100 | 0 | 25,000 | 0 | 25,000 | |||||||||||||||||||||
Measurement adjustment on redeemable common stock | (131,334,083 | ) | (131,334,083 | ) | ||||||||||||||||||||||||
Net loss | 0 | 0 | 0 | 0 | 0 | (954,881,205 | ) | (954,881,205 | ) | |||||||||||||||||||
Balance – December 31, 2020 | 0 | $ | 0 | 100 | $ | 0 | $ | 25,000 | $ | (1,086,215,288 | ) | $ | (1,086,190,288 | ) | ||||||||||||||
Measurement adjustment on redeemable common stock | – | 0 | – | 0 | 0 | (1,542,672 | ) | (1,542,672 | ) | |||||||||||||||||||
Net income | 0 | 0 | 0 | 0 | 0 | 833,301,124 | 833,301,124 | |||||||||||||||||||||
Balance – December 31, 2021 | 0 | $ | 0 | 100 | $ | 0 | $ | 25,000 | $ | (254,456,836 | ) | $ | (254,431,836 | ) | ||||||||||||||
The accompanying notes are an integral part of the financial statements.
F-6
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM MAY 4, 2020 (INCEPTION) THROUGH DECEMBER 31, 2020 (As Restated)
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
Year Ended December 31, 2021 | Period From May 4, 2020 (Inception) Through December 31, 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net income/(loss) | $ | 833,301,124 | $ | (954,881,205 | ) | |||
Adjustments to reconcile net income/(loss) to net cash used in operating activities: | ||||||||
Offering costs allocable to Outstanding Warrant liabilities | 0 | 912,625 | ||||||
Change in fair value of Forward Purchase Agreement liabilities/assets | (598,782,500 | ) | 593,893,320 | |||||
Change in fair value of Outstanding Warrant liabilities | (237,364,758 | ) | 358,644,962 | |||||
Dividends earned on marketable securities held in Trust Account | (99,839 | ) | (16,394 | ) | ||||
Realized gains on marketable securities held in Trust Account | (1,561,412 | ) | (1,491,597 | ) | ||||
Change in unrealized gains on marketable securities held in Trust Account | (188,775 | ) | (182,463 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Dividends receivable from operating account | 17 | (220 | ) | |||||
Prepaid expenses | 1,662,183 | (2,601,472 | ) | |||||
Accrued expenses | 616,207 | 1,207,263 | ||||||
Income taxes payable | (289,155 | ) | 289,155 | |||||
| Due to related party | 3,789 | – | ||||||
Net cash used in operating activities | (2,703,119 | ) | (4,226,026 | ) | ||||
Cash flows from investing activities: | ||||||||
Investment of cash in Trust Account | 0 | (4,000,000,000 | ) | |||||
Cash withdrawn from Trust Account to pay income taxes | 596,509 | 0 | ||||||
Net cash provided by/(used in) investing activities | 596,509 | (4,000,000,000 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of Units | – | 4,000,000,000 | ||||||
Proceeds from sale of Sponsor and Director Warrants | – | 67,837,500 | ||||||
Payment of underwriting fees | – | (35,000,000 | ) | |||||
Payment of offering costs | (85,000 | ) | (3,288,187 | ) | ||||
Proceeds from promissory note – related party | – | 1,121,120 | ||||||
Repayment of promissory note – related party | – | (1,121,120 | ) | |||||
Proceeds from issuance of Class B Common Stock to Sponsor | – | 25,000 | ||||||
Net cash provided by financing activities | (85,000 | ) | 4,029,574,313 | |||||
Net change in cash | (2,191,610 | ) | 25,348,287 | |||||
Cash and cash equivalents – beginning of period | 25,348,287 | 0 | ||||||
Cash and cash equivalents – end of period | $ | 23,156,677 | $ | 25,348,287 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for income taxes | $ | (596,509 | ) | $ | 0 | |||
Supplemental disclosure of non-cash activities: | ||||||||
Deferred underwriting fees payable | $ | 56,250,000 | $ | 56,250,000 | ||||
Initial classification of common stock subject to possible redemption | $ | – | $ | 4,000,000,000 | ||||
Change in value of common stock subject to possible redemption | $ | 1,542,672 | $ | 1,401,299 | ||||
The accompanying notes are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2020
2021
Note 1—Description of Organization and Business Operations
Organization and General
Pershing Square Tontine Holdings, Ltd. (the “Company”) is a blank check company incorporated in Delaware on May 4, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “Initial Business Combination”). The Company is not limited to a particular industry or sector for purposes of consummating an Initial Business Combination. The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of December 31, 2020,2021, the Company had not commenced any operations. All activity for the period from May 4, 2020 (inception) through December 31, 20202021 relates to the Company’s formation, the initial public offering (“Initial Public Offering”) described below, and identifying a target for an Initial Business Combination.Combination and activities in connection with the proposed and subsequent cancellation of an Initial Business Combination with Vivendi S.E. (“Vivendi”), a corporation (société européenne) incorporated under the laws of France, in which the Company would purchase shares of Universal Music Group B.V. (“UMG”, majority owned subsidiary of Vivendi), a private company with limited liability organized under the laws of the Netherlands, as described further in Note 5. The Company generatesdividend incomedividends from the proceeds obtained in connection with the Initial Public Offering and private placements of Sponsor Warrants and Director Warrants (further discuss below), and upon any exercise under the Forward Purchase Agreement (as defined in Note 5)4) prior to the Initial Business Combination. The Company has selected December 31st 31
non-operating
income in the form of interest and st
as its fiscalyear-end.
The Company’s sponsor is Pershing Square TH Sponsor, LLC (“Sponsor”), a Delaware limited liability company organized on May 4, 2020. The Sponsor is an affiliate of Pershing Square Capital Management, L.P. (“PSCM”), a registered investment advisor under the Investment Advisers Act of 1940, as amended, with approximately $12.6$18.5 billion of assets under management as of December 31, 2020.2021. Our Sponsor is wholly owned by Pershing Square Holdings, Ltd., a Guernsey company, Pershing Square, L.P., a Delaware limited partnership, and Pershing Square International, Ltd., a Cayman Islands exempted company, each of which is an investment fund managed by PSCM (the “Pershing Square Funds”).
The registration statement for the Company’s Initial Public Offering (the “Prospectus”) was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on July 21, 2020. On July 24, 2020, the Company consummated its Initial Public Offering of 200,000,000 units (“the Units” and, with respect to the shares of Class A Common Stock included in the Units sold, the “Public Shares”), at $20.00 per Unit, generating gross proceeds of $4,000,000,000. Each Unit consisted of one share of Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), and
one-ninth
of one redeemable warrant (the “Distributable Redeemable Warrants” or “Public Warrants”). In addition, the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”) provides that an aggregate of 44,444,444 redeemable warrants will be distributed on apro-rata
basis only to holders of record of the Class A Common Stock (however acquired) (the “Public Stockholder”) that are outstanding after the Company redeems any Public Shares whose holders have elected to redeem in connection with the Company’s Initial Business Combination (the “Distributable Tontine Redeemable Warrants” and, collectively with the Distributable Redeemable Warrants, the “Redeemable Warrants.”). The Distributable Tontine Redeemable Warrants will be distributed immediately before the closing of the Company’s Initial Business Combination.The number of Distributable Tontine Redeemable Warrants to be distributed in respect of each such share of unredeemed Class A Common Stock is contingent upon the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Initial Business Combination. The right to receive Distributable Tontine Redeemable Warrants will remain attached to each such share of Class A Common Stock and will not be separately transferable, assignable or salable.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the private placements of the Sponsor Warrants for $65,000,000 as well as the Director Warrants for $2,837,500. Both warrants are defined and further discussed in Note 5.
4.
Total offering costs amounted to $94,623,187, which consist of $35,000,000 of upfront underwriting fees, $56,250,000 of deferred underwriting fees (further discussed in Note 6)5) and $3,373,187 of other offering costs.
Upon the closing of the Initial Public Offering and the private placements, $4,000,000,000 ($20.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds of the private placements of the Sponsor Warrants and Director Warrants were placed in a trust account (the “Trust Account”), with the remaining proceeds placed in an operating account outside the Trust Account. As of December 31, 2021 and December 31, 2020, $23,156,677 and $25,348,287, wasrespectively, were held as unrestricted cash outside
F-
8
the Trust Account to pay for ongoing expenses (such as business, legal and accounting due diligence costs related to prospective acquisitions, and continuing general and administrative expenses). The Trust Account is not liable for these expenses.
On September 11, 2020, the Company’s Units ceased trading, and the Company’s Class A Common Stock and the Company’s Distributable Redeemable Warrants commenced trading separately on the New York Stock Exchange. In the separation, Unit owners received the number of shares of Class A Common Stock and Distributable Redeemable Warrants underlying their Units, with the right to receive any Distributable Tontine Redeemable Warrants remaining attached to such shares of Class A Common Stock.
The Trust Account
The Trust Account is located in the United States with Continental Stock Transfer & Trust Company acting as trustee. The proceeds held in the Trust Account will beare invested solely in U.S. Treasury obligations (which are United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act) having a maturity of one hundred eighty (180) days or less or in money market funds that meet certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940, as amended. As of December 31, 2020,2021, the Company holdsheld U.S. Treasury bills in the Trust Account with a face value of $4,002,579,000,$
4,003,040,000 maturing in January and February 2022.
The proceeds, other than withdrawal of interest or dividend income to pay taxes owed in respect of the income derived from the Trust Account, will remain in the Trust Account (and will not be released) until the earlier of: (i) the consummation of the Initial Business Combination or (ii) the redemption of any shares of Class A Common Stock included in the Units sold in the Initial Public Offering that have been properly tendered in connection with a stockholder vote to amend the Company’s Certificate of Incorporation (A) to modify the substance or timing of the Company’s obligation to allow redemptions in connection with its Initial Business Combination, (B) to modify the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if it does not complete its Initial Business Combination by July 24, 2022 (or January 24, 2023 if it has executed a letter of intent, agreement in principle or definitive agreement for its Initial Business Combination by July 24, 2022 but has not completed its Initial Business Combination by such date) (the “Combination Period”), or (C) with respect to any other provision relating to stockholders’ right for
pre-Initial
Business Combination activities; and (iii) the redemption of 100% of the Public Shares if the Company is unable to complete an Initial Business Combination within the Combination Period, subject to the requirements of law.The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s Public Stockholders.
Initial Business Combination
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Sponsor Warrants and Director Warrants, although substantially all of these proceeds are intended to be generally applied toward consummating an Initial Business Combination. The Initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding the amount of deferred underwriting fees further discussed in Note 6)5) at the time of the agreement to enter into the Initial Business Combination. The Company will only complete an Initial Business Combination if the post-combination business owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Furthermore, there is no assurance that the Company will be able to successfully effect an Initial Business Combination.
The Company will provide its Public Stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of an Initial Business Combination either (i) in connection with a stockholder meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed business combination or conduct a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval under applicable law or stock exchange listing requirements. The Public Stockholders will be entitled to redeem their Public Shares for cash equal to their6)5) that the Company will pay to the underwriters. There will be no redemption rights upon the completion of an Initial Business Combination with respect to the Company’s Class B Common Stock (as defined below) or Warrants (as defined in Note 5)4).
pro-rata
share of the amount then on deposit in the Trust Account as of five business days prior to the consummation of the Initial Business Combination, including any interest and dividend income earned on the funds held in the Trust Account and not previously released to the Company to pay taxes owed in respect of such income derived from the Trust Account (the “Redemption Value”). The Redemption Value to be distributed to Public Stockholders who properly redeem their Public Shares will not be reduced by the deferred underwriting fees (further discussed in Note F-
9
The Company will be able to proceed with an Initial Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of an Initial Business Combination. If the Company seeks stockholder approval, a majority of the shares voted must be voted in favor of the Initial Business Combination. If a stockholder vote is not required and the Company does not
decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the SEC and file tender offer documents with the SEC prior to completing an Initial Business Combination. If, however, stockholder approval of the transaction is required, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will conduct the redemptions in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Each Public Stockholder may elect to redeem its Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks stockholder approval in connection with an Initial Business Combination, the Company’s Sponsor, Forward Purchasers (as defined in Note 5)4), directors and officers have agreed to vote their Class B Common Stock as well as any Public Shares and Forward Purchase Securities (as defined in Note 5)4) held by them in favor of approving the Initial Business Combination.
If the Company seeks stockholder approval of an Initial Business Combination and does not conduct redemptions pursuant to the tender offer rules, the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the Public Shares, unless our board of directors determines, in its sole discretion, to waive or amend such limit with respect to a particular stockholder or “group.”
Pursuant to the Company’s Certificate of Incorporation, if the Company is unable to complete the Initial Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than 10 business days thereafter, redeem the Public Shares, at a per share price, payable in cash, equal to the Redemption Value (less $100,000 to pay dissolution expenses), divided by the number of then-outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. The holders of the Company’s Class B common stock, (“Class B Common Stock”) will not be issued any shares of Class A Common Stock in respect of their shares of Class B Common Stock if the Company fails to complete its Initial Business Combination within the Combination Period, and will have no rights to liquidating distributions from the Trust Account in respect of such shares, although these Class B common stockholders will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares that they hold (however acquired).
In the event of a liquidation, dissolution or winding up of the Company after an Initial Business Combination, the Company’s stockholders are entitled to share ratably in all remaining assets available for distribution to them after payment of liabilities and after a provision is made for each class of stock, if any, having preference over the common stock. The Company’s stockholders have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the common stock.
Note 2—Restatement of Previously Issued Financial Statements
The Company previously accounted for its outstanding Distributable Redeemable Warrants (the “Public Warrants), Sponsor Warrants and Director Warrants (the “Private Placement Warrants” and collectively with the Public Warrants, the “Outstanding Warrants”) as components of equity instead of as derivative liabilities (the liabilities related to such Outstanding Warrants, the “Outstanding Warrant Liabilities”). The warrant agreements include a provision that, in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of common shares, all holders of the warrants would be entitled to receive cash for their warrants (“Tender Offer Provision”), and as such, we are required to classify them as liabilities as they do not qualify for equity treatment. In addition, the Sponsor Warrants and Director Warrants are exercisable for a variable number of shares which disqualifies them for equity treatment, and are instead classified as liabilities.
The Company previously accounted for its Forward Purchase Agreement and Director Forward Purchase Agreement as defined in Note 5 (collectively, the “FPA”) as components of equity instead of as derivative liabilities. Under the Forward Purchase Agreement, the Forward Purchasers (as defined in Note 5) are entitled to purchase Forward Purchase Units (as defined in Note 5) consisting of one share of Class A Common Stock and one-third of one warrant (“Forward Purchase Warrants”). The Forward Purchase Warrants are a component of the FPA and include the Tender Offer Provision under the warrant agreements. In the process of evaluating the accounting for the Company’s Outstanding Warrants and FPA, the Company also determined that it was necessary to restate its financial statements to classify all Class A Common Stock as a component of temporary equity. In accordance with the SEC’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require common stock subject to redemption to be classified outside of permanent equity.
Upon review of the “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (SPACs)” promulgated by the SEC on April 12, 2021, the Company’s management further evaluated the Outstanding Warrants and FPA under Accounting Standards Codification (“ASC”) Subtopic 815-40,Contracts in Entity’s Own Equity, and concluded that they do not meet the criteria to be classified as equity. Based on management’s evaluation, the
Company’s audit committee, in consultation with management and after discussion with the Company’s independent registered public accounting firm, determined that the Company should have classified the Outstanding Warrants and FPA as derivative liabilities in its previously issued financial statements. Under this accounting treatment, the Company is required to measure the fair value of the instruments at the end of each reporting period and recognize changes in fair value from the prior period in the Company’s operating results.
The Company’s accounting for the Outstanding Warrants and FPA as components of equity instead of as liabilities did not have any effect on the Company’s previously reported cash flows, cash held in Trust or restricted cash.
The following table reflects the Company’s balance sheet, statement of operations and cash flows as of the reporting dates and their respective periods indicated below:
| Previously Reported | Adjustments | As Restated | ||||||||||
Balance sheet as of July 24, 2020 (audited) | ||||||||||||
FPA liabilities | $ | — | $ | 111,463,140 | $ | 111,463,140 | ||||||
Outstanding Warrant liabilities | — | 142,477,854 | 142,477,854 | |||||||||
Total Liabilities | 58,656,603 | 253,940,994 | 312,597,597 | |||||||||
Class A Common Stock subject to possible redemption | 3,968,453,540 | 31,546,460 | 4,000,000,000 | |||||||||
Class A Common Stock | 158 | (158 | ) | — | ||||||||
Additional paid-in capital | 5,110,881 | (5,085,881 | ) | 25,000 | ||||||||
Accumulated deficit | (111,023 | ) | (280,401,415 | ) | (280,512,438 | ) | ||||||
Total Stockholders’ Equity/(Deficit) | 5,000,016 | (285,487,454 | ) | (280,487,438 | ) | |||||||
Balance sheet as of September 30, 2020 (unaudited) | ||||||||||||
FPA liabilities | $ | — | $ | 231,470,840 | $ | 231,470,840 | ||||||
Outstanding Warrant liabilities | — | 318,831,320 | 318,831,320 | |||||||||
Total Liabilities | 57,054,786 | 550,302,160 | 607,356,946 | |||||||||
Class A Common Stock subject to possible redemption | 3,968,355,857 | 32,413,324 | 4,000,769,181 | |||||||||
Class A Common Stock | 162 | (162 | ) | — | ||||||||
Additional paid-in capital | 4,911,537 | (4,886,537 | ) | 25,000 | ||||||||
Retained Earnings (Accumulated deficit) | 88,302 | (577,828,785 | ) | (577,740,483 | ) | |||||||
Total Stockholders’ Equity/(Deficit) | 5,000,001 | (582,715,484 | ) | (577,715,483 | ) | |||||||
Balance sheet as of December 31, 2020 (audited) | ||||||||||||
FPA liabilities | $ | — | $ | 593,893,320 | $ | 593,893,320 | ||||||
Outstanding Warrant liabilities | — | 462,704,684 | 462,704,684 | |||||||||
Total Liabilities | 57,831,418 | 1,056,598,004 | 1,114,429,422 | |||||||||
Class A Common Stock subject to possible redemption | 3,966,809,006 | 34,592,293 | 4,001,401,299 | |||||||||
Class A Common Stock | 173 | (173 | ) | — | ||||||||
Additional paid-in capital | 6,430,134 | (6,405,134 | ) | 25,000 | ||||||||
Accumulated deficit | (1,430,298 | ) | (1,084,784,990 | ) | (1,086,215,288 | ) | ||||||
Total Stockholders’ Equity/(Deficit) | 5,000,009 | (1,091,190,297 | ) | (1,086,190,288 | ) | |||||||
Three months ended September 30, 2020 (unaudited) | ||||||||||||
Transaction costs allocable to Outstanding Warrant liabilities | $ | — | $ | (912,625 | ) | $ | (912,625 | ) | ||||
Change in fair value of FPA liabilities | — | (231,470,840 | ) | (231,470,840 | ) | |||||||
Change in fair value of Outstanding Warrant liabilities | — | (214,771,598 | ) | (214,771,598 | ) | |||||||
Income (loss) before provision for income taxes | 124,657 | (447,155,063 | ) | (447,030,406 | ) | |||||||
Net income (loss) | 101,184 | (447,155,063 | ) | (447,053,879 | ) | |||||||
Basic and diluted net loss per common share | (0.56 | ) | 0.56 | — | ||||||||
Basic and diluted net income per Class A Common Stock subject to possible redemption | — | 0.00 | 0.00 | |||||||||
Basic and diluted net loss per share, Non-redeemable Class B Common Stock | — | (4,478,230.61 | ) | (4,478,230.61 | ) | |||||||
| Previously Reported | Adjustments | As Restated | ||||||||||
Period from May 4, 2020 (Inception) through September 30, 2020 (unaudited) | ||||||||||||
Transaction costs allocable to Outstanding Warrant liabilities | $ | — | $ | (912,625 | ) | $ | (912,625 | ) | ||||
Change in fair value of FPA liabilities | — | (231,470,840 | ) | (231,470,840 | ) | |||||||
Change in fair value of Outstanding Warrant liabilities | — | (214,771,598 | ) | (214,771,598 | ) | |||||||
Income (loss) before provision for income taxes | 111,775 | (447,155,063 | ) | (447,043,288 | ) | |||||||
Net income (loss) | 88,302 | (447,155,063 | ) | (447,066,761 | ) | |||||||
Basic and diluted net loss per common share | (0.90 | ) | 0.90 | — | ||||||||
Basic and diluted net income per Class A Common Stock subject to possible redemption | — | 0.00 | 0.00 | |||||||||
Basic and diluted net loss per share, Non-redeemable Class B Common Stock | — | (4,478,359.43 | ) | (4,478,359.43 | ) | |||||||
Period from May 4, 2020 (Inception) through December 31, 2020 (audited) | ||||||||||||
Transaction costs allocable to Outstanding Warrant liabilities | $ | — | $ | (912,625 | ) | $ | (912,625 | ) | ||||
Change in fair value of FPA liabilities | — | (593,893,320 | ) | (593,893,320 | ) | |||||||
Change in fair value of Outstanding Warrant liabilities | — | (358,644,962 | ) | (358,644,962 | ) | |||||||
Loss before provision for income taxes | (1,141,143 | ) | (953,450,907 | ) | (954,592,050 | ) | ||||||
Net loss | (1,430,298 | ) | (953,450,907 | ) | (954,881,205 | ) | ||||||
Basic and diluted net loss per common share | (2.61 | ) | 2.61 | — | ||||||||
Basic and diluted net income per Class A Common Stock subject to possible redemption | — | 0.01 | 0.01 | |||||||||
Basic and diluted net loss per share, Non-redeemable Class B Common Stock | — | (9,562,825.04 | ) | (9,562,825.04 | ) | |||||||
Cash Flow Statement for the Period from May 4, 2020 (Inception) through September 30, 2020 (unaudited) |
| |||||||||||
Net income (loss) | $ | 88,302 | $ | (447,155,063 | ) | $ | (447,066,761 | ) | ||||
Transaction costs allocable to Outstanding Warrant liabilities | — | 912,625 | 912,625 | |||||||||
Change in fair value of FPA liabilities | — | 231,470,840 | 231,470,840 | |||||||||
Change in fair value of Outstanding Warrant liabilities | — | 214,771,598 | 214,771,598 | |||||||||
Initial classification of common stock subject to possible redemption | 3,968,453,540 | 31,546,460 | 4,000,000,000 | |||||||||
Change in value of common stock subject to possible redemption | (97,683 | ) | 866,864 | 769,181 | ||||||||
Cash Flow Statement for the Period from May 4, 2020 (Inception) through December 31, 2020 (audited) |
| |||||||||||
Net loss | $ | (1,430,298 | ) | $ | (953,450,907 | ) | $ | (954,881,205 | ) | |||
Transaction costs allocable to Outstanding Warrant liabilities | — | 912,625 | 912,625 | |||||||||
Change in fair value of FPA liabilities | — | 593,893,320 | 593,893,320 | |||||||||
Change in fair value of Outstanding Warrant liabilities | — | 358,644,962 | 358,644,962 | |||||||||
Initial classification of common stock subject to possible redemption | 3,968,453,540 | 31,546,460 | 4,000,000,000 | |||||||||
Change in value of common stock subject to possible redemption | (1,644,534 | ) | 3,045,833 | 1,401,299 | ||||||||
Note 3—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act exempts emerging growth companies from being required
Reclassification
Certain prior year amounts have been reclassified 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 election to opt out is irrevocable. The Company has 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, the Company can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with those of another public company difficult or impossible if such other public company is (i) not an emerging growth company or (ii) is an emerging growth company that has opted out of using the extended transition period, dueconform to the potential differences in accounting standards used.
current year presentation.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalent accounts in financial institutions, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
accounts and has not experienced any losses.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying balance sheet,sheets, primarily due to their short-term nature.
F-
10
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuesincome and expenses during the reporting periods.
periods reported.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. At December 31, 2021 and December 31, 2020, cash and cash equivalents inon the balance sheet issheets are comprised of cash in bank of $182,037 and $867, respectively, and a money market fund balance of $22,974,640 and $25,347,420, respectively, which isare invested solely in U.S. Treasury obligations and cash.
Marketable Securities Held in Trust Account
As of December 31, 2021 and December 31, 2020, substantially all of the assets held in the Trust Account were held in U.S. Treasury obligations.
From its inception to December 31, 2021, the Company has withdrawn $596,509 of income earned on the Trust Account to pay for its income tax obligations, all of which was withdrawn during the year ended December 31, 2021.
Outstanding Warrants and FPA Liabilities
The Company accounts for the OutstandingPublic Warrants, the Sponsor Warrants and FPADirector Warrants (“Private Placement Warrants”, collectively with the Public Warrants, the “Outstanding Warrants”) and the Forward Purchase Agreement and Director Forward Purchase Agreement (collectively, the “FPA”) in accordance with the guidance contained in ASCliabilities.derivative liabilities or assets, (the liability related to such Outstanding Warrants, the “Outstanding Warrant liabilities”). Accordingly, the Company classifies the Outstanding Warrants and FPA as derivative liabilities or assets with changes in fair value reflected on the statement of operations at each reporting period. The fair value of the Public Warrants was initially measured using a modified Black-Scholes pricing model and subsequently measured at the closing quoted market price. The Private Placement Warrants and FPA are valued using a modified Black-Scholes pricing model. See Note 87 for further details.
815-40,
under which the Outstanding Warrants and FPA do not meet the criteria for equity treatment and must be recorded as Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of ASCand SEC Staff Accounting Bulletin Topic 5A—“Expenses of Offering.” Offering costs consist of underwriting, legal, regulatory filing, accounting, and other costs incurred through the balance sheet date that are directly related to the Initial Public Offering. The offering costs relate to the Class A Common Stock and Distributable Redeemable Warrants which comprised the Unit offeredsold as part of the Initial Public Offering. These costs were allocated on a relative fair value basis, with the portion of offering costs allocated to the Distributable Redeemable Warrants being charged to expense, and the portion of offering costs assigned to the Public Shares being allocated to stockholders’ equity upon the completion of the Initial Public Offering. Public Stockholders who properly redeem their Public Shares (as described in Note 1) in connection with the Initial Business Combination will not bear any of the offering costs. Total offering costs amounted to $94,623,187, which consist of $35,000,000 of upfront underwriting fees, $56,250,000 of deferred underwriting fees (further discussed in Note 6)5) and $3,373,187 of other offering costs, of which $912,625 was charged to expense, and $93,710,562 was charged to stockholders’ equity.
340-10-S99-1
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A Common Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” The Company’s conditionally redeemable Class A Common Stock features certain redemption rights that are considered to be outside of its control and subject to the occurrence of uncertain future events. Accordingly, at December 31, 2021 and December 31, 2020, 200,000,000 shares of Class A Common Stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.sheets. The
F-1
1
Company adjusts the carrying value of redeemable common stock to equal the redemption value of the cash held in the Trust Account net of income taxes payable at the end of each reporting period.
Class B Common Stock
The Company accounts for its Class B Common Stock as contingently convertible instruments in accordance with the guidance in ASC Topic 505 “Equity.” Accordingly, at December 31, 2021 and December 31, 2020, 100 shares of Class B Common Stock are presented at cost as permanent equity on the Company’s balance sheets.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. The Company applies the treasury stock method to the Public Warrants sold in the Initial Public Offering, the private placement of the Sponsor and Director Warrants and the Forward Purchase Agreement (each of which permits the holder to purchase additional shares of Class A Common Stock) in the calculation of diluted income (loss) per share. The ability for the Outstanding Warrants to be exercised is contingent upon the occurrence of future events that have not been met as of the end of the reporting period. Similarly, the ability for automatic conversion of Sponsor’s Class B Common Stock into Class A Common Stock is contingent upon the completion of an Initial Business Combination which has not been met as of the end of the reporting period. As a result, the Company has not considered the effect of the Outstanding Warrants or the Class B Common Stock on net income / (loss) per common share for the periods presented.
The Company’s statementstatements of operations includesinclude a presentation of income (loss) per share for Class A Common Stock subject to possible redemptioncommon shares in a manner similar to thesince original issuance.outstanding for the period.
two-class
method of calculating income (loss) per share. Net income (loss) per common share, basic and diluted, for Class A Common Stock subject to possible redemption is calculated by dividing the allocable income earned on the Trust Account, net of applicable income taxes, by the weighted-average number of Class A Common Stock subject to possible redemption Net income (loss) per share, basic and diluted, for Class B
the 100non-redeemable
common stock is calculated by dividing the net income (loss), adjusted for income (loss) attributable to Class A Common Stock subject to possible redemption, by the weighted-average number of Class Bnon-redeemable
common stock outstanding for the period. Class Bnon-redeemable
common stock includesshares owned by the Sponsor as these shares do not have any redemption features and do not participate in the income (loss) earned on the Trust Account.
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
| For the Period from May 4, 2020 (inception) through December 31, 2020 | ||||
Class A Common Stock Subject to Possible Redemption | ||||
Numerator: Earnings allocable to Class A Common Stock subject to possible redemption | ||||
Income earned in Trust Account | $ | 1,690,454 | ||
Income tax provision | (289,155 | ) | ||
|
| |||
Net earnings | $ | 1,401,299 | ||
|
| |||
Denominator: Weighted-average Class A Common Stock subject to possible redemption | ||||
Basic weighted-average shares outstanding, Class A Common Stock subject to possible redemption | 200,000,000 | |||
|
| |||
Diluted weighted-average shares outstanding, Class A Common Stock subject to possible redemption | 224,130,690 | |||
|
| |||
Basic and diluted net income per share, Class A Common Stock subject to possible redemption | $ | 0.01 | ||
|
| |||
Non-Redeemable Class B Common Stock | ||||
Numerator: Net loss minus net earnings | ||||
Net loss | $ | (954,881,205 | ) | |
Net earnings allocable to Class A Common Stock subject to possible redemption | (1,401,299 | ) | ||
|
| |||
Non-redeemable net loss | $ | (956,282,504 | ) | |
|
| |||
Denominator: Weighted-average Non-redeemable Class B Common Stock | ||||
Basic and diluted weighted-average shares outstanding, Non-redeemable Class B Common Stock | 100 | |||
|
| |||
Basic and diluted net loss per share, Non-Redeemable Class B Common Stock | $ | (9,562,825.04 | ) | |
|
| |||
Year Ended December 31, 2021 | Period From May 4, 2020 (Inception) through December 31, 2020 | |||||||||||||||
(Basic) | (Diluted) | (Basic) | (Diluted) | |||||||||||||
Class A Common Stock Subject to Possible Redemption | ||||||||||||||||
Numerator: Earnings allocable to Class A Common Stock subject to possible redemption | ||||||||||||||||
Income earned in Trust Account | $ 1,850,026 | $ 1,850,026 | $ 1,690,454 | $ 1,690,454 | ||||||||||||
Income taxes | (307,349) | (307,349) | (289,155) | (289,155) | ||||||||||||
Net earnings | $ 1,542,677 | $ 1,542,677 | $ 1,401,299 | $ 1,401,299 | ||||||||||||
Denominator: Weighted-average Class A Common Stock subject to possible redemption | ||||||||||||||||
Weighted-average shares outstanding, Class A Common Stock subject to possible redemption | 200,000,000 | 219,454,901 | 200,000,000 | 224,130,690 | ||||||||||||
Net income per share, Class A Common Stock subject to possible redemption | $ 0.01 | $ 0.01 | $ 0.01 | $ 0.01 | ||||||||||||
Non-Redeemable Class B Common Stock | ||||||||||||||||
Numerator: Net income/(loss) minus net earnings and change in fair value of FPA assets/liabilities | ||||||||||||||||
Net income/(loss) | $ 833,301,124 | $ 833,301,124 | $(954,881,205) | $(954,881,205) | ||||||||||||
Net earnings allocable to Class A Common Stock subject to possible redemption | (1,542,677) | (1,542,677) | (1,401,299) | (1,401,299) | ||||||||||||
Change in fair value of FPA assets/liabilities | 0 | (598,782,500) | 0 | 0 | ||||||||||||
Non-redeemable net income/(loss) | $ | 831,758,447 | $ | 232,975,947 | $(956,282,504) | $(956,282,504) | ||||||||||
Denominator: Weighted-average Non-redeemable Class B Common Stock | ||||||||||||||||
Weighted-average shares outstanding, Non-redeemable Class B Common Stock | 100 | 100 | 100 | 100 | ||||||||||||
Net income/(loss) per share, Non-redeemable Class B Common Stock | $ | 8,317,584.47 | $ | 2,329,759.47 | $(9,562,825.04) | $(9,562,825.04) | ||||||||||
F-1
2
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of December 31, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2020-06 effective as of January 1, 2021. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements.
Management does not believe that any
other
recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on the Company’s financial statements.Risk and Uncertainties
Management continues to evaluate the impact of the
COVID-19
pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.Note 4—3—Initial Public Offering
Pursuant to the Initial Public Offering on July 24, 2020, the Company sold 200,000,000 units at a price of $20.00 per Unit. Each Unit consisted of one share1share of the Company’s Class A Common Stock, anda poolan aggregate of 44,444,444 Distributable Tontine Redeemable Warrants will be distributed on a54, and collectively with the Redeemable Warrants, the “Warrants”) entitles the holder to purchase one share of Class A Common Stock at a price of $23.00 per share, subject to adjustment (see Note 7)6).
one-ninth
of one Distributable Redeemable Warrants. In addition, the Company’s Certificate of Incorporation provides that pro-rata
basis to the Public Stockholders who do not redeem their Public Shares in connection with the Initial Business Combination, the distribution of which will occur immediately after such redemptions and immediately prior to the closing of the Initial Business Combination. Each whole Redeemable Warrant or Forward Purchase Warrant (as defined in Note Note 5—4—Related Party Transactions
Sponsor Shares
On May 7, 2020, the Sponsor acquired 100 shares of Class B Common Stock (the “Sponsor Shares”) for an aggregate purchase price of $25,000, or $250.00 per share. The Sponsor Shares are identical to the Class A Common Stock included in the Units sold in the Initial Public Offering except that: (i) the Sponsor Shares have, in the aggregate, the voting power of 20.0% of the issued and outstanding common stock of the Company immediately following the Initial Public Offering, while the shares of Class A Common Stock have, in the aggregate, 80.0% of the voting power of the issued and outstanding common stock of the Company immediately following the Initial Public Offering; (ii) the Sponsor Shares automatically convert into shares of Class A Common Stock at the time of the Company’s Initial Business Combination on abasis, subject to adjustments and certain transfer restrictions; and (iii) the holders of the Sponsor Shares have the right to elect all directors of the Company prior to the Initial Business Combination.
one-for-one
The Company’s Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of their Sponsor Shares until the earlier to occur of (A) 180 days after the completion of the Initial Business Combination or (B) subsequent to the Initial Business Combination the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
F-1
3
Sponsor Warrants
Concurrently with the Initial Public Offering, the Sponsor purchased the Sponsor Warrants for an aggregate purchase price of $65,000,000 in a private placement. The fair market value of the Sponsor Warrants as of the date of the Initial Public Offering was determined by the Company to be $65,000,000 in consultation with a third-party, nationally recognized valuation firm. The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell the Sponsor Warrants until three years after the date of the Initial Business Combination, and will only then be exercisable for that number of shares constituting 5.95% of the common shares of the post-combination business on a fully diluted basis as of the time immediately following the Initial Business Combination, at an exercise price equal to $24.00 per common share of the post-combination business. The Sponsor Warrants will have a term of 10 years from the consummation of the Initial Business Combination. The Sponsor Warrants are not redeemable by the Company and, will be exercisable, in whole or in part, on a cash or cashless basis.
Of the proceeds from the sale of the Sponsor Warrants, $35,000,000 was deposited in the Trust Account (as described above in Note 1) such that $4,000,000,000 was placed in the Trust Account, and the remainder of the proceeds of the Sponsor Warrants and the full proceeds of the Director Warrants (as defined below) are held by the Company outside the Trust Account and will be used to pay for expenses in connection with the Initial Public Offering and Initial Business Combination. If the Initial Business Combination is not completed within the Combination Period, the proceeds from the sale of the Sponsor Warrants held in the Trust Account will be used to fund the redemption of Public Shares (subject to the requirements of applicable law).
Director Warrants
Concurrently with ourthe Initial Public Offering, each of the Company’s directors, other than Mr. Ackman, purchased an aggregate amount of $2,837,500 of director warrants (“Director Warrants”) in private placements. The directors who have purchased Director Warrants have agreed, subject to limited exceptions, not to transfer, assign or sell such Director Warrants until three years after the completion of the Initial Business Combination. Each Director Warrant will be exercisable for a percentage of the common shares of the post-combination business calculated as the purchase price of such Director Warrant divided by the purchase price of the Sponsor Warrants, multiplied by 5.95%, reflecting fair market value as determined with respect to the Sponsor Warrants. The aggregate Director Warrants will be exercisable for approximately 0.26% of the common shares of the post-combination business on a fully diluted basis. The exercise price per common share of the post-combination business will be $24.00. The Director Warrants will have a term of 10 years from the consummation of the Initial Business Combination. The Director Warrants are not redeemable by the Company and will be exercisable, in whole or in part, on a cash or cashless basis.
The Sponsor Warrants and the Director Warrants will be exercisable, in the aggregate, for that number of shares equal to approximately 6.21% of the shares of the post-combination business on a fully diluted basis.
Forward Purchase Agreement
On June 21, 2020, the Pershing Square Funds (each a “Forward Purchaser” and collectively the “Forward Purchasers”) entered into a Forward Purchase Agreement (the “Forward Purchase Agreement”) with the Company, regarding the purchase of units (the “Forward Purchase Units”), each of which has a purchase price of $20.00 and consists of one1 share of Class A Common Stock (the “Forward Purchase Shares”), andourthe Initial Business Combination. The Forward Purchasers are not permitted to transfer the right to purchase the Committed Forward Purchase Units.
one-third
of one warrant (the “Forward Purchase Warrants”). Pursuant to the Forward Purchase Agreement, the Forward Purchasers agreed to purchase an aggregate amount of $1,000,000,000 of Forward Purchase Units (the “Committed Forward Purchase Units”), or 50,000,000 such units. The purchase of the Committed Forward Purchase Units will take place in one or more private placements in such amounts and at such time or times as the Forward Purchasers determine, with the full amount to have been purchased no later than simultaneously with the closing of The Forward Purchase Agreement also provides that the Forward Purchasers may elect to purchase up to an additional aggregate amount of $2,000,000,000 of Forward Purchase Units (the “Additional Forward Purchase Units”), or up to 100,000,000 such units, in whole or in part, in one or more private placements in such amounts and at such time or times as the Forward Purchasers determine, but no later than simultaneously with the closing of the Initial Business Combination. The Company and the Forward Purchasers may determine, by mutual agreement, to increase the number of Additional Forward Purchase Units at any time prior to the Initial Business Combination. The Forward Purchasers may transfer the right to purchase the Additional Forward Purchase Units, in whole or in part, to any entity that is managed by Pershing Square Capital Management, L.P. (the “Affiliate Transferees”), but not to any third party. The Forward Purchasers’ obligation or right, as applicable, to purchase the Forward Purchase Units will be allocated among the Forward Purchasers from time to time.
The Forward Purchase Shares, the Forward Purchase Warrants and the shares of Class A Common Stock underlying the Forward Purchase Warrants (collectively, the “Forward Purchase Securities”) have terms identical to those of the shares of Class A Common Stock and the Redeemable Warrants included in the Units sold in the Initial Public Offering, except, (i) the Forward Purchase Securities will be subject to transfer restrictions and will have certain rights as long as they are held by the Forward Purchaser or its
F-1
4
permitted transferees; (ii) the Forward Purchase Warrants will not have the right to vote on any amendments to the warrant agreement prior to the Initial Business Combination, except with respect to certain provisions relating solely to restrictions on the transfer of the Forward Purchase Securities; and (iii) the Forward Purchase Shares will not be entitled to receive any Distributable Tontine Redeemable Warrants, will not have any redemption rights in connection with ourthe Initial Business Combination or in connection with certain amendments to ourthe Certificate of Incorporation, and will not have any right to liquidating distributions from the Trust Account in the event that the Company fails to complete its Initial Business Combination within the Combination Period. Such Forward Purchase Securities will be subject to certain transfer restrictions and have certain registration rights.
Director Forward Purchase Agreement
On July 21, 2020, the Company entered into a Director Forward Purchase Agreement with certain of its independent directors (the “Director Forward Purchasers”). The Director Forward Purchasers agreed to purchase, in one or more private placements in such amounts and at such time or times as each Director Forward Purchasers determines, but no later than simultaneously with the closing of the Initial Business Combination, an aggregate amount of $6,000,000 of Forward Purchase Units. The Director Forward Purchasers may not transfer their obligation to purchase such Forward Purchase Units, other than to the Sponsor, and its affiliates and to other directors. Such Forward Purchase Securities will be subject to certain transfer restrictions and have certain registration rights.
Registration Rights
On July 21, 2020, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Sponsor, the Forward Purchasers and the independent directors of the Company, pursuant to which the Company is required to use commercially reasonable efforts to file within 120 days of the Initial Business Combination, and use 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 Warrants, (ii) the Director Warrants, (iii) the shares issuable upon the exercise of the Sponsor Warrants or Director Warrants, (iv) the Forward Purchase Securities, (v) the shares of Class A Common Stock issuable upon conversion of ourthe Sponsor’s Class B Common Stock and (vi) any other shares or warrants 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 the Company register the foregoing securities, and will have certain “piggyback rights” with respect to other registration statements filed by the Company. The post-combination business will bear the expenses in connection with the filing of any such registration statements.
Related Party Loans
The Sponsor agreed to loan the Company up to $1,500,000 to cover expenses related to the Initial Public Offering, general corporate purposes prior to the Initial Business Combination and potential transaction costs in connection with the Initial Business Combination, pursuant to a promissory note (the “Note”). The Note bears interest on a monthly basis at the Applicable Federal Rate, and is payable no0 later than the end of the Combination Period. The total borrowings under the Note in the amount of $1,121,320 (inclusive of $200
interest due to the Sponsor) were repaid upon the consummation of the Initial Public Offering on July 24, 2020. Pursuant to the terms of the Note, once an amount has been drawn down under the Note, it shall not be available for future drawdown requests even if repaid. As such, as of December 31, 2021 and December 31, 2020, $378,880 was left under the promissory note to be drawn down, and there were no
0borrowings outstanding under the Note.
Due to Related Party
The Company incurred $25,148,893 of expenses related to the Proposed IBC (defined and further discussed in Note 6—5). During 2021, Pershing Square Holdings, Ltd. and certain of its affiliates, as assignees of the Proposed IBC, reimbursed the Company $25,152,682, which includes an over-reimbursement of $3,789 due to a change in foreign exchange rate. As of December 31, 2021, $3,789 was included in due to related party on the Company’s balance sheets.
Assignment Agreement
On July 18, 2021, the Company entered into an Assignment Agreement with Pershing Square Holdings, Ltd. and certain of its affiliates, pursuant to which the Company assigned its rights under the Share Purchase Agreement (as defined and further discussed in Note 5) to the Assignees. The Assignees have also agreed to assume the indemnity agreement between the Company and Vivendi, and to reimburse the Company for the expenses incurred in connection with the Proposed IBC (as defined and further discussed in Note 5), which totaled $25,065,931 as reflected in the statements of operations. As of December 31, 2021, all expenses have been reimbursed to the Company.
Note 5—Commitments
and Contingencies
Proposed and Subsequent Cancellation of an Initial Business Combination
Below is a description of the proposed Initial Business Combination, which was ultimately not consummated.
F-15
On June 20, 2021, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Vivendi SE to purchase a number of ordinary shares, par value €10 per share (the “UMG Shares”), representing approximately 10% of the share capital and voting rights, on a fully diluted basis, of Universal Music Group (“UMG”) for approximately $4 billion (the “Share Purchase”), with the expectation that the Company would distribute the UMG Shares to its Public Stockholders (the “Distribution” and
together with the Share Purchase, the “Proposed IBC”). The Company expected that the Share Purchase would be consummated in the third quarter of 2021 and the Shares held in trust under the Distribution which would occur in November or December 2021.
In connection with the Proposed IBC, the Company and Vivendi also entered into an indemnification agreement pursuant to which the Company agreed to indemnify Vivendi and certain of its related parties for certain potential liabilities in connection with the Company’s redemption tender offer, the warrant exchange offer and the Distribution (each as further described below).
Also on June 20, 2021, the Company, the Sponsor, the Pershing Square Funds and the Company’s independent directors entered into the Pershing Entities Letter Agreement, pursuant to which:
The Company and the Pershing Square Funds agreed to amend and restate the Forward Purchase Agreement concurrently with the closing of the Proposed IBC, pursuant to which the Forward Purchasers would exercise their right to purchase an aggregate amount of $1.6 billion of Forward Purchase Units ($1.0 billion of Committed Forward Purchase Units and $600 million of Additional Forward Purchase Units). The price per share at which the Pershing Square Funds would have exercised such amended Forward Purchase Agreement would be equal to RemainCo’s net asset value at the time of such purchase;
The Company and the Sponsor agreed to amend the Sponsor Warrants concurrently with the closing of the Proposed IBC, such that the Sponsor Warrants would not be exercised or otherwise participate in the Proposed IBC. Instead, they would remain in place, but the exercise price would be adjusted to equal 120% of RemainCo’s net asset value immediately prior to the time it completed its anticipated future business combination with an operating business; and
The Company and its independent directors agreed that the Director Warrants would not be exercised in connection with the Proposed IBC, and would be amended concurrently with the closing of the Proposed IBC. The result of such amendment would have been that, (i) the holders of the Director Warrants would receive shares in the Company in exchange for approximately 72% of the fair market value of the Director Warrants (as determined by a third-party valuation firm), to compensate for the fact that they would not participate in the Proposed IBC as originally envisioned, (ii) such shares would participate in the Distribution and (iii) the roughly 28% of the value of the Director Warrants would remain in place with their exercise price adjusted in the same manner as the exercise price of the Sponsor Warrants as explained above.
The Company further announced that it expected to undertake a 1:4 reverse stock split following the issuance of the Distributable Tontine Redeemable Warrants, all warrants in respect of the Forward Purchase Agreement and Director Forward Purchase Agreements and the Distribution to target a net asset value (“NAV”) of approximately $22 per share.
Pursuant to the Proposed IBC, following the Distribution, the Company would have continued to exist and it would not have disappeared into UMG nor would it have been liquidated. The Company that would have continued to exist is referred to herein as “RemainCo”. RemainCo would have been the same corporate entity and it would have continued to be named Pershing Square Tontine Holdings, Ltd. The Public Stockholders would have continued to own shares in RemainCo, and it was intended that RemainCo would pursue a traditional business combination with an operating business (RemainCo’s “Future Business Combination”).
On July 8, 2021, the Company launched (i) a redemption tender offer which was intended to provide Public Stockholders with the opportunity to exercise their right to redeem their shares of Class A Common Stock in connection with the Proposed IBC and (ii) a warrant exchange offer which provided holders of the Company’s currently outstanding Distributable Redeemable Warrants the opportunity to exchange those warrants for shares of Class A Common Stock at a ratio of 0.2650 shares per warrant.
On July 19, 2021, the Company announced that its board of directors had unanimously determined not to proceed with the Proposed IBC and the Company had agreed to assign its rights and obligations under the Share Purchase Agreement with Vivendi to Pershing Square Holdings, Ltd. and certain of its affiliates (the “Assignees”). The Assignees agreed to purchase or cause to be purchased at least 5% of the share capital of UMG on the terms and subject to the conditions of the Share Purchase Agreement and Vivendi acknowledged that if the Assignees purchased at least 5% of the share capital of UMG, the Share Purchase Agreement would be of no further force with respect to remaining UMG shares to be purchased under the Share Purchase Agreement. In addition, the Assignees, severally in accordance with their obligations to purchase UMG shares, agreed to assume and reimburse the Company forexpenses incurred to that time by the Company in connection with transactions related to the Proposed IBC, which totaled $25.1 million. The Assignees also assumed, severally in accordance with their obligations to purchase UMG shares, the Company’s obligations under the indemnification agreement, between the Company and Vivendi.
out-of-pocket
On July 21, 2021, the Company terminated its redemption tender offer and warrant exchange offer, and no shares were
F-1
6
redeemed from the Company. As a result of the termination of these offers and the cancellation of the Proposed IBC, the Pershing Entities Letter Agreement did not come into effect and there have been no changes to the instruments discussed as exhibits to such letter agreement. The FPA, Sponsor Warrants and Director Warrants remain as initially issued as of June 21, 2020 and July 21, 2020, respectively.
The Company continues to seek an initial business combination.
On August 10, 2021, the Assignees completed an initial closing under the Share Purchase Agreement, as a result of which the Company was released from its obligations under the Share Purchase Agreement and the indemnification agreement described above (which indemnity was allocated without the participation of the Company, among the Pershing Square Funds). Also on August 10, 2021, the Company entered into an assignment of the registration rights agreement to the Assignees, at which time the registration rights agreement was amended to provide, among other things, the Assignees certain rights to register UMG shares for a public offering no earlier than 2023 rather than providing for the Distribution that the Company originally envisioned.
Underwriting Agreement
The underwriters are entitled to a deferred fee of $0.28 per Unit, or $56,250,000 in the aggregate. The aggregate deferred underwriting fees include (i) the deferral of any underwriting fees, other than the retail selling concessions, in excess of $30,000,000 (a deferral of $12,500,000), plus (ii) a 2.0% rate applied to the gross offering proceeds, subject to a $56,250,000 cap on the amount of such aggregate deferred underwriting fees. If the amount of proceeds from the Trust Account paid in connection with the redemption rights of Public Stockholders, together with the amount of any capital raised in private placements in connection with the Initial Business Combination from investors other than Sponsor or its affiliates (the “Net Redemptions”), results in the Company having less than $2,000,000,000 of cash available upon consummation of the Initial Business Combination, only 25.0% of the aggregate deferred underwriting fees will be payable. If such amount of cash available is $2,000,000,000 or greater, 50% of the aggregate deferred underwriting fees will be payable, and the remaining 50% of the aggregate deferred underwriting fees will be subject to a
pro-rata
reduction based on the amount of Net Redemptions as a percentage of the total public proceeds of the Initial Public Offering. The deferred underwriting fees will be waived by the underwriters solely in the event that the Company does not complete the Initial Business Combination, subject to the terms of the underwriting agreement entered into by the Company and the underwriters on July 21, 2020.Litigation
On August 17, 2021, a purported stockholder of the Company filed a putative derivative lawsuit in U.S. Federal Court in New York,(S.D.N.Y), against the Company, its independent directors and certain affiliates of the Company’s Sponsor alleging that the Company was operating as an illegal investment company, because among other claims, the Company had invested the proceeds from its initial public offering in securities (in the Company’s case, short-term U.S. Treasury securities and money market funds that own short-term U.S. Treasury securities). The lawsuit also claims that, despite the Company’s stated purpose to search for and complete an initial business combination, the Company has instead been engaged primarily in the business of investing in securities in violation of the Investment Company Act of 1940. An amended complaint filed on October 8, 2021 added direct claims related to the same core allegations. The defendants have filed motions to dismiss, which were fully briefed as of December 13, 2021. On December 16, 2021, the Court stayed discovery in the action pending decision on the motions to dismiss. The Company believes that this lawsuit is meritless and intends to defend against these claims vigorously. Nevertheless, as the Company has previously disclosed, it may be unlikely that the lawsuit, even if meritless, can finally be resolved in the short-term, which may make it more difficult for the Company to complete an initial business combination in a timely manner.
Assad v. Pershing Square Tontine Holdings, Ltd., et al,
The Company has also received requests for books and records from certain purported stockholders pursuant to Section 220 of the Delaware General Corporation Law and has provided or agreed to provide certain information in response to those requests.
Note 7—6—Stockholders’ Equity
Common Stock
The authorized common stock of the Company includes up to 3,000,000,000 shares of Class A Common Stock with a par value of $0.0001 per share, and 20,000,000 shares of Class B Common Stock with a par value of $0.0001 per share. If the Company enters into an Initial Business Combination, it may (depending on the terms of such Initial Business Combination) be required to increase the number of shares of Class A Common Stock which the Company is authorized to issue at the same time the Company’s stockholders vote on the Initial Business Combination to the extent the Company seeks stockholder approval in connection with the Initial Business Combination. The shares of Class A Common Stock have, in the aggregate, 80.0% of the voting power of the issued and outstanding common stock of the Company as of the time immediately following the Initial Public Offering and the shares of Class B Common Stock have, in the aggregate, the voting power of 20.0% of the issued and outstanding common stock of the Company. At December 31,
F-1
7
2021 and December 31, 2020 there were 200,000,000 shares of Class A Common Stock issued and outstanding and 100 shares of Class B Common Stock issued and outstanding.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At December 31, 2021 and December 31, 2020, there were no0 shares of preferred stock issued or outstanding.
Warrants
Each whole Warrant entitles the registered holder to purchase one whole share of Class A Common Stock at a price of $23.00 per share, subject to adjustment, at any time commencing on the later of 12 months from the closing of the Initial Public Offering or 30 days after the completion of the Initial Business Combination. The Warrants will expire five years after the completion of the Initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
No fractional shares of Class A Common Stock will be issued upon exercise of the Warrants. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, the Company will round down to the nearest whole number of the number of shares of Class A Common Stock to be issued to the holder. If, at the time of redemption, the Warrants are exercisable for a security other than the Class A Common Stock, pursuant to the warrant agreement (for instance, if the Company is not the surviving company in the Initial Business Combination), the Warrants may be exercised for such security. At such time as the Warrants become exercisable for a security other than the Class A Common Stock, the Company (or surviving company) will use its commercially reasonable efforts to register under the Securities Act the security issuable upon the exercise of the Warrants.
The Company will not be obligated to deliver any shares of Class A Common Stock pursuant to the exercise of a Warrant and will have no obligation to settle such Warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A Common Stock underlying the Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations described below with respect to registration. No Warrant will be exercisable and the Company will not be obligated to issue shares of Class A Common Stock upon exercise of a Warrant unless the Class A Common Stock issuable upon such Warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrant. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a Warrant, the holder of such warrant will not be entitled to exercise such Warrant and such Warrant may have no value and expire worthless. In no event will the Company be required to net cash settle any Warrant. In the event that a registration statement is not effective for the exercised Warrants, the purchaser of a Unit containing such Warrant will have paid the full purchase price for the Unit solely for the share of Class A Common Stock underlying such Unit.
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of the Initial Business Combination, it will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of Class A Common Stock issuable upon exercise of the Warrants. The Company will use its best efforts to cause the same to become effective within 60 business days after such closing, and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the Warrants expire or are redeemed, as specified in the warrant agreement.
Notwithstanding the above, if the Class A Common Stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Warrants who exercise their Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, but it will be required to use commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. If a registration statement covering the Class A Common Stock issuable upon exercise of the Warrants is not effective bythe 60th 60
th
day after the closing of the Initial Business Combination, Warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. In such event, each holder would pay the exercise price by surrendering the Warrants for that number of Class A Common Stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A Common Stock underlying the Warrants, multiplied by the excess of the “fair market value” (defined herein) less the exercise price of the Warrants by (y) the fair market value and (B) 0.3611 per Warrant. The “fair market value” as used in this paragraph shall mean the average of the daily volume-weighted average trading prices of the Class A Common Stock during the 10 consecutive trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.F-1
8
Redemption of Warrants when the price per share of Class
A Common Stock equals or exceeds $36.00.
in whole and not in part;
at a price of $0.01 per Warrant;
upon a minimum of 30 days’ prior written notice of redemption to each Warrant holder, provided that holders will be able to exercise their Warrants prior to the time of redemption and, at the Company’s election, any such exercise may be required to be on a cashless basis as described below; and
if, and only if, the daily volume-weighted average price of the Class A Common Stock equals or exceeds $36.00 per share (subject to adjustments) for any 20 trading days within aperiod ending three trading days before the Company sends the notice of redemption to the Warrant holders.
30-trading-day
The Company will not redeem the Warrants as described above unless (i) a registration statement under the Securities Act covering the issuance of the shares of Class A Common Stock issuable upon exercise of the Warrants is then effective and a current prospectus relating to those shares of Class A Common Stock is available throughout the
30-day
redemption period or (ii) if the Warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the Warrants become redeemable by the Company, it may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.If the Company elects to require any holder wishing to exercise their Warrants to do so on a cashless basis, each holder would pay the exercise price by surrendering the Warrants for that number of Class A Common Stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A Common Stock underlying the Warrants, multiplied by the excess of the “fair market value” (defined herein) less the exercise price of the Warrants by (y) the fair market value and (B) 0.3611 per redeemable Warrant. The “fair market value” as used in this paragraph shall mean the average of the daily volume-weighted average trading prices of the Class A Common Stock during the 10 consecutive trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the registered holders of the Warrants. In determining whether to require any such exercises to be made on a cashless basis in connection with this redemption provision, the Company will consider, among other factors, its cash position, the number of Warrants that are outstanding, and the dilutive effect on the Company’s stockholders of issuing the maximum number of shares of Class A Common Stock issuable upon the exercise of such Warrants.
The Company has established the last of the redemption criteria discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the Warrant exercise price. If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Warrants, each Warrant holder will be entitled to exercise its Warrant prior to the scheduled redemption date. However, the price of the Class A Common Stock may fall below the $36.00 redemption trigger price (subject to adjustments) as well as the $23.00 Redeemable Warrant exercise price after the redemption notice is issued.
Redemption of Warrants when the price per share of Class
A Common Stock equals or exceeds $20.00
in whole and not in part;
at $0.10 per Warrant
upon a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the table included in the Company’s Prospectus filed with the SEC, based on the redemption date and the “fair market value” of the Class A Common Stock except as otherwise described below; and
if, and only if, the daily volume-weighted average price of the Class A Common Stock equals or exceeds $20.00 per Public Share (subject to adjustments) for any 20 trading days within theperiod ending three trading days before the Company sends the notice of redemption to the Warrant holders.
30-trading-day
If the number of outstanding shares of Class A Common Stock is increased by a stock dividend payable in shares of Class A Common Stock, or by a
split-up
of shares of Class A Common Stock or other similar event, then, on the effective date of such stock dividend,split-up
or similar event, the number of shares of Class A Common Stock issuable on exercise of each Warrant will be increased in proportion to such increase in the outstanding shares of Class A Common Stock. A rights offering to holders of Class A Common Stock entitling holders to purchase shares of Class A Common Stock at a price less than the historical fair market value (as defined below) will be deemed a stock dividend of a number of shares of Class A Common Stock equal to the product of (i) the number of shares of Class A Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Class A Common Stock) multiplied by (ii) one (1) minus the quotient of (x) the priceF-1
9
per share of Class A Common Stock paid in such rights offering divided by (y) the historical fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for Class A Common Stock, in determining the price payable for Class A Common Stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) historical fair market value means the average of the daily volume-weighted average trading prices of the Class A Common Stock during the 10 consecutive trading days ending on the trading day prior to the first date on which the shares of Class A Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if the Company, at any time while the Redeemable Warrants are outstanding and unexpired, pays a dividend or makes a distribution in cash, securities or other assets to the holders of Class A Common Stock on account of such shares of Class A Common Stock (or other shares of the Company’s capital stock into which the Redeemable Warrants are convertible), other than: (a) as described above; (b) certain ordinary cash dividends; (c) to satisfy the redemption rights of the holders of Class A Common Stock in connection with a proposed Initial Business Combination; (d) to satisfy the redemption rights of the holders of Class A Common Stock in connection with a stockholder vote to amend the Company’s Certificate of Incorporation (i) to modify the substance or timing of the Company’s
obligation to allow redemptions in connection with the Initial Business Combination, (ii) to modify the substance or timing of the Company’s obligation to redeem 100% of the shares of Class A Common Stock issued in the Initial Public Offering if it does not complete the Initial Business Combination within the Combination Period or (iii) with respect to any other provision relating to stockholders’ rights orpre-InitialBusiness Combination activity; or (e) in connection with the redemption of the Company’s shares of Class A Common Stock upon its failure to complete the Initial Business Combination within the Combination Period, then the Redeemable Warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of Class A Common Stock in respect of such event.
If the number of outstanding shares of Class A Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Class A Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Class A Common Stock issuable on exercise of each Redeemable Warrant will be decreased in proportion to such decrease in outstanding shares of Class A Common Stock.
Whenever the number of shares of Class A Common Stock purchasable upon the exercise of the Redeemable Warrants is adjusted, as described above, the Warrant exercise price will be adjusted by multiplying the Warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of Class A Common Stock purchasable upon the exercise of the Redeemable Warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of Class A Common Stock so purchasable immediately thereafter.
In addition, if (i) the Company issues additional shares of Class A Common Stock, equity-linked securities or any other instrument that is convertible or exercisable into, or exchangeable for, Class A Common Stock for capital raising purposes in connection with the closing of the Initial Business Combination at an issue price or effective issue price of less than $18.40 per share (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors) (the “Newly Issued Price”), (ii) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds (including from such issuances, the Initial Public Offering, the sale of the Forward Purchase Units and any interest thereon, net of redemptions) that are available for the funding of the Initial Business Combination on the date of the consummation thereof (net of redemptions) and (iii) the daily volume-weighted average trading price of Class A Common Stock during theperiod starting on the trading day prior to the date on which the Company consummates its Initial Business Combination (such price, the “Market Value”) is below $18.40 per share, the exercise price of the Warrants will be adjusted (to the nearest cent) to 115% of the higher of the Market Value and the Newly Issued Price, and the $36.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $20.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 100% of the higher of the Market Value and the Newly Issued Price.
20-trading-day
In case of any reclassification or reorganization of the outstanding shares of Class A Common Stock (other than those described above or that solely affects the par value of such shares of Class A Common Stock), or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of its outstanding shares of Class A Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the holders of the Redeemable Warrants will thereafter have the right to purchase and receive, upon the basis and the terms and conditions specified in the Redeemable Warrants and in lieu of the shares of the Company Class A Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the Redeemable Warrants would have received if such holder had exercised their warrants immediately prior to such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of securities, cash or other assets receivable upon such consolidation or merger, then the kind and amount of securities, cash or other assets for which each warrant will become exercisable will be deemed
F-
20
to be the weighted-average of the kind and amount received per share by such holders in such consolidation or merger that affirmatively make such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders (other than a tender, exchange or redemption offer made by the Company in connection with redemption rights held by the Company’s stockholders as provided for in its Certificate of Incorporation or as a result of the redemption of Class A Common Stock by the Company if a proposed Initial Business Combination is presented to its stockholders for approval) under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule
13d-5(b)(1)
under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule12b-2
under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule13d-3
under the Exchange Act) more than 50% of the issued and outstanding shares of Class A Common Stock, the holder of a warrant will be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a stockholder if such warrant holder had exercised the warrant prior to the expiration of such tender or exchange offer, accepted such offer and all of the Class A Common Stock held by such holder had been purchased pursuant to such tender or exchange offer, subject to adjustment (from and after the consummation of such tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in the warrant agreement. If less than 70% of the consideration receivable by the holders of Class A Common Stock in such a transaction is payable in the form of common stock in the successor entity that is listed for trading ona national securities exchange or is quoted in an establishedmarket, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the redeemable warrant properly exercises the redeemable warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the Black-Scholes value (as defined in the warrant agreement) of the redeemable warrant. The purpose of such exercise price reduction is to provide additional value to holders of the Redeemable Warrants when an extraordinary transaction occurs during the exercise period of the Redeemable Warrants pursuant to which the holders of the Redeemable Warrants otherwise do not receive the full potential value of the warrants.over-the-counter
The Redeemable Warrants and the Forward Purchase Warrants will have identical terms in all respects, except that the Forward Purchase Warrants will have no right to vote on amendments to the warrant agreement prior to the Initial Business Combination (with limited exceptions), and (along with the shares of Class A Common Stock underlying the Forward Purchase Warrants) will be subject to certain transfer restrictions and have certain registration rights as long as they are held by the Forward Purchasers or their permitted transferees.
The Commitments of $4,002,943,971 and $4,001,401,299
(net of income taxes)
as reflected on the balance sheetsheets, relate to the Class A Common Stock held by the Public Stockholders that isare subject to redemption (with the associated cash required for such redemption held in the Trust Account). as of December 31, 2021 and December 31, 2020, respectively. There is $25,348,287
23,156,677were
$and $
25,348,287of cash remaining as of December 31, 2021 and December 31, 2020, respectively, after payment of relevant expenses incurred to date, from the private placements of the Sponsor Warrants and the Director Warrants (the “Excess Warrant Proceeds”). The Excess Warrant Proceeds will be reduced as the Company incurs ongoing expenses. In the case of an Initial Business Combination, the Excess Warrant Proceeds may be applied toward general corporate purposes, including for maintenance or expansion of operations of the post-combination business, the payment of principal or interest due on indebtedness incurred in completing the Initial Business Combination, to fund the purchase of other companies or make other investments, or for working capital. In the event of no Initial Business Combination or any event that results in a liquidation, the Excess Warrant Proceeds will be allocated to the holders of the Class B common stockholders after payment of all amounts owed to the Class A Common Stockholders and creditors (if any). The Sponsor Warrants and the Director Warrants will not be entitled to any liquidating distributions.
Note 8—7—Fair Value Measurements
The Company measures fair value of financial instruments in accordance with ASC 820,. As of December 31, 2021 and December 31, 2020, the fair value of the Company’s financial assets and liabilities approximates the carrying amounts represented on the balance sheet.
Fair Value Measurements and Disclosures
sheets.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid for transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The level within which the fair value measurements is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement. The following fair value hierarchy is used to classify assets and liabilities based on the observable and unobservable inputs used to value the assets and liabilities:
F-2
1
Level 1: | Valuation determined based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2: | Valuation determined based on observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
Level 3: | Valuation determined based on unobservable inputs on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. | |
At December 31, 2021, assets held in the Trust Account include cash of $830 and $4,002,943,141 in U.S. Treasury Bills. At December 31, 2020, assets held in the Trust Account include cash of $927, $20,963 in a money market fundsfund that areis invested in U.S. Treasury Securities,obligations, and $4,001,668,564 in U.S. Treasury Bills.
The following table presents the Company’s assets and liabilities measured at fair value, as of December 31, 2020, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
| Description | Level | December 31, 2020 | ||||||||
Assets: | ||||||||||
Cash and marketable securities held in Trust Account | 1 | $ | 4,001,690,454 | |||||||
Liabilities: | ||||||||||
Outstanding Warrants Liability – Public Warrants | 1 | 213,333,331 | ||||||||
Outstanding Warrants Liability – Private Placement Warrants | 3 | 249,371,353 | ||||||||
Committed Forward Purchase Agreement Liability | 3 | 429,783,320 | ||||||||
Additional Forward Purchase Agreement Liability | 3 | 164,110,000 | ||||||||
December 31, | ||||||||||
Description | Level | 2021 | 2020 | |||||||
Assets: | ||||||||||
Cash and marketable securities held in Trust Account | 1 | $ | 4,002,943,971 | $ | 4,001,690,454 | |||||
Committed Forward Purchase Agreement Asset | 3 | 6,569,180 | – | |||||||
Liabilities: | ||||||||||
Outstanding Warrants Liability – Public Warrants | 1 | 29,333,333 | 213,333,331 | |||||||
Outstanding Warrants Liability – Private Placement Warrants | 3 | 196,006,593 | 249,371,353 | |||||||
Committed Forward Purchase Agreement Liability | 3 | – | 429,783,320 | |||||||
Additional Forward Purchase Agreement Liability | 3 | 1,680,000 | 164,110,000 | |||||||
As of December 31, 2021, the net fair value of the committed FPA and additional FPA
was
classified as a derivative asset as presented on the balance sheets due to changes in its fair value during the year ended December 31, 2021. As of December 30, 2020, the committed FPA and additional FPA were derivative liabilities. See below for further details of the significant unobservable inputs related to its valuation.Initial Measurement
In accordance with ASC the FPA were accounted for as liabilities. Initial fair values of the Outstanding Warrants and FPA were established when the Company’s Initial Public Offering was declared effective on July 21, 2020, using a modified Black-Scholes pricing model.
815-40,
the Outstanding Warrants andSubsequent Measurement
The Company, at each reporting period,OutstandingPrivate Placement Warrants and FPA based on the Pershing Entities Letter Agreement, as if it were to become effective, with changes in their respective fair values reflected on the statementstatements of operations. On September 11, 2020, the Company’s Class A Common Stock and Public Warrants commenced trading separately on the New York Stock Exchange (“NYSE”). As there is now a listed price on an active market, the Public Warrants were reclassified from a Level 3 to Level 1 instrument.
re-evaluates
the inputs utilized in the modified Black-Scholes pricing model to measure the fair values of the The significant observable and unobservable inputs used in determining the fair values of the Private Placement Warrants and FPA are as follows, and are reflective of the rights and obligations associated with each respective asset and liability as of December 31, 2021 and December 31, 2020.
The observable inputs of the Private Placement Warrants and FPA include strike/exercise prices, underlying public stock and warrant prices, a risk-free interest rate and the remaining term of the instrument. The strike price of the Private Placement Warrants is the exercise price per common share of the post-combination business. The exercise price of the FPA is the purchase price of the Forward Purchasers to obtain one share of Class A Common Stock and
one-third
of one warrant. The risk-free interest rate is based on the U.S.F-2
2
Treasury yield curve in effect on the reporting date associated with the related term on the instrument. The underlying stock and warrant prices are based on the closing prices of the respective securities on the NYSE as of the reporting date. The expected term is equivalent to each of the warrant and FPA’s remaining contractual term.
Inputs - Private Placement Warrants | December 31, 2020 | |||
Strike Price | $ | 24.00 | ||
Risk-Free Interest Rate | 0.73 | % | ||
Underlying Stock Price | $ | 27.72 | ||
Public Warrant Price | $ | 9.60 | ||
Term (Years) | 10.78 | |||
Volatility | 25.00 | % | ||
Illiquidity Discount | 17.00 | % | ||
Probability of Warrant Renegotiation | 24.50 | % | ||
December 31, | ||||||||
Inputs – Private Placement Warrants | 2021 | 2020 | ||||||
Strike Price | $24.00 | $24.00 | ||||||
Risk-Free Interest Rate | 1.53% | 0.73% | ||||||
Observed Stock Price | $19.72 | $27.72 | ||||||
Public Warrant Price | $1.32 | $9.60 | ||||||
Term (Years) | 10.28 | 10.78 | ||||||
Volatility | 25.0% | 25.0% | ||||||
Illiquidity Discount | 20.0% | 17.0% | ||||||
Probability of Warrant Renegotiation | 18.8% | 24.5% | ||||||
The Private Placement Warrants have three significant unobservable inputs: (i) Volatility, (ii) Illiquidity Discount and (iii) Probability of Warrant Renegotiation. The volatility of 25.0% reflects the anticipated implied volatility of the potential target company from the Company’s Initial Business Combination (“IBC”) over the Private Placement Warrants’17.0%20.0% relates to an embedded24.5%18.8% was representative of the average of sponsor incentive restructurings and founder stock forfeitures in completed special purpose acquisition company transactions.
10-year
term. The Illiquidity Discount of lock-up,
whereby the securities underlying the Private Placement Warrants may not be sold for three years post the completion of the Company’s IBC. The Probability of Warrant Renegotiation is a discount based on the probability that the Private Placement Warrants will be restructured at the time of the Company’s IBC. The discount of Inputs – Forward Purchase Agreements | December 31, 2020 | |||
Exercise Price | $ | 20.00 | ||
Risk-Free Interest Rate | 0.14 | % | ||
Underlying Stock Price | $ | 27.72 | ||
Public Warrant Price | $ | 9.60 | ||
Term (Years) | 0.78 | |||
Discount for Lack of Marketability – Committed FPA | 3.00 | % | ||
Discount for Lack of Marketability – Additional FPA | 8.00 | % | ||
Discount for Probability of Exercise – Additional FPA | 79.80 | % | ||
December 31, | ||||||||
Inputs – Forward Purchase Agreements | 2021 | 2020 | ||||||
Exercise Price | $20.00 | $20.00 | ||||||
Risk-Free Interest Rate | 0.07% | 0.14% | ||||||
Observed Stock Price | $19.72 | $27.72 | ||||||
Public Warrant Price | $1.32 | $9.60 | ||||||
Term (Years) | 0.28 | 0.78 | ||||||
Discount for Lack of Marketability – Committed FPA | 1.0% | 3.0% | ||||||
Discount for Lack of Marketability – Additional FPA | 45.0% | 8.0% | ||||||
Discount for Probability of Exercise – Additional FPA | 79.8% | 79.8% | ||||||
The FPA’s significant unobservable inputs include a Discount for Lack of Marketability (“DLOM”) and a Discount for Probability of Exercise. The DLOM for the Committed FPA relates to an embedded3.0%1.0%. The Additional FPA is subject to the same FPA$2$2.0 billion. This additional feature, combined with the FPA8.0%45.0%. The Discount for Probability of Exercise is a direct result of the embedded option component previously stated. It is modelled to reflectmodeled by looking at the possible exercisepercentage of values between nil and $2 billion,additional forward purchase agreements that are funded in other SPACs upon the completion of their initial business combinations resulting in a discount of 79.8%.
lock-up (the
(the “FPALock-Up”),
whereby the securities underlying the Committed FPA may not be sold for 180 days post the completion of the Company’s IBC. As a result of the FPALock-Up,
the DLOM was Lock-Up,
and has embedded optionality such that they may be exercised in any amount up to Lock-Up,
resulted in a DLOM of The following tables present the changes in the fair values of the Outstanding Warrants and FPA:
| Public Warrants | Private Placement Warrants | Total Outstanding Warrants | ||||||||||
Fair Value at May 4, 2020 (inception) | $ | — | $ | — | $ | — | ||||||
Initial Measurement | 36,222,222 | 67,837,500 | 104,059,722 | |||||||||
Change in Fair Value | 177,111,109 | 181,533,853 | 358,644,962 | |||||||||
|
|
|
|
|
| |||||||
Fair Value at December 31, 2020 | $ | 213,333,331 | $ | 249,371,353 | $ | 462,704,684 | ||||||
|
|
|
|
|
| |||||||
| Committed Forward Purchase Agreement | Additional Forward Purchase Agreement | Total Forward Purchase Agreements | ||||||||||
Fair Value at May 4, 2020 (inception) | $ | — | $ | — | $ | — | ||||||
Initial Measurement | — | — | — | |||||||||
Change in Fair Value | 429,783,320 | 164,110,000 | 593,893,320 | |||||||||
|
|
|
|
|
| |||||||
Fair Value at December 31, 2020 | $ | 429,783,320 | $ | 164,110,000 | $ | 593,893,320 | ||||||
|
|
|
|
|
| |||||||
Outstanding Warrants Liability | Public Warrants | Private Placement Warrants | Total Outstanding Warrants | |||||||||
Fair Value at May 4, 2020 (inception) | $ | 0 | $ | 0 | $ | 0 | ||||||
Initial Measurement | 36,222,222 | 67,837,500 | 104,059,722 | |||||||||
Change in Fair Value | 177,111,109 | 181,533,853 | 358,644,962 | |||||||||
Fair Value at December 31, 2020 | 213,333,331 | 249,371,353 | 462,704,684 | |||||||||
Change in Fair Value | (183,999,998 | ) | (53,364,760 | ) | (237,364,758 | ) | ||||||
Fair Value at December 31, 2021 | $ | 29,333,333 | $ | 196,006,593 | $ | 225,339,926 | ||||||
F-2
3
FPA Liability / (Asset) | Committed Forward Purchase Agreement | Additional Forward Purchase Agreement | Total Forward Purchase Agreements | |||||||||
Fair Value at May 4, 2020 (inception) | $ | 0 | $ | 0 | $ | 0 | ||||||
Initial Measurement | – | – | – | |||||||||
Change in Fair Value | 429,783,320 | 164,110,000 | 593,893,320 | |||||||||
Fair Value at December 31, 2020 – Liability | 429,783,320 | 164,110,000 | 593,893,320 | |||||||||
Change in Fair Value | (436,352,500 | ) | (162,430,000 | ) | (598,782,500 | ) | ||||||
Fair Value at December 31, 2021 – Liability / (Asset) | $ | (6,569,180 | ) | $ | 1,680,000 | $ | (4,889,180 | ) | ||||
Transfers between levels during the period are determined and deemed to have occurred at each reporting date. During the year ended December 31, 2021, there weretransfers in or out of Level 3 from other levels in the fair value hierarchy. During the period from May 4, 2020 (inception) through December 31, 2020, a transfer from Level 3 to Level 1 measurement of $139,442,405 was recognized as the Public Warrants were separately listed and began trading on the NYSE as of September 11, 2020.
0
Note 9—8— Income Taxes
The Company’s net deferred tax assets are as follows:
| December 31, 2020 | ||||
Deferred tax assets: | ||||
Startup expenses / Organizational costs | $ | 567,112 | ||
|
| |||
Total deferred tax assets | 567,112 | |||
Valuation Allowance | (528,795 | ) | ||
|
| |||
Deferred tax liabilities: | ||||
Unrealized gains on marketable securities | (38,317 | ) | ||
|
| |||
Total deferred tax liabilities | (38,317 | ) | ||
|
| |||
Net deferred tax asset, net of allowance | $ | — | ||
|
| |||
December 31, | ||||||||
2021 | 2020 | |||||||
Deferred tax assets: | ||||||||
Startup expenses / Organizational costs | $ | 1,446,417 | $ | 567,112 | ||||
Total deferred tax assets | 1,446,417 | 567,112 | ||||||
Valuation Allowance | (1,368,457 | ) | (528,795 | ) | ||||
Deferred tax liabilities: | ||||||||
Unrealized gains on marketable securities | (77,960 | ) | (38,317 | ) | ||||
Total deferred tax liabilities | (77,960 | ) | (38,317 | ) | ||||
Net deferred tax asset, net of allowance | $ | 0 | $ | 0 | ||||
The Company’s income tax provision (benefit) consists of the following:
| For the Period from May 4, 2020 (inception) through December 31, 2020 | ||||
Current | ||||
Federal | $ | 289,155 | ||
State | — | |||
Deferred | ||||
Federal | (528,795 | ) | ||
State | — | |||
Change in valuation allowance | 528,795 | |||
|
| |||
Income tax provision | $ | 289,155 | ||
|
| |||
December 31, | ||||||||
2021 | 2020 | |||||||
Current | ||||||||
Federal | $ | 307,349 | $ | 289,155 | ||||
State | 0— | 0 | ||||||
Deferred | ||||||||
Federal | (839,663 | ) | (528,795 | ) | ||||
State | 0— | 0 | ||||||
Change in valuation allowance | 839,663 | 528,795 | ||||||
Income tax provision | $ | 307,349 | $ | 289,155 | ||||
In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. The Company considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, the Company believes that significant uncertainty exists
F-2
4
with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the period from May 4, 2020 (inception) throughAt December 31, 2021 and December 31, 2020, the valuation allowance increased by $528,795.
was $1,368,457 and $528,795, respectively.
A reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
| ||
| ||
| ||
| ||
| ||
| ||
| ||
December 31, | ||||
2021 | 2020 | |||
Statutory federal income tax rate | 21.0% | 21.0% | ||
State taxes, net of federal tax benefit | 0.0% | 0.0% | ||
Change in fair value of Forward Purchase Agreement liabilities | (15.1%) | (13.1%) | ||
Change in fair value of Outstanding Warrant liabilities | (6.0%) | (7.9%) | ||
Offering costs allocable to Outstanding Warrant liabilities | 0 | (0.0%) | ||
Change in valuation allowance | 0.1% | (0.0%) | ||
Income tax provision | (0.0%) | (0.0%) | ||
The Company files income tax returns in the U.S. federal jurisdiction and New York. The Company’s tax returns for the period from May 4, 2020 (inception) through December 31, 2020since inception remain open and subject to examination.
examination by the taxing authorities.
Note 10—9—Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
F-24
F-2
5