I-AM Capital Acquisition Company (IAM), released an 8-K this morning, that contained information within it regarding their shareholder votes results and some very interesting “settlements” with their underwriters.
First up, the results of their vote to complete their business combination with Smaaash Entertainment. At the Special Meeting, holders of 4,448,260 shares of I-AM Capital common stock exercised their right to redeem at a price of $10.2187363 per share, for an aggregate of approximately $45,455,596. Per their most recent 10-Q (as of August 31, 2018), there was $53,119,511 being held in trust prior to the vote, which means the Company was left with roughly just $7.7 million post-combination.
However, if you recall, Polar Asset Management and K2, agreed to sell their shares to I-AM/Smaaash thirty days after the consummation of the Transactions for $11.23 per share, for a total value of $7.97 million. Keep these numbers in mind while we move on to the next item.
Additionally included in the 8-K was a reference to a Settlement Agreement with I-AM’s underwriter, Maxim Group, and a separate agreement with Chardan. “Settlement” typically implies some sort of drama, but the specifics are:
“Pursuant to the Settlement Agreement, the Company made a cash payment of $20,000 to Maxim and issued a demand secured promissory note in favor of Maxim in the amount of $1.8 million (the “Note”) to settle the payment obligations of the Company under the underwriting agreement dated August 16, 2017, by and between the Company and Maxim. The Company also agreed to remove the restrictive legends on an aggregate of 52,000 shares of its common stock held by Maxim and its affiliate.”
Furthermore, there is a schedule of payments and interest. Again, per the 8-K:
“The Note accrues interest at 8% per annum from the date of the Note through and including May 20, 2019 and 12% per annum from and including May 21, 2019 through and including August 20, 2019 and 15% per annum from and including August 21, 2019 through and including November 20, 2019. If a late payment occurs and is continuing, the interest rate will be increased to 12% per annum and if from the date of the Note through and including August 20, 2019 and 18% per annum if and from after August 21, 2019. If a late payment remains outstanding for over 48 hours, Maxim may require the Company to redeem all or any part of the Note (“Alternate Payment Amount”) at a redemption price equal to 125% of the Alternate Payment Amount.”
Yikes. Sounds like I-AM/Smaaash balked on the deferred fee and Maxim demanded payment. Furthermore, the separate agreement with Chardan, their other underwriter, involves the Company issuing 208,000 shares as compensation.
All told, this seems like a pretty expensive way to get public, no? Plus, where is all this money going to come from? Well, Smaaash states that, “the Company expects that it will continue to use debt to finance its business and operation.” However, this seems nuts. Covering all these costs is going to be a massive hurdle.
This is a baptism to the public markets by fire. Other SPACs should take heed.