It’s the Law! Q&A with Ellenoff Grossman & Schole

SPACs are a little complex, but if you layer in financial regulations, they can be downright confusing.  Many times I wished I had a lawyer on speed dial just to help make sense of what was going on.  With that in mind, last week Doug Ellenoff and Stuart Neuhauser, from the law firm of Ellenoff Grossman & Schole, kindly made themselves available for any SPAC related questions you’ve all maybe been wondering about and wanted to ask.

Unfortunately, they couldn’t get to all of the questions, but the submissions below were the most relevant. Read on!

Q. A few months ago, Federal Street Acquisition Corp. merged into Agiliti, a medical equipment management company. Interestingly, they have waived the closing conditions of listing on the NASDAQ. Does this mean if the listing conditions are waived, any SPAC would have the risk of not being listed on an exchange?

A. In general, the answer to your question would be YES. While there are structural restrictions that could be put into place that would prevent a last minute waiver, generally speaking if the Target is willing to waive the provision, a business combination can be completed and the securities can trade OTC.

Q. Under what scenario(s) would a public SPAC shareholder’s claim on funds held in the trust account be impaired? Has this ever happened? What is the likelihood that it could happen? 

A. A SPAC shareholder’s claim to redemption of funds is fundamental to the vehicle and while the amount in trust could be subject to claims by third parties, and consequently, the amount returned to investors potentially be a correspondingly reduced amount, the investors claim to that amount still remaining is still intact. Out of the few hundred funded SPACs, this hasn’t been much of an issue. Out of this same universe of funded SPACs, the money has always been available for redemption, except in a couple of litigations. In one, the investor didn’t complete the necessary documentation to cause the redemption of its funds (our understanding is that this was ultimately settled) and another where the SPAC sponsor didn’t require the target to waive a claim against the trust and ended up settling but investors did receive a full return of their invested capital. We do believe that if the SPAC is diligent in requiring waivers against the trust that investors rights of redemption (pre-closing of the business combination) should be protected for all practical purposes.

Q. What is the best way to actually stay on top of news from a SPAC company? It seems they announce a meeting. The meeting may or may not take place. Then it is rescheduled without any notice. I am having trouble nailing down the true details. Sometimes I call/email the company, but that only works half the time. Thanks

A. To receive the most current information about any public company, consider setting up alerts. https://www.sec.gov/about/secrss.shtml

Q. Why do some SPACs wait for days before releasing the results of shareholder meetings? What are the legal disclosure requirements around this?

A. Item 5.07 of Form 8-K, Submission of Matters to a Vote of Security Holders Event. The results of a vote of registrant’s security holders on any matter. Time period: Initial Form 8-K with preliminary (or final, if available) voting results due within 4 Business Days after the end of the meeting. https://www.sec.gov/about/forms/form8-k.pdf

Q. CMSS voted yes on their business combination. Why did they also vote yes to increase the number of authorized shares to 500 million? What is the point of doing this? Is it common place?

A. At any vote of shareholders, the board of directors may believe that it is in the company’s best interest to increase the authorized number of shares for potential future issuance. Those additional shares may be used for any of a number of legitimate corporate purposes, including, issuance to the target shareholders, new investors or even an employee stock option plan.