SPECIAL PURPOSE ACQUISITION COMPANY (SPAC) FUNDING OPPORTUNITIES

A special purpose acquisition corporation, commonly known as a “SPAC,” and formally a “development stage company,” is generally incorporated with the primary objective of raising funds through a public offering of its securities primarily for purpose of acquiring one or more operating companies. However, it will typically begin as a corporation formed by a small group of industry executives or sophisticated investors (“Founding Stockholders”). The Founding Stockholders purchase the company’s common stock for nominal consideration and generally retain, after completion of the IPO, 20% of the SPAC’s common equity, although this percentage is less if the underwriters’ over-allotment option is exercised. Some or all of the Founding Stockholders also serve as the SPAC management team that will search for prospective target operating companies.

The most distinguishing characteristic of a SPAC is that it gives investors the opportunity to vote on potential transactions and redeem a portion of their proceeds held in the trust account if they vote against a proposed transaction.

SPACs and Reverse Mergers (See previous articles ON Reverse Merger and PPM)

A SPAC is similar to a reverse merger. However, unlike reverse mergers, SPACs come with built-in investor teams and an experienced management team. They are also set up with a clean slate where the management team searches for a target to acquire. This is contrary to pre-existing companies in reverse mergers.

SPACs typically raise more money than reverse mergers at the time of their IPO. The average SPAC raises about $75 million through its IPO compared to $5.24 million raised through reverse mergers in the months immediately preceding and following the completion of their IPOs. SPACs also raise money faster than private equity funds. The liquidity of SPACs also attracts more investors as they are offered in the open market.

Hedge funds and investment banks are very interested in SPACs because the risk factors seem to be lower than standard reverse mergers. SPACs allow the targeted company’s management to continue running the business, where they will sit on the board of directors. After a transaction, the company retains the target name and may register trade on the NASDAQ.

Regulation The Securities and Exchange Commission (SEC) is currently investigating SPACs to determine whether they require special regulations to ensure that these vehicles are not abused like blind pool trusts and blank-check corporations have been over the years. Many believe that SPACs do have corporate governance mechanisms in place to protect shareholders.

Advantages SPACs are more transparent than private equity as they are regulated by certain SEC rules, including filing their financial statements. Since SPACs are publicly traded, they provide liquidity to an investor (i.e. investment comes in the form of common shares and warrants which can be traded). The unique benefits are the special rights of shareholders to vote in approval or rejection of the deal and the ability for investors to regain most of their funds if the SPAC was unsuccessful. In addition, it is an opportunity for individuals not qualified to buy into hedge or private-equity funds to participate in the takeovers of private operating companies that those funds typically do. Additionally, the SPAC vehicle for the target company is the opportunity to effect a reverse merger that yields more capital.

Disadvantages Other than the risks normally associated with IPOs, SPACs’ public shareholders' risks include:

• limited liquidity of their securities • loss of 0-15% of their investments if no M&A deals are made • lack of investment diversification • lack of management’s time devoted to SPACs due to involvement in other ventures There is also potential for delay and expense attributable to the public shareholders' special rights and the costs of functioning as a registered public company.

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Restrictions Involved SPACs generally self impose certain restrictions on their own activities, as well as those of their respective management teams, subsequent to their IPO to provide protection for their investors. These restrictions generally include, among other things, the following:

• Submission of Offering Proceeds in a Trust As an essential investor protection in a SPAC, a large percentage of the IPO proceeds (generally above 90%), net of a portion of the underwriters’ compensation, but not of other offering expenses, is deposited into a trust account where the funds are invested exclusively in short-term government securities until the earlier of (i) the consummation of a business combination that has been approved by stockholders, and (ii) liquidation of the SPAC as discussed below.

• Limitation on Fair Value of Target Businesses – In order for a SPAC to consummate a business combination, the target business must have a fair market value representing at least 80% of the SPAC’s net assets (excluding deferred underwriters’ discounts and commissions held in trust) after the time of acquisition.

• Limitation on Exercise of Warrants – The warrants included as part of the units issued by a SPAC will often not become exercisable until the later of (i) the consummation of a business combination, and (ii) some fixed date subsequent to consummation of the SPAC’s IPO (usually one year after the IPO date).

• Opportunity to Approve a Business Combination – SPACs are required to seek stockholder approval of a proposed business combination, and any business combination must be approved by at least a majority of the shares of common stock purchased in connection with the IPO and no more than 19.99% may choose to liquidate their shares in order for a transaction to proceed.

• Conversion Right of Disapproving Stockholders – The terms of a typical SPAC offering allow stockholders to vote on a proposed business combination. The SPAC will send each public investor a proxy statement, and any investor who votes against the business combination and affirmatively declares his or her election to convert his or her shares will have the right to receive his or her pro rata share of the trust account in accordance with the procedures disclosed in the prospectus. In the event that greater than 20% of disapproving stockholders elect to convert their shares, a SPAC would also be prevented from completing a proposed business combination and would be liquidated.

• Business Combination Deadline – A SPAC must typically consummate a business combination within twelve months of its IPO or within eighteen months of its IPO if it enters into a letter of intent, agreement in principle or definitive agreement with a prospective target operating company within twelve months of its IPO. Some SPACs have also used eighteen and twenty-four month time periods, respectively.

• Liquidations Requirement – In the event that a SPAC fails to complete a business combination within the required time period, it typically is required to liquidate and distribute a pro rata share of the then Trust funds to its stockholders. Founding Stockholders are generally not eligible to receive any distribution of Trust funds with respect to any shares they acquired prior to the SPAC’s IPO, however.

Our banking sources will invest from One million to seventy –five million in assets to enhance the balance sheet of a SPAC’S which greatly improves the chances of raising additional capital. We also have Angel investors to invest in SPAC companies. For more information contact the undersigned.

Dr. Jason Kuruso,MBA,CPA Email; info@fargofinancial.com

Web Site; www.fargofinancial.com

SPECIAL PURPOSE ACQUISITION COMPANY (SPAC) FUNDING OPPORTUNITIES - To learn more about this author, visit Jason Kuruso's Website.

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