A SPAC that raised $200 million in its IPO has not identified a target by the deadline stated in its charter.
Which statement best describes what happens if the SPAC liquidates? Answer: Public shareholders receive their pro rata share of the trust account; the sponsor's founder shares and public warrants are worthless.
SPAC liquidation priority. The trust account holds the IPO proceeds for the benefit of public shareholders, so on liquidation those shareholders receive their pro rata share. The sponsor's founder shares were issued for nominal consideration and are not entitled to trust distributions, and the public warrants are exercisable only after a completed business combination; with no combination, they are worthless. The statement that the sponsor shares pro rata in the trust misstates the sponsor's priority; adding the warrant exercise price confuses an exercise right with a liquidation distribution; and a rollover into a later blank-check company is not a right created by the liquidation.
A SPAC is seeking shareholder approval for a proposed business combination. A public shareholder who purchased 1,000 shares in the IPO opposes the acquisition and wants to exit.
Which statement is TRUE regarding the shareholder's rights? Answer: The shareholder may redeem the shares for a pro rata trust distribution, regardless of how the shareholder votes on the acquisition
Under the standard SPAC structure, public shareholders have redemption rights that operate independently of their vote on the proposed business combination. A shareholder may redeem shares for a pro rata share of the trust account whether voting for, against, or abstaining on the acquisition. The statement that redemption is available only if a majority of public shareholders votes down the acquisition is wrong: the redemption right is individual and does not depend on the vote outcome. The statement that the shareholder may sell shares back to the SPAC at $10.00 is wrong because redemption is at trust value (approximately the IPO price plus accrued interest, less permitted expenses), not a guaranteed repurchase price. The statement that redemption rights are available solely to institutional investors is wrong because all public shareholders have redemption rights.
An investor bought 100 units of a SPAC in its IPO at $10 per unit. Each unit consisted of one common share and one warrant. After the warrant separation date, the investor holds 100 common shares and 100 warrants. The SPAC later proposes a business combination, and the investor elects to redeem all 100 common shares.
Which statement best describes the result after the redemption? Answer: The investor receives a pro rata share of the trust for the common shares, and the warrants remain outstanding, expiring worthless if no business combination is completed.
SPAC unit mechanics. Once the units separate, the common shares and warrants are separate securities, and the redemption right attaches only to the common shares. The investor therefore receives a pro rata share of the trust for the redeemed common shares, while the warrants remain outstanding; if the SPAC never completes a business combination, the warrants expire worthless. The option requiring surrender of the warrants is wrong because the redemption right does not extend to warrants. The option adding the warrants' current market value is wrong because the redemption distribution comes from the trust for the common shares only. The option saying the warrants are exchangeable for target shares is wrong because warrants are exercisable for common stock under the warrant terms, not exchanged one-for-one for target shares.
A public company announces a follow-on offering of 8 million shares at a public offering price of $40 per share. Six million shares are newly issued by the company, and 2 million shares are being sold by a venture capital fund that holds a large position. The underwriting spread is 5% of the offering price, and the issuer and the selling shareholder each bear the spread on the shares they sell. The company has no other offering expenses.
How much will the issuing company receive from the offering? Answer: $228 million
Follow-on offering mechanics. The secondary component does not generate issuer proceeds. The company receives the offering price less the spread on its 6 million primary shares: 6 × $40 × 0.95 = $228 million. The $304 million figure credits the company with the net proceeds of all 8 million shares; the $240 million figure omits the underwriting spread; the $76 million figure is the selling shareholder's net proceeds, not the company's.
A SPAC completes its IPO of 20 million units at $10 per unit. Each unit consists of one common share and one-half of one warrant, with each whole warrant exercisable at $11.50 for one common share. The sponsor holds 5 million founder common shares. Assume no public shares are redeemed and no other shares are issued in the de-SPAC transaction. After the de-SPAC transaction, all warrant holders exercise their warrants.
What is the total number of shares outstanding immediately after the warrant exercise? Answer: 35 million shares
SPAC unit structure: each unit contains a share component and a warrant component. The IPO sells 20 million common shares (one per unit) and 10 million warrants (20 million units × 0.5 warrant per unit). The sponsor's 5 million founder shares are already outstanding. When each warrant is exercised, one new common share is issued, so the total is 20 million + 5 million + 10 million = 35 million shares. The 25 million figure omits the shares issued upon warrant exercise. The 30 million figure counts the public shares and warrant-exercise shares but omits the 5 million founder shares. The 45 million figure treats each unit as containing a full warrant, producing 20 million warrant-exercise shares instead of 10 million.
A publicly traded company has 50 million shares outstanding. The company announces a registered follow-on offering of 10 million shares, consisting of 6 million newly issued shares and 4 million shares sold by a venture capital fund that has held its position since before the company's IPO.
Which statement is TRUE regarding the offering? Answer: The company receives the proceeds from the 6 million new shares, and total shares outstanding increase to 56 million
In a follow-on offering with both primary and secondary components, the company receives proceeds only from the newly issued shares; the selling shareholder receives the proceeds from the existing shares it sells, and only the newly issued shares increase the share count. The 6 million new shares are dilutive; the 4 million shares sold by the venture capital fund were already outstanding and merely change ownership. The statement that the company receives proceeds from all 10 million shares is wrong because the company has no claim on the proceeds of the fund's 4 million secondary shares, even though the 56 million share count is correct. The statement that the company receives proceeds from the 4 million existing shares reverses the primary and secondary components, and its 54 million figure is also wrong: it adds the fund's already-outstanding shares to the 50 million while ignoring the 6 million newly issued shares. The statement that total shares outstanding increase to 60 million counts the fund's 4 million existing shares as newly issued, even though the company correctly receives proceeds from only the 6 million new shares.
An investor purchased 500 units of a special purpose acquisition company (SPAC) in its initial public offering at $10.00 per unit. Each unit consists of one common share and one warrant. The SPAC has now announced a proposed business combination with a private software company, and the investor expects the deal to be approved by shareholders.
Which of the following statements is correct with respect to the SPAC and the investor's position? Answer: If the merger is approved and closes, the common shares become shares of the combined company, and the warrants remain outstanding and become exercisable at the stated warrant exercise price.
SPAC structure: a SPAC's IPO units typically consist of one common share and a warrant, and the offering proceeds are held in trust pending a business combination. If the merger is approved and closes, the public common shares become shares of the combined operating company, and the warrants remain outstanding and become exercisable after the closing at the exercise price stated in the warrant agreement; that statement is correct. The statement that redemption of the common shares also redeems the warrants for a pro rata share of the trust is wrong because the redemption right attaches to the common shares only, and the warrants are separate securities that are not paid from the trust. The statement that warrants may still be exercised against the SPAC's remaining assets if no deal is completed is wrong because the SPAC liquidates and the warrants expire worthless. The statement that redemption is available only if the stock trades at or above the $10.00 IPO price is wrong because the redemption right is a contractual right to receive the trust value per share and is not conditioned on the market price.
A company's shares began trading on a national exchange eight months ago following its IPO. The 180-day lock-up agreement expired two months ago. An executive who is an affiliate of the company owns shares she purchased from the company three years ago in a private placement.
Which statement is TRUE regarding the resale of restricted securities by an affiliate of a reporting issuer? Answer: The affiliate may resell the securities after a six-month holding period if current public information is available, subject to the applicable volume, manner-of-sale, and filing conditions.
Under SEC Rule 144, an affiliate of a reporting issuer may resell restricted securities after a six-month holding period if the issuer has been subject to the reporting requirements for at least 90 days, current public information is available, and the sale complies with the volume limitation (the greater of 1% of outstanding shares or average weekly trading volume over the prior four weeks in any three-month period), the manner-of-sale requirement, and any applicable Form 144 filing obligation (more than 5,000 shares or $50,000 in three months). The statement that volume and manner-of-sale conditions do not apply is wrong: those requirements apply to an affiliate's resales. The statement that a registered public offering is the only route is wrong because Rule 144 provides an available exemption from registration. The statement that the affiliate must wait one year and has no filing obligation is wrong for a reporting issuer: the required holding period is six months, not one year, and filings may be required for sales above the Form 144 threshold.
An issuer has filed a registration statement with the SEC for its initial public offering. The SEC staff is reviewing the filing, and the registration statement has not yet been declared effective.
Which action is permitted during this period? Answer: The managing underwriter may solicit indications of interest using the preliminary prospectus, but may not confirm sales until the registration statement is effective.
Securities Act §5 IPO process. After filing and before effectiveness, offers may be made if a statutory prospectus accompanies written offers; the preliminary prospectus, or red herring, is used to solicit indications of interest. Sales or confirmations may not occur until effectiveness. The final prospectus is not the waiting-period document, and oral offers are permitted during the waiting period.
A company is conducting its initial public offering. The registration statement covers 10 million primary shares at a public offering price of $22 per share. The underwriting discount is 7% of the offering price, and the issuer will pay $5 million in offering expenses. The underwriters exercise the full 15% overallotment option, and the additional shares are primary shares. Offering expenses are not increased by the overallotment.
How much will the issuer receive in net proceeds from the entire offering, including the overallotment? Answer: $230.29 million
IPO underwriting mechanics. Total shares issued are 10 million plus the 15% overallotment, or 11.5 million shares. Gross proceeds are 11.5 × $22 = $253 million. The 7% underwriting discount is $17.71 million, leaving $235.29 million before offering expenses. Subtracting the $5 million offering expenses gives $230.29 million. The $235.29 million figure omits offering expenses; the $199.60 million figure uses only the original 10 million shares; the $248.00 million figure ignores the underwriting discount.
An IPO includes a standard over-allotment option. The stock begins trading 15% above the offering price, and the lead underwriter exercises the option in full.
Which statement is TRUE? Answer: The issuer sells additional shares to the underwriter at the offering price, and total shares outstanding increase
Under the standard over-allotment option (green shoe), the underwriter may purchase additional shares from the issuer at the offering price to cover short positions created by selling more shares than the issuer offered. When the stock trades above the offering price, the underwriter exercises the option because buying from the issuer at the offering price is cheaper than covering in the open market; the issuer issues new shares and receives additional proceeds. The statement that the underwriter purchases shares in the open market describes the outcome when the stock trades below the offering price, where the market price is cheaper than the offering price. The statement that the issuer repurchases shares is wrong because the issuer does not buy back shares; the underwriter conducts any stabilization through the over-allotment mechanism. The statement that the option expires because the stock trades above the offering price is wrong because trading above the offering price is precisely the condition that makes exercise attractive.
A large reporting company has filed a shelf registration statement with the SEC for an offering of common stock. The registration statement has been declared effective.
Which statement about sales under the shelf registration is correct? Answer: The company may sell portions of the registered shares over time through takedowns, with a prospectus supplement describing each takedown.
Under Securities Act Rule 415, a shelf registration permits delayed or continuous offerings: the issuer may sell the registered securities in takedowns over time, each under the existing registration statement and with a prospectus supplement stating the terms. A forced single sale within five business days is not required, a new registration statement is not needed before each takedown, and the SEC does not approve each takedown before sale.
An executive officer of a company whose shares trade on a national securities exchange acquired 2 million restricted shares from the issuer in a private placement eight months ago. The company has been SEC reporting for four years. All lock-up restrictions on those shares have expired. The company has 50 million shares outstanding, and the average weekly trading volume over the prior four weeks was 1.2 million shares.
If the executive sells under Rule 144, what is the maximum number of shares she may sell in the next three months without registering the sale? Answer: 1,200,000 shares
SEC Rule 144. The six-month holding period is satisfied because the restricted shares were acquired eight months ago, and the issuer has been SEC reporting for well over 90 days. Because the executive is an affiliate, sales in any three-month period are limited to the greater of 1% of the outstanding shares (1% of 50,000,000 = 500,000) or the average weekly trading volume over the prior four weeks (1,200,000), so the maximum is 1,200,000 shares. The 500,000 option applies only the 1% test; the 1,700,000 option adds the two limits instead of taking the greater; the 2,000,000 option treats the entire restricted block as sellable and ignores the volume limit.
