AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 2021
Registration No. 333-254891
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PINNACLE ACQUISITION CORP. I
388 Embarcadero Center, Suite 2400 San Francisco, California 94111 (415) 555-0182
Address, including zip code, and telephone number, including area code, of registrant's principal executive offices
Marcus Yuen Chairman and Chief Executive Officer Pinnacle Acquisition Corp. I 388 Embarcadero Center, Suite 2400 San Francisco, California 94111 (415) 555-0182
Name, address, including zip code, and telephone number, including area code, of agent for service
Copies to:
Jennifer Kwon, Esq. Calderwood & Harkness LLP 900 Third Avenue, 28th Floor New York, New York 10022 (212) 555-0274
Garrett Doyle, Esq. Whitmore & Caldwell LLP 100 Federal Street, 32nd Floor Boston, Massachusetts 02110 (617) 555-0391
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ]
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 Rule 12b-2 of the Exchange Act.
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 7(a)(2)(B) of the Securities Act. [ ]
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy these securities, in any state where the offer or sale is not permitted.
PROSPECTUS
May 24, 2021
20,000,000 Units
PINNACLE ACQUISITION CORP. I
Pinnacle Acquisition Corp. I is a blank check company incorporated in Delaware on January 22, 2021. We were 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, which we refer to throughout this prospectus as our initial business combination.
We intend to focus our search for prospective target businesses in the enterprise software-as-a-service, or "SaaS," and cloud technology sectors, with an emphasis on businesses that have enterprise values between $600 million and $2.0 billion. We believe this range is attractive because it encompasses businesses that may benefit from the operational flexibility of the public markets and that may be large enough to support an efficient business combination with a special purpose acquisition company while still offering meaningful growth opportunities.
Each unit has an offering price of $10.00 and consists of one share of our Class A common stock, par value $0.0001 per share, and one-half of one redeemable warrant. Each whole warrant entitles the holder thereof to purchase one share of our Class A common stock at a price of $11.50 per share, subject to adjustment as described in this prospectus. Only whole warrants are exercisable. No fractional warrants will be issued upon separation of the units, and only whole warrants will trade.
We are offering 20,000,000 units. In addition, we have granted the underwriters a 45-day option from the date of this prospectus to purchase up to an additional 3,000,000 units solely to cover over-allotments, if any.
Our sponsor is Pinnacle Venture Fund II LP, a Delaware limited partnership. On February 10, 2021, our sponsor purchased 5,750,000 shares of our Class B common stock, which we refer to as founder shares, for an aggregate purchase price of $25,000, or approximately $0.004 per share. The founder shares currently represent all of our issued and outstanding common stock. The number of founder shares outstanding was determined based on the expectation that such shares would represent 20% of the total number of shares outstanding upon consummation of this offering, assuming no exercise of the underwriters' over-allotment option and the forfeiture by our sponsor of up to 750,000 founder shares if the over-allotment option is not exercised in full.
Our sponsor has committed to purchase an aggregate of 7,000,000 private placement warrants, or 7,900,000 private placement warrants if the underwriters' over-allotment option is exercised in full, at a price of $1.50 per warrant in a private placement that will close simultaneously with the closing of this offering. The proceeds from the sale of the private placement warrants, together with the net proceeds of this offering, will be used to fund the trust account described below, pay underwriting fees and offering expenses, and fund our working capital needs.
Of the proceeds we receive from this offering and the sale of the private placement warrants described in this prospectus, $200,000,000, or $230,000,000 if the underwriters' over-allotment option is exercised in full, or $10.00 per unit sold to the public, will be deposited into a U.S.-based trust account maintained by Continental Dunmore Financial. Except as described in this prospectus, these funds will not be released until the earlier of the completion of our initial business combination or the redemption of our public shares if we do not complete our initial business combination within the required time period. The proceeds held in the trust account may be invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act and that invest only in direct U.S. government treasury obligations.
We must complete our initial business combination within 18 months from the closing of this offering, or by December 25, 2022, subject to an extension to 24 months from the closing of this offering, or by June 25, 2023, if our sponsor or its affiliates or designees deposit additional funds into the trust account as described herein. If we do not complete our initial business combination within the required time period, we will redeem 100% of the outstanding public shares for a pro rata portion of the funds held in the trust account, including interest earned on the trust account and not previously released to us to pay our taxes, less up to $100,000 of interest to pay dissolution expenses, and thereafter we will 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.
We have applied to list our units on the Nasdaq Capital Market under the symbol "PNACU." Once the securities comprising the units begin separate trading, we expect that our Class A common stock and warrants will be listed on the Nasdaq Capital Market under the symbols "PNAC" and "PNACW," respectively.
Investing in our securities involves a high degree of risk. See "Risk Factors" beginning on page 14 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
(1) Includes deferred underwriting commissions of $0.35 per unit, or $7,000,000 in the aggregate (or up to $8,050,000 if the underwriters' over-allotment option is exercised in full), payable to the underwriters for deferred underwriting commissions upon the consummation of our initial business combination, as described in this prospectus.
(2) The proceeds to us shown in the table above do not include the proceeds from the sale of the private placement warrants.
The underwriters are offering the units on a firm commitment basis. The underwriters expect to deliver the units to purchasers on or about June 25, 2021.
Prospectus Summary
This summary highlights certain information contained elsewhere in this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in our securities. You should read this entire prospectus carefully, including the section entitled "Risk Factors" and our financial statements and the related notes appearing elsewhere in this prospectus.
Overview
Pinnacle Acquisition Corp. I is a blank check company incorporated in Delaware on January 22, 2021. We were 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, which we refer to as our initial business combination.
Our Central Index Key, or CIK, is 0001893247. Our registered agent in the State of Delaware is Capitol Registered Agents Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. Our principal executive office is located at c/o Pinnacle Venture Fund II LP, 388 Embarcadero Center, Suite 2400, San Francisco, California 94111.
We are an early stage and emerging growth company and, as such, we are subject to all of the risks associated with early stage and emerging growth companies. We have no operating history, no revenues and no operations to date. Since our incorporation, our activities have been limited to organizational activities, activities related to the preparation of this registration statement and related public offering materials, and the identification and evaluation of potential target businesses for our initial business combination. We will not generate any operating revenues until, at the earliest, after the consummation of our initial business combination.
Our Sponsor
Our sponsor is Pinnacle Venture Fund II LP, a Delaware limited partnership. The general partner of our sponsor is Pinnacle Venture Management II LLC, a Delaware limited liability company. The sponsor is headquartered at 388 Embarcadero Center, Suite 2400, San Francisco, California 94111.
Pinnacle Venture Fund II LP and its affiliated investment platform focus on enterprise SaaS, cloud infrastructure, and AI-enabled business-to-business, or B2B, platforms. Across two funds, the platform manages approximately $725 million of assets under management. We believe the sponsor's established network among founders, executives, private company investors, and strategic acquirers in the enterprise software ecosystem will be a meaningful source of deal flow and diligence capability.
The sponsor's key principals include Marcus Yuen, Founder and Managing Partner, and Deborah Sinclair, Partner, Technology Investments. Mr. Yuen and Ms. Sinclair have experience sourcing, evaluating, investing in, and supporting growth-stage technology businesses, and we intend to leverage that experience in our search for an initial business combination target.
Our Strategy and Target Business
We intend to focus our search on enterprise SaaS and cloud technology businesses. We believe these markets continue to benefit from secular tailwinds, including increasing software adoption across industries, migration of enterprise workloads to cloud environments, the growing importance of recurring revenue models, and expanding demand for AI-enabled workflow and data infrastructure solutions.
We intend to focus on target businesses with enterprise values between $600 million and $2.0 billion. We believe this segment includes companies that may be too large for typical venture-backed exit transactions and too small or strategically distinct for many traditional public company combinations, creating an opportunity for a transaction structure like ours.
Our initial business combination must have an aggregate fair market value equal to at least 80% of the value of the assets held in the trust account, excluding deferred underwriting commissions and taxes payable on interest earned on the trust account, at the time we sign a definitive agreement in connection with our initial business combination. In addition, at least 80% of the assets held in the trust account must be used as consideration in the initial business combination, consistent with Nasdaq rules and market practice for blank check companies.
We believe we can leverage the sponsor's network, proprietary sourcing capabilities, relationships with founders and growth investors, and deep sector knowledge in enterprise software to identify attractive businesses and to assist a post-combination company in executing on strategic, operational, and capital markets initiatives.
The Offering
The following summary contains basic information about this offering and our securities and is not intended to be complete. It is qualified in its entirety by the more detailed information appearing elsewhere in this prospectus.
Founder Shares and Sponsor Economics
On February 10, 2021, our sponsor purchased 5,750,000 shares of our Class B common stock for an aggregate purchase price of $25,000, or approximately $0.004 per share. The founder shares will automatically convert into shares of Class A common stock on a one-for-one basis upon the consummation of our initial business combination, subject to adjustment as described elsewhere in this prospectus.
Up to 750,000 of the founder shares are subject to forfeiture depending on the extent to which the underwriters' over-allotment option is exercised. If the over-allotment option is not exercised at all, the sponsor will forfeit 750,000 founder shares. If the over-allotment option is exercised in full, no founder shares will be forfeited. The forfeiture mechanism is designed so that the founder shares will represent approximately 20% of our outstanding shares after this offering, excluding the private placement warrants and assuming no public stockholder redemptions.
Simultaneously with the closing of this offering, our sponsor will purchase 7,000,000 private placement warrants at a price of $1.50 per warrant, for an aggregate purchase price of $10,500,000. If the underwriters' over-allotment option is exercised in full, the sponsor will purchase an additional 900,000 private placement warrants for an aggregate additional purchase price of $1,350,000. As a result, the sponsor's aggregate at-risk investment in our company will be $10,525,000 in the base offering scenario, consisting of $25,000 for founder shares and $10,500,000 for private placement warrants, and $11,875,000 if the over-allotment option is exercised in full.
Summary Risk Factors
An investment in our securities involves substantial risk. The principal risks include, but are not limited to, the following:
• We are a blank check company with no operating history and no revenues, and you therefore have no basis on which to evaluate our ability to achieve our business objective.
• There can be no assurance that we will be able to complete our initial business combination within the required time period.
• Our capital structure will cause substantial dilution to public stockholders, particularly as a result of the founder shares, the private placement warrants and any public warrants that become exercisable.
• Our officers and directors may have conflicts of interest, including as a result of their other business activities and fiduciary or contractual obligations.
• The SEC and other regulators have increased their scrutiny of SPAC transactions, and changes in guidance, rules or enforcement priorities could adversely affect our ability to complete a business combination or increase our costs and liability exposure.
• Claims by third parties may reduce the amount of funds available in the trust account and could reduce the amount available to redeeming public stockholders.
• Our focus on SaaS and cloud technology businesses exposes us to sector-specific risks, including rapid technological change, intense competition, customer concentration, cybersecurity threats and changing valuation environments.
• Public stockholders may not approve a proposed business combination if stockholder approval is sought, and even if a transaction is approved, a substantial number of redemptions could make the transaction more difficult to complete.
The risks summarized above are not the only risks we face. You should carefully review "Risk Factors" and the other information included in this prospectus before investing in our securities.
The Offering
The following is a summary of the principal terms of this offering. The information in this section is qualified in its entirety by the more detailed information appearing elsewhere in this prospectus, including under "Description of Securities," "Proposed Business," and "Underwriting."
Each unit will become separable into its component securities on the 52nd day after the date of this prospectus, unless Ridgeline Whitfield Securities LLC, as representative of the underwriters, determines that an earlier date is acceptable, subject to our having filed a Current Report on Form 8-K and issued a press release announcing when separate trading will begin. Once the component securities begin separate trading, holders will have the option to continue holding units or separate them into the underlying Class A common stock and warrants.
A public stockholder will be entitled to redeem its public shares for cash equal to its pro rata share of 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 up to $100,000 of interest to pay dissolution expenses, in connection with our initial business combination or if we do not complete our initial business combination within the required time period.
We may consummate our initial business combination either through a stockholder vote or by means of a tender offer. If we seek stockholder approval, we will complete our initial business combination only if a majority of the shares voted are voted in favor of the business combination. Our initial stockholders, officers and directors have agreed to vote their founder shares and any public shares purchased by them in favor of our initial business combination, subject to the terms of the letter agreement described elsewhere in this prospectus.
Risk Factors
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information contained in this prospectus, before making an investment decision. If any of the following risks actually occurs, our business, financial condition, results of operations and ability to complete our initial business combination could 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.
Risks Related to Our Blank Check Company Structure and the Offering
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 were incorporated on January 22, 2021 and have not commenced operations. We have no operating history, no revenues, and no track record of completing a business combination. Because we are a blank check company, you are investing in our management team's ability to identify, negotiate and complete an attractive business combination and then to create value following the transaction. There can be no assurance that we will be able to do so successfully.
Our lack of an operating history makes it difficult for prospective investors to evaluate our future prospects. Past performance by members of our management team or affiliates of our sponsor may not be indicative of future performance by us. You should not rely on the historical record of our management team or sponsor as a guarantee that we will be able to identify a suitable target or complete a successful transaction.
We may not be able to consummate an initial business combination within the prescribed time period.
We must complete our initial business combination within 18 months from the closing of this offering, or by December 25, 2022, unless we extend the period to 24 months by depositing additional funds into the trust account. Our ability to do so depends on range factors, many of which are beyond our control, including capital markets conditions, target company willingness to pursue a SPAC transaction, competitive bidding dynamics, regulatory developments, financing availability, and diligence timelines.
If we are unable to complete our initial business combination within the required time period, we will redeem the public shares and liquidate. In that event, the public stockholders may receive only their pro rata portion of the funds held in the trust account, and our warrants will expire worthless. This liquidation outcome may provide a lower return than investors might otherwise have realized through alternative investments.
Our public stockholders may not be afforded an opportunity to vote on our proposed business combination.
We may choose not to seek stockholder approval of our initial business combination if stockholder approval is not required by law or Nasdaq rules and if we elect to consummate the transaction through a tender offer. If we do not seek stockholder approval, public stockholders will not be able to vote on the proposed transaction and will instead have to decide whether to tender or redeem their shares. As a result, public stockholders may have less influence over the outcome of the transaction than they would have in a transaction submitted for stockholder approval.
The ability of our public stockholders to redeem their shares for cash may make our financial condition unattractive to potential target businesses.
We may be unable to complete our initial business combination if too many public stockholders exercise their redemption rights and we do not have sufficient cash to satisfy the closing conditions of the target business or our financing arrangements. The possibility that a substantial portion of our public shares will be redeemed may reduce our attractiveness as a merger partner and may require us to structure a transaction with additional financing or other complex terms.
This uncertainty may also cause target businesses to demand more favorable terms, such as additional equity, reduced valuation, greater governance rights or committed financing arrangements. Such demands could make it more difficult for us to complete an attractive transaction on terms favorable to our remaining stockholders.
The requirement that we complete our initial business combination within 18 months, or 24 months if extended, may give potential target businesses leverage in negotiations.
As we approach the deadline to complete our initial business combination, target businesses may become aware that we have limited time remaining to complete a transaction. As a result, they may seek to obtain more favorable terms in negotiations, including a higher valuation, increased cash consideration, reduced closing conditions, indemnification protections, or other concessions.
This dynamic may be particularly acute in competitive auction processes or where a target business has alternative financing or strategic transaction options. If we are forced to accept less favorable terms in order to complete a transaction within the allotted time, the value proposition for our public stockholders may be adversely affected.
We may not obtain additional financing for the initial business combination or to fund the operations of the target business post-combination.
Although we believe that the net proceeds of this offering and the sale of the private placement warrants will be sufficient to allow us to complete our initial business combination, there can be no assurance that a target business will not require more cash than we have available from the trust account, particularly if redemptions are significant. In such circumstances, we may need to obtain additional financing through private investments in public equity, debt financings, backstop arrangements or other sources.
We cannot assure you that additional financing will be available on acceptable terms, if at all. The absence of such financing could force us to abandon a proposed transaction, renegotiate terms, or complete a transaction with a materially different capital structure than originally contemplated. Additional financing could also be dilutive to existing stockholders or impose restrictive covenants and other obligations on the post-combination company.
Our stockholders may be held liable for claims by third parties to the extent of distributions received by them upon redemption.
Under Delaware law, stockholders may in certain circumstances be liable for claims by third parties against a dissolved corporation to the extent of distributions received by them in dissolution. Although we intend to redeem the public shares as promptly as reasonably possible following our failure to complete an initial business combination within the prescribed time period, we cannot assure you that claims will not be brought against us after such distribution.
Accordingly, a stockholder could potentially be required to return all or a portion of the amounts received in redemption to satisfy claims of creditors. We intend to seek to comply with applicable Delaware law governing liquidation and dissolution, but we cannot assure you that such efforts will eliminate stockholder exposure.
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 $10.00.
Our placing of funds in the trust account may not protect those funds from third-party claims. Although we will seek to have vendors, service providers, prospective target businesses and other entities execute agreements waiving any claim to the monies held in the trust account, such parties may not execute such agreements, and even if they do, such waivers may not be enforceable in every case.
If a claim were successfully made against the trust account, the funds available for redemption could be reduced and the amount per public share distributed to investors could be less than $10.00. Our sponsor has agreed that it will be liable to us if and to the extent any claims by a third party reduce the amount of funds in the trust account below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the trust account as of the date of the liquidation, in each case net of taxes payable, subject to certain exceptions. However, we have not independently verified whether our sponsor has sufficient funds to satisfy its indemnification obligations, and we cannot assure you that it will be able to do so.
The Company currently has no D&O insurance tail coverage beyond the initial policy period, and our existing policy may not be sufficient.
We have obtained directors' and officers' liability insurance through Northpoint Specialty Insurance Co., policy number NSI-SPD-210603, with a $10,000,000 aggregate limit. However, we do not currently have tail coverage beyond the initial policy term. Claims brought after the expiration of the policy period may not be covered unless extended reporting or replacement coverage is obtained.
In addition, the aggregate limit of our policy may prove insufficient given the growing frequency and complexity of securities litigation, merger-related litigation, regulatory inquiries and claims involving SPACs. If adequate coverage is unavailable or prohibitively expensive, our ability to attract and retain qualified officers and directors could be adversely affected, and we may incur substantial out-of-pocket costs defending claims.
Risks Related to Our Search for and Consummation of a Business Combination
Our management may not be able to maintain control of a target business after the business combination.
We may structure our initial business combination so that the post-combination company in which our public stockholders own shares will own less than 100% of the equity interests or assets of a target business, but will own or acquire sufficient voting securities to avoid being considered an investment company under the Investment Company Act. In such cases, the post-combination company may not be able to control the target business fully, which could limit its ability to implement strategic initiatives or realize anticipated synergies.
Even where we initially acquire a controlling stake, we may be required to issue a substantial number of additional shares to the target's owners, financing sources or other parties, which could dilute our stockholders and alter governance arrangements.
We may attempt to simultaneously consummate business combinations with multiple targets, which may hinder our ability to consummate any one transaction.
Although we currently intend to focus on a single target business, we may determine to pursue a business combination with multiple targets simultaneously. Such a transaction could involve multiple acquisitions, varied consideration structures, disparate regulatory issues, and more complex diligence, accounting and integration requirements.
The complexity of a multi-target transaction may increase execution risk, delay closing, increase costs, and create greater uncertainty with respect to obtaining financing or required approvals. If we are unable to close all components of such a transaction, we may be unable to complete any part of it.
Our officers and directors allocate their time to other businesses and may have conflicts of interest in allocating their time and evaluating opportunities.
Our officers and directors are not required to, and will not, commit their full time to our affairs. They have other business obligations and may become involved in additional business activities in the future. As a result, the amount of time they devote to our affairs may vary depending on whether a target business has been selected for our initial business combination and the stage of the transaction process.
This arrangement creates the risk that our officers and directors may have conflicts in allocating their time among various business activities, including other investment funds, portfolio companies, boards and advisory roles. Such competing commitments could delay our identification of a suitable target or otherwise impair our ability to complete an attractive business combination.
Marcus Yuen and Deborah Sinclair have fiduciary duties to both the Sponsor and the Company.
Marcus Yuen and Deborah Sinclair are principals of our sponsor and also serve as executive officers and directors of our company. As a result, they may face conflicts of interest in determining whether a particular opportunity should be presented to us or to the sponsor or its affiliates, subject to their fiduciary duties and any contractual obligations.
In evaluating any opportunity, these individuals may be required to consider the interests of multiple constituencies, including our company, our sponsor, affiliated investment funds, and other entities in which they serve. These overlapping roles may create actual or perceived conflicts of interest that could influence transaction decisions or governance outcomes.
We may engage in a business combination with an affiliate of our sponsor, creating additional conflicts.
Although we do not currently intend to do so, we may pursue an initial business combination with a target business that is affiliated with our sponsor, officers, directors or their respective affiliates. Any such transaction would present additional conflicts of interest because the persons involved may have interests that differ from, or are in addition to, the interests of our public stockholders.
If we seek to consummate an initial business combination with an affiliated target, we would obtain an opinion from an independent investment banking firm or an independent accounting firm that the transaction is fair to our company from a financial point of view. Even with such a fairness opinion, however, the transaction may not be as advantageous to our public stockholders as a transaction with an unaffiliated third party.
Resources could be wasted exploring acquisition opportunities that are not consummated.
We expect to incur substantial costs in identifying, investigating, negotiating and documenting potential business combinations, whether or not they are ultimately consummated. These costs may include legal, accounting, consulting, travel, financial advisory, valuation, diligence and regulatory expenses.
If we complete an initial business combination, such costs may be borne by the post-combination company. If we do not complete a transaction, these expenses will reduce the funds we have available outside the trust account for working capital. Repeated unsuccessful transaction efforts may materially deplete our resources and could reduce the likelihood that we complete a business combination within the required time period.
Risks Related to Our Securities
You will experience dilution as a result of the founder shares and private placement warrants.
Public stockholders will incur immediate and substantial dilution from the founder shares purchased by our sponsor at a nominal price and from the private placement warrants purchased in a concurrent private placement. This dilution would be magnified to the extent public stockholders redeem their shares or additional securities are issued in connection with our initial business combination.
The founder shares will convert into Class A common stock at the time of our initial business combination on a one-for-one basis, subject to adjustment. The economic value represented by those shares may be substantial even though they were acquired for nominal consideration. As a result, public stockholders may bear a disproportionate share of the economic risk of the transaction.
The founder shares represent 20% of our total shares outstanding for a nominal investment of $25,000.
Our sponsor purchased founder shares that will represent approximately 20% of our total shares outstanding after this offering, excluding the private placement warrants, for only $25,000. Because the sponsor paid a nominal price, it may have an incentive to complete an initial business combination even if the transaction is not favorable to public stockholders, since the sponsor could still realize a positive return on its investment.
This incentive structure may reduce the alignment between the sponsor's interests and the interests of public investors, particularly in scenarios where public stockholders would be better served by redeeming their shares or liquidating the company rather than completing a marginal transaction.
The private placement warrants and public warrants could result in significant additional dilution.
In this offering we will have 10,000,000 public warrants outstanding and 7,000,000 private placement warrants outstanding, or up to 19,400,000 total warrants if the over-allotment option is exercised in full and the sponsor purchases the additional private placement warrants. To the extent such warrants are exercised, a substantial number of additional shares of Class A common stock will be issued, diluting the ownership interests of public stockholders and potentially depressing the trading price of our common stock.
Because the warrants have an exercise price of $11.50 per share, investors purchasing units in this offering will not participate in the upside represented by the underlying shares on a fully diluted basis unless they acquire additional shares or exercise their warrants.
There is no guarantee that the public warrants will ever be "in the money."
For the public warrants to have value, the market price of our Class A common stock must exceed the $11.50 exercise price, taking into account time value and market conditions. There can be no assurance that our Class A common stock will ever trade above that level after our initial business combination.
If the market price of our Class A common stock does not exceed the exercise price during the life of the warrants, the warrants may expire worthless. Accordingly, the half warrant included in each unit may have little or no value.
We may redeem public warrants at an unfavorable time.
Once the public warrants become exercisable, we may redeem them for $0.01 per warrant if the market price of our Class A common stock meets the specified threshold. If we exercise our redemption right, holders may be forced to exercise their warrants, sell them at a time they would not otherwise choose, or accept the nominal redemption price.
Any such redemption could occur at a time when it is unfavorable for warrant holders to exercise or sell their warrants, including when the underlying Class A common stock price has only recently exceeded the threshold or when market volatility is elevated.
Warrants may be exercised, increasing the number of shares eligible for resale and depressing the price of our Class A common stock.
To the extent our outstanding warrants are exercised, additional shares of Class A common stock will be issued. Those shares may become eligible for resale, subject to applicable securities laws and contractual restrictions. A substantial number of shares entering the public market could adversely affect the market price of our Class A common stock.
The possibility of warrant exercises and subsequent resales may also make it more difficult for us to raise additional capital through future equity offerings on favorable terms.
A market for our securities may not develop or be sustained.
Although we have applied to list our securities on Nasdaq, an active trading market may not develop or, if developed, may not be sustained. The market price of our securities may be volatile and could be influenced by many factors, including those unrelated to our performance, such as market conditions for SPAC securities generally, interest rates, retail trading activity, analyst coverage, and perceptions of our target sector.
If an active market for our securities does not develop or is not sustained, investors may have limited liquidity and may be unable to sell their securities at desired prices or at all.
Nasdaq may delist our securities.
We intend to meet, on a pro forma basis, the minimum listing requirements of Nasdaq upon consummation of this offering. However, there can be no assurance that our securities will continue to be listed before or after our initial business combination. To continue listing our securities, we must maintain certain financial, distribution, share price, public float and corporate governance requirements.
If Nasdaq delists our securities, we could face reduced liquidity, diminished investor interest, limited analyst coverage, and potential impairments in our ability to complete an initial business combination or raise additional capital.
Risks Related to the Regulatory Environment
Increased SEC scrutiny of SPAC transactions may adversely affect our ability to complete our initial business combination.
The SEC has recently increased its focus on SPACs and de-SPAC transactions, including disclosure practices, accounting treatment of warrants and redeemable shares, the use of financial projections, conflicts of interest, underwriter liability and the applicability of the safe harbor for forward-looking statements. New guidance, comment trends, rulemaking or enforcement activity could delay our offering, affect the structure of our business combination, or increase our costs and litigation exposure.
In addition, evolving regulatory expectations may require us or a target business to provide additional disclosures, adopt more conservative assumptions, or incur additional expenses related to accounting, legal or governance matters, which could make a transaction more difficult or less attractive.
Changes in tax laws or regulations could impact the tax treatment of our units, warrants or business combination.
Changes in U.S. federal, state, local or non-U.S. tax laws, regulations, administrative guidance or judicial decisions could adversely affect the tax treatment of an investment in our securities or of our initial business combination. For example, changes affecting the characterization of redemptions, constructive dividend rules, withholding obligations, or the taxation of warrants could alter expected investor returns.
Because tax law is complex and subject to change, the tax consequences of investing in our securities may differ from current expectations, possibly in ways that are retroactive or difficult to predict.
If we are deemed to be an investment company under the Investment Company Act, burdensome compliance requirements could apply.
Because the funds held in the trust account may be invested in securities permitted under our governing documents, there is a risk that we could be deemed to be an investment company under the Investment Company Act of 1940 if we are viewed as primarily engaged in the business of investing, reinvesting or trading in securities. If we were deemed to be an investment company, we would be subject to extensive regulation that could require us to institute burdensome compliance requirements and could restrict our activities.
Compliance with the Investment Company Act would impose significant costs, divert management attention, and may make it impracticable for us to complete our initial business combination. If we are deemed to be an investment company and cannot comply, we may be forced to liquidate.
General Risk Factors
Market conditions and economic uncertainty may adversely affect our business combination prospects.
Global and domestic economic conditions can affect the availability of financing, valuation expectations, merger activity, and public market receptivity. Inflation, rising interest rates, recessionary concerns, market volatility, geopolitical tensions, public health developments and supply chain disruptions can all affect the willingness of potential targets to pursue a transaction and the ability of investors to support such a transaction.
Adverse market conditions may reduce the number of suitable targets, impair valuation support, increase redemption levels, and limit our ability to raise PIPE or debt financing.
Cybersecurity and data privacy risks could affect us and potential target businesses.
We and our prospective targets depend on information technology systems and third-party service providers. These systems may be vulnerable to damage, interruption or unauthorized access from cybersecurity incidents, including ransomware, phishing, malware, credential compromise and insider threats. A cybersecurity failure at a target business could materially impair its operations or value.
In addition, evolving data privacy and security laws may increase compliance costs and liability risk, particularly for SaaS and cloud businesses that process large volumes of sensitive data across jurisdictions.
Our target focus subjects us to industry-specific risks relating to SaaS and cloud technology businesses.
Enterprise SaaS and cloud technology businesses face intense competition, rapid technological change, shifting customer preferences, pricing pressure, evolving cybersecurity requirements, dependence on skilled technical personnel and the need for continuous product innovation. Many such businesses also rely on recurring revenue models that may be sensitive to customer retention, usage trends and contract renewals.
In addition, these businesses may exhibit customer concentration, dependence on key channel partners, reliance on third-party cloud infrastructure providers or complex implementation cycles. Valuations in the sector can also fluctuate sharply based on growth rates, margins, and public market comparables. If we complete a business combination with a target in this sector, these risks will become direct risks for our stockholders.
Cautionary Note Regarding Forward-Looking Statements
Some of the statements contained in this prospectus constitute forward-looking statements. 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, including with respect to our ability to identify and consummate an initial business combination, our focus on enterprise SaaS and cloud technology businesses, our estimated use of proceeds from this offering, our ability to maintain Nasdaq listing, and the performance and prospects of any prospective target business.
In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "intend," "continue," "seek," "target," "potential," "predict," or the negatives of these terms or similar expressions. These statements are based on current expectations and assumptions that are subject to risks, uncertainties and changes in circumstances.
These forward-looking statements are subject to numerous risks and uncertainties, including those described under "Risk Factors" and elsewhere in this prospectus. Actual results may differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including:
• our ability to select an appropriate target business or businesses;
• our ability to complete our initial business combination within the required time period;
• our success in retaining or recruiting officers, key employees or directors following our initial business combination;
• our ability to obtain financing to complete our initial business combination or to fund the operations and growth of a target business;
• the occurrence of any event, change or other circumstance that could give rise to the termination of negotiations or a definitive agreement relating to our initial business combination;
• the amount of redemptions by our public stockholders;
• competition for attractive target businesses;
• regulatory changes, including SEC guidance or rulemaking relating to SPACs or de-SPAC transactions;
• the effects of macroeconomic conditions and market volatility; and
• other risks and uncertainties described in this prospectus.
We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date made. Except as required by applicable law or regulation, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot assure you that future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur.
Use of Proceeds
We estimate that the net proceeds of this offering, together with the proceeds from the private placement warrants to be sold simultaneously with the closing of this offering, will be used as set forth in the table below.
Sources of Funds
Uses of Funds
The estimated offering expenses of $600,000 include legal, accounting, printing, filing, exchange listing and related expenses incurred in connection with this offering. Included in this amount is the SEC registration fee of approximately $23,475, calculated based on a maximum aggregate offering price of $230,000,000, which assumes full exercise of the underwriters' over-allotment option.
Of the proceeds received from this offering and the sale of the private placement warrants, $200,000,000, or $10.00 per public share, will be deposited into the trust account maintained by Continental Dunmore Financial. The funds held in the trust account will be invested only in U.S. government treasury obligations with a maturity of 185 days or less or in certain money market funds that invest solely in direct U.S. government treasury obligations.
The deferred underwriting commission of $7,000,000, equal to $0.35 per unit sold in this offering, will not be paid at the closing of this offering. Instead, it will be deposited into the trust account and will be payable to the underwriters only upon the consummation of our initial business combination. If we do not complete our initial business combination, the underwriters will forfeit the deferred underwriting commission.
The proceeds remaining outside the trust account, estimated to be approximately $5,900,000, will be available to us to pay for our working capital needs, including identifying and evaluating target businesses, conducting business, legal and accounting due diligence, travel and related expenses, negotiating a business combination, paying franchise and income taxes, and general corporate purposes.
Over-Allotment Adjustment
If the underwriters' over-allotment option is exercised in full, we will receive additional gross proceeds of $30,000,000 from the sale of 3,000,000 additional units. In that event:
• the upfront underwriting discount would increase by $600,000 to $4,600,000;
• the deferred underwriting commission would increase by $1,050,000 to $8,050,000;
• an additional $30,000,000 would be deposited into the trust account; and
• our sponsor would purchase an additional 900,000 private placement warrants for an additional $1,350,000.