SEC Form 10-Q filed by Pershing Square Tontine Holdings, Ltd.
$PSTH
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2021
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File number: 001-39396
(Exact name of registrant as specified in charter)
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(State or other jurisdiction of incorporation or organization) |
I.R.S. Employer Identification Number) |
(Address of principal executive offices)
(212 )
813-3700
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Trading Symbol(s) |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 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. | Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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| Emerging growth company |
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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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule ☒ No ☐
12b-2
of the Exchange Act). Yes As of November 200,000,000 shares of Class A common stock, par value $0.0001, and 100 shares of Class B common stock, par value $0.0001, issued and outstanding.
15
, 2021, there were PERSHING SQUARE TONTINE HOLDINGS, LTD.
QUARTERLY REPORT ON FORM
10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PERSHING SQUARE TONTINE HOLDINGS, LTD.
CONDENSED BALANCE SHEETS
September 30, 2021 |
December 31, 2020 |
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| (Unaudited) | (Audited) | |||||||
Assets |
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Current Assets: |
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Cash and cash equivalents |
$ | $ | ||||||
Prepaid expenses |
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Expense reimbursement receivable |
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Dividends receivable from operating account |
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Total Current Assets |
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Forward Purchase Agreement assets |
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Cash and marketable securities held in Trust Account |
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Total Assets |
$ |
$ |
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Liabilities and Stockholders’ Equity / (Deficit) |
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Current Liabilities: |
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Accrued expenses |
$ | $ | ||||||
Accrued offering costs |
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Income taxes payable |
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Total Current Liabilities |
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Forward Purchase Agreement liabilities |
– | |||||||
Outstanding Warrant liabilities |
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Deferred underwriting fees payable |
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Total Liabilities |
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Commitments |
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Class A Common Stock, $ |
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Stockholders’ Equity / (Deficit) |
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Preferred stock, $ |
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Class A Common Stock, $ |
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Class B Common Stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
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Total Stockholders’ Equity / (Deficit) |
( |
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Total Liabilities and Stockholders’ Equity / (Deficit) |
$ |
$ |
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The accompanying notes are an integral part of the unaudited condensed financial statements.
1
PERSHING SQUARE TONTINE HOLDINGS, LTD.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended |
Nine Months Ended |
Period From May 4, 2020 (Inception) Through |
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September 30, 2021 |
September 30, 2020 |
September 30, 2021 |
September 30, 2020 |
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Interest and dividends earned in operating account |
$ | $ | $ | $ | ||||||||||||
Legal fees |
( |
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Advisory fees |
( |
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Insurance expense |
( |
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Tender offer expense |
( |
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Printing fees |
( |
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Accounting and tax expense |
( |
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Franchise tax expense |
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Research expense |
( |
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Other expenses |
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Expense reimbursement |
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Income/(Loss) from operations |
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| Dividends earned on marketable securities held in Trust Account | ||||||||||||||||
| Realized gains on marketable securities held in Trust Account | ||||||||||||||||
| Change in unrealized gains on marketable securities held in Trust Account | ||||||||||||||||
Income earned in Trust Account |
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Transaction costs allocable to Outstanding Warrant liabilities |
( |
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| Change in fair value of Forward Purchase Agreement liabilities/assets | ( |
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Change in fair value of Outstanding Warrant liabilities |
( |
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Other income/(loss) |
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Income/(loss) before income tax benefit/(provision) |
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Income tax benefit/(provision) |
( |
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( |
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Net income/(loss) |
$ |
$ |
( |
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$ |
$ |
( |
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| Basic weighted-average shares outstanding, Class A Common Stock subject to possible redemption | ||||||||||||||||
| Basic net income per share, Class A Common Stock subject to possible redemption | $ | $ | $ | $ | ||||||||||||
| Diluted weighted-average shares outstanding, Class A Common Stock subject to possible redemption | ||||||||||||||||
| Diluted net income per share, Class A Common Stock subject to possible redemption | $ | $ | $ | $ | ||||||||||||
| Basic and diluted weighted-average shares outstanding, Non-redeemable Class B Common Stock |
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| Basic net income/(loss) per share, Non-redeemable Class B Common Stock |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| Diluted net income/(loss) per share, Non-redeemable Class B Common Stock |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
PERSHING SQUARE TONTINE HOLDINGS, LTD.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY / (DEFICIT)
| For the Three and Nine Months Ended September 30, 2021 |
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Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Total Stockholders’ Equity / (Deficit) | |||||||||||||||||||||||||
Class A |
Class B | |||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount | |||||||||||||||||||||||||
| Balance – December 31, 2020 (Audited) |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Measurement adjustment on redeemable common stock |
– | – | ( |
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| Net income |
– | – | ||||||||||||||||||||||||||
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| Balance – June 30, 2021 (Unaudited) |
$ |
$ |
$ |
$ |
( |
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$ |
( |
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| Measurement adjustment on redeemable common stock |
– | – | ( |
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| Net income |
– | – | ||||||||||||||||||||||||||
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| Balance – September 30, 2021 (Unaudited) |
$ |
$ |
$ |
$ |
( |
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$ |
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| For the Period From May 4, 2020 (Inception) Through September 30, 2020 |
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Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Total Stockholders’ Equity / (Deficit) | |||||||||||||||||||||||||
Class A |
Class B | |||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount | |||||||||||||||||||||||||
| Balance – May 4, 2020 (inception) |
$ | $ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of Class B Common Stock to Sponsor |
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| Net loss |
– | – | ( |
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| Balance – June 30, 2020 (Unaudited) |
$ |
$ |
$ |
$ |
( |
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$ |
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| Measurement adjustment on redeemable common stock |
– | – | ( |
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| Net loss |
– | – | ( |
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| Balance – September 30, 2020 (Unaudited) |
$ |
$ |
$ |
$ |
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$ |
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The accompanying notes are an integral part of the unaudited condensed financial statements.
3
PERSHING SQUARE TONTINE HOLDINGS, LTD.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended |
Period From May 4, 2020 (Inception) Through | |||||||
September 30, 2021 |
September 30, 2020 | |||||||
Cash flows from operating activities: |
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Net income/(loss) |
$ |
$ |
( |
) | ||||
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: |
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Transaction costs allocable to Outstanding Warrant liabilities |
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Change in fair value of Forward Purchase Agreement liabilities/assets |
( |
) |
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Change in fair value of Outstanding Warrant liabilities |
( |
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Dividends earned on marketable securities held in Trust Account |
( |
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( |
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Realized gains on marketable securities held in Trust Account |
( |
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Change in unrealized gains on marketable securities held in Trust Account |
( |
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( |
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Changes in operating assets and liabilities: |
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Dividends receivable from operating account |
( |
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( |
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Expense reimbursement receivable |
( |
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Prepaid expenses |
( |
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Accrued expenses |
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Income taxes payable |
( |
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Net cash provided by/(used in) operating activities |
( |
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Cash flows from investing activities: |
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Investment of cash in Trust Account |
( |
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Cash withdrawn from Trust Account to pay income taxes |
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Net cash provided by/(used in) investing activities |
( |
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Cash flows from financing activities: |
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Proceeds from sales of Units |
– |
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Proceeds from sales of Sponsor and Director Warrants |
– |
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Payment of underwriting fees |
– |
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Payment of offering costs |
( |
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( |
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Proceeds from promissory note – related party |
– |
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Repayment of promissory note – related party |
– |
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Proceeds from issuance of Class B Common Stock to Sponsor |
– |
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Net cash provided by financing activities |
( |
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Net change in cash |
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Cash and cash equivalents – beginning of period |
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Cash and cash equivalents – end of period |
$ |
$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for income taxes |
$ |
$ |
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Supplemental disclosure of non-cash activities: |
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Deferred underwriting fees payable |
$ |
$ |
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Change in value of common stock subject to possible redemption |
$ |
$ |
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The accompanying notes are an integral part of the unaudited condensed financial statements.
4
PERSHING SQUARE TONTINE HOLDINGS, LTD.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
Note 1—Description of Organization and Business Operations
Organization and General
Pershing Square Tontine Holdings, Ltd. (the “Company”) is a blank check company incorporated in Delaware on May 4, 2020. The Company was 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 (the “Initial Business Combination”). The Company is not limited to a particular industry or sector for purposes of consummating an Initial Business Combination. The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of September 30, 2021, the Company had not commenced any operations. All activity through September 30, 2021 relates to the Company’s formation, the initial public offering (“Initial Public Offering”) described below, identifying a target for an Initial Business Combination, and activities in connection with the proposed and subsequent cancellation of an Initial Business Combination with Vivendi S.E. (“Vivendi”), a corporation (société européenne) incorporated under the laws of France, in which the Company would purchase shares of Universal Music Group B.V. (“UMG”, majority owned subsidiary of Vivendi), a private company with limited liability organized under the laws of the Netherlands, as described further in Note 5. The Company generates
non-operating
income in the form of interest and dividends from the proceeds obtained in connection with the Initial Public Offering and private placements of Sponsor Warrants and Director Warrants (further discuss below), and upon any exercise under the Forward Purchase Agreement (as defined in Note 4) prior to the Initial Business Combination. The Company has selected December 31st
as its fiscal year-end.
The Company’s sponsor is Pershing Square TH Sponsor, LLC (“Sponsor”), a Delaware limited liability company organized on May 4, 2020. The Sponsor is an affiliate of Pershing Square Capital Management, L.P. (“PSCM”), a registered investment advisor under the Investment Advisers Act of 1940, as amended, with approximately $16.6 billion of assets under management as of September 30, 2021. Our Sponsor is wholly owned by Pershing Square Holdings, Ltd., a Guernsey company, Pershing Square, L.P., a Delaware limited partnership, and Pershing Square International, Ltd., a Cayman Islands exempted company, each of which is an investment fund managed by PSCM (the “Pershing Square Funds”).
The registration statement for the Company’s Initial Public Offering (the “Prospectus”) was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on July 21, 2020. On July 24, 2020, the Company consummated its Initial Public Offering of 200,000,000 units (“the Units” and, with respect to the shares of Class A Common Stock included in the Units sold, the “Public Shares”), at $20.00 per Unit, generating gross proceeds of $4,000,000,000 . Each Unit consisted of one share of Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), and 44,444,444 redeemable warrants will be distributed on a
one-ninth
of one redeemable warrant (the “Distributable Redeemable Warrants” or “Public Warrants”). In addition, the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”) provides that an aggregate of pro-rata
basis only to holders of record of the Class A Common Stock (however acquired) (the “Public Stockholder”) that are outstanding after the Company redeems any Public Shares whose holders have elected to redeem in connection with the Company’s Initial Business Combination (the “Distributable Tontine Redeemable Warrants” and, collectively with the Distributable Redeemable Warrants, the “Redeemable Warrants.”). The Distributable Tontine Redeemable Warrants will be distributed immediately before the closing of the Company’s Initial Business Combination. The number of Distributable Tontine Redeemable Warrants to be distributed in respect of each such share of unredeemed Class A Common Stock is contingent upon the aggregate number of shares of Class A Common Stock that are redeemed in connection with the Initial Business Combination. The right to receive Distributable Tontine Redeemable Warrants will remain attached to each such share of Class A Common Stock and will not be separately transferable, assignable or salable.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the private placements of the Sponsor Warrants for $65,000,000 as well as the Director Warrants for $2,837,500 . Both warrants are defined and further discussed in Note 4.
Total offering costs amounted to $94,623,187 , which consist of $35,000,000 of upfront underwriting fees, $56,250,000 of deferred underwriting fees (further discussed in Note 5) and $3,373,187 of other offering costs.
Upon the closing of the Initial Public Offering and the private placements, $4,000,000,000 ($20.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds of the private placements of the Sponsor Warrants and Director Warrants were placed in a trust account (the “Trust Account”), with the remaining proceeds placed in an operating account outside the Trust Account.
5
As of September 30, 2021, $32,662,874 was held as unrestricted cash outside the Trust Account to pay for ongoing expenses (such as business, legal and accounting due diligence costs related to prospective acquisitions, and continuing general and administrative expenses). The Trust Account is not liable for these expenses.
On September 11, 2020, the Company’s Units ceased trading, and the Company’s Class A Common Stock and the Company’s Distributable Redeemable Warrants commenced trading separately on the New York Stock Exchange. In the separation, Unit owners received the number of shares of Class A Common Stock and Distributable Redeemable Warrants underlying their Units, with the right to receive any Distributable Tontine Redeemable Warrants remaining attached to such shares of Class A Common Stock.
The Trust Account
The Trust Account is located in the United States with Continental Stock Transfer & Trust Company acting as trustee. The proceeds held in the Trust Account are invested solely in U.S. Treasury obligations (which are United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act) having a maturity of one hundred eighty (180) days or less or in money market funds that meet certain conditions under Rule 4,002,662,000 , maturing in October and November 2021.
2a-7
promulgated under the Investment Company Act of 1940, as amended. As of September 30, 2021, the Company holds U.S. Treasury bills in the Trust Account with a face value of $The proceeds, other than withdrawal of interest or dividend income to pay taxes owed in respect of the income derived from the Trust Account, will remain in the Trust Account (and will not be released) until the earlier of: (i) the consummation of the Initial Business Combination or (ii) the redemption of any shares of Class A Common Stock included in the Units sold in the Initial Public Offering that have been properly tendered in connection with a stockholder vote to amend the Company’s Certificate of Incorporation (A) to modify the substance or timing of the Company’s obligation to allow redemptions in connection with its Initial Business Combination, (B) to modify the substance or timing of the Company’s obligation to redeem 100 % of the Public Shares if it does not complete its Initial Business Combination by July 24, 2022 (or January 24, 2023 if it has executed a letter of intent, agreement in principle or definitive agreement for its Initial Business Combination by July 24, 2022 but has not completed its Initial Business Combination by such date) (the “Combination Period”), or (C) with respect to any other provision relating to stockholders’ right for
pre-Initial
Business Combination activities; and (iii) the redemption of 100% of the Public Shares if the Company is unable to complete an Initial Business Combination within the Combination Period, subject to the requirements of law. The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s Public Stockholders.
Initial Business Combination
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Sponsor Warrants and Director Warrants, although substantially all of these proceeds are intended to be generally applied toward consummating an Initial Business Combination. The Initial Business Combination must occur with one or more target businesses that together have an aggregate fair market value of at least 80 % of the assets held in the Trust Account (excluding the amount of deferred underwriting fees further discussed in Note 5) at the time of the agreement to enter into the Initial Business Combination. The Company will only complete an Initial Business Combination if the post-combination business owns or acquires 50 % or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Furthermore, there is no assurance that the Company will be able to successfully effect an Initial Business Combination.
The Company will provide its Public Stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of an Initial Business Combination either (i) in connection with a stockholder meeting called to approve the business combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a proposed business combination or conduct a tender offer will be made by the Company, solely in its discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require the Company to seek stockholder approval under applicable law or stock exchange listing requirements. The Public Stockholders will be entitled to redeem their Public Shares for cash equal to their
pro-rata
share of the amount then on deposit in the Trust Account as of five business days prior to the consummation of the Initial Business Combination, including any interest and dividend income earned on the funds held in the Trust Account and not previously released to the Company to pay taxes owed in respect of such income derived from the Trust Account (the “Redemption Value”). The Redemption Value to be distributed to Public Stockholders who properly redeem their Public Shares will not be reduced by the deferred underwriting fees (further discussed in Note 5) that the Company will pay to the underwriters. There will be no redemption rights upon the completion of an Initial Business Combination with respect to the Company’s Class B Common Stock (as defined below) or Warrants (as defined in Note 3). 6
The Company will be able to proceed with an Initial Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of an Initial Business Combination. If the Company seeks stockholder approval, a majority of the shares voted must be voted in favor of the Initial Business Combination. If a stockholder vote is not required and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the SEC and file tender offer documents with the SEC prior to completing an Initial Business Combination. If, however, stockholder approval of the transaction is required, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will conduct the redemptions in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Each Public Stockholder may elect to redeem its Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks stockholder approval in connection with an Initial Business Combination, the Company’s Sponsor, Forward Purchasers (as defined in Note 4), directors and officers have agreed to vote their Class B Common Stock as well as any Public Shares and Forward Purchase Securities (as defined in Note 4) held by them in favor of approving the Initial Business Combination.
If the Company seeks stockholder approval of an Initial Business Combination and does not conduct redemptions pursuant to the tender offer rules, the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934), will be restricted from redeeming its shares with respect to more than an aggregate of 15 % of the Public Shares, unless our board of directors determines, in its sole discretion, to waive or amend such limit with respect to a particular stockholder or “group.”
Pursuant to the Company’s Certificate of Incorporation, if the Company is unable to complete the Initial Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than 10 business days thereafter, redeem the Public Shares, at a per share price, payable in cash, equal to the Redemption Value (less $100,000 to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. The holders of the Company’s Class B common stock, (“Class B Common Stock”) will not be issued any shares of Class A Common Stock in respect of their shares of Class B Common Stock if the Company fails to complete its Initial Business Combination within the Combination Period, and will have no rights to liquidating distributions from the Trust Account in respect of such shares, although these Class B common stockholders will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares that they hold (however acquired).
In the event of a liquidation, dissolution or winding up of the Company after an Initial Business Combination, the Company’s stockholders are entitled to share ratably in all remaining assets available for distribution to them after payment of liabilities and after a provision is made for each class of stock, if any, having preference over the common stock. The Company’s stockholders have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the common stock.
Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. The interim financial information provided is unaudited, but includes all adjustments which management considers necessary for the fair presentation of the results for these periods. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period or for any future periods and should be read in conjunction with the Company’s restated Annual Report on Form 10-K/A for the year ended December 31, 2020 as filed with the SEC on May 24, 2021, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2020 is derived from the audited financial statements presented in the Company’s restated Annual Report on Form
10-K/A
for the year ended December 31, 2020. Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to
non-emerging
growth companies but any such election to opt out is 7
irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with those of another public company difficult or impossible if such other public company is (i) not an emerging growth company or (ii) is an emerging growth company that has opted out of using the extended transition period, due to the potential differences in accounting standards used.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalent accounts in financial institutions, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000 .
The Company is not exposed to significant risks on such accounts and has not experienced any losses.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying unaudited condensed balance sheets, primarily due to their short-term nature.
Use of Estimates
The preparation of the unaudited condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. At September 30, 2021, cash and cash equivalents is comprised of cash in bank of $88,913 and a money market fund balance of $32,573,961 which is invested solely in U.S. Treasury obligations. At December 31, 2020, cash and cash equivalents is comprised of cash in bank of $867 and a money market fund balance of $25,347,420 which is invested solely in U.S. Treasury obligations.
Marketable Securities Held in Trust Account
As of September 30, 2021 and December 31, 2020, substantially all of the assets held in the Trust Account were held in U.S. Treasury obligations.
From its inception to September 30, 2021, the Company has withdrawn $506,060 of income earned on the Trust Account to pay for its income tax obligations, of which $72,290 was withdrawn during the three months ended September 30, 2021.
Outstanding Warrants Liabilities and FPA Liabilities/Assets
The Company accounts for the Public Warrants, the Sponsor Warrants and Director Warrants (“Private Placement Warrants”, collectively with the Public Warrants, the “Outstanding Warrants”) and the Forward Purchase Agreement and Director Forward Purchase Agreement (collectively, the “FPA”) in accordance with the guidance contained in ASC
815-40,
under which the Outstanding Warrants and FPA do not meet the criteria for equity treatment and must be recorded as derivative liabilities or assets, (the liability related to such Outstanding Warrants, the “Outstanding Warrant liabilities”). Accordingly, the Company classifies the Outstanding Warrants and FPA as liabilities or assets with changes in fair value reflected on the condensed statement of operations at each reporting period. The fair value of the Public Warrants was initially measured using a modified Black-Scholes pricing model and subsequently measured at the closing quoted market price. The Private Placement Warrants and FPA are valued using a modified Black-Scholes pricing model. See Note 7 for further details. 8
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of ASC and SEC Staff Accounting Bulletin Topic 5A—“Expenses of Offering.” Offering costs consist of underwriting, legal, regulatory filing, accounting, and other costs incurred through the balance sheet date that are directly related to the Initial Public Offering. The offering costs relate to the Class A Common Stock and Distributable Redeemable Warrants which comprised the Unit sold as part of the Initial Public Offering. These costs were allocated on a relative fair value basis, with the portion of offering costs allocated to the Distributable Redeemable Warrants being charged to expense, and the portion of offering costs assigned to the Public Shares being allocated to stockholders’ equity upon the completion of the Initial Public Offering. Public Stockholders who properly redeem their Public Shares (as described in Note 1) in connection with the Initial Business Combination will not bear any of the offering costs. Total offering costs amounted to $94,623,187 , which consist of $35,000,000 of upfront underwriting fees, $56,250,000 of deferred underwriting fees (further discussed in Note 5) and $3,373,187 of other offering costs, of which $912,625 was charged to expense and $93,710,562 was charged to stockholders’ equity.
340-10-S99-1
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A Common Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” The Company’s conditionally redeemable Class A Common Stock features certain redemption rights that are considered to be outside of its control and subject to the occurrence of uncertain future events. Accordingly, at September 30, 2021 and December 31, 2020, 200,000,000
Net Income (Loss) per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. The Company applies the treasury stock method to the Public Warrants sold in the Initial Public Offering, the private placement of the Sponsor and Director Warrants and the Forward Purchase Agreement in the calculation of diluted income (loss) per share. The ability for the Outstanding Warrants to be exercised is contingent upon the occurrence of future events that have not been met as of the end of the reporting period. As a result, the Company has not considered the effect of the Outstanding Warrants on net income (loss) per common share for the periods presented.
The Company’s condensed statements of operations include a presentation of income (loss) per share for common shares in a manner similar to the
two-class
method of calculating income (loss) per share. Net income (loss) per common share, basic and diluted, for Class A Common Stock subject to possible redemption is calculated by dividing the allocable income earned on the Trust Account, net of applicable income taxes, by the weighted-average number of Class A Common Stock subject to possible redemption outstanding for the period. Net income (loss) per share, basic and diluted, for Class B 100 shares owned by the Sponsor as these shares do not have any redemption features and do not participate in the income (loss) earned on the Trust Account.
non-redeemable
common stock is calculated by dividing the net income (loss), adjusted for income (loss) attributable to Class A Common Stock subject to possible redemption, by the weighted-average number of Class B non-redeemable
common stock outstanding for the period. Class B non-redeemable
common stock includes the 9
The following tables reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
Three Months Ended | ||||||||||||||||
September 30, 2021 |
September 30, 2020 | |||||||||||||||
(Basic) |
(Diluted) |
(Basic) |
(Diluted) | |||||||||||||
Class A Common Stock Subject to Possible Redemption |
||||||||||||||||
Numerator: Earnings allocable to Class A Common Stock subject to possible redemption |
||||||||||||||||
Income earned in Trust Account |
$ | $ | $ | $ | ||||||||||||
Income taxes |
( |
) | ( |
) | ||||||||||||
Net earnings |
$ | $ | $ | $ | ||||||||||||
Denominator: Weighted-average Class A Common Stock subject to possible redemption |
||||||||||||||||
Weighted-average shares outstanding, Class A Common Stock subject to possible redemption |
||||||||||||||||
Net income per share, Class A Common Stock subject to possible redemption |
$ |
$ |
$ |
$ |
||||||||||||
Non-Redeemable Class B Common Stock |
||||||||||||||||
Numerator: Net income/(loss) minus net earnings and change in fair value of FPA assets/liabilities |
||||||||||||||||
Net income/(loss) |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
Net earnings allocable to Class A Common Stock subject to possible redemption |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Change in fair value of FPA assets/liabilities |
– | ( |
) | – | – | |||||||||||
Non-redeemable net income/(loss) |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||
Denominator: Weighted-average Non-redeemable Class B Common Stock |
||||||||||||||||
Weighted-average shares outstanding, Non-redeemable Class B Common Stock |
||||||||||||||||
Net income/(loss) per share, Non-redeemable Class B Common Stock |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||
Nine Months Ended September 30, 2021 |
Period From May 4, 2020 (Inception) through September 30, 2020 | |||||||||||||||
(Basic) |
(Diluted) |
(Basic) |
(Diluted) | |||||||||||||
Class A Common Stock Subject to Possible Redemption |
||||||||||||||||
Numerator: Earnings allocable to Class A Common Stock subject to possible redemption |
||||||||||||||||
Income earned in Trust Account |
$ | $ | $ | $ | ||||||||||||
Income taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net earnings |
$ | $ | $ | $ | ||||||||||||
Denominator: Weighted-average Class A Common Stock subject to possible redemption |
||||||||||||||||
Weighted-average shares outstanding, Class A Common Stock subject to possible redemption |
||||||||||||||||
Net income per share, Class A Common Stock subject to possible redemption |
$ |
$ |
$ |
$ |
||||||||||||
Non-Redeemable Class B Common Stock |
||||||||||||||||
Numerator: Net income/(loss) minus net earnings and change in fair value of FPA assets/liabilities |
||||||||||||||||
Net income/(loss) |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
Net earnings allocable to Class A Common Stock subject to possible redemption |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Change in fair value of FPA assets/liabilities |
– | ( |
) | – | – | |||||||||||
Non-redeemable net income/(loss) |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||
Denominator: Weighted-average Non-redeemable Class B Common Stock |
||||||||||||||||
Weighted-average shares outstanding, Non-redeemable Class B Common Stock |
||||||||||||||||
Net income/(loss) per share, Non-redeemable Class B Common Stock |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||
10
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on the Company’s unaudited condensed financial statements.
Risk and Uncertainties
Management continues to evaluate the impact of the The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
COVID-19
pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements.Note 3— Initial Public Offering
Pursuant to the Initial Public Offering on July 24, 2020, the Company sold 200,000,000 units at a price of $20.00 per Unit. Each Unit consisted of one share of the Company’s Class A Common Stock, and one-ninth of one Distributable Redeemable Warrants. In addition, the Company’s Certificate of Incorporation provides that an aggregate of 44,444,444 Distributable Tontine Redeemable Warrants will be distributed on a one share of Class A Common Stock at a price of $23.00 per share, subject to adjustment (see Note 6).
pro-rata
basis to the Public Stockholders who do not redeem their Public Shares in connection with the Initial Business Combination, the distribution of which will occur immediately after such redemptions and immediately prior to the closing of the Initial Business Combination. Each whole Redeemable Warrant or Forward Purchase Warrant (as defined in Note 4 and, collectively with the Redeemable Warrants, the “Warrants”) entitles the holder to purchase Note 4—Related Party Transactions
Sponsor Shares
On May 7, 2020, the Sponsor acquired 100 shares of Class B Common Stock (the “Sponsor Shares”) for an aggregate purchase price of $25,000 , or $250.00 per share. The Sponsor Shares are identical to the Class A Common Stock included in the Units sold in the Initial Public Offering except that: (i) the Sponsor Shares have, in the aggregate, the voting power of 20.0 % of the issued and outstanding common stock of the Company immediately following the Initial Public Offering, while the shares of Class A Common Stock have, in the aggregate, 80.0 % of the voting power of the issued and outstanding common stock of the Company immediately following the Initial Public Offering; (ii) the Sponsor Shares automatically convert into shares of Class A Common Stock at the time of the Company’s Initial Business Combination on a basis, subject to adjustments and certain transfer restrictions; and (iii) the holders of the Sponsor Shares have the right to elect all directors of the Company prior to the Initial Business Combination.
one-for-one
The Company’s Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of their Sponsor Shares until the earlier to occur of (A) 180 days after the completion of the Initial Business Combination or (B) subsequent to the Initial Business Combination the date on which the Company completes a liquidation, merger, stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Sponsor Warrants
Concurrently with the Initial Public Offering, the Sponsor purchased the Sponsor Warrants for an aggregate purchase price of $65,000,000 in a private placement. The fair market value of the Sponsor Warrants as of the date of the Initial Public Offering was determined by the Company to be $65,000,000 in consultation with a third-party, nationally recognized valuation firm. The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell the Sponsor Warrants until three years after the date of the Initial Business Combination, and will only then be exercisable for that number of shares constituting 5.95 % of the common shares of the post-combination business on a fully diluted basis as of the time immediately following the Initial Business Combination, at an exercise price equal to $24.00 per common share of the post-combination business. The Sponsor Warrants will have a term of 10 years from the consummation of the Initial Business Combination. The Sponsor Warrants are not redeemable by the Company and, will be exercisable, in whole or in part, on a cash or cashless basis.
Of the proceeds from the sale of the Sponsor Warrants, $35,000,000 was deposited in the Trust Account (as described in Note 1) such that $4,000,000,000 was placed in the Trust Account, and the remainder of the proceeds of the Sponsor Warrants and the full proceeds of the Director Warrants (as defined below) are held by the Company outside the Trust Account and will be used to pay for expenses in connection with the Initial Public Offering and Initial Business Combination. If the Initial Business Combination is not completed within the Combination Period, the proceeds from the sale of the Sponsor Warrants held in the Trust Account will be used to fund the redemption of Public Shares (subject to the requirements of applicable law).
11
Director Warrants
Concurrently with the Initial Public Offering, each of the Company’s directors, other than Mr. Ackman, purchased an aggregate amount of $2,837,500 of director warrants (“Director Warrants”) in private placements. The directors who have purchased Director Warrants have agreed, subject to limited exceptions, not to transfer, assign or sell such Director Warrants until three years after the completion of the Initial Business Combination. Each Director Warrant will be exercisable for a percentage of the common shares of the post-combination business calculated as the purchase price of such Director Warrant divided by the purchase price of the Sponsor Warrants, multiplied by 5.95 %, reflecting fair market value as determined with respect to the Sponsor Warrants. The aggregate Director Warrants will be exercisable for approximately 0.26 % of the common shares of the post-combination business on a fully diluted basis. The exercise price per common share of the post-combination business will be $24.00 . The Director Warrants will have a term of 10 years from the consummation of the Initial Business Combination. The Director Warrants are not redeemable by the Company and will be exercisable, in whole or in part, on a cash or cashless basis.
The Sponsor Warrants and the Director Warrants will be exercisable, in the aggregate, for that number of shares equal to approximately 6.21 % of the shares of the post-combination business on a fully diluted basis.
Forward Purchase Agreement
On June 21, 2020, the Pershing Square Funds (each a “Forward Purchaser” and collectively the “Forward Purchasers”) entered into a Forward Purchase Agreement (the “Forward Purchase Agreement”) with the Company, regarding the purchase of units (the “Forward Purchase Units”), each of which has a purchase price of $20.00 and consists of one share of Class A Common Stock (the “Forward Purchase Shares”), and one-third of one warrant (the “Forward Purchase Warrants”). Pursuant to the Forward Purchase Agreement, the Forward Purchasers agreed to purchase an aggregate amount of $1,000,000,000 of Forward Purchase Units (the “Committed Forward Purchase Units”), or 50,000,000 such units. The purchase of the Committed Forward Purchase Units will take place in one or more private placements in such amounts and at such time or times as the Forward Purchasers determine, with the full amount to have been purchased no later than simultaneously with the closing of the Initial Business Combination. The Forward Purchasers are not permitted to transfer the right to purchase the Committed Forward Purchase Units.
The Forward Purchase Agreement also provides that the Forward Purchasers may elect to purchase up to an additional aggregate amount of $2,000,000,000 of Forward Purchase Units (the “Additional Forward Purchase Units”), or up to 100,000,000 such units, in whole or in part, in one or more private placements in such amounts and at such time or times as the Forward Purchasers determine, but no later than simultaneously with the closing of the Initial Business Combination. The Company and the Forward Purchasers may determine, by mutual agreement, to increase the number of Additional Forward Purchase Units at any time prior to the Initial Business Combination. The Forward Purchasers may transfer the right to purchase the Additional Forward Purchase Units, in whole or in part, to any entity that is managed by Pershing Square Capital Management, L.P. (the “Affiliate Transferees”), but not to any third party. The Forward Purchasers’ obligation or right, as applicable, to purchase the Forward Purchase Units will be allocated among the Forward Purchasers from time to time.
The Forward Purchase Shares, the Forward Purchase Warrants and the shares of Class A Common Stock underlying the Forward Purchase Warrants (collectively, the “Forward Purchase Securities”) have terms identical to those of the shares of Class A Common Stock and the Redeemable Warrants included in the Units sold in the Initial Public Offering, except, (i) the Forward Purchase Securities will be subject to transfer restrictions and will have certain rights as long as they are held by the Forward Purchaser or its permitted transferees; (ii) the Forward Purchase Warrants will not have the right to vote on any amendments to the warrant agreement prior to the Initial Business Combination, except with respect to certain provisions relating solely to restrictions on the transfer of the Forward Purchase Securities; and (iii) the Forward Purchase Shares will not be entitled to receive any Distributable Tontine Redeemable Warrants, will not have any redemption rights in connection with the Initial Business Combination or in connection with certain amendments to the Certificate of Incorporation, and will not have any right to liquidating distributions from the Trust Account in the event that the Company fails to complete its Initial Business Combination within the Combination Period. Such Forward Purchase Securities will be subject to certain transfer restrictions and have certain registration rights.
Director Forward Purchase Agreement
On July 21, 2020, the Company entered into a Director Forward Purchase Agreement with certain of its independent directors (the “Director Forward Purchasers”). The Director Forward Purchasers agreed to purchase, in one or more private placements in such amounts and at such time or times as each Director Forward Purchasers determines, but no later than simultaneously with the closing of the Initial Business Combination, an aggregate amount of $6,000,000 of Forward Purchase Units. The Director Forward Purchasers may not transfer their obligation to purchase such Forward Purchase Units, other than to the Sponsor, its affiliates and to other directors. Such Forward Purchase Securities will be subject to certain transfer restrictions and have certain registration rights.
12
Registration Rights
On July 21, 2020, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the Sponsor, the Forward Purchasers and the independent directors of the Company, pursuant to which the Company is required to use commercially reasonable efforts to file within 120 days of the Initial Business Combination, and use best efforts to cause such registration statement to be declared effective as soon as practicable (but in no event later than 60 days) thereafter, providing for the resale, under Rule 415 of the Securities Act, of (i) the Sponsor Warrants, (ii) the Director Warrants, (iii) the shares issuable upon the exercise of the Sponsor Warrants or Director Warrants, (iv) the Forward Purchase Securities, (v) the shares of Class A Common Stock issuable upon conversion of the Sponsor’s Class B Common Stock and (vi) any other shares or warrants of the Company that the parties to the Registration Rights Agreement have purchased on the open market, subject to certain conditions as provided in the Registration Rights Agreement. The parties to the Registration Rights Agreement, and their permitted transferees, will be entitled to make up to 10 demands that the Company register the foregoing securities, and will have certain “piggyback rights” with respect to other registration statements filed by the Company. The post-combination business will bear the expenses in connection with the filing of any such registration statements.
Related Party Loans
The Sponsor agreed to loan the Company up to $1,500,000 to cover expenses related to the Initial Public Offering, general corporate purposes prior to the Initial Business Combination and potential transaction costs in connection with the Initial Business Combination, pursuant to a promissory note (the “Note”). The Note bears interest on a monthly basis at the Applicable Federal Rate, and is payable no later than the end of the Combination Period. The total borrowings under the Note in the amount of $1,121,320 (inclusive of $200 interest due to the Sponsor) were repaid upon the consummation of the Initial Public Offering on July 24, 2020. As of September 30, 2021 and December 31, 2020, $378,880 was left under the Note to be drawn down, however there were no
Assignment Agreement
On July 18, 2021, the Company entered into an Assignment Agreement with Pershing Square Holdings, Ltd. and certain of its affiliates, pursuant to which the Company assigned its rights under the Share Purchase Agreement (as defined and further discussed in Note 5) to the Assignees. The Assignees have also agreed to assume the indemnity agreement between the Company and Vivendi, and to reimburse the Company for the expenses incurred in connection with the Proposed IBC (as defined and further discussed in Note 5), which totaled $25,065,931 as reflected in the condensed statements of operations. As of September 30, 2021, $91,352 remained outstanding to be received by the Company and was fully settled during October 2021.
Note 5—Commitments and Contingencies
Proposed Initial Business Combination
Below is a description of the proposed Initial Business Combination, which was ultimately not consummated.
On June 20, 2021, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Vivendi to purchase a number of ordinary shares, par value €10 per share, representing approximately 10 % of the share capital and voting rights, on a fully diluted basis, of UMG (the “UMG Shares”) for approximately $4 billion (the “Share Purchase”), with the expectation that the Company would distribute the UMG Shares to its Public Stockholders (the “Distribution” and together with the Share Purchase, the “Proposed IBC”). The Company expected that the Share Purchase would be consummated in the third quarter of 2021 and the Distribution would occur in November or December 2021.
In connection with the Proposed IBC, the Company and Vivendi also entered into an indemnification agreement pursuant to which the Company agreed to indemnify Vivendi and certain of its related parties for certain potential liabilities in connection with the Company’s redemption tender offer, the warrant exchange offer and the Distribution (each as further described below).
Also on June 20, 2021, the Company, the Sponsor, the Pershing Square Funds and the Company’s independent directors entered into the Pershing Entities Letter Agreement, pursuant to which:
| • | The Company and the Pershing Square Funds agreed to amend and restate the Forward Purchase Agreement concurrently with the closing of the Proposed IBC, pursuant to which the Forward Purchasers would exercise their right to purchase an aggregate amount of $ |
| • | The Company and the Sponsor agreed to amend the Sponsor Warrants concurrently with the closing of the Proposed |
13
| IBC, such that the Sponsor Warrants would not be exercised or otherwise participate in the Proposed IBC. Instead, they would remain in place, but the exercise price would be adjusted to equal |
| • | The Company and its independent directors agreed that the Director Warrants would not be exercised in connection with the Proposed IBC, and would be amended concurrently with the closing of the Proposed IBC. The result of such amendment would have been that, (i) the holders of the Director Warrants would receive shares in the Company in exchange for approximately |
The Company further announced that it expected to undertake a 1:4 reverse stock split following the issuance of the Distributable Tontine Redeemable Warrants, all warrants in respect of the Forward Purchase Agreement and Director Forward Purchase Agreements and the Distribution so that its net asset value (“NAV”) would be approximately $22 per share.
Pursuant
to
the Proposed IBC, following the Distribution, the Company would have continued to exist and it would not have disappeared into UMG nor would it have been liquidated. The Company continuing to exist is referred to herein as “RemainCo”. RemainCo would have been the same corporate entity and it would have continued to be named Pershing Square Tontine Holdings, Ltd. The Public Stockholders would have continued to own shares in RemainCo, and it was intended that RemainCo would pursue a traditional business combination with an operating business (RemainCo’s “Future Business Combination”). On July 8, 2021, the Company launched (i) a redemption tender offer which was intended to provide Public Stockholders with the opportunity to exercise their right to redeem their shares of Class A Common Stock in connection with the Proposed IBC and (ii) a warrant exchange offer which provided holders of the Company’s currently outstanding Distributable Redeemable Warrants the opportunity to exchange those warrants for shares of Class A Common Stock at a ratio of 0.2650 shares per warrant.
On July 19, 2021, the Company announced that its board of directors unanimously determined not to proceed with the Proposed IBC and the Company had agreed to assign its rights and obligations under the Share Purchase Agreement with Vivendi to Pershing Square Holdings, Ltd. and certain of its affiliates. The Assignees agreed to purchase or cause to be purchased at least 5 % of the share capital of UMG on the terms and subject to the conditions of the Share Purchase Agreement and Vivendi acknowledged that if the Assignees purchased at least 5 % of the share capital of UMG, the Share Purchase Agreement would be of no further force with respect to remaining UMG shares to be purchased under the Share Purchase Agreement. In addition, the Assignees, severally in accordance with their obligations to purchase UMG shares, agreed to assume and reimburse the Company for expenses incurred to date by the Company in connection with transactions related to the Proposed IBC, which totaled $25,065,931 . The Assignees also assumed, severally in accordance with their obligations to purchase UMG shares, the Company’s obligations under the indemnification agreement, between the Company and Vivendi.
out-of-pocket
On July 21, 2021, the Company terminated its redemption tender offer and warrant exchange offer, and no shares were redeemed from the Company. As a result of the termination of these offers and the cancellation of the Proposed IBC, the Pershing Entities Letter Agreement did not come into effect and there have been no changes to the instruments discussed as exhibits to such letter agreement. The FPA, Sponsor Warrants and Director Warrants remain as initially issued as of June 21, 2020 and July 21, 2020, respectively.
Given the events of July 19 and July 21, the Company is seeking an alternative initial business combination.
On August 10, 2021, the Assignees completed an initial closing under the Share Purchase Agreement acquiring 128,555,017 UMG shares, or approximately 7.1 % of the share capital of UMG, for an aggregate purchase price of $2.8 billion, as a result of which the Company was released from its obligations under the Share Purchase Agreement and the indemnification agreement described above (which indemnity was allocated without the participation of the Company, among the Pershing Square Funds). Also on August 10, 2021, the Company acknowledged and stepped out of the registration rights agreement, transferring it to the Assignees, which now provides, among other things, the Assignees the ability to register UMG in a U.S. initial public offering no earlier than 2023 rather than providing for the Distribution that the Company envisioned in the Proposed IBC at the end of this calendar year.
This Quarterly Report on the
10-Q
reflects the position of the Company as of September 30, 2021.Underwriting Agreement
The underwriters are entitled to a deferred fee of $0.28 per Unit, or $56,250,000 in the aggregate. The aggregate deferred underwriting fees include (i) the deferral of any underwriting fees, other than the retail selling concessions, in excess of $30,000,000 (a
14
deferral of $12,500,000 ), plus (ii) a 2.0 % rate applied to the gross offering proceeds, subject to a $56,250,000 cap on the amount of such aggregate deferred underwriting fees. If the amount of proceeds from the Trust Account paid in connection with the redemption rights of Public Stockholders, together with the amount of any capital raised in private placements in connection with the Initial Business Combination from investors other than Sponsor or its affiliates (the “Net Redemptions”), results in the Company having less than $2,000,000,000 of cash available upon consummation of the Initial Business Combination, only 25.0 % of the aggregate deferred underwriting fees will be payable. If such amount of cash available is $2,000,000,000 or greater, 50% of the aggregate deferred underwriting fees will be payable, and the remaining 50% of the aggregate deferred underwriting fees will be subject to a The deferred underwriting fees will be waived by the underwriters solely in the event that the Company does not complete the Initial Business Combination, subject to the terms of the underwriting agreement entered into by the Company and the underwriters on July 21, 2020.
pro-rata
reduction based on the amount of Net Redemptions as a percentage of the total public proceeds of the Initial Public Offering.Litigation
On August 17, 2021, a purported stockholder of the Company filed a putative derivative lawsuit in U.S. Federal Court in New York, (S.D.N.Y), against the Company, its independent directors and certain affiliates of the Company’s Sponsor alleging that the Company was operating as an illegal investment company, because among other claims, the Company had invested the proceeds from its initial public offering in securities (in the Company’s case, short-term U.S. Treasury securities and money market funds that own short-term U.S. Treasury securities). The lawsuit also claims that, despite the Company’s stated purpose to search for and complete an initial business combination, the Company has instead been engaged primarily in the business of investing in securities in violation of the Investment Company Act of 1940. An amended complaint filed on October 8, 2021 added direct claims related to the same core allegations. The Company believes that this lawsuit is meritless and intends to defend against these claims vigorously. Nevertheless, as the Company has previously disclosed, it may be unlikely that the lawsuit, even if meritless, can finally be resolved in the short-term, which may make it more difficult for the Company to complete an initial business combination in a timely manner.
Assad v. Pershing Square Tontine Holdings, Ltd., et al,
The Company has also received requests for books and records from certain purported stockholders pursuant to Section 220 of the Delaware General Corporation Law and has provided or agreed to provide certain information in response to those requests.
Note 6—Stockholders’ Equity
Common Stock
The authorized common stock of the Company includes up to 3,000,000,000 shares of Class A Common Stock with a par value of $0.0001 per share, and 20,000,000 shares of Class B Common Stock with a par value of $0.0001 per share. If the Company enters into an Initial Business Combination, it may (depending on the terms of such Initial Business Combination) be required to increase the number of shares of Class A Common Stock which the Company is authorized to issue at the same time the Company’s stockholders vote on the Initial Business Combination to the extent the Company seeks stockholder approval in connection with the Initial Business Combination. The shares of Class A Common Stock have, in the aggregate, 80.0 % of the voting power of the issued and outstanding common stock of the Company as of the time immediately following the Initial Public Offering and the shares of Class B Common Stock have, in the aggregate, the voting power of 20.0 % of the issued and outstanding common stock of the Company. At September 30, 2021 and December 31, 2020, there were 200,000,000 100
Preferred Stock
The Company is authorized to issue 1,000,000 no
Warrants
Each whole Warrant entitles the registered holder to purchase one whole share of Class A Common Stock at a price of $23.00 per share, subject to adjustment, at any time commencing on the later of 12 months from the closing of the Initial Public Offering or 30 days after the completion of the Initial Business Combination. The Warrants will expire five years after the completion of the Initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
No fractional shares of Class A Common Stock will be issued upon exercise of the Warrants. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, the Company will round down to the nearest whole number of the number of shares
15
of Class A Common Stock to be issued to the holder. If, at the time of redemption, the Warrants are exercisable for a security other than the Class A Common Stock, pursuant to the warrant agreement (for instance, if the Company is not the surviving company in the Initial Business Combination), the Warrants may be exercised for such security. At such time as the Warrants become exercisable for a security other than the Class A Common Stock, the Company (or surviving company) will use its commercially reasonable efforts to register under the Securities Act the security issuable upon the exercise of the Warrants.
The Company will not be obligated to deliver any shares of Class A Common Stock pursuant to the exercise of a Warrant and will have no obligation to settle such Warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A Common Stock underlying the Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations described below with respect to registration. No Warrant will be exercisable and the Company will not be obligated to issue shares of Class A Common Stock upon exercise of a Warrant unless the Class A Common Stock issuable upon such Warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Warrant. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a Warrant, the holder of such warrant will not be entitled to exercise such Warrant and such Warrant may have no value and expire worthless. In no event will the Company be required to net cash settle any Warrant. In the event that a registration statement is not effective for the exercised Warrants, the purchaser of a Unit containing such Warrant will have paid the full purchase price for the Unit solely for the share of Class A Common Stock underlying such Unit.
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of the Initial Business Combination, it will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of Class A Common Stock issuable upon exercise of the Warrants. The Company will use its best efforts to cause the same to become effective within 60 business days after such closing, and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the Warrants expire or are redeemed, as specified in the warrant agreement.
Notwithstanding the above, if the Class A Common Stock is at the time of any exercise of a Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Warrants who exercise their Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, but it will be required to use commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. If a registration statement covering the Class A Common Stock issuable upon exercise of the Warrants is not effective by the 60th day after the closing of the Initial Business Combination, Warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. In such event, each holder would pay the exercise price by surrendering the Warrants for that number of Class A Common Stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A Common Stock underlying the Warrants, multiplied by the excess of the “fair market value” (defined herein) less the exercise price of the Warrants by (y) the fair market value and (B) 0.3611 per Warrant. The “fair market value” as used in this paragraph shall mean the average of the daily volume-weighted average trading prices of the Class A Common Stock during the 10 consecutive trading days ending on the trading day prior to the date on which the notice of exercise is received by the warrant agent.
Redemption of Warrants when the price per share of Class
A Common Stock equals or exceeds $36.00.
| • | in whole and not in part; |
| • | at a price of $ |
| • | upon a minimum of |
| • | if, and only if, the daily volume-weighted average price of the Class A Common Stock equals or exceeds $ |
The Company will not redeem the Warrants as described above unless (i) a registration statement under the Securities Act covering the issuance of the shares of Class A Common Stock issuable upon exercise of the Warrants is then effective and a current prospectus relating to those shares of Class A Common Stock is available throughout the
30-day
redemption period or (ii) if the Warrants may be exercised on a cashless basis and such cashless exercise is exempt from registration under the Securities Act. If and when the Warrants become redeemable by the Company, it may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws. 16
If the Company elects to require any holder wishing to exercise their Warrants to do so on a cashless basis, each holder would pay the exercise price by surrendering the Warrants for that number of Class A Common Stock equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A Common Stock underlying the Warrants, multiplied by the excess of the “fair market value” (defined herein) less the exercise price of the Warrants by (y) the fair market value and (B) 0.3611 per redeemable Warrant. The “fair market value” as used in this paragraph shall mean the average of the daily volume-weighted average trading prices of the Class A Common Stock during the 10 consecutive trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the registered holders of the Warrants. In determining whether to require any such exercises to be made on a cashless basis in connection with this redemption provision, the Company will consider, among other factors, its cash position, the number of Warrants that are outstanding, and the dilutive effect on the Company’s stockholders of issuing the maximum number of shares of Class A Common Stock issuable upon the exercise of such Warrants.
The Company has established the last of the redemption criteria discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the Warrant exercise price. If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Warrants, each Warrant holder will be entitled to exercise its Warrant prior to the scheduled redemption date. However, the price of the Class A Common Stock may fall below the $36.00 redemption trigger price (subject to adjustments) as well as the $23.00 Redeemable Warrant exercise price after the redemption notice is issued.
Redemption of Warrants when the price per share of Class
A Common Stock equals or exceeds $20.00
| • | in whole and not in part; |
| • | at $ |
| • | upon a minimum of |
| • | if, and only if, the daily volume-weighted average price of the Class A Common Stock equals or exceeds $ |
If the number of outstanding shares of Class A Common Stock is increased by a stock dividend payable in shares of Class A Common Stock, or by a
split-up
of shares of Class A Common Stock or other similar event, then, on the effective date of such stock dividend, split-up
or similar event, the number of shares of Class A Common Stock issuable on exercise of each Warrant will be increased in proportion to such increase in the outstanding shares of Class A Common Stock. A rights offering to holders of Class A Common Stock entitling holders to purchase shares of Class A Common Stock at a price less than the historical fair market value (as defined below) will be deemed a stock dividend of a number of shares of Class A Common Stock equal to the product of (i) the number of shares of Class A Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Class A Common Stock) multiplied by (ii) one (1) minus the quotient of (x) the price per share of Class A Common Stock paid in such rights offering divided by (y) the historical fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for Class A Common Stock, in determining the price payable for Class A Common Stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) historical fair market value means the average of the daily volume-weighted average trading prices of the Class A Common Stock during the 10 consecutive trading days ending on the trading day prior to the first date on which the shares of Class A Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights. In addition, if the Company, at any time while the Redeemable Warrants are outstanding and unexpired, pays a dividend or makes a distribution in cash, securities or other assets to the holders of Class A Common Stock on account of such shares of Class A Common Stock (or other shares of the Company’s capital stock into which the Redeemable Warrants are convertible), other than: (a) as described above; (b) certain ordinary cash dividends; (c) to satisfy the redemption rights of the holders of Class A Common Stock in connection with a proposed Initial Business Combination; (d) to satisfy the redemption rights of the holders of Class A Common Stock in connection with a stockholder vote to amend the Company’s Certificate of Incorporation (i) to modify the substance or timing of the Company’s obligation to allow redemptions in connection with the Initial Business Combination, (ii) to modify the substance or timing of the Company’s obligation to redeem 100 % of the shares of Class A Common Stock issued in the Initial Public Offering if it does not complete the Initial Business Combination within the Combination Period or (iii) with respect to any other provision relating to stockholders’ rights or
pre-Initial
Business Combination activity; or (e) in connection with the redemption of the Company’s shares of Class A Common Stock upon its failure to complete the Initial Business Combination within the Combination Period, then the Redeemable Warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of Class A Common Stock in respect of such event. 17
If the number of outstanding shares of Class A Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Class A Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Class A Common Stock issuable on exercise of each Redeemable Warrant will be decreased in proportion to such decrease in outstanding shares of Class A Common Stock.
Whenever the number of shares of Class A Common Stock purchasable upon the exercise of the Redeemable Warrants is adjusted, as described above, the Warrant exercise price will be adjusted by multiplying the Warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of Class A Common Stock purchasable upon the exercise of the Redeemable Warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of Class A Common Stock so purchasable immediately thereafter.
In addition, if (i) the Company issues additional shares of Class A Common Stock, equity-linked securities or any other instrument that is convertible or exercisable into, or exchangeable for, Class A Common Stock for capital raising purposes in connection with the closing of the Initial Business Combination at an issue price or effective issue price of less than $18.40 per share (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors) (the “Newly Issued Price”), (ii) the aggregate gross proceeds from such issuances represent more than 60 % of the total equity proceeds (including from such issuances, the Initial Public Offering, the sale of the Forward Purchase Units and any interest thereon, net of redemptions) that are available for the funding of the Initial Business Combination on the date of the consummation thereof (net of redemptions) and (iii) the daily volume-weighted average trading price of Class A Common Stock during the period starting on the trading day prior to the date on which the Company consummates its Initial Business Combination (such price, the “Market Value”) is below $18.40 per share, the exercise price of the Warrants will be adjusted (to the nearest cent) to 115 % of the higher of the Market Value and the Newly Issued Price, and the $36.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180 % of the higher of the Market Value and the Newly Issued Price, and the $20.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 100 % of the higher of the Market Value and the Newly Issued Price.
20-trading-day
In case of any reclassification or reorganization of the outstanding shares of Class A Common Stock (other than those described above or that solely affects the par value of such shares of Class A Common Stock), or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of its outstanding shares of Class A Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the holders of the Redeemable Warrants will thereafter have the right to purchase and receive, upon the basis and the terms and conditions specified in the Redeemable Warrants and in lieu of the shares of the Company Class A Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the Redeemable Warrants would have received if such holder had exercised their warrants immediately prior to such event. However, if such holders were entitled to exercise a right of election as to the kind or amount of securities, cash or other assets receivable upon such consolidation or merger, then the kind and amount of securities, cash or other assets for which each warrant will become exercisable will be deemed to be the weighted-average of the kind and amount received per share by such holders in such consolidation or merger that affirmatively make such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders (other than a tender, exchange or redemption offer made by the Company in connection with redemption rights held by the Company’s stockholders as provided for in its Certificate of Incorporation or as a result of the redemption of Class A Common Stock by the Company if a proposed Initial Business Combination is presented to its stockholders for approval) under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the redeemable warrant properly exercises the redeemable warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the Black-Scholes value (as defined in the warrant agreement) of the redeemable warrant. The purpose of such exercise price reduction is to provide additional value to holders of the Redeemable Warrants when an extraordinary transaction occurs during the exercise period of the Redeemable Warrants pursuant to which the holders of the Redeemable Warrants otherwise do not receive the full potential value of the warrants.
13d-5(b)(1)
under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2
under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3
under the Exchange Act) more than 50% of the issued and outstanding shares of Class A Common Stock, the holder of a warrant will be entitled to receive the highest amount of cash, securities or other property to which such holder would actually have been entitled as a stockholder if such warrant holder had exercised the warrant prior to the expiration of such tender or exchange offer, accepted such offer and all of the Class A Common Stock held by such holder had been purchased pursuant to such tender or exchange offer, subject to adjustment (from and after the consummation of such tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in the warrant agreement. If less than 70% of the consideration receivable by the holders of Class A Common Stock in such a transaction is payable in the form of common stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter
18
The Redeemable Warrants and the Forward Purchase Warrants will have identical terms in all respects, except that the Forward Purchase Warrants will have no right to vote on amendments to the warrant agreement prior to the Initial Business Combination (with limited exceptions), and (along with the shares of Class A Common Stock underlying the Forward Purchase Warrants) will be subject to certain transfer restrictions and have certain registration rights as long as they are held by the Forward Purchasers or their permitted transferees.
The Commitments of $4,002,432,084 as reflected on the unaudited condensed balance sheets relate to the Class A Common Stock held by the Public Stockholders that is subject to redemption (with the associated cash required for such redemption held in the Trust Account) as of September 30, 2021. There is $32,662,874 of cash remaining, after payment of relevant expenses incurred to date, from the private placements of the Sponsor Warrants and the Director Warrants (the “Excess Warrant Proceeds”). The Excess Warrant Proceeds will be reduced as the Company incurs ongoing expenses. In the case of an Initial Business Combination, the Excess Warrant Proceeds may be applied toward general corporate purposes, including for maintenance or expansion of operations of the post-combination business, the payment of principal or interest due on indebtedness incurred in completing the Initial Business Combination, to fund the purchase of other companies or make other investments, or for working capital. In the event of no Initial Business Combination or any event that results in a liquidation, the Excess Warrant Proceeds will be allocated to the holders of the Class B common stockholders after payment of all amounts owed to the Class A Common Stockholders and creditors (if any). The Sponsor Warrants and the Director Warrants will not be entitled to any liquidating distributions.
Note 7—Fair Value Measurements
The Company measures fair value of financial instruments in accordance with ASC 820, . As of September 30, 2021, the fair value of the Company’s financial assets and liabilities approximates the carrying amounts represented on the unaudited condensed balance sheets.
Fair Value Measurements and Disclosures
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid for transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The level within which the fair value measurements is categorized is determined on the basis of the lowest level input that is significant to the fair value measurement. The following fair value hierarchy is used to classify assets and liabilities based on the observable and unobservable inputs used to value the assets and liabilities:
Level 1: |
Valuation determined based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2: |
Valuation determined based on observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
Level 3: |
Valuation determined based on unobservable inputs on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. | |
At September 30, 2021, assets held in the Trust Account include cash of $1,183 and $4,002,433,328 in U.S. Treasury Bills. At December 31, 2020, assets held in the Trust Account include cash of
$19
The following table presents the Company’s assets and liabilities measured at fair value as of September 30, 2021, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
Description |
Level |
September 30, 2021 |
||||||
Assets: |
||||||||
Cash and marketable securities held in Trust Account |
1 | $ |
||||||
Committed Forward Purchase Agreement Asset |
3 | |||||||
Liabilities: |
||||||||
Outstanding Warrants Liability – Public Warrants |
1 | |||||||
Outstanding Warrants Liability – Private Placement Warrants |
3 | |
||||||
Additional Forward Purchase Agreement Liability |
3 |
As of September 30, 2021, the net fair value of the committed FPA and additional FPA is classified as a derivative asset as presented on the condensed balance sheets due to changes in its fair value during the three months ended September 30, 2021. Prior to September 30, 2021, the committed FPA and additional FPA were derivative liabilities. See below for further details of the significant unobservable inputs related to its valuation.
Initial Measurement
In accordance with ASC
815-40,
the Outstanding Warrants and FPA were accounted for as liabilities. Initial fair values of the Outstanding Warrants and FPA were established when the Company’s Initial Public Offering was declared effective on July 21, 2020, using a modified Black-Scholes pricing model. Subsequent Measurement
The Company, at each reporting period,
re-evaluates
the inputs utilized in the modified Black-Scholes pricing model to measure the fair values of the Private Placement Warrants and FPA based on the Pershing Entities Letter Agreement, as if it were to become effective, with changes in their respective fair values reflected on the condensed statements of operations. On September 11, 2020, the Company’s Class A Common Stock and Public Warrants commenced trading separately on the New York Stock Exchange (“NYSE”). As there is now a listed price on an active market, the Public Warrants were reclassified from a Level 3 to Level 1 instrument. As described in Note 5, the June 30, 2021 fair values of the Private Placement Warrants and the FPA reflected the anticipated amendments to the Sponsor Warrants and Directors Warrants agreements and to the FPA. The Private Placement Warrants and the Additional FPA were valued based on the Future Business Combination that RemainCo would have entered into (including the assumption of a
The significant observable and unobservable inputs used in determining the fair values of the Private Placement Warrants and FPA are as follows, and are reflective of the rights and obligations associated with each respective asset and liability as of September 30, 2021.
The observable inputs of the Private Placement Warrants and FPA include strike/exercise prices, underlying public stock and warrant prices, a risk-free interest rate and the remaining term of the instrument. The strike price of the Private Placement Warrants is the exercise price per common share of the post-combination business. The exercise price of the FPA is the purchase price of the Forward Purchasers to obtain one share of Class A Common Stock and The expected term is equivalent to each of the warrant and FPA’s remaining contractual term.
one-third
of one warrant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the reporting date associated with the related term on the instrument. The underlying stock and warrant prices are based on the closing prices of the respective securities on the NYSE as of the reporting date. Inputs – Private Placement Warrants |
September 30, 2021 |
|||
Strike Price |
$ |
|||
Risk-Free Interest Rate |
||||
Underlying Stock Price |
$ |
|||
Public Warrant Price |
$ |
|||
Term (Years) |
||||
Volatility |
||||
Illiquidity Discount |
||||
Probability of Warrant Renegotiation |
||||
The Private Placement Warrants have three significant unobservable inputs: (i) Volatility, (ii) Illiquidity Discount and (iii) Probability of Warrant Renegotiation. The volatility of 25.0 % reflects the anticipated implied volatility of the potential target company from RemainCo’s Future Business Combination over the Private Placement Warrants’ 10 -year term. The Illiquidity Discount of 20.0 % relates to an embedded three years post the completion of the Company’s IBC. The Probability of Warrant Renegotiation is a discount based on the probability that the Private Placement Warrants will be restructured at the time of Company’s IBC. The discount of 24.5 % was representative of the average of sponsor incentive restructurings and founder stock forfeitures in completed special purpose acquisition company transactions.
lock-up,
whereby the securities underlying the Private Placement Warrants may not be sold for 20
Inputs – Forward Purchase Agreements |
September 30, 2021 |
|||
Exercise Price |
$ |
|||
Risk-Free Interest Rate |
||||
Underlying Stock Price |
$ |
|||
Public Warrant Price |
$ |
|||
Term (Years) |
||||
Discount for Lack of Marketability – Committed FPA |
||||
Discount for Lack of Marketability – Additional FPA |
||||
Discount for Probability of Exercise – Additional FPA |
||||
The FPA’s significant unobservable inputs include a Discount for Lack of Marketability (“DLOM”) and a Discount for Probability of Exercise. The DLOM for the Committed FPA relates to an embedded 180 days post the completion of the Company’s Proposed IBC. As a result of the FPA 1.0 %. The Additional FPA is subject to the same FPA 2.0 billion. This additional feature, combined with the FPA 42.0 %. The Discount for Probability of Exercise is a direct result of the embedded option component previously stated. It is modelled by looking at the percentage of additional forward purchase agreements that are funded in other SPACs upon the completion of their initial business combinations resulting in a discount of 79.8 %.
lock-up
(the “FPA Lock-Up”),
whereby the securities underlying the Committed FPA may not be sold for Lock-Up,
the DLOM was Lock-Up,
and has embedded optionality such that they may be exercised in any amount up to $Lock-Up,
resulted in a DLOM of The following tables present the changes in the fair values of the Outstanding Warrants and FPA:
Outstanding Warrants Liability |
Public Warrants |
Private Placement Warrants |
Total Outstanding Warrants | |||||||||
Fair Value at December 31, 2020 |
$ |
$ |
$ |
|||||||||
Change in Fair Value |
( |
) | ( |
) | ( |
) | ||||||
Fair Value at September 30, 2021 |
$ |
$ |
$ |
|||||||||
FPA Liability / (Asset) |
Committed Forward Purchase Agreement |
Additional Forward Purchase Agreement |
Forward Purchase Agreements | |||||||||
Fair Value at December 31, 2020 – Liability |
$ |
$ |
$ |
|||||||||
Change in Fair Value |
( |
) | ( |
) | ( |
) | ||||||
Fair Value at September 30, 2021 – Liability / (Asset) |
$ ( |
$ |
$ ( |
|||||||||
Transfers between levels during the period are determined and deemed to have occurred at each reporting date. During the three and nine months ended September 30, 2021, there were no
Note 8—Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this report (the “Quarterly Report”) to “we”, “us”, “our” or the “Company” refer to Pershing Square Tontine Holdings, Ltd., and references to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements, other than statements of historical facts, and including but not limited to statements regarding the Company or the Company’s management team’s expectations, hopes, beliefs, intentions or strategies regarding the future, included in this Quarterly Report that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Information concerning these and other factors can be found in the Company’s filings with the SEC, including those set forth in the Risk Factors section of the Company’s final prospectus for its initial public offering. Copies are available on the SEC’s website, www.sec.gov. In light of the significant uncertainties in forward-looking statements, you should not regard such statements as a representation or warranty that the Company will achieve its objectives and plans in any specified timeframe, or at all, and you should not place undue reliance on any forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements, except as may be required by law.
Overview
We are a blank check company incorporated as a Delaware corporation and 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. We intend to effectuate our Initial Business Combination using cash from the proceeds of the initial public offering and the private placements of the Sponsor Warrants, Director Warrants and Forward Purchase Units, our capital stock, debt or a combination of cash, stock and debt. Our Initial Business Combination will be a negotiated transaction, not a hostile takeover.
The issuance of additional shares of our stock in a business combination, including the Forward Purchase Securities:
| • | may significantly dilute the equity interest of investors; |
| • | may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock; |
| • | could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use net operating loss carry forwards, if any, and could result in the resignation or removal of our present directors and officers; |
| • | may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and |
| • | may adversely affect prevailing market prices for our Class A Common Stock and/or Redeemable Warrants. |
Similarly, if we issue debt instruments or otherwise incur significant indebtedness, it could result in:
| • | default and foreclosure on our assets if our operating revenues after our Initial Business Combination are insufficient to repay our debt obligations; |
| • | acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
| • | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; |
| • | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding; |
| • | our inability to pay dividends on our common stock; |
22
| • | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes; |
| • | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; |
| • | increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and |
| • | other purposes and other disadvantages compared to our competitors who have less debt. |
We expect to continue to incur costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete our Initial Business Combination will be successful.
Recent Developments
Below is a description of the proposed Initial Business Combination, which was ultimately not consummated.
On June 20, 2021, the Company entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Vivendi to purchase a number of ordinary shares, par value €10 per share, representing approximately 10% of the share capital and voting rights, on a fully diluted basis, of UMG (the “UMG Shares”) for approximately $4 billion (the “Share Purchase”), with the expectation that the Company would distribute the UMG Shares to its Public Stockholders (the “Distribution” and together with the Share Purchase, the “Proposed IBC”). The Company expected that the Share Purchase would be consummated in the third quarter of 2021 and the Distribution would occur in November or December 2021.
In connection with the Proposed IBC, the Company and Vivendi also entered into an indemnification agreement pursuant to which the Company agreed to indemnify Vivendi and certain of its related parties for certain potential liabilities in connection with the Company’s redemption tender offer, the warrant exchange offer and the Distribution (each as further described below).
Also on June 20, 2021, the Company, the Sponsor, the Pershing Square Funds and the Company’s independent directors entered into the Pershing Entities Letter Agreement, pursuant to which:
| ● | The Company and the Pershing Square Funds agreed to amend and restate the Forward Purchase Agreement concurrently with the closing of the Proposed IBC, pursuant to which the Forward Purchasers would exercise their right to purchase an aggregate amount of $1.6 billion of Forward Purchase Units ($1.0 billion of Committed Forward Purchase Units and $600 million of Additional Forward Purchase Units). The price per share at which the Pershing Square Funds would have exercised such amended Forward Purchase Agreement would be equal to RemainCo’s net asset value at the time of such purchase; |
| ● | The Company and the Sponsor agreed to amend the Sponsor Warrants concurrently with the closing of the Proposed IBC, such that the Sponsor Warrants would not be exercised or otherwise participate in the Proposed IBC. Instead, they would remain in place, but the exercise price would be adjusted to equal 120% of RemainCo’s net asset value immediately prior to the time it completed its anticipated future business combination with an operating business; and |
| ● | The Company and its independent directors agreed that the Director Warrants would not be exercised in connection with the Proposed IBC, and would be amended concurrently with the closing of the Proposed IBC. The result of such amendment would have been that, (i) the holders of the Director Warrants would receive shares in the Company in exchange for approximately 72% of the fair market value of the Director Warrants (as determined by a third-party valuation firm), to compensate for the fact that they would not participate in the Proposed IBC as originally envisioned, (ii) such shares would participate in the Distribution and (iii) the roughly 28% of the value of the Director Warrants would remain in place with their exercise price adjusted in the same manner as the exercise price of the Sponsor Warrants as explained above. |
The Company further announced that it expected to undertake a 1:4 reverse stock split following the issuance of the Distributable Tontine Redeemable Warrants, all warrants in respect of the Forward Purchase Agreement and Director Forward Purchase Agreements and the Distribution so that its net asset value (“NAV”) would be approximately $22 per share.
Pursuant to the Proposed IBC, following the Distribution, the Company would have continued to exist and it would not have disappeared into UMG nor would it have been liquidated. The Company continuing to exist is referred to herein as “RemainCo”. RemainCo would have been the same corporate entity and it would have continued to be named Pershing Square Tontine Holdings, Ltd. The Public Stockholders would have continued to own shares in RemainCo, and it was intended that RemainCo would pursue a
23
traditional business combination with an operating business (RemainCo’s “Future Business Combination”).
On July 8, 2021, the Company launched (i) a redemption tender offer which was intended to provide Public Stockholders with the opportunity to exercise their right to redeem their shares of Class A Common Stock in connection with the Proposed IBC and (ii) a warrant exchange offer which provided holders of the Company’s currently outstanding Distributable Redeemable Warrants the opportunity to exchange those warrants for shares of Class A Common Stock at a ratio of 0.2650 shares per warrant.
On July 19, 2021, the Company announced that its board of directors unanimously determined not to proceed with the Proposed IBC and the Company had agreed to assign its rights and obligations under the Share Purchase Agreement with Vivendi to Pershing Square Holdings, Ltd. and certain of its affiliates (the “Assignees”). The Assignees agreed to purchase or cause to be purchased at least 5% of the share capital of UMG on the terms and subject to the conditions of the Share Purchase Agreement and Vivendi acknowledged that if the Assignees purchased at least 5% of the share capital of UMG, the Share Purchase Agreement would be of no further force with respect to remaining UMG shares to be purchased under the Share Purchase Agreement. In addition, the Assignees, severally in accordance with their obligations to purchase UMG shares, agreed to assume and reimburse the Company for expenses incurred to date by the Company in connection with transactions related to the Proposed IBC, which totaled $25,065,931. The Assignees also assumed, severally in accordance with their obligations to purchase UMG shares, the Company’s obligations under the indemnification agreement, between the Company and Vivendi.
out-of-pocket
On July 21, 2021, the Company terminated its redemption tender offer and warrant exchange offer, and no shares were redeemed from the Company. As a result of the termination of these offers and the cancellation of the Proposed IBC, the Pershing Entities Letter Agreement did not come into effect and there have been no changes to the instruments discussed as exhibits to such letter agreement. The FPA, Sponsor Warrants and Director Warrants remain as initially issued as of June 21, 2020 and July 21, 2020, respectively.
Given the events of July 19 and July 21, the Company is seeking an alternative initial business combination.
On August 10, 2021, the Assignees completed an initial closing under the Share Purchase Agreement acquiring 128,555,017 UMG shares, or approximately 7.1% of the share capital of UMG, for an aggregate purchase price of $2.8 billion, as a result of which the Company was released from its obligations under the Share Purchase Agreement and the indemnification agreement described above (which indemnity was allocated without the participation of the Company, among the Pershing Square Funds). Also on August 10, 2021, the Company acknowledged and stepped out of the registration rights agreement, transferring it to the Assignees, which now provides, among other things, the Assignees the ability to register UMG in a U.S. initial public offering no earlier than 2023 rather than providing for the Distribution that the Company envisioned in the Proposed IBC at the end of this calendar year.
This Quarterly Report on the
10-Q
reflects the position of the Company as of September 30, 2021. Certain Observations
During the third quarter of 2021, the Proposed IBC with Vivendi was cancelled and assigned to Pershing Square Holdings, Ltd. and certain of its affiliates, as discussed in detail in the preceding section. Subsequent to the cancellation, we continued to work on identifying a target for an Initial Business Combination.
For the three months ended September 30, 2021, we recorded net income of $344,375,472, which was primarily due to a
non-cash
GAAP gain of $327,155,205 related to the change in valuations of our Outstanding Warrants and FPA, each of which was previously accounted for as equity on our financial statements through December 31, 2020. The change in accounting was initiated following publication of a statement by the Staff of the SEC on accounting for SPAC warrants, which impacted nearly all SPACs. As a result of the SEC’s public statement, management along with the audit committee reconsidered accounting issues related to these instruments and restated our financial statements at December 31, 2020 to account for our Outstanding Warrants and FPA as derivative liabilities. For the three months ended September 30, 2021, this accounting treatment has required us to record a large non-cash
GAAP gain that does not represent an actual cash gain by the Company, nor do we believe it will have any effect on our ability to consummate an initial business combination on attractive terms. The revised accounting methodology relates to certain features of the Outstanding Warrants and our FPA (the terms of which entitle the Sponsor and directors to receive warrants in addition to common stock) that are designed to protect the holders of warrants by entitling them to be exchanged for cash in certain events. The revised accounting requires that we account for the Outstanding Warrants and FPA as liabilities or assets equal to their fair value at the end of each reporting period.
The impact of this accounting treatment is highly volatile as it is driven by changes in our stock price. If our stock price increases over a given measurement period, the fair values of our warrants and FPA will also increase in value and result in a liability being recorded on our balance sheet and a
non-cash
GAAP loss recorded in our earnings statement for the period, all other things being equal. Conversely, if our stock price declines over a measurement period, we will record a smaller liability or an asset 24
on our balance sheet and report a
non-cash
GAAP gain in our earnings statement, notwithstanding that our stockholders will be holding shares that have declined in value over the measurement period. Non-cash
GAAP gains or losses due to changes in the fair value of such instruments have no impact on our business or our cash balances – including the more than $4 billion we hold in a trust account at J.P. Morgan – and the minimum Committed FPA of $1 billion, nor do we expect the change in accounting to have any impact on our ability to consummate a potential initial business combination. Results of Operations
All activities through September 30, 2021 were related to the Company’s organizational activities, preparation for the Company’s initial public offering, identifying a target company for a business combination, and activities in connection with the Proposed IBC and its subsequent cancellation. We will not generate any operating revenues until after completion of our Initial Business Combination. We generate
non-operating
income in the form of interest and dividends on cash and cash equivalents, and marketable securities held in the trust account. We incur ongoing expenses as a result of being a public company for legal, financial reporting, accounting and auditing compliance, as well as for due diligence and Initial Business Combination related transaction expenses. For the three months ended September 30, 2021, we had net income of $344,375,472, which consisted of
(i) non-cash
gain related to change in the fair value of Forward Purchase Agreement liabilities/assets of $313,523,920, (ii) non-cash
gain related to change in the fair value of Outstanding Warrant liabilities of $13,631,285, (iii) income earned on marketable securities held in the trust account of $259,802, (iv) interest and dividends earned on marketable securities held in the operating account of $458, (v) income tax benefit of $6,211, (vi) expense reimbursement of $25,065,931, offset by legal, insurance, research, franchise tax and other expenses totaling $8,112,135. For the three months ended September 30, 2020, we had net loss of $447,053,879, which consisted of
(i) non-cash
loss related to change in the fair value of Forward Purchase Agreement liabilities of $231,470,840, (ii) non-cash
loss related to change in the fair value of Outstanding Warrant liabilities of $214,771,598, (iii) transaction costs allocable to Outstanding Warrant liabilities of $912,625, (iv) legal, insurance, research, franchise tax and other expenses totaling $668,764, (v) provision for income taxes of $23,473, offset by (a) income earned on marketable securities held in the trust account of $792,654, and (b) interest and dividends earned on marketable securities held in the operating account of $767. For the nine months ended September 30, 2021, we had net income of $848,279,189, which consisted of
(i) non-cash
gain related to change in the fair value of Forward Purchase Agreement liabilities/assets of $599,509,640, (ii) non-cash
gain related to change in the fair value of Outstanding Warrant liabilities of $249,663,472, (iii) income earned on marketable securities held in the trust account of $1,250,118, (iv) interest and dividends earned on marketable securities held in the operating account of $1,529, (v) expense reimbursement of $25,065,931, offset by (a) legal, insurance, research, franchise tax and other expenses totaling $26,992,169 and (b) provision for income taxes of $219,332. For the period from May 4, 2020 (inception) through September 30, 2020, we had net loss of $447,066,761, which consisted of
(i) non-cash
loss related to change in the fair value of Forward Purchase Agreement liabilities of $231,470,840, (ii) non-cash
loss related to change in the fair value of Outstanding Warrant liabilities of $214,771,598, (iii) transaction costs allocable to Outstanding Warrant liabilities of $912,625, (iv) provision for income taxes of $23,473, offset by (a) income earned on marketable securities held in the trust account of $792,654, (b) interest and dividends earned on marketable securities held in the operating account of $767, and (c) legal, insurance, research, franchise tax and other expenses totaling $681,646. Non-GAAP
Financial Measures As noted above, the Company was 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. As such, we believe the amount of committed capital available for an Initial Business Combination is critical to our success as a blank check company. See Liquidity and Capital Resources below for further information on our unrestricted cash balances and funds held in the trust account as of September 30, 2021. In addition, we report adjusted net income for the three months ended September 30, 2021 and adjusted net loss for the nine months ended September 30, 2021, which is a
non-GAAP
financial measure that is not required by, or presented in accordance with, GAAP. Management uses this non-GAAP
measure to evaluate results as it reduces the volatility of operations due to the accounting for our warrants and forward purchase agreements, which are more fully described in Note 2 of the Notes to Unaudited Condensed Financial Statements included herein, and which do not have an impact on the funds held in the trust account or committed capital available for an Initial Business Combination. We believe this information is useful to investors for these reasons. This non-GAAP
measure should not be considered a substitute for the most directly comparable GAAP measures, which are reconciled below. Further, this measure has limitations as an analytical tool, and when assessing our operating performance, you should not consider this measure in isolation or as a substitute for GAAP measures. We may calculate or present this non-GAAP
financial measure differently than other companies who report measures with the same or similar names, and as a result, the non-GAAP
measure we report may not be comparable. 25
Adjusted net income/(loss), represents our net income/(loss) excluding the change in fair value of forward purchase agreement liabilities/assets and the change in fair value of Outstanding Warrant liabilities, which are
non-cash
items. As of September 30, 2021, our unaudited condensed balance sheets reflect a net liability of $207,424,892 (net of Forward Purchase Agreement assets) (December 31, 2020: $1,056,598,004) related to derivative liabilities/assets which do not impact the funding available for an Initial Business Combination. As can be observed, the value of the liabilities/assets relating to these instruments under GAAP (and the related income/(loss) that flows through the statements of operations) can swing significantly when in fact no economic changes have occurred. | For the Three Months Ended September 30, 2021 |
For the Nine Months Ended September 30, 2021 |
|||||||
| |
||||||||
| Net income |
$ |
344,375,472 |
$ |
848,279,189 |
||||
| Less: |
||||||||
| Change in fair value of Forward Purchase Agreement liabilities/assets |
313,523,920 | 599,509,640 | ||||||
| Change in fair value of Outstanding Warrant liabilities |
13,631,285 | 249,663,472 | ||||||
| |
||||||||
| Adjusted net income/(loss |
$ |
17,220,267 |
$ |
(893,923 |
) | |||
Liquidity and Capital Resources
Our liquidity needs had been satisfied prior to the consummation of the initial public offering through a capital contribution of $25,000 by our Sponsor in exchange for 100 shares of Class B Common Stock, and interest-bearing loans of $1,121,120 from our Sponsor under an unsecured promissory note covering expenses related to the initial public offering. The loan was repaid in full on July 24, 2020, inclusive of interest. As of September 30, 2021 and December 31, 2020, $378,880 was left under the promissory note to be drawn down, and there were no borrowings outstanding, respectively.
On July 24, 2020, we consummated the initial public offering of 200,000,000 Units, at $20.00 per unit, generating gross proceeds of $4,000,000,000. Simultaneously with the closing of the initial public offering, we consummated a $67,837,500 sale of Sponsor Warrants and Director Warrants in private placements.
Following the initial public offering and the private placements of Sponsor Warrants and Director Warrants, a total of $4,000,000,000 was placed into the trust account. We incurred $94,623,187 in offering costs, including $35,000,000 of underwriting fees, $56,250,000 of deferred underwriting fees and $3,373,187 of other offering costs. The per share amount to be distributed to Public Stockholders who properly redeem their Public Shares will not be reduced by the deferred underwriting fees (further discussed below).
As of September 30, 2021, we had an unrestricted cash balance of $32,662,874 in the operating account, held outside the trust account to fund our ongoing expenses, as well as cash and marketable securities held in the trust account of $4,002,434,511. Interest and dividend income earned on the balance in the trust account will be used to pay taxes on such income. During the three months ended September 30, 2021, we withdrew $72,290 of income earned on the trust account to pay our income tax obligations.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest and dividends earned on the trust account (less taxes payable and deferred underwriting fees), and the proceeds from the sale of the Forward Purchase Units to complete an Initial Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete the Initial Business Combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions, and pursue our growth strategies.
In order to fund working capital deficiencies or finance transaction costs in connection with an Initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our directors and officers may, but are not obligated to, loan us funds as may be needed. If we complete the Initial Business Combination, we would repay such loaned amounts. In the event that the Initial Business Combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts, but no proceeds from our trust account would be used for such repayment.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating our Initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our Initial Business Combination or because we become obligated to redeem a significant number of the shares of our Public Shares upon completion of our Initial Business Combination, in which case we may issue additional securities or incur debt in connection with such business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Initial Business Combination. If we are unable to complete our Initial Business Combination because we do not have 26
sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our Initial Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, and operating lease obligations as of September 30, 2021.
The underwriters are entitled to a deferred fee of $0.28 per Unit, or $56,250,000 in the aggregate. The aggregate deferred underwriting fees includes (i) the deferral of any underwriting fees, other than the retail selling concessions, in excess of $30,000,000 (a deferral of $12,500,000), plus (ii) a 2.0% rate applied to the gross offering proceeds, subject to a $56,250,000 cap on the amount of such aggregate deferred underwriting fees. If the amount of proceeds from the trust account paid in connection with the redemption rights of Public Stockholders, together with the amount of any capital raised in private placements in connection with the Initial Business Combination from investors other than Sponsor or its affiliates (the “Net Redemptions”), results in us having less than $2,000,000,000 of cash available upon consummation of the Initial Business Combination, only 25% of the aggregate deferred underwriting fees will be payable. If such amount of cash available is $2,000,000,000 or greater, 50% of the aggregate deferred underwriting fees will be payable, and the remaining 50% of the aggregate deferred underwriting fees will be subject to a
pro-rata
reduction based on the amount of Net Redemptions as a percentage of the total public proceeds of the initial public offering. The deferred underwriting fees will be waived by the underwriters solely in the event that we do not complete a business combination, subject to the terms of the underwriting agreement. Critical Accounting Policies
The preparation of the unaudited condensed financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for our Class A Common Stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” The Company’s conditionally redeemable Class A Common Stock features certain redemption rights that are considered to be outside of its control and subject to the occurrence of uncertain future events. Accordingly, at September 30, 2021 and December 31, 2020, 200,000,000 shares of Class A Common Stock subject to possible redemption were presented at redemption value as temporary equity, respectively, outside of the stockholders’ equity section of the Company’s condensed balance sheets. The Company adjusts the carrying value of redeemable common stock to equal the redemption value of the cash held in the Trust Account net of income taxes payable at the end of each reporting period.
Outstanding Warrants and FPA Liabilities / Assets
We account for our Outstanding Warrants and FPA in accordance with the guidance contained in ASC
815-40,
under which the Outstanding Warrants and FPA do not meet the criteria for equity treatment and must be recorded as derivative liabilities or derivatives assets. Accordingly, we classify the Outstanding Warrants and FPA as liabilities or assets with changes in fair value reflected on the Company’s condensed statement of operations at each reporting period. The fair value of the Public Warrants was initially measured using a modified Black-Scholes pricing model and subsequently measured at the closing quoted market price. The Private Placement Warrants and FPA are valued using a modified Black-Scholes pricing model. See Note 7 of the Notes to Unaudited Condensed Financial Statements included herein for further information on the significant inputs to the models utilized to determine the fair values of the Outstanding Warrants and FPA liabilities/assets. Net Income (Loss) per Common Share
We apply the
two-class
method of calculating earnings per share. Net income (loss) per common share, basic and diluted, for Class A Common Stock subject to possible redemption is calculated by dividing the allocable income earned on the Trust Account, net of applicable income taxes, by the weighted-average number of Class A Common Stock subject to possible redemption outstanding for the period. Net income (loss) per share, basic and diluted, for Class B non-redeemable
common stock is calculated by dividing the net income (loss), adjusted for income (loss) attributable to Class A Common Stock subject to possible redemption, by the weighted-average number of Class B non-redeemable
common stock outstanding for the period. 27
Off-Balance
Sheet Arrangements As of September 30, 2021, we did not have any
off-balance
sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on the Company’s unaudited condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2021, we were not subject to any material market or interest rate risk. Following the consummation of our initial public offering, the net proceeds of our initial public offering and the private placements of the Sponsor Warrants and Director Warrants that are held in the trust account have been invested in U.S. Treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule
2a-7
under the Investment Company Act which invest only in direct U.S. Treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk. However, if the interest rates of U.S. Treasury obligations become negative, we may have less proceeds held in the trust account than initially deposited.Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of September 30, 2021, pursuant to Rule
13a-15(b)
under the Exchange Act. Based on their evaluation, our Certifying Officers have concluded that, solely due to the circumstance that led to the restatement of our financial statements from the initial public offering until December 31, 2020 to reclassify our Outstanding Warrants and FPA as described in the Explanatory Note to our Form 10-K/A
filed with the SEC in May 2021, our disclosure controls and procedures were not effective as of September 30, 2021.We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Report on Internal Controls Over Financial Reporting
This Quarterly Report on
Form 10-Q does
not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as such term is defined in Rules
13a-15(f)
and 15d-15(f)
of the Exchange Act) that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In light of the restatement of our December 31, 2020 financial statements in May 2021, management has implemented remediation steps to address the material weakness and to improve our internal control 28
over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards, including the identification of third-party professionals with whom to consult regarding the application of complex accounting matters, and engaged third-party valuation specialists to assist management in determining the fair values of the Sponsor Warrants, Director Warrants, and FPA. While we believe that these remediation actions will improve the effectiveness of our internal control over financial reporting, which began in the second quarter of 2021, the material weakness identified will not be considered remediated until the controls operate for a sufficient period of time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On August 17, 2021, a purported stockholder of the Company filed a putative derivative lawsuit in U.S. Federal Court in New York, (S.D.N.Y), against the Company, its independent directors and certain affiliates of the Company’s Sponsor alleging that the Company was operating as an illegal investment company, because among other claims, the Company had invested the proceeds from its initial public offering in securities (in the Company’s case, short-term U.S. Treasury securities and money market funds that own short-term U.S. Treasury securities). The lawsuit also claims that, despite the Company’s stated purpose to search for and complete an initial business combination, the Company has instead been engaged primarily in the business of investing in securities in violation of the Investment Company Act of 1940. An amended complaint filed on October 8, 2021 added direct claims related to the same core allegations. The Company believes that this lawsuit is meritless and intends to defend against these claims vigorously. Nevertheless, as the Company has previously disclosed, it may be unlikely that the lawsuit, even if meritless, can finally be resolved in the short-term, which may make it more difficult for the Company to complete an initial business combination in a timely manner.
Assad v. Pershing Square Tontine Holdings, Ltd., et al,
The Company has also received requests for books and records from certain purported stockholders pursuant to Section 220 of the Delaware General Corporation Law and has provided or agreed to provide certain information in response to those requests.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our restated Annual Report on the
10-K/A
for the fiscal year ended December 31, 2020 filed with the SEC on May 24, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report on Form 10-Q,
there have been no material changes to the risk factors disclosed in our restated Annual Report on the 10-K/A
for the fiscal year ended December 31, 2020. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
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| * | Filed herewith. |
| (1) | Incorporated by reference to the Company’s Amendment No. 4 to Registration Statement on Form S-1/A filed on July 20, 2020. |
| (2) | Incorporated by reference to the Company’s Current Report on Form 8-K filed on July 28, 2020. |
| (3) | Incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 31, 2021. |
| (4) | Incorporated by reference to the Company’s Current Report on Form 8-K filed on July 19, 2021. |
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PART III - SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November 15, 2021 |
Pershing Square Tontine Holdings, Ltd. | |||||
| /s/ William A. Ackman | ||||||
| Name: |
William A. Ackman | |||||
| Title: |
Chief Executive Officer, Chairman of the Board of Directors | |||||
| Date: November 15, 2021 |
/s/ Michael Gonnella | |||||
| Name: |
Michael Gonnella | |||||
| Title: |
Chief Financial Officer | |||||
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