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Federal Decree No. (32) of 2021 on Commercial Companies- Purpose of Acquisition or Merger SPAC

ISSUANCE OF THE CHAIRMAN OF THE BOARD OF DIRECTORS OF THE SECURITIES AND COMMODITIES AUTHORITY RESOLUTION NO. (01/RM) OF 2022 ON THE REGULATION OF COMPANIES ESTABLISHED FOR THE PURPOSE OF ACQUISITION OR MERGE SPAC.


Following the issuance of Federal Law Decree No. (32) of 2021 on Commercial Companies, which came into effect from the current year 2022, which allowed the establishment of companies for the purposes of acquisition or merger, established its own legal framework and excluded them from some provisions of the Companies Law,

In accordance with the law, the Chairman of (ESCA) on 04/01/2022 issued Resolution No. (01/RM) of 2022 on the Companies Established for the Purpose of Acquisition or Merger (SPAC). This decision applies to companies established for the purpose of acquisition or merger SPAC and to all persons and procedures associated with these companies, and this decision contains 21 articles and includes new definitions, including the definition of the investor and the distinction between two types of investors, namely:

  • Professional Investor: The person who meets the definition of a professional investor as specified in the decision of the Chairman of the Board of Directors of the Authority No. 13 / R.M. of 2021 on the handbook of rules for financial activities and mechanisms for reconciling situations.

  • Ordinary Investor: A person who meets the definition of an ordinary investor as defined in the above-mentioned decision,

The resolution also clarified the meaning of the following terms:

  • Company incorporated for the purpose of acquisition or merger: A legal person established as a public shareholding company and which the Authority has approved to classify as a company established for the purpose of acquisition or merger in accordance with the provisions of Article [5] of this Resolution.

  • Sponsor: Any natural or legal person who is the founder, a member of the Board of Directors, or one of the directors of the company established for the purpose of acquisition or merger, and any of them is the owner of any of the shares of the sponsors in that company.

  • Permission: A security that gives its owner the right to purchase a specified number of shares in the company established for the purpose of acquisition or merger, where the company issues these shares when the owner of the permission exercises his right under this permission during the time period specified in the permission.

According to this decision, companies established for SPAC can be defined:

The company was established for the sole purpose of raising capital through an initial public offering, the goal of which is to acquire or merge with the target companies. Targeted companies are typically privately owned and have promising growth potential and may be owned by private equity firms or venture capital firms that wish to exit.

SPAC is also prohibited from directing any economic activity except for the following:

A. Subtract, issue, and insert the share or permission.

B. Search for a target for the purpose of unifying the business.

C. Any other business related to the fulfillment of the purposes of the incorporated company for

the purpose of acquisition or merger described in this Article.

One or more founders of the proposed company may apply to the Authority to be classified as a SPAC and to have its draft articles of association approved by the Authority in accordance with the following conditions:

A. The issued capital of the proposed company, immediately after the IPO, shall not be

less than AED 100 million.

B. The founders have not announced or disclosed any potential acquisition target or

acquisition target to anyone other than the sponsors.

C. That the objectives of the proposed company specified in the Articles of Association

do not conflict with the purposes that the company may conduct in a manner

that does not conflict with the provisions of Article 3 of this resolution.

IPO Procedures:

1. The company shall apply for approval of the invitation for public subscription in the shares and

the permissions it will issue to the Authority, together with the company’s commercial license, its

articles of association, and the subscription prospectus.

2. The Company shall submit the application to the Authority within a period not exceeding (30)

working days from the date of issuance of the Company's trade license by the competent

authority.

IPO of the incorporated company for the purpose of acquisition or merger:

1. Unissued shares of authorized capital are displayed as follows:

a. for the sponsors as additional shares to be issued in conjunction with the IPO, provided

that the total shares of the sponsors shall not be less than 3% and not exceed 20% of the

issued capital of the company established for the purpose of acquisition or merger and any

additional shares to be issued in respect of the authorizations in an IPO.

b. for investors as shares invested in an IPO at an IPO price determined by the subscription

prospectus.

Customization:

1. Shares and permissions are allocated to investors in accordance with the allocation mechanism

specified in the subscription prospectus.

2. Subscription receiving entities are obligated to take the following measures:

a. Allocating shares and permissions to subscribers within a period not exceeding (5)

working days from closing the subscription door.

b. Reimbursement of the surplus amounts paid by the subscribers and the resulting

returns for which no shares or permits have been allocated within a period

not exceeding (5) working days from the date of allocation of shares and permits

to the subscribers.If the subscription exceeds the number of shares and permits

offered, the shares and permits shall be distributed to the subscribers in proportion

to what they have subscribed to or as determined by the subscription prospectus.

The resolution also clarified the meaning of the following terms:

  • Company incorporated for the purpose of acquisition or merger: A legal person established as a public shareholding company and which the Authority has approved to classify as a company established for the purpose of acquisition or merger in accordance with the provisions of Article [5] of this Resolution.

  • Sponsor: Any natural or legal person who is the founder, a member of the Board of Directors or one of the directors of the company established for the purpose of acquisition or merger, and any of them is the owner of any of the shares of the sponsors in that company.

  • Permission: A security that gives its owner the right to purchase a specified number of shares in the company established for the purpose of acquisition or merger, where the company issues these shares when the owner of the permission exercises his right under this permission during the time period specified in the permission.

According to this decision, companies established for SPAC can be defined:

The company was established for the sole purpose of raising capital through an initial public offering, the goal of which is to acquire or merge with the target companies. Targeted companies are typically privately owned and have promising growth potential and may be owned by private equity firms or venture capital firms that wish to exit.

SPAC is also prohibited from directing any economic activity except for the following:

A. Subtract, issue, and insert the share or permission.

B. Search for a target for the purpose of unifying the business.

C. Any other business related to the fulfillment of the purposes of the incorporated

company for the purpose of acquisition or merger described in this Article.

One or more founders of the proposed company may apply to the Authority to be classified as a SPAC and to have its draft articles of association approved by the Authority in accordance with the following condition:

a. The issued capital of the proposed company, immediately after the IPO, shall

not be less than AED 100 million.

b. The founders have not announced or disclosed any potential acquisition target

or acquisition target to anyone other than the sponsors.

c. That the objectives of the proposed company specified in the Articles of

Association do not conflict with the purposes that the company may conduct in

a manner that does not conflict with the provisions of Article 3 of this resolution.

IPO Procedures:

1. The company shall apply for approval of the invitation for public subscription in

the shares and the permissions it will issue to the Authority, together with the

company’s commercial license, its articles of association, and the subscription prospectus.

2. The Company shall submit the application to the Authority within a period not exceeding

(30) working days from the date of issuance of the Company's trade license by the

competent authority.

IPO of the incorporated company for the purpose of acquisition or merger:

1. Unissued shares of authorized capital are displayed as follows:

a. for the sponsors as additional shares to be issued in conjunction with the IPO,

provided that the total shares of the sponsors shall not be less than 3% and not

exceed 20% of the issued capital of the company established for the purpose of

acquisition or merger and any additional shares to be issued in respect of the

authorizations in an IPO.

b. for investors as shares invested in an IPO at an IPO price determined by the

subscription prospectus.

Customization:

1. Shares and permissions are allocated to investors in accordance with the allocation

mechanism specified in the subscription prospectus.

2. Subscription receiving entities are obligated to take the following measures:

A. Allocating shares and permissions to subscribers within a period not exceeding

(5) working days from closing the subscription door.

B. Reimbursement of the surplus amounts paid by the subscribers and the

resulting returns for which no shares or permits have been allocated within a

period not exceeding (5) working days from the date of allocation of shares

and permits to the subscribers. If the subscription exceeds the number of shares

and permits offered, the shares and permits shall be distributed to the

subscribers in proportion to what they have subscribed to or as determined by

the subscription prospectus.

Insertion:

1. The Company shall, within (3) working days from the date of the registration certificate

issued by the Authority, apply to the Market for the listing of the shares, and permits

issued by the Authority, in accordance with the listing rules.

2. The Market may at any time suspend or cancel the listing of shares or permissions of the

incorporated Company for the purpose of acquisition or merger in its absolute

discretion.

Proceeds of the IPO:

1. The company established for the purpose of acquisition or merger shall be obliged to

deposit at least 90% of the proceeds of the IPO within two working days of receipt by the

Subscription receiving entities of the proceeds of the IPO in a custody account, credit

account or any other account, any of which shall allow the separation of the proceeds from

the funds of the incorporated company for the purpose of acquisition or merger which can

only be used for one or more of the following purposes:

a. to finance business consolidation.

b. Fulfilling redemption requests by investors in accordance with the provisions

of Article 16 of this Resolution; and

c. Return the proceeds of the IPO to investors after a failure in accordance with

the requirements of Article 18 of this Resolution.

d. Pay any fees incurred for maintaining the account.

2. The proceeds of the public subscription may be kept in an account that may or may not

generate interest or achieve any other form of financial return.

Offer shares and permissions for a subscription after listing:

The SPAC company after the completion of its listing may do any of the following:

A. Receive money from any person in exchange for the issuance of shares or permissions

through a private placement to complete the consolidation of the business and new

shares may be issued at an issue price lower than the purchase price paid by the

investors.

B. Receive funds from sponsors in a private placement in exchange for issuing permits.

2. Funds collected in accordance with the provisions of paragraph (1) of this Article shall not

be considered as the proceeds of the IPO for the purposes of Article 12 of this Resolution.

3. Subscribers to the Private Placement may not dispose of any of the shares or permissions

that have been offered privately in any way except after they have been registered with the

Authority and listed on the Market.

Business consolidation:

1. The Company may not carry out a consolidation of business unless the shareholders have

provided all the information related to the consolidation of business and applied to the

Authority, to obtain its approval and obtain the approval of shareholders representing at

least 75% of the shares represented at the General Assembly Meeting of the incorporated

company for the purpose of acquisition or merger.

2. The members of BOD of the SPAC shall propose the consolidation of business to the

shareholders of the company in AGM to be held in accordance with the AOA, in

accordance with the provisions of this resolution.

3. SPAC may not complete any consolidation of business unless the fair market value of the entity

and the entities targeted for the acquisition have been determined by an independent

have consultant approved by ESCA, and this value as of the closing date was equal to or more

than 80% of the value of the funds deposited in the account.

4. SPAC may not complete any consolidation of business unless the company has a money on

demand, which enables it to complete the consolidation of business on the date of closure and

considering any refunds realized before the date of closure in accordance with the provisions of

Article (16) approved ofthis Resolution.

5. The members of BOD shall notify the approved this in a timely manner regarding the proposed

process of unifying the workers and in all cases at least (15) working days before the date of the

proposed closure.

Recovery:

Any investor has the right to request from SPAC to recover his shares in the following cases exclusively:

a. If the AGM decides to extend the period during which SPAC may complete the consolidation of business, and that investor does not approve the decision of AGM.

b. If AGM of the SPAC decides to approve the consolidation of business, and regardless of whether the investor wishing to recover voted in favor of or against the decision to approve the consolidation of business, the redemption shall not be permissible in accordance with the provisions of this paragraph unless the process of consolidation of business has been completed and achieved.

c. An investor who wishes to redeem the shares must notify the incorporated SPAC at least (5) business days prior to the date on which he wishes to redeem such shares.

d. Refund must take place on the date specified in the notice or on the next working day, and the Company or Investor may not change the redemption date specified in the notice after it has been submitted.

Failure to Standardize Business:

1. In the event of a failure, the BOD of SPAC shall:

a. Notifies ESCA and the Market in writing of the failure on the date of failure.

b. Take the necessary measures to refund funds from the Account to investors in proportion

to their ownership within (10) working days from the date of failure.

c. Designate within (30) working days from the date of failure one or more liquidators under

provisions of the Commercial Companies Law to initiate the voluntary liquidation

process. Sponsors may not participate in any distributions made during the liquidation

process in respect of any Sponsors' shares, including any shares in place of any permits,

which were issued to them or owned prior to the date of listing.

2. The following provisions shall also be considered in the event of a failure:

a. The relevant market shall suspend all trading in shares and authorizations as of the date of

failure and initiate proceedings to cancel the listing of shares and permits of SPAC as

determined by the listing rules.

b. SPAC shall lose any rights, privileges, or exclusions it has enjoyed in accordance with the

provisions of this Resolution.



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