Digital World Acquisition in an 8-K said it has terminated the remaining $515.5 million of an initial $1 billion pipe
Digital World in October announced it was working to eliminate the PIPE altogether. Both the SPAC and Donald Trump's social media company spun the news as a positive development, which raised eyebrows among many observers.
In the latest 8-K filing, the SPAC explains why eliminating the PIPE became necessary. one of the closing conditions for the investment was that the initial resale registration statement would have been declared effective by the sec. The regulator notified Digital World that a registration statement for a secondary offering cannot be filed if the securities to be offered pursuant to the registration statement have not yet been sold and that the resale registration statement that the SPAC filed on May 27, 2022 had not been reviewed by the SEC. As a result, the PIPE's closing condition could not be satisfied as written on or before the closing of the Trump deal, unless the SPAC and the PIPE investors agreed to waive the condition. None of the remaining PIPE investors were willing to do so, according to the filing.
In the course of discussions with the last PIPE investors to terminate their commitments, investors representing about 42% of the remaining funding amount expressed interest in convertible promissory notes as a possible substitute. Any such potential transaction could be valued at up to $50 million and would be contingent on the remaining PIPE investors and the SPAC being able to agree to commercial and legal terms.
If Digital World enters into a convertible note for up to $50 million, the company would be expected to draw $10 million for immediate use and a final draw of $40 million upon closing the business combination with Trump Media.
The potential notes would be interest-bearing and mature on the anniversary of the business combination's closing. The parties also considered the likelihood that the note would be subject to negative covenants and contain registration rights.
Absent any other funding, cancellation of the PIPE would leave Digital World with its approximately $308 million cash in trust, less about $39 million in anticipated expenses connected to the Trump Media deal. That would supply Trump's company with about $269 million at closing — a significant reduction from the $1.2 billion at deal announcement. Read more.