PropTech Investment II (PTIC) Adds FPA to Appreciate Deal

PropTech Investment II (NASDAQ:PTIC) announced this morning that it has entered into a forward purchase agreement (FPA) for an OTC Equity Prepaid Forward Transaction with Vellar Opportunity Fund for its recently approved combination with rental marketplace Appreciate.

For the terms of the agreement, Vellar intends to purchase shares of PTIC II Class A common stock after the date of the FPA and after the expiration of PTIC II’s redemption deadline, up to a maximum of 9,000,000 shares at a redemption price of approximately $10.08 per share. This will be based on an amount of $232,870,089 currently held in the trust account and will be paid to investors who elected to redeem their shares at PTIC II’s redemption deadline. But, the seller may not beneficially own more than 9.9% of the issued and outstanding shares on a post-business combination pro forma basis.

Vellar has also agreed to waive any redemption rights with respect to any shares in connection with the business combination.

The FPA provides that no later than one local business day following the closing of the business combination, PTIC II will pay to Vellar a cash amount equal to the product of the number of recycled shares and the initial price, less, on the prepayment date, one-half of the product of 10% of the number of recycled shares and the initial price.

The remaining one-half of the leakage amount will be paid by Vellar to the combined company on the earlier to occur of the date that the SEC declares a registration statement registering the resale of all shares, and the OET Date.

In addition to the prepayment amount, PTIC II will pay an amount equal to the product of 500,000 and the redemption price, for the purpose of repayment of Vellar having actually purchased from third parties prior to the closing. The additional consideration will be free and clear of all obligations of Vellar in connection with signing a definitive agreement for the transaction. Vellar has agreed to waive any redemption rights with respect to the shares.

Following the closing and prior to the earliest to occur of the third anniversary of the closing and the date specified by Vellar in a written notice to be delivered to PTIC II at Vellar’s discretion after the occurrence of any of a trigger event or delisting, Vellar may, in its sole discretion, sell some or all of the shares. On the last trading day of each calendar month following the business combination, solely from any proceeds from any sales of shares by Vellar that are not retained for its account to repay the leakage amount, Vellar will pay to the combined company the product of the number of shares sold multiplied by the reset price.

The “reset price” will be, on the first scheduled trading day of each month starting on the first calendar month following the closing, the lowest of the then-current reset price, the initial price and the VWAP Price of the shares of the last ten trading days of the prior calendar month, but not lower than $5.00. This is provided that to the extent that PTIC II or the combined company offers and sells any shares or securities convertible into shares at a price lower than the initial price, the reset price, will be modified to equal a reduced price at which such securities may be issued. Vellar will retain any sale proceeds in excess of the product of the number of shares sold by Vellar and the reset price.

In the event that the VWAP Price falls below $2.00 per share for 20 trading days during any 30 trading day period, then Vellar may elect to accelerate the maturity date to the date of such trigger event.

At the maturity date, the combined company is required to purchase from Vellar all of the unsold shares for consideration equal to an amount, in cash or shares at the sole discretion of combined company. In the case of cash, this should be equal to the product of the unsold shares and $1.75, or $2.00, solely in the event of a registration failure. In the case of shares, the number of shares should be equal to a value of the product of the unsold shares and $1.75, or $2.00, solely in the event of a registration failure, divided by the VWAP Price of the shares for the 30 trading days prior to the maturity date; provided that the maturity shares used to pay the maturity consideration are freely tradable.

If the maturity shares are not freely tradable, Vellar will instead receive such number of shares equal to the product of three and 9,000,000 minus the terminated shares; provided, however, that if the penalty shares are freely tradable within 120 days after the maturity date, Vellar will return to Appreciate such number of penalty shares that are valued in excess of maturity consideration based on the 10-day VWAP ending on the date that such shares satisfied the share conditions.

In addition, Renters Warehouse and the combined company agree, from and after November 20, 2022, not to incur in excess of $25 million of debt through and including the 90th day following the prepayment date without the prior written consent of Vellar.

A break-up fee equal to all of Vellar’s reasonable and documented fees and expenses relating to the FPA capped at $50,000 plus $500,000, shall be payable by the combined company to Vellar in the event the FPA is terminated by PTIC II. However, the break-up fee is not payable if the business combination agreement is terminated prior to the closing of the business combination.

PropTech Investment II shareholders approved its combination with Appreciate during a special meeting held on November 18, but the parties do not expect to close the transaction until tomorrow, November 22. Following the closing, the combined company will be renamed “Appreciate Holdings, Inc.” and its common stock and warrants will begin trading on November 23, on The Nasdaq under the ticker symbols “SFR” and “SFRWW”, respectively.

PTIC inked its $416 million combination with Appreciate on May 17. Minnetonka, Minnesota-based Appreciate hosts a technology platform for purchasing and managing rental properties for retail and institutional buyers.