Digital World Acquisition in a regulatory filing outlined several amendments to its deal with Trump Media and Technology Group, principally for the financial benefit of company Chairman Donald Trump, who is referred to in the filing as TMTG’s “Company Principal.”
Digital World will create a new class of “High Vote Common Stock” to be issued to Trump. These shares will have the same voting, dividend, liquidation and other rights as Class A common stock, except that each share of High Vote Common Stock will entitle its holder to a number of votes equal to the greater of one vote and the number of votes that would cause the aggregate number of shares issued to Trump (excluding Earnout Shares) would represent 55% of the voting power.
Additionally, each convertible note that is outstanding immediately prior to the effective time will convert into a number of shares of common stock in accordance with the terms of each note.
To sweeten the deal, in connection with the earnout, the First Share Price Target will be $12.50, the Second Share Price Target will be $15 and the Third Share Price Target will be $17.50. These represent a reduction from the original thresholds of $15, $20 and $30.
The earnout calls for distribution of 40 million shares. At the new price points, the earnouts would be valued at $187.5 million, $225 million and $170 million to Trump Media shareholders. With Trump controlling 55% of the stock, most of the earnout money would flow to him.
The SPAC is coming up on a completion deadline next month.
Digital World in the filing also said it will use its reasonable best efforts to discuss with investors of the PIPE investment a reduction or termination of the PIPE prior to Aug. 31. The $1 billion PIPE has already seen losses of $138 million after some investors pulled out when the initial completion deadline was not met.
The merger agreement can still be terminated by Trump’s company, but only by Sept. 30 or if Digital World has not filed an amended registration statement by Oct. 9 and Trump Media would then have until Oct. 13 to terminate the transaction.
Digital World’s ace in the hole is a provision that it can walk away from the deal if Trump does not waive his right to terminate a license agreement by Sept. 30. Good for 18 months post-merger, the license stipulates that Trump will post on Truth Social and cannot re-post on any competing site for six hours.
At the time the license agreement was signed, Trump had been banned from Twitter, now X, for his conduct related to Jan. 6, 2021. Since then, X owner Elon Musk has restored Trump’s access to the platform, although the former president so far has posted exclusively to his own social media platform, Truth Social.
Two months ago a successful deal completion seemed dubious, between delays and federal investigations into Digital World’s activities prior to the merger announcement in October 2021. However, following Digital World’s settlement with the SEC, including an $18 million fine for misleading its investors, SEC approval of the SPAC’s registration now seems more likely.
If Digital World dissolves or the deal doesn’t close by Jan. 1, 2025, the SEC fine would be waived. Read more.
