A special purpose acquisition company, or SPAC, is a publicly-traded shell company that is created with the sole purpose of raising capital through an initial public offering (IPO) to acquire an existing company. SPACs have become increasingly popular in recent years as they offer a quicker and more cost-effective way for companies to go public without the traditional IPO process.

As with any business transaction, a SPAC acquisition requires a solid legal agreement between the SPAC and the target company. This agreement is known as a SPAC sponsor operating agreement, and it outlines the terms and conditions of the acquisition including the rights and responsibilities of the SPAC sponsor and the target company.

Key provisions in a SPAC sponsor operating agreement include the structure of the transaction, the purchase price of the company being acquired, and the terms of the post-merger relationship between the two entities. The agreement also typically includes provisions related to the management of the target company, the governance of the combined entity, and the distribution of any proceeds from the SPAC`s trust account.

One of the most important elements of a SPAC sponsor operating agreement is the concept of a promissory note. This is a document that outlines the terms of a loan that the SPAC sponsor provides to the target company. The promissory note is often a key factor in determining the purchase price of the company being acquired, and it can also include provisions related to the repayment of the loan over time.

Another key provision in a SPAC sponsor operating agreement is known as the earn-out provision. This provision allows the target company`s management team to receive additional compensation based on the achievement of certain performance metrics or milestones. This is often used as an incentive to motivate the target company`s management team to work towards the success of the combined entity.

Overall, a SPAC sponsor operating agreement is a critical document that outlines the terms and conditions of a SPAC acquisition. It is crucial for both the SPAC sponsor and the target company to carefully review and negotiate the terms of the agreement to ensure a successful and profitable transaction. As SPACs continue to gain popularity, it is likely that these agreements will become increasingly complex and important in the years to come.