DEF: HSPO Seeks Extension, Terminates Merger Agreement

Horizon Space Acquisition I Corp. (HSPO) seeks shareholder approval to extend its business combination deadline to April 27, 2026, following the mutual termination of its merger agreement with Squirrel Enlivened Technology Co., Ltd.

Summary

• An Extraordinary General Meeting is scheduled for October 27, 2025, to vote on six proposals, including extending the business combination deadline.
• The company mutually terminated its Agreement and Plan of Merger with Squirrel Enlivened Technology Co., Ltd. effective October 3, 2025, with no termination fees or other payments due.
• The current deadline for completing a business combination is October 27, 2025.
• The proposed MAA Amendment and Trust Amendment Proposals would allow for up to six additional one-month extensions, pushing the final deadline to April 27, 2026.
• A proposal to eliminate the $5,000,001 net tangible asset (NTA) requirement for redemptions is also on the agenda, allowing the company to rely on its Nasdaq listing for penny stock rule exemption.
• As of October 7, 2025 (Record Date), the estimated redemption price per public share is approximately $12.38, which is $0.11 higher than the Nasdaq closing price of $12.27 on the same date.
• The company has not yet selected any other target business for its business combination.
• Insiders own approximately 50.63% of the issued and outstanding Ordinary Shares and intend to vote in favor of all proposals.
• The Trust Account held approximately $23.11 million as of October 7, 2025, and $22.49 million as of June 30, 2025.
• A total of $2,160,000 in extension fees has been deposited into the Trust Account, with $190,000 from the Sponsor and $1,970,000 from Squirrel Enlivened Technology Co., Ltd. and its subsidiary.
• The deferred underwriting commission of $2,415,000 will be converted into 805,000 ordinary shares of the post-combination entity at $3.00 per share immediately prior to a business combination.

Sentiment

Score: 3

Explanation: The termination of a definitive merger agreement and the ongoing need for multiple extensions, coupled with the absence of a new target, indicate significant operational challenges and heightened uncertainty for the SPAC. While the current redemption price offers a slight premium to the market, the overall situation points to a difficult path forward and increased risk of liquidation.

Positives

• The Board recommends all proposals, including extensions, to provide more time and flexibility for completing a business combination.
• The proposed elimination of the net tangible asset requirement offers greater flexibility for redemptions and future business combinations.
• Public shareholders have the opportunity to redeem their shares for cash at an estimated price of $12.38 per share, which is slightly above the market closing price of $12.27 as of the Record Date.
• The termination of the merger agreement with Squirrel Enlivened Technology Co., Ltd. occurred by mutual agreement with no termination fees or other payments due to either party.

Negatives

• The company mutually terminated its previously announced business combination agreement with Squirrel Enlivened Technology Co., Ltd.
• The company has not yet identified a new target business for its business combination, indicating a prolonged search process.
• The need for multiple extensions to the business combination deadline suggests difficulties in securing a suitable merger partner.
• There is a risk of liquidation if a business combination is not completed by the extended deadline of April 27, 2026.
• Warrants and rights held by public shareholders will expire worthless in the event of liquidation.
• Significant redemptions by public shareholders could reduce the funds available in the Trust Account, potentially hindering the ability to consummate a business combination on commercially acceptable terms.
• The company faces a risk of delisting from Nasdaq if a business combination is not completed by December 21, 2025 (36 months from IPO) or if it fails to meet other continuing listing requirements.
• There is a risk of being deemed an unregistered investment company under new SEC SPAC rules, which could force liquidation.
• The company's significant ties to China may limit the attractiveness of non-China-based targets and could subject it to PRC regulatory risks if a Chinese target is acquired.

Risks

• Inability to obtain shareholder approval for the NTA Requirement Amendment Proposal and the Extension Proposals.
• Failure to complete an initial business combination by the extended deadline of April 27, 2026.
• Significant redemptions by public shareholders could leave insufficient cash to consummate a business combination.
• Volatility and illiquidity of the company's public securities.
• The Trust Account may be subject to claims of third parties.
• If the NTA Requirement Amendment Proposal is approved, failure of the combined entity (PubCo) to meet Nasdaq's initial listing requirements could result in an inability to list shares on Nasdaq and the obligation to comply with penny stock trading rules.
• Delisting from Nasdaq if a business combination is not completed within 36 months of the IPO (December 21, 2025) or if continuing listing requirements are not met.
• Being deemed an unregistered investment company for purposes of the Investment Company Act, which could force the company to abandon business combination efforts and liquidate.
• Significant ties to China (CEO/CFO, Sponsor) may limit the pool of potential target businesses or subject the company to PRC regulatory risks if a Chinese target is acquired.
• Uncertainty regarding the interpretation and application of PRC laws and regulations, including the need for approvals from Chinese authorities (CSRC, CAC) for listing or share issuances if a PRC Target Company is acquired.
• Difficulty for investors in the United States to enforce legal rights or judgments against officers and directors located outside the United States, particularly in China.
• Potential impact of U.S. foreign investment regulations (CFIUS) on business combinations with U.S. businesses, especially those in sensitive industries.
• Future developments in U.S. laws, such as the Holding Foreign Companies Accountable Act (HFCAA) and Accelerating Holding Foreign Companies Accountable Act (AHFCAA), may restrict the ability to complete business combinations with companies whose auditors are not subject to PCAOB inspection.

Future Outlook

The company aims to extend its deadline to complete an initial business combination until April 27, 2026, to allow more time and flexibility. It has not yet identified a new target business following the termination of its previous merger agreement. The ability to complete a business combination is uncertain and depends on various factors, including shareholder redemptions and market conditions. The company intends to rely on its Nasdaq listing to avoid being deemed a penny stock issuer, provided it continues to meet listing requirements.

Management Comments

• "The Board currently believes that there will not be sufficient time before October 27, 2025 for the Company to complete the initial business combination."
• "The Board has determined that, given the Companys expenditure of time, effort and money on identifying the target business, it is in the interests of our shareholders to approve the Extension Proposals in order to adopt the MAA Amendment and the Trust Agreement."
• "The Board has determined that the NTA Requirement Amendment Proposal, the MAA Amendment Proposal, the Trust Amendment Proposal, the Director Re-election Proposal, the Auditor Appointment Proposal, and, if presented, the Adjournment Proposal, are advisable and in the best interests of the Company, and recommends that you vote or give instruction to vote FOR each of the Proposals."
• "The Board expresses no opinion as to whether you should redeem your public shares."

Industry Context

This filing highlights the ongoing challenges faced by Special Purpose Acquisition Companies (SPACs) in completing their de-SPAC transactions within initial timelines, often necessitating multiple extensions and leading to significant shareholder redemptions. The termination of a definitive merger agreement, as seen with Squirrel Enlivened Technology Co., Ltd., is a common occurrence in the SPAC market, often resulting in a renewed search for a target or eventual liquidation. The discussion of SEC's 'penny stock' rules and the Investment Company Act (SPAC Final Rules) reflects the evolving and increasingly stringent regulatory environment for SPACs, which adds compliance burdens and risks. The company's stated ties to China introduce specific geopolitical and regulatory complexities, potentially limiting target options and exposing it to additional scrutiny in cross-border transactions, a trend observed across the industry.

Comparison to Industry Standards

• The company's need for multiple extensions and the termination of a definitive business combination agreement are consistent with the broader trend of increased difficulty and failure rates for SPACs in a competitive and uncertain market.
• The proposed redemption price of $12.38 per share, offering a slight premium over the market price of $12.27, is a common strategy employed by SPACs to incentivize redemptions and manage their capital structure, especially when the market price trades below the trust value.
• The conversion of deferred underwriting commissions into equity at a discounted price ($3.00 per share compared to the $10.00 IPO price) is a standard mechanism for underwriters to maintain an economic interest in the post-combination entity, reflecting the financial pressures and incentives within the SPAC ecosystem.
• The company's reliance on its Nasdaq listing for exemption from 'penny stock' rules is a typical approach for SPACs to maintain their listing status and avoid more stringent regulatory requirements, aligning with common industry practices for maintaining market access and liquidity.

Management Changes

Corporate Governance

Related Party Transactions

• The Sponsor and its designees (including Squirrel Enlivened Technology Co., Ltd. and its subsidiary) provided $2,160,000 in extension fees through unsecured promissory notes.
• The Sponsor has the right to convert its portion of the promissory notes into private units at $10.00 per unit upon a business combination.
• Insiders (Sponsor, officers, and directors) beneficially own approximately 50.63% of outstanding Ordinary Shares and have waived their redemption rights, creating a conflict of interest as their investment would be worthless if no business combination is completed.
• Insiders will be reimbursed for out-of-pocket expenses incurred in identifying, investigating, and consummating a business combination.

Stakeholder Impact

• Shareholders: Face uncertainty regarding the completion of a business combination, but have the option to redeem shares at a slight premium to market price. Warrants and rights are at risk of expiring worthless if liquidation occurs.
• Management/Insiders: Have a strong incentive to complete a business combination to preserve the value of their significant equity investment and potential reimbursements.
• Underwriter (Network 1 Financial Securities, Inc.): Will convert deferred underwriting commissions into equity in the post-combination entity, aligning their financial interest with a successful business combination.
• Creditors: The Trust Account is generally protected from claims of third parties, but the company's working capital outside the Trust Account may be used to repay certain loans and expenses.

Next Steps

• Hold the Extraordinary General Meeting on October 27, 2025, to vote on the proposed amendments and director re-elections.
• If approved, file amendments to the Current MAA and Trust Agreement with the Registrar of Companies in the Cayman Islands.
• Continue the search for a new target business for an initial business combination.
• If a business combination is not completed by April 27, 2026 (or earlier if extensions are not fully utilized), the company will cease operations and liquidate.

Key Dates

Recommendation

The termination of a definitive business combination agreement, coupled with the company's inability to identify a new target and the need for multiple extensions, signals significant operational challenges and heightened risk. While the current redemption price offers a slight premium to the market, the long-term outlook is highly uncertain, with a substantial risk of liquidation if a suitable business combination is not found by the extended deadline. The potential for warrants and rights to expire worthless further diminishes investor value. Given these factors, a seasoned investor would likely recommend selling to lock in the redemption value or minimize exposure to further downside risk.

Keywords

SPAC, business combination, extension, redemption, net tangible assets, Nasdaq, SEC, proxy statement, corporate governance, risk management, merger termination, trust account, public shares, warrants, rights, Cayman Islands, UHY LLP