SAIHEAT Ltd current report, 27 September 2021

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Business Context and Reporting Period

This Form 8-K, filed by TradeUP Global Corporation (the SPAC and proposed successor to SAIHEAT Ltd.), reports events dated September 27, 2021. The filing does not provide operating results for SAIHEAT or TradeUP for a comparable reporting period.

Material Transaction and Key Terms

  • TradeUP entered into a business combination agreement with TGC Merger Sub, Inc. and SAITECH Limited.
  • Merger Sub will merge with and into SAITECH, with SAITECH surviving as a wholly owned subsidiary of TradeUP.
  • Merger consideration is valued at $228.0 million, based on $10.00 per share, payable in TradeUP Class A and newly created Class B ordinary shares.
  • The consideration may increase for certain transaction expenses exceeding $4.5 million that are not funded by the Sponsor or its affiliates.
  • SAITECH preferred shares are expected to convert into SAITECH Class A ordinary shares before the merger. Existing SAITECH shareholders are expected to receive TradeUP Class A shares, while the founder will receive TradeUP Class B shares.
  • Class B shares carry ten votes per share, compared with one vote per Class A share, and are generally convertible into Class A shares on a one-for-one basis.

Financial Metrics, Liquidity, and Capitalization

The filing does not provide revenue, net income, margins, operating cash flow, free cash flow, debt balances, or historical liquidity metrics for SAIHEAT or TradeUP.

  • Closing requires at least $17.5 million of cash in TradeUP’s trust account after shareholder redemptions and before specified closing payments, subject to possible waiver by SAITECH.
  • TradeUP must have at least $5.000001 million of net tangible assets after redemptions.
  • SAITECH must have at least $1.0 million of net cash at closing.

Material Changes, Outlook, and Risks

  • The principal change versus the prior disclosed status is the execution of the definitive business combination agreement and related support, lock-up, registration-rights, and employment arrangements.
  • Closing is subject to shareholder approval, regulatory clearance under the HSR Act, satisfaction of financial conditions, confirmation that TradeUP continues to qualify as a foreign private issuer, and other customary conditions.
  • The agreement may be terminated if closing has not occurred by March 31, 2022, if required shareholder approvals are not obtained, or if other specified termination events occur. TradeUP may terminate if SAITECH does not deliver PCAOB-compliant audited financial statements by October 15, 2021.
  • The Sponsor and certain insiders agreed to support the transaction, vote their founder shares in favor, waive applicable anti-dilution rights, and not redeem their shares.
  • Proposed lock-ups generally apply to half of the covered shares until the earlier of specified trading-price conditions or the first anniversary of closing.
  • SAITECH’s current CEO and CFO are expected to become TradeUP’s CEO and CFO after closing. Base salaries are $200,000 annually, with target bonuses of 50% for the CEO and 25% for the CFO.
  • Key risks include failure to close, shareholder redemptions, regulatory or litigation risks, transaction costs, integration and execution risks, competition, retention of key personnel, changing laws, economic conditions, and COVID-19 impacts.

Investor Verification Items

  1. Verify the subsequent filing and closing status of the proposed merger, including shareholder approval and regulatory clearances.
  2. Review the Form S-4 and proxy statement for audited SAITECH financial statements, projections, valuation assumptions, dilution, and risk factors.
  3. Confirm the amount remaining in TradeUP’s trust account after redemptions and whether the $17.5 million and $5.000001 million closing thresholds were satisfied or waived.
  4. Confirm SAITECH’s net cash at closing and the treatment of transaction expenses above $4.5 million.
  5. Assess the voting concentration and potential dilution associated with the ten-votes-per-share Class B structure, warrants, and other securities.
  6. Review the final registration-rights, sponsor-support, lock-up, and employment agreements for material amendments or additional obligations.