NOTE 6. COMMITMENTS AND CONTINGENCIES

Registration Rights

The holders of the Founder Shares, Private Units, and units that may be issued on conversion of Working Capital Loans (and in each case holders of their component securities, as applicable) have registration rights to require the Company to register a sale of any of the Company’s securities held by them and any other securities of the Company acquired by them prior to the consummation of the initial Business Combination pursuant to a registration rights agreement signed prior to or on the effective date of the IPO. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriting Agreement

The Company had granted the underwriters a 45-day option to purchase up to 1,500,000 additional Units to cover over-allotments at the IPO price, less the underwriting discounts and commissions. The underwriters waived the over-allotment option in full at the closing of the IPO.

At the closing of the IPO, the underwriters became entitled to underwriting compensation equal to 0.75% of the gross proceeds of the IPO, or $750,000 in the aggregate, payable in cash. In addition, as part of the underwriting compensation payable at the closing of the IPO, the Company agreed to issue to the Representative 75,000 shares of its common stock (the “Representative Shares”).

In addition to the underwriting compensation payable at the closing of the IPO, the Company agreed to pay a deferred underwriting commission, payable solely in equity, upon the completion of the initial Business Combination. The deferred underwriting commission will consist of shares of common stock equal to 1.50% of the aggregate number of shares sold in the IPO, including any shares sold pursuant to the underwriters’ over-allotment option (the “deferred underwriting compensation shares”). The deferred underwriting compensation shares will be issued only upon the consummation of the initial Business Combination and will be subject to a three-month lock-up period following the completion of the Business Combination.

In addition, the Company has agreed to bear all costs and expenses relating to the IPO, including legal and accounting fees, printing and filing expenses, SEC and FINRA filing fees, transfer agent and rights agent fees, and other customary expenses incurred in connection with the IPO. The Company has also agreed to reimburse the underwriters for out-of-pocket expenses incurred in connection with this offering, subject to a cap of $100,000.

Representative Shares

The Company issued to the Representative an aggregate of 75,000 Representative Shares at the closing of the IPO. The Company accounted for such shares as an offering cost of the IPO, with a corresponding credit to shareholder’s equity. The fair value of the Representative Shares was estimated at $750,000 by reference to the $10.00 per share offering price of the Public Shares, without adjustment for the 180-day lock-up and transfer restrictions imposed under FINRA Rule 5110. Because the Representative Shares are recorded as an offering cost of the IPO with a corresponding credit to shareholder’s equity, their measurement has no net effect on total shareholder’s equity.

The Representative Shares are identical to the Public Shares underlying the Units sold in the IPO, except that such shares have been deemed underwriting compensation by FINRA and are subject to the lock-up restrictions imposed by FINRA Rule 5110(e)(1). Pursuant to that rule, the Representative Shares may not be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of, nor may any transaction be entered into that would result in the economic disposition of such shares, for a period of 180 days immediately following the commencement of sales of the public units, except as permitted by FINRA Rule 5110(e)(2).

In addition, The Company will issue to the Representative an aggregate of 150,000 deferred underwriting compensation shares (or up to 172,500 deferred underwriting compensation shares if the underwriters’ over-allotment option is exercised in full at the closing of the IPO) upon the completion of the initial Business Combination. The deferred underwriting compensation shares have been deemed underwriting compensation by FINRA and are subject to the applicable restrictions under FINRA Rule 5110.

The underwriters have agreed to (i) waive their redemption rights with respect to their Representative Shares in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to their Representative Shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated articles of incorporation, (iii) waive their rights to liquidating distributions from the Trust Account with respect to their Representative Shares if the Company fails to complete its initial Business Combination within the Combination Period, and (iv) vote any Representative Shares held by them in favor of the initial Business Combination.