Item 1A. Risk Factors
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to include risk
factors in this Report. However, below is a partial list of material risks, uncertainties and other factors that could have a material
effect on the Company and its operations:
● We are a newly incorporated Cayman Islands exempted company
with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.
● Past performance by our management team and their respective
affiliates may not be indicative of future performance of an investment in us.
● Our shareholders may not be afforded an opportunity to vote
on our proposed initial business combination, which means we may complete our initial business combination even though a majority of
our shareholders do not support such a combination.
● Your only opportunity to affect the investment decision regarding
a potential business combination may be limited to the exercise of your right to redeem your shares from us for cash.
● If we seek shareholder approval of our initial business combination,
our initial shareholders will agree to vote in favor of such initial business combination, regardless of how our public shareholders
vote.
● If we seek shareholder approval of our initial business combination,
our management team, sponsor or any of their respective affiliates may elect to purchase public shares or rights, which may influence
a vote on a proposed business combination and reduce the public “float” of our Class A ordinary shares or public rights.
● You will not be entitled to protections normally afforded
to investors of many other blank check companies.
● You will not have any rights or interests in funds from the
trust account, except under certain limited circumstances. Therefore, to liquidate your investment, you may be forced to sell your public
shares or rights, potentially at a loss.
● If the net proceeds of our initial public offering and the sale of the
private placement units not being held in the trust account are insufficient to allow us to operate for the 18 months following
the closing of our initial public offering, it could limit the amount available to fund our search for a target business or businesses and our ability
to complete our initial business combination, and we will depend on loans from our sponsor, its affiliates or members of our management
team to fund our search and to complete our initial business combination.
● The ability of our public shareholders to redeem their shares
for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult for us
to enter into a business combination with a target.
● We are not required to obtain an opinion from an independent
registered public accounting or investment banking firm, and consequently, you may have no assurance from an independent source that
the price we are paying for the business is fair to our shareholders from a financial point of view.
● We may not be able to consummate an initial business combination
within the prescribed time frame, in which case we would cease all operations except for the purpose of winding up and we would redeem
our public shares and liquidate.
● We may engage in a business combination with one or more
target businesses that have relationships with entities that may be affiliated with, managed by or otherwise associated with, members
of our management group, sponsor or initial shareholders.
● Since our sponsor, executive officers, directors, and initial
shareholders will lose their entire investment in us if our initial business combination is not completed (other than with respect to
public shares they may acquire during or after our initial public offering), a conflict of interest may arise in determining whether a particular business
combination target is appropriate for our initial business combination.
● Our Sponsor controls a substantial interest in us and thus
may exert a substantial influence on actions requiring a shareholder vote, potentially in a manner that you do not support.
● Our management team, sponsor, initial shareholders and their
respective affiliates allocate their time to other businesses thereby causing conflicts of interest in their determination as to how
much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial business
combination.
● Our management team, sponsor, initial shareholders and their
respective affiliates may have competitive pecuniary interests that conflict with our interests.
● We may not be able to complete an initial business combination
with a U.S. target company if such initial business combination is subject to U.S. foreign investment regulations and review
by a U.S. government entity such as the Committee on Foreign Investment in the United States (CFIUS), or ultimately prohibited.
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The target business with which we may ultimately
consummate an initial business combination, may be materially adversely affected by current global geopolitical conditions resulting from
the ongoing Russia-Ukraine conflict, the Israel-Hamas conflict, the escalating military conflict involving the United States, Israel and
Iran, the resumption of Houthi attacks on Red Sea shipping, and other hostilities in the Middle East region and globally.
United States and global markets are experiencing
volatility and disruption following the geopolitical instability resulting from the ongoing Russia-Ukraine conflict, the Israel-Hamas
conflict, the escalating military conflict between the United States, Israel and Iran, and other hostilities in the Middle East region
and globally. In response to the ongoing Russia-Ukraine conflict, the North Atlantic Treaty Organization (“NATO”) deployed
additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced
various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain
financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. Certain countries,
including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine and to Israel,
increasing geopolitical tensions among a number of nations.
In addition to the Russia-Ukraine conflict and
the Israel-Hamas conflict, the geopolitical landscape has been significantly affected by the escalation of hostilities between the United
States, Israel and Iran. Following prior exchanges of strikes between Israel and Iran in 2024 and a twelve-day conflict involving U.S.
and Israeli strikes on Iranian nuclear facilities and military sites in June 2025, the United States and Israel launched a large-scale
joint military operation against Iran beginning on February 28, 2026. The operation has targeted Iranian military infrastructure, nuclear
program assets, senior government and military officials. Iran has responded with retaliatory missile and drone strikes against targets
in Israel and U.S. military installations across the Persian Gulf region, including in Bahrain, Jordan, Kuwait and Qatar. This conflict
represents a material escalation in regional instability, the full scope, duration and consequences of which remain highly uncertain.
The U.S.-Israel-Iran conflict has had immediate
and substantial effects on global trade, energy markets and financial markets. Iran’s Islamic Revolutionary Guard Corps has effectively
closed the Strait of Hormuz — through which approximately 20% of global seaborne oil trade transits — to commercial shipping,
leading major container carriers and tanker operators to suspend transits and reroute vessels. Concurrently, Iran-backed Houthi forces
in Yemen have announced a resumption of attacks on commercial shipping in the Red Sea and the Bab el-Mandeb Strait, creating a dual chokepoint
crisis that has disrupted global shipping lanes. Major shipping companies have suspended operations through both maritime corridors and
rerouted vessels around the Cape of Good Hope, significantly increasing transit times and freight costs and disrupting global supply chains.
War risk insurance for the Strait of Hormuz has been withdrawn or repriced at prohibitive levels, and airspace closures across multiple
Gulf states have grounded thousands of flights. Brent crude oil prices have surged, and analysts have projected prices could reach $100
per barrel or higher if supply disruptions persist. Global stock markets have experienced significant declines, with indices in Asia,
Europe and the United States falling sharply, and safe-haven assets such as gold and U.S. Treasuries have seen increased demand. The conflict
has also prompted heightened sanctions enforcement activity and new compliance risks across financial markets.
The invasion of Ukraine by Russia, the Israel-Hamas
conflict, the U.S.-Israel-Iran conflict, other hostilities in the Middle East region and the resulting measures that have been taken,
and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union, Israel and its neighboring states,
Iran and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although
the length and impact of these ongoing conflicts are highly unpredictable, they could lead to market disruptions, including significant
volatility in commodity prices (including oil and natural gas), credit and capital markets, as well as supply chain interruptions, disruption
of critical maritime trade routes, increased shipping and insurance costs, energy supply shocks, inflationary pressures, increased cyber-attacks
against U.S. companies and increased defense spending. Additionally, any resulting sanctions could adversely affect the global economy
and financial markets and lead to instability and lack of liquidity in capital markets.
Any of the abovementioned factors, or any other
negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine,
the Israel-Hamas conflict, the U.S.-Israel-Iran conflict and other hostilities in the Middle East region and subsequent sanctions or related
actions, could adversely affect our search for an initial business combination and any target business with which we may ultimately consummate
an initial business combination.
The extent and duration of the ongoing conflicts,
resulting sanctions and any related market disruptions are impossible to predict, but could be substantial, particularly if current or
new sanctions continue for an extended period of time, if geopolitical tensions result in expanded military operations on a global scale,
or if critical maritime chokepoints such as the Strait of Hormuz and the Bab el-Mandeb Strait remain disrupted for a prolonged period.
Any such disruptions may also have the effect of heightening many of the other risks described in this section. If these disruptions or
other matters of global concern continue for an extensive period of time, our ability to consummate an initial business combination, or
the operations of a target business with which we may ultimately consummate an initial business combination, may be materially adversely
affected.
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We depend on a variety of U.S. and multi-national financial institutions
to provide us with banking services. The default or failure of one or more of the financial institutions that we rely on may adversely
affect our business and financial condition, including our ability to successfully consummate a business combination.
We maintain the majority of our cash and cash equivalents in accounts
with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions exceed insured limits. Market
conditions can impact the viability of these institutions. In the event of the failure of any of the financial institutions where we maintain
our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all.
Any inability to access or delay in accessing these funds could adversely affect our liquidity, business and financial condition.
In addition, although we may pursue an acquisition opportunity in any
business, industry, sector or geographical location, we have prioritized and will continue to prioritize companies in the European technology
sector. Any such acquisition target may also be adversely affected by market conditions that impact the value or viability of companies
in the technology sector, which may impede our ability to successfully consummate a business combination.
We may be subject to the 1% excise tax included in the Inflation
Reduction Act of 2022, which may decrease the value of our securities following our initial business combination and hinder our ability
to consummate an initial business combination.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR
Act”) was signed into law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases
(including redemptions and economically similar transactions) of stock by publicly traded U.S. corporations on or after January 1, 2023.
Because our securities are trading on Nasdaq, we are a “covered corporation” within the meaning of the IR Act. The excise
tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased (although it may reduce
the amount of cash distributable in a current or subsequent redemption). The amount of the excise tax is generally 1% of the fair market
value of the shares repurchased, determined at the time of the repurchase. Corporations are permitted to net the fair market value of
certain new stock issuances by such corporation against the fair market value of stock repurchases (or deemed repurchases) during the
same taxable year to reduce or eliminate the amount of excise tax that would otherwise apply. In addition, certain exceptions apply to
the excise tax.
The U.S. Department of the Treasury (the “Treasury”) has
authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of, the excise tax.
On December 27, 2022, the Treasury published Notice 2023-2 as interim
guidance until the publication of forthcoming proposed regulations on the excise tax. Nevertheless, it remains uncertain whether, and/or
to what extent, the excise tax could apply to redemptions of our stock, including any redemptions in connection with a business combination,
or in the event we do not consummate a business combination.
Whether and to what extent we would be subject to the excise tax will
depend on a number of factors, including (i) whether the redemption is treated as a repurchase of stock for purposes of the excise tax,
(ii) the fair market value of the redemptions treated as repurchases in connection with a business combination, (iii) the structure of
a business combination and whether any such transaction closes, (iv) the nature and amount of any private investment in public equity
(“PIPE”) or other equity issuances in connection with a business combination (or otherwise issued not in connection with a
business combination but issued within the same taxable year of a business combination), (v) whether we consummate a business combination,
and (vi) the content of regulations and other guidance issued by the Treasury. Because the excise tax would be payable by us and not by
the redeeming holder, such payments could reduce the cash available to complete a business combination and inhibit our ability to complete
a business combination.
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On November 24, 2025, the Internal Revenue Service issued final regulations
providing guidance regarding the application of the excise tax on repurchases of corporate stock made after December 31, 2022.
In issuing the November 2025 regulations, the Treasury Department and
IRS agreed with certain commenters that transition relief is appropriate for certain types of stock issued prior to the enactment of the
IRA if the covered corporation did not have discretion as to whether to repurchase such stock after that date, and included in the final
regulations transition relief for mandatorily redeemable stock subject by its terms to a unilateral put option of the holder if such stock
was outstanding as of the date of enactment of the IRA.
We may not be able to complete an initial
business combination with a U.S. target company since such initial business combination may be subject to U.S. foreign investment regulations
and review by a U.S. government entity such as the Committee on Foreign Investment in the United States (CFIUS), or ultimately prohibited.
Our Sponsor, K2 Capital Sponsor LLC, is a Delaware limited liability
company, and the ultimate beneficial owner of our Sponsor is our Chief Executive Officer Karan Thakur, who is a resident of Canada. Further,
the majority of our management and board of directors are not U.S. citizens. Therefore, we may be considered a “foreign person”
under the regulations administered by CFIUS and could continue to be considered as such in the future for so long as our sponsor has the
ability to exercise control over us for purposes of CFIUS’s regulations. As such, an initial business combination with a U.S. business
may be subject to CFIUS review, the scope of which was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”),
to include certain non-passive, non-controlling investments in sensitive U.S. businesses and certain acquisitions of real estate even
with no underlying U.S. business, this could delay us in consummating our business combination. FIRRMA, and subsequent implementing regulations
that are now in force, also subjects certain categories of investments to mandatory filings. If our potential initial business combination
with a U.S. business falls within CFIUS’s jurisdiction, we may determine that we are required to make a mandatory filing or that
we will submit a voluntary notice to CFIUS, or to proceed with the initial business combination without notifying CFIUS and risk CFIUS
intervention, before or after closing the initial business combination. CFIUS may decide to block or delay our initial business combination,
impose conditions to mitigate national security concerns with respect to such initial business combination or order us to divest all or
a portion of a U.S. business of the combined company without first obtaining CFIUS clearance, which may limit the attractiveness of or
prevent us from pursuing certain initial business combination opportunities that we believe would otherwise be beneficial to us and our
shareholders. As a result, the pool of potential targets with which we could complete an initial business combination may be limited and
we may be adversely affected in terms of competing with other special purpose acquisition companies which do not have similar foreign
ownership issues.
Moreover, the process of government review, whether by the CFIUS or
otherwise, could be lengthy and we have limited time to complete our initial business combination. If we cannot complete our initial business
combination because the review process drags on beyond 18 months from the closing of our initial public offering or because our initial business combination
is ultimately prohibited by CFIUS or another U.S. government entity, we may be required to liquidate. If we liquidate, our public shareholders
may only receive $10.00 per share, and our rights will expire worthless. This will also cause you to lose the investment opportunity in
a target company and the chance of realizing future gains on your investment through any price appreciation in the combined company.
If we are deemed to be an investment company under Section 3(a)(1)(A)
of the Investment Company Act of 1940 (the “Investment Company Act”), our activities would be severely restricted.
If we are deemed to be an investment company under
the Investment Company Act, our activities may be restricted, including:
● restrictions on the nature of our investments; and
● restrictions on the issuance of securities, each of which
may make it difficult for us to complete our initial business combination.
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In addition, we may have imposed
upon us burdensome requirements, including:
● registration as an investment company;
● adoption of a specific form of corporate structure; and
● reporting, record keeping, voting, proxy and disclosure requirements
and other rules and regulations.
In order not to be regulated as an investment
company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business
other than investing, reinvesting or trading in securities and that our activities do not include investing, reinvesting, owning, holding
or trading “investment securities” constituting more than 40% of our total assets (exclusive of U.S. government securities
and cash items) on an unconsolidated basis. Our business will be to identify and complete an initial business combination and thereafter
to operate the post-transaction business or assets for the long term. We do not plan to buy businesses or assets with a view to resale
or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.
We do not believe that our anticipated principal
activities will subject us to the Investment Company Act. To this end, the proceeds held in the trust account may only be invested in
United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act
having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under
the Investment Company Act which invest only in direct U.S. government treasury obligations. Pursuant to the trust agreement, the
trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments,
and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and selling businesses
in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” within the
meaning of the Investment Company Act. Our initial public offering is not intended for persons who are seeking a return on investments in government
securities or investment securities. The trust account is intended as a holding place for funds pending the earliest to occur of: (i) the
completion of our initial business combination; (ii) the redemption of any public shares properly submitted in connection with a
shareholder vote to amend our amended and restated memorandum and articles of association (A) to modify the substance or timing of
our obligation to provide for the redemption of our public shares in connection with an initial business combination or to redeem 100%
of our public shares if we have not consummated our initial business combination within the completion window or (B) with respect
to any other provision relating to shareholders’ rights or pre-initial business combination activity; or (iii) absent an initial
business combination within the completion window, our return of the funds held in the trust account to our public shareholders as part
of our redemption of the public shares.
Further, under the subjective test of a “investment
company” pursuant to Section 3(a)(1)(A) of the Investment Company Act, even if the funds deposited in the trust account
were invested in the assets discussed above, there is a risk that we could be deemed an investment company and subject to the Investment
Company Act based on the length of time such funds are invested in such assets.
If we were deemed to be an unregistered investment
company and subject to compliance with and regulation under the Investment Company Act, we would be subject to additional regulatory burdens
and expenses for which we have not allotted funds. Unless we are able to modify our activities so that we would not be deemed an investment
company, we would either register as an investment company or wind down and abandon our efforts to complete an initial business combination
and instead liquidate the company. As a result, our public shareholders may receive only approximately $10.00 per public share, or less
in certain circumstances, on the liquidation of our trust account, would lose the investment opportunity in a target company with which
we may decide to consummate an initial business combination and would be unable to realize the potential benefits of an initial business
combination, including the possible appreciation of the combined company’s securities, and our rights would expire worthless.
If our circumstances change over time, we will
update our disclosure to reflect how such changes impact the risk that we may be considered to be operating as an unregistered investment
company.
For the complete list of risks relating to our operations, see the
section titled “Risk Factors” contained in our Registration Statement.
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