Given the proliferation of SPAC IPOs (about which we have previously posted) and de-SPACing transactions, and the complexity of the SEC rules related to former shell companies, like SPACs, it is no surprise that practitioners have encountered difficulties in navigating a number of the applicable rules. One of the most important concerns for both SPAC sponsors and the target and its shareholders relates to the availability to the former SPAC following completion of the de-SPACing transaction of a shelf registration statement. Historically, there has been some inconsistency in approach. Earlier in the week, the Staff of the Securities and Exchange Commission’s Division of Corporation Finance provided clear, albeit not favorable, guidance in the form of a Compliance & Disclosure Interpretation, which we have reprinted below in its entirety for ease of reference.
We hope that this C&DI is not the last to come on SPAC related matters. Other areas as to which questions regularly arise include the financial statement requirements both with respect to SPAC and target companies, as well as with respect to other (non-SPAC related) reverse mergers.
Question: Following the merger of a private operating company or companies with or into a reporting shell company (for example, a special purpose acquisition company), may the resulting combined entity rely on the reporting shell company’s pre-combination reporting history to satisfy the eligibility requirements of Form S-3 during the 12 calendar months following the business combination?
Answer: If the registrant is a new entity following the business combination transaction with a shell company, the registrant would need 12 calendar months of Exchange Act reporting history following the business combination transaction in order to satisfy General Instruction I.A.3 before Form S-3 would become available. If the registrant is a “successor registrant,” General Instruction I.A.6(a) would not be available because the succession was not primarily for the purpose of changing the state of incorporation of the predecessor or forming a holding company. General Instruction I.A.6(b) also would not be available because the private operating company or companies would not have met the registrant requirements to use Form S-3 prior to the succession. Where the registrant is not a new entity or a “successor registrant,” the combined entity would have less than 12 calendar months of post-combination Exchange Act reporting history. Form S-3 is premised on the widespread dissemination to the marketplace of an issuer’s Exchange Act reports over at least a 12-month period. Accordingly, in situations where the combined entity lacks a 12-month history of Exchange Act reporting, the staff is unlikely to be able to accelerate effectiveness under Section 8(a) of the Securities Act, which requires the staff, among other things, to give “due regard to the adequacy of the information respecting the issuer theretofore available to the public,…and to the public interest and the protection of investors.” [September 21, 2020]