Securities and Exchange Commission Chair Clayton had commented in several interviews over the last couple of months regarding possible SEC Staff guidance regarding SPAC disclosures. In a prior post, we also had noted that in remarks given at a conference this fall, SEC Commissioner Lee also had noted that perhaps given the proliferation in the number of SPAC IPOs and the retail interest that these transactions garnered, additional disclosure regarding potential or actual conflicts of interest might be appropriate in SPAC IPO registration statements and the proxy statements related to SPAC related initial business combinations. Just yesterday, the SEC’s Division of Corporation Finance released CF Disclosure Guidance Topic No. 11, which outlines considerations for issuers and their counsel in connection with both SPAC IPO registration statements as well as proxy statements/prospectuses prepared in connection with initial business combinations.
The CF Disclosure Guidance Topic, in the context of the SPAC IPO, raises a number of questions that address conflicts of interest; the incentives of SPAC sponsors in light of the limited timeframe set for completion of an initial business combination; deferral of underwriting compensation and other underwriting related fees and services; fees and services to directors, officers and related parties; issuances of securities to SPAC sponsors and affiliates; voting control by the SPAC sponsor; other planned financing transactions; and related matters.
In the context of the initial business combination transactions, the CF Disclosure Guidance Topic suggests that registrants consider additional disclosures relating to financings undertaken concurrent with the initial business combination and the terms of, and participation by affiliates in, such financings. The Guidance also emphasizes the need to focus on conflicts of interest disclosures, asking a number of questions, including, but not limited to, the following:
- What material factors did the board of directors consider in its determination to approve the identified transaction?
- How did the board of directors evaluate the interests of sponsors, directors, officers and affiliates?
- Have you clearly described any conflicts of interest of the sponsors, directors, officers and their affiliates in presenting this opportunity to the SPAC and how the SPAC addressed these conflicts of interest?
- If the SPAC had a policy to address conflicts of interest and waived any provisions of that policy, have you disclosed the waiver and the reasons therefor?
- Have you described any interest the sponsors, directors, officers or their affiliates have in the target operating company, including, if material, the approximate dollar value of the interest, when the interest was acquired and the price paid?
- Have you provided detailed information on how the sponsors, directors, officers or their affiliates will benefit from this transaction?
- Have you quantified any material payments that they will receive as compensation, the return they will receive on their initial investment and any continuing relationship they will have with the combined company?
- Have you disclosed the total percentage ownership interest the SPAC sponsors, directors, officers and affiliates may hold in the combined company, including through the exercise of warrants and conversion of convertible debt?
Finally, the Guidance suggests additional disclosure related to underwriter and financial intermediary compensation. See the full text of the Guidance here.