As special purpose acquisition companies (“SPAC”) continue to grow in popularity, recently the Division of Corporation Finance of the Securities and Exchange Commission issued a staff statement which focused on various issues that private companies should carefully consider in connection with engaging a business combination with a SPAC.
The statement highlighted certain restrictions to which SPACs are subject, including:
·Within four business days of the consummation of the business combination, financial statements for the acquired business must be filed pursuant to Item 9.01(c) of Form 8-K. SPACs are not entitled to the 71-day extension typically available under Item 9.01.
The combined company will not be eligible to use Form S-8 for the registration of compensatory securities offerings until at least 60 calendar days after the combined company has filed current Form 10 information.
The combined company cannot, until three years after completing the business combination:
Incorporate reports, proxy or information statements filed pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) into Registration Statements on Form S-1;
Qualify as a well-known seasoned issuer;
Use a free writing prospectus;
Conduct a roadshow that constitutes a free writing prospectus, including electronic roadshows;
Rely on the safe harbor of Rule 163A from Securities Act Section 5(c) for pre-filing communications.
The statement highlights that the combined company subject to the Exchange Act reporting obligations will also have to comply with (1) the “books and records” provision of the Exchange Act, which requires issuers to maintain books, records and accounts in reasonable detail that accurately and fairly reflect the issuer’s transactions and dispositions of its assets, and (2) the “internal controls” provisions, which require companies to implement and maintain a system of internal accounting controls “sufficient to provide reasonable assurances about management’s control, authority, and responsibility over the issuer’s assets.”
If the SPAC is listed on the New York Stock Exchange LLC or The NASDAQ Stock Market LLC, or other national securities exchange, combined company must satisfy certain quantitative and qualitative initial listing standards upon consummation of the de-SPAC transaction, including requirements regarding a majority independent board of directors, an independent audit committee consisting of directors with specialized experience, independent director oversight of executive compensation and the director nomination process, and a code of conduct applicable to all directors, officers, and employees.