SEC Issues C&DI on Use of Form S-3 by SPACs

By Brian Hecht, Mark J. Reyes & Mark D. Wood on September 25, 2020

On September 21, the Division of Corporation Finance of the Securities and Exchange Commission issued a new Compliance and Disclosure Interpretation (C&DI) addressing, and limiting, the ability of shell companies, including special purpose acquisition companies (SPACs), to use Form S-3 during the 12 months following a business combination.

Form S-3 provides a short-form registration statement for the registration of securities by eligible public companies. Form S-3 allows registrants to incorporate by reference on both an historical and a going-forward basis to their reports filed pursuant to the Securities Exchange Act of 1934 (Exchange Act). Accordingly, Form S-3 is a preferred form for registered offerings because of the reduced time and expense in preparing the filing (compared to a long form registration on Form S-1) and because Form S-3 can more easily be used for shelf offerings.

Generally, to be eligible to use Form S-3, a registrant must, among other things, have been subject to the reporting requirements of Section 12 or 15(d) of the Exchange Act and have filed all materials to be filed pursuant to Sections 13, 14 and 15(d) of the Exchange Act for at least 12-calendar months immediately preceding the filing of the Form S-3.

Typically, there are several reasons following a business combination between a SPAC and an operating company where the post-business combination combined company may be required to file a registration statement to register securities. These may include the registration of the issuance of shares of common stock issuable upon the exercise of warrants by public shareholders, the resale of rollover shares held by sellers in the business combination and the resale of shares held by private placement investors, the SPAC sponsor and by officers and directors. The use of registration statements takes on enhanced importance in this context because the safe harbor for the public resale of shares provided by Rule 144 of the Securities Act of 1933 is unavailable to former shell companies (including SPACs) until one year after the combined company has filed required Form 10 Information with the SEC following the business combination.

Whether and to what extent the post-business combination combined company is entitled to use the SPAC’s pre-combination reporting history to satisfy the eligibility requirements to use Form S-3 for such registrations during the 12 months following the business combination has been the source of some uncertainty and inconsistent market practice. The C&DI addresses some of these issues in different contexts, and generally limits the availability of Form S-3 during the 12 months following the business combination, as follows:

Registrant is a new entity following the business combination: The C&DI provides that, where the registrant is a new entity following the business combination between the SPAC and the operating company, the new registrant would need 12-calendar months of Exchange Act reporting following the business combination in order to become Form S-3 eligible.
Registrant is a successor registrant: General Instruction I.A.6 of Form S-3 provides that a “successor registrant” can rely on the reporting history of its predecessor for determining Form S-3 eligibility where the succession was “primarily for the purpose of changing the state of incorporation” or forming a holding company when the “assets and liabilities of the successor at the time of succession were substantially the same” as the those of the predecessor or when all predecessors met the required conditions for the use of Form S-3 at the time of succession. The C&DI provides that even in cases where a post-business combination registrant is a successor registrant to a SPAC, the registrant would not be able to rely on the pre-reporting history of the SPAC because the succession would not have been for purposes of changing the state of incorporation or forming a holding company and the private operating company would not have met the requirements to use Form S-3 prior to the business combination.
Registrant is not a new entity and not a successor registrant: The C&DI provides that “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.” In all cases involving the combination of a SPAC with an operating company, in addition to the specific situations described above, where the combined company lacks a 12-month reporting history, the C&DI provides, the staff of the Division of Corporation Finance “is unlikely” to be able to accelerate the effectiveness of a registration on Form S-3, which requires that the Staff 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.” Accordingly, registrants should expect that the use of Form S-3 would not be available in these cases involving a SPAC until 12-calendar months have elapsed following the business combination.

The C&DI, Question 115.18, is available here.