Shortly before the Christmas holiday, the SEC’s Division of Corporation Finance issued CF Disclosure Guidance Topic: No. 11, which provides Corp Fin’s views regarding disclosure considerations for SPACs in connection with both their IPOs & subsequent de-SPAC transactions. Here’s an excerpt from a Skadden memo summarizing the guidance on disclosure considerations for de-SPAC deals:
Many of the disclosure considerations relevant at the IPO stage remain important through the business combination stage, such as disclosure involving the terms of any additional financing sought or obtained to facilitate the business combination and how that funding affects the interests of existing shareholders.
As during the IPO stage (when SPACs disclose the disproportionate interest and control sponsors and other insiders would stand to gain in a business combination generally) once a specific acquisition is proposed and the valuation is known, the SPAC should disclose the expected total percentage ownership of the insiders in the combined entity and the total expected return on the insiders’ initial investment, giving effect to the exercise of warrants and the conversion of convertible debt. The SPAC also should update investors with respect to the services provided by the underwriter in the business combination, the compensation due for such services and the terms of the compensation, including whether any of it is delayed or contingent.
Additionally, the SPAC also should provide clarity with regard to the acquisition selection process and inform investors about how the target was selected. Details should include the circumstances involving first contact; explaining why a particular target was selected over others; what factors the board determined were material in its selection process; whether the interests and potential conflicts of individual insiders were considered; and the process for negotiating the value of the acquisition. To the extent any conflicts of interest were identified, the SPAC should disclose them and how they were handled, including whether any waivers to a policy that addressed conflicts of interest were granted.
We’re posting memos on Corp Fin’s guidance in our “SPACs” Practice Area.
-John Jenkins, DealLawyers.com January 8, 2021