In May 2010, the SEC staff applied an unannounced, recently
adopted policy to prohibit a former special purpose acquisition
company (SPAC) from conducting an offering on Form S-3. Instead of
the abbreviated Form S-3, a company registering securities, within
12 months after completing a business combination with a SPAC, is
required to file on Form S-1, which must include comprehensive
corporate information and cannot be used for periodic
"from-the-shelf" offerings.
A SPAC raises funds in an IPO to acquire an operating business, if
the SPAC subsequently finds a suitable target. In the instant case,
as is customary, the SPAC's acquisition of the business the
board of directors identified was subject to stockholder approval.
In submitting the acquisition for approval, the SPAC was required
to file with the SEC and provide to stockholders substantially the
same information that the operating business would have been
required to include in a Form S-1, if it were selling securities to
the public. The staff's new position will require the company
to replicate the information (albeit, updated) provided to
stockholders a few months earlier and prevent the company from
filing a shelf registration statement on Form S-3, even though
current rules appear to permit the company to do so.
Form S-3 is generally available to companies that have been public,
i.e., subject to Exchange Act reporting requirements, for
at least 12 months and that meet other criteria. However, Form S-3
and a number of other SEC rules have special provisions relating to
"shell companies." A "shell company" is one
with little or no operating assets that has a primary business
purpose of engaging in a combination with an operating business.
Most shell companies are public companies that maintained Exchange
Act reporting status after liquidating a business, but a SPAC also
falls within the definition and, accordingly, is a shell
company.
In the case at hand, the former SPAC had been public since November
2007, but had been an operating company for only three months, when
it filed the Form S-3 registration statement. The staff advised the
company, consequently, that it was not yet eligible to use Form
S-3. Although debatable by reference to a variety of SEC rules, the
staff's policy is based on the view that Form S-3 should not be
available to a company until its current operations have been
subject to Exchange Act reporting for at least a year. The staff
says that it will screen incoming registration statements in light
of the policy, which will be posted on the SEC website,
soon.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.