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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.
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