The SEC Division of Corporation Finance (the "Division") provided disclosure guidance for special purpose acquisition companies ("SPACs") conducting initial public offerings ("IPOs") and related business combination transactions.
In the guidance, the Division emphasized the importance of clear disclosures regarding potential conflicts of interest among the SPAC's sponsors, directors, officers and affiliates in the context of an IPO, as these individuals maintain responsibility for (i) the valuation of the private operating company and (ii) the amount of money the SPAC will pay for it.
When preparing to conduct an IPO, the Division recommended that a SPAC consider whether it has disclosed, among other things:
- conflicts of interest relating to fiduciary or contractual obligations to other entities;
- financial incentives of sponsors, directors, officers and their affiliates for the completion of the business combination transaction;
- the amount of control over approval of a business combination transition maintained by sponsors, directors, officers and their affiliates;
- whether shareholders may redeem shares in the event that there is an extension of the time period which the SPAC has to complete a business combination transaction;
- services provided by the underwriter and fees paid in exchange for such services;
- securities owned by sponsors, directors, officers and their affiliates, and related conflicts of interest; and
- compensation of sponsors, directors, officers and their affiliates, including whether such compensation is contingent on the completion of the business combination transaction.
When negotiating a business combination transaction, the Division encouraged a SPAC to consider whether it has adequately disclosed matters, including:
- any additional financing needed for the completion of the transaction;
- material terms of conversion for any convertible securities;
- material factors considered by the board of directors in its consideration of approving the transaction;
- any potential waivers to the SPAC's policy for addressing conflicts of interest;
- potential benefits to the sponsors, directors, officers or their affiliates from the transaction; and
- compensation of the underwriter for completion of the transaction.
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