Yesterday, Corp Fin posted two new CDIs, the first relating to SPAC (special purpose acquisition companies) eligibility to use Form S-3 and the second relating to whether COVID-19 benefits should be considered perks.

Question 115.18 Securities Act Forms—Form S-3

Following the merger of a private operating company (or companies) with or into a reporting shell company (such as in SPAC transaction), the resulting combined entity does not have any quick-and-easy paths to satisfying the eligibility requirements of Form S-3. If the registrant is a new entity after the business combination with a shell, it would need 12 calendar months of Exchange Act reporting history following the transaction to satisfy General Instruction I.A.3 of Form S-3. If the registrant is a “successor registrant,” then General Instruction I.A.6(a) would not be available (1) because the succession was not primarily for the purpose of changing the state of incorporation of the predecessor or forming a holding company and (2) because the private operating company would not have met the registrant requirements to use Form S-3 prior to the succession. If the registrant is not a new entity or a “successor registrant,” the combined entity would not have 12 calendar months post-combination Exchange Act reporting history. What is premise underlying these positions? The basis for Form S-3 is the “widespread dissemination” of the issuer’s Exchange Act reports for at least 12 months, and, in the absence of that history, the available information would be inadequate and “the staff is unlikely to be able to accelerate effectiveness under Section 8(a) of the Securities Act….’”

219.05  Reg S-K Item 402(c)

To determine whether benefits provided to executive officers because of the COVID-19 pandemic are perks (for purposes of Item 402(c)(2)(ix)(A) disclosure and for determining who is an NEO under Item 402(a)(3)(iii) and (iv)), the same fact-based two-step analysis set forth in Release 33-8732A continues to apply.  That is,

  • “An item is not a perquisite or personal benefit if it is integrally and directly related to the performance of the executive’s duties.
  • Otherwise, an item that confers a direct or indirect benefit and that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, is a perquisite or personal benefit unless it is generally available on a non-discriminatory basis to all employees.”

Items that were considered perks in the past may not be perks under pandemic-related work-at-home conditions. For example, enhanced technology necessary to allow an NEO to work at home as a

“primary workplace upon imposition of local stay-at-home orders would generally not be a perquisite or personal benefit because of the integral and direct relationship to the performance of the executive’s duties. On the other hand, items such as new health-related or personal transportation benefits provided to address new risks arising because of COVID-19, if they are not integrally and directly related to the performance of the executive’s duties, may be perquisites or personal benefits even if the company would not have provided the benefit but for the COVID-19 pandemic, unless they are generally available to all employees.”

Posted by Cydney Posner