امـروز شنبه, ۱۶ فروردین ۱۴۰۴
Our lawyers provide innovative and practical counsel on a wide variety of capital raising and securities law compliance matters. With each, we build long-term relationships, generating efficiencies and helping them realize their business goals. Contact information is provided in the statement for companies that wish to direct questions to the SEC.
RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Companies should also review existing agreements to determine whether a late filing will constitute a breach or event of default under any agreements, including any credit facilities.
As noted above, a post-de-SPAC combined company will also need to file an Item 4.02 disclosure on Form 8-K regarding the restatement (and potentially an Item 3.01 disclosure on Form 8-K if it is unable to timely file any required periodic reports and receives a delisting notice as a result thereof). Further, the post-de-SPAC combined company should review its obligations and representations under existing agreements, including under any registration rights and debt facility agreements, to determine if there is any technical breach of any representations or covenants under those agreements. The terms of those warrants included a provision that in the event of a tender or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of common stock, all holders of the warrants would be entitled to receive cash for their warrants.
In other words, in the event of a qualifying cash tender offer (which could be outside the control of the entity), staff statement on accounting and reporting considerations for warrants all warrant holders would be entitled to cash, while only certain of the holders of the underlying shares of common stock would be entitled to cash. OCA staff concluded that, in this fact pattern, the tender offer provision would require the warrants to be classified as a liability measured at fair value, with changes in fair value reported each period in earnings. If a SPAC has filed a Form S-4 registration statement (the Form S-4) in connection with a business combination but the Form S-4 is not yet effective, then the SPAC should follow the steps outlined above regarding a SPAC that is already public and is in the de-SPAC process (whether looking for a merger partner or in discussions regarding a BCA).
Registrants will need to evaluate whether their warrants include the provisions highlighted in the Staff Statement and, if applicable, consider whether a reclassification of the warrants as a liability is appropriate. Following a decision to reclassify the warrants, the registrant will need to evaluate the materiality of the accounting error in accordance with Staff Accounting Bulletin (“SAB”) No. 99 – Materiality (codified in SAB Topic 1, Section M – Materiality, available here). A conclusion that the error is material within the meaning of SAB No. 99 will necessitate the restatement of previously-issued financial statements. However, each SPAC will need to conduct its own analysis and certain SPACs (for example, those with lower warrant coverage) may be able to determine that the reclassification is not material. Following a decision to reclassify the warrants, the registrant will need to evaluate the materiality of the accounting error in accordance with Staff Accounting Bulletin (“SAB”) No. 99 – Materiality (codified in SAB Topic 1, Section M – Materiality, available here).
John Coates is Acting Director of the Division of Corporation Finance, and Paul Munter is Acting Chief Accountant, Office of the Chief Accountant, at the U.S. The views expressed in the post are those of Mr. Coates and Mr. Munter, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff. Kroll specializes in assisting clients with the valuation of alternative investments, specifically securities and positions for which there are no “active market” quotations. Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States.
If the warrant terms provide for changes based on other variables that are also not inputs to the fair value of a fixed-for-fixed forward or option on equity shares, such provisions would also preclude the warrants from being considered indexed to the underlying stock, and result in the classification of the warrants as a liability. Companies that cannot file their periodic reports within the extended time period should issue a press release providing sufficient but not extraneous disclosure regarding the situation (e.g., be cautious if providing estimate of when the restatement will be complete, in case restatement process takes longer than anticipated and thus requiring another press release). Registrants should consult with their auditors and legal advisors to evaluate the terms of their warrants and determine whether the warrants need to be re-classified as a liability. If so, the next steps may vary depending on where the SPAC is in its lifecycle and the materiality of the accounting error. Alternatively, if retaining language or provisions similar to those cited in the Staff Statement, the SPAC and its auditors should analyze whether the warrants should be classified as liabilities and apply the appropriate accounting treatment in the financial statements. U.S. Generally Accepted Accounting Principles (“GAAP”) includes guidance that entities must consider in determining whether to classify contracts that may be settled in its own stock, such as warrants, as equity of the entity or as an asset or liability.
In the event liability classification is required, the warrants should be measured at fair value, with changes in fair value each period reported in earnings. On April 12, 2021, the SEC issued a Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”), which highlighted a number of important financial reporting considerations for SPACs. Most notably, the statement describes two fact patterns that are common in warrants issued in connection with a SPAC’s formation and initial registered offering.
This will add a delay to the filing and review of registration and proxy statements (and amendments thereto). Since John Coates, Acting Director of the SEC Division of Corporation Finance, and Paul Munter, Acting SEC Chief Accountant, published their Staff Statement on Accounting and Reporting Considerations for Warrants Issued by SPACs on April 12, 2021 (available here), SPAC issuers and their advisers have been evaluating how best to address the issues raised. The Staff is of the view that certain common SPAC warrant terms could cause SPAC warrants to be classified as a liability rather than equity under U.S. The impact of the Staff Statement on any particular SPAC will depend upon the terms of each SPAC’s warrants and such SPAC’s specific circumstances.
RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries. M&A advisory, restructuring and insolvency, debt advisory, strategic alternatives, transaction diligence and independent financial opinions.
If the business combination has already closed, the post-de-SPAC combined company must undertake the same analysis as that of an already public SPAC, including as described under “Why is this creating such an issue? ” and “What if the SPAC or post-de-SPAC combined company cannot file the periodic report by the extended deadline? ” From a materiality perspective, it is possible that the post-de-SPAC combined company could conclude the error is immaterial, given that the post-de-SPAC combined company is typically larger than the SPAC and as such, the threshold for materiality may be higher. However, this may vary for historical versus future periods and thus a post-de-SPAC combined company may nonetheless need to restate financial statements for periods prior to the de-SPAC.