SEC Staff Review of Super 8-K’s
On September 14, 2011 the Securities and Exchange Commission (SEC), Division of Corporate Finance issued disclosure guidance entitled “Staff Observations in the Review of Forms 8-K Filed to Report Reverse Mergers and Similar Transactions.” This blog is a summary of that guidance.
The SEC guidance is a summary of common SEC staff comments in response to Form 8-Ks filed following a reverse merger or similar transaction which results in a company ceasing to be a shell company (commonly referred to as a Super 8-K ). The SEC has discovered that filings often fail to provide all the necessary disclosures under Items 2.01, 5.01 and 9.01 of Form 8-K. Moreover, the SEC frequently asks companies to support their conclusion that they are not a shell company as defined by Rule 12b-2 of the Securities Exchange Act of 1934.
Item 2.01 of Form 8-K entitled, Completion of Acquisition or Disposition of Assets, generally requires a company to provide information following a transaction that is outside the ordinary course of business. The SEC reminds companies that an asset acquisition can result in a company no longer being a shell company in the same way that a business acquisition can. In the event that the asset acquisition results in the Company no longer being a shell company, all information required in a Form 10 Registration Statement, must be filed in a Super 8-K within four (4) days of the closing of the transaction. The SEC disclosure guidance states that “we frequently remind companies that Instruction 2 to Item 2.01 makes clear that the term “acquisition” includes every purchase, acquisition by lease, exchange, merger, consolidation, succession or other acquisition”. Moreover, when a company’s reverse merger or similar transaction includes an asset acquisition as defined in Item 2, then an Item 2.01 disclosure is also required.
Item 5.01 requires disclosures regarding a change of control. The SEC frequently reminds filers that they must include all the disclosures required by this Item when filing a Super 8-K.
Item 9.01 is the Financial Statements and Exhibits section of the Form 8-K. The SEC frequently reminds filers that they must include historical financial statements of the acquired private operating business. In particular, the Form 8-K must include two years of audited financial statements and unaudited, reviewed stub periods to the date of filing. In addition, a Company must include pro forma financial information accounting for the combined companies.
Furthermore, in addition to filing Form 10 information on the acquired company, a company must file Form 10 exhibits on the acquired company, such as significant contracts. If these documents are not in English (as is often seen with Chinese companies and corresponding reverse mergers), the exhibits must also include a translation into English.
The SEC also provided guidance on the Form 10 information disclosure required by a Super 8-K. The SEC indicated that it often requests that a filer enhance its discussion of its business operations under Item 101 of Regulation S-K to include additional information about the planned future operations of the now non-shell Company. In particular, the SEC likes to see clear disclosure on how a company generates or intends to generate revenue.
In a company’s management discussion and analysis provided pursuant to Item 3.03, the SEC often asks companies to identify any elements of historical income or loss that will discontinue as a result of the reverse merger or similar transaction.
In its discussion of directors and executive officers, the SEC often has to remind companies to include all of the information required on the new officers and directors and to discuss their respective experiences, qualifications, attributes and skills that resulted in them being in an executive position.
Finally, the SEC often issues comments requesting more extensive and detailed disclosure on executive compensation and related party transactions following a reverse merger or similar transaction.
Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions
Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.
Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (“Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (“Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.
Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.
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