On March 6, 2025, for the first time since 2008, the staff (the “Staff”) of the Securities and Exchange Commission updated its guidance on the use of lock-up agreements in connection with Rule 145(a) transactions (i.e., certain mergers, consolidations, reclassifications of securities and acquisitions of assets). Prior to the SEC’s update, if a person entering into a lock-up agreement delivered a written consent approving the merger before the registration statement was filed on Form S-4 (or, for foreign private issuers, Form F-4), the Staff would object to the registration. The Staff took the position that such offers and sales had already been made and completed privately, and “once begun privately, the transaction must end privately.”
However, the SEC’s recent update significantly departs from this prior position. Under its updated guidance, if “target company insiders” (i.e., executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the target company) deliver written consents approving a Rule 145(a) transaction before the Form S-4 (or Form F-4) is filed, the Staff will not object to the registration so long as certain conditions are met including that the acquiring company deliver a prospectus to all security holders of the target company entitled to vote on the Rule 145(a) transaction in accordance with its obligations under the Securities Act.
The updated guidance from the Staff will be particularly useful in facilitating de-SPAC transactions, which typically involve a publicly listed special purpose acquisition company (SPAC) acquiring a private target company in exchange for SPAC stock registered on a Form S-4 (or Form F-4). Often, the target company insiders at a private target company hold a controlling block of the company’s stock and can control the outcome of the shareholder vote on a proposal to approve the de-SPAC transaction. Under the Staff’s prior guidance, the target company insider shareholders were not able to act by written consent to approve the de-SPAC transaction until after the Form S-4 (or Form F-4) was declared effective by the SEC, which resulted in deal risk to the SPAC. Under the updated guidance, the target company insider shareholders would be able to act by written consent to approve the de-SPAC transaction at the time that the parties enter into the definitive agreement for the de-SPAC transaction, thereby reducing the SPAC’s deal risk.
For more, see the Staff’s modified language. See the complete list of the Compliance and Disclosure Interpretations of the Securities Act Sections.