Thursday, September 13, 2012

SEC Staff Questions EGC Status in Merger with Blank Check Company

Upon reviewing the Form S-4 filed by Tile Shop Holdings, Inc. (Tile Shop), the SEC staff inquired about the firm’s consideration of guidance issued by the Division of Corporation Finance on the Jumpstart Our Business Startups (JOBS) Act. Pursuant to a contribution and merger agreement, The Tile Shop, LLC was to merge with JWCAC, a blank check company, to form a new holding company named TS Holdings. Tile Shop had indicated in its original Form S-4 that the resulting company, TS Holdings, may qualify as an emerging growth company (EGC) under JOBS Act Title I. The staff asked why TS Holdings would be an EGC in light of the guidance provided in Question 24 of Generally Applicable Questions on Title I of the JOBS Act (FAQ 24).

FAQ 24 asked whether, in the context of a transaction that results in an issuer becoming the successor to its predecessor’s Exchange Act obligations under Rules 12g-3 and 15d-5, the successor issuer can be an EGC if the predecessor was ineligible for EGC status because it first sold common equity securities under an effective registration statement on or before December 8, 2011. FAQ 24 answered this question in the negative. In other words, if the predecessor was ineligible for EGC status because its first sale of common equity securities occurred outside of the time frame specified in the JOBS Act, then the successor also is ineligible for EGC status.

Tile Shop replied that it had considered FAQ 24 and determined that TS Holdings would not be a successor under Exchange Act Rule 12g-3(a). The company stated that Exchange Act Rule 12b-2 defines “succession” to “include only the direct acquisition of the assets comprising a going business.” Tile Shop further noted that JWCAC is a blank check company with no material operations except for the goal of identifying target businesses. As a result, the contemplated merger would not result in the direct acquisition of a going business. Title Shop also said that TS Holdings otherwise qualified as an EGC.

In a follow-up comment, the staff reiterated its position that TS Holdings is ineligible for EGC status because it is a successor under Exchange Act Rule 12g-3. The staff thus instructed Tile Shop to either remove a risk factor and other references suggesting TS Holdings’ EGC status or to provide its analysis of why TS Holdings is not a successor. The staff also observed that Exchange Act Rule 12b-2 defines “succession” to include “the acquisition of control of a shell company.” The staff noted that the blank check company JWCAC is a shell company.

Tile Shop replied that it had removed the risk factor and other references to EGC status from its Form S-4. As a result, Tile Shop said it would treat TS Holdings as a successor issuer to JWCAC.

The relevant staff comments and issuer replies were published on EDGAR on August 30, 2012.

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