United States securities and exchange commission logo
August 14, 2020
John M. Butler
President and Chief Executive Officer
Insurance Acquisition Corp.
2929 Arch Street, Suite 1703
Philadelphia, PA 19104-2870
Re: Insurance
Acquisition Corp.
Registration
Statement on Form S-4
Filed July 17, 2020
File No. 333-239896
Dear Mr. Butler:
We have reviewed your registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe our comments apply to your
facts and
circumstances or do not believe an amendment is appropriate, please tell
us why in your
response.
After reviewing any amendment to your registration statement and
the information you
provide in response to these comments, we may have additional comments.
Registration Statement on Form S-4 filed July 17, 2020
Frequently Used Terms, page 1
1. Please prominently
disclose in this section the definition and calculation of Net Asset
Amount and Net Asset
Floor, including illustrative calculations showing the potential
impact of such
adjustments, and how this will impact the number of shares to be received
by each Shift
shareholder. Please indicate whether there would be any downward
adjustment based on the
calculations as of the current date. Please also provide this
illustration for
closing both before and after September 30, 2020. Please disclose that,
because the number of
shares to be paid as merger consideration is subject to downward
adjustment,
shareholders will not know at the time of the vote, the number of shares that
will be received by
Shift shareholders.
John M. Butler
FirstName LastNameJohn M. Butler
Insurance Acquisition Corp.
Comapany
August 14, NameInsurance
2020 Acquisition Corp.
August
Page 2 14, 2020 Page 2
FirstName LastName
Risk Factors
Risks Relating to Shift's Business
"We rely on third-party service providers . . .", page 35
2. In an appropriate place in your filing, please briefly describe the
material terms of your
agreements with third-party service providers, including, for example,
the duration of
those agreements, conditions for termination, etc.
"Our failure to comply with various applicable . . .", page 48
3. We note your disclosure that "[c]omplying with [certain employment]
laws and
regulations, including ongoing changes thereto, subjects [you] to
substantial expense and
non-compliance could expose [you] to significant liabilities. In
particular, [you] have been
subject to employment litigation with respect to classification and
wage and hour issues in
the past." Please disclose an estimate of the extent of you liability
for classification and
wage and hour issues, if material.
Risks Relating to the Company and the Merger
"Our amended and restated certificate of incorporation requires, to the fullest
extent permitted by
law . . .", page 61
4. We note that your certificate of incorporation includes an exclusive
forum provision
which states that, among other things, the federal district court for
the District of Delaware
shall have concurrent jurisdiction with the Delaware Court of Chancery
for any action
arising under the federal securities laws. Please clarify whether and
to what extent there is
concurrent jurisdiction for claims brought pursuant to the Securities
Act and Exchange
Act, respectively. In this regard, we note that Section 27 of the
Exchange Act grants
exclusive jurisdiction to the federal courts for all claims arising
under the Exchange Act,
including derivative actions, while Section 22 of the Securities Act
creates concurrent
jurisdiction for federal and state courts over all suits brought to
enforce any duty or
liability created by the Securities Act.
Proposal No. 1 The Merger Proposal
The Merger Agreement
Repaid Indebtedness, page 76
5. Please briefly describe the "certain . . . outstanding loan agreements
and indebtedness," for
which Shift has agreed to obtain payoff letters. Also, please disclose
the amount of cash
the Company expects to pay to Insurance Acquisition Sponsor, LLC under
the Loan
Commitment Agreement, if estimable.
Termination, page 83
6. Please update your disclosure here and elsewhere as appropriate to
indicate whether the
Company has received an election to exercise Warrant No. CF-1. In this
regard, we note
John M. Butler
FirstName LastNameJohn M. Butler
Insurance Acquisition Corp.
Comapany
August 14, NameInsurance
2020 Acquisition Corp.
August
Page 3 14, 2020 Page 3
FirstName LastName
that you are able to terminate the merger agreement if you have not
received such election
within 10 business days following the date of the Merger Agreement.
7. We note that you are able to terminate the Merger Agreement if the
board of directors
determines that the draft quality of earnings delivered by Shift to
the Company contained
a material misstatement of fact or omitted to state a material fact
necessary to make the
statements made therein not misleading. Please disclose when Shift is
obligated to deliver
the final quality of earnings report.
Background of the Merger, page 86
8. Please revise throughout to provide details of the negotiations of the
material terms of the
transaction. Your disclosure should indicate the particular views and
positions that were
discussed at the meeting, and how you reached final agreement on such
terms. Such terms
include, but are not limited to, purchase price adjustments and the
agreement to use a net
assets metric, repayment of Lithia indebtedness, material termination
provisions (ex: the
ability to terminate based on a final quality of earnings report) and
termination fees,
stockholder approval requirements, the size of the PIPE investment,
the percentages held
in the combined company by each party, and the use of incentive
shares.
9. Please disclose material discussions relating to the decision to
switch from acquiring a
company in the insurance industry to a company in the eCommerce and
automotive sales
business. Please also briefly describe the "relevant valuation
metrics," "current market
dynamics," and eCommerce business models discussed with the analyst
from William
Blair.
10. You disclose that "representatives of the Company had a call with
members of Shift s
management team, including Mr. Arison, Henry Bird, Vice President of
Strategic Finance,
and Daniel O Neill, head of Corporate Development, who gave formal
and comprehensive
management presentations." Please include a description of the
substance of these
management presentations.
11. You disclose that, "[o]n June 1, 2020, Mr. Cohen, Ms. Abrams and Mr.
Nash discussed
Shift valuation ranges and ranges for the Company s sponsor
commitment." Please
amend your filing to disclose the potential ranges discussed.
12. You disclose that "Mr. Long and other representatives of the Company
conducted
customer reference outreach to obtain information from previous Shift
customers." Please
briefly describe the information sought from Shift customers and the
results of such
outreach.
13. We note that on June 16, 2020, there was a call to discuss Shift's
negotiations with Lithia
Motors. Please revise to describe the material discussions relating to
Lithia Motors,
including the particular issues relating to the outstanding warrants
and credit facility,
including the upcoming draw under the facility. Please discuss the
positions of each of
the parties on such issues, the resulting negotiations, and how such
issues were resolved.
John M. Butler
Insurance Acquisition Corp.
August 14, 2020
Page 4
Description of Fairness Opinion of Northland, page 95
14. Please revise to disclose the data underlying the results reached by
Northland that are
described in this section. For example, disclose the enterprise value,
and the LTM, 2020E
and 20201E revenue and gross profit for each company in the Comparable
Public
Company Analysis. Please provide similar information for the
Comparable M&A
Transaction Analysis. For each analysis, show how the information from
the analysis
resulted in the multiples/values disclosed.
Certain Projected Financial Information, page 103
15. We note your disclosure that "[t]he unaudited projected financial
information reflects
numerous estimates and assumptions made by management of Shift with
respect to
industry performance and competition, general business, economic,
market and financial
conditions and matters specific to Shift s business." Please briefly
describe the material
assumptions.
Interests of Certain Persons in the Merger, page 105
16. You disclose that "if we are unable to complete a business combination
by our Business
Combination Outside Date, Cohen & Company, LLC, the manager of our
sponsor, will be
liable to ensure that the proceeds in the trust account are not
reduced by the claims of
target businesses or claims of vendors or other entities to which we
owe money for
services rendered or contracted for or products sold to us, but only
if such a vendor or
target business has not executed such a waiver." Please briefly
describe the waiver to
which you refer in this paragraph.
Proposal No. 3 Authorization to Provide for Certain Exemptions From the
Doctrine of
Corporate Opportunity, page 110
17. Please provide risk factor disclosure related to the inclusion in your
proposed amended
charter of the provision renouncing the doctrine of corporate
opportunity.
Material U.S. Federal Income Tax Consequences, page 129
18. We note your disclosure here and elsewhere throughout the prospectus
that the parties
intend that the merger will be treated as a reorganization for
U.S. federal income tax
purposes within the meaning of Section 368(a) of the Code. Please revise
your disclosure
to provide a firm opinion of counsel regarding treatment of the
transaction under Section
368(a). Please also remove language stating that it is intended that, or
generally, certain
FirstName LastNameJohn M. Butler
material tax consequences will apply. Refer to Section III of Staff
Legal Bulletin No. 19
Comapany NameInsurance
for guidance. PleaseAcquisition
make similarCorp.
changes throughout your prospectus,
including in the
AugustQuestions and Answers,
14, 2020 Page 4 Summary, Risk Factors and description of the
Merger Proposal.
FirstName LastName
John M. Butler
FirstName LastNameJohn M. Butler
Insurance Acquisition Corp.
Comapany
August 14, NameInsurance
2020 Acquisition Corp.
August
Page 5 14, 2020 Page 5
FirstName LastName
Information About Shift
Overview, page 149
19. Please disclose the measure by which you determined Shift is a
"leading" platform.
20. Please identify the "recent surveys" indicating that only 9% of
consumers trust car
salespeople and 81% are generally dissatisfied with the car buying
process.
Industry and Market Opportunity, page 152
21. Please provide relevant sources for the industry data provided
throughout this section.
22. You note that Shift s average sale price is approximately $16,000,
which means that your
focus is on the largest portion of the used auto market, while, by
comparison, automotive
sales of less than $20,000 comprise 57% of all sales for franchise
dealers and 99% of all
sales for independent dealers. Please explain the significance of this
comparison. Please
also disclose the percentage of Shift's automative sales that are less
than $20,000, so that
investors are able to understand the difference in focus of your
market versus other
dealers.
23. Please tell us why you believe that the focus for other eCommerce
dealers is on cars that
are 1-2 years old.
Shift's Strategy, page 156
24. You disclose that "[w]e have seen remarkable success in Portland
in April of 2019 Shift
entered the Portland market and by August 2019 exceeded 1% market
penetration," and
"[w]e believe this geographic expansion and increased market share may
be replicated
throughout U.S. urban geographies." Because you disclose that you
expect this
geographic expansion to continue, please clarify whether you market
penetration in
Portland continued to grow through the date of the financial periods
presented in your
filing.
25. We note your disclosure that "Shift s vision is to evolve into a
true platform marketplace
that lists and fulfills third party inventory, enabling traditional
dealers to modernize
through its platform and those who might otherwise build a traditional
dealership channel
to make use of the Shift platform instead. Shift envisions enabling
other dealers to do this
through Shift Virtual Hubs so customers can get the biggest
selection and best
experience, all under the Shift brand with the same trust and peace of
mind." Please
amend your disclosure to clarify the date by which you intend to
implement this plan, if
estimable. In this regard, we also note your disclosure on page 31
that "[yo]ur business
plan relies in part upon the establishment of our ecommerce solutions
as a platform to be
used by existing automobile dealers." If you do not intend to
implement this plan in the
near future, please disclose the same in your filing.
John M. Butler
FirstName LastNameJohn M. Butler
Insurance Acquisition Corp.
Comapany
August 14, NameInsurance
2020 Acquisition Corp.
August
Page 6 14, 2020 Page 6
FirstName LastName
Factors Affecting Our Business Performance, page 169
26. Please disclose the time period over which you measure "total unit
sales" and "total used
vehicle sales," to determine your market share.
Wholesale Units Sold, page 172
27. We note your disclosure that "[you] view wholesale units sold as an
indicator of the
overall health of [y]our total unit sales because if wholesale units
sold is a greater share of
total units sold than [you] project, that can indicate opportunities
in inventory
management." However, you disclose on page 178 that your increase in
wholesale
vehicle gross profit was driven by "fewer retail-to-wholesale
incidents where cars we
purchased with the intention of selling through our retail segment,
end up being sold
through wholesale channels, which typically result in a loss on that
unit." Please clarify
how wholesale units sold being greater than projected is an indicator
of the health of your
business, when unexpected wholesale unit sales "typically result in a
loss on that unit."
Average Monthly Unique Visitors, page 173
28. We note your disclosure that "[you] define a monthly unique visitor as
an individual who
has visited [y]our website within a calendar month, based on data
collected on [y]our
website." Please clarify how you determine whether an individual is
"unique," to prevent
counting an individual who has visited your website multiple times
within a calendar
month as multiple unique visitors.
Presentation of Results of Operations
Three Months Ended March 31, 2019, 2020, page 176
29. We note your disclosure that e-commerce revenue, other revenue, and
wholesale revenue,
decreased for the three months ended March 31, 2020 compared to 2019.
We also note
your disclosure on page 170 that you saw a slowing of vehicle sales
immediately
following the shelter in place ordinances in March. Please tell us
whether the slowing of
these vehicle sales due to COVID-19 shelter in place ordinances
resulted in lower e-
commerce, other, and wholesale revenue. If so, please disclose this in
the discussion of
your operations for the three months ended March 31, 2019 and 2020.
Years Ended December 31, 2019, 2018 and 2017
Ecommerce Vehicle Revenue, page 179
30. Please briefly describe the difference between a "consignment model"
and a "buy-
out model," and why your transition from one to the other resulted in
increased
ecommerce vehicle revenue.
Quantitative and Qualitative Disclosures About Market Risk, page 188
31. We note that the interest rates of your FLOC and DDTL are tied to
LIBOR. Please
John M. Butler
Insurance Acquisition Corp.
August 14, 2020
Page 7
provide risk factor disclosure related to the impact of the
discontinuation of LIBOR on
your FLOC and DDTL. Alternatively, please tell us why you believe you are
not required
to do so.
Shift Related Person Transactions, page 210
32. Here or in another appropriate place in your filing, please amend your
disclosure to
describe the details of the Warrant No. CS-1 between Lithia Motors and
Shift.
33. Please file your Used Vehicle Sales Agreement and your various financing
agreements
with Lithia as exhibits to the registration statement. In the
alternative, please tell us why
you are not required to do so. See Item 601(b)(10) of Regulation S-K.
Index to Financial Statements, page F-1
34. Please update all financial statements included in the filing and related
information. Refer
to Items 14(e) and 17(b)(8) of Form S-4 and Rule 8-08 of Regulation S-X,
as appropriate.
Consolidated Financial Statements of Shift Technologies Inc. and Subsidiaries
Note 2 Summary of Significant Accounting Policies Revenue Recognition,
page F-63
35. You disclose that, on occasion, you have provided cash or non-cash
payments to a
customer, including in the form of equity. As appropriate, please expand
your disclosure
to quantify both the cash and non-cash payments or, if true, state the
payments are not
material. Refer to ASC 606-10-50-8 through 11 for guidance.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration. Please
allow adequate
time for us to review any amendment prior to the requested effective date of
the registration
statement.
You may contact James Giugliano at (202) 551-3319 or Doug Jones at (202)
551-3309 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Katherine Bagley at (202) 551-2545 or Erin Jaskot at (202) 551-3442
with any other
questions.
Sincerely,
FirstName LastNameJohn M. Butler
Division of
Corporation Finance
Comapany NameInsurance Acquisition Corp.
Office of Trade &
Services
August 14, 2020 Page 7
cc: Sean M. Donahue
FirstName LastName