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United States securities and exchange commission logo
November 10, 2022
Terence Pegula
Chief Executive Officer
East Resources Acquisition Company
7777 NW Beacon Square Boulevard
Boca Raton, FL 33487
Re: East Resources
Acquisition Company
Preliminary Proxy
Statement on Schedule 14A
Filed October 14,
2022
File No. 001-39403
Dear Terence Pegula:
We have reviewed your filing 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 these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Preliminary Proxy Statement on Schedule 14A
Basis of Presentation and Glossary, page iv
1. Please tell us and
revise to disclose if there is a PIPE Investment that will occur with the
business combination as
we note references to a PIPE Investment Amount in the
aggregate
transaction proceeds definition as well as other references throughout the
filing and also in
Exhibit A to your Agreement and Plan of Merger in Annex A.
2. Please revise to
include units and ERES units in the glossary.
What Equity Stake Will Current ERES Stockholders, the Initial
Stockholder, and the Company
Members Hold in ERES following the Closing?, page viii
3. Please revise your
disclosure to show the potential impact of redemptions on the per share
value of the shares
owned by non-redeeming shareholders by including a sensitivity
analysis showing a
range of redemption scenarios, including minimum, maximum and
Terence Pegula
East Resources Acquisition Company
November 10, 2022
Page 2
interim redemption levels. Please also make conforming changes on page
2 to the section
entitled "Ownership of the Post-Combination Company."
4. Please quantify the value of warrants, based on recent trading prices,
that may be retained
by redeeming stockholders assuming maximum redemptions and identify
any material
resulting risks.
Questions and Answers
What Happens to the Funds Deposited in the Trust Account After Consummation of
the Business
Combination?, page xiv
5. You disclose that $345,000,000 was raised in the IPO but that only
$97,939,800.60
remained in the trust fund because "in connection with the stockholder
approval of such
extension in July 2022, certain stockholders elected to redeem an
aggregate of 24,781,028
Public Shares, or approximately 71.83% of the then outstanding Public
Shares." Please
revise the disclosure to include additional information regarding the
redemption of
71.83% of the outstanding public shares.
Summary, page 1
6. Please revise to provide organizational charts for both the
pre-business and post-business
combinations, including all entities and corresponding ownership
percentages.
Risk Factors
Life settlements in which we invest are not currently regulated under the
federal securities laws,
page 31
7. You state that you intend that all purchases and sales of life
insurance policies by you will
comply with all applicable federal and state securities laws. Please
briefly describe the
process undertaken to ensure such compliance.
There have been lawsuits in various states questioning whether a purchaser of a
life insurance
policy, page 34
8. Please revise to disclose the carrying value of STOLI policies held at
each period end
presented.
We Have Identified Material Weaknesses In Our Internal Control Over Financial
Reporting,
page 38
FirstName LastNameTerence Pegula
9. Please revise to clarify which company identified the material weakness
and more
Comapany NameEast Resources
comprehensively describe Acquisition
your currentCompany
plans or actions already
undertaken for
remediating
November 10, 2022each
Pageidentified
2 material weakness.
FirstName LastName
Terence Pegula
FirstName LastNameTerence Pegula
East Resources Acquisition Company
Comapany 10,
November NameEast
2022 Resources Acquisition Company
November
Page 3 10, 2022 Page 3
FirstName LastName
ERES stockholders will have a reduced ownership and voting interest after the
Business
Combination, page 43
10. Please disclose all possible sources and extent of dilution that
shareholders who elect not
to redeem their shares may experience in connection with the business
combination.
Provide disclosure of the impact of each significant source of
dilution, including the
amount of equity held by founders, the note extension agreement, the
forward purchase
agreement, convertible securities, including warrants retained by
redeeming shareholders,
at each of the redemption levels detailed in your sensitivity
analysis, including any needed
assumptions.
ERES directors and officers may have interests in the Business Combination
different from the
interests of ERES stockholders, page 45
11. Please quantify the aggregate dollar amount and describe the nature of
what the sponsor
and its affiliates have at risk that depends on completion of a
business combination.
Include the current value of securities held, loans extended, fees
due, and out-of-pocket
expenses for which the sponsor and its affiliates are awaiting
reimbursement. Provide
similar disclosure for the company s officers and directors, if
material. Please also
disclose the current balance of the Extension Note.
Accounting for the Business Combination, page 59
12. We note your disclosure that LMA was determined to be the accounting
acquirer. Please
tell us the specific key facts and circumstances related to ERES, LMA
and Abacus and
how you applied the guidance in ASC 805-10-55-10 through 55-13 in
making your
determination.
13. Based on the Agreement and Plan of Merger, it appears that all of the
mergers occur
simultaneously. Please tell us how you determined to account for the
reverse
recapitalization of ERES by LMA first followed by the forward
acquisition of Abacus.
Basis of Pro Forma Presentation, page 59
14. We note disclosure that the Companies, which include Abacus and
LMA, are related
parties although they were determined not to be under common control.
Please tell us
how you determined Abacus and LMA are not entities under common
control.
Specifically tell us who controls Abacus and LMA and how you
determined this. Please
refer to ASC 805-50 for guidance.
15. To more clearly show the impact of the business combination agreement
as explained on
page 59 and the July 25 redemptions, please revise your pro forma
financial information
to present the reverse recapitalization transaction of ERES by LMA
separately from the
Abacus purchase acquisition. The presentation could include the
following information:
historical financial statements of ERES,
Terence Pegula
East Resources Acquisition Company
November 10, 2022
Page 4
impact of the July 25 redemptions,
subtotal,
historical financial statements of LMA,
transaction accounting adjustments for the reverse
recapitalization assuming no
redemptions,
pro forma combined ERES and LMA assuming no redemptions,
historical financial statement of Abacus,
transaction accounting adjustments for the acquisition of
Abacus,
pro forma combined assuming no redemptions,
additional pro forma transaction accounting adjustments
assuming maximum
redemptions, and
pro forma combined assuming maximum redemptions.
16. Please tell us how you considered whether to present the settlement of
the forward
purchase agreement upon the closing of the business combination
discussed on pages 118
and F-19 in the pro forma financial information. Additionally, please
tell us and revise to
discuss why the shares related to this agreement are not included in
your disclosures of the
ownership of the post-combination company such as those provided on
page 2.
Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined
Balance Sheet
as of June 30, 2022, page 65
17. Please tell us how you determined consideration conveyed of
$181.4 million related to
the Abacus acquisition. Specifically tell us how you allocated the
$531.8 million of
aggregate merger consideration issued to the holders of company
interests of LMA and
Abacus and ensure that the amount allocated to LMA is clearly
presented in your pro
forma financial information and notes.
18. Please tell us and revise to explain your disclosure in pro forma
adjustment (B) and on
page 77 that you do not expect to pay the $12.1 million in deferred
underwriting fees due
upon closing. Please include in your response consideration of the
disclosure on page F-
35 that the underwriters have agreed to waive their rights to deferred
underwriting
commission in the event ERES does not complete a business combination
within the
Combination Period, which is defined as January 27, 2023.
19. Please tell us and revise to explain how you determined the allocation
of $18 million of
transaction costs between Retained Earnings and Additional Paid-in
Capital for pro forma
adjustment (D).
FirstName LastNameTerence Pegula
20. Please tell us and revise to disclose in more detail the key terms and
conditions related to
Comapany NameEast
the issuance of Resources Acquisition
49.5 million in Class ACompany
shares to the Company Members
at the closing of
the transaction
November 10, 2022 Page 4discussed in pro forma adjustment (F).
FirstName LastName
Terence Pegula
FirstName LastNameTerence Pegula
East Resources Acquisition Company
Comapany 10,
November NameEast
2022 Resources Acquisition Company
November
Page 5 10, 2022 Page 5
FirstName LastName
Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined
Statement of
Operations for the Six Months Ended June 30, 2022, page 67
21. Please tell us and revise to explain in further detail your pro forma
adjustment (DD).
Please discuss the specific changes in terms that results in the
reclassification of these
warrants from liability to equity and how you determined only a
partial adjustment of $5.4
million instead of the $8.2 million reflected in ERES historical
financial statements for the
six-months ended June 30, 2022. Similarly, please also explain
adjustment (LL) presented
on page 64.
22. Please tell us and revise to disclose in more detail the key terms and
conditions related to
the recurring compensation expense due to a non-pro-rata distribution
to one of the
existing owners of the Company as presented in your pro forma
adjustments (FF) and
(NN). Please also consider including this employee agreement as an
exhibit to your filing.
Certain Engagements in Connection with the Business Combination and Related
Transactions,
page 77
23. It appears that underwriting fees remain constant and are not adjusted
based on
redemptions. It also appears that you do not expected to pay the
$12.075 million deferred
underwriting fee to Wells Fargo. Please disclose the effective
underwriting fee on a
percentage basis for shares at each redemption level presented in your
sensitivity analysis
related to dilution.
24. We note that Wells Fargo Securities, LLC provided underwriting
services during the
SPAC's IPO and part of the IPO underwriting fee was deferred and
conditioned on
completion of a business combination. Please discuss why you do not
currently expect to
pay the $12.075 million deferred underwriting fee.
Information About ERES
Redemption Rights for Holders of Public Shares, page 96
25. We note that certain shareholders agreed to waive their redemption
rights. Please describe
any consideration provided in exchange for this agreement. Please
update and make
conforming changes where needed.
Management of ERES, page 104
26. For any director or person nominated or chosen to become a director,
please indicate any
other directorships held, including any other directorships held
during the past five years.
Refer to Item 401(e) of Regulation S-K.
Conflicts of Interest, page 111
27. Please highlight here all material interests in the transaction held
by the sponsor and your
officers and directors, including fiduciary or contractual obligations
to other entities as
Terence Pegula
FirstName LastNameTerence Pegula
East Resources Acquisition Company
Comapany 10,
November NameEast
2022 Resources Acquisition Company
November
Page 6 10, 2022 Page 6
FirstName LastName
well as any interest in, or affiliation with, the target company. In
addition, please clarify
how the board considered those conflicts in negotiating and
recommending the business
combination.
28. Please address whether the waiver of the corporate opportunities
doctrine in your charter
impacted your search for an acquisition target.
Security Ownership of Certain Beneficial Owners and Management of ERES and the
Post-
Combination Company, page 121
29. Please disclose the sponsor and its affiliates' total potential
ownership interest in the
combined company, assuming exercise of all securities.
Information About the Companies, page 123
30. Please clarify that the information provided in this section relates
to both LMA and
Abacus as a combined company. For example, revise the title of this
section to
Information about the Post-Combination Company Following the
Business
Combination.
Abacus Overview, page 123
31. Please expand your disclosure in this section for both target
companies regarding any
guidelines used in seeking to purchase policies. If the target
companies have not
established any guidelines, please add a risk factor to this effect
and disclose this fact in
appropriate places throughout the proxy statement.
32. Please quantify the amount of funds that will be needed by the
post-Combination
company to operate your business in the next 12 months and effectively
compete in
your industry.
33. Please substantiate, or with respect to beliefs, characterize as such
and discuss your
reasonable basis for the belief, the following statements in this
section:
that "Abacus is a leading vertically integrated alternative asset
manager" that [you]
are currently a leader in the life settlements industry, with
approximately a 20%
market share and a proven track record of growth and strong asset
returns on page
123. Also briefly explain in what way you are leading or
a leader ;
that Abacus Settlements, LLC has "helped thousands of clients
maximize the value of
their life insurance on page 123;
that [you] acquired 238 policies with a 12% projected annual
return" on page 124;
that 90% of senior citizens who let policies lapse would have
considered this
alternative once made aware" on page 125;
that "[o]n average, life settlements companies pay sellers nearly
eight times more
than the current cash value of a policy" on page 125;
that "diversification . . . across multiple origination channels
creates a lower average
policy acquisition cost and higher estimated returns" on page 126;
that you anticipate InsurTech "being a leading blockchain tertiary
trading, servicing,
Terence Pegula
FirstName LastNameTerence Pegula
East Resources Acquisition Company
Comapany 10,
November NameEast
2022 Resources Acquisition Company
November
Page 7 10, 2022 Page 7
FirstName LastName
and valuation platform" page 129;
that [y]our hold portfolio has the prospect to generate a
higher estimated annual
return than our traded portfolio on page 130. Also quantify
the higher capital base
referenced here; and
that [y]our track record shows [y]our ability to operate and
generate highly attractive
returns" on page 131.
34. Please expand your disclosure in this section for both target
companies regarding any
guidelines used in seeking to purchase policies. If the target
companies have not
established any guidelines, please add a risk factor to this effect
and disclose this fact in
appropriate places throughout the proxy statement.
Proprietary Technology Platforms Support Our Business, page 128
35. Please revise to provide additional information related to
Abacusmarketplace.com, which
you anticipate being a leading blockchain tertiary trading, servicing,
and valuation
platform to allow an investor to fully understand how it may impact
future business
strategies and financial results.
Proven Ability to Deploy Capital and Scale, page 131
36. We note disclosure that Abacus has managed a $150 million capital base
via a joint
venture with a large alternative asset manager, which will terminate
at the closing of the
business combination and therefore is not included in your historical
financial statements.
Please provide us an accounting analysis detailing all the relevant
facts and circumstances
and the accounting guidance considered in your determination to
exclude the joint venture
from your historical financial statements.
Customers, page 132
37. You state that Abacus does not plan to continue its current
relationship with some of its
prior customers following the Business Combination. Please disclose
what percentage of
revenue those customers accounted for during the years ended December
31, 2021 and
2020.
Insurance Laws and Regulations, page 134
38. Please disclose whether in the future you plan to purchase variable
life insurance policies
or fractional interests in life insurance policies.
39. Please disclose whether you intend to engage in any life insurance
securitization in the
future.
Active Management Revenue, page 141
40. We note your disclosure that active management revenue is generated by
buying, selling
and maintaining policies through receipt of the claim. Since active
management revenue
Terence Pegula
FirstName LastNameTerence Pegula
East Resources Acquisition Company
Comapany 10,
November NameEast
2022 Resources Acquisition Company
November
Page 8 10, 2022 Page 8
FirstName LastName
represents your largest revenue source, totaling $13.9 million for the
six-months ended
June 30, 2022, please revise to provide detailed and disaggregated
analysis of these
revenues, including discussion of relevant metrics and trends during
the periods presented.
For example, revise to disclose the number of and corresponding amount
of policies
bought, sold, average realized gain or loss on policies sold, number
of counter-parties that
purchased policies and life insurance proceeds received for each
period presented
separately for both policies accounted for by the investment method
and the fair value
method.
41. Please tell us and revise to disclose what policies under management
represent and
compare and contrast these disclosed amounts to policies held on page
144.
Cost of Revenues and Gross Profit, page 141
42. Your disclosure on page 141 states that cost of revenues consists of
policy servicing and
consulting related expenses. However, disclosure on page 142 states
that cost of revenues
increased primarily due to an increase in payroll costs related to
employee bonuses and
the addition of three new employees. Please revise to more clearly
disclose the nature of
expenses presented as cost of revenues.
Operating Expenses, page 142
43. Please tell us how you considered whether sales and marketing expenses
should be
included within LMA s cost of revenues and therefore included in the
determination of
gross profit.
44. It appears that LMA and Abacus include materially different items in
cost of revenues.
Please tell us how you considered whether to conform your accounting
policies related to
cost of sales in your pro forma financial information.
Key Business Metrics and Non-GAAP Financial Measures, page 146
45. We note your non-GAAP measure of Adjusted EBITDA that is adjusted for
non-recurring
items including loss on change in fair value of debt. Please
tell us how you considered
whether the financial statement impact of the purchased S&P 500 put
and call options that
were entered into as an economic hedge related to the debt represents
a non-recurring item
that should be included in your non-GAAP measure in order to make the
measure not
misleading.
46. Please revise to disclose why you consider payments made as part of
LMA's expense
support commitment as a non-recurring item.
Opinion of Northland, page 180
47. Please disclose the financial projections for the calendar years ended
December 31, 2019,
2020, and 2021 provided to Northland Securities in connection with the
fairness opinion.
Also provide any key assumptions made by Northland in formulating its
opinion with
Terence Pegula
FirstName LastNameTerence Pegula
East Resources Acquisition Company
Comapany 10,
November NameEast
2022 Resources Acquisition Company
November
Page 9 10, 2022 Page 9
FirstName LastName
respect to the financial projections.
Miscellaneous, page 184
48. Please disclose any additional services Northland or its affiliates
provided in connection
with the transaction, and, if so, the related fees and whether those
fees are conditioned on
the completion of the transaction. In addition, describe any services
Northland has
provided to the target of the business combination or affiliates of
the parties.
Common Stock, page 209
49. We note you disclose that 61,800,000 shares will be issued to Company
Members. Please
revise as needed, to disclose if this amount should be adjusted for
the Founder Share
Implied Value as discussed in the First Amendment to Agreement and
Plan of Merger.
Description of Securities of the Post-Combination Company
Warrants, page 213
50. Please clarify whether recent common stock trading prices exceed the
threshold that
would allow you to redeem public warrants. Additionally, please
explain the steps, if any,
you will take to notify all shareholders, including beneficial owners,
regarding when the
warrants become eligible for redemption. Please also make conforming
changes on page
55 to the risk factor entitled "ERES may redeem your unexpired
warrants prior to their
exercise."
Note 2. Summary of Significant Accounting Policies, page F-11
51. We note disclosure on pages 42, 152, and 165 that as an emerging
growth company you
have elected to opt out of the extended transition period provided in
Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting
standards. However, you
also disclose on page F-12 that you have elected not to opt out of the
extended transition
period. We note disclosure in your DRS Form S-1 filed on June 8, 2020
that you
irrevocably elected to opt out of the extended transition period.
Please revise accordingly.
Report of Independent Registered Public Accounting Firm, page F-56
52. Noting that LMA financial statements become those of the registrant
upon consummation
of the business combination, please revise to include a report of the
independent registered
public accounting firm indicating that their audit was conducted in
accordance with the
standards of the PCAOB, rather than only the auditing standards.
Note 2. Summary of Significant Accounting Policies
Non-Consolidated Variable Interest Entities, page F-62
53. We note disclosure of your option agreement entered into with two
commonly owned full-
service origination, servicing and investment providers which provides
LMA the option to
purchase the outstanding equity ownership of the providers. Please
tell us and revise to
Terence Pegula
FirstName LastNameTerence Pegula
East Resources Acquisition Company
Comapany 10,
November NameEast
2022 Resources Acquisition Company
November
Page 10 10, 2022 Page 10
FirstName LastName
disclose how you accounted for this option agreement in your financial
statements.
Unaudited Interim Condensed Consolidated Statement of Operations and
Comprehensive
Income for the Six Months Ended June 30, 2022 and 2021, page F-80
54. Please revise your income statement to present investment income from
policies
accounted for pursuant to the investment method separately from those
accounted for
pursuant to the fair value method in accordance with the guidance in
ASC 325-30-45-3.
55. Please tell us and revise to clarify your policy for presenting
premiums paid and life
insurance proceeds received for your policies accounted for pursuant
to the fair value
method in accordance with ASC 325-30-45-4.
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Six
Months ended
June 30, 2022 and 2021, page F-82
56. Please tell us and revise to explain how you considered ASC
325-30-45-5 in determining
to present the cash flows from both the Life Settlement Policies
at cost and Life
Settlement Policies at fair value within operating cash flows.
Please also revise to
provide the disclosures required by ASC 325-30-50-2.
Note 3. Life Insurance Settlement Policies, page F-86
57. Please revise to provide information to enable investors to understand
your reasons for
electing to use the fair value method for policies you intend to hold
to maturity and for
electing to use the investment method for policies you intend to trade
in the near term.
58. Please tell us and revise to disclose how you test your policies
accounted for using the
investment method for impairment in accordance with ASC 325-30-35-10
and 35-11 and
include the disclosures required by ASC 325-30-50-6.
Note 10. Fair Value Measurements, page F-90
59. We note your discount rate sensitivity disclosure on page F-91
indicates that life
settlement policies accounted for using the fair value method were
issued by LMATT
Series 2024, Inc. Please tell us if life settlement policies serve as
collateral for the
LMATT Notes and if so please revise to disclose the carrying amount of
assets serving as
collateral and the nature of any restrictions or other key contractual
terms on those assets
including your ability to surrender any policies. Please refer to ASC
325-30-50-1.
Note 11. Long-Term Debt, page F-93
60. Please reconcile the $10.17 million issuance of LMATT Series 2024,
Inc. long-term debt
on March 31, 2022 with the $9.46 million of issuance of debt
certificates as presented as a
financing activity within your Unaudited Interim Statement of Cash
Flows on page F-82.
Additionally, please revise to disclose the reason(s) for electing to
account for these debt
certificates at fair value in accordance with ASC 825-10-50-28a along
with disclosure of
Terence Pegula
East Resources Acquisition Company
November 10, 2022
Page 11
the unpaid principal balance for each period presented in accordance with
ASC 825-10-
50-28d.2.
Statements of Operations and Comprehensive Income, page F-101
61. Please remove the duplicative presentation of the Statements of
Operations and
Comprehensive Income disclosed on pages on F-101 and F-102.
Note 2. Summary of Significant Accounting Policies
Recently Adopted Accounting Pronouncements, page F-111
62. We note disclosure that Abacus adopted ASU 2016-13 effective January 1,
2020, which
requires the measurement of lifetime expected losses. We also note
disclosure on page F-
106 related to related party receivables and page F-107 which states that
you provide an
allowance for credit losses equal to the estimated collection losses that
will be incurred.
Please revise for consistency.
Unaudited Interim Condensed Statement of Cash Flows for the Six Months Ended
June 30, 2022
and 2021, page F-123
63. Please revise the quantification of cash flow statement amounts to
properly present
amounts with the appropriate use of commas.
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.
You may contact John Spitz at 202-551-3484 or Michael Volley at
202-551-3437 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Robert Arzonetti at 202-551-8819 or J. Nolan Williams at 202-551-3217
with any other
questions.
Sincerely,
FirstName LastNameTerence Pegula
Division of
Corporation Finance
Comapany NameEast Resources Acquisition Company
Office of Finance
November 10, 2022 Page 11
cc: Daniel J. Harrist, Esq.
FirstName LastName