[Federal Register Volume 87, Number 93 (Friday, May 13, 2022)]
[Proposed Rules]
[Pages 29458-29574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07189]



[[Page 29457]]

Vol. 87

Friday,

No. 93

May 13, 2022

Part II





Securities and Exchange Commission





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17 CFR Parts 210, 229, 230, et al.





Special Purpose Acquisition Companies, Shell Companies, and 
Projections; Proposed Rule

  Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed 
Rules  

[[Page 29458]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 230, 232, 239, 240, 249, and 270

[Release Nos. 33-11048; 34-94546; IC-34549; File No. S7-13-22]
RIN 3235-AM90


Special Purpose Acquisition Companies, Shell Companies, and 
Projections

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rules.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
proposing rules intended to enhance investor protections in initial 
public offerings by special purpose acquisition companies (``SPACs'') 
and in subsequent business combination transactions between SPACs and 
private operating companies. Specifically, we are proposing specialized 
disclosure requirements with respect to, among other things, 
compensation paid to sponsors, conflicts of interest, dilution, and the 
fairness of these business combination transactions. The proposed new 
rules and amendments to certain rules and forms under the Securities 
Act of 1933 and the Securities Exchange Act of 1934 would address the 
application of disclosure, underwriter liability, and other provisions 
in the context of, and specifically address concerns associated with, 
business combination transactions involving SPACs as well as the scope 
of the Private Securities Litigation Reform Act of 1995. Further, we 
are proposing a rule that would deem any business combination 
transaction involving a reporting shell company, including a SPAC, to 
involve a sale of securities to the reporting shell company's 
shareholders and are proposing to amend a number of financial statement 
requirements applicable to transactions involving shell companies. In 
addition, we are proposing to update our guidance regarding the use of 
projections in Commission filings as well as to require additional 
disclosure regarding projections when used in connection with business 
combination transactions involving SPACs. Finally, we are proposing a 
new safe harbor under the Investment Company Act of 1940 that would 
provide that a SPAC that satisfies the conditions of the proposed rule 
would not be an investment company and therefore would not be subject 
to regulation under that Act.

DATES: Comments should be received on or before June 13, 2022.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to [email protected]. Please include 
File Number S7-13-22 on the subject line; or.

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number S7-13-22. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's website (http://www.sec.gov/rules/proposed.shtml). 
Comments are also available for website viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10 a.m. and 3 p.m. 
Operating conditions may limit access to the Commission's Public 
Reference Room. All comments received will be posted without change. 
Persons submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on our website. To ensure direct electronic 
receipt of such notifications, sign up through the ``Stay Connected'' 
option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Charles Kwon, Office of Rulemaking, 
Division of Corporation Finance, at (202) 551-3430; or with respect to 
proposed Rules 140a and 145a under the Securities Act, Adam Turk, 
Office of Chief Counsel, Division of Corporation Finance, at (202) 551-
3500; with respect to proposed Rule 15-01 of Regulation S-X, Ryan 
Milne, Office of Chief Accountant, Division of Corporation Finance, at 
(202) 551-3400; with respect to the proposed amendments relating to 
projections disclosure and tender offer rules, Daniel Duchovny, Office 
of Mergers & Acquisitions, Division of Corporation Finance, at (202) 
551-3440; and with respect to proposed Rule 3a-10 under the Investment 
Company Act, Rochelle Kauffman Plesset, Seth Davis, or Taylor Evenson, 
Senior Counsels; Lisa Reid Ragen, Branch Chief; or Thoreau Bartmann, 
Assistant Director, Chief Counsel's Office, Division of Investment 
Management, at (202) 551-6825; U.S. Securities and Exchange Commission, 
100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing for public 
comment new 17 CFR 210.15-01 (Rule 15-01 of Regulation S-X), new 17 CFR 
229.1601 through 229.1610 (subpart 1600 of Regulation S-K), new 17 CFR 
230.140a (Securities Act Rule 140a), new 17 CFR 230.145a (Securities 
Act Rule 145a), and new 17 CFR 270.3a-10 (Investment Company Act Rule 
3a-10). We are also proposing for public comment amendments to:
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    \1\ 15 U.S.C. 77a et seq.

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                                                        CFR citation (17
                 Commission reference                         CFR)
------------------------------------------------------------------------
Securities Act of 1933 (``Securities Act''): \1\
    Rule 137.........................................            230.137
    Rule 138.........................................            230.138
    Rule 139.........................................            230.139
    Rule 163A........................................           230.163A
    Rule 164.........................................            230.164
    Rule 174.........................................            230.174
    Rule 405.........................................            230.405
    Rule 419.........................................            230.419

[[Page 29459]]

 
    Rule 430B........................................           230.430B
    Rule 437a........................................           230.437a
    Form S-1.........................................             239.11
    Form F-1.........................................             239.31
    Form S-4.........................................             239.25
    Form F-4.........................................             239.34
Securities Exchange Act of 1934 (``Exchange Act''):
 \2\
    Rule 12b-2.......................................          240.12b-2
    Rule 14a-6.......................................          240.14a-6
    Rule 14c-2.......................................          240.14c-2
    Schedule 14A.....................................        240.14a-101
    Schedule TO......................................        240.14d-100
    Form 20-F........................................           249.220f
    Form 8-K.........................................            249.308
Regulation S-K (17 CFR 229.10 through 229.1406):
    Item 10..........................................             229.10
    Item 601.........................................            229.601
Regulation S-T (17 CFR 232.10 through 232.903):
    Rule 405.........................................            232.405
Regulation S-X (17 CFR 210.1-01 through 210.13-02):
    Rule 1-02........................................           210.1-02
    Rule 3-01........................................           210.3-01
    Rule 3-02........................................           210.3-02
    Rule 3-05........................................           210.3-05
    Rule 3-14........................................           210.3-14
    Rule 8-02........................................           210.8-02
    Rule 10-01.......................................          210.10-01
    Rule 11-01.......................................          210.11-01
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Table of Contents
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    \2\ 15 U.S.C. 78a et seq.
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I. Introduction
II. Proposed New Subpart 1600 of Regulation S-K
    A. Definitions
    B. Sponsors
    C. Conflicts of Interest
    D. Dilution
    E. Prospectus Cover Page and Prospectus Summary Disclosure
    1. Prospectus Cover Page
    2. Prospectus Summary
    F. Disclosure and Procedural Requirements in De-SPAC 
Transactions
    1. Background of and Reasons for the De-SPAC Transaction; Terms 
and Effects
    2. Fairness of the De-SPAC Transaction
    3. Reports, Opinions, and Appraisals
    4. Proposed Item 1608 of Regulation S-K
    G. Structured Data Requirement
III. Aligning De-SPAC Transactions With Initial Public Offerings
    A. Aligning Non-Financial Disclosures in De-SPAC Disclosure 
Documents
    B. Minimum Dissemination Period
    C. Private Operating Company as Co-Registrant to Form S-4 and 
Form F-4
    D. Re-Determination of Smaller Reporting Company Status
    E. PSLRA Safe Harbor
    F. Underwriter Status and Liability in Securities Transactions
    1. Participants in a Distribution as ``Underwriters''
    2. The De-SPAC Transaction as a ``Distribution'' of the Combined 
Company's Securities
    3. Proposed Rule: SPAC IPO Underwriters are Underwriters in 
Registered De-SPAC Transactions
IV. Business Combinations Involving Shell Companies
    A. Shell Company Business Combinations and the Securities Act of 
1933
    1. Shell Company Business Combinations
    2. Proposed Rule 145a
    3. Excluded Transactions
    B. Financial Statement Requirements in Business Combination 
Transactions Involving Shell Companies
    1. Number of Years of Financial Statements
    2. Audit Requirements of Predecessor
    3. Age of Financial Statements of the Predecessor
    4. Acquisitions of Businesses by a Shell Company Registrant or 
Its Predecessor That Are Not or Will Not Be the Predecessor
    5. Financial Statements of a Shell Company Registrant After the 
Combination With Predecessor
    6. Other Amendments
V. Enhanced Projections Disclosure
    A. Background
    B. Rule Proposals
    1. Item 10(b) of Regulation S-K
    2. Item 1609 of Regulation S-K
VI. Proposed Safe Harbor Under the Investment Company Act
    A. Background
    1. Potential Status as an Investment Company
    2. Rationale for the Safe Harbor
    3. Boundaries of the Safe Harbor
    B. Conditions
    1. Nature and Management of SPAC Assets
    2. SPAC Activities
    3. Duration Limitations
VII. Additional Requests for Comment
VIII. General Request for Comments
IX. Economic Analysis
    A. Broad Economic Considerations
    B. Baseline and Affected Parties
    1. SPAC Initial Public Offerings
    2. De-SPAC Transactions
    3. Blank Check Companies
    4. Shell-Company Business Combinations
    5. Projections Under Item 10(b) of Regulation S-K
    6. Investment Company Act Safe Harbor
    C. Benefits and Costs of the Proposed Rules
    1. Disclosure-Related Proposals
    2. Liability-Related Proposals
    3. Shell-Company Related Proposals
    4. Enhanced Projections Disclosure (Amendments to Item 10(b) of 
Regulation S-K)
    5. Investment Company Act Safe Harbor
    D. Effects on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    E. Reasonable Alternatives
    1. Disclosure-Related Proposals
    2. Liability-Related Proposals
    3. Expanding Disclosure in Reporting Shell Company Business 
Combinations
    4. Enhanced Projections Disclosures
    5. Investment Company Act Safe Harbor
    F. Requests for Comment
X. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Estimates of the Effects of the Proposed New Rules and 
Amendments on the Collections of Information
    C. Incremental and Aggregate Burden and Cost Estimates
    D. Request for Comment
XI. Small Business Regulatory Enforcement Fairness Act
XII. Initial Regulatory Flexibility Analysis and Certification
    A. Reasons for, and Objectives of, the Proposed Action

[[Page 29460]]

    B. Legal Basis
    C. Regulatory Flexibility Act Certification
    D. Small Entities Subject to the Proposed Rules and Amendments
    E. Reporting, Recordkeeping, and Other Compliance Requirements
    F. Duplicative, Overlapping or Conflicting Federal Rules
    G. Significant Alternatives
Statutory Authority and Text of Proposed Rule and Form Amendments

I. Introduction

    Special purpose acquisition companies first began to emerge in the 
1990s as an alternative to blank check companies regulated pursuant to 
Rule 419 under the Securities Act.\3\ In response to widespread fraud 
and abuse in blank check offerings, Congress passed the Securities 
Enforcement Remedies and Penny Stock Reform Act of 1990,\4\ which 
required the Commission to adopt rules governing registration 
statements filed by blank check companies offering penny stock.\5\ In 
response, the Commission adopted comprehensive disclosure and other 
requirements for blank check offerings in Rule 419.\6\ Following the 
adoption of Rule 419, securities offerings by SPACs, which are not 
subject to the rule's requirements but have many similar features, 
began to appear, with the number of these offerings fluctuating over 
the years.\7\ In the past two years, however, the U.S. securities 
markets have experienced an unprecedented surge in the number of 
initial public offerings by SPACs, with SPACs raising more than $83 
billion in such offerings in 2020 and more than $160 billion in such 
offerings in 2021.\8\ In 2020 and 2021, more than half of all initial 
public offerings were conducted by SPACs.
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    \3\ The term ``blank check company'' is defined in 17 CFR 
230.419(a)(2) as a development stage company that has no specific 
business plan or purpose or that has indicated that its business 
plan is to engage in a merger or acquisition with an unidentified 
company or companies, and that is issuing ``penny stock,'' as 
defined in 17 CFR 240.3a51-1 (Exchange Act Rule 3a51-1).
    \4\ Public Law 101-429, 104 Stat. 931 (Oct. 15, 1990).
    \5\ Id. at sec. 508; Section 7(b) of the Securities Act.
    \6\ Blank Check Offerings, Release No. 33-6932 (Apr. 13, 1992) 
[57 FR 18037 (Apr. 28, 1992)]. Rule 419 requires a blank check 
company to meet certain disclosure and investor protection 
requirements in registered offerings of securities.
    \7\ Between 2011 and 2021, the average number of initial public 
offerings by SPACs registered under the Securities Act per year was 
98, with the highest number of such offerings (613) in 2021 and the 
lowest number of such offerings (9) in 2012. In 2008, both the New 
York Stock Exchange and Nasdaq adopted rules to permit the listing 
of SPACs on these exchanges for the first time. See, e.g., Release 
No. 34-57785 (May 6, 2008) [73 FR 27597 (May 13, 2008)] and Release 
No. 34-58228 (July 25, 2008) [73 FR 44794 (July 31, 2008)].
    \8\ By comparison, SPACs raised a total of $13.6 billion in 
initial public offerings in 2019 and a total of $10.8 billion in 
initial public offerings in 2018. As used in this release, ``initial 
public offering'' refers to a securities offering registered under 
the Securities Act by an issuer that was not subject to the 
reporting requirements of Section 13 or 15(d) of the Exchange Act 
immediately prior to the registration.
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    A SPAC is typically a shell company \9\ that is organized for the 
purpose of merging with or acquiring one or more unidentified private 
operating companies (a ``de-SPAC transaction'') within a certain time 
frame (often two years) and that conducts a firm commitment 
underwritten initial public offering of $5 million or more in units 
consisting of redeemable shares and warrants.\10\ A SPAC is organized 
and managed by its sponsor, which is usually compensated through an 
amount equal to a percentage (often 25 percent) of the SPAC's initial 
public offering proceeds (in the form of discounted shares and 
warrants) to be received upon the completion of a de-SPAC 
transaction.\11\ Although SPACs are not subject to the requirements of 
Rule 419,\12\ they are typically structured to operate under similar, 
though usually less stringent, conditions in order to attract investors 
and to comply with exchange listing requirements.\13\
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    \9\ The term ``shell company'' is defined in Securities Act Rule 
405 and Exchange Act Rule 12b-2 as a registrant, other than an 
asset-backed issuer, that has: (1) No or nominal operations; and (2) 
either: (i) No or nominal assets; (ii) assets consisting solely of 
cash and cash equivalents; or (iii) assets consisting of any amount 
of cash and cash equivalents and nominal other assets.
    \10\ The descriptions included in this release of common 
features currently seen in SPACs and SPAC transaction structures are 
based, in part, on reviews by the Commission staff of SPAC filings 
with the Commission. The terms ``private operating company'' and 
``target company'' are used interchangeably in this release, unless 
otherwise indicated. We are proposing to define the term ``target 
company'' for purposes of the requirements applicable to SPACs. See 
infra Section II.A.
    \11\ This sponsor compensation is often referred to as the 
sponsor's ``promote'' or ``founder shares,'' which usually amounts 
to around 20% of the total shares of a SPAC after its initial public 
offering. The underwriting fees in a SPAC's initial public offering 
are typically between 5% and 5.5% of the offering proceeds, of which 
3.5% is also usually conditioned on the completion of the de-SPAC 
transaction.
    \12\ Issuers that raise more than $5 million in a firm 
commitment underwritten initial public offering are excluded from 
the definition of ``blank check company'' in Rule 419, and thus are 
not subject to the requirements of the rule, because they are not 
selling ``penny stock,'' as defined in Exchange Act Rule 3a51-1. The 
definition of ``penny stock'' in Exchange Act Section 3(a)(51) and 
Rule 3a51-1 encompasses any equity security except those excluded 
under the rule, such as an NMS stock, as defined in 17 CFR 
242.600(b)(55), that meets certain criteria; securities issued by a 
registered investment company; and securities of an issuer that has 
net tangible assets in excess of $2 million, or $5 million if the 
issuer has been in continuous operation for less than three years, 
or average revenue of at least $6 million for the last three years. 
In 1993, the Commission issued guidance stating that issuers may 
aggregate the proceeds of a firm commitment underwritten initial 
public offering in order to exceed the $5 million net tangible 
assets test in Rule 3a51-1(g)(1). See Penny Stock Definition for 
Purposes of Blank Check Rule, Release No. 33-7024 (Oct. 25, 1993) 
[58 FR 58099 (Oct. 29, 1993)]. SPACs often have provisions in their 
governing instruments that prohibit them from being ``penny stock'' 
issuers. As used in this release, the term ``SPAC'' excludes those 
issuers that are subject to Rule 419. In Dec. 2020, the Commission 
received a rulemaking petition (``Rulemaking Petition'') requesting 
that the Commission adopt rule amendments to permit SPACs to conduct 
initial public offerings on a best-efforts basis without being 
subject to Rule 419. See Rulemaking Petition from Loeb & Loeb LLP, 
File No. 4-768 (Dec. 21, 2020), available at: https://www.sec.gov/rules/petitions/2020/petn4-768.pdf. As of the date of this release, 
we have not received any comment letters in response to the 
Rulemaking Petition.
    \13\ These conditions are generally market driven, and are 
typically set forth in their governing instruments and/or 
contractual arrangements, or are pursuant to the laws of the state 
or country of organization or the listing standards of national 
securities exchanges. See, e.g., NYSE Listed Company Manual Section 
102.06 and Nasdaq Listing Rule IM-5101-2. For example, Section 
102.06 of the NYSE Listed Company Manual requires, among other 
things, that at least 90% of the initial public offering proceeds, 
together with the proceeds of any other concurrent sales of equity 
securities, be held in a trust account controlled by an independent 
custodian until the consummation of a business combination with a 
fair market value equal to at least 80% of the net assets held in 
the trust, with the time period to consummate the de-SPAC 
transaction not to exceed three years. In contrast, under Rule 419, 
a blank check company must, among other things, complete a merger or 
acquisition within 18 months after the effective date of its 
registration statement and must place the offering proceeds and the 
securities sold in the offering in an escrow or trust account until 
the completion of the merger or acquisition, which precludes trading 
in the blank check company's securities until after the merger or 
acquisition is completed.
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    Following its initial public offering, a SPAC generally places all 
or substantially all of the offering proceeds into a trust or escrow 
account,\14\ and the SPAC's shares and warrants are typically 
registered under Section 12(b) of the Exchange Act and then begin 
trading on a national securities exchange.\15\ If a SPAC does not 
complete a de-SPAC transaction within the time frame specified in its 
governing instruments, the SPAC may seek an extension of the time frame 
from its shareholders or may dissolve and liquidate, with the sponsor 
not earning the ``promote'' and the assets held in the trust or escrow 
account returned on a pro rata basis to its shareholders.\16\
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    \14\ The assets in the trust or escrow account are typically 
invested in U.S. government securities and money market funds that 
invest in U.S. government securities. See infra Section VI.
    \15\ The shares and warrants usually begin trading as a unit, 
with a unit frequently consisting of a common share and a fraction 
of a warrant, and are traded separately after a certain period. The 
warrants often become exercisable one year after the SPAC's initial 
public offering or upon the completion of a de-SPAC transaction.
    \16\ Exchange rules require a listed SPAC to complete a de-SPAC 
transaction within a specified timeframe not to exceed 36 months 
after its initial public offering. See, e.g., NYSE Listed Company 
Manual Section 102.06.and Nasdaq Listing Rule IM-5101-2.

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[[Page 29461]]

    If, on the other hand, a SPAC identifies a candidate for a business 
combination transaction, the shareholders of the SPAC have the 
opportunity to either: (1) Redeem their shares prior to the business 
combination and receive a pro rata amount of the initial public 
offering proceeds held in the trust or escrow account, or (2) remain a 
shareholder of the company after the business combination.\17\ To 
offset shareholder redemptions and to fund larger de-SPAC transactions, 
SPACs often conduct additional private capital-raising transactions, 
typically in the form of private investment in public equity (PIPE) 
transactions.\18\ De-SPAC transactions often result in the former 
SPAC's shareholders owning a minority interest in the post-business 
combination company, with the former private operating company's 
shareholders and PIPE investors owning a majority interest in the post-
business combination company following these transactions.\19\
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    \17\ According to a study of SPAC initial public offerings 
between 2010 and 2018, an average of 54.4% and a median of 57.1% of 
shares issued in an initial public offering by a SPAC during this 
period were redeemed prior to the completion of a de-SPAC 
transaction. Usha R. Rodrigues and Michael Stegemoller, SPACs: 
Insider IPOs (SSRN Working Paper, 2021). Another analysis found 
that, between July 1, 2021 and Dec. 1, 2021, mean and median SPAC 
redemption rates were 55% and 66%, respectively. Michael Klausner, 
Michael Ohlrogge, and Emily Ruan, A Sober Look at SPACs, 39 Yale J. 
on Regul. 228 (2022). See infra Section IX.C.1.a.4. for a discussion 
of shareholder redemptions based on analysis by the Division of 
Economic and Risk Analysis (DERA) of available data.
    \18\ The parties to a de-SPAC transaction often negotiate a 
minimum cash condition pursuant to which a SPAC must have a 
specified minimum amount of cash at the closing of the de-SPAC 
transaction, which could include funds in the trust or escrow 
account, the proceeds from PIPE transactions, and other sources. 
When a SPAC conducts a PIPE transaction in connection with a de-SPAC 
transaction, the post-business combination company generally files a 
Securities Act registration statement following the de-SPAC 
transaction to register the resale of the securities purchased in 
the PIPE transaction.
    \19\ According to one study, of the 47 SPAC mergers that 
occurred between Jan. 2019 and June 2020, SPAC shareholders, 
including the sponsor, held a median of 35% of the merged company 
after a de-SPAC transaction (of which the sponsor held a median of 
12% of the merged company), with the remaining 65% of the merged 
company held by other parties including the target company's 
shareholders and PIPE investors. Klausner, Ohlrogge, and Ruan, supra 
note 17.
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    Shareholder approval is often required in de-SPAC transactions, 
and, in such cases, a SPAC provides its shareholders with a proxy 
statement on Schedule 14A, or an information statement on Schedule 14C 
if it is not soliciting proxies from its shareholders.\20\ If a SPAC or 
the target company is registering an offering of its securities (or the 
securities of a new holding company) to be issued in the de-SPAC 
transaction, then a registration statement on Form S-4 or F-4 would be 
filed for the securities offering. If no registration statement or 
proxy or information statement is required, then the SPAC disseminates 
a tender offer statement (Schedule TO) for the redemption offer to its 
security holders with information about the target company.\21\ 
Regardless of how the de-SPAC transaction is structured, the operations 
of the private company are conducted by the post-business combination 
company following the consummation of a de-SPAC transaction, with the 
shareholders of the private company now owning shares in a publicly 
listed company.
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    \20\ 17 CFR 240.14a-2 (Exchange Act Rule 14a-2) and 17 CFR 
240.14c-2 (Exchange Act Rule 14c-2).
    \21\ The Commission has promulgated rules under the Exchange Act 
setting forth filing, disclosure, and dissemination requirements in 
connection with tender offers. See, e.g., Regulations 14D and 14E 
and Exchange Act Rule 13e-4. When an issuer conducts a tender offer, 
the issuer may be required to file and disseminate a Schedule TO 
pursuant to Rule 13e-4. The redemption rights in a SPAC context 
generally have indicia of being a tender offer, such as a limited 
period of time for the SPAC security holders to request redemption 
of their securities. The Commission staff, however, has not insisted 
that SPACs comply with the tender offer rules when a SPAC files a 
Schedule 14A or 14C in connection with the approval of a de-SPAC 
transaction or an extension of the timeframe to complete a de-SPAC 
transaction and conducts the solicitation in accordance with 
Regulation 14A or 14C, as the federal proxy rules mandate 
substantially similar disclosures and applicable procedural 
protections as required by the tender offer rules. However, this 
staff position does not apply when a SPAC does not file a Schedule 
14A or 14C in connection with the de-SPAC transaction or an 
extension. SPACs that do not file a Schedule 14A or 14C, such as 
SPACs that are foreign private issuers, have generally filed and 
disseminated Schedules TO for the redemptions of their securities 
and complied with the procedural requirements of the tender offer 
rules. In these circumstances, the staff has taken the position that 
the Schedule TO should include the same financial and other 
information as is required in Schedule 14A or 14C for a de-SPAC 
transaction. See infra Section II.F.4 for a discussion of proposed 
Item 1608 of Regulation S-K and Section IV.A. for a discussion of 
proposed Rule 145a under the Securities Act, which would affect when 
a SPAC may be required to file a Form S-4 or F-4 in connection with 
a de-SPAC transaction.
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    De-SPAC transactions can be viewed as a way for private operating 
companies to become public reporting companies under the Exchange Act 
and obtain a listing on a national securities exchange while avoiding 
certain of the safeguards for investors and conventions of the typical 
initial public offering process.\22\ From the perspective of the 
shareholders and management of a private operating company, some of the 
purported advantages of combining with a SPAC compared to conducting an 
underwritten initial public offering could include: Greater pricing 
certainty in merger negotiations; a relatively shorter time frame in 
becoming a public company; and the perceived freedom to use projections 
in connection with de-SPAC transactions, with reduced liability 
exposure.\23\ De-SPAC transactions also offer private operating 
companies an infusion of capital from the SPAC,\24\ as well as 
potentially greater share liquidity for the post-business combination 
company based on the existing trading market for the SPAC's 
securities.\25\
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    \22\ See infra note 119.
    \23\ See, e.g., Klausner, Ohlrogge, and Ruan, supra note 17; 
Rodrigues and Stegemoller, supra note 17; Minmo Gahng, Jay R. 
Ritter, and Donghang Zhang, SPACs (SSRN Working Paper, 2021).
    \24\ Typically, much of this cash comes from PIPE investors 
around the time of the de-SPAC transaction and not from investors in 
the SPAC's initial public offering. See, e.g., Klausner, Ohlrogge, 
and Ruan, supra note 17.
    \25\ However, one study found evidence of illiquidity in SPAC 
shares, with relatively thin trading volume particularly during the 
period before the announcement of a proposed de-SPAC transaction. 
Rodrigues and Stegemoller, supra note 17.
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    Although the basic structure of SPACs has existed since the 1990s, 
the recent surge in SPAC offerings and the increasing use of de-SPAC 
transactions as a mechanism for private operating companies to access 
the U.S. public securities markets have caused some market observers to 
express concerns about various aspects of the SPAC structure.\26\ For 
example, some commentators have raised concerns regarding the amount of 
sponsor compensation and other costs and their dilutive effects on a 
SPAC's shareholders.\27\ A number of commentators have also pointed to 
the nature of the sponsor compensation (i.e., dependent on the 
completion of a de-SPAC transaction) as a potential conflict of 
interest in the SPAC structure

[[Page 29462]]

that could lead sponsors to enter into de-SPAC transactions that are 
unfavorable to unaffiliated shareholders of the SPACs without 
performing robust due diligence in connection with these transactions, 
when the alternative is to liquidate the SPACs and return the initial 
public offering proceeds to the shareholders.\28\ Other commentators 
have criticized stock exchange listing rules under which SPAC 
shareholders have voted in favor of proposed de-SPAC transactions while 
still redeeming their shares prior to the closing of the 
transactions.\29\ A number of studies have found that returns are 
relatively poor for investors in companies following a de-SPAC 
transaction.\30\
---------------------------------------------------------------------------

    \26\ For example, in May 2021, the Subcommittee on Investor 
Protection, Entrepreneurship, and Capital Markets of the House 
Financial Services Committee held a hearing on ``Going Public: 
SPACs, Direct Listings, Public Offerings, and the Need for Investor 
Protections,'' which included testimony on, among other things, 
misaligned incentives in the SPAC structure, disclosure issues with 
respect to SPACs, and the use of projections in de-SPAC 
transactions. A webcast of the hearing is available at: https://financialservices.house.gov/events/eventsingle.aspx?EventID=407753.
    \27\ See Testimony of Stephen Deane, CFA Institute, before the 
Investor Protection, Entrepreneurship, and Capital Markets 
Subcommittee of the U.S. House Committee on Financial Services, May 
24, 2021 (``Deane Testimony''), https://financialservices.house.gov/uploadedfiles/hhrg-117-ba16-wstate-deanes-20210524.pdf. See also 
Amrith Ramkumar, SPAC Insiders Can Make Millions Even When the 
Company They Take Public Struggles, The Wall Street Journal, Apr. 
25, 2021.
    \28\ See, e.g., Klausner, Ohlrogge, and Ruan, supra note 17; 
Rodrigues and Stegemoller, supra note 17; Gahng, Ritter, and Zhang, 
supra note 23; letter dated Feb. 16, 2021 from Americans for 
Financial Reform and Consumer Federation of America to the House 
Financial Services Committee (``AFR Letter''); Deane Testimony; 
Testimony of Andrew Park, Americans for Financial Reform, before the 
Investor Protection, Entrepreneurship, and Capital Markets 
Subcommittee of the U.S. House Committee on Financial Services, May 
24, 2021 (``Park Testimony''), https://financialservices.house.gov/uploadedfiles/hhrg-117-ba16-wstate-parka-20210524.pdf.
    \29\ See Mira Ganor, The Case for Non-Binary, Contingent, 
Shareholder Action, 23 U. Pa. J. Bus. L. 390 (2021); Rodrigues and 
Stegemoller, supra note 17. We note that exchange listing rules only 
explicitly require that, when a shareholder vote on a business 
combination is held, the public shareholders voting against a 
business combination have a right to redeem shares. See, e.g., 
Nasdaq Listing Rule IM-5101-2 (stating, in part, that ``public 
Shareholders voting against a business combination must have the 
right to convert their shares of common stock into a pro rata share 
of the aggregate amount then in the deposit account (net of taxes 
payable and amounts distributed to management for working capital 
purposes) if the business combination is approved and 
consummated'').
    \30\ See, e.g., Lora Dimitrova, Perverse Incentives of Special 
Purpose Acquisition Companies, the ``Poor Man's Private Equity 
Funds,'' Journal of Accounting and Economics (2017); Johannes Kolb 
and Tereza Tykvov[aacute], Going Public via Special Purpose 
Acquisition Companies: Frogs Do Not Turn Into Princes, Journal of 
Corporate Finance (2016); Klausner, Ohlrogge, and Ruan, supra note 
17; Gahng, Ritter, and Zhang, supra note 23; Chen Lin, Fangzhou Lu, 
Roni Michaely, and Shihua Qin, SPAC IPOs and Sponsor Network 
Centrality (SSRN Working Paper, 2021). See also Testimony of Scott 
Kupor, Andreessen Horowitz, before the Investor Protection, 
Entrepreneurship, and Capital Markets Subcommittee of the U.S. House 
Committee on Financial Services, May 24, 2021, https://financialservices.house.gov/uploadedfiles/hhrg-117-ba16-wstate-kupors-20210524.pdf; Alexander Osipovich and Dave Michaels, 
Investors Flock to SPACs, Where Risks Lurk and Track Records Are 
Poor, The Wall Street Journal, Nov. 13, 2020.
---------------------------------------------------------------------------

    In addition, some commentators have expressed concerns regarding 
the adequacy of the disclosures provided to investors in these 
transactions in terms of explaining the potential benefits, risks and 
effects for investors, as well as the potential benefits for the 
sponsor and other affiliates of the SPAC.\31\ One of these commentators 
also expressed the view that the disclosure about the private operating 
company provided through the de-SPAC transaction process may be less 
complete and less reliable than that provided by an issuer in a 
traditional initial public offering.\32\ Other commentators have 
criticized the use of projections in de-SPAC transactions that, in 
their view, have appeared to be unreasonable, unfounded or potentially 
misleading, particularly where the target company is an early stage 
company with no or limited sales, products, and/or operations,\33\ as 
well as the lack of a named underwriter in these transactions that 
would typically perform traditional gatekeeping functions, such as due 
diligence, and would be subject to liability under Section 11 of the 
Securities Act for untrue statements of material facts or omissions of 
material facts.\34\ In response to a number of these and other issues, 
the Commission staff has provided guidance relating to SPACs on five 
occasions since December 2020.\35\
---------------------------------------------------------------------------

    \31\ See, e.g., AFR Letter; Testimony of Professor Usha R. 
Rodrigues, University of Georgia School of Law, before the Investor 
Protection, Entrepreneurship, and Capital Markets Subcommittee of 
the U.S. House Committee on Financial Services, May 24, 2021 
(``Rodrigues Testimony''), https://financialservices.house.gov/uploadedfiles/hhrg-117-ba16-wstate-rodriguesu-20210524.pdf. A number 
of recent SEC actions have highlighted disclosures about the private 
operating company that are allegedly incomplete, inaccurate, and 
materially misleading. See, e.g., In the Matter of Momentus, Inc., 
Stable Road Acquisition Corp., SRC-NI Holdings, LLC, and Brian 
Kabot, Release No. 33-10955, 34-92391 (July 13, 2021); In the Matter 
of Nikola Corp., Release No. 33-11018, 34-93838 (Dec. 21, 2021); SEC 
v. Akazoo S.A., Case No. 1:20-cv-08101 (S.D.N.Y. filed Sept. 30, 
2020); SEC v. Hurgin, et al., Case No. 1:19-cv-05705 (S.D.N.Y. filed 
June 18, 2019).
    \32\ See AFR Letter.
    \33\ See, e.g., Michael Dambra, Omri Even-Tov, and Kimberlyn 
George, Should SPAC Forecasts be Sacked? (SSRN Working Paper, 2022); 
AFR Letter; Park Testimony; Rodrigues and Stegemoller, supra note 
17. See also Heather Somerville and Eliot Brown, SPAC Startups Made 
Lofty Promises. They Aren't Working Out., The Wall Street Journal, 
Feb. 25, 2022.
    \34\ See AFR Letter; Deane Testimony; Rodrigues Testimony. See 
also John C. Coffee Jr., Gatekeeper Failure and Reform: The 
Challenge of Fashioning Relevant Reforms, 84 B. U. L. Rev. 301 
(2004) and John C. Coffee, Jr., Gatekeepers: The Professions and 
Corporate Governance (2006).
    \35\ See CF Disclosure Guidance: Topic No. 11--Special Purpose 
Acquisition Companies (Division of Corporation Finance, Dec. 22, 
2020); Staff Statement on Select Issues Pertaining to Special 
Purpose Acquisition Companies (Division of Corporation Finance, Mar. 
31, 2021); Public Statement on Financial Reporting and Auditing 
Considerations of Companies Merging with SPACs (Office of Chief 
Accountant, Mar. 31, 2021); Public Statement on SPACs, IPOs and 
Liability Risk under the Securities Laws (Division of Corporation 
Finance, Apr. 8, 2021); and Staff Statement on Accounting and 
Reporting Considerations for Warrants Issued by Special Purpose 
Acquisition Companies (``SPACs'') (Division of Corporation Finance 
and Office of Chief Accountant, Apr. 12, 2021). This guidance and 
other staff statements (including those cited herein) represent the 
views of Commission staff and are not a rule, regulation, or 
statement of the Commission. The Commission has neither approved nor 
disapproved the content of these documents and, like all staff 
statements, they have no legal force or effect, do not alter or 
amend applicable law, and create no new or additional obligations 
for any person.
---------------------------------------------------------------------------

    In September 2021, the Commission's Investor Advisory Committee 
\36\ issued preliminary recommendations regarding SPACs and expressed 
concerns about whether sponsors and target companies have engaged in 
regulatory arbitrage by using de-SPAC transactions as a path to the 
public markets. In addition, the Investor Advisory Committee expressed 
concerns about potential conflicts of interest between sponsors and 
retail investors, and the effectiveness of the disclosures provided in 
these transactions.\37\ Among other things, the Investor Advisory 
Committee recommended that the Commission ``regulate SPACs more 
intensely'' through an enhanced focus on and stricter enforcement of 
existing disclosure rules in areas such the sponsor's role in a SPAC, 
the process and risks in identifying and assessing target companies, 
PIPE financing terms, and de-SPAC transaction due diligence, as well as 
application of the Plain English disclosure rules.\38\ The Investor 
Advisory Committee also recommended that the Commission prepare and 
publish a report analyzing the parties involved in SPAC transactions at

[[Page 29463]]

various stages and the compensation and incentives of these parties.
---------------------------------------------------------------------------

    \36\ The Investor Advisory Committee was established by Section 
911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(``Dodd-Frank Act''), Public Law 111-203, 124 Stat. 1376 (2010), to 
advise and consult with the Commission on regulatory priorities, 
issues, and initiatives.
    \37\ See Recommendations of the Investor Advisory Committee 
Regarding Special Purpose Acquisition Companies (Sept. 9, 2021) 
(``IAC Recommendations''), available at: https://www.sec.gov/spotlight/investor-advisory-committee-2012/20210909-spac-recommendation.pdf. The Dodd-Frank Act authorizes the Investor 
Advisory Committee to submit findings and recommendations for review 
and consideration by the Commission. The Commission then issues a 
public statement assessing the finding or recommendation and 
disclosing the Commission's intended action, if any, in regard to 
the finding or recommendation. See Section 911(g) of the Dodd-Frank 
Act.
    \38\ 17 CFR 230.421(d) (Securities Act Rule 421(d)) requires 
registrants to write the prospectus cover page, prospectus summary, 
and risk factors sections of prospectuses using plain English 
principles, including the use of short sentences; definite, 
concrete, everyday language; active voice; tabular presentation of 
complex information whenever possible; no legal or business jargon; 
and no multiple negatives. Plain English Disclosure, Release No. 33-
7497 (Jan. 28, 1998) [63 FR 6370 (Feb. 6, 1998)].
---------------------------------------------------------------------------

    Also in September 2021, the Commission's Small Business Capital 
Formation Advisory Committee \39\ held a panel discussion on initial 
public offerings, direct listings, and SPACs.\40\ The panelists 
expressed their views on a range of topics related to SPACs, including 
the factors behind the significant growth of the SPAC market over the 
past two years, the potential benefits of SPACs to the public markets, 
the potential benefits of enhanced disclosure requirements applicable 
to SPACs, and perceived issues surrounding the use of projections in 
de-SPAC transactions. The panel discussion also addressed the costs 
embedded in the SPAC structure and the dilutive effects of these costs 
on non-redeeming shareholders, as well as the poor market-adjusted 
returns of companies, on average, following de-SPAC transactions.\41\
---------------------------------------------------------------------------

    \39\ The Small Business Capital Formation Advisory Committee was 
established by Section 2 of the SEC Small Business Advocate Act of 
2016, Public Law 114-284, 130 Stat. 1447 (2016), to provide advice 
to the Commission on the Commission's rules, regulations, and 
policies relating to (1) capital raising by emerging, privately held 
small businesses and public companies with less than $250 million in 
public market capitalization; (2) trading in their securities; and 
(3) public reporting and corporate governance requirements 
applicable to these companies.
    \40\ The panelists were Isabelle Freidheim, Michael Klausner, 
David Ni, and Phyllis Newhouse.
    \41\ See Transcript of SEC Small Business Capital Formation 
Advisory Committee (Sept. 27, 2021), available at: https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-092721.pdf.
---------------------------------------------------------------------------

    Having considered these and other perspectives on the SPAC market, 
we are of the view that greater transparency and more robust investor 
protections could assist investors in evaluating and making investment, 
voting, and redemption decisions with respect to these transactions. 
Accordingly, we are proposing new rules and rule amendments to enhance 
existing disclosure requirements and investor protections in initial 
public offerings by SPACs and in de-SPAC transactions. A number of the 
rules and amendments we are proposing are intended to improve the 
usefulness and clarity of the information provided to investors so that 
they can make better informed decisions as to whether to purchase 
securities in SPAC initial public offerings, to purchase or sell SPAC 
securities in secondary trading markets, and in voting, investment and 
redemption decisions in connection with de-SPAC transactions.
    The proposed rules and amendments, if adopted, could help the SPAC 
market function more efficiently by improving the relevance, 
completeness, clarity, and comparability of the disclosures provided by 
SPACs at the initial public offering and de-SPAC transaction stages, 
and by providing important investor protections to strengthen investor 
confidence in this market. In developing these proposals, we have 
considered the recommendations and views discussed above, as well as 
the Commission staff's experience in reviewing disclosures in SPAC 
initial public offerings and de-SPAC transactions.
    Specifically, we are proposing to add new Subpart 1600 of 
Regulation S-K that would set forth specialized disclosure requirements 
in connection with initial public offerings by SPACs and in connection 
with de-SPAC transactions. In new Subpart 1600, we are proposing to, 
among other things:
     Require additional disclosures about the sponsor of the 
SPAC, potential conflicts of interest, and dilution;
     Require additional disclosures on de-SPAC transactions, 
including a requirement that the SPAC state (1) whether it reasonably 
believes that the de-SPAC transaction and any related financing 
transaction are fair or unfair to investors, and (2) whether it has 
received any outside report, opinion, or appraisal relating to the 
fairness of the transaction; and
     Require certain disclosures on the prospectus cover page 
and in the prospectus summary of registration statements filed in 
connection with SPAC initial public offerings and de-SPAC transactions.
    In addition, in view of the increasing number of private companies 
using de-SPAC transactions to become publicly-traded reporting 
companies, we are proposing amendments to provide procedural 
protections and to align the disclosures provided, as well as the legal 
obligations of companies, in de-SPAC transactions more closely with 
those in traditional initial public offerings. Specifically, we are 
proposing to:
     Amend the registration statement forms and schedules filed 
in connection with de-SPAC transactions to require additional 
disclosures about the private operating company;
     Require that disclosure documents in de-SPAC transactions 
be disseminated to investors at least 20 calendar days in advance of a 
shareholder meeting or the earliest date of action by consent, or the 
maximum period for disseminating such disclosure documents permitted 
under the laws of the jurisdiction of incorporation or organization if 
such period is less than 20 calendar days;
     Deem a private operating company in a de-SPAC transaction 
to be a co-registrant of a registration statement on Form S-4 or Form 
F-4 when a SPAC files such a registration statement for a de-SPAC 
transaction, such that the private operating company and its signing 
persons would be subject to liability under Section 11 of the 
Securities Act as signatories to the registration statement;
     Amend the definition of smaller reporting company to 
require a re-determination of smaller reporting company status 
following the consummation of a de-SPAC transaction; and
     Define ``blank check company'' to encompass SPACs and 
certain other blank check companies for purposes of the Private 
Securities Litigation Reform Act of 1995 (PSLRA) \42\ such that the 
safe harbor for forward-looking statements under the PSLRA would not be 
available to SPACs, including with respect to projections of target 
companies seeking to access the public markets through a de-SPAC 
transaction.
---------------------------------------------------------------------------

    \42\ Public Law 104-67, 109 Stat. 737 (1995).
---------------------------------------------------------------------------

    Underwriters play a critical role in the securities offering 
process as gatekeepers to the public markets. In light of this 
important role, we are proposing a new rule, Securities Act Rule 140a, 
that would deem anyone who has acted as an underwriter of the 
securities of a SPAC and takes steps to facilitate a de-SPAC 
transaction, or any related financing transaction or otherwise 
participates (directly or indirectly) in the de-SPAC transaction to be 
engaged in a distribution and to be an underwriter in the de-SPAC 
transaction. By affirming the underwriter status of SPAC IPO 
underwriters in connection with de-SPAC transactions, the proposed rule 
should better motivate SPAC underwriters to exercise the care necessary 
to ensure the accuracy of the disclosure in these transactions by 
affirming that they are subject to Section 11 liability for that 
information.
    In addition, private companies have historically used shell 
companies with Exchange Act reporting obligations in various forms of 
transactions, including SPACs, to become a public company without 
undergoing a traditional initial public offering. In many cases, such 
shell company shareholders may not receive a Securities Act 
registration statement containing disclosures about the private company 
that is entering the public market for the first time. Due to the 
significant increase in the use of reporting shell company business 
combination transactions as a means to

[[Page 29464]]

enter the U.S. capital markets, and in an effort to provide reporting 
shell company shareholders with more consistent Securities Act 
protections regardless of transaction structure, we are proposing to 
add new Rule 145a that would deem any business combination of a 
reporting shell company, involving another entity that is not a shell 
company, to involve a sale of securities to the reporting shell 
company's shareholders.\43\
---------------------------------------------------------------------------

    \43\ Throughout this release, we use ``shell company'' in lieu 
of the phrase ``shell company, other than a business combination 
related shell company.'' The term ``business combination related 
shell company'' is defined in Securities Act Rule 405 and Exchange 
Act Rule 12b-2 as a shell company that is: ``(1) Formed by an entity 
that is not a shell company solely for the purpose of changing the 
corporate domicile of that entity solely within the United States; 
or (2) Formed by an entity that is not a shell company solely for 
the purpose of completing a business combination transaction (as 
defined in 17 CFR 230.165(f)) among one or more entities other than 
the shell company, none of which is a shell company.'' For purposes 
of proposed Rule 145a (see infra Section IV.A.), the term 
``reporting shell company'' is defined as a company, other than an 
asset-backed issuer as defined in Item 1101(b) of Regulation AB, 
that has: (1) No or nominal operations; (2) either: (i) No or 
nominal assets; (ii) assets consisting solely of cash and cash 
equivalents; or (iii) assets consisting of any amount of cash and 
cash equivalents and nominal other assets; and (3) an obligation to 
file reports under Section 13 or Section 15(d) of the Exchange Act. 
We similarly use ``reporting shell company'' in lieu of the phrase 
``reporting shell company, other than a business combination related 
shell company'' throughout this release.
---------------------------------------------------------------------------

    Further, we are proposing new Article 15 of Regulation S-X, as well 
as related amendments, to more closely align the financial statement 
reporting requirements in business combinations involving a shell 
company and a private operating company with those in traditional 
initial public offerings. This is consistent with our view that the 
manner in which a company goes public should not generally result in 
substantially different financial statement disclosures being provided 
to investors.
    We are also proposing amendments intended to enhance the 
reliability of projections disclosure in Commission filings, as well as 
additional requirements when projections are disclosed in connection 
with de-SPAC transactions. The proposed amendments to Item 10(b) of 
Regulation S-K would address broader concerns regarding the use of 
projections generally, while proposed Item 1609 of Regulation S-K would 
address concerns specific to de-SPAC transactions.
    Finally, as the SPAC market has grown dramatically in recent years, 
some SPACs have sought to operate in novel ways that suggest a need for 
SPACs and their sponsors to increase their focus on evaluating when a 
SPAC could be an investment company and thus subject to the 
requirements under the Investment Company Act of 1940 (``Investment 
Company Act'').\44\ We are concerned that SPACs may fail to recognize 
when their activities raise the investor protection concerns addressed 
by the Investment Company Act. To assist SPACs in focusing on, and 
appreciating, when they may be subject to investment company 
regulation, we are proposing a new safe harbor under the Investment 
Company Act. The proposed rule would provide a safe harbor from the 
definition of ``investment company'' under Section 3(a)(1)(A) of the 
Investment Company Act for SPACs that satisfy certain conditions that 
limit a SPAC's duration, asset composition, business purpose and 
activities.\45\
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 80a-1 et seq.
    \45\ See infra Section VI for a discussion of proposed Rule 3a-
10.
---------------------------------------------------------------------------

    We welcome feedback and encourage interested parties to submit 
comments on any or all aspects of the proposed new rules and 
amendments. When commenting, it would be most helpful if you include 
the reasoning behind your position or recommendation.

II. Proposed New Subpart 1600 of Regulation S-K

    We are proposing to add new Subpart 1600 to Regulation S-K to set 
forth specialized disclosure requirements applicable to SPACs regarding 
the sponsor, potential conflicts of interest, and dilution, and to 
require certain disclosures on the prospectus cover page and in the 
prospectus summary.\46\ Proposed Subpart 1600 would also require 
enhanced disclosure for de-SPAC transactions, including a fairness 
determination requirement. We are proposing to amend a number of forms 
and schedules used by SPACs for initial public offerings and de-SPAC 
transactions to require the information set forth in proposed Subpart 
1600.\47\ To the extent that the disclosure requirements in proposed 
Subpart 1600 address the same subject matter as the existing disclosure 
requirements of the forms or schedules, the requirements of proposed 
Subpart 1600 would be controlling.\48\ The following table summarizes 
the proposed items in Subpart 1600, as described more fully below: \49\
---------------------------------------------------------------------------

    \46\ The proposed requirements in new Subpart 1600 would, to an 
extent, codify and standardize some of the disclosures already 
commonly provided by SPACs.
    \47\ See the proposed amendments to Forms S-1, F-1, S-4, and F-
4, and Schedules 14A and TO. While we are not proposing amendments 
to Schedule 14C, the disclosure contemplated by proposed Subpart 
1600 would be required in Schedule 14C pursuant to Item 1 of 
Schedule 14C, which states that a Schedule 14C must include the 
information called for by all of the items of Schedule 14A, with 
limited exceptions, to the extent each item would be applicable to 
any matter to be acted upon at a shareholder meeting if proxies were 
to be solicited in connection with the meeting. If the securities to 
be issued in a de-SPAC transaction are registered on a form other 
than Form S-4 or F-4, such as Form S-1 or F-1, but would be 
authorized to be registered on Form S-4 or F-4, the proposed 
requirements of Form S-4 or F-4, as applicable, in regard to de-SPAC 
transactions would apply in that context.
    \48\ Proposed General Instruction L.1. to Form S-4; Proposed 
General Instruction I.1. to Form F-4; Proposed Item 14(f)(1) to 
Schedule 14A; Proposed General Instruction K to Schedule TO. We are 
also proposing to re-designate existing General Instruction K to 
Schedule TO as General Instruction L to the schedule.
    \49\ The information in this table is not comprehensive and is 
intended only to summarize the proposed items of Subpart 1600. This 
table should be read together with the complete text of this 
release.

----------------------------------------------------------------------------------------------------------------
                                                                                           Applicable forms and
                 Item                    Summary description     Principal objective(s)         schedules
----------------------------------------------------------------------------------------------------------------
Item 1601, Definitions...............  Definitions for the      Establish the scope of   Forms S-1, F-1, S-4,
                                        terms ``special          the issuers and          and F-4; Schedules
                                        purpose acquisition      transactions subject     14A, 14C, and TO.
                                        company,'' ``de-SPAC     to the requirements of
                                        transaction,''           Subpart 1600.
                                        ``target company,''
                                        and ``SPAC sponsor''.
Item 1602, Registered offerings by     Require certain          Enhance the clarity and  Forms S-1 and F-1.
 special purpose acquisition            information on the       readability of
 companies.                             prospectus cover page    prospectuses in SPAC
                                        and in the prospectus    initial public
                                        summary of               offerings and the
                                        registration             disclosures relating
                                        statements for           to dilution in these
                                        offerings by SPACs       prospectuses.
                                        other than de-SPAC
                                        transactions. Require
                                        enhanced dilution
                                        disclosure in these
                                        registration
                                        statements.

[[Page 29465]]

 
Item 1603, SPAC sponsor; conflicts of  Require certain          Provide investors with   Forms S-1, F-1, S-4,
 interest.                              disclosure regarding     a more complete          and F-4; Schedules
                                        the sponsor and its      understanding of the     14A, 14C and TO.
                                        affiliates and any       role of sponsors and
                                        promoters of SPACs and   their conflicts of
                                        disclosure regarding     interest.
                                        conflicts of interest
                                        between the sponsor or
                                        its affiliates or
                                        promoters and
                                        unaffiliated security
                                        holders.
Item 1604, De-SPAC transactions......  Require certain          Enhance the clarity and  Forms S-4 and F-4;
                                        information on the       readability of           Schedules 14A, 14C,
                                        prospectus cover page    prospectuses in de-      and TO.
                                        and in the prospectus    SPAC transactions and
                                        summary of               disclosures relating
                                        registration             to dilution in these
                                        statements for de-SPAC   prospectuses.
                                        transactions. Require
                                        enhanced dilution
                                        disclosure in these
                                        registration
                                        statements.
Item 1605, Background of and reasons   Require disclosure on    Provide investors with   Forms S-4 and F-4;
 for the de-SPAC transaction; terms     the background,          a more complete          Schedules 14A, 14C,
 of the de-SPAC transaction; effects.   material terms and       understanding of the     and TO.
                                        effects of a proposed    background of and
                                        de-SPAC transaction.     motivations behind a
                                                                 proposed de-SPAC
                                                                 transaction.
Item 1606, Fairness of the de-SPAC     Require disclosure on    Provide investors with   Forms S-4 and F-4;
 transaction and any related            whether a SPAC           additional information   Schedules 14A, 14C,
 financing transaction.                 reasonably believes      regarding a proposed     and TO.
                                        that a de-SPAC           de-SPAC transaction
                                        transaction and any      and address concerns
                                        related financing        regarding potential
                                        transactions are fair    conflicts of interest
                                        or unfair to             and misaligned
                                        investors, as well as    incentives.
                                        a discussion of the
                                        bases for this
                                        reasonable belief.
Item 1607, Reports, opinions,          Require disclosure on    Provide investors with   Forms S-4 and F-4;
 appraisals and negotiations.           whether a SPAC or its    additional information   Schedules 14A, 14C,
                                        sponsor has received a   underlying a fairness    and TO.
                                        report, opinion or       determination by a
                                        appraisal from an        SPAC.
                                        outside party
                                        regarding the fairness
                                        of a de-SPAC
                                        transaction or any
                                        related financing
                                        transaction.
Item 1608, Tender offer filing         Require additional       Align the information    Schedule TO.
 obligations in de-SPAC transactions    disclosures in a         provided in such a
 *.                                     Schedule TO filed in     Schedule TO with the
                                        connection with a de-    information provided
                                        SPAC transaction.        in other filings in
                                                                 connection with a de-
                                                                 SPAC transaction.
Item 1609, Financial projections in    Require additional       Provide investors with   Forms S-4 and F-4;
 de-SPAC transactions **.               disclosures regarding    additional information   Schedules 14A, 14C,
                                        financial projections    regarding the use of     and TO.
                                        disclosed in a           projections in
                                        disclosure document      connection with a de-
                                        for a de-SPAC            SPAC transaction.
                                        transaction.
Item 1610, Structured data             Require information      Provide investors and    Forms S-1, F-1, S-4,
 requirement ***.                       disclosed pursuant to    other market             and F-4; Schedules
                                        Subpart 1600 to be       participants with        14A, 14C, and TO.
                                        tagged in a              information that is
                                        structured, machine-     more readily available
                                        readable data language.  and more easily
                                                                 accessible for
                                                                 aggregation,
                                                                 comparison, filtering,
                                                                 and other analysis.
----------------------------------------------------------------------------------------------------------------
Notes:
* Proposed Item 1608 is discussed in Section II.F.4.
** Proposed Item 1609 is discussed in Section V.B.2.
*** Proposed Item 1610 is discussed in Section II.G.

A. Definitions

    For purposes of proposed new Subpart 1600, we are proposing Item 
1601 to define the term ``special purpose acquisition company'' to mean 
a company that has indicated that its business plan is to (1) register 
a primary offering of securities that is not subject to the 
requirements of Rule 419; \50\ (2) complete a de-SPAC transaction 
within a specified time frame; and (3) return all remaining proceeds 
from the registered offering and any concurrent offerings to its 
shareholders if the company does not complete a de-SPAC transaction 
within the specified time frame.\51\ While the proposed definition does 
not include certain features common to SPACs, such as the listing of 
the SPAC's securities on a national securities exchange \52\ or the 
issuance of redeemable securities, the proposed definition incorporates 
the key defining features of the issuers that in our view should be 
subject to the disclosure and procedural requirements of Subpart 1600, 
while remaining sufficiently broad to take into account potential 
variations in the SPAC structure and the possibility that SPACs may 
continue to evolve. In particular, the proposed definition would 
encompass issuers that would otherwise be subject to Rule 419's 
investor protection requirements but for the fact that the issuer is 
not issuing ``penny

[[Page 29466]]

stock.'' \53\ At the same time, the proposed definition does not 
include criteria such as listing on a national securities exchange, 
certain requirements that are applicable to exchange-traded SPACs,\54\ 
or the issuance of redeemable securities, as these criteria would 
result in an overly narrow definition by including transactional terms 
that have not applied to every SPAC offering in the past or that could 
change as the SPAC market continues to evolve.
---------------------------------------------------------------------------

    \50\ Blank check companies subject to Rule 419 must comply with 
a comprehensive set of disclosure and investor protection 
requirements under the rule and would not be subject to the 
requirements applicable to SPACs under the proposed rules. See supra 
notes 6 and 13.
    \51\ Proposed Item 1601(b).
    \52\ In this regard, we note that the securities of SPACs were 
not listed on national securities exchanges until the 2000s.
    \53\ See supra note 12.
    \54\ See infra note 57.
---------------------------------------------------------------------------

    The term ``de-SPAC transaction'' would be defined as a business 
combination such as a merger, consolidation, exchange of securities, 
acquisition of assets, or similar transaction involving a SPAC and one 
or more target companies (contemporaneously, in the case of more than 
one target company).\55\ The term ``target company'' would be defined 
as an operating company, business, or assets.\56\ As proposed, these 
definitions are intentionally broad and, taken together, would 
encompass more typical transactions such as the acquisition of one or 
more private operating companies by a SPAC, as well as less common 
transactions that may or may not be permitted under exchange listing 
rules but for which the proposed enhanced disclosure and procedural 
requirements described below may be appropriate because they raise the 
same investor protection concerns.\57\
---------------------------------------------------------------------------

    \55\ Proposed Item 1601(a).
    \56\ Proposed Item 1601(d).
    \57\ The proposed definitions would apply to both exchange-
traded SPACs and SPACs traded in the over-the-counter market. Some 
transactions encompassed by the proposed definitions may not be 
permitted under exchange listing rules for SPACs, and nothing in 
this release is intended to indicate that such transactions are or 
should be permitted under the exchanges' SPACs listing rules or that 
exchange listing requirements should not, at a minimum, apply to 
SPACs seeking an exchange listing. The Commission has consistently 
recognized the importance of national securities exchange listing 
standards. Among other things, such listing standards help ensure 
that exchange-listed companies will have sufficient public float, 
investor base, and trading interest to provide the depth and 
liquidity necessary to promote fair and orderly markets. 
Furthermore, Section 6(b)(5) of the Exchange Act requires exchange 
listing rules be designed to prevent fraudulent and manipulative 
acts and practices, promote just and equitable principles of trade, 
and protect investors and the public interest. The Commission has 
also stated that listing standards are of significant importance to 
investors that may rely on the status an exchange listing ascribes 
to a security. See, e.g., Release No. 34-57785 (May 6, 2008) [73 FR 
27597, 27599 (May 13, 2008)] (SR-NYSE-2008-17) (order approving 
initial and continued listing standards for NYSE exchange-listed 
SPACs).
---------------------------------------------------------------------------

    The term ``SPAC sponsor'' would be defined as the entity and/or 
person(s) primarily responsible for organizing, directing or managing 
the business and affairs of a SPAC, other than in their capacities as 
directors or officers of the SPAC as applicable.\58\ Although a sponsor 
of a SPAC may perform a variety of functions within the SPAC's 
structure, the proposed definition encompasses activities that, based 
on the staff's experience reviewing SPAC filings and public commentary, 
are commonly associated with sponsors of SPACs. We are proposing to 
define this term broadly so that the appropriate entities or persons 
are subject to the proposed enhanced disclosure requirements applicable 
to the sponsors of a SPAC.\59\
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    \58\ Proposed Item 1601(c). In regard to natural persons, we are 
proposing to exclude from the scope of the definition of ``SPAC 
sponsor'' the activities performed by natural persons in their 
capacities as directors and/or officers of the SPAC to avoid overlap 
with existing disclosure requirements relating to directors and 
officers. See infra Section II.B. for a discussion of the activities 
of a sponsor.
    \59\ Proposed Item 1603.
---------------------------------------------------------------------------

Request for Comment
    1. Should we define the term ``special purpose acquisition 
company'' as proposed? Does the proposed definition provide a workable 
approach to determining which issuers would be subject to the 
requirements of proposed Subpart 1600? Should we define this term 
differently? If so, how? For example, are there certain other common 
characteristics of SPACs that should be included in the definition, 
such as redemption rights, exchange listing, the placing of initial 
public offering proceeds in a trust or escrow account, and/or that the 
de-SPAC transaction must meet a minimum fair market value (e.g., at 
least 80%) of the value of the proceeds in the trust or escrow account? 
Should we include a reference to ``shell company'' in the definition?
    2. Should we define ``de-SPAC transaction'' as proposed? Should the 
scope of the proposed definition instead be tied to de-SPAC 
transactions that are permitted under exchange listing standards? \60\
---------------------------------------------------------------------------

    \60\ See supra notes 13 and 16.
---------------------------------------------------------------------------

    3. Should we define the term ``SPAC sponsor'' as proposed? Does the 
proposed definition reflect those activities commonly associated with a 
SPAC's sponsor? Would the proposed definition encompass persons or 
entities that are not commonly considered to be sponsors of a SPAC? If 
so, how should we revise the definition to avoid scoping in such 
persons or entities? In regard to natural persons, should we exclude 
from the scope of the definition the activities performed by natural 
persons in their capacities as directors and/or officers of the SPAC, 
as proposed?
    4. Should we define the term ``target company'' as proposed? Is 
this definition sufficiently clear? Would this definition, in 
combination with the other proposed definitions, be overly broad and 
encompass transactions that should not be treated as de-SPAC 
transactions?
    5. Are there other terms that we should define in proposed Subpart 
1600? If so, which terms and how should we define them?
    6. With respect to the proposed definition of ``special purpose 
acquisition company,'' is it clear what ``has indicated that its 
business plan'' is intended to convey? Should we require registrants to 
affirmatively state in filings whether they are a special purpose 
acquisition company? For example, should we amend Form S-1, Form F-1, 
Form S-4, and/or Form F-4 to add to the registration statement cover 
page of these forms a check box for issuers to indicate whether they 
are special purpose acquisition companies? Should we also amend 
Schedule 14A, Schedule 14C and Schedule TO to include this check box on 
the cover pages of these schedules?

B. Sponsors

    The sponsor's role is critical to the success of a SPAC. At the 
earliest stage, the sponsor typically organizes and manages the SPAC, 
including appointing the initial directors and officers of the SPAC, 
and provides the initial capital for the SPAC's operations prior to its 
initial public offering.\61\ In subsequent stages, among other things, 
the sponsor may work with one or more investment banks in preparing for 
the SPAC's initial public offering and may place the proceeds from the 
offering into a trust or escrow account. Following the initial public 
offering, the sponsor typically identifies potential candidates for a 
business combination transaction, negotiates the transaction to acquire 
the target private operating company and promotes the transaction to 
the SPAC's shareholders. As discussed above, the value of the sponsor's 
compensation is

[[Page 29467]]

usually contingent on the completion of a de-SPAC transaction.\62\
---------------------------------------------------------------------------

    \61\ See proposed Item 1601(c) for the proposed definition for 
``SPAC sponsor.'' There is often an identity of interest between the 
sponsor and the SPAC's officers and directors, in that the same 
persons may work for both the sponsor and the SPAC in different 
capacities. In many instances, SPACs will not hold a public election 
for directors until the de-SPAC transaction or thereafter. Some 
SPACs provide that only the founder shares may vote in director 
elections until the de-SPAC transaction.
    \62\ See text accompanying supra notes 14-16.
---------------------------------------------------------------------------

    In view of the central role of the sponsor in a SPAC's activities, 
we are proposing Item 1603(a) to require additional disclosure about 
the sponsor, its affiliates and any promoters \63\ of the SPAC in 
registration statements and schedules filed in connection with SPAC 
registered offerings and de-SPAC transactions, including disclosure on 
the following:
---------------------------------------------------------------------------

    \63\ The term ``promoter'' is defined in Securities Act Rule 405 
and Exchange Act Rule 12b-2.
---------------------------------------------------------------------------

     The experience, material roles, and responsibilities of 
these parties, as well as any agreement, arrangement or understanding 
(1) between the sponsor and the SPAC, its executive officers, directors 
or affiliates, in determining whether to proceed with a de-SPAC 
transaction and (2) regarding the redemption of outstanding securities;
     The controlling persons of the sponsor and any persons who 
have direct and indirect material interests in the sponsor, as well as 
an organizational chart that shows the relationship between the SPAC, 
the sponsor, and the sponsor's affiliates;
     Tabular disclosure of the material terms of any lock-up 
agreements with the sponsor and its affiliates; and
     The nature and amounts of all compensation that has or 
will be awarded to, earned by, or paid to the sponsor, its affiliates 
and any promoters for all services rendered in all capacities to the 
SPAC and its affiliates, as well as the nature and amounts of any 
reimbursements to be paid to the sponsor, its affiliates and any 
promoters upon the completion of a de-SPAC transaction.\64\
---------------------------------------------------------------------------

    \64\ This would include, for example, fees and reimbursements in 
connection with lease, consulting, support services, and management 
agreements with entities affiliated with the sponsor, as well as 
reimbursements for out-of-pocket expenses incurred in performing due 
diligence or in identifying potential business combination 
candidates.
---------------------------------------------------------------------------

    Proposed Item 1603(a)'s disclosure requirements are intended to 
provide a SPAC's prospective investors and existing shareholders with 
detailed information relating to the sponsor that could be important in 
understanding and analyzing a SPAC, including how the rights and 
interests of the sponsor, its affiliates, and any promoters may differ 
from, and may conflict with, those of public shareholders.\65\ Given 
that a SPAC does not conduct an operating business, information about 
the background and experience of the sponsor is often important in 
assessing a SPAC's prospects for success and may be a relevant factor 
in the market value of a SPAC's securities.\66\ To the extent that a 
sponsor's activities and arrangements with a SPAC are carried out 
through, or in conjunction with, the sponsor's affiliates and any 
promoters of the SPAC, we are proposing to require corresponding 
disclosure with respect to these affiliates and promoters. In addition, 
enhanced disclosure on the sponsor's compensation and the sponsor's 
agreements, arrangements, or understandings may be helpful to a SPAC's 
prospective investors and existing shareholders in considering whether 
to acquire or redeem the SPAC's securities, and in evaluating the 
potential risks and merits of a proposed de-SPAC transaction because it 
could highlight additional motivations for completing a de-SPAC 
transaction.
---------------------------------------------------------------------------

    \65\ Proposed Item 1603(a) would operate in addition to existing 
disclosure requirements that may be applicable to a SPAC's 
arrangements with its sponsor such as Item 701 of Regulation S-K, 
which requires disclosure about, among other things, the terms of 
any private securities transactions between a SPAC and its sponsor 
within the past three years, and Item 404 of Regulation S-K, which 
requires disclosure about certain related party transactions.
    \66\ See, e.g., Lin, Lu, Michaely, and Qin, supra note 30; 
Andrea Pawliczek, A. Nicole Skinner, and Sarah L.C. Zechman, Signing 
Blank Checks: The Roles of Reputation and Disclosure in the Face of 
Limited Information (SSRN Working Paper, 2021).
---------------------------------------------------------------------------

    While proposed Item 1603 calls for detailed disclosure about the 
sponsor, its experience and its rights and interests, we note that some 
of this information is already being provided, to an extent, by SPACs. 
Codifying and amplifying these existing disclosure practices would help 
ensure that issuers provide consistent and comprehensive information 
across transactions, so that investors can make more informed 
investment, voting and redemption decisions.
Request for Comment
    7. Should we require additional information regarding sponsors of 
SPACs pursuant to Item 1603(a), as proposed? If so, should we also 
require disclosure regarding the sponsor's affiliates and any promoters 
of the SPAC, as proposed?
    8. Should we require disclosure about the experience and material 
roles and responsibilities of the sponsor, its affiliates and any 
promoters of the SPAC in directing and managing the SPAC's activities, 
as proposed? How would investors use this information?
    9. Should we require more or less information about the sponsor's 
compensation and reimbursements? Should we require this disclosure only 
when the amounts exceed a de minimis threshold? If so, what should the 
de minimis threshold be?
    10. Should we require additional disclosure about the sponsor's 
agreements, arrangements, or understandings in determining whether to 
proceed with a de-SPAC transaction and regarding the redemption of 
outstanding securities of the SPAC, as proposed?
    11. Should we require disclosure about the controlling persons of 
the sponsor and any persons who have direct and indirect material 
interests in the sponsor, as proposed? Should we take a different 
approach than requiring disclosure on persons with ``material 
interests'' in the sponsor? Should we consider requiring additional 
disclosure on the controlling persons of entities that own or control 
the sponsor? Should we require an organizational chart that shows the 
relationship among the SPAC, the sponsor, and the sponsor's affiliates, 
as proposed? Would both narrative disclosure and an organizational 
chart be helpful to investors?
    12. Should we require disclosure of the material terms of any lock-
up agreements with the sponsor and its affiliates as proposed? Would 
the proposed requirement to provide this disclosure in a tabular format 
be helpful to investors? Should we instead require this disclosure in a 
non-tabular format?
    13. Is there additional information regarding sponsors that should 
be disclosed? Should we require more or less information about the 
sponsor depending on the size or other characteristics of a SPAC?
    14. Should additional disclosure be required regarding affiliated 
entities involved in the SPAC's operations?

C. Conflicts of Interest

    Within a SPAC's structure, there may be a number of potential or 
actual conflicts of interest between the sponsor and public investors 
that could influence the actions of the SPAC. A notable example is the 
potential conflict of interest stemming from the contingent nature of 
the sponsor's compensation, whereby the sponsor and its affiliates have 
significant financial incentives to pursue a business combination 
transaction even though the transaction could result in lower returns 
for public shareholders than liquidation of the SPAC or an alternative 
transaction.\67\ Other conflicts of interest may arise when a sponsor 
is a sponsor of multiple SPACs and

[[Page 29468]]

manages several different SPACs at the same time; when a sponsor and/or 
its affiliates hold financial interests in, or have contractual 
obligations to, other entities; or when a SPAC enters into a business 
combination with a private operating company affiliated with the 
sponsor, the SPAC, or the SPAC's founders, officers, or directors. 
Further, a SPAC's officers often do not work full-time at the SPAC, may 
work for both the sponsor and the SPAC, and/or may have 
responsibilities at other companies, which may impact such officers' 
ability to devote adequate time and attention to the activities of the 
SPAC and may influence their decision to proceed with a particular de-
SPAC transaction. These potential conflicts of interest could be 
particularly relevant for investors to the extent that they arise when 
a SPAC and its sponsor are evaluating and deciding whether to recommend 
a business combination transaction to shareholders, especially as the 
SPAC nears the end of the period to complete such a transaction under, 
e.g., its governing instruments or the proposed safe harbor under the 
Investment Company Act,\68\ if adopted, and the sponsor may be under 
pressure to find a target and complete the de-SPAC transaction on less 
favorable terms or face losing the value of its securities in the SPAC.
---------------------------------------------------------------------------

    \67\ See, e.g., Usha Rodrigues and Mike Stegemoller, Exit, 
Voice, and Reputation: The Evolution of SPACs, 37 Del. J. Corp. L. 
849 (2013).
    \68\ See infra Section VI.
---------------------------------------------------------------------------

    We are proposing Item 1603(b) to require disclosure of any actual 
or potential material conflict of interest between (1) the sponsor or 
its affiliates or the SPAC's officers, directors, or promoters, and (2) 
unaffiliated security holders. This would include any conflict of 
interest in determining whether to proceed with a de-SPAC transaction 
and any conflict of interest arising from the manner in which a SPAC 
compensates the sponsor or the SPAC's executive officers and directors, 
or the manner in which the sponsor compensates its own executive 
officers and directors. In addition, we are proposing Item 1603(c) to 
require disclosure regarding the fiduciary duties each officer and 
director of a SPAC owes to other companies. Such disclosure could allow 
investors to assess whether and to what extent officers or directors 
may have to navigate a conflict of interest consistent with their 
obligations under the laws of the jurisdiction of incorporation or 
organization, may be compelled to act in the interest of another 
company or companies that compete with the SPAC for business 
combination opportunities, or may have their attention divided such 
that it may affect their decision-making with respect to the SPAC.
    The proposed disclosure requirements would provide a SPAC's 
shareholders and prospective investors with a more complete 
understanding of any actual or potential material conflicts of interest 
associated with the SPAC and the benefits that may be realized by the 
sponsor and its affiliates and any promoters arising from these 
conflicts of interest. Such disclosure could allow investors to more 
accurately assess the potential risk associated with the conflicts of 
interest in a SPAC. Further, disclosure about the fiduciary duties a 
SPAC's officers and directors owe to other companies could allow the 
SPAC's shareholders and prospective investors to better assess the 
actions of these officers and directors in managing the SPAC's 
activities and in determining to proceed with a proposed de-SPAC 
transaction.
Request for Comment
    15. Should we require disclosure with respect to material conflicts 
of interest that may arise in connection with de-SPAC transactions, as 
proposed? Should we include a materiality threshold, as proposed? Is it 
clear what would constitute an actual or potential material conflict of 
interest, or is further guidance or specification needed? For example, 
are there other specific conflicts of interest that we should identify 
in the rule?
    16. Would the proposed disclosure requirements adequately inform 
investors as to potential material conflicts of interest? Are there 
approaches that could minimize potential boilerplate or duplicative 
disclosure? Should we require that this disclosure be presented in a 
tabular format?
    17. Is there any additional information that we should require 
regarding conflicts of interest? For example, should we also require a 
description of any policies and procedures used or to be used to 
minimize potential or actual conflicts of interest? Should we require 
disclosure of how the board of directors assesses and manages such 
conflicts, in particular where directors themselves have conflicts of 
interest?
    18. Should SPACs be required to provide additional disclosure 
regarding material conflicts of interest in Exchange Act reports 
following their initial public offerings? For example, should periodic 
reports require that any changes in previously disclosed conflicts of 
interest be reported? Should we require disclosure about material 
conflicts of interest relating to both the SPAC and the identified 
target company in the Form 8-K that is required to be filed in 
connection with the announcement of a de-SPAC transaction?
    19. Should we require disclosure about any fiduciary duties each 
officer and director of a SPAC owes to other companies, as proposed? 
How would investors use this information? Should we require additional 
or different disclosure regarding these fiduciary duties? Would this 
requirement potentially result in the disclosure of information that is 
not relevant to SPAC investors? Should this disclosure requirement be 
focused instead on material conflicts of interests arising from these 
fiduciary duties to other companies? Should we require that this 
disclosure be provided in a tabular format? Should we consider other 
approaches to this disclosure?

D. Dilution

    We are proposing Items 1602(a)(4), 1602(c) and 1604(c) to require 
additional disclosure about the potential for dilution in (1) 
registration statements filed by SPACs, including those for initial 
public offerings, and (2) de-SPAC transactions. Proposed Item 1602(c) 
would be applicable to all registered offerings by a SPAC other than a 
de-SPAC transaction, while proposed Item 1604(c) would be applicable to 
all de-SPAC transactions. We are also proposing Item 1602(a)(4) to 
require simplified tabular dilution disclosure on the prospectus cover 
page in registered offerings by a SPAC on Form S-1 or F-1 other than 
for de-SPAC transactions.
    There are a number of potential sources of dilution in a SPAC's 
structure, including dilution resulting from shareholder redemptions, 
sponsor compensation, underwriting fees, outstanding warrants and 
convertible securities, and PIPE financings. This dilution may be 
particularly pronounced for the shareholders of a SPAC who do not 
redeem their shares prior to the consummation of the de-SPAC 
transaction and who may not realize or appreciate that these costs are 
disproportionately borne by the non-redeeming shareholders.\69\ 
According to one study, the median dilutive impact of sponsor 
compensation, underwriting fees, warrants, and rights equaled 50.4% of 
the cash raised in a SPAC initial public offering.\70\ Further, several

[[Page 29469]]

commentators have asserted that the complexity of the disclosures in 
these transactions makes it difficult for investors to understand the 
dilutive impact of sponsor compensation on the SPAC's non-redeeming 
shareholders.\71\
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    \69\ For example, the dilutive impact of underwriting fees 
deferred until the completion of a de-SPAC transaction and the 
number of shares received by the sponsor is not required to be 
disclosed in a manner that takes into account the additional 
dilution caused by redemptions.
    \70\ Klausner, Ohlrogge, and Ruan, supra note 17.
    \71\ See, e.g., AFR Letter; Klausner, Ohlrogge, and Ruan, supra 
note 17; Michael Klausner, Michael Ohlrogge, and Harald Halbhuber, 
SPAC Disclosure of Net Cash Per Share (SSRN Working Paper, 2022).
---------------------------------------------------------------------------

    In light of the potential for significant dilution embedded within 
the typical SPAC structure, enhanced disclosure regarding dilution 
could enable investors in a SPAC initial public offering and subsequent 
purchasers of SPAC shares to better understand the potential impact 
upon them of the various dilutive events that may occur over the 
lifespan of the SPAC.\72\ We are therefore proposing to require 
dilution disclosure in registration statements filed by SPACs other 
than for de-SPAC transactions that would require a description of 
material potential sources of future dilution following a SPAC's 
initial public offering, as well as tabular disclosure of the amount of 
potential future dilution from the public offering price that will be 
absorbed by non-redeeming SPAC shareholders, to the extent 
quantifiable.\73\ This proposed disclosure would be in addition to the 
disclosure already required under Item 506 of Regulation S-K.\74\
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    \72\ In this regard, we note that the initial purchasers in SPAC 
initial public offerings often resell or redeem their shares prior 
to the completion of the de-SPAC transaction. See, e.g., Benjamin 
Mullin and Amrith Ramkumar, BuzzFeed Suffers Wave of SPAC Investor 
Withdrawals Before Going Public, The Wall Street Journal, Dec. 2, 
2021. See also supra note 17.
    \73\ Proposed Item 1602(c).
    \74\ Under Item 506, a company is required to provide disclosure 
regarding dilution when (1) the company is not subject to the 
reporting requirements of the Exchange Act and is registering an 
offering of common equity securities where there is substantial 
disparity between the public offering price and the effective cash 
cost to officers, directors, promoters, and affiliated persons of 
common equity acquired by them in transactions during the past five 
years, or which they have the right to acquire; or (2) the company 
is registering an offering of common equity securities and the 
company has had losses in each of its last three fiscal years and 
there is a material dilution of the purchasers' equity interest. In 
the first instance, a company must provide a comparison of the 
public contribution under the proposed public offering and the 
effective cash contribution of such persons. In both instances, Item 
506 requires disclosure of the net tangible book value per share 
before and after the distribution; the amount of the increase in 
such net tangible book value per share attributable to the cash 
payments made by purchasers of the shares being offered; and the 
amount of the immediate dilution from the public offering price 
which will be absorbed by such purchasers.
---------------------------------------------------------------------------

    In addition, we are proposing to require simplified tabular 
dilution disclosure incorporating a range of potential redemption 
levels on the prospectus cover page of SPAC registration statements on 
Forms S-1 and F-1.\75\ In providing disclosure pursuant to Item 506, 
SPACs currently provide prospective investors with estimates of 
dilution as a function of the difference between the initial public 
offering price and the pro forma net tangible book value per share 
after the offering. These estimates often include an assumption that 
the maximum allowable number of shares eligible will be redeemed prior 
to the de-SPAC transaction.\76\ While this information can be useful, 
investors may benefit from a more detailed and prominent tabular 
presentation of this dilution disclosure that shows various potential 
levels of redemption, not just the upper bound on dilution attributable 
to redemptions. We are therefore proposing to require that registration 
statements on Form S-1 or Form F-1 filed by SPACs, including for an 
initial public offering, include on the prospectus cover page a 
simplified dilution table, in the following format, which would present 
the reader with an estimate of the remaining pro forma net tangible 
book value per share at quartile intervals up to the maximum redemption 
threshold:
---------------------------------------------------------------------------

    \75\ Proposed Item 1602(a)(4).
    \76\ In practice, redemption rates rarely reach this level.

                              Remaining Pro Forma Net Tangible Book Value per Share
----------------------------------------------------------------------------------------------------------------
                                    25% of maximum      50% of maximum      75% of maximum
      Offering price of __            redemption          redemption          redemption      Maximum redemption
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------

    The proposed Item 1602(a)(4) dilution disclosure would be 
calculated in a manner consistent with the methodologies and 
assumptions more fully articulated in the disclosures provided pursuant 
to Item 506 elsewhere in the prospectus. If the initial public offering 
includes an overallotment option, the table would need to include 
separate rows showing remaining pro forma net tangible book value per 
share with the exercise and without the exercise of the over-allotment 
option. We are also proposing to require that SPACs provide a cross-
reference to the more detailed dilution disclosure later in the 
prospectus when providing this tabular disclosure on the prospectus 
cover page.
    In regard to de-SPAC transactions, investors could benefit from 
clearer dilution disclosure that takes into account the unique 
characteristics of the SPAC structure, including any terms negotiated 
with the target private operating company, as well as the potential for 
additional financing from PIPE investors. At the time of a de-SPAC 
transaction, investors are making a decision as to whether to remain a 
shareholder of the post-business combination company going forward. 
Apart from the operating success of the post-business combination 
company, dilution is likely to have a significant impact on the value 
of a shareholder's continued investment in the company. We are 
therefore proposing Item 1604(c) to require disclosure of each material 
potential source of additional dilution that non-redeeming shareholders 
may experience at different phases of the SPAC lifecycle by electing 
not to redeem their shares in connection with the de-SPAC 
transaction.\77\
---------------------------------------------------------------------------

    \77\ Depending on the circumstances, material potential sources 
of additional disclosure may include dilution from sponsor 
compensation, underwriting fees, outstanding warrants and 
convertible securities, and financing transactions (including PIPE 
transactions).
---------------------------------------------------------------------------

    For example, to the extent material, this disclosure would need to 
explain that, when a SPAC's shareholders retain their warrants after 
redeeming their shares prior to the de-SPAC transaction, the non-
redeeming shareholders and the post-business combination company may 
face potential additional dilution. Proposed Item 1604(c)(1) would also 
require a sensitivity analysis in a tabular format that shows the 
amount of potential dilution under a range of reasonably likely 
redemption levels and quantifies the increasing impact of dilution on 
non-redeeming shareholders as redemptions increase. We are also 
proposing to require disclosure of a description of the model, methods, 
assumptions, estimates, and parameters

[[Page 29470]]

necessary to understand the sensitivity analysis disclosure.
Request for Comment
    20. Should we require disclosure of material potential sources of 
future dilution in registration statements filed by SPACs for initial 
public offerings and in disclosure documents for de-SPAC transactions, 
as proposed? How would investors benefit from this additional 
disclosure? Should we require other information either in addition to, 
or in lieu of, the proposed dilution disclosure, such as disclosure of 
the cumulative amount of dilution that non-redeeming shareholders may 
experience or the amount of net cash underlying each share at the time 
of a de-SPAC transaction? If so, should we require that this disclosure 
be presented in a tabular format? Should we provide additional 
explanation on how to calculate the amount of dilution for purposes of 
these disclosure requirements? Should we provide further guidance about 
disclosures that SPACs should consider making to help non-affiliated 
shareholders understand the potential for dilution and the consequences 
of dilution for non-affiliated shareholders?
    21. Should we also consider requiring enhanced dilution disclosure 
in other Commission filings? If so, what additional information should 
we require in this context? How would investors use this additional 
dilution disclosure?
    22. Should we require simplified tabular disclosure regarding 
dilution on the prospectus cover page of a Form S-1 or Form F-1, as 
proposed? Should we require additional or less information, or 
alternative information, in the tabular disclosure? For example, would 
a tabular presentation of cash remaining per non-redeemed share in lieu 
of a tabular presentation of remaining pro forma net tangible book 
value per share be useful to investors? Should we consider adding a 
similar requirement to provide simplified tabular disclosure (1) in the 
prospectus summary of a Form S-1 or F-1 or (2) on the prospectus cover 
page and/or in the prospectus summary of a Form S-4 or Form F-4 for a 
de-SPAC transaction? If so, what information should be included in such 
tabular disclosure? Are there other ways to present the potential for 
dilution to investors in a more accessible format?
    23. Should we require, in disclosure documents for de-SPAC 
transactions, a sensitivity analysis in a tabular format, as proposed? 
Should we consider additional or alternative approaches to this 
disclosure requirement?
    24. Are there any significant challenges in providing the proposed 
enhanced dilution disclosure at the initial public offering stage or at 
the de-SPAC transaction stage?
    25. Should we consider additional amendments that would highlight 
or simplify dilution disclosure so that it is more clear and accessible 
for investors?

E. Prospectus Cover Page and Prospectus Summary Disclosure

    In response to concerns raised about the complexity of disclosures 
in Securities Act registration statements filed by SPACs for initial 
public offerings and for de-SPAC transactions,\78\ we are proposing 
Item 1602 to require that certain information be included on the 
prospectus cover page and in the prospectus summary using plain English 
principles.\79\ Given the unique nature of SPAC offerings and the 
potential risks they present to investors, investors could benefit from 
requiring the issuer to highlight certain disclosures on the cover page 
and in the prospectus summary, in a form that can be more easily read 
and understood.
---------------------------------------------------------------------------

    \78\ See, e.g., IAC Recommendations, supra note 37 (expressing 
concerns ``relating to the effectiveness of disclosure about the 
risks, economics and mechanics of SPACs as a result of the 
complexity of these transactions and the staggered nature of the 
disclosure process''); Rodrigues Testimony; Klausner, Ohlrogge, and 
Ruan, supra note 17.
    \79\ See Securities Act Rule 421(d). See supra note 38.
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1. Prospectus Cover Page
    Item 501(b) of Regulation S-K sets forth disclosure requirements 
for the outside front cover page of prospectuses, such as the name of 
the registrant, title and amount of securities being offered, and the 
offering price of the securities. In regard to registered offerings 
(including initial public offerings) by SPACs other than de-SPAC 
transactions, we are proposing Item 1602(a) to require information on 
the prospectus cover page in plain English about, among other things, 
the time frame for the SPAC to consummate a de-SPAC transaction, 
redemptions, sponsor compensation, dilution (including simplified 
tabular disclosure), and conflicts of interest. In regard to de-SPAC 
transactions, we are proposing Item 1604(a) to require that SPACs 
include information on the prospectus cover page in plain English 
about, among other things, the fairness of the de-SPAC transaction, 
material financing transactions, sponsor compensation and dilution, and 
conflicts of interest.
    Investors should benefit from having these significant aspects of 
SPAC offerings and de-SPAC transactions disclosed prominently on the 
prospectus cover page in plain English,\80\ in addition to the 
information otherwise required under Item 501 of Regulation S-K. 
Although most SPACs already provide much of the proposed information on 
prospectus cover pages, the proposed rules would standardize this 
information across all registration statements filed by SPACs for 
initial public offerings and for de-SPAC transactions.
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    \80\ Id.
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2. Prospectus Summary
    Item 503 of Regulation S-K requires a brief summary of the 
information in the prospectus where the length or complexity of the 
prospectus makes a summary useful. While the information that should be 
included in a prospectus summary will depend on the particular offering 
and issuer, a prospectus summary should provide disclosure in clear 
language of the most significant aspects of the transaction being 
registered.\81\ In light of the often complex disclosure in 
registration statements filed by SPACs, a requirement that SPACs 
present certain information in the prospectus summary in plain English 
should help investors more easily to identify and assess those aspects 
of the transaction that are likely to be important in their investment, 
voting, and redemption decisions.\82\
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    \81\ See Instruction to Item 503(a) and 17 CFR 230.421(b) 
(Securities Act Rule 421(b)).
    \82\ In the context of asset-backed offerings, the Commission 
previously specified that certain information be included on the 
prospectus cover page and in the prospectus summary. See Items 1102 
and 1103 of Regulation S-K. Asset-Backed Securities, Release No. 33-
8518 (Dec. 22, 2004) [70 FR 1506 (Jan. 7, 2005)]. See also Item 3 of 
Form S-4 and Item 3 of Form F-4 (specifying that certain information 
be included in the prospectus summary).
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    In regard to registered offerings other than de-SPAC transactions, 
we are proposing Item 1602(b) to require that SPACs include the 
following information in the prospectus summary in plain English:
     The process by which a potential business combination 
candidate will be identified and evaluated;
     Whether shareholder approval is required for the de-SPAC 
transaction;
     The material terms of the trust or escrow account, 
including the amount of gross offering proceeds that will be placed in 
the trust;
     The material terms of the securities being offered, 
including redemption rights;
     Whether the securities being offered are the same class as 
those held by the sponsor and its affiliates;
     The length of the time period during which the SPAC 
intends to

[[Page 29471]]

consummate a de-SPAC transaction, and its plans if it does not do so, 
including, whether and how the time period may be extended, the 
consequences to the sponsor of not completing an extension of this time 
period, and whether shareholders will have voting or redemption rights 
with respect to an extension of time to consummate a de-SPAC 
transaction;
     Any plans to seek additional financing and how such 
additional financing might impact shareholders;
     Tabular disclosure of sponsor compensation and the extent 
to which material dilution may result from such compensation; and
     Material conflicts of interest.

    Based on the Commission staff's experience in reviewing 
registration statements filed by SPACs, we believe these topics are 
among those that investors are likely to find most important when 
considering an investment in the SPAC prior to the identification of a 
potential business combination candidate.
    In regard to registered de-SPAC transactions, we are proposing Item 
1604(b) to require that registrants include the following information 
in the prospectus summary in plain English:
     The background and material terms of the de-SPAC 
transaction;
     The fairness of the de-SPAC transaction;
     Material conflicts of interest;
     Tabular disclosure on sponsor compensation and dilution;
     Financing transactions in connection with de-SPAC 
transactions; and
     Redemption rights.
    Based on the Commission staff's experience in reviewing 
registration statements for de-SPAC transactions, we believe investors 
would find this information, in particular those topics that illuminate 
potential conflicts of interest and the overall fairness of the 
proposed transaction, important when making an investment decision at 
the de-SPAC transaction stage.
Request for Comment
    26. Would requiring certain information in regard to SPAC offerings 
on the prospectus cover page and in the prospectus summary make it 
easier for investors to review and understand the disclosures in these 
registration statements? Are there other ways we could make these 
registration statements easier for investors to understand?
    27. Should we require the proposed cover page disclosures for SPAC 
initial public offerings and de-SPAC transactions? Is there other 
information that we should require to be included on the cover page, 
either in addition to, or in lieu of, the information proposed to be 
required? Conversely, are there any proposed additional cover page 
disclosures that we should not adopt?
    28. Should we require the inclusion of the proposed specified 
information in the prospectus summary? Is there other information that 
we should require to be included in the prospectus summary?
    29. Is the subset of the disclosure under proposed Item 1605 that 
we are proposing to require to be more prominently presented on the 
prospectus cover page and in the prospectus summary via proposed Items 
1604(a) and (b) the most informative or otherwise important information 
for purposes of the prospectus cover page and the prospectus summary? 
Should any additional disclosure provided pursuant to proposed Item 
1605 be added to or replace an existing element of the information 
proposed to be required on the prospectus cover page or in the 
prospectus summary?
    30. Are there other changes we should consider in regard to the 
prospectus cover page and prospectus summary? For example, should we 
impose any additional formatting requirements, such as the use of 
tables or bullet points, for certain information in the prospectus 
summary? Would such formatting requirements improve the clarity of this 
disclosure?

F. Disclosure and Procedural Requirements in De-SPAC Transactions

    We are proposing specialized disclosure and procedural requirements 
in de-SPAC transactions so that investors can better understand and 
evaluate the merits of a prospective de-SPAC transaction.\83\ The 
proposed rules would require: (1) Additional disclosures on the 
background of and reasons for the transaction; (2) a statement from the 
SPAC as to whether it reasonably believes that the de-SPAC transaction 
and any related financing transaction are fair or unfair to 
unaffiliated security holders; (3) disclosure on any outside report, 
opinion, or appraisal relating to the fairness of the transaction; and 
(4) additional information in a Schedule TO filed in connection with a 
de-SPAC transaction, as well as clarify the need to comply with the 
procedural requirements of the tender offer rules when filing such a 
Schedule TO.\84\
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    \83\ As discussed above, a SPAC is required to provide its 
shareholders with a proxy statement on Schedule 14A if shareholder 
approval is required in a de-SPAC transaction. If a SPAC is 
registering an offering of its shares to be issued in the de-SPAC 
transaction, the SPAC generally files a registration statement on 
Form S-4 or F-4. Alternatively, if shareholder approval is required 
but the SPAC is not soliciting proxies from its shareholders, the 
SPAC is required to provide an information statement on Schedule 
14C. Otherwise, if no registration statement, proxy statement or 
information statement is required, the SPAC must disseminate a 
Schedule TO (tender offer statement) to its shareholders. See 
Section IV.A. for a discussion of proposed Rule 145a, which would 
affect when a SPAC may be required to file a Form S-4 or F-4 in 
connection with a de-SPAC transaction.
    \84\ In addition, we are proposing new rules applicable to 
business combinations involving shell companies more generally, 
which would include de-SPAC transactions. See infra Section IV.
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1. Background of and Reasons for the De-SPAC Transaction; Terms and 
Effects
    In order to provide investors with a more complete understanding of 
the de-SPAC transaction, we are proposing Item 1605 of Regulation S-K 
which would require disclosure of the background, material terms, and 
effects of the de-SPAC transaction, including:
     A summary of the background of the de-SPAC transaction, 
including, but not limited to, a description of any contacts, 
negotiations, or transactions that have occurred concerning the de-SPAC 
transaction; \85\
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    \85\ For example, this disclosure could encompass whether any 
portion of the underwriting fees in connection with a SPAC's initial 
public offering is contingent upon the SPAC's completion of a de-
SPAC transaction and whether the underwriter in the SPAC's initial 
public offering has provided additional services to the SPAC 
following the initial public offering, such as locating potential 
target companies, providing financial advisory services, acting as a 
placement agent for PIPE transactions, and/or arranging debt 
financing. For a discussion of the role of the underwriter in 
connection with a de-SPAC transaction, see infra Section III.F.
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     A brief description of any related financing transaction, 
including any payments from the sponsor to investors in connection with 
the financing transaction;
     The reasons for engaging in the particular de-SPAC 
transaction and for the structure and timing of the de-SPAC transaction 
and any related financing transaction;
     An explanation of any material differences in the rights 
of security holders of the post-business combination company as a 
result of the de-SPAC transaction; \86\ and
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    \86\ This proposed disclosure requirement is intended to address 
situations where the shares of a SPAC are being exchanged for shares 
of a new holding company or the target company in a de-SPAC 
transaction.
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     Disclosure regarding the accounting treatment and the 
federal income tax consequences of the de-SPAC transaction, if 
material.\87\
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    \87\ Proposed Items 1605(a) and (b). This disclosure would be 
required in any Form S-4 or F-4 or Schedule 14A, 14C, or TO filed in 
connection with a de-SPAC transaction. We note that registrants are 
already subject to similar disclosure requirements in Schedules 14A 
and 14C and in Forms S-4 and F-4. These proposed disclosure 
requirements are intended to complement these existing requirements 
by setting forth specialized disclosure requirements that are 
specific to de-SPAC transactions.

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[[Page 29472]]

    These disclosure requirements are modeled, in part, on Item 
1004(a)(2) and Item 1013(b) of Regulation M-A \88\ and are intended to 
provide investors with, among other things, an enhanced basis upon 
which to evaluate a SPAC's reasons for proposing a de-SPAC transaction 
and for choosing a particular structure and financing for the 
transaction, through a specialized disclosure rule tailored to SPACs 
that would address disclosure issues more specific to de-SPAC 
transactions. These proposed requirements would also help promote 
consistent disclosure, which would allow for greater comparability of 
these disclosures across de-SPAC transactions. As proposed, Item 
1605(b) would require a reasonably detailed discussion of the reasons 
for, and the structure and timing of, a proposed de-SPAC transaction, 
which could include a discussion of the key events and activities in 
identifying the target private operating company and in negotiating the 
terms of the merger or acquisition, as well as the material factors 
considered by a SPAC's board of directors in approving the terms of the 
proposed de-SPAC transaction and in recommending shareholder approval 
of the transaction.
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    \88\ 17 CFR 229.1000 through 229.1016. Regulation M-A is a 
subpart (the 1000 series) of Regulation S-K. Item 1004(a)(2) sets 
forth disclosure requirements regarding the material terms of 
mergers or similar transactions, and Item 1013(b) requires 
disclosure of alternative means considered by the subject company or 
affiliate in the context of a going-private transaction. In our 
view, these rules are appropriate models for the proposed 
specialized disclosure requirements for de-SPAC transactions, in 
that Item 1004(a)(2) sets forth disclosure requirements for mergers 
generally and the same potential for self-interested transactions 
exists in de-SPAC transactions as in going-private transactions.
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    In addition, we are proposing Item 1605(c) to require disclosure of 
the effects of the de-SPAC transaction and any related financing 
transaction on the SPAC and its affiliates, the sponsor and its 
affiliates, the private operating company and its affiliates, and 
unaffiliated security holders of the SPAC. Such disclosure could allow 
investors to better assess whether the transactions have been 
structured in a manner that would benefit one of these parties in 
particular or that would be to the detriment of other parties. As 
proposed, the disclosure must provide a reasonably detailed discussion 
of both the benefits and detriments to non-redeeming shareholders of 
the de-SPAC transaction and any related financing transaction, with 
such benefits and detriments quantified to the extent practicable.\89\ 
For example, if the sponsor's interests and returns may differ from 
those of public investors in regard to a prospective de-SPAC 
transaction, the disclosure should describe and quantify, to the extent 
practicable, dollar amounts or prospective returns the sponsor and its 
affiliates stand to gain or lose that are dependent on the completion 
of the transaction.
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    \89\ Proposed Item 1605(c).
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    We are also proposing Item 1605(d) to require disclosure of the 
SPAC's sponsors', officers' and directors' material interests in the 
de-SPAC transaction or any related financing transaction, including any 
fiduciary or contractual obligations to other entities and any interest 
in, or affiliation with, the private operating company that is the 
target of the de-SPAC transaction. This proposed disclosure requirement 
is intended to address, among other things, the concern that a sponsor 
may be proposing a de-SPAC transaction that will produce benefits or 
detriments that are not fully disclosed to investors.\90\
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    \90\ See, e.g., IAC Recommendations, supra note 37 (stating that 
``there may be financial arrangements that constitute conflicts of 
interest that are not fully disclosed or understood by investors''); 
Rodrigues and Stegemoller, supra note 17; Klausner, Ohlrogge, and 
Ruan, supra note 17; Deane Testimony.
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    Under Item 403 of Regulation S-K, SPACs currently provide tabular 
disclosure regarding the beneficial ownership of its equity or voting 
securities, as applicable, by management and beneficial owners of more 
than 5% of a class of voting securities.\91\ The proposed disclosure 
requirement in Item 1605(d) would be broader than Item 403, and would 
require disclosure of any material interests that the sponsor and the 
SPAC's officers and directors have in a de-SPAC transaction or any 
related financing transaction, including fiduciary or contractual 
obligations to other entities as well as any interest in, or 
affiliation with, the target company. The proposed disclosure 
requirement would also encompass material interests that are non-
pecuniary in nature that may nevertheless affect the decision to 
proceed with a prospective de-SPAC transaction or related financing 
transaction. In the context of a de-SPAC transaction, this disclosure 
could help investors, when making an investment, voting or redemption 
decision with respect to the de-SPAC transaction, to assess whether, on 
balance, the benefits of the de-SPAC transaction justify the 
detriments, and particularly whether the sponsor is motivated to 
complete a de-SPAC transaction by interests not held by all investors.
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    \91\ Under Item 403, beneficial ownership is determined in 
accordance with 17 CFR 240.13d-3(d)(1) (Exchange Act Rule 13d-
3(d)(1)), pursuant to which a person is generally deemed to be the 
beneficial owner of securities that the person has the right to 
acquire within 60 days.
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    Proposed Item 1605(e) would require disclosure of whether or not 
security holders are entitled to any redemption or appraisal rights, 
and if so, a summary of the redemption or appraisal rights.\92\ Under 
the proposed rules, SPACs would be required to disclose, among other 
things, whether shareholders may redeem their shares regardless of 
whether they vote in favor of or against a proposed de-SPAC 
transaction, or abstain from voting, and whether shareholders have the 
right to redeem their securities at the time of any extension of the 
time period to complete a de-SPAC transaction. If there are no 
redemption or appraisal rights available for security holders who 
object to the de-SPAC transaction, the proposed rules would require 
disclosure of any other rights that may be available to security 
holders under the law of the jurisdiction of organization. These 
disclosures would help investors better assess the impact of any 
redemption or appraisal rights on a proposed de-SPAC transaction, 
including whether the existence of such rights might lead some 
investors to redeem their securities after voting in favor of a de-SPAC 
transaction.\93\
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    \92\ This proposed disclosure requirement would build upon, and 
be in addition to, the existing disclosure requirement in Item 202 
of Regulation S-K (Description of registrant's securities). Under 
Item 202, SPACs are currently required to disclose the redemption 
provisions of their capital stock being registered, such as whether 
redemptions would be required under certain circumstances at the 
SPAC's option, e.g., whether a SPAC may require the redemption of 
warrants held by public shareholders for nominal consideration if 
the underlying shares trade above a certain threshold price.
    \93\ One commentator has observed that SPAC shareholders may 
vote in favor of a proposed de-SPAC transaction while redeeming 
their shares prior to the closing of the transaction, such that the 
vote is decoupled from any economic interest in the post-business 
combination company. Rodrigues and Stegemoller, supra note 17. See 
also supra note 29.
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Request for Comment
    31. Would the proposed disclosure requirements provide investors 
with important information regarding the background of and reasons for 
a de-SPAC transaction? Is there any additional information about the 
background of and reasons for the de-SPAC transaction that we should 
require to be disclosed? Are there any additional or alternative 
requirements that we should consider to further

[[Page 29473]]

improve the disclosures about de-SPAC transactions?
    32. Should we adopt the proposed disclosure requirements with 
respect to the effects of the de-SPAC transaction and any related 
financing transaction, as proposed? Should we require additional or 
alternative disclosure regarding the effects of the de-SPAC transaction 
and any related financing transaction?
    33. Should we require disclosure with respect to material interests 
in a prospective de-SPAC transaction or any related financing 
transaction held by the sponsor and the SPAC's officers and directors, 
as proposed? Should we require additional or alternative disclosure 
regarding the interests of these parties in the de-SPAC transaction?
    34. Should we require disclosure regarding whether or not security 
holders are entitled to any redemption or appraisal rights and a 
summary of any such rights, as proposed? Is there additional or 
alternative disclosure about redemption or appraisal rights that we 
should require?
    35. Would the disclosure requirements in proposed Item 1605 result 
in duplicative disclosures? If so, are there alternative approaches 
that we should consider to avoid this result?
2. Fairness of the De-SPAC Transaction
    To address concerns regarding potential conflicts of interest and 
misaligned incentives in connection with the decision to proceed with a 
de-SPAC transaction and to assist investors in assessing the fairness 
of a particular de-SPAC transaction to unaffiliated investors,\94\ we 
are proposing Item 1606(a) to require a statement from a SPAC as to 
whether it reasonably believes that the de-SPAC transaction and any 
related financing transaction are fair or unfair to the SPAC's 
unaffiliated security holders, as well as a discussion of the bases for 
this statement.\95\ We are proposing to require that this statement 
encompass both the de-SPAC transaction and any related financing 
transaction so that the fairness determination would require 
consideration of the combined effects of both transactions, which are 
often dependent on each other, on unaffiliated security holders. As 
proposed, a SPAC would be required to include this statement in any 
Forms S-4 and F-4 or Schedules 14A, 14C, and TO filed in connection 
with a de-SPAC transaction.\96\ Proposed Item 1606(a) would also 
require disclosure on whether any director voted against, or abstained 
from voting on, approval of the de-SPAC transaction or any related 
financing transaction, and if so, identification of the director and, 
if known after making a reasonable inquiry, the reasons for the vote 
against the transaction or abstention.
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    \94\ See supra note 28. See also Michael Klausner and Michael 
Ohlrogge, SPAC Governance: In Need of Judicial Review (SSRN Working 
Paper, 2021).
    \95\ In this regard, we are proposing an instruction to Item 
1606 that a ``statement that the special purpose acquisition company 
has no reasonable belief as to the fairness or unfairness of the de-
SPAC transaction or any related financing transaction to 
unaffiliated security holders will not be considered sufficient 
disclosure in response to [Item 1606(a)].'' As proposed, a SPAC 
would not be required to disclose that a de-SPAC transaction and any 
related financing transaction are fair but rather would be required 
to state its reasonable belief as to the fairness or unfairness of 
the transaction as well as the bases for this statement.
    \96\ We have modeled certain of the proposed requirements in 
Item 1606 and Item 1607 (see infra Section II.F.3.), on the 
disclosures required in going-private transactions subject to 17 CFR 
240.13e-3 (Exchange Act Rule 13e-3). See Items 1014 and 1015 of 
Regulation M-A. In our view, the disclosure requirements in Rule 
13e-3 provide an appropriate model for the proposed requirements 
with respect to de-SPAC transactions, in that the conflicts of 
interests and misaligned incentives inherent in going-private 
transactions are similar to those often present in de-SPAC 
transactions.
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    Under proposed Item 1606(b), a SPAC would be required to discuss in 
reasonable detail the material factors upon which a reasonable belief 
regarding the fairness of a de-SPAC transaction and any related 
financing transaction is based and, to the extent practicable, the 
weight assigned to each factor. These factors would include but not be 
limited to: The valuation of the private operating company; the 
consideration of any financial projections; any report, opinion, or 
appraisal obtained from a third party; and the dilutive effects of the 
de-SPAC transaction and any related financing transaction on non-
redeeming shareholders. Together, these proposed disclosures are 
intended to help investors assess the reasonableness of the SPAC's 
stated belief about the fairness of the transaction.
    To provide additional context for understanding the process by 
which a SPAC determined to proceed with a de-SPAC transaction, we are 
proposing Items 1606(c), (d), and (e), which would require disclosure 
on whether:
     The de-SPAC transaction or any related financing 
transaction is structured so that approval of at least a majority of 
unaffiliated security holders is required;
     A majority of directors who are not employees of the SPAC 
has retained an unaffiliated representative to act solely on behalf of 
unaffiliated security holders for purposes of negotiating the terms of 
the de-SPAC transaction or any related financing transaction and/or 
preparing a report concerning the fairness of the de-SPAC transaction 
or any related financing transaction; and
     The de-SPAC transaction or any related financing 
transaction was approved by a majority of the directors of the SPAC who 
are not employees of the SPAC.
Request for Comment
    36. Should we adopt Item 1606 as proposed?
    37. Should we require a statement from the SPAC as to whether it 
reasonably believes that the de-SPAC transaction and any related 
financing transaction are fair or unfair to unaffiliated security 
holders, as proposed? Should the scope of the fairness determination 
include both the de-SPAC transaction and any related financing 
transaction, as proposed? Should the fairness determination be as to 
the SPAC's security holders as a whole, rather than to the SPAC's 
unaffiliated security holders? The factors enumerated in proposed Item 
1606(b) in determining fairness include, but are not limited to, the 
valuation of the target company, the consideration of any financial 
projections, any report, opinion, or appraisal described in Item 1607 
of Regulation S-K, and the dilutive effects described in Item 1604(c) 
of Regulation S-K. Is there any additional or alternative information 
that should be disclosed in connection with the SPAC's fairness 
determination?
    38. Should we include an instruction to Item 1606 that a statement 
that the SPAC has no reasonable belief as to the fairness or unfairness 
of the de-SPAC transaction or any related financing transaction to 
unaffiliated security holders will not be considered sufficient 
disclosure in response to Item 1606(a), as proposed?
    39. What are the potential benefits and costs of the statement that 
would be required by proposed Item 1606(a)? Would the costs of 
complying with this disclosure requirement discourage SPAC initial 
public offerings or discourage private operating companies from 
pursuing business combinations with SPACs?
    40. Should we require registrants to disclose whether any director 
voted against, or abstained from voting on, the approval of a de-SPAC 
transaction or any related financing transaction, as well as the 
reasons for such vote or abstention, as proposed? Are there additional 
or alternative disclosures that we should require in this regard?
    41. Should we require registrants to discuss in reasonable detail 
the material factors and, to the extent practicable, the weight 
assigned to each factor

[[Page 29474]]

underlying the fairness determination, as proposed? Are there 
additional or alternative factors that should be specified in the 
proposed rule to enhance an investor's understanding of the fairness 
determination?
    42. How would investors use disclosure about whether the approval 
of at least a majority of unaffiliated security holders is required and 
whether the de-SPAC transaction or any related financing transaction 
was approved by a majority of non-employee directors of the SPAC? How 
would investors use disclosure about whether a representative has been 
retained to represent the investors in the negotiations of the de-SPAC 
transaction?
3. Reports, Opinions, and Appraisals
    In addition, we are proposing Item 1607 to require disclosure about 
certain reports, opinions, or appraisals from outside parties.\97\ 
Proposed Item 1607(a) would require disclosure about whether or not the 
SPAC or its sponsor has received any report, opinion, or appraisal 
obtained from an outside party relating to the consideration or the 
fairness of the consideration to be offered to security holders or the 
fairness of the de-SPAC transaction or any related financing 
transaction to the SPAC, the sponsor or security holders who are not 
affiliates.\98\ This requirement would provide additional transparency 
about whether a SPAC's board of directors and/or its sponsor have 
access to information underlying a fairness determination that 
shareholders could find useful in making voting, investment, and 
redemption decisions in connection with the de-SPAC transaction.\99\
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    \97\ As noted above, we have modeled the proposed requirements 
in Item 1607 on the disclosures required in going-private 
transactions subject to Exchange Act Rule 13e-3. See Item 1015 of 
Regulation M-A.
    \98\ Though currently not a routine practice in de-SPAC 
transactions, SPACs often obtain fairness opinions in connection 
with de-SPAC transactions involving an affiliated private operating 
company.
    \99\ For example, the proposed rule would require a SPAC to 
disclose whether or not the SPAC or its sponsor has received a 
fairness opinion or valuation report from a financial advisor.
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    To assist investors in considering the usefulness and reliability 
of any outside party report, opinion or appraisal described in response 
to proposed Item 1607(a), as well as any negotiation or report by an 
unaffiliated representative acting solely on behalf of unaffiliated 
security holders described in response to proposed Item 1606(d), 
proposed Item 1607(b) would require disclosure of:
     The identity, qualifications, and method of selection of 
the outside party and/or unaffiliated representative;
     Any material relationship between (1) the outside party, 
its affiliates, and/or unaffiliated representative, and (2) the SPAC, 
its sponsor and/or their affiliates, that existed during the past two 
years or is mutually understood to be contemplated and any compensation 
received or to be received as a result of the relationship; \100\
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    \100\ For example, this disclosure could include whether the 
compensation for a financial advisor's fairness opinion is 
conditioned on the completion of the de-SPAC transaction or whether 
the amount of compensation due the financial advisor may include a 
bonus or may be increased depending on the ultimate financial terms 
of the de-SPAC transaction.
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     Whether the SPAC or the sponsor determined the amount of 
consideration to be paid to the private operating company or its 
security holders, or the valuation of the private operating company, or 
whether the outside party recommended the amount of consideration to be 
paid or the valuation of the private operating company; and
     A summary concerning the negotiation, report, opinion or 
appraisal, which would be required to include a description of the 
procedures followed; the findings and recommendations; the bases for 
and methods of arriving at such findings and recommendations; 
instructions received from the SPAC or its sponsor; and any limitation 
imposed by the SPAC or its sponsor on the scope of the investigation.
    Finally, proposed Item 1607(c) would require all such reports, 
opinions or appraisals to be filed as exhibits to the Form S-4, Form F-
4, and Schedule TO for the de-SPAC transaction or included in the 
Schedule 14A or 14C for the transaction, as applicable.
Request for Comment
    43. Should we require disclosure regarding reports, opinions, or 
appraisals from an outside party, as proposed? Is there any additional 
or alternative information that we should require with respect to these 
reports, opinions, or appraisals? Is there any proposed information 
that should not be required?
    44. Should we require that the reports, opinions or appraisals be 
filed as exhibits to the Form S-4, Form F-4, or Schedule TO for the de-
SPAC transaction or included in the Schedule 14A or Schedule 14C for 
the transaction, as proposed? Should we require instead that such 
reports, opinions, or appraisals be made available for inspection and 
copying upon written request? Should we require the filing of board 
books and other written materials presented to the board in connection 
with the reports, opinions, or appraisals, as is the case with going-
private transactions? Are there other means by which investors should 
be able to access such report, opinion, or appraisal, such as posting 
on a website?
    45. As proposed, filers would be required to include a summary of 
the report, opinion, or appraisal and file such report, opinion, or 
appraisal as an exhibit to the filing. Would investors benefit from 
having both the summary and the actual report, opinion, or appraisal 
disclosed, or would one or the other item of disclosure be sufficient?
4. Proposed Item 1608 of Regulation S-K
    We are proposing Item 1608 of Regulation S-K to codify a staff 
position that a Schedule TO filed in connection with a de-SPAC 
transaction should contain substantially the same information about a 
target private operating company that is required under the proxy rules 
and that a SPAC must comply with the procedural requirements of the 
tender offer rules when conducting the transaction for which the 
Schedule TO is filed, such as a redemption of the SPAC securities. 
Redemption rights offered by a SPAC to its security holders in 
connection with the de-SPAC transaction or an extension of the 
timeframe to complete a de-SPAC transaction generally have indicia of 
being a tender offer, but the Commission staff has not objected if a 
SPAC does not comply with the tender offer rules when the SPAC files a 
Schedule 14A or 14C in connection with a de-SPAC transaction or an 
extension and complies with Regulation 14A or 14C, because the federal 
proxy rules would generally mandate substantially similar disclosures 
and applicable procedural protections as required by the tender offer 
rules.\101\ Proposed Item 1608, if adopted, would not affect the 
availability of this staff position for those SPACs that file Schedule 
14A or 14C for their de-SPAC transactions or extensions. SPACs that are 
unable to avail themselves of this position and file a Schedule TO 
(such as foreign private issuers \102\), however, would be subject

[[Page 29475]]

to the requirements of proposed Item 1608 of Regulation S-K, which 
would codify the staff's view regarding the information required to be 
included in a Schedule TO filed for a SPAC redemption and clarify the 
need to comply with the procedural requirements of the tender offer 
rules.\103\
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    \101\ See supra note 21.
    \102\ ``Foreign private issuer'' is defined in Securities Act 
Rule 405 and Exchange Act Rule 3b-4(c). A foreign private issuer is 
any foreign issuer other than a foreign government, except for an 
issuer that (1) has more than 50% of its outstanding voting 
securities held of record by U.S. residents and (2) any of the 
following: (i) A majority of its officers and directors are citizens 
or residents of the United States, (ii) more than 50 percent of its 
assets are located in the United States, or (iii) its business is 
principally administered in the United States.
    \103\ The staff has historically expressed the view that the 
same information about the target company that would be required in 
a Schedule 14A should be included in such a Schedule TO, in view of 
the requirements of Item 11 of Schedule TO and Item 1011(c) of 
Regulation M-A and the importance of this information in making a 
redemption decision. Item 11 of Schedule TO states ``Furnish the 
information required by Item 1011(a) and (c) of Regulation M-A.'' 
Item 1011(c) of Regulation M-A states ``Furnish such additional 
material information, if any, as may be necessary to make the 
required statements, in light of the circumstances under which they 
are made, not materially misleading.''
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    Proposed Item 1608 would require a SPAC that files a Schedule TO 
pursuant to Exchange Act Rule 13e-4(c)(2) for any redemption of 
securities offered in connection with a de-SPAC transaction to include 
disclosures required by specified provisions of Forms S-4 and F-4, and 
Schedule 14A, as applicable. Proposed Item 1608 would specify and 
standardize the information required in a Schedule TO that is filed in 
connection with a de-SPAC transaction so that it is consistent with the 
information required by the proposed amendments to Forms S-4 and F-4 
and Schedule 14A. As a result, SPAC shareholders who are not solicited 
for their votes to approve a de-SPAC transaction (in a solicitation 
subject to Regulation 14A) would nevertheless receive the same 
information about the target private operating company that could be 
material to their redemption decisions.\104\ Proposed Item 1608 would 
clarify that SPACs that file a Schedule TO for a redemption also must 
comply with the procedural requirements of Rule 13e-4 and Regulation 
14E (such as the requirement to keep the redemption period open for at 
least 20 business days). This proposed codification would eliminate any 
potential ambiguity as to the SPAC's obligation to provide the tender 
offer rules' procedural protections to the SPAC security holders who 
are considering whether to redeem their securities.
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    \104\ Proposed Item 1608 would also be consistent with exchange 
listing rules regarding the use of Schedule TO in de-SPAC 
transactions. See, e.g., Nasdaq Listing Rule IM-5101-2(e) and NYSE 
Listed Company Manual Section 102.06(c).
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Request for Comment
    46. Should we adopt Item 1608 as proposed?
    47. Is there any additional or alternative information that we 
should require in proposed Item 1608 when a Schedule TO is filed in 
connection with a de-SPAC transaction?
    48. Are there any requirements of Rule 13e-4 and Regulation 14E 
that should not apply to SPACs that file a Schedule TO for the 
redemption of the SPAC securities?
    49. Are there any other provisions of Rule 13e-4 or Regulation 14E 
that should be amended to ensure that SPAC security holders are 
provided with the information material to their decision on whether to 
redeem their SPAC securities or to address other issues arising from 
the SPAC redemption process? For example, should we amend Exchange Act 
Rule 14e-5, which generally prohibits a bidder or its affiliates from 
making purchases outside of a tender offer, to permit a sponsor's 
purchases of SPAC securities outside of the redemption offer as long as 
certain conditions are satisfied (such as requiring disclosures of the 
sponsor's purchases and limiting the purchase price to no more than the 
price offered through the redemption offer), e.g., in a manner 
consistent with the Division of Corporation Finance's Tender Offers and 
Schedules Compliance and Disclosure Interpretation 166.01 (Mar. 22, 
2022)? \105\
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    \105\ This staff interpretation is available at: https://www.sec.gov/divisions/corpfin/guidance/cdi-tender-offers-and-schedules.htm.
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    50. As noted above, the staff has taken the position that a SPAC 
filing a Schedule 14A or 14C in connection with a de-SPAC transaction 
or an extension of the time frame to complete a de-SPAC transaction 
would not need to file a Schedule TO or otherwise comply with the 
tender offer rules, including the procedural requirements of the tender 
offer rules, such as the all-holders requirement. Should we codify this 
position? Should we reconsider this position?

G. Structured Data Requirement

    We are proposing to require SPACs to tag all information disclosed 
pursuant to Subpart 1600 of Regulation S-K in a structured, machine-
readable data language. Specifically, we are proposing to require SPACs 
to tag the disclosures required under Subpart 1600 in Inline XBRL in 
accordance with Rule 405 of Regulation S-T and the EDGAR Filer 
Manual.\106\ The proposed requirements would include detail tagging of 
the quantitative disclosures and block text tagging of the narrative 
disclosures that would be required under Subpart 1600.
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    \106\ This tagging requirement would be implemented by including 
a cross-reference to Rule 405 of Regulation S-T in Subpart 1600 of 
Regulation S-K, and by revising 17 CFR 232.405(b) of Regulation S-T 
to include the proposed SPAC-related disclosures. A corresponding 
Note and Instruction would also be added to Schedules 14A and TO, 
respectively. Pursuant to Rule 301 of Regulation S-T, the EDGAR 
Filer Manual is incorporated by reference into the Commission's 
rules. In conjunction with the EDGAR Filer Manual, Regulation S-T 
governs the electronic submission of documents filed with the 
Commission. Rule 405 of Regulation S-T specifically governs the 
scope and manner of disclosure tagging requirements for operating 
companies and investment companies, including the requirement in 17 
CFR 232.405(a)(3) to use Inline XBRL as the specific structured data 
language to use for tagging the disclosures.
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    In 2009, the Commission adopted rules requiring operating companies 
to submit the information from the financial statements (including 
footnotes and schedules thereto) included in certain registration 
statements and periodic and current reports in a structured, machine-
readable data language using eXtensible Business Reporting Language 
(``XBRL'').\107\ In 2018, the Commission adopted modifications to these 
requirements by requiring issuers to use Inline XBRL, which is both 
machine-readable and human-readable, to reduce the time and effort 
associated with preparing XBRL filings and improve the quality and 
usability of XBRL data for investors.\108\
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    \107\ Interactive Data to Improve Financial Reporting, Release 
No. 33-9002 (Jan. 30, 2009) [74 FR 6776 (Feb. 10, 2009)] (``2009 
Financial Statement Information Adopting Release'') (requiring 
submission of an Interactive Data File to the Commission in exhibits 
to such reports). See also Interactive Data to Improve Financial 
Reporting, Release No. 33-9002A (Apr. 1, 2009) [74 FR 15666 (Apr. 7, 
2009)].
    \108\ Inline XBRL Filing of Tagged Data, Release No. 33-10514 
(June 28, 2018) [83 FR 40846, 40847 (Aug. 16, 2018)]. Inline XBRL 
allows filers to embed XBRL data directly into an HTML document, 
eliminating the need to tag a copy of the information in a separate 
XBRL exhibit. Id. at 40851.
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    Requiring Inline XBRL tagging of the Subpart 1600 disclosures would 
benefit investors by making SPAC disclosures more readily available and 
easily accessible to investors and other market participants for 
aggregation, comparison, filtering, and other analysis, as compared to 
requiring a non-machine readable data language such as ASCII or HTML. 
This would enable automated extraction and analysis of granular SPAC 
disclosures, allowing investors and other market participants to more 
efficiently perform large-scale analysis and comparison of SPAC 
disclosures across SPAC transactions and time periods, including 
information on sponsor compensation and material conflicts of interest. 
At the same time, we do not expect the incremental compliance burden 
associated with tagging the additional information to be unduly 
burdensome, because SPACs subject to the proposed

[[Page 29476]]

tagging requirements would be subject to similar Inline XBRL 
requirements in other Commission filings.\109\ However, because issuers 
(including SPACs) are not required to tag any filings until after they 
have filed a periodic report on Form 10-Q, 20-F, or 40-F, the proposed 
tagging requirement for disclosures in SPAC IPO registration statements 
would accelerate the tagging obligations (and related compliance 
burdens) of SPACs compared to those of other filers.\110\ Enhancing the 
usability of the SPAC initial public offering disclosures through a 
tagging requirement is of particular importance given the unique nature 
of SPAC offerings and the potential risks they present to investors.
---------------------------------------------------------------------------

    \109\ Id.
    \110\ See 17 CFR 229.601(b)(101)(i)(A).
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Request for Comment
    51. Should we require SPACs to tag the disclosures required by 
Subpart 1600 of Regulation S-K, as proposed? Are there any changes we 
should make to ensure accurate and consistent tagging? If so, what 
changes should we make?
    52. Should we modify the scope of the Subpart 1600 disclosures 
required to be tagged? For example, should we require tagging of 
quantitative disclosures only? Should we limit the tagging requirement 
to only those disclosures required in de-SPAC transactions?
    53. Where an item in Subpart 1600 requests that a registrant 
provide a tabular presentation without specifying a particular format 
for the table, or data points to include in the table, such as the 
proposed disclosure related to SPAC sponsor compensation, dilution of 
unaffiliated shareholders, and the related sensitivity analysis, should 
we instead require specific elements in the tabular presentation? If we 
do not propose a specific tabular presentation or required elements, 
would detail tagging provide useful data for investors and other market 
participants?
    54. Should we require SPACs to use a different structured data 
language to tag the Subpart 1600 disclosures? If so, what structured 
data language should we require, and why?
    55. We have not proposed exemptions or different requirements from 
the proposed structured data requirement for foreign private issuers, 
smaller reporting companies,\111\ or emerging growth companies.\112\ 
Should we exempt or provide different requirements from some or all of 
the proposed structured data requirements for these or other classes of 
registrants?
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    \111\ See infra Section III.D.
    \112\ Section 101(a) of the JOBS Act amended Section 2(a) of the 
Securities Act [15 U.S.C. 77b(a)] and Section 3(a) of the Exchange 
Act [15 U.S.C. 78c(a)] to define an ``emerging growth company'' as 
an issuer with less than $1 billion in total annual gross revenues 
during its most recently completed fiscal year, as such amount is 
indexed for inflation every five years by the Commission. If an 
issuer qualifies as an EGC on the first day of its fiscal year, it 
maintains that status until the earliest of (1) the last day of the 
fiscal year of the issuer during which it has total annual gross 
revenues of $1.07 billion or more; (2) the last day of its fiscal 
year following the fifth anniversary of the first sale of its common 
equity securities pursuant to an effective registration statement; 
(3) the date on which the issuer has, during the previous three-year 
period, issued more than $1 billion in nonconvertible debt; or (4) 
the date on which the issuer is deemed to be a ``large accelerated 
filer'' (as defined in Exchange Act Rule 12b-2). See Section 
2(a)(19) of the Securities Act [15 U.S.C. 77b(a)(19)]; Section 
3(a)(80) of the Exchange Act [15 U.S.C. 78c(a)(80)]; and Inflation 
Adjustments and Other Technical Amendments under Titles I and II of 
the JOBS Act, Release No. 33-10332 (Mar. 31, 2017) [82 FR 17545 
(Apr. 12, 2017)].
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III. Aligning De-SPAC Transactions With Initial Public Offerings

    As discussed above, private operating companies have increasingly 
turned to de-SPAC transactions as a means of accessing public 
securities markets and becoming public reporting companies. As the 
SPACs that were part of the unprecedented growth in the SPAC market in 
2020 and 2021 continue to identify target private operating companies 
and consummate de-SPAC transactions, it is likely that a significant 
proportion of companies in the coming years that enter the U.S. public 
securities markets will do so through de-SPAC transactions.
    A private operating company's path to the public markets through a 
de-SPAC transaction usually commences when a SPAC begins considering it 
as a potential business combination candidate. After agreeing to the 
terms of the business combination, the SPAC typically files a Form 8-K 
announcing the transaction that includes limited information on the 
material terms of the business combination agreement.\113\ This 
announcement is usually followed by a disclosure document (a Securities 
Act registration statement, proxy statement, or information statement) 
filed by the SPAC that includes more extensive information about the 
private operating company.\114\ SPACs use a variety of legal structures 
to effect de-SPAC transactions, and the particular transaction 
structure and the consideration used can affect (1) the Commission 
filings required for the transaction,\115\ (2) which entity will have a 
continuing Exchange Act reporting obligation following the 
transaction,\116\ and (3) the disclosures provided in connection with 
the transaction.\117\
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    \113\ A SPAC is required to file a Form 8-K that provides 
certain disclosures regarding the business combination agreement if 
the agreement is a material definitive agreement not made in the 
ordinary course of business. See Item 1.01 of Form 8-K.
    \114\ The disclosure document may be a Form S-4 or F-4, Schedule 
14A or Schedule TO, depending on, among other things, whether 
shareholder approval is required and whether the SPAC is registering 
an offering of shares to be issued in the transaction.
    \115\ SPACs may use cash, securities, or a combination of both 
to acquire a target company in a de-SPAC transaction, and the form 
of consideration is a factor in determining whether a registration 
statement, proxy or information statement, or tender offer statement 
is required to be filed in connection with a de-SPAC transaction. 
Additionally, the SPAC, the target company or a new holding company 
may issue securities in a de-SPAC transaction, which may necessitate 
the filing of a registration statement on Form S-4 or F-4 for the 
transaction.
    \116\ For example, when a holding company is formed to acquire 
both the private operating company and the SPAC, and the holding 
company files a registration statement for the de-SPAC transaction, 
generally the holding company would continue as the registrant with 
the Exchange Act reporting obligation following the transaction. In 
these situations, the private operating company would be the holding 
company's predecessor, as the term is used in Regulation S-X, with 
respect to the financial statements and possibly the accounting 
acquirer under generally accepted accounting principles as used in 
the United States (``U.S. GAAP''), with the equity ownership 
percentage in the combined company held by the former owners of the 
private operating company and the degree to which former management 
of the private operating company continues with the combined company 
among the factors that could impact the accounting acquirer 
determination under U.S. GAAP. Under the proposed amendments to 
Regulation S-X, the SPAC would be an acquired business. See infra 
Section IV.B.
    \117\ The disclosures required in connection with a de-SPAC 
transaction are determined by the applicable disclosure form (Form 
S-4 or F-4, Schedule 14A or 14C, or Schedule TO) and which entity is 
filing the form. Under the proposed amendments, companies would not 
be subject to the same disclosure requirements in every de-SPAC 
transaction structure. For example, if the SPAC is a domestic 
registrant and a new holding company is a foreign issuer, and the 
private operating company meets the criteria to be a foreign private 
issuer, the holding company (the company filing the de-SPAC 
transaction filing) would also qualify as a foreign private issuer. 
Foreign private issuer status would permit the foreign holding 
company to file a Form F-4 for the de-SPAC transaction and apply the 
foreign private issuer disclosure regime. In contrast, if a de-SPAC 
transaction is structured so that (1) a domestic SPAC is the company 
issuing securities as the acquiring entity of the foreign private 
operating company, (2) there is no foreign holding company, and (3) 
the SPAC makes the de-SPAC transaction filing, the registrant would 
continue to be a domestic issuer and follow domestic reporting rules 
until the next determination date for foreign private issuer status.
---------------------------------------------------------------------------

    After the completion of the de-SPAC transaction, the post-business 
combination company is required to file a Form 8-K within four business 
days that includes even more information about the private operating 
company that is equivalent to the information that a new reporting 
company would be required to provide when filing a Form

[[Page 29477]]

10 under the Exchange Act.\118\ The result is that investors may 
receive disclosures about the future public company that differ from, 
or are not provided in the same manner as, the information disclosed in 
a Form S-1 or F-1 filed in connection with a traditional initial public 
offering. Additionally, some of the investor protections afforded in a 
traditional initial public offering are not available or are more 
attenuated when a private operating company becomes a public company 
through a de-SPAC transaction.\119\
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    \118\ Form 10 is the long-form registration statement to 
register a class of securities under Section 12(b) or 12(g) of the 
Exchange Act. See Items 2.01(f), 5.01(a)(8), and 9.01(c) of Form 8-
K. By the time the Form 8-K with Form 10 information is filed, the 
securities of the post-business combination company have often 
already begun trading on a national securities exchange with a new 
ticker symbol, in that the securities of the SPAC generally trade on 
an exchange until the consummation of the de-SPAC transaction, after 
which the securities of the post-business combination company 
generally commence trading on the following business day.
    \119\ For example, a private company engaged in a traditional 
initial public offering is generally more limited in its ability to 
make communications about its offering prior to the filing of a 
Securities Act registrations statement on Form S-1 than companies 
engaged in a business combination transaction that will be 
registered on Form S-4 or F-4. De-SPAC transactions also often lack 
named underwriters that perform due diligence and other traditional 
gatekeeping functions, and it may be more difficult for investors to 
trace their purchases to the registered de-SPAC transaction for 
purposes of establishing a Section 11 claim for material 
misstatements or omissions in de-SPAC disclosure documents.
---------------------------------------------------------------------------

    In light of the increasingly common reliance on de-SPAC 
transactions as a vehicle for private operating companies to access the 
U.S. public securities markets, we are proposing a number of new rules 
and amendments to existing rules to align more closely the treatment of 
private operating companies entering the public markets through de-SPAC 
transactions with that of companies conducting traditional initial 
public offerings. In our view, a private operating company's method of 
becoming a public company should not negatively impact investor 
protection. Accordingly, the proposed new rules and amendments are 
intended to provide investors with disclosures and liability 
protections comparable to those that would be present if the private 
operating company were to conduct a traditional firm commitment initial 
public offering.
    These proposed new rules and amendments would (1) more closely 
align the non-financial statement disclosure requirements with respect 
to the private operating company in disclosure documents for a de-SPAC 
transaction with the disclosure required in a Form S-1 or F-1 for an 
initial public offering; \120\ (2) require a minimum dissemination 
period for disclosure documents in de-SPAC transactions; (3) treat the 
private operating company as a co-registrant of the Form S-4 or Form F-
4 for a de-SPAC transaction when a SPAC is filing the registration 
statement; (4) require a re-determination of smaller reporting company 
status following the consummation of a de-SPAC transaction; (5) amend 
the definition of ``blank check company'' for PSLRA purposes such that 
the safe harbor for forward-looking information would not apply to 
projections in filings by SPACs and certain other blank check companies 
that are not penny stock issuers; and (6) provide, in a Commission 
rule, that underwriters in a SPAC initial public offering are deemed to 
be underwriters in a subsequent de-SPAC transaction under certain 
circumstances.
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    \120\ We are also proposing to more closely align the financial 
statement disclosure requirements with respect to the private 
operating company in any business combination involving a shell 
company with the disclosure required in a Form S-1 for an initial 
public offering, which would encompass de-SPAC transactions. See 
infra Section IV.B.
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A. Aligning Non-Financial Disclosures in De-SPAC Disclosure Documents

    In regard to non-financial statement disclosures, we are proposing 
that, if the target company in a de-SPAC transaction is not subject to 
the reporting requirements of Section 13(a) or 15(d) of the Exchange 
Act, disclosure with respect to such company pursuant to the following 
items in Regulation S-K would be required in the registration statement 
or schedule filed in connection with the de-SPAC transaction: (1) Item 
101 (description of business); (2) Item 102 (description of property); 
(3) Item 103 (legal proceedings); (4) Item 304 (changes in and 
disagreements with accountants on accounting and financial disclosure); 
(5) Item 403 (security ownership of certain beneficial owners and 
management, assuming the completion of the de-SPAC transaction and any 
related financing transaction); \121\ and (6) Item 701 (recent sales of 
unregistered securities).\122\ If the private operating company is a 
foreign private issuer,\123\ the proposed rules would include the 
option of providing disclosure relating to the private operating 
company in accordance with Items 3.C, 4, 6.E, 7.A, 8.A.7, and 9.E of 
Form 20-F, consistent with disclosure that could be provided by these 
entities in an initial public offering.\124\
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    \121\ We note that Item 18(a)(5) of Form S-4 currently requires 
disclosure pursuant to Item 403 regarding the target company and a 
SPAC's principal shareholders, through Item 6 of Schedule 14A, in a 
Form S-4 that includes a proxy seeking shareholder approval of the 
de-SPAC transaction.
    \122\ Proposed General Instruction L.2. to Form S-4; Proposed 
General Instruction I.2. to Form F-4; Proposed Item 14(f) of 
Schedule 14A; Proposed General Instruction K to Schedule TO. We note 
that disclosure pursuant to Item 303 (management's discussion and 
analysis of financial condition and results of operations) of 
Regulation S-K is already required with respect to a non-reporting 
target company in Forms S-4 and F-4 and in Schedules 14A and 14C for 
a de-SPAC transaction. As proposed, disclosure pursuant to Item 701 
of Regulation S-K would be required in Part I (information required 
in the prospectus) of Form S-4 and Form F-4, whereas in Form S-1, 
the Item 701 disclosure requirement appears under Part II 
(information not required in prospectus) of the form.
    \123\ See supra note 102.
    \124\ Disclosure requirements for foreign private issuers differ 
from domestic registrants, including the absence of quarterly 
reporting requirements, the use of different forms with different 
disclosure provisions, and an ability to present financial 
statements in accordance with IFRS instead of U.S. GAAP. In 
addition, foreign private issuers are not required to file current 
reports on Form 8-K using the Form 8-K disclosure criteria; rather, 
they can furnish current reports on Form 6-K applying the disclosure 
requirements of that Form. See Foreign Issuer Reporting 
Enhancements, Release 33-8959 (Sep. 23, 2008) [73 FR 58300 (Oct. 6, 
2008)].
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    The proposed additional information is already required to be 
included in a Form 8-K due within four business days of the completion 
of the de-SPAC transaction, such that registrants currently should 
already be preparing this information in anticipation of this Form 8-K 
filing in connection with a de-SPAC transaction.\125\ Aligning the 
disclosure requirements in de-SPAC transactions in this manner with 
those in initial public offerings would mandate that this additional 
information about the private operating company be provided to 
shareholders before they make voting, investment, or redemption 
decisions in connection with the proposed transactions.\126\ As 
proposed, this information would also be available to investors prior 
to the inception of trading of the post-business

[[Page 29478]]

combination company's securities on a national securities exchange, 
rather than being required in a Form 8-K due within four business days 
of the completion of the de-SPAC transaction. Further, if this 
disclosure is included in a Form S-4 or Form F-4, any material 
misstatements or omissions contained therein would subject the issuers 
and other parties to liability under Sections 11 and 12 of the 
Securities Act, which would align with the protections afforded to 
investors under the Securities Act for disclosures provided in a Form 
S-1 or F-1 for an initial public offering.
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    \125\ This Form 8-K is required to include the same information 
that would be required for a newly reporting company when filing a 
Form 10 under the Exchange Act. See Items 2.01(f), 5.01(a)(8), and 
9.01(c) of Form 8-K. In this regard, we note that these items of 
Form 8-K each provide that if any disclosure required by these items 
has been previously reported, the registrant may identify the filing 
in which that disclosure is included instead of including that 
disclosure in the Form 8-K.
    \126\ In this regard, we note that many, but not all, Forms S-4 
and F-4 and Schedules 14A and 14C that are filed in connection with 
de-SPAC transactions contain information about the target company as 
proposed. The proposed amendments, if adopted, would require that 
this information be provided in all de-SPAC transactions subject to 
the specialized disclosure requirements in Subpart 1600.
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Request for Comment
    56. Should we require additional information regarding the private 
operating company in disclosure documents filed in connection with a 
de-SPAC transaction, as proposed? Would these additional disclosures 
provide investors with a better understanding of the private operating 
company's operations and related risks? Should we require more or less 
disclosure regarding the private operating company in the registration 
statements or schedules filed in connection with de-SPAC transactions?
    57. What are the benefits of providing this information earlier to 
investors when they are making voting, investment, and redemption 
decisions in connection with a de-SPAC transaction or at or before the 
commencement of trading in the post-business combination company's 
securities on a securities exchange? Would it be unduly burdensome to 
provide this additional information regarding the private operating 
company at this earlier point in time?
    58. Should a private operating company that would qualify as a 
foreign private issuer have the option of providing disclosure in 
accordance with certain items of Form 20-F, as proposed?
    59. Should we require additional or less information in proposed 
Item 1608 and Schedule TO when a SPAC files a Schedule TO in connection 
with a de-SPAC transaction? For example, should we require disclosure 
regarding management's discussion and analysis of financial condition 
and results of operations (Item 303 of Regulation S-K) pursuant to Item 
1608 or Schedule TO?
    60. Should the proposed disclosure requirements with respect to the 
private operating company be scaled to take into account the size, 
nature, or certain characteristics of the company?

B. Minimum Dissemination Period

    In addition to the need for enhanced disclosure in de-SPAC 
transactions, we recognize the importance of ensuring that SPAC 
shareholders have adequate time to analyze the information presented in 
these transactions. There is currently no federally mandated period in 
business combination transactions to provide security holders with a 
minimum amount of time to consider proxy statement or other 
disclosures.\127\ In view of the unique circumstances surrounding de-
SPAC transactions, we are proposing to amend Exchange Act Rules 14a-6 
and 14c-2, as well as to add instructions to Forms S-4 and F-4,\128\ to 
require that prospectuses and proxy and information statements filed in 
connection with de-SPAC transactions be distributed to shareholders at 
least 20 calendar days in advance of a shareholder meeting or the 
earliest date of action by consent, or the maximum period for 
disseminating such disclosure documents permitted under the applicable 
laws of the SPAC's jurisdiction of incorporation or organization if 
such period is less than 20 calendar days.\129\ As stated above, SPACs 
are organized for the purpose of completing a de-SPAC transaction 
within a certain time frame, and as a SPAC approaches the end of this 
period, there is less time available for a SPAC to find a candidate for 
a business combination transaction, prepare and file the appropriate 
de-SPAC disclosure documents with the Commission, disseminate such 
documents to its shareholders, receive the requisite shareholder 
approval when applicable, and consummate the de-SPAC transaction. 
Although the laws of a SPAC's jurisdiction of incorporation or 
organization may require the SPAC to send a notice to its shareholders 
at least a specified number of days before the shareholder meeting to 
approve a proposed business combination transaction, such notices are 
generally limited to information regarding the time, place, and purpose 
of the meeting, along with a copy or summary of the business 
combination agreement.\130\ They do not generally require a minimum 
period of time for dissemination of any other information about the 
transaction (including any proxy statements or other materials required 
by the federal securities laws) to shareholders.\131\ Similarly, such 
requirements do not exist in exchange listing standards.\132\ Without a 
minimum period for dissemination of prospectuses, proxy statements, and 
other materials before a shareholder meeting (or action by consent), a 
SPAC and its sponsor may have incentives to provide prospectuses or 
proxy or information statements for a de-SPAC transaction to the SPAC's 
security holders within an abbreviated time frame, leaving the security 
holders with relatively little time to review what are often complex 
disclosure documents for these transactions.
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    \127\ In Form S-4 and Form F-4, however, there is a minimum 20-
business day period requirement in sending a prospectus to security 
holders prior to a security holder meeting that is applicable when a 
registrant incorporates by reference information about the 
registrant or the company being acquired into the form. General 
Instruction A.2 of Form S-4 and General Instruction A.2 of Form F-4.
    \128\ Proposed General Instruction L.3. to Form S-4; Proposed 
General Instruction I.3. to Form F-4.
    \129\ The proposed amendments would be applicable to Forms S-4 
and F-4 and Schedules 14A and 14C. We are not proposing to amend the 
20 business day period when a Schedule TO is filed in connection 
with a de-SPAC transaction. See supra Section II.F.4.
    \130\ See, e.g., DEL. CODE ANN. tit. 8, sec. 251(c) (2022) 
(stating, in part, that ``[d]ue notice of the time, place and 
purpose of the meeting shall be given to each holder of stock, 
whether voting or nonvoting, of the corporation at the stockholder's 
address as it appears on the records of the corporation, at least 20 
days prior to the date of the meeting [to vote on an agreement of 
merger or consolidation]'').
    \131\ See R. Franklin Balotti, et al., Delaware Law of 
Corporations and Business Organizations, Sec.  9.16 (4th ed. 2022 & 
Supp. 2022) (``[t]he only statutory requirements for the notice of 
the meeting are that it state the time, place and purpose of the 
meeting and that the notice contain a copy of the merger agreement 
or a summary of the agreement . . . [i]n practice, of course, many 
such meetings will be governed by the federal proxy rules, which 
require that a full proxy statement be submitted to the 
stockholders.'').
    \132\ Although both the NYSE and Nasdaq generally require that 
listed companies solicit proxies and provide proxy statements for 
all shareholder meetings, neither requires a minimum number of days 
between when proxy materials are provided to shareholders and when 
the meeting is held. Instead, for example, NYSE Listed Company 
Manual Section 402.03 simply ``recommends that a minimum of 30 days 
be allowed between the record and meeting dates so as to give ample 
time for the solicitation of proxies.''
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    We are proposing a minimum 20-calendar day dissemination period for 
prospectuses and proxy and information statements that, in our view, 
would provide an important investor protection.\133\ We recognize that 
SPACs are often required under their governing

[[Page 29479]]

instruments and applicable exchange listing rules to complete de-SPAC 
transactions within a certain time frame and that relying on the safe 
harbor we are proposing under the Investment Company Act would also 
limit the time frame in which to announce and complete a de-SPAC 
transaction.\134\ Nevertheless, given the complexity of the SPAC 
structure, the conflicts of interest that are often present in this 
structure and the effects of dilution on non-redeeming shareholders, 
the proposed 20-calendar day period would establish a minimum time 
period for shareholders to review prospectuses and proxy and 
information statements in de-SPAC transactions (subject to the carve-
out discussed below),\135\ so that they have sufficient time to 
consider the disclosures and to make more informed voting, investment 
and redemption decisions.\136\ In the event that the laws of a SPAC's 
jurisdiction of incorporation or organization have a provision 
applicable to the dissemination of prospectuses and proxy and 
information statements required under the federal securities laws, we 
are proposing to include a provision that would require a registrant to 
satisfy the maximum dissemination period permitted under the applicable 
law of such jurisdiction when this period is less than 20 calendar days 
to avoid conflicting with such a requirement.\137\
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    \133\ The proposed 20-calendar day period is the same length of 
time as the 20-day advance disclosure period in 17 CFR 13e-3(f)(1) 
(Exchange Act Rule 13e-3(f)(1)). In adopting a 20-day advance 
disclosure requirement for dissemination of documents in connection 
with going private transactions, the Commission stated this 
requirement was intended to provide reasonable assurance that the 
information required to be disclosed to security holders would be 
disseminated sufficiently far in advance of the transactions to 
permit security holders to make ``an unhurried and informed'' 
decision. Going Private Transactions by Public Companies or Their 
Affiliates, Release No. 33-6100 (Aug. 2, 1979) [44 FR 46736 (Aug. 8, 
1979)].
    \134\ See infra Section VI.B.3.
    \135\ When a registrant incorporates by reference information 
about the registrant or the company being acquired in the Form S-4 
or F-4 for a de-SPAC transaction, the 20-business day period in Form 
S-4 and Form F-4, which we are not proposing to amend, would 
continue to be applicable. General Instruction A.2 of Form S-4 and 
General Instruction A.2 of Form F-4.
    \136\ The proposed minimum dissemination period is intended to 
apply to the dissemination of certain Commission filings in 
connection with de-SPAC transactions and is not intended to impact 
any requirements of the jurisdiction of incorporation or 
organization regarding the notice of an annual or special meeting, 
such as Section 251(c) of the Delaware General Corporation Law.
    \137\ For example, if the jurisdiction has no minimum 
dissemination period and does not have a maximum dissemination 
period, the minimum 20-day period, as proposed, would apply. If the 
jurisdiction has a minimum dissemination period of less than 20 days 
(e.g., 10 days) and does not have a maximum dissemination period, 
the minimum 20-day period, as proposed, would apply. If the 
jurisdiction has a minimum dissemination period of less than 20 days 
(e.g., 10 days) and a maximum dissemination period of less than 20 
days (e.g., 15 days), the maximum dissemination period under the 
jurisdiction would apply. If the jurisdiction has no minimum 
dissemination period and a maximum dissemination period of less than 
20 days (e.g., 15 days), the maximum dissemination period under the 
jurisdiction would apply.
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Request for Comment
    61. Should we require a minimum dissemination period for 
prospectuses and proxy or information statements in de-SPAC 
transactions as proposed? Is a 20-day period necessary or appropriate 
to enable shareholders to review and consider these disclosure 
documents relating to a de-SPAC transaction? Should this 20 calendar 
day period be longer or shorter? Should the minimum dissemination 
period be based on business days (e.g., 20 business days) instead of 
calendar days as proposed?
    62. Would there be timing concerns on the part of SPACs in meeting 
the proposed minimum 20-day dissemination period? Should we include an 
exception for the applicable laws of the SPAC's jurisdiction of 
incorporation or organization, as proposed? Should we include other 
exceptions to the proposed minimum 20-day dissemination period?
    63. Would additional guidance be helpful in determining how to 
apply this proposed requirement?
    64. Are there additional or alternative requirements we should 
adopt in connection with the dissemination of disclosure documents in a 
de-SPAC transaction?

C. Private Operating Company as Co-Registrant to Form S-4 and Form F-4

    Under Section 6(a) of the Securities Act, each ``issuer'' must sign 
a Securities Act registration statement.\138\ The Securities Act 
broadly defines the term ``issuer'' to include every person who issues 
or proposes to issue any securities.\139\ Currently, when a SPAC offers 
and sells its securities in a registered de-SPAC transaction, only the 
SPAC, its principal executive officer or officers, its principal 
financial officer, its controller or principal accounting officer, and 
at least a majority of its board of directors (or persons performing 
similar functions) are required to sign the registration statement for 
the transaction. In these situations, the private operating company, 
for which the de-SPAC transaction effectively serves as its initial 
public offering, and its officers and directors do not sign the 
registration statement that contains disclosure about the private 
operating company's business and financial results and thereby may 
avoid liability as signatories to the registration statement under 
Section 11 of the Securities Act, unlike if the private operating 
company had conducted a traditional initial public offering registered 
on Form S-1 or Form F-1.\140\
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    \138\ In addition, Section 6(a) requires the issuer's principal 
executive officer or officers, principal financial officer, 
comptroller or principal accounting officer, and the majority of its 
board of directors or persons performing similar functions (or, if 
there is no board of directors or persons performing similar 
functions, by the majority of the persons or board having the power 
of management of the issuer) to sign a registration statement. When 
the issuer is a foreign entity, the registration statement must also 
be signed by the issuer's duly authorized representative in the 
United States.
    \139\ Section 2(a)(4) of the Securities Act.
    \140\ Even when not liable under Section 11, the private 
operating company and its affiliates, however, may be subject to 
enforcement actions by the Commission, including those under 
Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 
10b-5, as well as potential liability under 17 CFR 240.10b-5 
(Exchange Act Rule 10b-5) in private rights of action. See, e.g., In 
the Matter of Momentus, Inc., et al., Release No. 34-92391 (July 13, 
2021) (settled proceeding charging privately held company with 
violations of Section 17(a) of the Securities Act and Section 10(b) 
of the Exchange Act and Rule 10b-5 for, among other things, 
allegedly materially false statements and omissions in the 
registration statement/proxy statement filed in connection with a 
business combination with a publicly traded SPAC).
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    We are proposing to amend Form S-4 and Form F-4 to require that the 
SPAC and the target company be treated as co-registrants when these 
registration statements are filed by the SPAC in connection with a de-
SPAC transaction.\141\ In view of the protections that the Securities 
Act provides to investors in a traditional initial public offering, it 
is appropriate in our view to interpret Section 6(a) to encompass the 
target company, in addition to the SPAC, as an issuer for purposes of 
Section 6(a) and the signature requirements of Form S-4 or Form F-4.
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    \141\ Proposed General Instruction L.4. to Form S-4; Proposed 
General Instruction I.4. to Form F-4. Section 6(a) of the Securities 
Act uses the term ``issuer,'' but Securities Act registration 
statement forms use the term ``registrant.'' The term ``registrant'' 
is defined in Rule 405 as ``the issuer of the securities for which 
the registration statement is filed.'' As a co-registrant of the 
Form S-4 or Form F-4, the private operating company would have an 
Exchange Act reporting obligation pursuant to Section 15(d) of the 
Exchange Act following the effectiveness of the registration 
statement.
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    A de-SPAC transaction marks the introduction of the private 
operating company to the U.S. public securities markets, and investors 
look to the business and prospects of the private operating company in 
evaluating an investment in the combined company.\142\ Accordingly, it 
is the private operating company that, in substance, issues or proposes 
to issue its securities, as securities of the newly combined public 
company.\143\ While

[[Page 29480]]

similar policy considerations can arise in other business combination 
contexts, given the substantial increase in the number of SPAC 
transactions in recent years, the number of shareholders typically 
impacted by such transactions, and concerns that are unique to the SPAC 
structure, we are concerned that a narrow approach to registrant status 
in de-SPAC transactions could undermine the statutory liability scheme 
that Congress applied to initial public offerings of securities.
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    \142\ That is, the operations of the private company constitute 
the business and the basis for the financial and other disclosures 
of the newly combined public company following a de-SPAC 
transaction.
    \143\ The legislative history of the broad definition of the 
term ``issuer'' in the Securities Act suggests that the 
identification of the ``issuer'' of a security should be based on 
the economic reality of a transaction to ensure that, in service of 
the disclosure purpose of the Act, the person(s) that have access to 
the information relevant to investors are responsible as an 
``issuer'' for providing such information. See, e.g., H.R. REP. 73-
85, 12 (``Special provisions govern the definition of `issuer' in 
connection with security issues of an unusual character. . . . [For 
example, in the case of an investment trust], although the actual 
issuer is the trustee, the depositor is the person responsible for 
the flotation of the issue. Consequently, information relative to 
the depositor and to the basic securities is what chiefly concerns 
the investor--information respecting the assets and liabilities of 
the trust rather than of the trustee.'').
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    We are proposing to amend the signature instructions to Form S-4 
and F-4 to state that, if a SPAC is offering its securities in a de-
SPAC transaction that is registered on the form, the term 
``registrant'' for purposes of the signature requirements of the form 
would mean the SPAC and the target company.\144\ This requirement would 
make the additional signatories to the form, including the principal 
executive officer, principal financial officer, controller/principal 
accounting officer, and a majority of the board of directors or persons 
performing similar functions of the target company, liable (subject to 
a due diligence defense for all parties other than the SPAC and the 
target company), for any material misstatements or omissions in the 
Form S-4 or Form F-4 and would thereby mitigate the risk that the 
target company's directors and management would not be held accountable 
to investors for the accuracy of the disclosures in the registration 
statement due to the absence of the deterrent threat of liability under 
Section 11.\145\ Moreover, this proposed requirement could improve the 
reliability of the disclosure provided to investors in connection with 
de-SPAC transactions by creating strong incentives for such additional 
signing persons to review more closely the disclosure about the target 
company in these registration statements and to conduct more searching 
due diligence in connection with de-SPAC transactions and related 
registration statements.
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    \144\ The Commission has previously specified who constitutes 
the ``registrant'' for purposes of signing a Securities Act 
registration statement in certain contexts. For example, an 
instruction in Forms S-4 and F-4 requires two or more existing 
corporations to be deemed co-registrants when they will be parties 
to a consolidation and the securities to be offered are those of a 
corporation not yet in existence at the time of filing. See 
Instruction 3 to the signature page for Form S-4 and Form F-4 (``If 
the securities to be offered are those of a corporation not yet in 
existence at the time the registration statement is filed which will 
be a party to a consolidation involving two or more existing 
corporations, then each such existing corporation shall be deemed a 
registrant and shall be so designated on the cover page of this 
Form, and the registration statement shall be signed by each such 
existing corporation and by the officers and directors of each such 
existing corporation as if each such existing corporation were the 
registrant.'').
    \145\ In this regard, we note that the target company's 
directors and executive officers are the parties most similarly 
situated to the directors and officers of a private company 
conducting a traditional initial public offering, in terms of their 
knowledge of, and background in, the company going public through a 
de-SPAC transaction.
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Request for Comment
    65. Should we amend Form S-4 and Form F-4, as proposed, to require 
that the SPAC and the private operating company be treated as co-
registrants when the registration statement is filed by the SPAC in 
connection with a de-SPAC transaction?
    66. Would amending Form S-4 and Form F-4 in this manner improve the 
disclosure provided in connection with de-SPAC transactions that are 
registered on these forms?
    67. Should the proposed amendment to Form S-4 and Form F-4 be 
extended to apply to all business combination transactions where a 
shell company, other than a business combination related shell company, 
is the acquirer?
    68. Should the sponsor of a SPAC also be required to sign a Form S-
4 or Form F-4 filed in connection with a de-SPAC transaction, as well 
as a Form S-1 or Form F-1 filed for a SPAC's initial public offering, 
in view of, among other things, the sponsor's control over the SPAC and 
the sponsor's role in preparing these registration statements? Would 
such a requirement be consistent with the Commission's approach in 
requiring a majority of the board of directors of any corporate general 
partner to sign a registration statement when the registrant is a 
limited partnership?
    69. Should we also adopt corresponding amendments to Form S-1 and 
Form F-1 in the event that these forms are used by a SPAC for a de-SPAC 
transaction?

D. Re-Determination of Smaller Reporting Company Status

    Smaller reporting companies are a category of registrants that are 
eligible for scaled disclosure requirements in Regulation S-K and 
Regulation S-X and in various forms under the Securities Act and the 
Exchange Act.\146\ For example, smaller reporting companies are not 
required to provide quantitative and qualitative information about 
market risk pursuant to Item 305 of Regulation S-K.\147\ In general, a 
smaller reporting company is a company that is not an investment 
company, an asset-backed issuer or a majority-owned subsidiary of a 
parent that is not a smaller reporting company, and had (1) a public 
float of less than $250 million, or (2) had annual revenues of less 
than $100 million during the most recently completed fiscal year for 
which audited financial statements are available and either had no 
public float or a public float of less than $700 million.\148\ Smaller 
reporting company status is determined at the time of filing an initial 
registration statement under the Securities Act or Exchange Act for 
shares of common equity and is re-determined on an annual basis. Once a 
company determines that it is not a smaller reporting company, it will 
retain this status unless it determines, when making its annual 
determination, that its public float was less than $200 million or, 
alternatively, that its public float and annual revenues fell under 
certain thresholds.\149\
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    \146\ See, e.g., 17 CFR 229.10(f) (Item 10(f) of Regulation S-
K); Rules 8-01, 8-02, 8-03, 8-07, and 8-08 of Regulation S-X; Item 
1A of Form 10 and Form 10-K; Item 3.02 of Form 8-K. A foreign 
private issuer is not eligible to use the scaled disclosure 
requirements for smaller reporting companies unless it uses the 
forms and rules designated for domestic issuers and provides 
financial statements prepared in accordance with U.S. GAAP. 
Instruction 2 to Item 10(f); Instruction 2 to definition of 
``smaller reporting company'' in Securities Act Rule 405 and 
Exchange Act Rule 12b-2.
    \147\ Item 305(e) of Regulation S-K.
    \148\ The definition of ``smaller reporting company'' is set 
forth in Securities Act Rule 405, Exchange Act Rule 12b-2 and Item 
10(f) of Regulation S-K.
    \149\ See Item 10(f)(2)(iii) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2.
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    Currently, most SPACs qualify as smaller reporting companies,\150\ 
and a post-business combination company after a de-SPAC transaction is 
permitted by rule \151\ to retain this status until the next annual 
determination date when a SPAC is the legal acquirer of the private 
operating company in a de-SPAC transaction. The absence of a re-
determination of smaller reporting company status upon the completion 
of these de-SPAC transactions permits certain post-business combination 
companies to avail themselves of scaled disclosure and other 
accommodations when they otherwise would not have

[[Page 29481]]

qualified as a smaller reporting company had they become public 
companies through a traditional initial public offering.
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    \150\ See infra Section IX.B.2.f.
    \151\ See Item 10(f)(2) of Regulation S-K; Securities Act Rule 
405; Exchange Act Rule 12b-2.
---------------------------------------------------------------------------

    In view of the informational asymmetries that result when a private 
operating company chooses to go public through such a de-SPAC 
transaction and the increasing prevalence of these transactions as a 
vehicle for private operating companies to become reporting companies 
under the Exchange Act, we are proposing to require a re-determination 
of smaller reporting company status following the consummation of a de-
SPAC transaction. As proposed, this re-determination of smaller 
reporting company status would occur prior to the time the post-
business combination company makes its first Commission filing, other 
than the Form 8-K with Form 10 information,\152\ with the public float 
threshold measured as of a date within four business days after the 
consummation of the de-SPAC transaction and the revenue threshold 
determined by using the annual revenues of the private operating 
company as of the most recently completed fiscal year for which audited 
financial statements are available.\153\ The applicable thresholds in 
the current definition would remain unchanged.
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    \152\ A Form 8-K with Form 10 information is filed pursuant to 
Items 2.01(f), 5.01(a)(8), and/or 9.01(c) of the form.
    \153\ Proposed Item 10(f)(2)(iv) and the proposed amendments to 
the definition of ``smaller reporting company'' in Securities Act 
Rule 405 and Exchange Act Rule 12b-2. The float determination would 
be required to precede the first Commission filing after the Form 8-
K with Form 10 information.
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    The proposed four-business day window to calculate the public float 
threshold following a de-SPAC transaction would end on the due date for 
the Form 8-K with Form 10 information that a post-business combination 
company is required to file after the completion of a de-SPAC 
transaction. The proposed four-business day period would provide some 
flexibility for issuers to measure public float, compared to the annual 
re-determination of smaller reporting company status,\154\ and would 
allow for a more accurate reflection of a post-business combination 
company's public float, in view of the limited trading history of the 
common equity securities of the post-business combination company 
following a de-SPAC transaction.
---------------------------------------------------------------------------

    \154\ In re-determining smaller reporting company status 
annually, a registrant is required to measure its public float as of 
the last business day of its most recently completed second fiscal 
quarter.
---------------------------------------------------------------------------

    We are proposing to require a post-business combination company to 
reflect this re-determination of smaller reporting company status in 
its first periodic report (Form 10-K or Form 10-Q) following a de-SPAC 
transaction, which would provide the post-business combination company 
with time to prepare for any loss of the scaled disclosure and other 
accommodations available to smaller reporting companies.\155\ As 
proposed, a post-business combination company that fails to qualify for 
smaller reporting company status after a de-SPAC transaction would 
remain unqualified until its next annual re-determination of this 
status.
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    \155\ For example, as proposed, a post-business combination 
company would be required to re-determine whether it qualifies as a 
smaller reporting company, using the initial qualification 
thresholds in the definition, prior to the time the company makes 
its first Commission filing (e.g., a Form 8-K, registration 
statement or periodic report) after the filing of a Form 8-K with 
Form 10 information, with its public float measured as of a date 
within four business days after the completion of the de-SPAC 
transaction. The company would not be required to reflect this re-
determination of smaller reporting company status in any Commission 
filing until it files its first periodic report (Form 10-K or Form 
10-Q) following the de-SPAC transaction. Thus, if a SPAC qualified 
as a smaller reporting company before a de-SPAC transaction and was 
the legal acquirer in the de-SPAC transaction, the post-business 
combination company would continue to be able to rely on the scaled 
disclosure accommodations for smaller reporting companies when 
filing a registration statement between the re-determination date 
and the post-business combination company's first periodic report.
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Request for Comment
    70. As proposed, the re-determination of smaller reporting company 
status must be based on public float measured as of a date within four 
business days after the consummation of the de-SPAC transaction and the 
annual revenues of the private operating company as of the most 
recently completed fiscal year for which audited financial statements 
are available. Should we require the re-determination of smaller 
reporting company status upon the completion of a de-SPAC transaction, 
as proposed? Should public float be determined within a different time 
frame (e.g., 30 days) or through a different method (e.g., as the 
average over a certain period)? Should the annual revenues of the 
private operating company be used in determining whether the revenue 
threshold has been met, as proposed?
    71. Should we require a post-business combination company following 
a de-SPAC transaction to reflect the re-determination of smaller 
reporting company status in its next periodic report, as proposed? 
Alternatively, should we require a post-business combination company to 
reflect the re-determination of smaller reporting company status at an 
earlier or later point in time after the completion of a de-SPAC 
transaction, such as in the first periodic report that covers the 
period in which the de-SPAC transaction occurred (e.g., when a de-SPAC 
transaction is completed after the end of a fiscal year but prior to 
the due date of the Form 10-K for that fiscal year)? Should we provide 
an accommodation if a de-SPAC transaction is completed close in time to 
the due date for the registrant's first periodic report?
    72. To the extent that a post-business combination company no 
longer qualifies for smaller reporting company status as a result of 
the proposed re-determination of this status following a de-SPAC 
transaction, would the proposed re-determination make it more difficult 
for such a company to file a registration statement after the filing of 
its first periodic report that complies with the disclosure 
requirements applicable to non-smaller reporting companies? If so, 
should we provide any accommodations for this scenario?
    73. Should we make any additional changes with respect to re-
determining smaller reporting company status after the completion of a 
de-SPAC transaction? For example, should we replace the public float 
test with a revenue test for this purpose? Should we provide any 
guidance with respect to how to apply this proposal?
    74. Should we similarly require a re-determination of emerging 
growth company status, accelerated filer status, large accelerated 
filer status and/or foreign private issuer status upon the completion 
of a de-SPAC transaction?

E. PSLRA Safe Harbor

    The PSLRA provides a safe harbor for forward-looking statements 
under the Securities Act and the Exchange Act, under which a company is 
protected from liability for forward-looking statements in any private 
right of action under the Securities Act or Exchange Act when, among 
other things, the forward-looking statement is identified as such and 
is accompanied by meaningful cautionary statements.\156\ The safe 
harbor is not available, however, when a forward-looking statement is 
made in connection with an offering by a blank check company or an 
initial public offering.\157\
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    \156\ Section 27A of the Securities Act and Section 21E of the 
Exchange Act. The PSLRA does not impact the Commission's ability to 
bring enforcement actions relating to forward-looking statements.
    \157\ Section 27A(b) of the Securities Act and Section 21E(b) of 
the Exchange Act. In addition, the safe harbor is not available for 
an offering by a penny stock issuer, a roll-up transaction, a going 
private transaction, an offering by a partnership or a limited 
liability company, a tender offer, or an offering by an issuer 
convicted of specified securities law violations or subject to 
certain injunctive or cease and desist actions.

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[[Page 29482]]

    For purposes of the safe harbor, the term ``blank check company'' 
and certain other terms \158\ ``have the meanings given those terms by 
rule or regulation of the Commission.'' \159\ The Commission has 
defined the term ``blank check company'' for purposes of and in Rule 
419 as a development stage company that is issuing ``penny stock,'' as 
defined in Exchange Act Rule 3a51-1, and that has no specific business 
plan or purpose, or has indicated that its business plan is to merge 
with or acquire an unidentified company or companies, or other entity 
or person.\160\ This definition, which has not been amended since it 
was adopted by the Commission in 1992, predates the enactment of the 
PSLRA in 1995. SPACs that raise more than $5 million in a firm 
commitment underwritten initial public offering are excluded from this 
definition of ``blank check company'' because they are not selling 
``penny stock.'' \161\
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    \158\ These other terms are ``rollup transaction,'' 
``partnership,'' ``limited liability company,'' ``executive officer 
of an entity,'' and ``direct participation investment program.''
    \159\ Section 27A(i)(7) of the Securities Act and Section 
21E(i)(5) of the Exchange Act.
    \160\ See supra notes 3 and 13. The statutory definition of 
``blank check company'' appears in Section 7(b)(3) of the Securities 
Act.
    \161\ See supra note 12.
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    Projections of the private operating company's performance are 
typically prepared and disclosed in connection with a de-SPAC 
transaction. Some market participants are of the view that the PSLRA 
safe harbor for forward-looking statements is available in de-SPAC 
transactions when a SPAC is not a blank check company under Rule 419 
and thus may not exercise the same level of care in preparing forward-
looking statements, such as projections, as in a traditional initial 
public offering.\162\ As noted above, a number of commentators have 
raised concerns about the use of projections that they believe to be 
unreasonable in de-SPAC transactions.\163\
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    \162\ See, e.g., Matt Levine, Money Stuff: Maybe SPACs Are 
Really IPOs, Bloomberg, Apr. 12, 2021; Eliot Brown, Electric-Vehicle 
Startups Promise Record-Setting Revenue Growth, The Wall Street 
Journal, Mar. 15, 2021; Public Statement on SPACs, IPOs and 
Liability Risk under the Securities Laws (Division of Corporation 
Finance, Apr. 8, 2021).
    \163\ See supra note 33.
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    To address concerns about the use of forward-looking statements, 
such as projections, in connection with de-SPAC transactions, and 
pursuant to the statutory authority under the PSLRA to define ``blank 
check company'' by Commission rule or regulation, we are proposing to 
amend the definition of ``blank check company'' for purposes of the 
PSLRA to remove the ``penny stock'' condition and to define the term as 
``a company that has no specific business plan or purpose or has 
indicated that its business plan is to engage in a merger or 
acquisition with an unidentified company or companies, or other entity 
or person.'' \164\ As discussed above, private companies are 
increasingly using de-SPAC transactions as a mechanism to become public 
companies. For purposes of the PSLRA, we see no reason to treat 
forward-looking statements made in connection with de-SPAC transactions 
differently than forward-looking statements made in traditional initial 
public offerings, in that both instances involve private issuers 
entering the public U.S. securities markets for the first time and 
similar informational asymmetries that exist between these issuers (and 
their insiders and early investors) and public investors. Moreover, we 
see no reason to treat blank check companies differently for purposes 
of the PSLRA safe harbor depending on whether they raise more than $5 
million in a firm commitment underwritten initial public offering and 
thus are not selling penny stock.
---------------------------------------------------------------------------

    \164\ We are also proposing to amend the definition to remove 
the reference to ``development stage company'' because the reference 
would be unnecessary for purposes of the proposed definition.
---------------------------------------------------------------------------

    Amending the definition of ``blank check company'' in this manner 
would clarify that the statutory safe harbor in the PSLRA is not 
available for forward-looking statements, such as projections, made in 
connection with de-SPAC transactions involving an offering of 
securities by a SPAC or other issuer that meets the definition of 
``blank check company'' as amended, such that forward-looking 
statements by SPACs, such as statements regarding the projections of 
target private operating companies in these transactions, would not 
fall under the safe harbor.\165\ The proposed amendment would also 
eliminate the current overlap in the safe harbor in regard to the 
exclusion for offerings by blank check companies and the exclusion for 
penny stock issuers.\166\ To avoid multiple definitions for the term 
``blank check company,'' we are proposing to amend Rule 419 in a manner 
that would otherwise retain the current scope of the rule. We are also 
proposing to amend the references to ``blank check company'' in various 
Securities Act rules to ``blank check company issuing penny stock,'' as 
such term would be defined in Securities Act Rule 405, to maintain the 
current scope of these rules.\167\
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    \165\ Forward-looking statements made by target private 
operating companies do not fall under the safe harbor, because the 
safe harbor is not available to companies that are not subject to 
the reporting requirements of Section 13(a) or 15(d) of the Exchange 
Act at the time that the statement is made. Further, the safe harbor 
would not be available to the subset of shell companies that meet 
the amended definition of ``blank check company'' (i.e., that has no 
specific business plan or purpose or has indicated that its business 
plan is to engage in a merger or acquisition with an unidentified 
company or companies, or other entity or person).
    \166\ The exclusion in the safe harbor for offerings by ``blank 
check companies'' is subsumed by the exclusion for penny stock 
issuers, in that the term ``blank check company,'' as currently 
defined in Rule 419, is ``a development stage company that . . . is 
issuing `penny stock.' ''
    \167\ See proposed amendments to Rules 137, 138, 139, 163A, 164, 
174, 430B, and 437a. As proposed, the term ``blank check company 
issuing penny stock'' would be defined as a company that is subject 
to Rule 419. Due to current Federal Register formatting 
requirements, we are also proposing technical changes to Rule 163A 
and Rule 164 to move the Preliminary Note(s) in these rules to 
introductory paragraphs of the respective rules.
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Request for Comment
    75. Should we define ``blank check company'' in Rule 405, as 
proposed? Should we include a reference in the definition to 
``development stage company'' or the issuance of ``penny stock''? 
Should we consider other changes to the proposed definition?
    76. Would the proposed amendments improve the quality of 
projections in connection with de-SPAC transactions by clarifying that 
the safe harbor under the PSLRA is unavailable? Would the proposed 
amendment discourage some SPACs from disclosing projections in 
connection with these transactions or affect the ability of SPACs or 
target companies to comply with their obligations under the laws of 
their jurisdiction of incorporation or organization to disclose 
projections used by the board of directors or the companies' fairness 
opinion advisers?
    77. As an alternative approach, should we issue an interpretation 
addressing whether a de-SPAC transaction is an ``initial public 
offering'' for purposes of the PSLRA?
    78. Would including the proposed Rule 405 definition of ``blank 
check company'' in Rule 419 create confusion for registrants and 
investors? Should we consider retaining a separate definition of 
``blank check company'' for purposes of Rule 419? If so, why?
    79. Should we amend the references to ``blank check company'' in 
Securities Act Rules 137, 138, 139, 163A, 164, 174, 430B and 437a to 
refer to ``blank check company issuing penny stock,'' as proposed?

[[Page 29483]]

    80. Should we amend Rule 419 so that some or all of its conditions 
are applicable to SPACs that raise more than $5 million in a firm 
commitment underwritten initial public offering? If so, which 
conditions? What would be the advantages and drawbacks of such an 
approach? Should we amend the definition of ``penny stock'' to bring 
more SPACs within the scope of Rule 419?
    81. Are there other rule amendments we should consider in 
connection with the PSLRA?

F. Underwriter Status and Liability in Securities Transactions

    Underwriters form an essential link in the distribution of 
securities from an issuer to investors. The term ``underwriter'' is 
broadly defined in Section 2(a)(11) of the Securities Act to mean ``any 
person who has purchased from an issuer with a view to, or offers or 
sells for an issuer in connection with, the distribution of any 
security, or participates or has a direct or indirect participation in 
any such undertaking, or participates or has a participation in the 
direct or indirect underwriting of any such undertaking.'' \168\ The 
determination of whether a particular person is an ``underwriter'' does 
not depend on the person's business but rather on that person's 
relationship to a particular securities offering. Any person whose 
activities with respect to any given offering fall within one of the 
prongs of the Section 2(a)(11) definition is deemed to meet the 
statutory definition of underwriter--commonly known as a ``statutory 
underwriter.'' \169\ Congress enacted a broad definition of 
``underwriter'' in order to ``include as underwriters all persons who 
might operate as conduits for securities being placed into the hands of 
the investing public.'' \170\ Correspondingly, the Commission's 
longstanding view is that, depending on facts and circumstances, any 
person, including an individual investor who is not a professional in 
the securities business, can be an ``underwriter'' within the meaning 
of the Securities Act if that person acts as a link in a chain of 
transactions through which securities are distributed from an issuer or 
its control persons to the public.\171\
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    \168\ 15 U.S.C. 77b(a)(11). Section 2(a)(11) states that the 
term ``issuer'' shall include, in addition to an issuer, any person 
directly or indirectly controlling or controlled by the issuer, or 
any person under direct or indirect common control with the issuer. 
Therefore, any person who purchased securities from an affiliate of 
an issuer is an underwriter under Section 2(a)(11) if that person 
purchased with a view to the distribution of the securities.
    \169\ See 2 Louis Loss (late), Joel Seligman, and Troy Paredes, 
Securities Regulation 3.A.3 (6th ed. 2019) (``The term underwriter 
is defined not with reference to the particular person's general 
business but on the basis of his or her relationship to the 
particular offering. . . . Any person who performs one of the 
specified functions in relation to the offering is a statutory 
underwriter even though he or she is not a broker or dealer.'').
    \170\ Thomas Lee Hazen, The Law of Securities Regulation, 
section 4:98.
    \171\ 17 CFR 230.144, Preliminary Note; Notice of Adoption of 
Rule 144 Relating to the Definition of the Terms ``Underwriter'' in 
Sections 4(1) and 2(11) and ``Brokers Transactions'' in Section 4(4) 
of the Securities Act of 1933, Adoption of Form 144, and Rescission 
of Rules 154 and 155 Under That Act, Release No. 33-5223 (Jan. 11, 
1972) [37 FR 591 (Jan. 13, 1972)].
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    As intermediaries between an issuer and the investing public, 
underwriters play a critical role as ``gatekeepers'' to the public 
markets.\172\ Historically, in initial public offerings, where the 
investing public might be unfamiliar with a particular issuer, 
financial firms that act as underwriters would lend their well-known 
name to support that issuer's offering. Where public investors may not 
have been inclined to invest with the company seeking to conduct a 
public offering, they could take comfort in the fact that a large, 
well-known financial institution, acting as underwriter, was including 
its name on the first page of the issuer's prospectus.\173\ In 
exchange, in a firm commitment underwritten offering, the underwriters 
earn the ``gross spread'' between the price stated on the cover of the 
prospectus (the price at which the underwriters will sell the issuer's 
shares to the public for the first time) and the price at which the 
underwriters are able to negotiate with the issuer for the initial 
purchase of the issuer's shares.\174\
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    \172\ See, e.g., Ronald J. Gilson & Reinier Kraakman, The 
Mechanisms of Market Efficiency, 70 Va. L. Rev. 549, 620 (1984); 
Coffee, supra note 34, at 302 n. 1, 308 nn.13-14; John C. Coffee, 
Jr., Brave New World?: The Impact(s) of the internet on Modern 
Securities Regulation, 52 Bus. Law. 1195, 1210-13, 1232-33 (1999) 
(each discussing the role of underwriters as ``gatekeepers'' or 
``reputational intermediaries''). See also Securities Act Concepts 
and Their Effects of Capital Formation, Release No. 33-7314 (July 
25, 1996) [61 FR 40044 (July 31, 1996)] (discussing the role of 
gatekeepers in maintaining the quality of disclosure); Michael P. 
Dooley, The Effects of Civil Liability on Investment Banking and the 
New Issues Market, 58 Va. L. Rev. 776 (1972) (``The most important 
function performed during origination is the selection of candidates 
for public investment. The decision to underwrite a particular issue 
is normally made only after careful investigation of the issuer and 
evaluation of its prospects. Not all corporations are able to win 
sponsorship of proposed flotations, and prestigious underwriters 
reject many more candidates than they accept. After initially 
deciding to sponsor a flotation, the managing underwriter must 
conduct another, more intensive investigation into the issuer's 
affairs in order to satisfy the duty to conduct a `reasonable 
investigation' imposed on underwriters by section 11 of the 1933 Act 
. . . [t]he screening and investigative processes employed in 
origination should weed out those prospective issuers least likely 
to make productive use of publicly invested funds and should 
identify elements of risk in those issues which are selected and 
presented to the public. The successful performance of these 
functions is important to the protection of investors and to the 
optimum allocation of economic resources.'').
    \173\ See, e.g., Harold S. Bloomenthal & Samuel Wolff, Due 
diligence defenses--Underwriter's responsibilities and liabilities, 
3B Sec. & Fed. Corp. Law Sec.  12:42 (2d ed.) (``The managing or 
initiating underwriter plays a critical role in determining access 
to capital markets. The decision of a particular investment banking 
firm to put together an underwriting syndicate in order to float an 
issue of securities or to refrain from doing so for a particular 
issuer obviously has significance beyond investors since it 
determines to a degree the shape of our economy. However, it has 
specific and immediate significance to members of the investing 
public in that in large part reliance is being placed on such 
underwriters to screen the multitude of issuers seeking access to 
the capital markets.'').
    \174\ SPACs initially engage in firm commitment underwritten 
offerings in order to first sell their securities to the public. See 
supra Section I. However, as we further discuss below, the 
compensation structure for SPAC initial public offerings is 
generally different than that in traditional firm commitment 
offerings because a significant portion of the compensation is 
deferred.
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    An underwriter's participation in an issuer's offering also exposes 
the underwriter to potential liability under the Securities Act. The 
civil liability provisions of the Securities Act reflect the unique 
position underwriters occupy in the chain of distribution of securities 
and provide strong incentives for underwriters to take steps to help 
ensure the accuracy of disclosure in a registration statement. Section 
11 of the Securities Act imposes on underwriters, among other parties 
identified in Section 11(a), civil liability for any part of the 
registration statement, at effectiveness, which contained an untrue 
statement of a material fact or omitted to state a material fact 
required to be stated therein or necessary to make the statements 
therein not misleading, to any person acquiring such security.\175\ 
Similarly, Section 12(a)(2) imposes liability upon anyone, including 
underwriters, who offers or sells a security, by means of a prospectus 
or oral communication, which includes an untrue statement of a material 
fact or omits to state a material fact necessary in order to make the 
statements, in the light of the circumstances under which they were 
made, not misleading, to any person purchasing such security from 
them.\176\ These provisions provide significant investor protections to 
those who acquire securities sold pursuant to a registration statement 
by providing tools to hold companies, underwriters, and other parties 
accountable for misstatements and omissions in connection with public 
offerings of

[[Page 29484]]

securities.\177\ As a result, anyone who might be named as a potential 
defendant in these suits has strong incentives to take the necessary 
steps to avoid such liability.
---------------------------------------------------------------------------

    \175\ 15 U.S.C. 77k.
    \176\ 15 U.S.C. 77l(a)(2).
    \177\ See William O. Douglas & George E. Bates, The Federal 
Securities Act of 1933, 43 Yale L.J. 171 (1933) (``The civil 
liabilities imposed by the Act are not only compensatory in nature 
but also in terrorem. They have been set high to guarantee that the 
risk of their invocation will be effective in assuring that the 
`truth about securities' will be told.'').
---------------------------------------------------------------------------

    One defense available to an underwriter in a distribution is the 
``due diligence'' defense, which shields an underwriter from liability 
if it can establish that, after reasonable investigation, the 
underwriter had reasonable ground to believe and did believe, at the 
time the registration statement became effective, that the statements 
therein were true and that there was no omission to state a material 
fact required to be stated therein or necessary to make the statements 
therein not misleading.\178\ To establish its ``due diligence'' 
defense, an underwriter must establish that it exercised reasonable 
care in verifying the statements in the registration statement. 
Underwriters in a traditional initial public offering are therefore 
motivated to take the investigative steps necessary to establish the 
``due diligence'' defense.\179\ The statutory provision of a due 
diligence defense appears to reflect an intent to improve the standards 
of conduct to which persons associated with the distribution of 
securities are to be held by imposing upon them standards of ``honesty, 
care, and competence.'' \180\ It was believed that the imposition of 
civil liability under the Securities Act upon participants in a 
distribution would cause them to exercise the care necessary to assure 
the accuracy of the statements in the registration statement.\181\
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    \178\ See Section 11(b)(3) of the Securities Act. [15 U.S.C. 
77k(b)(3).].
    \179\ Similarly, Section 12(a)(2) of the Securities Act provides 
a defense for defendants who, in the exercise of ``reasonable 
care,'' could not have known of the alleged misstatement or omission 
(15 U.S.C. 77l(a)(2)). Courts generally have construed these two 
defenses similarly. See, e.g., In re WorldCom Inc. Sec. Litig., 346 
F. Supp. 2d 628, 663-64 (S.D.N.Y. 2004).
    \180\ H.R. No. 85, 73d Cong., 1st Sess. (1933) (From the 
Introductory Statement to the Report submitted by Mr. Rayburn, 
Committee on Interstate and Foreign Commerce: ``Honesty, care, and 
competence are the demands of trusteeship. These demands are made by 
the bill on the directors of the issues, its experts, and the 
underwriters who sponsor the issue. If it be said that the 
imposition of such responsibilities upon these persons will be to 
alter corporate organization and corporate practice in this country, 
such a result is only what your committee expects.'').
    \181\ Id. (``The duty of care to discover varies in its demands 
upon participants in security distribution with the importance of 
their place in the scheme of distribution and with the degree of 
protection that the public has a right to expect.''). See also New 
High Risk Ventures, Release No. 33-5275 (July 27, 1972) [37 FR 16011 
(Aug. 9, 1972)] (discussing the Commission's views that Section 11 
was designed by Congress to incentivize persons associated with the 
distribution of securities to ``exercise the `honesty, care and 
competence' necessary to assure the accuracy of the [s]tatements in 
the registration statement'').
---------------------------------------------------------------------------

    Consistent with this intent, the Commission has stated that the due 
diligence efforts performed by underwriters are central to the 
integrity of our disclosure system.\182\ The investing public relies on 
underwriters to ``screen the multitude of issuers seeking access to the 
capital markets'' and expects them to verify the accuracy of the 
information in the registration statement.\183\ Moreover, although the 
Securities Act does not expressly require an underwriter to conduct a 
due diligence investigation, the Commission has long expressed the view 
that underwriters nonetheless have an affirmative obligation to conduct 
reasonable due diligence.\184\ The Commission has stated that ``an 
underwriter [in a securities offering] impliedly represents that he has 
made such an investigation [of the accuracy of the information in the 
registration statement] in accordance with professional standards'' and 
``[i]nvestors properly rely on this added protection which has a direct 
bearing on their appraisal of the reliability of the representations in 
the prospectus.'' \185\
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    \182\ See, e.g., Circumstances Affecting the Determination of 
What Constitutes Reasonable Investigation & Reasonable Grounds for 
Belief Under Section 11 of the Sec. Act Treatment of Info. Inc. by 
Reference into Registration Statements, Release No. 33-6335 (Aug. 6, 
1981) [46 FR 42015 (Aug. 18, 1981)] (``In sum, the Commission 
strongly affirms the need for due diligence and its attendant 
vigilance and verification.'').
    \183\ See Bloomenthal, supra note 173. See also Release No. 33-
5275, supra note 181.
    \184\ See, e.g., In re Charles E. Bailey & Co., 35 S.E.C. 33, at 
41 (Mar. 25, 1953) (``[An underwriter] owe[s] a duty to the 
investing public to exercise a degree of care reasonable under the 
circumstances of th[e] offering to assure the substantial accuracy 
of representations made in the prospectus and other sales 
literature.''); In re Brown, Barton & Engel, 41 SEC 59, at 64 (June 
8, 1962) (``[I]n undertaking a distribution . . . [the underwriter] 
had a responsibility to make a reasonable investigation to assure 
[itself] that there was a basis for the representations they made 
and that a fair picture, including adverse as well as favorable 
factors, was presented to investors.''); In the Matter of the 
Richmond Corp., infra note 185 (``It is a well established practice, 
and a standard of the business, for underwriters to exercise 
diligence and care in examining into an issuer's business and the 
accuracy and adequacy of the information contained in the 
registration statement. . . . The underwriter who does not make a 
reasonable investigation is derelict in his responsibilities to deal 
fairly with the investing public.'').
    \185\ In the Matter of the Richmond Corp., Release No. 33-4584 
(Feb. 27, 1963). See also In re WorldCom, Inc. Sec. Litig., 346 F. 
Supp. 2d 628, 684 (S.D.N.Y. 2004) (``Underwriters . . . have special 
access to information about an issuer at a critical time in the 
issuer's corporate life, at a time it is seeking to raise capital. 
The public relies on the underwriter to obtain and verify relevant 
information and then make sure that essential facts are 
disclosed.''); Sanders v. John Nuveen & Co., Inc., 524 F.2d 1064, 
1069-70 (7th Cir. 1975) (``An underwriter's relationship with the 
issuer gives the underwriter access to facts that are not equally 
available to members of the public who must rely on published 
information. And the relationship between the underwriter and its 
customers implicitly involves a favorable recommendation of the 
issued security. Because the public relies on the integrity, 
independence and expertise of the underwriter, the underwriter's 
participation significantly enhances the marketability of the 
security. And since the underwriter is unquestionably aware of the 
public's reliance on his participation in the sale of the issue, the 
mere fact that he has underwritten it is an implied representation 
that he has met the standards of his profession in his investigation 
of the issuer.''); Chris-Craft Industries, Inc. v. Piper Aircraft 
Corp., 480 F.2d 341, 370 (2d Cir. 1973) (``No greater reliance in 
our self-regulatory system is placed on any single participant in 
the issuance of securities than upon the underwriter. He is most 
heavily relied upon to verify published materials because of his 
expertise in appraising the securities issue and the issuer, and 
because of his incentive to do so. He is familiar with the process 
of investigating the business condition of a company and possesses 
extensive resources for doing so. . . . Prospective investors look 
to the underwriter . . . to pass on the soundness of the security 
and the correctness of the registration statement and 
prospectus.''); Escott v. BarChris Const. Corp., 283 F. Supp. 643, 
697 (S.D.N.Y. 1968) (``The purpose of Section 11 is to protect 
investors. To that end the underwriters are made responsible for the 
truth of the prospectus.'').
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1. Participants in a Distribution as ``Underwriters''
    Common interpretations of the underwriter definition in Section 
2(a)(11) traditionally have focused on the words ``with a view to'' in 
the phrase ``purchased from an issuer with a view to . . . 
distribution.'' Thus, an investment banking firm that arranges with an 
issuer for the public sale of its securities is clearly an 
``underwriter.'' However, as noted above, the statutory definition of 
underwriter is much broader. Both federal courts and the Commission 
previously have found that other parties involved in securities 
offerings can be deemed ``statutory underwriters'' under the 
underwriter definition, such as by selling ``for an issuer;'' \186\ 
and/or directly or indirectly

[[Page 29485]]

``participating'' in a distribution by engaging in activities 
``necessary to the distribution'' \187\ or in ``distribution-related 
activities.'' \188\ Such parties can attain underwriter status even if 
they do not receive compensation for their services,\189\ do not sell 
securities directly to the public,\190\ and do not have privity of 
contract with the issuer.\191\ Similarly, courts have interpreted the 
underwriter definition broadly to include promoters, officers, and 
control persons who have arranged for public trading of an unregistered 
security or have stimulated investor interest in such security through 
advertisements, research reports, or other promotional efforts.\192\ 
Moreover, the Commission has stated that ``there is nothing in Section 
2[(a)](11) which places a time limit on a person's status as an 
underwriter'' because the ``public has the same need for protection 
afforded by registration whether the securities are distributed shortly 
after their purchase or after a considerable length of time.'' \193\
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    \186\ See SEC v. Chinese Consolidated Benevolent Association, 
120 F.2d 738 (2d Cir. 1941) (charitable association deemed a 
statutory underwriter in promoting the sale of war bonds, collecting 
funds and distributing the securities to its members notwithstanding 
the charitable association's lack of a relationship with the issuer 
of the bonds); SEC v. Kern, 425 F.3d 143 (2d Cir. 2005). See also 
Release No. 33-5223, supra note 171 (stating that any persons may be 
underwriters within the meaning of Section 2(a)(11) ``if they act as 
links in a chain of transactions through which securities move from 
an issuer to the public . . . . the Commission hereby emphasizes and 
draws attention to the fact that the statutory language of Section 
2[(a)](11) is in the disjunctive. Thus, it is insufficient to 
conclude that a person is not an underwriter solely because he did 
not purchase securities from an issuer with a view to their 
distribution. It must also be established that the person is not 
offering or selling for an issuer in connection with the 
distribution of the securities and that the person does not 
participate or have a participation in any such undertaking, and 
does not participate or have a participation in the underwriting of 
any such undertaking.'').
    \187\ See, e.g., Harden v. Raffensperger, Hughes & Co., 65 F.3d 
1392 (7th Cir. 1995) (third party retained as a ``qualified 
independent underwriter'' to perform due diligence and recommend a 
minimum yield for a bond offering deemed a statutory underwriter). 
The defendant argued that it was not an underwriter because it had 
neither purchased nor sold any of the distributed securities. The 
court held that the defendant's activities fell within the 
``participates'' and ``has a participation'' language of Section 
2(a)(11), reasoning that Section 2(a)(11) is broad enough to 
encompass all persons who engage in the steps necessary to the 
distribution of securities.
    \188\ See, e.g., Geiger v. SEC, 363 F.3d 481, 487 (D.C. Cir. 
2004) (defendant ``participated'' in a distribution as a statutory 
underwriter through its actions in finding a buyer, negotiating the 
terms of the transaction, and facilitating the resale of 
securities).
    \189\ See, e.g., Chinese Consolidated Benevolent Association, 
supra note 186, at 740 (``The solicitation of offers to buy the 
unregistered bonds, either with or without compensation, brought 
defendant's activities literally within the prohibition of the 
statute.''); see also J. William Hicks, 7A Exempted Trans. Under 
Securities Act 1933 Sec.  9:39 (citing the Brief for the Securities 
and Exchange Commission in Chinese Consolidated Benevolent 
Association: ``The legislative history of Section 2[(a)](11) makes 
it apparent that Congress did not intend to require the elements of 
compensation or a contract with the issuer in order to make a 
distributor of securities an underwriter. In an earlier draft of the 
Securities Act, which was considered by the House Committee on 
Interstate and Foreign Commerce, the definition of underwriter . . . 
would have made the underwriting relationship depend upon the 
receipt of compensation. In abandoning that definition and adopting 
the definition which is included in the bill as enacted, Congress 
showed a clear intention of extending the term to include all 
persons who sell for an issuer, whether or not they do so for 
profit.'').
    \190\ See, e.g., Raffensperger, supra note 187.
    \191\ See, e.g., Chinese Consolidated Benevolent Association, 
supra note 186, at 740 (Hand, J. explaining, ``Whether the Chinese 
government as issuer authorized the solicitation, or merely availed 
itself of gratuitous and even unknown acts on the part of the 
defendant whereby written offers to buy, and the funds collected for 
payment, were transmitted to the Chinese banks does not affect the 
meaning of the statutory provisions which are quite explicit. In 
either case, the solicitation was equally for the benefit of the 
Chinese government and broadly speaking was for the issuer in 
connection with the distribution of the bonds.'').
    \192\ See, e.g., SEC v. Allison, No. C-81-19 RPA, 1982 WL 1322 
(N.D. Cal. 1982).
    \193\ Release No. 33-5223, supra note 171, at 4. See also 
Gilligan, Will & Co. v. SEC, 267 F.2d 461 (2d Cir. 1959) (holding 
that a distribution exists if there are sales to those who cannot 
``fend for themselves'' and citing Ralston Purina Co., 346 U.S. 119 
(1953)).
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2. The De-SPAC Transaction as a ``Distribution'' of the Combined 
Company's Securities
    Underwriter status depends upon a person's activities occurring 
``in connection with'' a ``distribution'' of any security. The 
Commission has explained that underwriter status under the 
``participation'' prong of the underwriter definition depends on the 
putative underwriter ``enjoying substantial relationships with the 
issuer or underwriter, or engaging in the performance of any 
substantial functions in the organization or management of the 
distribution.'' \194\ The Securities Act does not define the term 
``distribution;'' however, the federal courts and the Commission have 
interpreted the term as synonymous with a ``public offering'' within 
the meaning of Section 4(a)(2) of the Act.\195\ Moreover, a 
distribution has been said to comprise ``the entire process by which in 
the course of a public offer [a] block of securities is dispersed and 
ultimately comes to rest in the hands of the investing public.'' \196\
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    \194\ See Opinion of General Counsel relating to Rule 142, 
Release No. 33-1862 (Dec. 14, 1938).
    \195\ See J. William Hicks, 7A Exempted Trans. Under Securities 
Act 1933 Sec.  9:18. Courts have equated the term ``distribution'' 
with a public offering of securities. See, e.g., Berckeley Inv. 
Group, Ltd. v. Colkitt, 455 F.3d 195, 215 (3d Cir. 2006) (``We agree 
with the rationale of those courts and similarly hold that the term 
``distribution'' in Sec.  2(a)(11) is synonymous with `public 
offering.'''); see also Gilligan, Will & Co., supra note 193, at 466 
(``a `distribution' requires a `public offering''' (citation 
omitted)).
    \196\ J. William Hicks, 7A Exempted Trans. Under Securities Act 
1933 Sec.  9:18 (citing Geiger v. SEC, 363 F.3d 481, 484, 487 (D.C. 
Cir. 2004), where the court agreed with the SEC that the 
petitioners, Charles F. Kirby and Gene Geiger (head trader and 
salesman, respectively, at a securities brokerage firm), who made 
resales in broker transactions over a two-week period of 133,333 
shares of the roughly 25 million shares then outstanding, were 
engaged in a distribution within the meaning of Section 2(a)(11) of 
the Securities Act and that one ``did not have to be involved in the 
final step of [a] distribution to have participated in it''). See 
also R.A Holman v. SEC, 366 F.2d 446, 449 (2d Cir. 1966) (finding 
that an ongoing distribution and related manipulation had occurred 
where a broker-dealer sold securities on a ``delayed delivery'' 
basis and there was a real possibility at the time of purchase that 
the purchaser would cancel the order and quoting Lewisohn Copper 
Corp., 38 SEC. 226, 234 (1958)); accord In the Matter of Oklahoma-
Texas Tr., 2 SEC. 764, 769, 1937 WL 32951 (Sept. 23, 1937), aff'd, 
100 F.2d 888 (10th Cir. 1939) (finding an ongoing distribution where 
portions of a registered offering continued to be held by securities 
dealers).
---------------------------------------------------------------------------

    The purpose of a SPAC initial public offering is to raise a pool of 
cash in order to subsequently merge with a private operating company in 
a de-SPAC transaction that will convert the private operating company 
into a public company. Although the timing of a SPAC initial public 
offering and a de-SPAC transaction is bifurcated because a private 
operating company is not identified at the SPAC initial public offering 
stage, the result of a de-SPAC transaction, however structured, is 
consistent with that of a traditional initial public offering. The 
substance of a de-SPAC transaction is, in many ways, analogous to the 
distribution that occurs in a traditional IPO--i.e., a SPAC's assets 
consist primarily of highly liquid assets, such as cash and government 
securities, and the combined company effectively distributes its 
securities to public holders of SPAC shares in exchange for the 
contribution of the SPAC's assets to the combined company. The de-SPAC 
transaction marks the introduction of the private operating company to 
the public capital markets \197\ and is effectively how the private 
operating company's securities ``come to rest''--in other words, are 
distributed--to public investors as shareholders of the combined 
company.\198\ Accordingly, as in a

[[Page 29486]]

traditional underwritten initial public offering, public investors--who 
were unfamiliar with the formerly private company--would benefit from 
the additional care and diligence exercised by SPAC underwriters in 
connection with the de-SPAC transaction.\199\
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    \197\ Such a transaction may take a variety of forms and involve 
a multitude of issuers. However, the rule we are proposing would 
apply to all de-SPAC transactions involving a registered offer of 
securities.
    \198\ A court has addressed in dicta whether a somewhat 
analogous situation involving the introduction of private companies 
to the public markets through an existing shareholder base was a 
distribution. See SEC v. Datronics Engineers, Inc., 490 F.2d 250, 
254 (4th Cir. 1973), cert denied, 416 U.S. 937 (1974) wherein 
Datronics, a public corporation, acquired a number of privately-
held, target companies in merger transactions. A subsidiary of the 
defendant would merge with the target company, with the subsidiary 
surviving the merger. Both the shareholder-principals of the target 
and Datronics received stock in the surviving subsidiary. After the 
merger, Datronics distributed some of its shares to its shareholders 
as a dividend. In this way, formerly privately-held companies became 
publicly owned without going through a registered public offering. 
The court stated in dicta, ``we think that Datronics was an 
underwriter within the meaning of the 1933 Act. Hence its 
transactions were covered by the prohibitions, and were not within 
the exemptions, of the Act. Sec. Sec.  3(a)(1) and 4(1) of the 1933 
Act, 15 U.S.C. 77c, 77d. By definition, the term underwriter `means 
any person who has purchased from an issuer with a view to, or 
offers or sells for an issuer in connection with, the distribution 
of any security, or participates or has a direct or indirect 
participation in any such undertaking. . . .' Sec.  2(11) of the 
1933 Act, 15 U.S.C. 77b(11). . . . By this underwriter distribution 
Datronics violated [Section] 5 of the 1933 Act--sale of unregistered 
securities.''
    \199\ See Gilligan, Will & Co., supra note 193.
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3. Proposed Rule: SPAC IPO Underwriters Are Underwriters in Registered 
De-SPAC Transactions
    Proposed Rule 140a would clarify that a person who has acted as an 
underwriter in a SPAC initial public offering (``SPAC IPO 
underwriter'') and participates in the distribution by taking steps to 
facilitate the de-SPAC transaction, or any related financing 
transaction,\200\ or otherwise participates (directly or indirectly) in 
the de-SPAC transaction will be deemed to be engaged in the 
distribution of the securities of the surviving public entity in a de-
SPAC transaction within the meaning of Section 2(a)(11) of the 
Securities Act. Clarifying the underwriter status of SPAC IPO 
underwriters in connection with de-SPAC transactions should motivate 
them to exercise the care necessary to help ensure the accuracy of the 
disclosures in these transactions by affirming that they are subject to 
Section 11 liability for registered de-SPAC transactions.\201\ In this 
way, proposed Rule 140a underscores and reinforces that the liability 
protections in de-SPAC transactions involving registered offerings have 
the same effect as those in underwritten initial public offerings.
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    \200\ Most SPAC deals contain an available cash condition that 
represents a minimum amount of proceeds below which the target will 
not be obligated to consummate the transaction. The cash condition 
represents a number the sponsor group believes it can reasonably 
achieve given their banking syndicate, network, access to capital, 
and the target company itself. Since cash in trust is subject to 
redemption, one mechanism to ensure the cash condition will be 
satisfied is to secure commitments for a PIPE investment. See SPAC 
Research Weekly Newsletter (Oct. 19, 2020), available at https://www.spacresearch.com/newsletter?date=2020-10-19. In addition the 
staff has observed that for the vast majority of PIPEs associated 
with de-SPAC transactions, the closing of the PIPE financing is 
cross-conditioned on the closing of the de-SPAC transaction.
    \201\ Under Section 11, ``any person acquiring such security'' 
has a right of recovery. The Commission's longstanding view for 
traditional firm commitment registered offerings is that standing to 
sue under this provision extends to all purchasers of securities, 
whether the purchase occurred in the offering or subsequently in the 
secondary market. See Brief of the SEC in DeMaria v. Andersen, 318 
F.3d 170 (2d Cir. 2003).
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    As described above, the purpose of a SPAC's initial public offering 
is to facilitate a subsequent de-SPAC transaction, and for target 
companies merging with a SPAC, the de-SPAC transaction is the means 
chosen, out of the several avenues available under the securities laws, 
for a private operating company to go public. It is the method by which 
the target company's securities, as securities of the combined company, 
are distributed into the hands of public investors. Although SPAC IPO 
underwriters typically are not retained to act as firm commitment 
underwriters in the de-SPAC transaction, they nevertheless typically 
participate in activities that are necessary to that distribution.\202\ 
For instance, it is common for a SPAC IPO underwriter (or its 
affiliates) to participate in the de-SPAC transaction as a financial 
advisor to the SPAC, and engage in activities necessary to the 
completion of the de-SPAC distribution such as assisting in identifying 
potential target companies, negotiating merger terms, or finding 
investors for and negotiating PIPE investments. Furthermore, receipt of 
compensation in connection with the de-SPAC transaction could 
constitute direct or indirect participation in the de-SPAC transaction. 
While SPAC IPO underwriting fees--those fees the SPAC IPO underwriters 
earn for their efforts in connection with the initial offering of SPAC 
shares to the public--generally range between 5% and 5.5% of IPO 
proceeds, a significant portion (typically 3.5% of IPO proceeds) is 
deferred until, and conditioned upon, the completion of the de-SPAC 
transaction.\203\ A SPAC IPO underwriter therefore typically has a 
strong financial interest in taking steps to ensure the consummation of 
the de-SPAC transaction.\204\ For these reasons, proposed Rule 140a 
would clarify that the SPAC IPO underwriter is an underwriter with 
respect to the distribution that occurs in the de-SPAC transaction, 
when it takes steps to facilitate the de-SPAC transaction, or any 
related financing transaction, or otherwise participates (directly or 
indirectly) in the de-SPAC transaction.
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    \202\ See generally Chinese Consolidated Benevolent Association, 
supra note 186 and accompanying text.
    \203\ See Klausner, Ohlrogge, and Ruan, supra note 17. It is not 
necessary, however, for a SPAC IPO underwriter to derive a pecuniary 
benefit from the distribution in order for Section 2(a)(11) to 
apply. See Brief for the SEC at 19, Chinese Consolidated Benevolent 
Association, supra note 186 (``The legislative history of Section 
2[(a)](11) makes it apparent that Congress did not intend to require 
the elements of compensation or a contract with the issuer in order 
to make a distributor of securities an underwriter.'')
    \204\ See Robert J. Haft, Peter M. Fass, Michele Haft Hudson, 
and Arthur F. Haft, Tax-Advantaged Securities, Overview of SPACs 
Sec.  6:134.60.
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    We note that proposed Rule 140a addresses the underwriter status of 
only the SPAC IPO underwriter in the context of a de-SPAC transaction. 
In addition, we have discussed above some of the activities that are 
sufficient to establish that the SPAC IPO underwriter is participating 
in the distribution of target company securities. This discussion, 
however, is not intended to provide an exhaustive assessment of 
underwriter status in the SPAC context, and neither is it intended to 
limit the definition of underwriter for purposes of Section 2(a)(11) of 
the Securities Act. Federal courts and the Commission may find that 
other parties involved in securities distributions, including other 
parties that perform activities necessary to the successful completion 
of de-SPAC transactions, are ``statutory underwriters'' within the 
definition of underwriter in Section 2(a)(11). For example, financial 
advisors, PIPE investors, or other advisors, depending on the 
circumstances, may be deemed statutory underwriters in connection with 
a de-SPAC transaction if they are purchasing from an issuer ``with a 
view to'' distribution, are selling ``for an issuer,'' and/or are 
``participating'' in a distribution.
Request for Comment
    82. Should we adopt a definition of distribution in Rule 140a, as 
proposed?
    83. Does the current regulatory regime provide sufficient 
incentives for participants in a de-SPAC transaction to conduct 
appropriate due diligence on the target private operating company and 
the disclosures provided to public investors in connection with the de-
SPAC transaction? Would proposed Rule 140a likely result in improved 
diligence of private company targets in de-SPAC transactions and 
related disclosure? Would the other measures we are proposing in this 
release mitigate the need for proposed Rule 140a?
    84. Does the SPAC IPO underwriter have the means and access 
necessary (via contract or otherwise) to perform due diligence at the 
de-SPAC transaction stage, particularly where the SPAC IPO underwriter 
is not retained as an advisor in the de-SPAC transaction or the target 
is the registrant for the de-SPAC transaction? Could such access be 
reasonably obtained in the course of the negotiation of the 
underwriting agreement for the SPAC initial public offering or 
otherwise?
    85. Will shareholders after the de-SPAC transaction have difficulty

[[Page 29487]]

recovering against SPAC IPO underwriters liable under Securities Act 
Section 11 due to potential challenges in tracing the shares they hold 
to an effective registration statement for the de-SPAC transaction? Are 
there steps we should take to address the challenges shareholders might 
face in tracing their shares to such a registration statement? For 
example, should we consider rulemaking to define ``any person acquiring 
such security'' under Securities Act Section 11 in the context of de-
SPAC transactions and, if so, how should it be defined?
    86. Should we limit the application of proposed Rule 140a to 
situations in which the SPAC IPO underwriter takes steps to facilitate 
the de-SPAC transaction, or any related financing transaction, or 
otherwise participates (directly or indirectly) in the de-SPAC 
transaction, as proposed?
    87. Would a determination that SPAC IPO underwriters are engaged in 
a distribution of the private operating company's securities, as 
proposed, raise additional issues we should address? For example, does 
it raise questions about when the SPAC IPO underwriters' participation 
in the SPAC initial public offering distribution is completed for 
purposes of calculating the restricted period under Regulation M?
    88. As noted above, there may be additional parties that are 
involved in a de-SPAC transaction that may fall within the statutory 
definition of underwriter because they are ``participating in the 
distribution'' of the target private operating company's securities to 
the public. Should proposed Rule 140a be expanded to expressly include 
such other parties? If so, which parties? Should the rule instead deem 
any party playing a significant role at the de-SPAC transaction stage 
to be an underwriter? Should the Commission provide additional guidance 
as to which additional parties may be underwriters and what activities 
or other considerations would be relevant to determining whether a 
party falls within the statutory definition of underwriter in a de-SPAC 
transaction?
    89. Is it clear what parties would be considered a SPAC IPO 
underwriter for purposes of proposed Rule 140a? Should we limit 
underwriter status as clarified by Rule 140a to the entities acting as 
traditional underwriter in a SPAC IPO? Are there other parties that 
should be specifically excluded from the application of the rule?
    90. Are there alternative approaches we should consider that would 
enhance the incentives of participants in a de-SPAC transaction to 
assure the accuracy of the disclosures provided to public investors in 
connection with the de-SPAC transaction and/or align liability 
protections for investors across the various avenues for private 
operating companies to go public?

IV. Business Combinations Involving Shell Companies

    In response to concerns regarding the use of shell companies \205\ 
as a means of accessing the U.S. capital markets, and as discussed more 
fully below, we are proposing new rules that would apply to business 
combination transactions involving shell companies, which include de-
SPAC transactions. First, we are proposing new Rule 145a under the 
Securities Act that would deem such business combination transactions 
to involve a sale of securities to a reporting shell company's 
shareholders. Second, we are proposing new Article 15 of Regulation S-X 
and related amendments to more closely align the required financial 
statements of private operating companies in connection with these 
transactions with those required in registration statements on Form S-1 
or F-1 for an initial public offering.\206\ The issues we are 
addressing with these rule proposals are common to these shell company 
transactions, regardless of whether the shell company is a SPAC.
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    \205\ As stated above, throughout this release, we use ``shell 
company'' and ``reporting shell company'' in lieu of the phrases 
``shell company, other than a business combination related shell 
company'' and ``reporting shell company, other than a business 
combination related shell company.'' See supra note 43 for the 
definition of ``reporting shell company.''
    \206\ The requirements in Form S-4, Form F-4, and Schedule 14A 
for an acquisition of a business were developed at a time when 
acquirers were generally operating companies, and these requirements 
do not specifically address transactions involving shell companies. 
For example, Form S-4 was adopted by the Commission in 1985, which 
predates the origins of SPACs in the 1990s. See Business Combination 
Transactions-Adoption of Registration Form, Release No. 33-6578 
(Apr. 23, 1985) [50 FR 19001 (May 6, 1985)].
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A. Shell Company Business Combinations and the Securities Act of 1933

1. Shell Company Business Combinations
    SPAC initial public offerings and business combinations occurred 
with increased frequency in 2020 and 2021,\207\ but a business 
combination with a reporting shell company \208\ is not a new means for 
a private company to become a U.S. public company with an Exchange Act 
reporting obligation.\209\ Historically, private companies have 
utilized shell companies in various forms of transactions,\210\ such as 
spin-offs, reverse mergers, and de-SPAC transactions to become U.S. 
public companies,\211\ in many cases without filing a Securities Act 
registration statement.\212\ Due to abuses involving shell company 
transactions, over the years the Commission has adopted various rules 
and limitations intended

[[Page 29488]]

to address the misuse of shell companies.\213\ For example:
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    \207\ See supra notes 7 and 8 regarding the 2020-2021 increase 
in popularity of SPACs as a means for private companies to access 
the public markets.
    \208\ See supra note 9.
    \209\ See generally, Ronald M. Shapiro and Laurence M. Katz, The 
``Going Public through the Back Door'' Phenomenon--An Assessment, 29 
Md. L. Rev. 320 (1969); Leib Orlanski, Going Public through the 
Backdoor and the Shell Game, 58 Va. L. Rev. 1451 (1972) (both 
describing various ways of combining with a public shell company as 
a method to bring private corporations public).
    \210\ Shell company business combinations can take many forms. 
They can be as simple in structure as a statutory merger, with a 
private operating company merging with and into a shell company that 
has previously filed a Form 10 with the Commission, or as complex as 
a de-SPAC transaction involving multiple merging entities, tax 
blockers, and/or a new holding company. Among de-SPAC transactions, 
the Commission staff has observed a number of variations, only some 
of which are consistently registered transactions. For example, in 
de-SPAC transactions structured as share exchanges, securities can 
be offered and sold to the public holders of SPAC securities from 
the target, a new holding company, or they can retain their 
interests in the reporting SPAC.
    \211\ These transactions generally can take the form of either a 
``reverse merger'' in which the private business merges into the 
shell company, with the shell company surviving and the former 
shareholders of the private business controlling the surviving 
entity or, in another common type of transaction, a ``back door 
registration,'' the shell company merges into the formerly private 
company, with the formerly private company surviving and the 
shareholders of the shell company becoming shareholders of the 
surviving entity. See Use of Form S-8, Form 8-K, and Form 20-F by 
Shell Companies, Release No. 33-8587 (July 15, 2005) [70 FR 42234 
(July 21, 2005)] (``Shell Company Adopting Release''). Both 
alternatives transform a private company into a public company by 
combining directly or indirectly with a public company (whether 
through a merger, exchange offer, or otherwise).
    \212\ For example, unregistered transactions can involve a 
direct or indirect offer and sale of the public shell's securities 
to holders of the target entity's securities in consideration for 
their interests in the target entity. The public shell is then the 
entity that survives the business combination. In the context of 
SPACs, where there is no registration statement, transactions are 
typically disclosed to the SPAC's public shareholders in a proxy or 
information statement if there is a vote or consents being 
solicited, or otherwise in a Schedule TO. In shell company mergers 
where there is no vote, the shell company's shareholders may only 
learn about the transaction when the shell company files an Item 
5.06 Form 8-K to report a change in shell company status. With 
respect to de-SPAC transactions, the Commission staff has observed 
that in 2020 (Sept. 30, 2019 to Oct. 1, 2020), 21 de-SPAC 
transactions were registered on Form S-4 or F-4 and 16 were 
disclosed on proxy or information statements soliciting shareholder 
votes or consents, respectively. Over the same months in 2021, 212 
de-SPAC transactions were registered on Form S-4 or F-4 and 48 were 
disclosed on proxy or information statements.
    \213\ We note that these rules and limitations generally do not 
apply to shell companies that qualify as ``business combination 
related shell companies'' as defined in Rule 405. See infra Section 
IV.A.3.
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     Rule 144 is not available for the resale of securities 
initially issued by either reporting or non-reporting shell companies; 
\214\
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    \214\ See 17 CFR 230.144(i), 17 CFR 230.145(c) and (d), and 
Revisions to Rules 144 and 145, Release No. 33-8869 (Dec. 6, 2007) 
[72 FR 71546 (Dec. 17, 2007)].
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     Shell companies are not permitted to use Form S-8; \215\
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    \215\ See Form S-8 [17 CFR 239.16b], General Instruction A.1, 
Rule as to Use of Form S-8; Shell Company Adopting Release, supra 
note 211.
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     Shell companies are considered ineligible issuers that 
cannot use free writing prospectuses for communications during a 
registered offering; \216\ and
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    \216\ See 17 CFR 230.165(e)(2)(ii) and Securities Offering 
Reform, Release No. 33-8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 
2005)].
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     Broker-dealers are able to rely on the ``piggyback'' 
exception to publish quotations for shell companies for only 18 months 
following the initial priced quotation on OTC Markets.\217\
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    \217\ See 17 CFR 240.15c2-11(f)(3)(i)(B)(2) and Publication or 
Submission of Quotations Without Specified Information, Release No. 
33-10842 (Sept. 16, 2020) [85 FR 68124 (Oct. 27, 2020)].
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    Although many of these rules address concerns related to market 
manipulation and penny stock fraud, the Commission also has previously 
expressed concerns about the use of a shell company to distribute 
securities to the public without the protections afforded by the 
Securities Act including, where required, a registration 
statement.\218\ The lack of a registration statement could deprive 
investors of the critical disclosures and protections that come with 
Securities Act registration.\219\ The use of shell companies to 
complete business combinations can thus also provide companies with 
opportunities to avoid the disclosure, liability, and other provisions 
applicable in traditional registered offerings.\220\ These concerns are 
still present when shell companies are used in business combinations to 
provide private companies with access to the public markets.
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    \218\ See generally Spin Offs and Shell Corporations, Release 
No. 33-4982 (July 2, 1969) [34 FR 11581 (July 15, 1969)] (stating 
the Commission's concern over the use of shell companies to effect 
unregistered distributions of securities in spin-offs and in other 
contexts).
    \219\ Id. See also Notice of Adoption of Rules 145 and 153A, 
Prospective Rescission of Rule 133, Amendment of Form S-14 Under the 
Securities Act of 1933, and Amendment of Rule 14a-2, 14a-6 and 14c-5 
Under the Securities Exchange Act of 1934, Release No. 33-5316 (Oct. 
6, 1972) [37 FR 23631 (Nov. 7, 1972)] (``Rule 145 Adopting 
Release'').
    \220\ For example, in SEC v. M & A W., Inc., 538 F.3d 1043, 1053 
(9th Cir. 2008), the court considered a civil enforcement action 
against an individual engaged in the business of assisting private 
corporations to become publicly-traded companies through reverse 
merger transactions with reporting shell companies, alleging the 
sale of unregistered securities. The court noted: ``[W]e are 
informed by the purpose of registration, which is `to protect 
investors by promoting full disclosure of information thought 
necessary to informed investment decisions.' The express purpose of 
the reverse mergers at issue in this case was to transform a private 
corporation into a corporation selling stock shares to the public, 
without making the extensive public disclosures required in an 
initial offering. Thus, the investing public had relatively little 
information about the former private corporation. In such 
transactions, the investor protections provided by registration 
requirements are especially important.'').
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2. Proposed Rule 145a
    The substantive reality of a reporting shell company \221\ business 
combination with a company that is not a shell company is that 
reporting shell company investors have effectively exchanged their 
security representing an interest in the reporting shell company for a 
new security representing an interest in the combined operating 
company. As noted above, however, unlike investors in transaction 
structures in which the Securities Act applies and a registration 
statement would be filed (absent an exemption), investors in reporting 
shell companies may not always receive the disclosures and other 
protections afforded by the Securities Act at the time the change in 
the nature of their investment occurs due to the business combination 
involving another entity that is not a shell company.
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    \221\ See supra note 43 for a definition of this term.
---------------------------------------------------------------------------

    Under the Securities Act, all offers and sales of securities must 
either be registered or be exempt from registration, and any offer or 
sale that is not registered or exempt violates Section 5.\222\ Section 
2(a)(3) of the Securities Act defines a ``sale'' as, among other 
things, ``every contract of sale or disposition of a security or 
interest in a security, for value.'' \223\ In view of the remedial 
purpose of the Securities Act, courts and the Commission have broadly 
interpreted this term, particularly with respect to the creation of a 
public market in shares of a private company.\224\ Moreover, the 
Commission has concluded that certain business combination and other 
transactions involve a sale of securities within the meaning of Section 
2(a)(3).\225\
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    \222\ 15 U.S.C. 77e.
    \223\ 15 U.S.C. 77b(3).
    \224\ In this regard, the Supreme Court has stated that 
securities legislation, enacted for the purpose of avoiding frauds, 
is to be construed ``not technically and restrictively, but flexibly 
to effectuate its remedial purposes.'' SEC v. Cap. Gains Rsch. 
Bureau, Inc., 375 U.S. 180, 195, 84 S. Ct. 275, 284-85 (1963). See 
also SEC v. Harwyn Indus. Corp., 326 F. Supp. 943, 954 (S.D.N.Y. 
1971) (construing ``value'' in Section 2(a)(3) to include the 
creation of a public market in the shares with its resulting 
benefits to the defendants, the court stated, ``. . . [W]e must look 
to its overall purpose, which is to provide adequate disclosure to 
members of the investing public, rather than engage in strangulating 
literalism.''); SEC v. Datronics Engineers, Inc., 490 F.2d 250, 254 
(4th Cir. 1973), cert denied, 416 U.S. 937 (1974); In the Matter of 
UniversalScience.com, Inc., Release No. 33-7879 (Aug. 8, 2000) 
(distribution of securities as purported ``free stock'' constituted 
a sale because it was a disposition for value, the ``value'' arising 
``by virtue of the creation of a public market for the issuer's 
securities.''); and Thomas Lee Hazen, The Law of Securities 
Regulation Sec.  12:22 (``Concepts of purchase and sale are to be 
construed flexibly in order to accomplish the purpose of the 
securities laws. The courts will consider the economic reality of 
the transaction and whether it lends itself to fraud in the making 
of an investment decision.'').
    \225\ See 17 CFR 230.145(a) and (b) (Securities Act Rules 145(a) 
and (b)) and Rule 145 Adopting Release, supra note 219 (Rule 145 
deems the submission to a vote of stockholders of a proposal for 
certain mergers, consolidations, or reclassifications of securities 
or transfers of assets to involve a ``sale,'' ``offer,'' ``offer to 
sell,'' or ``offer for sale'' of the securities of the new or 
surviving corporation to the security holders of the disappearing 
corporation).
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    Due to the significant increase in reporting shell company business 
combination transactions as a means to enter the U.S. capital markets, 
including through the use of a SPAC, and in an effort to provide 
reporting shell company shareholders with more consistent Securities 
Act protections regardless of transaction structure, we are proposing 
new Rule 145a \226\ that would deem any business combination of a 
reporting shell company \227\ involving another entity that is not a 
shell company to involve a sale of securities to the reporting shell 
company's shareholders.\228\ It is our preliminary view that such a 
transaction would be ``a disposition of a security or interest in a 
security . . . for value,'' \229\ regardless of the form or structure 
deployed, and regardless of whether a shareholder vote or consent is 
solicited.\230\ By deeming such

[[Page 29489]]

transactions to be a ``sale'' for the purposes of the Securities Act, 
the proposed rule is intended to address potential disparities in the 
disclosure and liability protections available to reporting shell 
company shareholders depending on the transaction structure deployed in 
a reporting shell company business combination.
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    \226\ See proposed 17 CFR 230.145a.
    \227\ See supra note 43 for a definition of this term.
    \228\ This expresses our views as to the substance of these 
transactions for the purposes of the Securities Act. Neither 
proposed Rule 145a nor the description in this section is intended 
to express a view with respect to the treatment of these 
transactions under other laws including, but not limited to, state 
corporate law and the Internal Revenue Code.
    \229\ Although no securities may actually be changing hands, in 
substance, shareholders in a reporting shell company merger are 
effectively exchanging their interests in the shell company for 
interests in a non-shell company; these shareholders can be viewed 
as having surrendered ``value'' for the purposes of Section 2(a)(3).
    \230\ We note that this rule does not change the conclusion that 
a merger with a reporting shell company may constitute the offer and 
sale of securities to other parties for which registration under the 
Securities Act or an exemption would be required. For example, where 
a SPAC survives the de-SPAC transaction, the SPAC will frequently 
issue its securities to shareholders of the private company in 
exchange for their interests in the private company. Such a 
transaction would still require registration or an exemption from 
registration.
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    Nothing in proposed Rule 145a would prevent or prohibit the use of 
a valid exemption, if available, for the deemed sale of securities to 
the reporting shell company's shareholders in the business 
combination.\231\ However, our current view is that Section 3(a)(9) of 
the Securities Act,\232\ which exempts any securities exchange by an 
issuer with its existing security holders exclusively where no 
commission or other remuneration is paid or given directly or 
indirectly for soliciting such exchange, generally would not be 
available for the sales covered by proposed Rule 145a. In these 
circumstances, we believe that the deemed exchange by the reporting 
shell company's existing shareholders for the combined company's 
securities should be viewed as part of the same offering as the 
exchange of the private company's securities for their interests in the 
combined company.\233\ As a result, because the exchange would not be 
exclusively with the reporting shell company's existing security 
holders, Section 3(a)(9) would not be available to exempt the deemed 
sale to reporting shell company shareholders in proposed Rule 145a, if 
adopted. In addition, we note that Section 3(a)(9) would not be 
available where a commission or other remuneration is paid or given 
directly or indirectly for soliciting of participation in the deemed 
exchange. This would occur, for example, if a proxy solicitor is 
compensated to solicit the approval of the reporting shell company's 
shareholders for the business combination.
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    \231\ We note that even if an exemption applies, if Rule 145a is 
adopted, investors would have the protections of the anti-fraud 
provisions in Section 17(a) of the Securities Act and Section 10(b) 
and Rule 10b-5 thereunder of the Exchange Act. [15 U.S.C. 77q; 15 
U.S.C. 78j; and 17 CFR 240.10b-5, respectively].
    \232\ 15 U.S.C. 77c(a)(9).
    \233\ We note that none of the non-exclusive safe harbors in 17 
CFR 230.152(b) would be likely to apply. In particular, the closing 
of the business combination with the reporting shell company would 
be simultaneous with the deemed exchange of reporting shell company 
securities with its own holders and would therefore not meet the 30-
day safe harbor in 17 CFR 230.152(b)(1).
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    Given the substance of the transactions that would be covered by 
new Rule 145a, we are proposing the rule so that shareholders more 
consistently receive the full protections of the Securities Act 
disclosure and liability provisions in business combinations involving 
reporting shell companies, regardless of the transaction structure. Not 
only would registration in this context result in enhanced liabilities 
for signatories to any registration statement and potential underwriter 
liability as described elsewhere in this release,\234\ it would also 
include liability under Securities Act Section 11(a)(4) for experts, 
which include every accountant, engineer, or appraiser, or any person 
whose profession gives authority to a statement made by him, who has 
with his consent been named as having prepared or certified any part of 
the registration statement or as having prepared or certified any 
report or valuation which is used in connection with the registration 
statement.\235\ In addition, if the transaction is registered, Rule 
145a would, in some cases, provide reporting shell company investors 
with additional pre-sale disclosure about a transaction that would 
significantly alter the nature of their investment.\236\ In this way, 
proposed Rule 145a is consistent with the intent of other rules 
intended to ``inhibit the creation of public markets in securities of 
issuers about which adequate current information is not available to 
the public.'' \237\ The proposed rule should also eliminate potential 
regulatory arbitrage opportunities to avoid disclosure requirements or 
liability through the use of alternative transaction structures when 
combining with a reporting shell company.\238\
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    \234\ See supra Sections III.C and III.F, respectively.
    \235\ See 15 U.S.C. 77k(a)(4). This would include auditors who 
opine on the financial statements associated with the business 
combination. Depending on the transaction and whether services are 
provided by other parties, this could also include, for example, 
valuation consultants, outside reviewers of management projections, 
or anyone who provides a fairness opinion about the transaction.
    \236\ Some public shell company business combinations are not 
disclosed to investors until after the transaction has closed. See 
supra note 212.
    \237\ See Rule 145 Adopting Release, supra note 219.
    \238\ See infra Sections III.F for a discussion of the sources 
of liability in registered de-SPAC transactions.
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3. Excluded Transactions
    We wish to emphasize that proposed Rule 145a would have no impact 
on business combinations between two bona fide non-shell entities. 
However, we note that any reporting shell company that is made to 
appear to have, or has cloaked itself as having, more than ``nominal'' 
assets or operations would still be subject to Rule 145a in a business 
combination transaction.\239\
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    \239\ We reiterate the Commission's previous position on 
structuring transactions to avoid shell company status in adopting 
the 2005 shell company limitations. See Shell Company Adopting 
Release, supra note 211, at n.32.
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    The Commission has historically recognized the usefulness of shell 
companies formed solely to change an entity's domicile or to effect a 
business combination transaction.\240\ As a result, the Commission has 
excluded such so-called business combination related shell companies 
\241\ from many of the shell company requirements and prohibitions that 
have been put in place to ensure the protection of investors in such 
companies.\242\ Consistent with this, the proposed rule would not apply 
to reporting shell companies that are business combination related 
shell companies as this term is defined in Securities Act Rule 
405.\243\
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    \240\ See the Supplementary Information to the Shell Company 
Adopting Release, supra note 211 (``We recognize that companies and 
their professional advisors often use shell companies for many 
legitimate corporate structuring purposes. Similarly, our definition 
and use of the term 'shell company' is not intended to imply that 
shell companies are inherently fraudulent. Rather, these rules 
target regulatory problems that we have identified where shell 
companies have been used as vehicles to commit fraud and abuse our 
regulatory processes.'').
    \241\ See supra note 43 for the definition of ``business 
combination related shell company.''
    \242\ See Shell Company Adopting Release, supra note 211.
    \243\ Neither a SPAC nor any such entity formed to facilitate a 
merger with a SPAC meets the definition of a business combination 
related shell company because neither of these entities is a shell 
company formed solely for the purpose of changing the corporate 
domicile solely within the United States or formed solely for the 
purpose of completing a business combination transaction among one 
or more entities other than the shell company, none of which is a 
shell company.
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    In addition, we are proposing to exclude the business combination 
of one shell company into another shell company from the scope of Rule 
145a. Such a business combination would not amount to a fundamental 
change in the nature of the reporting shell company shareholder's 
investment unlike a business combination with an entity that is not a 
shell company.\244\
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    \244\ However, such a business combination may continue to fall 
within Securities Act Rule 145 because there is a shareholder vote 
and the transaction is one to which Rule 145 would apply (e.g., a 
statutory merger or consolidation or similar plan or acquisition 
where the sole purpose of the transaction is not to change an 
issuer's domicile solely within the United States).

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[[Page 29490]]

Request for Comment
    91. Should we adopt Rule 145a as proposed?
    92. Should we be seeking to align the required disclosures and 
liabilities associated with shell company business combinations among 
the various available transaction structures in order to provide 
reporting shell company investors consistent disclosures and 
protections across transaction structures? Are there alternative 
approaches that would accomplish this goal?
    93. How would the proposed rule affect business combinations 
involving both SPACs and non-SPAC reporting shell companies? Would 
these entities be more likely to register such transactions?
    94. If the deemed sale to reporting shell company shareholders is 
required to be registered under the Securities Act pursuant to the 
proposed amendments, should we provide guidance with respect to the 
timing of the effectiveness of such registration statement in relation 
to the business combination?
    95. Are there other transactions that have purposes or results 
similar to reporting shell company business combinations that we should 
deem to constitute sales? Conversely, does the proposed rule deem too 
broad of a set of reporting shell company business combinations to be 
sales? For example, should the rule be limited to SPACs?
    96. Should proposed Rule 145a be limited to deeming shell company 
business combinations ``sales'' with respect to only reporting shell 
company shareholders? Are there other parties whose interest in a shell 
company would be such that a shell company business combination should 
be deemed a sale? For example, holders of securities other than common 
shares?
    97. Should reporting shell companies be prohibited from relying on 
the exemption in Securities Act Section 3(a)(9) in a transaction deemed 
a sale under proposed Rule 145a? Should we provide additional guidance 
on the potential availability or lack of availability of other 
exemptions from registration for the proposed Rule 145a sale? If so, 
what exemptions should we address?
    98. Should we exclude business combination related shell companies 
from the scope of proposed Rule 145a, as proposed?
    99. Should Rule 145a exclude the business combination of one shell 
company into another shell company, as proposed? How frequently do such 
mergers occur in absence of the proposed Rule 145a? In such a 
situation, would either or both companies' shareholders benefit from 
registration under the Securities Act?
    100. Securities Act Rule 145(a) deems sales within the meaning of 
Section 2(a)(3) of the Securities Act for certain transactions 
submitted for the vote or consent of security holders. Securities Act 
Rules 145(c) and (d) include provisions that have the effect of 
limiting resales with respect to parties to transactions described in 
Rule 145(a) and their affiliates that involve shell companies. Although 
proposed Rule 145a would apply to all reporting shell company business 
combinations, not all of these business combinations would also fall 
within Rule 145(a). Should we consider resale limitations for Rule 
145a? Should any such resale limitations be similar to those in 
existing Rule 145?
    101. Should we consider guidance or additional rule amendments for 
transactions where the provisions of existing Rule 145 and Rule 145a 
could overlap? For example, are there any rules that currently 
reference Rule 145 that should be amended to apply (or not apply) to 
transactions covered by proposed Rule 145a (e.g., Rule 500 of 
Regulation D, which states the availability of the exemptions for Rule 
145(a) transactions; Securities Act Rule 135, which allows notice of a 
registered offering, including for a Rule 145(a) transaction; or Rule 
172, which prohibits the use of access equals delivery in Rule 145(a) 
transactions)? What, if any, issues should the Commission address 
through guidance?
    102. Are there other potential opportunities for regulatory 
arbitrage in shell company or SPAC transactions that the Commission 
should consider addressing?

B. Financial Statement Requirements in Business Combination 
Transactions Involving Shell Companies

    After a business combination involving a shell company, the 
financial statements of the private operating company become those of 
the registrant for financial reporting purposes. In other words, the 
private operating company becomes the predecessor.\245\ How the private 
operating company chooses to become a public company could affect its 
financial statement disclosures due to differences in the requirements 
of registration statements on Form S-1/F-1 and the requirements of Form 
S-4/F-4. In our view, a company's choice of the manner in which it goes 
public should not generally result in substantially different financial 
statement disclosures being provided to investors.
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    \245\ The term ``predecessor'' when used in this section has the 
same meaning as applied in its use under Regulation S-X and 
determination of financial statement requirements.
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    We are proposing amendments to our forms, schedules, and rules to 
more closely align the financial statement reporting requirements in 
business combinations involving a shell company and a private operating 
company with those in traditional initial public offerings. The 
financial statements that would be required under the proposed 
amendments are based, in part, on current staff guidance for 
transactions involving shell companies.\246\ Codifying this guidance 
should reduce any asymmetries between financial statement disclosures 
in business combination transactions involving shell companies and 
traditional initial public offerings. Accordingly, we are proposing new 
Article 15 of Regulation S-X and related amendments to address certain 
inconsistencies in the reporting of financial information that can 
arise when applying existing requirements to business combination 
transactions involving shell companies compared to the financial 
statement requirements for a Securities Act registration statement.
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    \246\ Commission staff has provided informal guidance to address 
practical questions related to financial reporting issues for shell 
company mergers in the Division of Corporation Finance's Financial 
Reporting Manual (``FRM''). The FRM is not a rule, regulation or 
statement of the Commission, and the Commission has neither approved 
nor disapproved its content.
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1. Number of Years of Financial Statements
    A registration statement on Form S-4 and F-4 and a proxy or 
information statement require financial statements of the target 
company for the same number of years of financial statements as would 
be required by the target in an annual report and any subsequent 
interim periods.\247\ Three years of statements of comprehensive 
income, changes in stockholders' equity, and cash flows are required, 
except in the following scenarios when two years are permitted:
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    \247\ See Items 17(b)(7) and 17(b)(8) of Form S-4; Items 
17(b)(5) and 17(b)(6) of Form F-4; Item 14 of Schedule 14A; and 
Instruction 1 of Schedule 14C.
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     The target company would qualify as a smaller reporting 
company; \248\
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    \248\ See supra Section III.D.
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     The target company would be an emerging growth company 
(``EGC'') \249\ if it were conducting an initial public offering of 
common equity securities and the registrant is an EGC that has not yet 
filed or been required to file its first annual report, even if the 
target would

[[Page 29491]]

not be a smaller reporting company; \250\ or
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    \249\ See supra note 112.
    \250\ An EGC is permitted to include two years of statements of 
comprehensive income in its Securities Act registration statement 
for an initial public offering of its common equity securities. EGCs 
that are not smaller reporting companies are still required to 
include three years of statements of comprehensive income in their 
annual reports. See Rule 3-02 of Regulation S-X.
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     The transaction is registered on a Form F-4 and either (1) 
the target company is a first time adopter of International Financial 
Reporting Standards (``IFRS'') as issued by the International 
Accounting Standards Board (``IASB''), or (2) the Form F-4 is the 
initial registration statement of the private company and it provides 
U.S. GAAP financial statements.\251\
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    \251\ Item 17(b)(5) of Form F-4; General Instruction G of Form 
20-F; and Instruction 3 to Item 8.A.2 of Form 20-F.
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    Our proposed amendments would expand the circumstances in which 
target companies may report two years of financial statements under the 
second bullet above by removing whether or not the shell company has 
filed its first annual report as a factor in determining the number of 
years required. Because the scenarios described in the first and third 
bullets above are already aligned with the financial statements 
required in a traditional initial public offering, we have not proposed 
any changes related to them. In addition, the proposed amendments would 
not affect the number of years of statements of comprehensive income 
that are required for the private operating company when it exceeds 
both the smaller reporting company and EGC revenue thresholds (that is, 
three years would continue to be required).\252\ However, to align the 
reporting with a traditional initial public offering, the proposed 
amendments would potentially reduce the number of years required when 
the target company would be an EGC if it were conducting an initial 
public offering of common equity securities and the registrant is an 
EGC that has filed or been required to file its first annual report.
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    \252\ See Items 17(b)(7) and 17(b)(8) of Form S-4; Items 
17(b)(5) and 17(b)(6) of Form F-4; Item 14 of Schedule 14A; and 
Instruction 1 of Schedule 14C. In addition to providing three years 
of financial statements due to the private operating company not 
qualifying as an EGC, the private operating company would not be 
able to take advantage of the delayed adoption dates for new or 
revised accounting standards permitted by EGCs in its financial 
statements. In the staff's view, the private operating company's 
revenue, as predecessor, should be used to determine whether the 
registrant qualifies as an EGC after the transaction. See FAQ 47 of 
the Division of Corporation Finance's Jumpstart Our Business 
Startups Act Frequently Asked Questions, available at https://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htm (last revised Dec. 21, 2015). The FAQ does not represent 
a rule, regulation or statement of the Commission, and the 
Commission has neither approved nor disapproved its content.
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    In a traditional initial public offering under the Securities Act, 
the registrant may provide two years of statements of comprehensive 
income, changes in stockholders' equity, and cash flows when its most 
recently completed fiscal year revenue is below the smaller reporting 
company or EGC revenue thresholds (and all the other EGC qualifications 
are met), or as noted in the third scenario above for a foreign private 
issuer. We are proposing to align the number of fiscal years required 
to be included in the financial statements for a private company that 
will be the predecessor(s) in a shell company combination with the 
financial statements required to be included in a Securities Act 
registration statement for an initial public offering of equity 
securities in proposed Rule 15-01(b) of Regulation S-X.
    Proposed Rule 15-01(b) would provide that when the registrant is a 
shell company, and the financial statements of a business \253\ that 
will be a predecessor to the registrant are required in a registration 
statement or proxy statement, the registrant must file financial 
statements of the business that will be a predecessor to the registrant 
in accordance with Sec.  210.3-01 to 3-12 and Sec.  210.10-01 (Articles 
3 and 10 of Regulation S-X) or Sec.  210.8-01 to 8-08 (Article 8), if 
applicable, as if the filing were a Securities Act registration 
statement for the initial public offering of that business's equity 
securities. As a result, a shell company registrant would be permitted 
to include in its Form S-4/F-4/proxy or information statement two years 
of statements of comprehensive income, changes in stockholders' equity, 
and cash flows for the private operating company for all transactions 
involving an EGC shell company and a private operating company that 
would qualify as an EGC, and this determination would not be dependent 
on whether the shell company has filed or was already required to file 
its annual report or not. The proposed amendments would not affect the 
number of years of statements of comprehensive income that are required 
for the private operating company when it exceeds both the smaller 
reporting company and EGC revenue thresholds (that is, three years 
would continue to be required).\254\
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    \253\ We use the term ``business'' in this context, rather than 
``private operating company,'' in order to be consistent with the 
provisions in Regulation S-X that define and use business, such as 
Rule 11-01(d) of Regulation S-X. In a business combination 
transaction involving a shell company, the private operating company 
would meet the definition of a business.
    \254\ The private operating company would also not be able to 
take advantage of the delayed adoption dates for new or revised 
accounting standards as that transition is only available to EGC 
companies. As described in FAQ 47 of the Division of Corporation 
Finance's Jumpstart Our Business Startups Act Frequently Asked 
Questions, the staff takes the view that the private operating 
company's revenue, as predecessor, will determine the post-
transaction EGC status. See Securities Act Section 7(a)(2)(B).
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2. Audit Requirements of Predecessor
    Proposed Rule 15-01(a) would align the level of audit assurance 
required for the target private operating company in business 
combination transactions involving a shell company with the audit 
requirements for an initial public offering.\255\ Specifically, we are 
proposing that the term audit (or examination), when used in regard to 
financial statements of a business that is or will be a predecessor to 
a shell company, means an examination of the financial statements by an 
independent accountant in accordance with the standards of the PCAOB 
for the purpose of expressing an opinion thereon. As a result, a target 
private operating company would be required to comply with Article 2 of 
Regulation S-X as if it were filing an initial public offering for its 
audited financial statements. Forms S-4 and F-4 \256\ currently provide 
that, for an acquisition by a registrant that is not a shell company, 
(i) the target operating company financial statements may be audited in 
accordance with U.S. Generally Accepted Auditing Standards,\257\ (ii) 
the financial statements of the most recent fiscal year are required to 
be audited only to the extent practicable,\258\ and (iii) financial 
statements before the latest fiscal year need not be audited if they 
were not previously audited.\259\ The staff, however, has advised 
registrants that it expects the financial statements of the business, 
i.e., target private operating company, in a transaction involving a 
shell company to be audited to the same extent as a registrant in an 
initial public offering, because at consummation the financial 
statements of the target private operating company become that of the 
registrant.\260\ The proposed amendments

[[Page 29492]]

would codify this existing staff guidance.
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    \255\ See proposed Rule 15-01(a) of Regulation S-X and 
Instruction 1 to Item 17(b) of Form S-4.
    \256\ See Instruction 1 to Item 17(b)(5) of Form F-4 and General 
Instruction E(c)(2) of Form 20-F.
    \257\ See 17 CFR 210.1-02(d) (Rule 1-02(d) of Regulation S-X).
    \258\ See Instruction 1 to Item 17(b)(7) of Form S-4.
    \259\ Id.
    \260\ See FRM at Section 4110.5 for a chart that outlines the 
staff's application of certain PCAOB requirements in various filings 
with the SEC, which includes transactions involving a shell company.
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3. Age of Financial Statements of the Predecessor
    Proposed Rule 15-01(c) would provide that the age of financial 
statements for a private operating company that would be the 
predecessor to a shell company in a registration statement or proxy 
statement would be based on whether the private operating company would 
qualify as smaller reporting company if filing its own initial 
registration statement. Absent this amendment, our rules require filing 
financial statements of the private operating company that would be 
required in an annual report, which do not have the same age 
requirements as those in the context of an initial registration 
statement.\261\ Similar to the other proposed amendments to Regulation 
S-X, this amendment would further align the financial statement 
requirements for a private operating company involved in a business 
combination with a shell company with those required in a Securities 
Act registration statement for an initial public offering. If the 
private operating company would qualify to be a smaller reporting 
company, it would apply Rule 8-08 of Regulation S-X for the age of 
financial statements.\262\ Otherwise, the private operating company 
would apply the age of financial statement requirements in Rules 3-
01(c) and 3-12 of Regulation S-X. Based on the staff's experience 
reviewing these transactions, we believe this proposed amendment to be 
consistent with existing practice.
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    \261\ For example, in an annual report, a domestic company with 
net losses in its recently completed fiscal year would have up to 90 
days after its most recently completed fiscal year-end to update its 
third quarter financial statements. In contrast, in an initial 
registration statement, it would have up to only 45 days. See 
General Instruction A. to Form 10-K and 17 CFR 210.3-12 (Rule 3-12 
of Regulation S-X).
    \262\ See 17 CFR 210.8-08 (Rule 8-08 of Regulation S-X), which 
states financial statements may be as current as of the end of the 
third fiscal quarter when the anticipated effective or mailing date 
falls within 45 days after the end of the fiscal year, OR if the 
date falls within 90 days of the end of the fiscal year and (1) if a 
reporting company, all reports due were filed; (2) in good faith the 
company expects to report income in the fiscal year just completed; 
and (3) it reported income in at least one of the two previous 
fiscal years.
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    We are not proposing amendments to the age requirements for the 
financial statements of the shell company registrant because we 
continue to believe that the age requirements in Articles 3 and 8 of 
Regulation S-X that apply to existing registrants are appropriate. 
Thus, the existing provisions in Articles 3 and 8 of Regulation S-X for 
reporting companies required to file under Exchange Act Section 13(a) 
or 15(d) would continue to apply to shell companies.\263\
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    \263\ See Rule 3-01(c) of Regulation S-X (Rule 8-08 for smaller 
reporting companies), which applies to reporting companies required 
to file under Exchange Act Section 13(a) or 15(d).
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4. Acquisitions of Businesses by a Shell Company Registrant or Its 
Predecessor That Are Not or Will Not Be the Predecessor
    The financial statements of a target private operating company that 
is or will be the predecessor to a shell company registrant are 
required in registration statements or proxy statements related to the 
business combination.\264\ The financial statements of any other 
businesses, besides the predecessor, that have been, or are probable to 
be, acquired may also be required.\265\ For example, ``Shell Company 
A'' and ``Target Private Operating Company B'' are part of a business 
combination and a Form S-4 registration statement is filed. Target 
Private Operating Company B acquired ``Company C'' before the Form S-4 
was filed. The proposed amendments in this section would address the 
reporting required for Company C in this non-exclusive example.
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    \264\ See Item 17 of Form S-4 or Form F-4, Sec.  240.14A-3(b), 
and Items 13 and 14 of Schedule 14A.
    \265\ See 17 CFR 230.408(a) (Securities Act Rule 408(a)) and 17 
CFR 240.12b-20 (Exchange Act Rule 12b-20).
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    Under existing rules,\266\ financial statements of a business 
acquired or probable of being acquired by the target private operating 
company (e.g., ``Company C'' in the above example) are required to be 
filed in a registration statement or proxy/information statement only 
when omission of those financial statements would render the target 
company's financial statements substantially incomplete or misleading. 
In order to specify when such financial statements are required, we are 
proposing new Rule 15-01(d) of Regulation S-X to require application of 
Rules 3-05 or 8-04 (or Rule 3-14 as it relates to a real estate 
operation), the Regulation S-X provisions related to financial 
statements of an acquired business, to acquisitions of businesses by a 
shell company registrant, or its predecessor, that are not or will not 
be the predecessor to the registrant.\267\ This proposal would further 
align the financial reporting for a shell company business combination 
contained in Forms S-4 or F-4 and a proxy or information statement with 
what would be required to be included in a Securities Act registration 
statement for an initial public offering of the target private 
operating company. Based on staff's experience reviewing these 
transactions, we understand this proposed amendment to be consistent 
with the current market practice of applying Rule 3-05 (or Rule 8-04) 
to acquisitions by the target private operating company in the context 
of a business combination involving a shell company.
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    \266\ Id.
    \267\ 17 CFR 210.8-04 (Rule 8-04) applies when the registrant 
or, depending on the context, its predecessor would qualify to be a 
smaller reporting company based on its annual revenues as of the 
most recently completed fiscal year if it were filing a registration 
statement itself.
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    In connection with this proposed amendment in Rule 15-01(d), we 
also considered and are proposing amendments related to the 
significance tests in Rule 1-02(w) of Regulation S-X that determine 
when acquired business financial statements are required. The existing 
tests as applied to acquisitions involving shell companies appear 
inconsistent with the reasons underlying the sliding scale approach 
adopted in Rule 3-05.\268\ Rule 1-02(w) requires the financial 
information of the registrant, which may be a shell company, to be used 
as the denominator for the significant subsidiary tests and does not 
address the scenario when there is both a shell company registrant and 
target private operating company that is or will be its predecessor. 
Because a shell company has nominal activity, the application of such 
tests results in limited to no sliding scale for business acquisitions, 
including those made by the private operating company that will be the 
predecessor to the shell company, because every acquisition would be 
significant and thus require financial statements.\269\ Such 
application may limit the ability to

[[Page 29493]]

recognize which acquisitions have a greater impact on the predecessor 
than others.\270\
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    \268\ Instructions for the Presentation and Preparation of Pro 
Forma Financial Information and Requirements for Financial 
Statements of Businesses Acquired or To Be Acquired, Release No. 33-
6413 (June 24, 1982) [47 FR 29832 (July 9, 1982)] (``Rule 3-05 
Adopting Release''). The requirements are based on the significant 
subsidiary tests using a sliding scale so that the requirements for 
filing such financial statements, as well as the periods covered by 
such financial statements, will vary with the percentage impact of 
the acquisition on the registrant. In adopting the sliding scale 
approach, the Commission stated its belief that the selected 
percentages ``meet the objectives of providing adequate financial 
information to investors, shareholders and other users while at the 
same time reducing the reporting burdens of registrants involved in 
acquisitions.''
    \269\ For example, financial statements of a business that the 
private operating company has acquired and represents less than 5% 
of its total assets, revenue and net income could be required in the 
Form S-4 because the acquired business would be compared to the 
shell company's financial statements.
    \270\ The 2020 amendments to Rules 1-02(w) and 3-05 did not 
affect the financial statements related to the acquisition of a 
business that is the subject of a proxy statement or registration 
statement on Form S-4 or Form F-4. See Amendments to Financial 
Disclosures about Acquired and Disposed Businesses, Release 33-
10786, (May 21, 2020) [85 FR 54002 (Aug. 31, 2020)], n.20.
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    We are proposing to amend Rule 1-02(w) of Regulation S-X to require 
that significance of the acquired business be calculated using the 
private operating company's financial information as the denominator 
instead of that of the shell company registrant. Using the private 
operating company's financial statements for the denominator should 
produce results more consistent with the sliding scale approach in Rule 
3-05 and recognizes that certain acquisitions have a greater impact 
than others.\271\
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    \271\ Ibid.
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    Related to the application of the significance tests, we considered 
the impact of the application of 17 CFR 210.11-01(b)(3)(i)(B) (``Rule 
11-01(b)(3)(i)(B) of Regulation S-X''). This rule permits, in certain 
circumstances, the use of pro forma amounts that depict significant 
business acquisitions and dispositions consummated after the latest 
fiscal year-end, for which the registrant's financial statements are 
required to be filed, for the registrant's financial information in the 
significance tests.\272\ While we are not proposing amendments to this 
paragraph in Rule 11-01, based on the proposed amendment to 17 CFR 
210.11-01(d) (``Rule 11-01(d)'') described below, we highlight that 
application of this rule may change and result in a future acquired 
business being compared to the pro forma amounts related to the shell 
company and target private operating company business combination 
transaction in filings made after the consummation of the business 
combination transaction.\273\ The impact of such application would be 
that the SPAC's financial statements, including its cash, would be part 
of the pro forma financial information and will likely increase the 
denominator in the significance tests compared to measuring an 
acquisition solely on the target private operating company.
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    \272\ Such pro forma use is permitted if the registrant has 
filed audited financial statements for any such acquired business 
for the periods required by Rule 3-05 or Rule 3-14 and the pro forma 
information required by Rule 11-01 through 11-02 of Regulation S-X.
    \273\ Pursuant to the proposed amendment to Rule 11-01d) that 
would stipulate that the SPAC is a business, an acquisition of the 
SPAC is considered to be an acquisition of a business, and the 
conditions to use pro forma financial statements depicting the 
acquisition as the denominator in the significance tests may be met.
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    We are proposing new 17 CFR 210.15-01(d)(2) (``Rule 15-01(d)(2)'') 
to specify when the financial statements of a recently acquired 
business (or real estate operation) that is not the private operating 
company that will be the predecessor, which are omitted from a shell 
company registration, proxy, or information statement under Regulation 
S-X, would be required to be filed. Rule 3-05(b)(4)(ii) of Regulation 
S-X provides that financial statements of a probable of being acquired 
or recently acquired business may be omitted from a registration, 
proxy, or information statement when their significance is measured at 
50% or less (or Rule 3-14(b)(3)(ii) as it relates to a real estate 
operation). The rule further provides that financial statements of a 
recently acquired business, when omitted from the registration 
statement or proxy or information statement, must be filed under cover 
of Form 8-K within 75 days after consummation of the acquisition. 
Because the significance of the acquisition is greater than 20% but 
less than 50%, the recently acquired business's financial statements, 
which are omitted from the registration, proxy, or information 
statement, must be filed.\274\ However, it is unclear how those 
financial statements are to be filed when the private operating company 
is not yet subject to Exchange Act reporting requirements and thus may 
not be able to file a Form 8-K. Rather than requiring a post-effective 
amendment, we are proposing in Rule 15-01(d)(2) that the financial 
statements of the acquired business omitted from the previously-filed 
registration, proxy, or information statement would be required in an 
Item 2.01(f) Form 8-K filed with Form 10 information.
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    \274\ Rule 3-05 generally requires financial statements of an 
acquired business when the conditions in Rule 1-02(w) related to 
significant subsidiary exceed 20%.
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5. Financial Statements of a Shell Company Registrant After the 
Combination With Predecessor
    In recent years, the staff has received questions on whether the 
historical financial statements of the shell company are required in 
filings made after the business combination. Due to the lack of clarity 
regarding the application of the financial statement requirements in 
Articles 3 and 8 of Regulation S-X, we are proposing new Rule 15-01(e), 
which would allow a registrant to exclude the financial statements of a 
shell company, including a SPAC, for periods prior to the acquisition 
once the following conditions have been met: (1) The financial 
statements of the shell company have been filed for all required 
periods through the acquisition date, and (2) the financial statements 
of the registrant include the period in which the acquisition was 
consummated.
    In the example of a de-SPAC transaction, the financial statements 
of the SPAC, as a shell company, would generally no longer be relevant 
or meaningful to an investor after a de-SPAC transaction once the 
financial statements of the registrant include the period in which the 
de-SPAC transaction was consummated for any filing.\275\ The proposed 
rule would apply regardless of whether the de-SPAC transaction is 
accounted for as a forward acquisition of the target private operating 
company by the SPAC or a reverse recapitalization of the target private 
operating company. The financial statements of the SPAC would be 
required in all filings (including registration statements and the Form 
8-K with Form 10 information filed following the de-SPAC transaction) 
prior to the filing of the first periodic report that includes those 
post-business combination financial statements. The proposed amendments 
should not result in a significant change from current practice as it 
relates to periodic reports because the staff in the last several years 
has not objected to the registrant excluding the historical financial 
statements of the SPAC from periodic reports once the financial 
statements for the registrant include the period in which the 
acquisition or recapitalization was consummated.
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    \275\ Once the financial statements of the registrant include 
the period in which the de-SPAC transaction was consummated, the 
financial statements required would be those of the predecessor for 
all historical periods presented.
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    Further, the proposed amendments would not change the requirement 
that a registrant must provide all material information as may be 
necessary to make required statements, in light of the circumstances 
under which they were made, not misleading,\276\ so if there is 
information included in or about the historical SPAC financial 
statements that would be material to an investor, a registrant would 
still be required to provide such information.
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    \276\ See Exchange Act Rule 12b-20, Securities Act Rule 408(a).
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6. Other Amendments
    In addition, we are proposing a number of other related amendments 
as follows:
     We are proposing to amend Rule 11-01(d) of Regulation S-X 
to state that

[[Page 29494]]

a SPAC is a business for purposes of the rule. While Rule 11-01(d) 
states that an entity is presumed to be a business, consideration of 
the continuity of the SPAC's operations prior to and after the de-SPAC 
transaction may lead some parties to conclude that the SPAC is not a 
business under the rule. Nonetheless, given the significant equity 
transactions generally undertaken by a SPAC, we believe the financial 
statements of the SPAC could be material to an investor, particularly 
when they underpin adjustments to pro forma financial information in a 
transaction when an operating company is the legal acquirer of a SPAC. 
As a result of the proposed rule, an issuer that is not a SPAC may be 
required to file financial statements of the SPAC in a resale 
registration statement on Form S-1.
     Item 2.01(f) of Form 8-K currently requires a shell 
company registrant to file, after an acquisition, the information that 
would be required if the registrant were filing a general form for the 
registration of securities on Form 10. We are proposing to revise this 
Item to refer to ``acquired business,'' rather than ``registrant,'' in 
an effort to clarify that the information provided relates to the 
acquired business and for periods prior to consummation of the 
acquisition and not the shell company registrant.
     Rule 3-02 of Regulation S-X requires that statements of 
comprehensive income be filed for the registrant and its predecessors. 
However, as it relates to balance sheets, certain provisions in 
Regulation S-X specify that they be filed for the registrant and do not 
specifically refer to balance sheets of predecessors. We do not believe 
the intent of these rules is to provide the predecessor's statements of 
comprehensive income without the balance sheets as that would not be 
considered a complete set of financial statements and would be 
inconsistent with Article 3 of Regulation S-X that requires both. We 
are proposing amendments to Rules 3-01, 8-02, and 10-01(a)(1) of 
Regulation S-X to specifically refer to financial statements of 
predecessors consistent with the provision regarding income statements. 
These amendments codify existing financial reporting practices, and we 
do not expect them to result in any changes in disclosures.
Request for Comment
    103. Should we adopt the amendments and new rules related to 
aligning financial statement disclosures, including Rule 15-01 of 
Regulation S-X, as proposed?
    104. Should Rule 15-01 provide that the term audit (or 
examination), when used in regard to financial statements of a business 
that is or will be a predecessor to a shell company, means an 
examination of the financial statements by an independent accountant in 
accordance with the standards of the PCAOB for the purpose of 
expressing an opinion thereon, as proposed?
    105. Should Article 15 of Regulation S-X address financial 
statement requirements for the acquisition by a shell company of a 
business that will be its predecessor, as proposed, or should we limit 
the requirements to apply only to a de-SPAC transaction, and if so, 
why?
    106. Should the significance tests that determine whether the 
financial statements of businesses that are not or will not be the 
predecessor are required to be filed employ the denominator of the 
private operating company in lieu of that of the shell company 
registrant, as proposed? Should the pro forma financial information 
that gives effect to the shell company transaction be allowed to be 
used as the denominator in measuring the significance of other 
acquisitions not involving a predecessor? Should there be restrictions 
on when such pro forma financial information is used to measure 
significance, such as only for acquisitions that occur subsequent to 
consummation of the transaction and not for acquisitions that are done 
in tandem with the shell company transaction?
    107. Should the financial statements of a shell company not be 
required in filings once the financial statements of the registrant 
include the period in which the acquisition was consummated, as 
proposed? Are there situations in which investors would continue to 
rely upon the information in the shell company financial statements 
after the acquisition was consummated and reflected in the financial 
statements of the registrant, or other factors we should consider in 
determining when the shell company financial statements should not be 
required in filings after the acquisition is complete? Should the 
accounting for the transaction as a forward acquisition or reverse 
recapitalization determine whether the financial statements are 
required in filings made after the acquisition was consummated?
    108. Should Rule 11-01(d) of Regulation S-X be amended to state 
that a SPAC is a business for purposes of the rule, as proposed? Would 
it change the existing application of Rule 11-01(b)(3)(i)(B) of 
Regulation S-X as it relates to de-SPAC transactions? Should eliciting 
the financial statements of the SPAC in a resale registration statement 
of an issuer that is not a SPAC be accomplished through a rule that 
specifically requires the SPAC financial statements to be filed 
(subject to the provisions of proposed Rule 15-01(e))?
    109. The Form 8-K filed pursuant to Item 2.01(f) may require a 
third fiscal year of certain financial statements for an acquired 
business that is the predecessor to a shell company and an emerging 
growth company, while Rule 15-01(b), as proposed, would only require 
two. Should we amend the Form 8-K requirement to provide an exception 
to the required Form 10-type information so the financial statements of 
the acquired business need not be presented for any period prior to the 
earliest audited period previously presented in connection with a 
registration, proxy, or information statement of the registrant?

V. Enhanced Projections Disclosure

A. Background

    Disclosure of financial projections is not expressly required by 
the federal securities laws; however, there are various reasons why 
registrants produce and disclose such information. For example, 
projections may be disclosed to comply with state or foreign corporate 
law regarding the board's decision to approve a business combination 
transaction or the basis underlying a fairness opinion issued by a 
financial advisor.\277\ Companies engaged in business combination 
transactions may use projections to negotiate the offered 
consideration, terms, and conditions and to allocate risks in those 
transactions. Companies may also disclose projections to avoid claims 
that the omission of such information violates federal anti-fraud 
provisions or to satisfy certain requirements under Regulation M-
A.\278\
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    \277\ See, e.g., In re Netsmart Techs., Inc., 924 A.2d 171 (Del. 
Ch. 2007), and the disclosure of the substantive work performed by 
the financial advisor, see, e.g., In re Pure Res., Inc., 808 A.2d 
421 (Del. Ch. 2002).
    \278\ See Exchange Act Rules 10b-5, 12b-20, 13e-3(b)(1)(ii), and 
17 CFR 240.14a-9 (Exchange Act Rule 14a-9), Securities Act Rule 
408(a), and Exchange Act Section 14(e). See also Item 
1004(b)(2)(iii) and 1011(c) of Regulation M-A. Omission of 
projections used by the board or the fairness opinion advisers, in 
particular, have been the subject of various lawsuits filed in 
federal courts alleging violation of Rule 14a-9. See, e.g., Smith v. 
Robbins & Myers, Inc., 969 F.Supp.2d 850 (2013), Azar v. Blount 
Intern., Inc., No. 3:16-cv-483-SI, 2017 WL 1055966, 2017 U.S. Dist. 
LEXIS 39493 (D. Or. Mar. 20, 2017), and NECA-IBEW Pension Trust Fund 
v. Precision Castparts Corp., No. 3:16-cv-01756-YY, 2017 WL 4453561, 
2017 U.S. Dist. LEXIS 165139 (D. Or. Oct. 3, 2017), adopted by 2018 
WL 533912, 2018 U.S. Dist. LEXIS 11463 (D. Or. Jan. 24, 2018) 
(relating to disclosed projections that management knew were not 
reflective of management's plans for the registrant).

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[[Page 29495]]

    Recent events have raised renewed concerns about the use of 
projections, particularly with respect to de-SPAC transactions in which 
private operating companies disclose projections that may lack a 
reasonable basis.\279\ For example, some companies have presented 
projections of significant increases in revenue or market share even 
though they do not have any operations at the time such projections 
were prepared.\280\ Other companies have allegedly used materially 
misleading assumptions, failed to take into account foreseeable future 
events in developing projections, or used projections unsupported by a 
target's experience.\281\ Similar potentially misleading projections 
have been used in non-SPAC filings, including with respect to future 
revenues, prospects and profitability.\282\ Although the Commission has 
previously acknowledged that projections and other forward-looking 
information can provide useful information for investors when making 
voting and investment decisions,\283\ it has also recognized that the 
use of such forward-looking information could raise investor protection 
concerns.\284\ Accordingly, the Commission adopted Item 10(b) of 
Regulation S-K to set forth its views on important factors to be 
considered in formulating and disclosing such projections in certain 
Commission filings.\285\ Item 10(b) states that management has the 
option to present in Commission filings its good faith assessment of a 
registrant's future performance, but it also states that management 
must have a reasonable basis for such an assessment. Item 10(b) further 
expresses the Commission's views on the need for disclosure of the 
assumptions underlying the projections, the limitations of such 
projections, and the format of the projections.
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    \279\ The Commission recently has brought enforcement actions 
alleging the use of baseless or unsupported projections about future 
revenues and the use of materially misleading underlying financial 
projections. These cases involve both SPACs and other reporting 
companies. See the following matters related to SPACs: In the Matter 
of Momentus, Inc., et. al., Exch. Act Rel. No. 34-92391 (July 13, 
2021); SEC vs. Hurgin, et al., Case No. 1:19-cv-05705 (S.D.N.Y., 
filed June 18, 2019); In the Matter of Benjamin H. Gordon, Exch. Act 
Rel. No. 34-86164 (June 20, 2019); and, SEC vs. Milton, Case No. 
1:21-cv-6445 (S.D.N.Y., filed July 29, 2021). See the following non-
SPAC cases: SEC vs. CanaFarma Hemp Products Corp, et al., Case No. 
1:21-cv-08211 (S.D.N.Y., filed Oct. 5, 2021); SEC v. Thomas, et al., 
Civil Action No. 19-cv-1132 (D. Nev., filed June 28, 2019); In the 
Matter of Ribbon Communications Inc., et. al., Exch. Act Rel. No. 
34-83791 (Aug. 7, 2018); SEC v. Enviro Board Corporation, et al., 
[Civil Action No. 2:16-cv-06427 (C.D. Cal., filed Aug. 26, 2016)]; 
and SEC v. Roberts, et. al., Civil Action No. 8:15-cv-2093-T-17-MAP 
(M.D. Fla., filed Sept. 9, 2015). See also Dave Michaels, Regulators 
Hit Space SPAC Over Disclosures, The Wall Street Journal, July 26, 
2021.
    \280\ Some news reports have also suggested that many post-
business combination companies, particularly those with less revenue 
or that are early stage companies, do not meet revenue or earnings 
targets that they provided to investors at the time of the de-SPAC 
transaction. An analysis performed by The Wall Street Journal 
indicates that, of the 63 companies that became public companies 
through a de-SPAC transaction in 2021 and had less than $10 million 
in sales at the time of the transaction, at least 30 did not meet 
their projections. The article reported that the companies in the 
analysis expected to miss their 2021 revenue projections fell short 
by an average of 53% and that companies falling short of their 
earnings projections have estimated losses that are approximately 
40% greater, on average, than they projected at the time of the de-
SPAC transaction. See Heather Somerville, SPACs Fall Short of Lofty 
Goals, The Wall Street Journal, Feb. 26, 2022.
    \281\ See supra note 275.
    \282\ Id.
    \283\ Disclosure of Projections of Future Economic Performance, 
Release No. 33-5362 (Feb. 2, 1973) [38 FR 7220 (Mar. 19, 1973)] and 
Guides for Disclosure of Projections of Future Economic Performance, 
Release No. 33-5992 (Nov. 7, 1978) [43 FR 53246 (Nov. 15, 1978)].
    \284\ See Release No. 33-5362, supra note 283.
    \285\ See Adoption of Integrated Disclosure System, Release 33-
6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16, 1982)]. In connection 
with the adoption of the integrated reporting system, the Commission 
rescinded several staff guides relating to the preparation of 
registration statements and reports and relocated the substance of 
some of them into Item 10(b) of Regulation S-K. See Rescission of 
Guides and Redesignation of Industry Guides, Release No. 33-6384 
(Mar. 16, 1982) [47 FR 11476 (Mar. 16, 1982)].
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B. Rule Proposals

    We are proposing to amend Item 10(b) of Regulation S-K to expand 
and update the Commission's views on the use of projections. Among 
other things, the proposed amendments would address the presentation of 
projections by companies with no history of operations and provide that 
the guidance in the item also applies to projections of future economic 
performance of persons other than the registrant, such as the target 
company in a business combination. Further, given the widespread use of 
projections in de-SPAC transactions and the resulting heightened 
concerns, we are also proposing new Item 1609 of Regulation S-K that 
would be applicable to financial projections used in de-SPAC 
transactions and would set forth additional disclosure requirements 
relating to financial projections.
    The proposed revisions to Item 10(b) of Regulation S-K and proposed 
Item 1609 of Regulation S-K are intended to help address concerns about 
the use of projections in de-SPAC transactions and similar 
circumstances. By providing additional guidance for registrants and 
mandating specific disclosures in de-SPAC transactions, these proposed 
rules could enhance the attention and level of care companies bring to 
the preparation of financial projections, both in de-SPAC transaction 
filings and in other filings made with the Commission.
1. Item 10(b) of Regulation S-K
    We are proposing to amend Item 10(b) to present the Commission's 
updated views on projected financial information. The proposed 
amendments to Item 10(b) would continue to state the Commission's view 
that projected financial information included in filings subject to 
Item 10(b) must have a reasonable basis. To address specific concerns 
that some companies may present projections more prominently than 
actual historical results (or the fact that they have no operations at 
all) or use non-GAAP financial measures in the projections without a 
clear explanation or definition of such a measure, we propose to amend 
Item 10(b) to state that:
     Any projected measures that are not based on historical 
financial results or operational history should be clearly 
distinguished from projected measures that are based on historical 
financial results or operational history;
     It generally would be misleading to present projections 
that are based on historical financial results or operational history 
without presenting such historical measure or operational history with 
equal or greater prominence; and
     The presentation of projections that include a non-GAAP 
financial measure should include a clear definition or explanation of 
the measure, a description of the GAAP financial measure to which it is 
most closely related,\286\ and an explanation why the non-GAAP 
financial measure was used instead of a GAAP measure.\287\
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    \286\ The reference to the nearest GAAP measure called for by 
amended Item 10(b) would not require a reconciliation to that GAAP 
measure. The need to provide a GAAP reconciliation would continue to 
be governed by Regulation G and Item 10(e) of Regulation S-K.
    \287\ The Commission stated a similar view in 2003. See 
Conditions for Use of Non-GAAP Financial Measures, Release No. 33-
8176 (Jan. 22, 2003), section II.B.2 [68 FR 4820 (Jan. 30, 2003)].
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    These proposed changes, if adopted, should assist registrants in 
presenting their projections in an appropriate format and with the 
appropriate context, which in turn should facilitate investors' 
evaluation of the projections, assessment of the reasonableness of the 
bases for these projections (particularly when compared to historical 
performance and results), and determinations about the appropriate 
reliance to place on the projections

[[Page 29496]]

when making an investment or voting decision.
    Finally, Item 10(b) currently refers to projections regarding the 
future performance of a ``registrant.'' In business combination 
transactions, it is common for projections of the target company to be 
included in the Securities Act registration statement or proxy 
statement filed by the acquiring company. In such a case, it may be 
unclear if the guidance in Item 10(b) applies to the target company's 
projections because the target company is not the registrant for that 
filing. In our view, Item 10(b) should apply to such projections 
because they are nevertheless being presented to investors through the 
registration statement or proxy statement filed by the acquiring 
company. Accordingly, we are proposing to amend Item 10(b) to state 
that the guidance therein applies to any projections of future economic 
performance of persons other than the registrant, such as the target 
company in a business combination transaction, that are included in the 
registrant's Commission filings.
Request for Comment
    110. Should we amend Item 10(b) of Regulation S-K, as proposed? Is 
there additional or different guidance we should provide?
    111. Instead of applying to all filings covered by Item 10(b), as 
proposed, should the proposed updated guidance apply solely to filings 
relating to business combination transactions (including de-SPAC 
transactions), while retaining the existing Item 10(b) guidance for 
other filings?
    112. Are the proposed amendments to Item 10(b) necessary in light 
of proposed Item 1609 of Regulation S-K, which is limited to de-SPAC 
transactions?
    113. Are there different ways of presenting financial projections 
that would be beneficial to investors? For example, should we require 
registrants to present some or all financial projections in a 
separately captioned section of a Commission filing?
2. Item 1609 of Regulation S-K
    We are also proposing new Item 1609 of Regulation S-K that would 
apply only to de-SPAC transactions.\288\ The nature of the SPAC 
structure and de-SPAC transactions raise heightened concerns about the 
use of projections in such transactions. As noted above, a sponsor's 
compensation may depend to a large extent on the completion of the de-
SPAC transaction, and thus the SPAC and its sponsor may have an 
incentive to use a private operating company's financial projections in 
seeking support for the de-SPAC transaction.\289\ In particular, such 
projections could be used to value the private operating company and 
may influence how investors evaluate a proposed de-SPAC 
transaction.\290\ Similarly, as a consequence of the SPAC's expected 
valuation of the private operating company on the basis of this type of 
financial projections, controlling shareholders and management of the 
private operating company may have an incentive to be overly aggressive 
in their development of projections as a means of justifying a higher 
price for their company.\291\ Aggressive projections may also be used 
by the SPAC or the private operating company to justify the target's 
valuation in order to help meet any exchange listing requirement that 
the target has a fair market value equal to at least 80% of the balance 
of funds in the SPAC's trust account.\292\
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    \288\ The disclosure would be required in the forms or schedules 
filed for de-SPAC transactions.
    \289\ There is evidence that, in a majority of de-SPAC 
transactions announced in the twelve months ending in the first 
quarter of 2021, the private operating companies were pre-revenue, 
thus making financial projections an important basis for SPACs and 
private operating companies to find additional investments and to 
receive support for de-SPAC transactions. See ``Why Have SPAC 
Valuations Skyrocketed?,'' Stuart Gleichenhaus and Bill Stotzer, FTI 
Consulting, Aug. 6, 2021.
    \290\ In this regard, we note that there also is evidence of the 
different uses of, and greater reliance on, financial projections by 
retail investors than by institutional investors. See Dambra, Even-
Tov, and George, supra note 33.
    \291\ See Kimball Chapman, Richard M. Frankel, and Xiumin 
Martin, SPACs and Forward-Looking Disclosure: Hype or Information? 
(SSRN Working Paper, 2021).
    \292\ See, e.g., NYSE Listed Company Manual Section 102.06 and 
Nasdaq Listing Rule IM- 5101-2.
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    For these reasons, we are proposing additional disclosures intended 
to assist investors in assessing the bases of projections used in de-
SPAC transactions and determining to what extent they should rely on 
such projections. Proposed Item 1609 would require a registrant to 
provide the following disclosures:
     With respect to any projections disclosed by the 
registrant, the purpose for which the projections were prepared and the 
party that prepared the projections;
     All material bases of the disclosed projections and all 
material assumptions underlying the projections, and any factors that 
may materially impact such assumptions (including a discussion of any 
factors that may cause the assumptions to be no longer reasonable, 
material growth rates or discount multiples used in preparing the 
projections, and the reasons for selecting such growth rates or 
discount multiples); and
     Whether the disclosed projections still reflect view of 
the board or management of the SPAC or target company, as applicable, 
as of the date of the filing; if not, then discussion of the purpose of 
disclosing the projections and the reasons for any continued reliance 
by the management or board on the projections.
    These proposed disclosures would inform investors about why the 
projections were prepared, and by whom, which could allow them to 
better understand the motivations underlying such projections. In 
addition, the proposed disclosures could help investors assess the 
continued reliability of the projections both independently and through 
the views of the board or management.
Request for Comment
    114. Should we adopt Item 1609 as proposed? Are there additional 
disclosures that we should require in de-SPAC transaction filings 
related to financial projections?
    115. As proposed, Item 1609 of Regulation S-K would apply only to 
de-SPAC transactions. Should we expand the scope of the item to apply 
to all companies that publicly disclose financial projections in 
Commission filings?
    116. Should we prohibit the disclosure of any specific financial 
measures or metrics? If so, which measures or metrics?
    117. Will proposed Item 1609 discourage the use of financial 
projections in de-SPAC transactions? What impact would this have on 
investors? Would our proposal have any impact on the ability to comply 
with state or foreign law obligations regarding disclosures of 
projections used in business combination transactions?
    118. Both the proposed amendments relating to the PSLRA safe harbor 
and proposed Item 1609 may result in market participants using 
financial projections in de-SPAC transactions in a different manner 
than they do currently. Would adoption of only one of the proposals 
strike a better balance in terms of the costs and benefits with respect 
to the use of projections? If so, which proposal?

[[Page 29497]]

VI. Proposed Safe Harbor Under the Investment Company Act

A. Background

    While the number of SPACs has grown dramatically in recent 
years,\293\ some SPACs have sought to operate in novel ways that 
suggest that SPACs and their sponsors should increase their focus on 
evaluating when a SPAC could be an investment company.\294\ We are 
concerned that SPACs may fail to recognize when their activities raise 
the investor protection concerns addressed by the Investment Company 
Act.\295\ To assist SPACs in focusing on, and appreciating when, they 
may be subject to investment company regulation, we are proposing Rule 
3a-10, which would provide a safe harbor from the definition of 
``investment company'' under Section 3(a)(1)(A) \296\ of the Investment 
Company Act for SPACs that meet the conditions discussed below.\297\ We 
believe that certain SPAC structures and practices may raise serious 
questions as to their status as investment companies. While a SPAC 
would not be required to rely on the safe harbor, we have designed the 
proposed conditions of the safe harbor to align with the structures and 
practices that we preliminarily believe would distinguish a SPAC that 
is likely to raise these questions from one that would not.
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    \293\ See supra notes 7-8 and accompanying text.
    \294\ The growth of the SPAC industry, among other things, has 
also sparked debate about the status of SPACs as investment 
companies. See, e.g., Kristi Marvin, 49 Law Firms Unite and Push 
Back on Recent SPAC Litigation, SPAC Insider (Aug. 27, 2021), 
available at https://spacinsider.com/2021/08/27/49-law-firms-unite-push-back-on-spac-litigation/; Alison Frankel, Law Profs Defend 
Theory that SPAC is Illegal under the Investment Company Act, 
Reuters (Nov. 1, 2021).
    \295\ The Investment Company Act regulates the organization of 
investment companies that engage primarily in investing, 
reinvesting, and trading in securities, and whose own securities are 
offered to the investing public. The Act is designed to minimize 
conflicts of interest that arise in these complex operations 
protecting investors by preventing insiders from managing the 
companies to their benefit and to the detriment of public investors; 
preventing the issuance of securities having inequitable or 
discriminatory provisions; preventing the management of investment 
companies by irresponsible persons; preventing the use of unsound or 
misleading methods of computing earnings and asset value; preventing 
changes in the character of investment companies without the consent 
of investors; preventing investment companies from engaging in 
excessive leveraging; and ensuring the disclosure of full and 
accurate information about the companies and their sponsors. See 
Section 1(b) of the Investment Company Act [15 U.S.C. 80a-1(b)].
    \296\ 15 U.S.C. 80a-3(a)(1)(A).
    \297\ Proposed 17 CFR 270.3a-10. SPACs that meet the proposed 
rule's conditions would not need to register under the Investment 
Company Act.
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1. Potential Status as an Investment Company
    Section 3(a)(1)(A) defines an ``investment company'' as any issuer 
that is or holds itself out as being engaged primarily, or proposes to 
engage primarily, in the business of investing, reinvesting, or trading 
in securities. Depending on the facts and circumstances, SPACs could 
meet the definition of ``investment company'' in Section 3(a)(1)(A). To 
assess a SPAC's status as an investment company under that definition, 
we generally look to the SPAC's assets, the sources of its income, its 
historical development, its public representations of policy, and the 
activities of its officers and directors (known as the ``Tonopah 
factors'').\298\
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    \298\ See In the Matter of Tonopah Mining Co., 26 S.E.C. 426 
(July 21, 1947). See generally SEC v. National Presto Industries, 
Inc., 486 F.3d 305 (7th Cir. May 15, 2007), rev'g. SEC v. National 
Presto Industries Inc., Case No. 02 C 5057 (N.D. Ill, Oct. 31, 
2005). The Tonopah factors were first used by the Commission to 
determine an issuer's primary engagement under Section 3(b)(2), but 
have been applied in part or in totality to determine an issuer's 
primary engagement in other contexts under the Investment Company 
Act, including Section 3(a)(1)(A) of the Act. Certain Prima Facie 
Investment Companies, Release No. IC-10937 (Nov. 13, 1979) [44 FR 
66608 (Nov. 20, 1979)] at n.24 (``Proposing Release to Rule 3a-1'') 
(``Although [Tonopah] was decided under [S]ection 3(b)(2) of the 
Act, the ``primary engagement'' standard set forth in that case also 
appears to be applicable to the identical standard of Section 
3(a)(1)[A] and [S]ection 3(b)(1).''). The Commission has also 
considered the activities of the company's employees, in addition to 
company's officers and directors, in determining a company's primary 
business. See, e.g., 17 CFR 270.3a-8 (Rule 3a-8 under the Investment 
Company Act); Snowflake Inc., Release No. IC-34049 (Oct. 9, 2020) 
[85 FR 65449 (Oct. 15, 2020)] (notice), Release No. IC-34085 (Nov. 
4, 2020) (order); Lyft Inc., Release No. IC-33399 (Mar. 14, 2019) 
[84 FR 10156 (Mar. 19, 2019)] (notice), Release No. IC-33442 (Apr. 
8, 2019) (order).
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    SPACs are generally formed to identify, acquire and operate a 
target company through a business combination and not with a stated 
purpose of being an investment company.\299\ We understand that SPACs 
typically view their public representations, historical development and 
efforts of officers and directors as consistent with those of issuers 
that are not investment companies. At the same time, most SPACs 
ordinarily invest substantially all their assets in securities, often 
for a period of a year or more, meaning that investors hold interests 
for an extended period in a pool of securities. Moreover, whatever 
income a SPAC generates during this period is generally attributable to 
its securities holdings. The asset composition and sources of income 
for most SPACs may therefore raise questions about their status as 
investment companies under Section 3(a)(1)(A) of the Investment Company 
Act and, in assessing this status, these factors would need to be 
weighed together with the other Tonopah factors.
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    \299\ See generally supra Section I.
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2. Rationale for the Safe Harbor
    The safe harbor we are proposing focuses on conditions that limit a 
SPAC's duration, asset composition, business purpose and activities as 
a means of enhancing investor protection.\300\ The proposed rule is 
designed so that, if a SPAC satisfies the rule's conditions, together 
with the disclosure requirements being proposed in this release, such 
SPAC's operations would be limited and differ sufficiently from those 
of investment companies so as to generally not raise the types of 
investor protection concerns that the Investment Company Act is 
intended to address. In addition, the proposed rule may also promote 
investor protection by highlighting for SPACs and their sponsors the 
Investment Company Act concerns that certain SPAC activities may raise.
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    \300\ We understand that SPACs typically place most of their 
assets in a trust or escrow accounts. Although the Commission has 
never addressed the status of SPACs under the Investment Company 
Act, the Commission has addressed the status of escrow or trust 
accounts established by blank check companies that comply with Rule 
419 under the Securities Act (``Rule 419 Accounts''). The Commission 
took the position that ``although a Rule 419 Account may be an 
investment company under the Investment Company Act of 1940, in 
light of the purposes served by the regulatory requirement to 
establish such an account, the limited nature of the investments, 
and the limited duration of the account, such an account will 
neither be required to register as an investment company nor 
regulated as an investment company as long as it meets the 
requirements of Rule 419.'' Blank Check Offerings, supra note 6 
(``Rule 419 Adopting Release''), at text accompanying n.32. SPACs 
have evolved since the Commission adopted Rule 419, and as noted 
above, SPACs are not subject to the requirements of Rule 419. See 
supra notes 12 and 13 and accompanying text.
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    The proposed rule may also have the effect of providing more 
certainty to SPACs regarding their status under the Investment Company 
Act. This in turn, could facilitate capital formation because SPACs 
that operate within the boundaries of the safe harbor would be assured 
that they would not qualify as investment companies. The rule may also 
promote efficiency by providing a clear framework for SPACs to 
determine their status under the Investment Company Act.\301\
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    \301\ For these reasons, we believe the safe harbor, subject to 
the proposed conditions, would be necessary or appropriate in the 
public interest, and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the 
Act. See Section 6(c) of the Investment Company Act [15 U.S.C. 80a-
6(c)]. See also Section 38(a) of the Investment Company Act [15 
U.S.C. 80a-37(a)].

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[[Page 29498]]

3. Boundaries of the Safe Harbor
    While a SPAC would not be required to rely on the safe harbor, we 
have designed the proposed conditions of the safe harbor to align with 
the structures and practices that we preliminarily believe would 
distinguish a SPAC that is likely to raise serious questions as to its 
status as an investment company under the Investment Company Act from 
one that would not. Activities that would raise these concerns include, 
solely by way of example and without limitation, if a SPAC were to 
invest in securities not permitted by the proposed safe harbor, 
actively manage its portfolio, or hold itself out in a manner that 
suggests investors should invest to gain exposure to the portfolio it 
holds prior to the de-SPAC transaction.
    A SPAC would raise similar concerns if it were to invest its assets 
in securities, including those permitted by the safe harbor, for a 
lengthier period of time without identifying a target company. As 
discussed below, we are concerned that, the longer the SPAC operates 
with its assets invested in securities and its income derived from 
securities, the more likely investors will come to view the SPAC as a 
fund-like investment and the more likely the SPAC will appear to be 
deviating from its stated business purpose.\302\ Similarly, if a SPAC 
did not seek to engage in a business combination but instead sought to 
acquire a minority interest in a target company with the intention of 
being a passive investor, it is more likely that it will appear to be 
an investment company. Investors in SPACs that engage in the activities 
discussed above may be at a significantly greater risk of acquiring 
SPAC shares expecting a fund-like investment.\303\
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    \302\ See infra Section VI.B.2.b.
    \303\ In considering the investment company status of SPACs that 
do not comply with the safe harbor, we would use the traditional 
framework for evaluating the status of a potential investment 
company discussed above.
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    The safe harbor we are proposing only addresses investment company 
status under Section 3(a)(1)(A) of the Investment Company Act, commonly 
known as the ``subjective test.'' Section 3(a)(1)(C) of the Investment 
Company Act provides an alternate ``objective test'' that defines an 
``investment company'' as any issuer that is engaged or proposes to 
engage in the business of investing, reinvesting, owning, holding, or 
trading in securities, and that owns or proposes to acquire investment 
securities,\304\ having a value exceeding 40% of the value of the 
company's total assets (exclusive of Government securities and cash 
items) on an unconsolidated basis. If a SPAC owns or proposes to 
acquire 40% or more of investment securities, it would likely need to 
register and be regulated as an investment company under the Investment 
Company Act.
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    \304\ Section 3(a)(2) of the Investment Company Act generally 
defines ``investment securities'' to include all securities except 
Government securities, securities issued by employees' securities 
companies, and securities issued by majority-owned subsidiaries of 
the owner which are not investment companies or certain private 
investment companies. 15 U.S.C. 80a-3(a)(2).
---------------------------------------------------------------------------

    The safe harbor we are proposing is intended to address the status 
of a qualifying SPAC from the time of the SPAC's initial public 
offering until it completes its de-SPAC transaction.\305\ For purposes 
of the proposed rule, the definitions of SPAC, de-SPAC transaction, and 
target company would be the same as those set forth in proposed Item 
1601 of Regulation S-K.\306\
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    \305\ The remaining company (or companies) after the de-SPAC 
transaction may also raise separate questions of Investment Company 
Act status. If a remaining company meets the definition of 
``investment company'' following the de-SPAC transaction, that 
company would need to register as an investment company or rely on 
an appropriate exclusion or exemption under the Investment Company 
Act.
    \306\ See supra Section II.A.
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Request for Comment
    119. Instead of a safe harbor, should we provide an interpretation 
concerning when SPACs would meet the definition of ``investment 
company''? Alternatively, should we exempt SPACs that meet the 
definition of ``investment company'' from any provisions of the 
Investment Company Act, and if so, which provisions? Are there any 
changes we should make to the proposed approach that would better 
achieve the objectives of the proposed rule? Are there conditions we 
should include in addition to those set forth below?
    120. We request comment on whether the safe harbor should include 
an exemption from Section 3(a)(1)(C), in addition to Section 
3(a)(1)(A). If such an expansion is needed, please explain the 
circumstances in which a SPAC could meet the definition of ``investment 
company'' in Section 3(a)(1)(C) while still complying with the 
conditions in the proposed safe harbor.
    121. Should the proposed rule incorporate the definitions of de-
SPAC transaction, special purpose acquisition company and target 
company as proposed in Item 1601? Should any of these definitions be 
different under proposed Rule 3a-10? If so, please identify the 
definition, how the definition should be changed, and why.
    122. We understand that SPACs typically place most of their assets 
in a trust or escrow account as required by the listing standards. In 
the event that these accounts may also be ``issuers'' under the 
Investment Company Act,\307\ does the safe harbor need to address these 
accounts under that Act? Alternatively, should the rule text specify 
that assets and activities of the SPAC (as discussed below) include 
those of the trust?
---------------------------------------------------------------------------

    \307\ See supra note 300.
---------------------------------------------------------------------------

    123. As proposed, an existing SPAC that has not completed a de-SPAC 
transaction prior to the effective date of the rule would not be 
prohibited from relying on the safe harbor if it satisfies the 
conditions. Should we permit an existing SPAC to rely on the safe 
harbor if it does not have a board resolution but has other 
contemporary evidence of its intent and otherwise meets the conditions 
of the safe harbor? Alternatively, should we limit reliance on the safe 
harbor to SPACs formed after the effective date of the rule? If 
proposed Rule 3a-10 is adopted, should the rule's effective date 
reflect the possibility that some SPAC's may need to alter their 
operations or more quickly complete a de-SPAC transaction in order to 
meet the conditions of the rule? If so, should we provide an extended 
or delayed effective date? Should we provide a compliance or transition 
period, and if so, why?

B. Conditions

    The conditions to the safe harbor focus on certain defining 
characteristics of SPACs \308\ and are designed to ensure that SPACs 
wishing to rely on the safe harbor do not operate, or hold themselves 
out, as investment companies.
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    \308\ The conditions are also consistent with our approach with 
respect to Rule 419 Accounts. Id.
---------------------------------------------------------------------------

    The conditions are discussed in more detail below.
1. Nature and Management of SPAC Assets
    In order to rely on the proposed safe harbor, a SPAC's assets \309\ 
must consist solely of Government securities,\310\ Government money 
market funds \311\

[[Page 29499]]

and cash items \312\ prior to the completion of the de-SPAC 
transaction.\313\ Thus, all proceeds obtained by the SPAC, including 
those from any SPAC offering, cash infusion from the sponsor, or any 
interest, dividend, distribution or other such return derived from the 
SPAC's underlying assets would need to be held in these assets. We 
understand that SPACs typically acquire these assets in part because 
they may be easily liquidated to fund any acquisition or other expenses 
related to the de-SPAC transaction and investor redemptions and, unlike 
the investments of registered investment companies, are not primarily 
made to achieve an investment purpose.\314\ This condition reflects the 
SPAC's intended business purpose to acquire assets to fund a de-SPAC 
transaction and also generally limits the SPAC's assets to those that 
may be consistent with cash management practices rather than primarily 
investment purposes.\315\
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    \309\ For purposes of the rule, any references to the SPAC's 
assets refer to both the assets held in the trust or escrow account 
and any assets held by the SPAC directly.
    \310\ The term ``Government security'' has the same meaning as 
defined in Section 2(a)(16) of the Investment Company Act. 15 U.S.C. 
80a-2(a)(16).
    \311\ The term ``Government money market fund'' has the same 
meaning as defined in paragraph (a)(14) of Rule 2a-7 under the 
Investment Company Act. 17 CFR 270.2a-7.
    \312\ The Commission has previously included the following as 
cash items for purposes of Rule 3a-1: Cash, coins, paper currency, 
demand deposits with banks, timely checks of others, cashier checks, 
certified checks, bank drafts, money orders, travelers' checks, and 
letters of credit. See Proposing Release to Rule 3a-1, supra note 
298, at text accompanying n.11. We take the same view here with 
respect to the proposed rule.
    \313\ Proposed Rule 3a-10(a)(1).
    \314\ If a SPAC were to significantly change its asset 
composition contrary to its original representations, it would raise 
questions whether the initial representations were false and 
misleading.
    \315\ This limited asset composition would not, on its own, 
distinguish a SPAC from an investment company. This provision is 
designed to operate together with the other conditions to the safe 
harbor, and nothing in this provision is meant to address the status 
under Section 3(a)(1)(A) of a company that is not relying on this 
safe harbor, including those primarily engaged in the business of 
investing in government securities and/or government money market 
funds. For example, an issuer that holds these types of assets, but 
whose primary business is to achieve investment returns on such 
assets would still be an investment company under Section 
3(a)(1)(A).
---------------------------------------------------------------------------

    Under the proposed rule, a SPAC seeking to rely on the safe harbor 
may not acquire any other type of asset, including interests in an 
operating company, prior to the completion of a de-SPAC transaction. 
Acquiring other types of assets and then transferring such assets to 
another entity or to SPAC shareholders would suggest that the SPAC's 
primary business is that of investing in securities. Nothing in this 
provision, however, is intended to preclude the SPAC from using SPAC 
assets to pay expenses related to the operation of the SPAC.
    Under the proposed rule, the assets set forth in paragraph (a)(1) 
may not at any time be acquired or disposed of for the primary purpose 
of recognizing gains or decreasing losses resulting from market value 
changes.\316\ Unlike management investment companies, SPACs typically 
do not actively manage their portfolios, often holding their Government 
securities to maturity. The proposed provision is therefore intended to 
allow SPACs the flexibility to hold their assets consistent with cash 
management practices yet ensure that SPACs relying on the safe harbor 
do not engage in activities that would necessitate the investor 
protections of the Investment Company Act, like portfolio management 
practices resembling those that management investment companies employ.
---------------------------------------------------------------------------

    \316\ Proposed Rule 3a-10(a)(2). This provision is similar to 
that found in paragraph (a)(3)(iii) in 17 CFR 270.3a-7 (Rule 3a-7), 
and we propose to apply this provision in the same manner in the 
proposed rule.
---------------------------------------------------------------------------

Request for Comment
    124. Should we allow SPACs seeking to rely on the safe harbor to 
invest in Government securities? Alternatively, should we limit these 
SPACs to only certain types of Government securities, such as U.S. 
Treasury securities?
    125. Should we allow SPACs to invest in government money market 
funds, as defined in Rule 2a-7? Should we instead limit the type of 
money market funds that a SPAC may invest in to money market funds that 
only hold U.S. Treasury securities? Conversely, should the provision be 
expanded to permit SPACs to invest in all types of money market funds 
provided that they rely on Rule 2a-7? \317\
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    \317\ The Commission has taken the position that money market 
funds relying on Rule 2a-7 may be treated as cash equivalents for 
purposes of Rule 2a-7 for GAAP purposes. See Money Market Fund 
Reform; Amendments to Form PF, Release No. IC-31166 (July 23, 2014) 
[79 FR 47736 (Aug. 14, 2014)].
---------------------------------------------------------------------------

    126. In addition to the questions raised above, as a general 
matter, is paragraph (a)(1) too narrow? For example, should the safe 
harbor be expanded to include SPACs that acquire investment securities 
or other assets (e.g., assets that are not for investment purposes 
relevant to the operation of the SPAC)? If yes, please explain which 
investment securities and/or assets and why such an expansion of the 
safe harbor would be appropriate.
    127. Does paragraph (a)(2) provide enough flexibility with respect 
to a SPAC's holdings but yet prevent SPACs from engaging in activities 
similar to management investment companies?
    128. As noted, we understand that SPACs typically place most of 
their assets in trust or escrow accounts. Should the rule text address 
the manner in which a SPAC holds its assets? For example, should the 
rule require SPAC assets to be held in trust or escrow accounts? If 
yes, should the safe harbor be conditioned on complying with the terms 
of the custody rules under the Investment Company Act as if they 
applied to these accounts?
2. SPAC Activities
a. De-SPAC Transactions
    The proposed rule would provide a safe harbor only to those SPACs 
that seek to complete a single de-SPAC transaction as a result of which 
the surviving public entity (the ``surviving company''),\318\ either 
directly or through a primarily controlled company,\319\ will be 
primarily engaged in the business of the target company or companies, 
which is not that of an investment company. Thus, to rely on the rule, 
the SPAC must have a business purpose aimed at providing its 
shareholders with the opportunity to own interests in a public entity 
that, in contrast to an investment company, will either be an operating 
company, or will, through a primarily controlled company, operate such 
operating company.\320\ In addition, the SPAC would need to seek to 
complete a de-SPAC transaction as a result of which the surviving 
company would have at least one class of securities listed for trading 
on a national securities exchange.\321\
---------------------------------------------------------------------------

    \318\ The proposed rule defines the term ``surviving company'' 
to mean the public company issuer that survives a de-SPAC 
transaction and in which the shareholders of the SPAC immediately 
prior to the de-SPAC transaction will own equity interests 
immediately following the de-SPAC transaction. Proposed Rule 3a-
10(b)(3).
    \319\ The proposed rule defines the term ``primarily controlled 
company'' to mean an issuer that (i) is controlled within the 
meaning of Section 2(a)(9) of the Investment Company Act by the 
surviving company following a de-SPAC transaction with a degree of 
control that is greater than that of any other person and (ii) is 
not an investment company. Proposed Rule 3a-10(b)(2).
    \320\ As drafted, the proposed rule would permit a SPAC relying 
on the safe harbor to seek to engage in a de-SPAC transaction with 
any company other than an investment company. Thus, a SPAC may seek 
to engage in a de-SPAC transaction with a target company that is not 
considered an investment company under Section 3(a) or that is 
excepted or exempted from the definition of investment company by 
order under Section 3(b) [15 U.S.C. 80a-3(b)] or by rules or 
regulations under Section 3(a).
    \321\ Proposed Rule 3a-10(a)(3)(i). The post-business 
combination surviving company would have to qualify for listing on a 
national securities exchange by meeting initial listing standards 
just as any company seeking an exchange listing would have to do. If 
the surviving company did not qualify for listing, it could not be 
listed for trading on a national securities exchange and delisting 
procedures would commence.
---------------------------------------------------------------------------

    A SPAC would be able to engage in only one de-SPAC transaction 
while relying on the safe harbor, but such

[[Page 29500]]

transaction may involve the combination of multiple target 
companies,\322\ provided that the SPAC treats them for all purposes as 
part of a single de-SPAC transaction. Such intentions would be 
evidenced by the description in any disclosure or reporting documents, 
and that the closing with respect to all target companies occurs 
contemporaneously and within the required time frames.\323\ We are 
imposing this limitation because we are concerned that a SPAC that 
makes multiple acquisitions could be engaging in the types of 
activities that raise the investor protection concerns addressed by the 
Investment Company Act. A SPAC that purchases multiple companies as 
part of a single transaction (and complies with the other conditions of 
the safe harbor) would not raise these concerns as it would still 
appear to be seeking to be primarily engaged in the business of an 
operating company or companies after the de-SPAC transaction, and not 
to be engaged in investment management activities.
---------------------------------------------------------------------------

    \322\ The proposed definitions of ``special purpose acquisition 
company'' and ``de-SPAC transaction'' anticipate that a SPAC may 
engage in a de-SPAC transaction with more than one target company 
contemporaneously. See supra Section II.A.
    \323\ See infra Section VI.B.3.
---------------------------------------------------------------------------

    While recognizing that de-SPAC transactions may have various 
structures and may involve intermediary entities, the proposed safe 
harbor is intended to ensure that the SPAC must be seeking a business 
combination in which the surviving entity, directly or through a 
primarily controlled company,\324\ is primarily engaged in the business 
of the target company or companies and not merely seeking an investment 
opportunity. ``Primary control'' within the definition of ``primarily 
controlled company'' means that the surviving company must have 
``control'' \325\ of such company and the degree of that control must 
be greater than that of any other person.\326\ The ``primarily 
control'' standard, which is similar to that found in other status 
rules under the Investment Company Act,\327\ is designed to distinguish 
a holding company structure for an operating company from an investment 
in securities of an operating company.\328\ As we previously expressed 
in a similar context, this level of control is more consistent with an 
active role in managing the affairs of a company than if the issuer 
owns a lesser controlling interest in such company.\329\ We believe 
that a lesser degree of control, or lack of control, would in these 
circumstances more closely resemble the activities of an investment 
company.\330\
---------------------------------------------------------------------------

    \324\ See supra note 319.
    \325\ See Section 2(a)(9) of the Investment Company Act for the 
definition of ``control''[15 U.S.C. 80a-2(9)].
    \326\ See, e.g., paragraph (b)(2) of 17 CFR 270.3a-8 (Rule 3a-8 
under the Investment Company Act).
    \327\ See, e.g., Rule 3a-8 under the Investment Company Act; 17 
CFR 270.3a-1 (Rule 3a-1 under the Investment Company Act).
    \328\ See, e.g., Certain Research and Development Companies, 
Release No. IC-25835 (Nov. 26, 2002) [67 FR 71915 (Dec. 3, 2002)] 
(``Proposing Release to Rule 3a-8'') at nn.57-58 and accompanying 
text.
    \329\ See Proposing Release to Rule 3a-1, supra note 287, at 
n.32. See also Proposing Release to Rule 3a-8, supra note 328, at 
text before n.58 (``The Commission traditionally has viewed the fact 
that an issuer's degree of control over a company is greater than 
that of any other person as strong evidence that the issuer is 
engaged in a business through the other company.'').
    \330\ Id.
---------------------------------------------------------------------------

    In order to rely on the safe harbor, the surviving company must 
also have at least one class of securities listed for trading on a 
national securities exchange.\331\ This condition recognizes that a 
SPAC's business plan is to engage in a de-SPAC transaction, the result 
of which is that SPAC shareholders receive the publicly traded shares 
of the surviving company.\332\ Similar to the other parts of this 
condition, this provision helps to ensure that the SPAC has a business 
purpose that is different from engaging primarily in the business of 
investing, reinvesting or trading in securities.
---------------------------------------------------------------------------

    \331\ Proposed Rule 3a-10(a)(3)(i)(B). As noted in supra note 
321, the surviving company would have to apply for and be approved 
for listing by meeting the initial listing standards of a national 
securities exchange. Otherwise, it could not be listed and traded on 
an exchange.
    \332\ See supra Section I.
---------------------------------------------------------------------------

b. Evidence of Primary Engagement
    The proposed rule would require a SPAC wishing to rely on the safe 
harbor to be primarily engaged in the business of seeking to complete a 
de-SPAC transaction in the manner and within the time frame set forth 
in the rule. Such engagement must be evidenced by the activities of its 
officers, directors and employees, its public representations of 
policies, and its historical development.\333\ For example, the 
officers, directors and employees of a SPAC wishing to rely on this 
safe harbor would need to be primarily focused on activities related to 
seeking a target company to operate and not on activities related to 
the management of its securities portfolio. These conditions 
incorporate three of the Tonopah factors and are intended, together 
with the other conditions to the safe harbor, to ensure that a SPAC may 
only rely on the safe harbor if it is primarily engaged in a business 
other than that of investing, reinvesting or trading in securities. 
These factors are also similar to those used to determine the primary 
engagement of a business in different contexts under the Investment 
Company Act.\334\
---------------------------------------------------------------------------

    \333\ Proposed Rule 3a-10(a)(5)(i) through (iii). Such evidence 
may also include its articles of incorporation or other formation 
documents.
    \334\ See, e.g., Rule 3a-8 under the Investment Company Act. As 
discussed previously, in addition to these factors, the Tonopah 
factors also focus on the company's assets and sources of income. 
See supra Section VI.A.1. While proposed paragraph (a)(1) addresses 
the asset composition of SPACs wishing to rely on the safe harbor, 
the proposed safe harbor does not include a separate condition 
specifically addressing a SPAC's source of income because the 
sources of income are addressed in the proposed rule's limitations 
regarding the SPACs' activities and the types of assets it may 
acquire.
---------------------------------------------------------------------------

    To rely on the safe harbor, the SPAC's board of directors would 
also need to adopt an appropriate resolution evidencing that the 
company is primarily engaged in the business of seeking to complete a 
single de-SPAC transaction as described by the rule, and which is 
recorded contemporaneously in its minute books or comparable 
documents.\335\ This condition is similar to other exclusionary rules 
under the Investment Company Act in which the issuer may only rely on 
the safe harbor provided by the rule if the issuer's board of directors 
adopts an appropriate resolution evidencing that the company is 
primarily engaged in a non-investment business.\336\ Such action serves 
to publicly document the intent of management and helps to establish a 
shared understanding of shareholders concerning the business purpose of 
this issuer.
---------------------------------------------------------------------------

    \335\ Proposed Rule 3a-10(a)(5)(iv).
    \336\ See 17 CFR 270.3a-2 (Rule 3a-2 under the Investment 
Company Act); Rule 3a-8 under the Investment Company Act.
---------------------------------------------------------------------------

    A SPAC relying on the proposed rule also may not hold itself out as 
being primarily engaged in the business of investing, reinvesting or 
trading in securities. Given that SPACs invest in the same types of 
securities as certain investment companies, such as money market funds, 
a SPAC relying on the rule may not hold itself out, or otherwise 
suggest, that the SPAC operates in a manner similar to these types of 
investment companies. For example, a SPAC could not market itself as a 
means for gaining exposure to U.S. Treasury securities.
Request for Comment
    129. Do SPACs engage in other activities that should be expressly 
permitted or prohibited by the safe harbor? If yes, please explain 
these business activities and why they should be permitted or 
prohibited.

[[Page 29501]]

    130. As proposed, should the SPAC be required to seek a de-SPAC 
transaction in which the surviving company is required either to 
directly or through a primarily controlled company be primarily engaged 
in the business of the target company? Are the proposed definitions of 
``surviving company'' and ``primarily controlled company'' appropriate? 
Should the proposed definitions be revised, and if so, how?
    131. Should the safe harbor be limited to SPACs that seek de-SPAC 
transactions that result in the surviving company having at least a 
majority interest in the target company? Conversely, should the safe 
harbor permit the SPAC to seek a de-SPAC transaction in which the 
surviving company is only required to control the target company? Are 
there other approaches, such as requiring the de-SPAC transaction to 
result in a consolidation of the SPAC and the target company?
    132. As proposed, should we require that the surviving company be 
primarily engaged in the business of operating the target company or 
companies? Is the use of the term ``primarily engaged'' consistent with 
current business practices in this context? Should we instead require 
that the surviving company be ``solely'' in the business of the target 
company or companies? If so, how should ``solely'' be defined? 
Alternatively, should we require that the surviving company be engaged 
in the business of the target company (and in activities related or 
incidental thereto)? \337\
---------------------------------------------------------------------------

    \337\ See generally Rule 3a-7 under the Investment Company Act.
---------------------------------------------------------------------------

    133. As proposed, should the SPAC be limited to only one de-SPAC 
transaction while relying on the safe harbor? Why or why not? 
Similarly, should a SPAC, as proposed, be limited to engaging in a 
combination with multiple target companies only if the combination 
occurs as part of a single de-SPAC transaction with a single closing? 
Why or why not? Should there be a limit on how many target companies 
may be part of a single de-SPAC transaction? If so, what should that 
limit be and why? For example, would limiting the safe harbor to two 
target companies strike an appropriate balance of the relevant 
regulatory considerations?
    134. As proposed, should we require a SPAC to be ``primarily 
engaged'' in the business of seeking to complete a single de-SPAC 
transaction? Should we instead require that the SPAC should be 
``solely'' in the business of seeking to complete a single de-SPAC 
transaction? Why or why not? Alternatively, should we require that the 
SPAC be engaged in the business of seeking to complete a single de-SPAC 
transaction (and in activities related or incidental thereto)? \338\
---------------------------------------------------------------------------

    \338\ Id.
---------------------------------------------------------------------------

    135. As drafted, the proposed rule would permit a SPAC relying on 
the safe harbor to seek to engage in a de-SPAC transaction with any 
company other than an investment company. Should the safe harbor 
further limit the types of companies in which a SPAC may seek a de-SPAC 
transaction? For example, should a SPAC be precluded from seeking to 
engage in a de-SPAC transaction with issuers relying on Section 3(c)(1) 
or Section 3(c)(7)? Should a SPAC be precluded from seeking to engage 
in a de-SPAC transaction with issuers relying on other exclusions under 
Section 3(c)? Should a SPAC be precluded from seeking to engage in a 
de-SPAC transaction with issuers otherwise relying on an exclusion or 
exemption by order from the definition of ``investment company'' by 
Section 3(b) or the rules or regulations under Section 3(a)? If so 
please identify which issuers and why?
    136. Should the rule include as evidence of the SPAC's business 
purpose the SPAC's historical development given the SPAC's short 
duration? Should the rule include, as evidence of the SPAC's business 
purpose, the SPAC's public representation of policies and the 
activities of its officers, directors and employees? Similarly, is it 
appropriate to require the board of directors to adopt a resolution 
stating that the SPAC is primarily engaged in the business of seeking 
to complete a de-SPAC transaction as described by the rule? Should we 
require that the SPAC's activities also, or instead, be evidenced by 
its articles of incorporation, other formation documents or by-laws? If 
so, which documents should be required? If a SPAC's business purpose is 
evidenced in its formation documents or by-laws, should we condition 
the proposed rule on those provisions being subject to change only with 
the approval of shareholders? Should the rule include a separate 
condition that addresses the SPAC's sources of income? For example, 
should a SPAC's income be limited to that derived from assets in 
proposed Rule 3a-10(a)(1)? Are any other conditions necessary to ensure 
that SPACs do not convey to investors that they have attributes similar 
to investment companies? Given the nature of a SPAC's activities and 
the proposed conditions of the safe harbor, should the proposed rule 
also include a condition providing that a SPAC must not be a special 
situation investment company? \339\
---------------------------------------------------------------------------

    \339\ See Proposing Release to Rule 3a-1, supra note 298, at 
n.19 and accompanying text. See also In the Matter of United Stores 
Corp., 10 SEC. 1145 (Feb. 12, 1942).
---------------------------------------------------------------------------

    137. Should we include a condition to the safe harbor that SPACs 
must disclose their intention to rely on the safe harbor? Would such a 
condition be redundant to the disclosure requirements under the 
Securities Act or under the Exchange Act? Should the safe harbor 
include a condition that the SPAC's board of directors must adopt a 
resolution indicating that the SPAC intends to rely on the safe harbor?
3. Duration Limitations
    To rely on the safe harbor, a SPAC would have a limited time period 
to announce and complete a de-SPAC transaction. Specifically, the 
proposed rule would require a SPAC to file a report on Form 8-K with 
the Commission announcing that it has entered into an agreement with 
the target company (or companies) to engage in a de-SPAC transaction no 
later than 18 months after the effective date of the SPAC's 
registration statement for its initial public offering. The SPAC must 
then complete the de-SPAC transaction no later than 24 months after the 
effective date of its registration statement for its initial public 
offering.\340\ Following the completion of the de-SPAC transaction, any 
assets that are not used in connection with the de-SPAC transaction 
would need to be distributed in cash to investors as soon as reasonably 
practicable thereafter.
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    \340\ Proposed Rule 3a-10(a)(3)(ii) and (iii). As we discuss 
below, the average time between the announcement by a SPAC of its 
intended de-SPAC transaction and the completion of that transaction 
is approximately 5 months. See infra Section IX.B.6.
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    The SPAC would also be required to distribute its assets in cash to 
investors as soon as reasonably practicable if it does not meet either 
the 18-month deadline or the 24-month deadline.\341\ Given that the 
time needed for such distribution in either case may be dependent on 
facts and circumstances, we are not defining the term ``reasonably 
practicable.'' What is reasonably practicable generally would depend 
on, among other things, any logistical or legal limitations on an 
orderly, immediate return of funds to investors.
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    \341\ Proposed Rule 3a-10(a)(4).
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    We are proposing these duration conditions mindful of the framework 
of the Investment Company Act, the rules thereunder, and past 
Commission

[[Page 29502]]

positions. The Investment Company Act provides that any issuer that 
meets the definition of ``investment company'' must register and be 
regulated under that Act unless the issuer can rely on an exclusion or 
exemption. The Investment Company Act requires that an issuer will 
register and be subject to the Act's regulatory requirements once the 
issuer meets the definition.\342\ The Commission, however, has in the 
past provided conditional, temporary relief to certain issuers that 
meet the definition of ``investment company'' for only a short period 
of time. For example, Rule 3a-2 provides a one-year safe harbor to so-
called ``transient investment companies,'' which are issuers that, as a 
result of an unusual business occurrence, may be considered an 
investment company under the statutory definitions but intend to be 
engaged in a non-investment company business.\343\ In addition, as 
discussed previously, the Commission took the position that Rule 419 
Accounts need not be required to register as an investment company nor 
regulated as an investment company under the Investment Company Act in 
part because the rule limits the duration of such accounts to 18 
months.\344\ The Commission has also at times granted short-term, 
conditional exemptive relief under Section 6(c) of the Investment 
Company Act \345\ to certain issuers that needed additional time to 
restructure their businesses beyond that afforded by Rule 3a-2.\346\
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    \342\ See generally Sections 7(a) and 8(a) of the Investment 
Company Act [15 U.S.C. 80a-7(a); 15 U.S.C. 80a-8(a)].
    \343\ See Transient Investment Companies, Release No. IC-11552 
(Jan. 14, 1981) [46 FR 6882 (Jan. 22, 1981)] (``Adopting Release to 
Rule 3a-2''). See Transient Investment Companies, Release No. IC-
10943 (Nov. 16, 1979) [44 FR 67152 (Nov. 23, 1979)], at text 
accompany nn.5-6 (``Proposing Release to Rule 3a-2'') (``Examples of 
unusual business occurrences include: (1) A `start-up' company's 
investing its offering proceeds in securities while arranging to 
purchase operating assets; (2) a company's selling a large operating 
division and investing the proceeds in securities pending 
acquisition of additional operating assets; and (3) a company making 
a tender offer to stockholders of a non-investment company and 
failing to obtain a majority of the target company's stock.'').
    \344\ See 17 CFR 230.419(e)(2)(iv) (``If a consummated 
acquisition(s) meeting the requirements [of Rule 419] has not 
occurred by a date 18 months after the effective date of the initial 
registration statement, funds held in the escrow or trust account 
shall be returned [to investors.]'').
    \345\ Section 6(c) gives the Commission the broad power to 
exempt conditionally or unconditionally any person, security, or 
transaction from any provisions of the Act or any rule thereunder, 
provided that the exemption is ``necessary or appropriate in the 
public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of [the 
Act].'' An applicant requesting such relief must explain in its 
application that, given its particular facts and circumstances, the 
requested relief would meet the section's standards. See generally 
Amendments to Procedures With Respect to Applications Under the 
Investment Company Act of 1940, Release No. IC-33921 (July 6, 2020) 
[85 FR 57089 (Sept. 15, 2020)].
    \346\ See, e.g., General Electric Company and GE Capital 
International Holdings Ltd., Release No. IC-32477 (Feb. 13, 2017) 
[82 FR 11079 (Feb. 17, 2017)] (notice), Release No. IC-32532 (Mar. 
13, 2017) (order).
---------------------------------------------------------------------------

    Accordingly, the proposed rule would require a SPAC wishing to rely 
on the safe harbor to enter into an agreement with a target company no 
later than 18 months after its initial public offering, as evidenced by 
its filing a report on Form 8-K.\347\ A SPAC may enter into agreements 
with additional target companies \348\ after the 18-month period 
provided that the business combination contemplated by such later 
agreements are part of the de-SPAC transaction and all of the 
transactions close contemporaneously within the 24-month period. The 
condition that the de-SPAC transaction close within 24 months is 
designed to allow SPACs to complete their stated business purpose while 
balancing the risk that investors may come to view a SPAC holding 
securities for a prolonged period as a fund-like investment, thereby 
necessitating the regulatory protections of the Investment Company Act.
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    \347\ See infra Section IX.B.6. (discussing baseline data 
regarding average duration). One press report suggests that the 
average period of time between a SPAC's initial public offering and 
the signing of its business combination agreement may be decreasing, 
with the average such period of time being approximately 7.5 months 
for de-SPAC transactions that closed in 2021. See ``De-SPACs Still 
Popular But Becoming Harder To Close,'' available at: https://www.law360.com/mergersacquisitions/articles/1464716/de-spacs-still-popular-but-becoming-harder-to-close.
    \348\ These additional agreements would need to be evidenced by 
the filing of a Form 8-K.
---------------------------------------------------------------------------

    This timeframe is longer than the one-year timeframe of Rule 3a-2. 
We are proposing a longer time frame under Rule 3a-10 because we 
understand that the search for a de-SPAC target frequently takes more 
than one year and an issuer relying on Rule 3a-10 would be more 
restricted in its business purpose and activities throughout the period 
of reliance than an issuer relying on Rule 3a-2.\349\ This proposed 
timeframe reflects a consideration of the Tonopah factors, including 
the factor that focuses on an issuer's historical development as well 
as our position with respect to Rule 419. While an issuer relying on 
Rule 3a-10 may have certain characteristics resembling those of an 
investment company for a longer period than an issuer relying on Rule 
3a-2, its assets, income and purpose, and the activities of its 
officers and directors, would be further restricted under the other 
conditions of Rule 3a-10. Accordingly, the conditions are designed to 
work together to reduce the likelihood that investors will come to view 
the SPAC as a fund-like investment. Nevertheless, we stress that the 
inability of a SPAC to identify a target and complete a de-SPAC 
transaction within the proposed timeframe would raise serious questions 
concerning the applicability of the Investment Company Act to that 
SPAC.
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    \349\ We stress that, for an issuer satisfying the safeguards 
tailored for transient investment companies under Rule 3a-2, a 
company's inability to become engaged primarily in a noninvestment 
company business within that rule's one year period would continue 
to raise serious questions concerning the applicability of the 
Investment Company Act to that company. See Adopting Release to Rule 
3a-2, supra note 343, at text following n.5. See also infra note 358 
and accompanying text (quoting from Proposing Release to Rule 3a-2, 
supra note 343).
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    While we understand most SPACs commit to closing a de-SPAC 
transaction within 24 months, we also acknowledge that the duration 
limits we are proposing are shorter than the actual timeline of some 
SPACs that recently completed their de-SPAC transactions.\350\ We 
understand that SPACs that choose to rely on the proposed safe harbor 
may need to seek to identify and complete de-SPAC transactions on an 
accelerated timeline. Nonetheless, we are concerned that, the longer a 
SPAC operates with its assets invested in securities and its income 
derived from securities, the more likely investors will come to view 
the SPAC as a fund-like investment and the more likely the SPAC appears 
to be deviating from its stated business purpose.\351\ We have sought 
to strike a balance between providing flexibility for the SPAC to 
pursue its stated purpose and recognizing that, beyond some horizon, 
the SPAC's historical development would become difficult to distinguish 
from that of an investment company. While exchange listing rules 
contemplate potentially longer SPAC lifespans, those rules were adopted 
for a different regulatory purpose.
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    \350\ See infra Section IX.B.6.
    \351\ We also note that some SPACs in the past have sought an 
extension to their lifespan by obtaining approval of their 
shareholders. The proposed rule does not provide for any extensions.
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    The proposed rule would also require that any assets that are not 
used in connection with the de-SPAC transaction be distributed in cash 
to SPAC shareholders as soon as reasonably practicable after the 
completion of the de-SPAC transaction.\352\ Thus, in the event that the 
de-SPAC transaction requires fewer assets than are owned by the SPAC, 
the

[[Page 29503]]

SPAC would be unable to seek another de-SPAC transaction with its 
remaining assets, or otherwise continue to operate as a SPAC, even if 
the de-SPAC transaction met the duration conditions. As discussed 
previously, a SPAC that is relying on the safe harbor would already be 
precluded from engaging in more than one de-SPAC transaction pursuant 
to proposed Rule 3a-10(a)(3)(i). This separate condition supplements 
that provision and is designed to ensure that a SPAC may not continue 
to operate after its single de-SPAC transaction and still qualify for 
the safe harbor.
---------------------------------------------------------------------------

    \352\ Proposed Rule 3a-10(a)(4)(i).
---------------------------------------------------------------------------

    A SPAC seeking to rely on the safe harbor would also be required to 
distribute the SPAC's assets in cash to investors in the event that the 
SPAC fails to meet either the 18-month or the 24-month deadline.\353\ 
As proposed, a SPAC would be required to distribute its assets in cash 
to investors if the SPAC fails to enter into an agreement with a target 
company within 18 months even if it believes that it would complete a 
transaction within 24 months. This condition would result in a SPAC 
that fails to meet these timing requirements either distributing its 
assets as soon as reasonably practicable or registering as an 
investment company. In any event, such a SPAC would not be permitted to 
continue to rely on the safe harbor.\354\
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    \353\ Proposed Rule 3a-10(a)(4)(ii).
    \354\ Once a SPAC has distributed its assets, the SPAC must 
cease to operate as a SPAC, and it may not rely on the safe harbor 
again.
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    A SPAC would not be able to rely on Rule 3a-2 subsequent to its 
reliance on proposed Rule 3a-10 in the event that it fails to meet 
either proposed Rule 3a-10's 18-month or 24-month time frame.\355\ A 
failure to meet either timeframe would not constitute an unusual 
business occurrence under that rule.\356\ In addition, Rule 3a-2 
specifically states that the 12-month safe harbor provided under that 
rule begins once the issuer acquires specified amounts of 
securities.\357\ Generally, the commencement date for reliance on Rule 
3a-2 (and the 12 month safe harbor provided under that rule) would have 
passed in the event a SPAC wished later to rely on that rule subsequent 
to its reliance on proposed Rule 3a-10. Finally, both Rule 3a-2 and 
proposed Rule 3a-10 are safe harbors that provide or would provide 
temporary relief to certain issuers that may be investment companies, 
provided that, among other conditions, they transition to a non-
investment company business in a short period of time. When it was 
considering Rule 3a-2, the Commission was concerned that issuers could 
circumvent the Investment Company Act by repeatedly relying on the Rule 
3a-2 safe harbor, explaining that ``where an issuer's activities would 
bring it within the definition of investment company more frequently 
than would be permitted by the rule, the investor protection concerns 
of the Act would be relevant, the need for shareholder protections 
would not be met, and there would be no persuasive public interest from 
the standpoint of investors in permitting a non-transient investment 
company to avoid complying with the prohibitions and regulatory 
provisions of the Act.'' \358\ This concern would also arise if SPACs 
were to rely on the Rule 3a-2 safe harbor following reliance on 
proposed Rule 3a-10.
---------------------------------------------------------------------------

    \355\ The proposed rule would also preclude a SPAC from relying 
on proposed Rule 3a-10 after Rule 3a-2, because the time period in 
the proposed rule begins on the effective date of its initial 
registration statement.
    \356\ See supra note 343 and accompanying text.
    \357\ Rule 3a-2(b).
    \358\ See Proposing Release to Rule 3a-2, supra note 343.
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Request for Comment
    138. Should we require, as proposed, that the SPAC reach an 
agreement with at least one target company within 18 months? Should we 
require that the SPAC reach an agreement with at least one target 
company within 12 months, which would be more consistent with the time 
period in Rule 3a-2? Should the time period be even shorter than 12 
months (e.g., 6 months)? Should the time period be longer (e.g., 20 
months, 24 months, 36 months)? If the time period should be longer, 
please explain why such a longer period is necessary and how any such 
longer period would be consistent with the framework of the Investment 
Company Act, the rules thereunder, and prior Commission positions.
    139. Is there an alternative way to limit the duration of the SPAC? 
Should we require that such an agreement be evidenced by the filing of 
the Form 8-K? Should a SPAC be permitted, as proposed, to enter into 
agreements with other target companies after the 18-month period 
provided that all transactions close within 24 months?
    140. Should we include an option for SPACs that have not identified 
a target within 18 months, or completed the de-SPAC transaction within 
24 months to extend these deadlines? If so, what would that be and what 
conditions should be included? For example, should we provide that a 
SPAC can obtain an extra 2, 4 or 6 months and stay within the safe 
harbor if it obtains approval from its shareholders? Please explain how 
any extensions of these deadlines would be consistent with the 
framework of the Investment Company Act, the rules thereunder, and 
prior Commission positions.
    141. Should we require, as proposed, that the SPAC complete the de-
SPAC transaction within a 24-month period? Should the time period be 18 
months, as in Rule 419 or 12 months, as in Rule 3a-2? Should the period 
be longer (e.g., 30 months)? If so, how would that longer period be 
consistent with the framework of the Investment Company Act, the rules 
thereunder, and past Commission positions?
    142. The rule proposal requires that any assets of the SPAC that 
are not used in connection with the de-SPAC transaction, or in the 
event of the SPAC's failure to meet the timelines required for 
identification or completion of a de-SPAC transaction, be distributed 
in cash to investors as soon as reasonably practicable. Should we allow 
distributions ``in-kind''? Are there any other distributions made by 
the SPAC that should be covered by the rule? Should the rule text 
define the term ``reasonably practicable''? If yes, how should the term 
be defined? If the term ``reasonably practicable'' is not defined, 
could that potentially result in unnecessarily extended periods of time 
before investor assets are returned? Instead of defining the term 
``reasonably practicable,'' should we specifically require that such 
assets be distributed within a defined time period such as 30 days? 15 
days? 7 days? Should we require the SPAC to provide notification to the 
Commission, its investors and/or the SPAC's board of directors if the 
distribution of cash takes longer than a certain period of time, e.g., 
30 days?
    143. The proposed rule would require, following completion of a de-
SPAC transaction, or in the event that the SPAC failed to identify or 
complete a de-SPAC transaction, the SPAC to distribute all remaining 
assets and cease operating as a SPAC. The proposed rule, however, does 
not specifically mandate that the SPAC dissolve. Should we include this 
requirement as a condition to the safe harbor? Why or why not?
    144. In adopting Rule 3a-2, the Commission identified examples of 
companies that may be able to rely on that safe harbor. These examples 
did not specifically include SPACs or blank check companies. Are SPACs 
currently relying on Rule 3a-2 and, if so, what is the basis for their 
reliance? Should the Commission provide guidance concerning, or amend 
Rule 3a-2 to address, the ability of SPACs to rely on that safe harbor?

[[Page 29504]]

VII. Additional Requests for Comment

    As discussed above, we believe that the proposed new rules and 
amendments would enhance the disclosure requirements applicable to 
SPACs in initial public offerings and in de-SPAC transactions and 
provide important investor protections in connection with de-SPAC 
transactions. In considering the SPAC market as a whole, we are 
requesting comment on a number of additional matters relating to the 
disclosures provided by SPACs, investor protection measures, and the 
treatment of companies following a de-SPAC transaction.
    145. Are there disclosure requirements that we have not proposed 
that would be helpful for investors in SPACs at the initial public 
offering stage or at the de-SPAC transaction stage?
    146. Should the disclosure requirements and filer status 
determinations in a de-SPAC transaction be the same no matter the de-
SPAC structure? Do our proposals accomplish this, or are there other 
disclosure requirements and filer status determinations impacted by 
transaction structure that we should address?
    147. What are the reasons, other than possible reporting outcomes, 
why a de-SPAC transaction is structured so that an entity other than 
the SPAC is the acquirer and filing the registration statement or proxy 
or information statement for the de-SPAC transaction? Are there tax or 
other reasons that we should consider in relation to the proposed 
amendments in this release and whether the disclosure requirements 
should be further aligned across all de-SPAC transaction structures?
    148. Should we consider amendments to other registration statement 
forms under the Securities Act to require enhanced disclosures for 
offerings by SPACs that are similar to those proposed above with 
respect to Forms S-1 and F-1? Should we consider similar amendments to 
Regulation A and Form 1-A?
    149. The periodic reports filed by SPACs under the Exchange Act 
generally contain limited information due to the absence of an 
operating business. Should some of the disclosure requirements we are 
proposing also be required in the periodic reports filed by a SPAC 
following its initial public offering? If so, which disclosures? Are 
there other disclosures that we should require in the Exchange Act 
reports filed by a SPAC?
    150. We note that the announcement of a prospective de-SPAC 
transaction often results in an immediate and substantial increase in 
the trading volume of the securities of the SPAC, based on the terms of 
the transaction that have been disclosed and the limited information 
publicly available on the private operating company at the time of the 
announcement, which is far less extensive than that of a newly public 
company after a traditional initial public offering.\359\ Should we 
consider requiring additional disclosures, such as more disclosure on 
the private operating company or risk factor disclosure, in a Form 8-K 
filed pursuant to Item 1.01 of the form disclosing that the parties 
have entered into a business combination agreement? If so, what 
additional disclosure should we require? Should we amend Item 1.01 of 
Form 8-K to require the filing of the business combination agreement as 
an exhibit to the Form 8-K filing (as opposed to allowing the agreement 
to be filed as an exhibit to a subsequent periodic report)? What other 
amendments should we consider in this regard?
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    \359\ According to one study, institutional investors typically 
purchase the vast majority of the securities in a SPAC's initial 
public offering and are far more likely to redeem their shares 
instead of reselling the shares, resulting in limited secondary 
market trading of SPAC shares. Klausner, Ohlrogge, and Ruan, supra 
note 17.
---------------------------------------------------------------------------

    151. Currently, the post-business combination company is required 
to file a Form 8-K with Form 10 information within four business days 
after the completion of a de-SPAC transaction. Should we require the 
filing of this Form 8-K within a shorter time frame in order to reduce 
the gap in timing between the completion of the transaction and the 
public availability of this information in the Form 8-K?
    152. Are there other rule changes the Commission should consider to 
enhance investor protections in initial public offerings by SPACs and 
in de-SPAC transactions?
     We have not proposed requirements for SPAC offerings 
comparable to those applicable to blank check companies under Rule 419. 
Should we consider requiring SPACs to comply with conditions similar to 
those in Rule 419? If so, which conditions?
     The shareholders of a SPAC are permitted to vote in favor 
of a proposed de-SPAC transaction while redeeming their shares prior to 
the closing of the transaction and retaining their warrants, such that 
the vote is decoupled from any continuing share ownership in the post-
business combination company (unless and until the warrants are 
exercised).\360\ Should the Commission adopt rule changes or other 
approaches to address this situation? For example, should the 
Commission condition the continued availability of an exclusion from 
the requirements of Rule 419 on whether shareholders voting to approve 
a de-SPAC transaction retain an economic interest in the combined 
company? Should we address this issue through the Commission's 
authority under Section 19(c) of the Exchange Act to adopt rules 
applicable to national securities exchanges?
---------------------------------------------------------------------------

    \360\ See Rodrigues and Stegemoller, supra note 17.
---------------------------------------------------------------------------

    153. A post-business combination company following a de-SPAC 
transaction is subject to different treatment under various rules based 
on its status as a former shell company. For example, a post-business 
combination company following a de-SPAC transaction is an ``ineligible 
issuer,'' based on its status as a former shell company, which prevents 
the company from using free writing prospectuses pursuant to Securities 
Act Rules 164 and 433 for a three-year period.\361\ As a former shell 
company, the post-business combination company is also ineligible to 
file a registration statement on Form S-8 for a 60-day period following 
the de-SPAC transaction,\362\ and the safe harbor in Rule 139 for 
broker-dealer research reports is not available for research reports on 
the post-business combination company for a three-year period.\363\ In 
this regard, we note that the treatment of former shell companies under 
these rules is based on heightened concerns regarding fraud and other 
abuses surrounding many shell company transactions. To better align de-
SPAC transactions with initial public offerings, should we consider 
amending these and other rules relating to former shell companies to 
treat companies that have become public companies through a de-SPAC 
transaction in the same or similar manner as those that have completed 
traditional initial public offerings? Should we differentiate SPACs 
from other shell companies in applying these rules? If so, on what 
basis?
---------------------------------------------------------------------------

    \361\ See Securities Act Rule 164(e)(1).
    \362\ See General Instruction A.1 to Form S-8.
    \363\ See Securities Act Rule 139(a)(1)(ii)(B).
---------------------------------------------------------------------------

    154. Are there areas relating to SPACs where additional Commission 
guidance would be helpful? For example, would it be useful if the 
Commission reiterated or expanded upon the Commission staff's guidance 
in 2020 and 2021 regarding SPACs? \364\
---------------------------------------------------------------------------

    \364\ See supra note 35.
---------------------------------------------------------------------------

VIII. General Request for Comments

    We request and encourage any interested person to submit comments 
on any aspect of our proposals, other matters that might have an impact 
on

[[Page 29505]]

the proposed amendments, and any suggestions for additional changes. 
With respect to any comments, we note that they are of greatest 
assistance if accompanied by supporting data and analysis of the issues 
addressed in those comments and by alternatives to our proposals where 
appropriate.

IX. Economic Analysis

    We are mindful of the costs and benefits of these proposed new 
rules and amendments. The discussion below addresses the potential 
economic effects of the proposed new rules and amendments, including 
the likely benefits and costs, as well as the potential effects on 
efficiency, competition, and capital formation.\365\ We have analyzed 
the expected economic effects of the proposed new rules and amendments 
relative to the current baseline, which consists of the existing 
regulatory framework of disclosure requirements and liability 
provisions, current market practices, and the distribution of 
participants by type.
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    \365\ Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and 
Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)], and Section 
2(c) of the Investment Company Act [15 U.S.C. 80a-2(c)] require the 
Commission, when engaging in rulemaking where it is required to 
consider or determine whether an action is necessary or appropriate 
in (or, with respect to the Investment Company Act, consistent with) 
the public interest, to consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, 
and capital formation. Further, Section 23(a)(2) of the Exchange Act 
[17 U.S.C. 78w(a)(2)] requires the Commission, when making rules 
under the Exchange Act, to consider the impact that the rules would 
have on competition, and prohibits the Commission from adopting any 
rule that would impose a burden on competition not necessary or 
appropriate in furtherance of the Exchange Act.
---------------------------------------------------------------------------

    As discussed above, we are proposing new rules and amendments to 
existing rules that are intended to enhance investor protections in 
SPAC registered offerings, including initial public offerings, and in 
de-SPAC transactions. The proposed new rules and amendments would 
require disclosures with respect to, among other things, compensation 
paid to sponsors, conflicts of interest, dilution, and the fairness of 
de-SPAC transactions. The proposed new rules and amendments would also 
revise certain rules and forms under the Securities Act and the 
Exchange Act to specify their application in the context of de-SPAC 
transactions, including, among other things, a proposed rule that a 
SPAC and a target company be treated as co-registrants when a SPAC 
files a registration statement for a de-SPAC transaction and a proposed 
rule that addresses the underwriter status of SPAC IPO underwriters in 
any subsequently registered de-SPAC transaction.
    Additional proposed rules are intended to align de-SPAC 
transactions more closely with initial public offerings. One would 
require certain non-financial disclosures regarding the target private 
operating company that are typically filed on Form 8-K within 4 days 
after the completion of a de-SPAC transaction to be included in the 
disclosures that are filed in connection with an anticipated de-SPAC 
transaction (Form S-4 or F-4, a proxy or information statement, or a 
Schedule TO). The other would require the surviving entity following a 
de-SPAC transaction to re-determine its eligibility for smaller 
reporting company status within four business days of the completion of 
the transaction.
    We are also proposing new rules and amendments that would apply to 
shell companies more broadly. Proposed Rule 145a would deem any 
business combination involving a reporting shell company that is not a 
business combination related shell company, and another entity that is 
not a shell company, to involve a sale of securities to the reporting 
shell company's shareholders. In addition, the proposed amendments to 
Regulation S-X are intended to more closely align the financial 
statement requirements in business combinations between a shell company 
(other than a business combination related shell company) and a non-
shell company with those required on Forms S-1 or F-1 for an initial 
public offering.
    Furthermore, we are proposing to: (i) Amend Item 10(b) of 
Regulation S-K to expand and update our views with respect to 
projections used in Commission filings; (ii) require additional 
disclosures regarding projections when disclosed in connection with de-
SPAC transactions; and (iii) amend the definition of ``blank check 
company'' for purposes of the PSLRA safe harbor for forward-looking 
statements, such that the safe harbor would not be available for 
projections by blank check companies that are not penny stock issuers, 
which would include SPACs and target companies in de-SPAC transactions. 
Finally, we are proposing to create a safe harbor from the definition 
of ``investment company'' under the Investment Company Act for SPACs 
that meet certain conditions.
    Overall, we expect the proposed new rules and amendments relating 
to SPAC transactions, in particular, and in some cases to shell company 
business combinations more broadly, to provide investors \366\ with 
improved and, in some instances, potentially earlier \367\ access to 
more consistent, comprehensive, and readily comparable information and 
to enhance their ability to make more informed investment decisions, 
which can lead to more efficient pricing of securities.\368\ Both 
public reporting companies seeking to make an acquisition (SPACs or 
other shell or blank check companies, in some cases) and target private 
operating companies may incur costs related to the production and 
public disclosure of the proposed required information; however, these 
costs may be mitigated to the extent that either party may already 
voluntarily produce or provide such information in response to evolving 
market demands.\369\ We further anticipate that addressing the 
liability of various parties in de-SPAC transactions or other shell 
company business combinations could encourage those parties to exercise 
greater care in either the selection of an intended target company or 
the preparation and review of the required disclosures. This could 
result in more reliable information for investors regarding a private 
company target at the time of a transaction, and would further align 
the protections afforded to investors with those of an initial public 
offering.
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    \366\ Throughout this section, ``investor'' can refer to any 
current or a potential shareholder of a company, though it is 
generally understood costs and benefits may accrue to such investors 
heterogeneously based on size, sophistication, and affiliation.
    \367\ See infra Sections IX.C.1.b.7 & IX.C.1.b.8.
    \368\ See, e.g., Orie E. Barron & Hong Qu, Information Asymmetry 
and the Ex Ante Impact of Public Disclosure Quality on Price 
Efficiency and the Cost of Capital: Evidence from a Laboratory 
Market, 89 Accounting Rev. 1269 (2014) (high-quality public 
disclosure leads to increased price efficiency and decreased cost of 
capital); Ulf Br[uuml]ggemann, Aditya Kaul, Christian Leuz, & Ingrid 
Werner, The Twilight Zone: OTC Regulatory Regimes and Market 
Quality, 31(3) Rev. Fin. Stud. 898, 898-942 (2018) (increased 
disclosure regimes lead to increased liquidity and lower crash 
risk).
    \369\ See SPAC to the Future III, IPO Edge (Nov. 10, 2021) 
(remarks of panelist Chris Weekes, Managing Director and Co-Head of 
SPACs, Cowen), available at https://ipo-edge.com/join-spac-to-the-future-iii-with-nasdaq-cowen-gallagher-ve-icr-morrow-sodali-morganfranklin-featuring-gigcapital-hennessy-and-switchback/.
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    To the extent that the proposed rules would also provide better, 
more readily accessible information about SPACs, they may result in 
less adverse selection than might otherwise occur at the de-SPAC 
transaction. Overall, we expect the proposals may enhance the 
protection of investors, as well as promote market efficiency. We are 
mindful that some aspects of this rulemaking may deter some forms of 
communications or some transactions

[[Page 29506]]

that might otherwise be efficient or to the economic benefit of issuers 
and investors. They also may deter some business combinations that 
otherwise would have created value. We discuss these considerations in 
more detail below.
    In many cases, we are unable to quantify the relative magnitudes of 
various economic effects because we lack information to quantify such 
effects with a reasonable degree of accuracy. Where we are unable to 
quantify the economic effects of the proposed new rules and amendments, 
we have provided a qualitative assessment of the potential effects and 
encourage commenters to provide data, studies, reports and other 
information that would help quantify the benefits, costs, and potential 
impacts on efficiency, competition, and capital formation.\370\
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    \370\ For our estimates of the paperwork burdens associated with 
the proposed rules and amendments for purposes of the Paperwork 
Reduction Act of 1995 (``PRA''), please see Section X below. These 
PRA burden estimates pertain to ``collections of information'' as 
that term is defined in the PRA, and therefore reflect only the 
hours and costs to prepare required disclosures and maintain 
records. As a result, these estimates do not reflect the full 
economic effects or full scope of economic costs of the proposed 
rules and amendments that are discussed in this analysis.
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A. Broad Economic Considerations

    Although a significant level of information asymmetry exists when a 
private company ``goes public,'' the traditional initial public 
offering process (IPO) has developed mechanisms that can alleviate 
adverse selection problems.\371\ Those mechanisms include mandated 
public disclosures, staff review of registration statements,\372\ and 
the effects of Section 11 liability, which, among other things, 
motivates due diligence performed by underwriters, accountants, and 
other offering participants. These mechanisms generally lead to lower 
levels of information asymmetry, which can improve the security's 
pricing and placement efficiency and encourages investor participation 
in the IPO market. The traditional IPO process, however, is associated 
with costs, which could be significant for certain firms. Those costs 
can be direct, in the form of fees, or indirect in the form of 
underpricing, as has long been recognized in the academic 
literature.\373\
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    \371\ Adverse selection is sometimes described as the `lemons' 
problem: When buyers have less information than sellers, their bids 
will be lower to reflect this uncertainty. In response, the sellers 
of high quality products may exit the market, causing further 
decline in buyers' willingness to pay, which could cause a market 
failure. See, e.g., George Akerlof, The Market for ``Lemons'': 
Quality Uncertainty and the Market Mechanism, 84 Qtr. J. Econ. 488 
(1970).
    \372\ This review includes benefits such as, for example, the 
production of additional valuable information in response to 
comments issued by the Commission staff during the filing reviews. 
See, e.g., Michelle Lowry, Roni Michaely, & Ekaterina Volkova, 
Information Revealed Through the Regulatory Process: Interactions 
Between the SEC and Companies Ahead of Their IPO, 33 Rev. Fin. Stud. 
5510 (2020).
    \373\ See Alexander Ljungqvist, Chapter 7--IPO Underpricing, in 
1 Handbook of Empirical Corporate Finance 375 (B. Espen Eckbo ed., 
2007); Kevin Rock, Why New Issues are Underpriced, 15 J. Fin. Econ. 
187 (1986); Tim Loughran & Jay Ritter, Why Has IPO Underpricing 
Changed Over Time?, 33 Fin. Mgmt. 5 (2004).
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    Alternative ways \374\ of going public have emerged that may allow 
companies to avoid some of the costs of the traditional initial public 
offering process, though this also might involve forgoing some of the 
benefits typically considered desirable by market participants (e.g., 
potentially better pricing due to underwriter help with the placement 
of securities as well as more robust due diligence and 
disclosure).\375\ While pursuit of these alternatives suggest private 
operating companies are interested in accessing the benefits of being 
publicly traded, it is not clear that these alternatives represent net 
improvements in the mechanism design of the traditional IPO process.
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    \374\ While equity in a private company might also become 
publicly traded by participation in a roll-up, because such 
transactions typically involve multiple companies and the surviving 
entity thus may resemble each of the rolled-up entities less 
specifically, individually, we do not consider this a comparable way 
of going public for the purposes of our discussion. Additionally, a 
handful of companies have listed their shares directly on a national 
securities exchange without the use of a traditional underwriter and 
without raising capital. As with participation in a roll-up, this 
method of accessing the public markets is not frequently used. From 
2018 through 2021, only twelve companies went public using this 
approach. (This Commission estimate includes 9 direct listings on 
NYSE and 3 direct listings on Nasdaq that occurred on or before Dec. 
31, 2021.) In December 2020, the Commission issued an order 
approving a proposed rule change submitted by New York Stock 
Exchange LLC (NYSE) that would allow private companies to list on 
the NYSE via a direct listing and raise capital at the same time. 
See Release No. 34-90768 (Dec. 22, 2020) [85 FR 85807 (Dec. 29, 
2020)] (SR-NYSE-2019-67). In May 2021, the Commission approved a 
similar proposed rule change submitted by The Nasdaq Stock Market 
LLC. See Release No. 34-91947 (May 19, 2021) [86 FR 28169 (May 25, 
2021)] (SR-NASDAQ-2020-057). While, it is possible that the number 
of companies that would seek to offer securities via direct listing 
will increase following these recent regulatory changes, it is 
unclear that future use would become comparable in purpose or scope 
to mergers with shell companies as an alternative means to access 
the public market. See Release No. 34-94311 (Feb. 24, 2022) [87 FR 
11780 (Mar. 2, 2022)] (SR-NASDAQ-2021-045) (order disapproving 
proposed rule change to modify certain price limitations in a direct 
listing with a capital raise).
    \375\ See, e.g., James Brau & Stanley Fawcett, Initial Public 
Offerings: An Analysis of Theory and Practice, 61 J. Fin. 399 
(2006).
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    One way a private company may become a public reporting company is 
via merger with a shell company that has already obtained exchange 
listing, quotation, or otherwise registered a class of securities under 
the Exchange Act. In recent years, a significant number of private 
companies have opted to become a public reporting company via a merger 
with a particular kind of shell company, a SPAC. SPACs have been in 
existence since the 1990s, and though their use by private companies as 
an alternative mechanism for becoming a public reporting company has 
varied over time, it has increased dramatically in the past three 
years. We estimate that in the past year alone, approximately 200 
companies have become listed on an exchange via a de-SPAC transaction, 
which is slightly more than a sevenfold increase since 2019 and a 
twentyfold increase since 2015.\376\
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    \376\ Staff review of Form 8-K filings identified 28 private 
operating companies acquired in calendar year 2019 and 10 in 
calendar year 2015 that could be confirmed in the Dealogic M&A 
module as a de-SPAC transaction.
---------------------------------------------------------------------------

    As with a traditional IPO, becoming a public reporting company 
through a de-SPAC transaction might also be subject to adverse 
selection given that this type of transaction is associated with 
significant information asymmetries between public investors in the 
SPAC and the private company that the SPAC intends to acquire. Public 
SPAC investors could rely on various mechanisms to overcome the adverse 
selection problem in the SPAC context: The contingent nature of sponsor 
compensation; the right to vote to approve a de-SPAC transaction or 
redeem shares; projections regarding anticipated future performance, to 
the extent they improve price formation; potential liability; and any 
additional unregistered investments by investors at the de-SPAC 
transaction stage.\377\ While in some cases, a private company might 
prefer these alternative mechanisms to a traditional IPO, their general 
efficacy in resolving the problems or costs of information asymmetry 
might, in practice, be limited.\378\
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    \377\ For a detailed description of the SPAC process, see 
Section 1.
    \378\ In addition to the potentially problematic incentives 
embedded in the SPAC structure as described in the following 
sections, we further acknowledge that in some cases management and 
other insiders in target companies may find that a de-SPAC 
transaction is a more attractive option for becoming a public 
reporting company than a traditional initial public offering for 
reasons that conflict more directly with adequate investor 
protections. These reasons may include the lack of a named 
underwriter or actionable liability.
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    Some economic theorists have argued that the structure of SPAC 
sponsor compensation may efficiently incentivize transactions that 
benefit

[[Page 29507]]

investors,\379\ but the effects in practice may be more ambiguous. On 
one hand, because almost all of the SPAC sponsor's compensation is 
contingent on the completion of a de-SPAC transaction, the sponsors may 
therefore have an incentive to select target companies that would 
maximize their own, as well as investors', returns at exit. As noted 
above, however, there is also a potential conflict of interest for 
sponsors precisely because their compensation (e.g., 20% promote) is 
dependent on the completion of a de-SPAC transaction.\380\ This could 
create an incentive to enter into unfavorable, or less favorable, de-
SPAC transactions than would otherwise be optimal for the SPAC's 
unaffiliated shareholders because the sponsor's alternative to a de-
SPAC transaction is to liquidate the SPAC, and return the initial 
public offering proceeds, forfeiting their potential promote. While 
reputational concerns may be a mitigating source of discipline, 
sponsors may also be more likely to prioritize private benefits when 
these concerns are less pressing; for example, in periods when the 
market is broadly less risk-averse or if the sponsor does not intend to 
pursue serial SPAC activities.
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    \379\ See, e.g., Sris Chatterjee, N.K. Chidambaran, Gautam 
Goswami, Security design for a non-standard IPO: The case of SPACs, 
69 J. Int'l Money & Fin. 151 (2016).
    \380\ See supra note 12.
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    In addition, voting rights and redemption rights may protect SPAC 
investors, because SPAC investors have the right to vote against a de-
SPAC transaction and may redeem their shares if they believe holding 
shares in the combined company is not in their best interest.\381\ 
However, these rights can also create potential conflicts of interest 
between non-redeeming shareholders and shareholders who choose to 
redeem shares but continue to hold warrants. When SPAC investors redeem 
the shares but retain and later exercise the warrants of the initial 
IPO unit, the equity shares of the non-redeeming shareholders are 
diluted relative to what they would be absent such exercise. A further 
conflict may arise because the value of the warrants is enhanced by 
greater volatility of the underlying security. Thus, warrant-holders 
may incur greater financial benefits from high-risk mergers in a manner 
that may not be aligned with the interests of the non-redeeming SPAC 
investors. Additionally, in cases where the SPAC is structured so that 
the shareholders are able to vote in favor of a merger but also redeem 
their shares, this could present a moral hazard problem, in economic 
terms, because these redeeming shareholders would not bear the full 
cost of a less than optimal choice of target.
---------------------------------------------------------------------------

    \381\ For listed SPACs, existing exchange listing standards, if 
a shareholder vote is held, require public shareholders voting 
against a de-SPAC transaction to have the right to redeem their 
shares if the de-SPAC transaction is approved and consummated. See 
infra Section IX.B.1.a. SPACs have often extended this redemption 
right to shareholders voting in favor of the de-SPAC transaction as 
well.
---------------------------------------------------------------------------

    The use of projections regarding the future earnings and 
performance of the target company in the de-SPAC transaction may be 
another mechanism that helps SPAC investors overcome adverse selection, 
insofar as they provide information that could improve price formation. 
However, there may also be conflicts of interest associated with those 
projections given some features of the SPAC structure. The need to 
secure shareholder approval and meet the respective exchange listing's 
valuation requirement \382\ to complete the de-SPAC transaction may 
imply that it is in the target company's interest to present the most 
favorable projections of its future performance. SPAC sponsors' 
interests in completing the de-SPAC transaction in order to receive 
their compensation could also affect the degree to which they would be 
motivated to scrutinize or question a target company's 
projections.\383\ Additionally, the basis, source, and support for any 
projections may not be adequately disclosed to shareholders, thereby 
limiting their value. For example, there may be confusion among some 
practitioners as to whether Item 10(b) of Regulation S-K, which states 
the Commission's views regarding the reasonableness of projections, 
applies to projections regarding the target company's future 
performance that may be included in the SPAC's filings.
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    \382\ See infra Section IX.B.1.a.
    \383\ See supra note 67 and accompanying text.
---------------------------------------------------------------------------

    Applicable liability provisions may also provide some protections 
for SPAC investors. For example, SPACs are liable for material 
misstatements or omissions in their proxy solicitations under Section 
14(a) and Rule 14a-9 of the Exchange Act. However, such liability 
generally requires proof of negligence. Similarly, SPAC investors may 
be protected by the application of Section 11 and Section 12(a)(2) of 
the Securities Act for material misstatements or omissions made in 
connection with SPAC transactions involving the filing of a 
registration statement. However, as discussed above, there are 
potential gaps or inconsistencies in these protections that the 
proposed amendments are intended to address.\384\
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    \384\ See supra Sections III.C & III.F.
---------------------------------------------------------------------------

    Another mechanism that could help investors overcome the adverse 
selection problem is the potential signal of deal quality implied by 
the presence of PIPE investors.\385\ These investors, who are generally 
institutional investors, are often afforded an opportunity to gain 
considerable insight into the details of a de-SPAC transaction and the 
future financial prospects of the target company (subject to 
confidentiality agreements) for purposes of evaluating whether to 
participate in a PIPE that often occurs close in time to a de-SPAC 
transaction. Public SPAC investors could benefit from the participation 
of PIPE investors in a de-SPAC transaction in a number of ways. At 
present, some PIPE investments in connection with de-SPAC transactions 
function as a backstop to offset high levels of redemption, thereby 
ensuring a de-SPAC transaction does not fail to meet the minimum cash 
requirement necessary to complete its intended business combination. In 
other cases, PIPE investments enable the SPAC to acquire a larger 
target, or one with a higher valuation, giving SPAC IPO investors 
access to a different type of target company than they might otherwise 
be able to acquire.\386\ On the other hand, the presence of PIPE 
investors in a de-SPAC transaction may not benefit public SPAC 
investors because they typically invest at a discount. When a de-SPAC 
redemption rate is high, the PIPE discount can exacerbate the dilution 
of the equity position of the SPAC's non-redeeming shareholders. 
Additionally, because PIPEs may, in some cases, involve the purchase of 
only warrants, similar misalignments of incentives with respect to a 
de-SPAC transaction may occur with this category of warrant-only 
holders as those previously discussed in that they may have incentives 
to pursue riskier targets than would be optimal for a non-redeeming 
SPAC shareholder. As

[[Page 29508]]

such, the PIPE's financial participation in a de-SPAC transaction may 
not be a reliable indication that the transaction would benefit 
unaffiliated SPAC investors.
---------------------------------------------------------------------------

    \385\ See, e.g., Mike Hopkins & Donald G. Ross, Key Drivers of 
Private Equity Firm Certification at Initial Public Offering, 16 J. 
Private Equity, 69 (2013).
    \386\ This role of PIPEs has been more common, historically, 
see, e.g., Vijay M. Jog & Chengye Sun, Blank Check IPOs: A Home Run 
for Management (SSRN Working Paper, 2007) (``the median value of the 
transaction in relation to gross proceeds is approximately 178 
percent, meaning that the size of the acquisition is higher than the 
proceeds raised through the IPO since many [blank check companies] 
raised additional debt to finance the acquisitions''), and could be 
a contributing factor to the differences we continue to observe 
between average capital raised via SPAC IPO (see infra Section 
IX.B.6.a) and PIPE financing (see infra Section IX.B.2.c) and the 
average consideration paid per SPAC target (see infra Section 
IX.B.2.c).
---------------------------------------------------------------------------

    Therefore, while a number of the mechanisms associated with a SPAC 
transaction structure could mitigate adverse selection concerns for 
investors and could, theoretically, improve the process by which 
private companies may become publicly traded, many of their potential 
benefits over the traditional IPO process may be mitigated by 
countervailing conflicts of interest. As a result of the complexity 
inherent in the SPAC structure, investors may lack or otherwise be 
unable to readily decipher critical information regarding certain 
financial incentives (such as contingent sponsor or IPO underwriter 
compensation or the potential dilutive effects of PIPE financing) of 
the SPAC, the target company, their respective affiliates, or other 
parties in a manner necessary to properly assess the value of an 
investment position.
    There is also a question of whether investors, particularly retail 
investors, fully understand the costs involved in de-SPAC transactions 
and how these costs may affect investors' post-de-SPAC transaction 
returns on their original investments. Specifically, investors may not 
fully anticipate the dilutive effects of sponsor compensation (the 
``promote''), PIPE financing, and outstanding warrants following de-
SPAC transactions. In a similar vein, the potential uncertainty 
regarding the availability of the PSLRA safe harbor and the 
applicability of the guidance of Item 10(b) of Regulation S-K to 
projections of a target company in a de-SPAC transaction may result in 
the use of unreasonable or aspirational projections in connection with 
de-SPAC transactions that may misrepresent the benefits and risks 
involved in such transactions. Furthermore, while the SPAC vehicle may 
allow a private company to go public without using the traditional IPO 
process, the disclosure regarding the private company provided in 
connection with a de-SPAC transaction may be less complete or less 
reliable than that provided in a traditional IPO for reasons discussed 
in the release, including, among other reasons, the lack of due 
diligence by traditional gatekeepers, such as underwriters.\387\ By 
strengthening investor protection, the proposed rules could increase 
investors' confidence in SPAC transactions, while keeping this 
alternative route of going public attractive for private companies.
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    \387\ Although as discussed above, a court could find that many 
parties to a de-SPAC transaction may meet the definition of 
``underwriter,'' all of these issues may be compounded by the lack 
of a designated underwriter in de-SPAC transactions that could 
perform due diligence and would be subject to liability under 
Section 11 of the Securities Act.
---------------------------------------------------------------------------

    In addition to the SPAC-specific items that are of central concern 
to this proposal, we are also proposing amendments to address further 
areas of incongruity in requirements that guide the disclosures and 
liabilities in the broader context of shell-company mergers and the use 
of projections. For example, proposed Rule 145a would help investors in 
reporting shell companies more consistently receive the full 
protections of the Securities Act disclosure and liability provisions 
in business combinations involving shell companies, regardless of the 
transaction structure. Reporting shell companies would have to register 
offerings subject to proposed Rule 145a by filing a Securities Act 
registration statement unless there is an applicable exemption. 
Additionally, we are proposing new Article 15 of Regulation S-X and 
amendments to our forms, schedules, and rules to more closely align the 
financial statement reporting requirements in business combinations 
involving a shell company and a private operating company with those in 
traditional initial public offerings. For example, we are proposing to 
align the number of fiscal years required to be included in the 
financial statements for a private company that will be the 
predecessor(s) in a shell company combination with the financial 
statements required to be included in a Securities Act registration 
statement for an initial public offering of equity securities in 
proposed Regulation S-X Rule 15-01(b). Other proposed amendments would 
codify certain current staff guidance for transactions involving shell 
companies.
    In our analysis below, we first discuss the proposed provisions 
that pertain to specialized disclosure requirements for SPACs in 
registered offerings and for de-SPAC transactions and then address the 
proposals concerning liability related to de-SPAC transactions and the 
PSLRA safe harbor. We then analyze the impact of the proposed new rules 
and amendments that would apply to shell companies and to the use of 
projections in Commission filings. Finally, we discuss the proposed 
safe harbor for SPACs from being deemed an investment company under the 
Investment Company Act. Where appropriate, we discuss the interactions 
between the proposed new rules and amendments.

B. Baseline and Affected Parties

    To assess the economic impact of the proposed rules, the Commission 
uses as its baseline the current regulatory framework and existing 
market practices, including Commission staff guidance and other staff 
positions. We discuss in this section those parties likely to be 
affected by the proposed rules and some of the relevant regulatory and 
market baselines. The remainder of the discussion of the regulatory and 
market baselines is integrated into our analysis of the benefits and 
costs of the proposed rules to aid comprehension and minimize 
repetition.\388\
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    \388\ See also supra Sections I-IV for further discussion of 
existing regulatory framework and market practices.
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1. SPAC Initial Public Offerings
    The parties most likely to be directly affected by the proposed 
rules regarding specialized disclosure requirements for SPACs in 
initial public offerings and other registered offerings are existing or 
potential sponsors intending to organize a new SPAC, SPACs, prospective 
investors in such offerings, and any other market participants whose 
service or activities involve analysis of the information, data, and 
disclosures related to SPACs and their sponsors in these offerings. In 
2021, there were approximately 620 SPAC initial public offerings.
    In addition, these proposed amendments would necessarily have 
secondary impacts on the prospects or opportunities of private 
companies that would be potential targets of such newly organized SPACs 
if, as a result of their adoption, a different number or type of SPAC 
sponsors and their affiliates participate in the market. Similarly, 
given that proposed Rule 140a clarifies the underwriter status of SPAC 
IPO underwriters at the de-SPAC transaction stage, this proposed rule 
may affect the number and type of potential targets that might be 
selected for acquisition by potentially reducing the number of SPAC 
IPOs underwriters are willing to support or by potentially deterring 
SPAC IPO underwriters from directly or indirectly participating in the 
de-SPAC transaction or any related financing transaction.\389\ Other 
potentially affected parties include those parties who provide advisory 
or other services

[[Page 29509]]

to sponsors of SPACs in connection with these registered offerings.
---------------------------------------------------------------------------

    \389\ See Jessica Bai, Angela Ma, and Miles Zheng, Reaching for 
Yield in the Going-Public Market: Evidence from SPACs (SSRN Working 
Paper, 2021).
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a. SPAC Initial Public Offerings and Exchange Listing
    SPACs initial public offerings on national securities exchanges 
have greatly increased in recent years. Moreover, SPAC listings have 
migrated from the over-the-counter market to three national securities 
exchanges: First NYSE American (formerly AMEX), then Nasdaq and NYSE 
(see Table 1).\390\
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    \390\ SPACs first were listed on the AMEX in 2005. The 
Commission approved the NYSE's proposed rule change to adopt listing 
standards to permit the listing of SPACs on May 6, 2008, and 
approved NASDAQ's proposal to adopt listing standards to permit the 
listing of SPACs on July 25, 2008. See Release No. 34-57785 (May 6, 
2008) [73 FR27597 (May 13, 2008)] (SR-NYSE-2008-17); Release No. 34-
58228 (July 25, 2008) [73 FR 44794 (July 31, 2008)] (SR-NASDAQ-2008-
013). See also Release No. 34-63366 (Nov. 23, 2010) [75 FR 74119 
(Nov. 30, 2010)] (SRNYSEAMEX-2010-103) (notice of filing and 
immediate effectiveness of proposed rule change to adopt additional 
criteria for the listing of SPACs).
[GRAPHIC] [TIFF OMITTED] TP13MY22.000

    NYSE, Nasdaq, and NYSE American have rules setting forth listing 
requirements for a company whose business plan is to complete an IPO 
and engage in a de-SPAC transaction.\391\ Among other things, all three 
exchanges permit the initial listing of SPACs only if at least 90% of 
the gross proceeds from the IPO and any concurrent sale by the SPAC of 
equity securities will be deposited in a trust account.\392\ These 
exchanges further require that within three years, for NYSE, or 36 
months, for Nasdaq and NYSE American, of the effectiveness of its IPO 
registration statement (or such shorter period specified in the 
registration statement under Nasdaq and NYSE American rules or its 
constitutive documents or by contract under NYSE rules), the SPAC 
complete one or more business combinations having an aggregate fair 
market value of at least 80% of the value of the net assets in the 
account excluding certain costs.\393\ NYSE, Nasdaq, and NYSE American 
require that a de-SPAC transaction meeting the 80% requirement be 
approved by a majority of the SPAC's independent directors,\394\ and 
all three exchanges require, if a shareholder vote is held, that a 
majority of the shares voted at the shareholder meeting approve the de-
SPAC transaction meeting the 80% requirement.\395\ In addition, if a 
de-SPAC transaction meeting the 80% requirement is approved and 
consummated, public shareholders voting against the transaction must 
have the right to convert their shares of common stock into a pro rata 
share of the aggregate amount then in the trust account net taxes and 
working capital disbursements.\396\ If a shareholder vote on a de-SPAC 
transaction is not held, the SPAC must provide all shareholders with 
the opportunity to redeem all their shares for cash equal to their pro 
rata share of the aggregate amount then in the trust account net of 
taxes and working capital disbursements, pursuant to Rule 13e-4 and 
Regulation 14E under the Exchange Act, which regulate issuer tender 
offers.\397\
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    \391\ NYSE Listed Company Manual Section 102.06; Nasdaq Listing 
Rule IM-5101-2; NYSE American Company Guide Section 119. The Rules 
of the CBOE BZX Exchange, Inc., provide another example of listing 
requirements that are substantially similar to those describe in 
this section. See CBOE BZX Rule 14.2(b).
    \392\ NYSE Listed Company Manual Section 102.06; Nasdaq Listing 
Rule IM-5101-2(a); NYSE American Company Guide Section 119(a).
    \393\ NYSE Listed Company Manual Section 102.06(e); Nasdaq 
Listing Rule IM-5101-2(b); NYSE American Company Guide Section 
119(b).
    \394\ NYSE Listed Company Manual Section 102.06(d); Nasdaq 
Listing Rule IM-5101-2(c); NYSE American Company Guide Section 
119(c).
    \395\ NYSE Listed Company Manual Section 102.06(a); Nasdaq 
Listing Rule IM-5101-2(d); NYSE American Company Guide Section 
119(d).
    \396\ NYSE Listed Company Manual Section 102.06(b); Nasdaq 
Listing Rule IM-5101-2(d); NYSE American Company Guide Section 
119(d).
    \397\ NYSE Listed Company Manual Section 102.06(c); Nasdaq 
Listing Rule IM-5101-2(e); NYSE American Company Guide Section 
119(e).
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b. SPAC Sponsors
    Historically, it has been suggested that one reason a SPAC vehicle 
might provide a more attractive route to the public markets was the 
benefit of the leadership and professional advice by one or more 
individuals comprising the SPAC sponsor, including in some cases

[[Page 29510]]

beyond the de-SPAC and into the life of the target as public operating 
company.\398\ Although the majority of sponsors are financial 
institutions, a sizable fraction (47%) of SPACs are sponsored by 
individuals.
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    \398\ See Robert Berger, SPACs: An Alternative Way to Access the 
Public Markets, 20 J. Applied Corporate Fin. 68 (2008) (``Though 
privately negotiated, tailored transactions, SPACs can provide 
companies with access to the public markets in ways that a 
traditional IPO cannot. SPAC mergers typically exhibit . . . 
specialized SPAC management teams that add experience that is 
difficult to replicate.'').
[GRAPHIC] [TIFF OMITTED] TP13MY22.001

c. SPAC IPO Underwriters
    During the period 1990-2021, the average number of underwriters 
participating in a SPAC IPO was 2.5.\399\ Approximately 99% of these 
SPAC IPOs were done via a firm commitment offering.\400\ The average 
fee charged by SPAC IPO underwriters during this time was approximately 
5.6%.\401\ This reflects a decline from the underwriting fees 
associated with the earliest SPACs (approximately 7-7.5%),\402\ when 
underwriters typically received their full compensation at the time of 
the SPAC IPO.\403\ As mentioned above, a portion of this fee is 
typically deferred until, and conditioned upon, the completion of the 
de-SPAC transaction.\404\ In a typical SPAC underwriting, this deferred 
fee is placed in the SPAC trust or escrow account. During the period 
1990-2021, we estimate that the average size of the deferred 
underwriter fee was 3.4%.\405\ We do not observe significant 
differences in the structure or level of underwriter fees and deferred 
fees, as disclosed at the IPO stage, between SPACs that have completed 
a de-SPAC transaction and those that have not. We observe that among 
SPACs that have completed a de-SPAC transaction the average number of 
underwriters was 3.1, which is slightly higher than the average number 
of underwriters per SPAC IPO.\406\ SPAC underwriters may provide other 
services to the SPAC or its eventual target after the IPO as well. For 
example, the SPAC underwriter may help the SPAC identify potential 
targets, provide financial advisory services to the SPAC or the target, 
or act as a PIPE placement agent.
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    \399\ This estimate is based on staff analysis of data as 
described in Table 1, note a.
    \400\ SPACs that conduct a firm commitment IPO and raise more 
than $5 million in the offering are not subject to the requirements 
of Securities Act Rule 419. See supra note 12.
    \401\ This estimate is based on staff analysis of data as 
described in Table 1, note a.
    \402\ See, e.g., Lola Miranda Hale, SPAC: A Financing Tool with 
Something for Everyone, 18 J. Corp. Acct. & Fin. 67 (2007) (``The 
underwriting discounts are typically around 7-7.5 percent of the 
public offering price'').
    \403\ See Yochanan Shachmurove & Milos Vulanovic, Specified 
Purpose Acquisition Company IPOs, in The Oxford Handbook of IPOs 
(Douglas Cumming ed., 2018).
    \404\ See supra Section III.E.3.
    \405\ This estimate is based on staff analysis of data as 
described in Table 1, note a, and may be positively skewed because 
the data features a greater proportion of deals occurring between 
2019 and 2021.
    \406\ Based on staff analysis of data as described in Table 1, 
note a. We note that timing differences in where a SPAC might 
currently be, relative to its dissolution date, might result in 
overestimation of this difference.
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d. Warrants
    SPAC IPOs most often register the offering of a unit composed of a 
common share, warrants, or fractions thereof, and--in some cases--
rights.\407\ In their earliest form, SPAC units usually included two 
in-the-money

[[Page 29511]]

warrants exercisable for full shares at the later of completion of the 
de-SPAC transaction or one year after the effective date of the IPO 
registration statement.\408\ These warrants could thus become highly 
dilutive to the equity shareholders given that warrants may begin 
trading separately from the unit common share once a Form 8-K 
containing the balance sheet of IPO proceeds has been filed.\409\ 
Shareholders could experience equity dilution if redeeming shareholders 
retain and later exercise their warrants.
---------------------------------------------------------------------------

    \407\ See, e.g. G[uuml]l Okutan Nilsson, Incentive Structure of 
Special Purpose Acquisition Companies, 19 Eur Bus Org Law Review 
(2018) (``[R]ecent SPACs seem to be experimenting with issuing 
certain `rights' [. . .] defined as the `right to receive one-tenth 
of a SPAC share upon consummation of the business combination' 
Unlike in the case of warrants, shareholders are not required to pay 
for receiving these shares. `Rights can also trade separately and 
even the shareholders who convert their shares can keep them. If the 
business combination cannot be completed, rights expire 
worthless.'').
    \408\ See, e.g., Hale, supra note 402 (``The typical structure 
involves the offering of a unit consisting of common stock and one 
or two separate warrants for common stock. In a two-warrant unit, 
the unit price is $6, including one share of common stock and two 
warrants.[. . .] Typically, each warrant entitles the holder to 
purchase one share of common stock at a price of $5 each.''); Carol 
Boyer & Glenn Baigent, SPACs as Alternative Investments: An 
Examination of Performance and Factors that Drive Prices, 11 J. 
Private Equity 8 (2008) (``SPACs typically sell in units that are 
priced at $6, and each unit is composed of one common share and two 
warrants that give investors the right to buy two more shares for $5 
each.'').
    \409\ Historically, this typically occurred around 90 days after 
the initial public offering. Over the past decade, the usual number 
of days has decreased to approximately 60. See, e.g., Anh L. Tran, 
Blank Check Acquisitions (SSRN Working Paper, 2010); James S. 
Murray, The Regulation and Pricing of Special Purpose Acquisition 
Corporation IPOs (SSRN Working Paper, 2014); James S. Murray, 
Innovation, Imitation and Regulation in Finance: The Evolution of 
Special Purpose Acquisition Corporations, 6 Rev. Integrative Bus. & 
Econ. 1 (2017).
[GRAPHIC] [TIFF OMITTED] TP13MY22.002

    As SPAC offerings have evolved, however, the highly dilutive 
aspects of the warrant component of a SPAC offering unit appear to have 
somewhat attenuated. As indicated in Figure 2, many SPACs offer units 
with smaller warrant components. The majority of SPACs that have 
conducted an IPO in the past three years offered units with fractional 
warrants or units where warrants represented only fractional shares. 
The dilutive capacity of these warrants is further tempered by the fact 
that in current practice, warrants (or fractions thereof) are only 
offered at exercise prices higher than the SPAC IPO offering price. 
However, the reduced dilution attributable to warrants as a component 
of SPAC IPO units does not imply that current SPAC IPOs offer a 
security that is inherently less exposed to potential dilution or that 
warrants purchased separately from units, such as in sponsor 
compensation or PIPE financing transactions, are not still a 
significant source of dilution. Furthermore, while warrant features 
have in some respects become less dilutive, maximum allowable 
redemptions have generally increased, creating the possibility for non-
redeeming shareholders to experience greater dilution albeit from a 
different source. The emergent size and significance of PIPE financing 
in de-SPAC transactions \410\ has presented yet another potential 
source of dilution.
---------------------------------------------------------------------------

    \410\ See infra Section IX.B.2.c.
---------------------------------------------------------------------------

e. Time To Complete a De-SPAC Transaction
    Because SPACs are not blank check companies issuing penny stock, 
they have not been subject to Rule 419's requirements, including the 
requirement that an acquisition occur by a date 18 months after the 
effective date of the blank check company's initial registration 
statement.\411\ Nevertheless, SPACs use, as a matter of practice, 
features of Rule 419 that would appear to enhance protections for 
investors, including a pre-specified intended lifespan before 
dissolution that is communicated to investors at the time of the 
initial public offering. Table 2 documents the average proposed 
lifespans (in months) that SPACs in each period disclosed in their 
initial

[[Page 29512]]

public offering registration materials as well as the average actual 
number of months used by those SPACs that successfully completed a de-
SPAC transaction, by cohort. We note that since 2006, the typical SPAC 
generally pre-commits to a lifespan at least two months, on average, 
longer than the 18-month limit in Rule 419 and approximately 13 months 
shorter than the exchange listing 36-month limit.\412\
---------------------------------------------------------------------------

    \411\ See supra note 12. See also Rule 419(e)(2)(iv) under the 
Securities Act (``If a consummated acquisition(s) meeting the 
requirements [of Rule 419] has not occurred by a date 18 months 
after the effective date of the initial registration statement, 
funds held in the escrow or trust account shall be returned [to 
investors.]'').
    \412\ See supra Sections VI.B.3 & IX.B.1.a.
    [GRAPHIC] [TIFF OMITTED] TP13MY22.003
    
2. De-SPAC Transactions
    The primary parties affected by the proposed disclosure 
requirements at the de-SPAC transaction stage include SPACs, sponsors 
of SPACs, investors, potential PIPE investors, and target private 
operating companies. Additionally, the proposed rules to amend or 
otherwise clarify the existing liability framework would affect SPACs, 
target companies, investors in SPACs, and the underwriters that SPACs 
use at the SPAC IPO and the de-SPAC stages.\413\
---------------------------------------------------------------------------

    \413\ See, e.g., Luisa Beltran, SPACs Are Scrambling to Find 
Mergers. What That Means for Investors, Barrons, Feb. 24, 2022.
---------------------------------------------------------------------------

    We are mindful that parties may be differentially affected for a 
number of reasons. For example, to the extent that regulatory changes 
we are proposing, if adopted, would become effective while some current 
SPACs are in the process of completing a de-SPAC transaction, these 
SPACs may incur greater unanticipated transaction costs to comply with 
the full set of new requirements. Other SPACs that have not yet found a 
target may find themselves ex-post to have inefficiently entered the 
market as compared to a SPAC that completes an IPO with knowledge of 
the costs associated with the proposed amendments. However, the fact 
that some of the proposed amendments may reduce costs or simply codify 
existing best practices may offset some of the potentially more costly 
elements of other amendments, thus the differential impact of the 
proposed amendments affecting parties at the de-SPAC transaction stage 
is expected to vary.
    Based on staff analysis of SPACs that registered a distribution of 
securities between 1990 and 2021, it appears that approximately half of 
all SPACs following their initial public offerings have announced a 
subsequent de-SPAC transaction, and about one third have completed 
their de-SPAC transaction. It is possible that SPACs currently 
searching for targets may still identify targets, complete de-SPAC 
transactions, and thereby increase the fractions of SPACs with 
announcements and completed transactions. However, the overall success 
rate of approximately one-third is generally consistent with previous 
research findings over more limited historical subsamples,\414\ 
suggesting that the number or proportion of SPACs and related parties 
that would directly incur the costs, or experience the benefits, of our 
de-SPAC-related proposals may be smaller than the population of parties 
affected by our proposed amendments pertaining to a SPAC's initial 
registration and public offering.
---------------------------------------------------------------------------

    \414\ Studies performed in 2016 or later reviewing the 2003-2013 
cohort of SPACs find that approximately 51.5% of SPACs that had an 
initial public offering during the decade successfully complete a 
de-SPAC transaction and 21.6% were still publicly traded three years 
later in 2016. See, e.g., Milos Vulanovic, SPACs: Post-Merger 
Survival, 43 Managerial Fin. 679, 679-699 (2017); Kamal Ghosh Ray & 
Sangita Ghosh Ray, Can SPACs Ensure M&A Success?, 16 Advances in 
Mergers & Acquisitions 83, 83-97 (2017).
---------------------------------------------------------------------------

    Of the SPAC initial public offerings in 2020 and 2021, a majority 
have not yet filed a Form 8-K announcing that the SPAC has found a 
target company, or else have not filed a Form 8-K that

[[Page 29513]]

would follow within 4 days of a completed a de-SPAC transaction. As of 
December 31, 2021, approximately 77 of 248 SPAC IPOs in 2020 (31%) and 
an additional 495 of 613 SPAC IPOs in 2021 (81%) had not yet announced 
a target or have withdrawn an announced business combination and 
resumed searching. Some market participants have opined that, of 
recently listed SPACs that have not yet secured a target, a greater 
proportion are likely to liquidate without completing an 
acquisition.\415\ This may be due to factors such as changing market 
conditions (increased volatility, increasing interest or inflation 
rates, etc.) and an increasingly limited number of viable target 
private companies (particularly companies with valuations in the range 
that would match the 80% requirement of most SPACs).
---------------------------------------------------------------------------

    \415\ See, e.g., Jemima McEvoy, Take Back The SPAC: More And 
More Companies Are Canceling High-Profile Deals To Go Public, 
Forbes, Dec. 22, 2021.
[GRAPHIC] [TIFF OMITTED] TP13MY22.004

a. Filings in Connection With a De-SPAC Transaction
    Like any merger or acquisition activity pursued by other public 
reporting companies, the timing and types of filings that accompany a 
de-SPAC transaction are usually a function of the way the business 
combination is structured and the form of consideration employed. Such 
transactions may require providing existing shareholders information in 
advance of a vote. Others may simply require providing shareholders 
with information and a specified period of time in which to redeem 
shares, if desired. Similarly, such transactions may include an offer 
of securities as a part of the merger or exchange offer, and if so, may 
require the filing of a registration statement. The cumulative effects 
of our proposals would vary in impact on individual de-SPAC 
transactions based on their unique deal structure and the disclosures 
they would thus already be obligated or otherwise incentivized to 
provide.
    A recent review of 462 de-SPAC transactions completed in 2020 and 
2021 found that approximately 99% of transactions were accompanied by 
proxy disclosures and 81.0% involved a related filing of a registration 
statement on either Form S-4 or Form F-4.\416\ Of the 81.0% of de-SPAC 
transactions that involved the filing of a registration statement, 
85.4% were accompanied by a proxy statement on Schedule 14A, and the 
remaining 14.6% were accompanied by an information statement on 
Schedule 14C as a result of a consent solicitation.\417\
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    \416\ See Michael Levitt, Valerie Jacob, Sebastian Fain, Pamela 
Marcogliese, Paul Tiger, & Andrea Basham, 2021 De-SPAC Debrief, 
Freshfields (Jan. 24, 2022), available at https://blog.freshfields.us/post/102hgzy/2021-de-spac-debrief. We note that 
the scope of this study is limited to 2020 and 2021.
    \417\ Id.
---------------------------------------------------------------------------

b. Target Form 10 Information in Connection With De-SPAC Transactions
    If a shell company that has Exchange Act reporting obligations, 
including a SPAC, acquires a target that is not subject to the 
reporting requirements of Section 13(a) or 15(d) of the Exchange Act, 
after the business combination, it must file a Form 8-K that includes 
the same disclosures about the target company that would have been 
provided if the target had instead registered a class of securities 
under Section 12 of the Exchange Act on Form 10.\418\ This Form 10 
information in a Form 8-K must be filed within four business days after 
the completion of a de-SPAC transaction.\419\ Because we are proposing 
to require these disclosures to instead be included filings related to 
the de-SPAC transaction that occur prior to the consummation of the 
proposed business combination, whether in a proxy, information, or 
registration statement or Schedule TO, any SPAC that would otherwise 
file Form 10 information about its target in a Form 8-K following a de-
SPAC transaction would be affected.
---------------------------------------------------------------------------

    \418\ See supra Section III A.
    \419\ See Shell Company Adopting Release, supra note 211, at 15-
17, 21 (adopting amendments requiring the entity surviving a merger 
with a shell company to file its report on Form 8-K within four 
business days after completion of the merger and limiting the use of 
Form S-8 to register offerings of securities).

---------------------------------------------------------------------------

[[Page 29514]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.005

    As illustrated in Figure 3, staff review of Forms 8-K filed in 
connection with approximately 300 de-SPAC transactions completed 
between January 1, 2006 and December 31, 2021 found that approximately 
47% of combined companies filed the Form 8-K on the fourth business day 
after the de-SPAC transaction and approximately 88% of combined 
companies filed the Form 8-K within the 4-business day time limit. 
However, as discussed below in Section C.1.b.8, some registrants 
currently may voluntarily disclose Form 10 information before filing 
the Form 8-K given the staff's observations regarding incorporation by 
reference of this information into the Form 8-K from filings made in 
connection with the de-SPAC transaction.
c. PIPES in Connection With De-SPAC Transactions
    PIPEs have supported de-SPAC transactions since their general 
increased market presence began in 2005.\420\ However, in some recent 
SPACs, PIPEs have played a larger role than they have historically 
played, and this has given rise to concern about the potential dilutive 
effects of PIPEs and how well those might be understood by other 
investors.
---------------------------------------------------------------------------

    \420\ See Meghan Leerskov, Shell Mergers and SPACs: A 
Statistical Overview of Alternative Public Offering Methods, in The 
Issuer's Guide to Pipes: New Markets, Deal Structures, and Global 
Opportunities for Private Investments in Public Equity 281 (Steven 
Dresner ed., 2015).
---------------------------------------------------------------------------

    According to a recent study analyzing the 47 registered de-SPAC 
transactions that occurred between January 2019 and June 2020, 
approximately 65% of the cash delivered in these merger transactions 
was contributed by public investors, and the amount typically 
contributed by third-party PIPE investors was approximately 25%, with 
the remaining funding provided by the sponsor.\421\ In such cases, 
while the equity position of the PIPE investors in the combined company 
following a de-SPAC transaction was dilutive, it did not eclipse the 
ownership stake of the SPAC IPO shareholders. Because PIPE investors 
may receive confidential information with which to make an investment 
decision (including one-on-one conversations with the target's 
management, which may convey soft information) and may also engage in 
extended and detailed due diligence,\422\ their participation has at 
times been considered a benefit to SPAC IPO investors, providing a 
meaningful indicator of the expected future financial performance of a 
proposed de-SPAC transaction.
---------------------------------------------------------------------------

    \421\ See Klausner, Ohlrogge, & Ruan, supra note 17. The authors 
analyzed data for the 47 SEC-registered SPACs that merged, and 
thereby brought companies public, between Jan. 2019 and June 2020.
    \422\ Id.
---------------------------------------------------------------------------

    As the SPAC market has evolved, so too have the role and the 
structure of PIPEs that support, and in some cases enable, de-SPAC 
transactions. In 2021, according to one study, approximately 95% of de-
SPAC transactions included PIPE financings and the average and median 
amounts raised in PIPE financings (respectively approximately $300 
million and $200 million) were similar to the average size of the SPAC 
trust account at the time of the IPO.\423\ This may reflect that in 
more recent SPACs, in addition to enabling larger deals, some PIPEs may 
provide capital to enhance deal certainty.\424\ In this

[[Page 29515]]

alternative role, the financing raised via PIPE investment may ensure 
that a deal that otherwise may fail due to a high redemption rate can 
proceed to completion. In these cases,\425\ the ownership stake of the 
PIPE investors in the combined company may exceed that of the non-
redeeming SPAC investors.\426\
---------------------------------------------------------------------------

    \423\ See Levitt et al., supra note 416. The difference between 
average and median PIPEs in this sample reflect that the data is 
positively skewed, implying that while some deals may involve low or 
no additional financing via PIPEs, other deals feature large 
investments outside the SPAC IPO process.
    \424\ We note that while there may be more instances in which 
PIPE financing functions to ensure that the cash requirements of a 
de-SPAC transaction are met in recent years, the difference between 
the average and median amount of PIPE financing raised (respectively 
approximately $300 million and $200 million) and the average and 
median consideration paid to target shareholders (respectively 
approximately $2 billion and $1.25 billions) suggests that many PIPE 
offerings in connections with a de-SPAC transaction still appear to 
facilitate larger acquisitions rather than replace SPAC share 
redemptions. See Levitt et al., supra note 416.
    \425\ This outcome would also occur if the PIPE investments 
simply exceeded the size of the SPAC IPO proceeds without 
redemptions, but such cases have not been commonly observed.
    \426\ In a review of PIPE finance raised in connection with de-
SPAC transactions that occurred between Jan. 2018 and June 2021, the 
Commission staff found that while PIPE proceeds ranged, on average 
from 60% to 88% of SPAC IPO proceeds, net of redemptions, these 
proceeds represented up to 137% on average (in calendar year 2019) 
of SPAC IPO proceeds at the consummation of the de-SPAC transaction.
---------------------------------------------------------------------------

    PIPE investors may, therefore, come to have a larger stake in the 
combined company than SPAC IPO investors may have anticipated when 
making an initial investment. As a result, SPAC IPO investors may thus 
find that they hold a smaller stake in the combined company than they 
would find optimal. Further, they may not be able to purchase an 
ownership claim in the combined company at the same price as a PIPE 
investor when PIPEs are offered at a discount to the open market price. 
Although PIPE discounts may offset differences in the securities' 
liquidity, discounts to PIPE investors contribute to the dilution of 
SPAC investors.
    Staff review of PIPEs in connection with de-SPAC transactions that 
occurred between January 2018 and June 2021 found the average and 
median discount to PIPE investors were respectively 1.8% and 2.4% when 
estimated over all PIPEs and slightly higher (respectively 4.4% and 
2.4%) for PIPE offerings without warrants.\427\ These results appear 
generally consistent with a recent study that was more narrowly scoped 
to the height of the SPAC boom that found, between 2019 and June 2020, 
that the median discount received by PIPE investors was 5.5% relative 
to the market value of the publicly traded securities, and, in 37% of 
SPACs with PIPE deals, the PIPE was at a 10% discount or more.\428\ 
This level of discount appears to be more broadly consistent with 
estimated discounts associated with PIPE financing outside the SPAC 
context as, by comparison, a recent study indicates that the average 
discount for PIPE investors is 11.2%, and for the subsample of PIPES 
that do not include warrants, the average discount is 5.7%.\429\ While 
PIPE discounts may, on average, be smaller in the context of SPACs than 
in other PIPE financing, it is nevertheless a concern that the dilution 
they may cause may not be adequately anticipated by SPAC IPO investors.
---------------------------------------------------------------------------

    \427\ These estimates are based on staff analysis of data as 
described in Table 1, note a, and additional data from PrivateRaise.
    \428\ See Klausner, Ohlrogge, and Ruan, supra note 17.
    \429\ See Jongha Lim, Michael Schwert, & Michael Weisbach, The 
Economics of PIPEs, 45 J. Fin. Intermediation 100832 (2021). These 
results are based on a sample of 3001 PIPE transactions by U.S. 
firms listed on NYSE or NASDAQ between 2001 and 2015.
---------------------------------------------------------------------------

d. Use of Projections in Connection With De-SPAC Transactions
    Proposed Item 1609 of Regulation S-K would apply to projections 
used in de-SPAC transactions. Hence, proposed Item 1609 would 
potentially affect preparers and users of financial projections related 
to de-SPAC transactions, including SPACs, their sponsors, target 
companies, their controlling shareholders and management, and current 
and prospective investors.
    Three recent papers discuss the use of projections by SPACs and 
target private operating companies in de-SPAC transactions. Chapman, 
Frankel, and Martin (2021) collected data on 420 SPACs with IPO dates 
from 2015 to 2020.\430\ They found that 249 (59.29%) de-SPAC 
transactions were accompanied by at least one forecast. Dambra, Even-
Tov, and George (2022) focus on de-SPAC transactions between January 1, 
2010, and December 31, 2020. They restrict their sample to de-SPAC 
acquisitions with a single target and exclude SPACs that either 
delisted before the merger effective date, that traded on the OTC 
market, or focused on the biotech industry, yielding a sample of 142 
observations.\431\ They identify 128 target private companies (90.1%) 
that provided at least one form of forecast (e.g., revenue or net 
income) in investor presentations. Blankespoor, Hendricks, Miller, and 
Stockbridge (2022) reviewed a sample of 963 SPAC IPOs completed between 
January 1, 2000, and July 1, 2021. They removed firms ``that are still 
seeking a merger target, have liquidated, are foreign, or have not 
publicly filed their roadshow'', and arrived at a sample of 389 SPACs. 
Of this sample, 312 (80.21%) SPACs provided a revenue forecast. These 
studies suggest that the use of projections is fairly common in the de-
SPAC transactions and may have become increasingly common over time.
---------------------------------------------------------------------------

    \430\ See Chapman, Frankel, and Martin, supra note 291.
    \431\ See Dambra, supra note 33.
---------------------------------------------------------------------------

e. Use of Fairness Opinions
    According to one source, in 2021, only 15% of de-SPAC transactions 
disclosed that they were supported by fairness opinions.\432\ In 
contrast, a study of mergers and acquisitions more broadly found that 
85% of bidders obtain fairness opinions.\433\ The results indicate that 
deals in which bidders obtain fairness opinions may be associated with 
higher stock price reactions to the deal announcement and also better 
post-merger operating performance.\434\ This study suggests that, for 
mergers and acquisitions in which a proxy vote is required, a fairness 
opinion obtained by the bidder can mitigate information risks and 
enhance communications between bidder boards of directors and their 
shareholders.\435\
---------------------------------------------------------------------------

    \432\ See Levitt, Jacob, Fain, Marcogliese, Tiger, & Basham, 
supra note 416.
    \433\ This finding is based on deals that occurred between 1995 
and 2015, involving a publicly traded bidder that seeks to acquire a 
majority of the target's shares. As discussed by the authors, it is 
difficult to estimate the fraction of deals that involve a fairness 
opinion since the use of fairness opinions is disclosed only if 
bidders are required to file proxy statements to solicit a 
shareholder vote. They note that listing rules of the NYSE, Amex, 
and NASDAQ require a bidder shareholder vote only when the bidder 
plans to issue 20% or more new equity to finance a deal. In other 
words, if the bidder issues less than 20% equity or uses cash to 
finance the deal, the bidder would not be required to disclose the 
fairness opinion even if the firm had obtained one. See Tingting 
Liu, The Wealth Effects of Fairness Opinions in Takeovers, 53 Fin. 
Rev. 533 (2018) (finding positive wealth effects from fairness 
opinions after the SEC approved Rule 2290 in Oct. 2007 which 
regulates the identification and disclosure of conflicts of interest 
of investment banks rendering fairness opinions.)
    \434\ Id.
    \435\ Id.
---------------------------------------------------------------------------

f. SPAC Filer Status
    Figure 4 below shows the proportion of SPACs that claimed smaller 
reporting company or EGC status, or both, in their first annual report 
after the initial public offering. Since 2016, almost all SPACs in 
their initial public offerings have claimed either smaller reporting 
company or EGC status, with the majority claiming both. For example, in 
2021, 399 SPACs in their initial public offerings claimed both smaller 
reporting company and EGC status, while 48 only claimed EGC status.
BILLING CODE 8011-01-P

[[Page 29516]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.006

g. Changes in Jurisdiction of the Combined Company
    As we consider the potential economic effects of the proposed new 
rules and amendments, we take into consideration elements of the both 
the economic and the regulatory baseline, which would include 
accounting for variations between the applicable legal frameworks in 
the jurisdictions in which SPACs are incorporated or organized. Table 4 
presents information on the jurisdiction of incorporation or 
organization for each SPAC that conducted its initial public offering 
after 1990 and completed a de-SPAC transaction before 2022. The first 
two columns state the percentage of SPACs that were originally 
incorporated or organized in each of six listed jurisdictions. The 
second two columns state--for each originating jurisdiction--the 
percentage of combined companies that were incorporated or organized in 
the listed jurisdictions following a de-SPAC transaction.
    While the majority of SPACs that subsequently consummate a de-SPAC 
transaction remain incorporated in the same location, Table 4 indicates 
that the jurisdiction of incorporation or organization of the combined 
company may change in connection with the de-SPAC transaction. As a 
result, SPACs may face changes in prevailing legal standards that arise 
from a change in jurisdiction of incorporation or organization. To the 
extent that different jurisdictions have different disclosure 
requirements and provide differing levels of investor protections, the 
baseline regulatory regime will vary across SPACs and may change upon 
the de-SPAC transaction.

[[Page 29517]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.007

BILLING CODE 8011-01-C

[[Page 29518]]

3. Blank Check Companies
    We are also proposing an amendment to the definition of ``blank 
check company'' for purposes of the PSLRA safe harbor provisions.\436\ 
The proposed amendment would affect SPACs and certain other blank check 
companies that may not already be excluded from the PSLRA safe harbor, 
as well as investors and other market participants whose access to the 
informational content of forward-looking statements, or potential 
remedies in the case of material omissions or misstatements, would 
otherwise differ.\437\ We estimate that in addition to potentially 
affected SPACs, as previously discussed,\438\ approximately 30 non-SPAC 
entities that self-identified as blank check companies but did not 
self-identify as penny stock issuers may also be affected by the 
proposed amendment.\439\ Because such non-SPAC blank check companies 
may not be subject to the same limitations on duration as SPACs, the 
number of filings or disclosures they might make under the presumed 
protections of the safe harbor may be greater. However, due to the 
nature of a blank check company as a development stage company with no 
specific plan or purpose other than to merge with or acquire an 
unidentified company or companies, or other entity, or person,\440\ it 
is unlikely that the nature of the forward-looking statements such a 
registrant might produce would differ in substance from the 
informational content provided by SPACs and therefore should not have a 
differential impact on investors or other market participants.
---------------------------------------------------------------------------

    \436\ See supra Section III.D.
    \437\ Although the PSLRA safe harbor may currently affect 
private litigation against some SPAC and blank check companies, 
those companies are subject to state and federal enforcement 
actions.
    \438\ See supra Sections IX.B.1.a & IX.B.2.
    \439\ This estimate is based on staff review of all registrants, 
by unique CIK, that filed at least one periodic or current report 
between 2019 and 2021 and, as of its most recent filing, identifies 
its SIC code as 6770. We exclude CIKs that have already been 
identified as SPACs and those associated with filings that self-
identify as penny stock issuers under Rule 419. We note that this 
estimate may represent an upper bound on the number of additional 
affected parties because it is based on registrants' self-reported 
SIC and penny stock issuer status. Studies have reported that self-
reported SIC codes may contain errors that could cause a higher 
number of issuers to be counted as affected parties than in effect 
would be. See, e.g., Murat Aydogdu, Chander Shekar, & Violet Torbey, 
Shell Companies as IPO Alternatives: An Analysis of Trading Activity 
Around Reverse Mergers, 17 Applied Fin. Econ. 1335 (2007) (``Not all 
firms that use SIC [code] 6770 are actually blank checks. For 
instance, companies are required to file Form 12 after an 
acquisition to notify the SEC of their new SIC code. Many fail to 
file as they acquire operations in a business with a more 
descriptive SIC code, yet they continue to use 6770.''). Our 
estimate does not seek to reclassify potential errors in this case 
because we are not able to distinguish when the classification error 
would represent a mistake made by a registrant that knows it is not 
a blank check company versus when the registrant is mistaken in its 
belief that it is a blank check company when it may not be. In the 
latter case, even if mistaken about its blank check company status 
as a registrant, the party would still be affected by the proposed 
amendment because they may currently make, or believe they are able 
to make, forward looking statements under the PSLRA safe harbor, and 
would not if the proposed amendment is adopted.
    \440\ See the definition of ``blank check company'' in Rule 
419(a)(2)(i) of the Securities Act.
---------------------------------------------------------------------------

4. Shell-Company Business Combinations
    Proposed Securities Act Rule 145a and proposed Article 15 of 
Regulation S-X would affect SPACs and other shell companies (other than 
business combination related shell companies) involved in business 
combination transactions. Proposed Rule 145a would impact the 
disclosures reporting shell company investors may receive and potential 
sources of liability. Proposed Article 15 of Regulation S-X would 
impact the financial statements associated with business combinations 
involving shell companies and, thus, would also affect parties that are 
typically associated with the preparation, review, and dissemination of 
financial statements and the information they contain.\441\ Table 5 
below illustrates that the proportion of SPAC to non-SPAC reporting 
shell-company business combinations has shifted due to the increasing 
number of SPACs entering the market. It also shows that, in 2021, more 
than one-third of all targets acquired by a reporting shell company 
appear to merge with a non-SPAC entity.
---------------------------------------------------------------------------

    \441\ We acknowledge the possibility of a situation in which a 
previously non-public shell company files an initial registrant 
statement. The financial statements included in the registration 
statement would be required to comply with Regulation S-X, including 
the proposed amendments in Rule 15-01. As we currently lack the data 
necessary to estimate the number of shell companies that are 
private, at present, that could be impacted by proposed Article 15, 
they are not included in the estimates discussed in this analysis. 
However, the extent to which this may impact our conclusions is 
limited because, based on staff observation and experience with 
common transaction structures, we believe it is unlikely proposed 
Article 15 will impact many such shell companies.
[GRAPHIC] [TIFF OMITTED] TP13MY22.008

    We estimate that in addition to existing SPACs that have yet to 
complete a de-SPAC transaction, approximately 160 additional existing 
reporting shell companies may be affected by the proposed 
amendments.\442\ Almost all of these non-SPAC reporting shell companies 
trade on the OTC market \443\ and tend to be smaller than SPACs in 
terms of market capitalization and total assets.\444\ We further 
estimate that approximately

[[Page 29519]]

11.0% (18) of these shells would also be affected by the proposed 
amendment to redefine the term ``blank check company'' for purposes of 
the PSLRA.\445\
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    \442\ This estimate is based on staff review of all registrants' 
self-reported status as a shell company on the cover page of the 
most recent annual report (Forms 10-K, 20-F, or 40-F) or an 
amendment thereto filed in calendar year 2021 by unique CIKs of 
entities that are not already identified as SPACs.
    \443\ Based on staff review of periodic filings, approximately 
72.7% of these shells trade OTC, 26.1% do not trade, and 0.6% each 
appear to have traded on Nasdaq Global Market and NYSE Market, 
respectively.
    \444\ As of yearend 2021, the average market capitalization of 
non-SPACs shell companies was $154,731,262.50 while the average 
market capitalization of SPACs was $306,204,218.60. Based on the 
most recent periodic disclosure filed per registrant before Dec. 31, 
2021, the average total asset position of a non-SPAC shell was 
$33,666,553.41 while the average of SPAC total assets was 
$309,570,778.30.
    \445\ This estimate is based on a cross-tabulation, by unique 
CIK, of potentially affected parties identified as blank check 
companies (see supra note 439) and as shell companies (see supra 
note 442).
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    Our estimate of approximately 160 shell companies represents an 
upper bound on the number of potentially affected shell companies 
because some of these shell companies could engage in transactions 
pursuant to an exemption from registration, or otherwise may engage in 
transactions that would not require registration. For example, if a 
shell company were to acquire another shell company, the acquiring 
shell would not be affected by proposed Rule 145a or proposed Article 
15. Similarly, a shell company that obtains a fairness determination 
from a court or authorized governmental entity might also be 
exempt.\446\ Given that a more precise estimate would require us to 
make assumptions about what proportion of future shell company mergers 
may be exempt or not require registration, we request additional data 
or comments that would help inform our expectations about how many 
shell companies that are not SPACs would also be involved in 
transactions that would be affected by the proposed rules.
---------------------------------------------------------------------------

    \446\ See Section 3(a)(10) of the Securities Act; Staff Legal 
Bulletin No. 3A (CF) (June 18, 2008), available at https://www.sec.gov/corpfin/staff-legal-bulletin-3a.
---------------------------------------------------------------------------

5. Projections Under Item 10(b) of Regulation S-K
    The proposed amendments to Item 10(b) would update the Commission's 
view on factors to be considered in formulating and disclosing 
financial projections and would specify the application of Item 10(b) 
to financial projections prepared by parties other than management. To 
the extent that parties elect to follow the updated guidance set forth 
in the proposed amendments, it would affect registrants and other 
entities providing financial projections in Commission filings, such as 
a target firm involved in a business combination with a reporting 
registrant. A recent study examined management earnings forecasts by 
focusing on public companies from 2000 to 2018.\447\ Drawing management 
earnings forecast data from IBES Guidance, they find that management 
provides earnings forecasts in 15,295 (30.8%) out of 49,595 firm-years. 
The proposed amendments to Item 10(b) would also affect investors and 
other users of the financial projections included in Commission 
filings, to the extent that parties elect to follow the updated 
guidance.
---------------------------------------------------------------------------

    \447\ See Claude Francoeur, Yuntian Li, Zvi Singer, & Jing 
Zhang. Earnings Forecasts of Female CEOs: Quality and Consequences, 
Rev. Acct. Stud. (2022). IBES is a database that includes 
quantitative (numeric) company earnings forecasts collected from 
press releases and transcripts of corporate events. To the extent 
that some of the management earnings forecasts in the IBES database 
are not included in SEC filings, these figures may overstate the 
activity that would be affected. However, because the study sample 
is drawn from a period after the adoption of Regulation FD, we 
believe the likelihood an IBES record would not also be present in 
an SEC filing is low. It is more likely that these figures may 
understate the number of affected projections, because the database 
does not include all public reporting companies, and because 
management may provide financial projections that are not captured 
by the IBES database. See, e.g., Zahn Bozanic, Darren T. Roulstone, 
and Andrew Van Buskirk, Management earnings forecasts and other 
forward-looking statements, 65 J. Acct & Econ., 1 (2018) (indicating 
that approximately 33% of Form 8-K filings of earnings announcements 
include at least one quantitative forecast.)
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6. Investment Company Act Safe Harbor
    The proposed safe harbor would affect all current and future SPACs, 
sponsors, investors, and potential target companies. For statistics on 
these affected parties in the SPAC market, see our discussion 
above.\448\ For a description of Section 3(a)(1)(A) of the Investment 
Company Act under the Securities Act, see our discussion above.\449\
---------------------------------------------------------------------------

    \448\ See supra Sections IX.B.1 and IX.B.2
    \449\ See supra Section VI.A.1.
---------------------------------------------------------------------------

a. Nature and Management of SPAC Assets
    Most SPACs hold a majority of their assets in a trust (or escrow) 
account, which is also required by current listing standards.\450\ For 
example, Table 6 shows that, on average, approximately 90% of the 
initial offering proceeds raised in a SPAC IPO in 2021 were deposited 
in trust accounts.
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    \450\ See supra note 392 and accompanying text.
    [GRAPHIC] [TIFF OMITTED] TP13MY22.009
    
    It is also our understanding that SPAC assets, particularly those 
held in the trust account, are largely invested in Government 
securities or Government money market funds.\451\ We also understand 
that SPACs generally disclose in their IPO prospectuses that any income 
earned on assets in the trust account will be used toward the de-SPAC 
transaction, after possible deductions for tax payments. Some SPACs 
also disclose that a portion of the interest income could be used 
toward any potential dissolution expenses.
---------------------------------------------------------------------------

    \451\ See, e.g., Rodrigues & Stegemoller, supra note 17.

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[[Page 29520]]

b. SPAC Activities
    Currently, the typical SPAC discloses in its IPO prospectuses that 
it is formed as a blank check company for the purpose of effecting a 
business combination with one or more businesses. In addition, SPACs 
usually provide disclosures in their IPO prospectuses indicating that 
they believe they do not meet the investment company definition under 
Section 3(a). They further typically disclose to prospective investors 
that if they are determined to be an investment company in the future, 
the costs and logistics of compliance with the Investment Company Act 
would be prohibitive.
    Current exchange listing standards and SPACs' own disclosures in 
their initial public offering registration statements generally require 
that SPACs must combine with a target that is unidentified at the time 
of their initial public offerings.\452\ As a result of exchange rules 
and their own disclosed commitments to investors, SPACs generally have 
a limited period to find a target and negotiate the terms of a de-SPAC 
transaction agreement.\453\ Because of the incentives provided to 
sponsors by the SPAC structure to complete a de-SPAC transaction, the 
limited period provided for a SPAC to search for a target and complete 
a transaction deal may cause some SPACs to pursue comparatively less 
attractive targets as they get closer to their de-SPAC transaction 
deadlines.\454\ In addition, the limited period to search for a target 
and complete a de-SPAC transaction may increase the bargaining power of 
target companies in negotiations with SPACs compared to other potential 
buyers that do not face such regulatory or self-imposed time 
constraints.
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    \452\ See Nasdaq Listing Rule IM-5101-2 (listing standards for 
companies with a business plan to ``engage in a merger or 
acquisition with one or more unidentified companies''); NYSE 
American Company Guide Section 119 (similar).
    \453\ This limited period may go beyond the pre-committed 
lifespan SPACs disclose in their IPO registration statements. As we 
discuss in infra Section IX.B.6.c, SPACs currently may pre-commit to 
hold a vote on a pre-specified extension period, if needed, to 
complete a de-SPAC transaction. SPACs may also ask shareholders ex-
post to vote for an extension of the lifespan of the SPAC, even if 
they did not pre-commit to such a vote. Based on the sample of SPACs 
analyzed in infra Section IX.B.6.c, the vast majority of SPACs 
conclude a de-SPAC transaction or liquidate the SPAC within 36 
months of their IPO date.
    \454\ There is some evidence consistent with such incentives. 
See, e.g., Dimitrova, supra note 30 (finding that four-year post-IPO 
buy-and-hold abnormal return is on average 8.8% lower if the 
acquisition is announced at the end of the (self-imposed) two-year 
deadline instead of at the estimated earlier optimal time).
---------------------------------------------------------------------------

    Most SPACs tend to pursue only one target company for a de-SPAC 
transaction. Of the 483 de-SPAC transactions that occurred over the 
1990-2021 period involving SEC registered SPACs, 3.3% (16/483) of 
transactions had 2 or more targets (14 transactions had 2 targets, 2 
had 3 targets).\455\
---------------------------------------------------------------------------

    \455\ Based on data from Dealogic M&A module as of Jan. 2022.
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c. Duration Statistics: Announcement and Completion of De-SPAC 
Transactions
    To rely on the proposed safe harbor from Investment Company status, 
a SPAC would be required to announce a de-SPAC transaction no later 
than 18 months after the effective date of the registration statement 
for the SPAC's initial public offering, and complete the transaction no 
later than 24 months after the date of the initial public offering. For 
the sake of comparison to other current requirements, this is a shorter 
period than the 36 months a SPAC can remain listed under current 
exchange rules as discussed above.\456\
---------------------------------------------------------------------------

    \456\ See supra note 393 and accompanying text.
---------------------------------------------------------------------------

    Below we provide statistics on the timing of announcements and 
completion of de-SPAC transactions for a sample of SPACs with effective 
IPO dates between January 1, 2016 and December 31 2019. We chose 
December 31, 2019, as the end date to ensure that at there is at least 
a 24-month history available for each SPAC included in the sample in 
order to reduce potential reverse survivorship bias in the 
estimates.\457\
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    \457\ Note that the number of SPAC IPOs increased significantly 
in the 2020-2021 period. To the extent this increase has increased 
competition for target companies, it may affect the time it takes 
for more recent SPACs to announce or complete a de-SPAC transaction, 
or their ability to complete a de-SPAC transaction at all. As of 
Dec. 31, 2021, approximately 77 of 248 SPAC IPOs in 2020 (31%) and 
an additional 495 of 613 SPAC IPOs in 2021 (81%) had not yet 
announced a target or have withdrawn an announced business 
combination and resumed searching (see supra Section IX.B.2). See 
also supra note 413 and accompanying text.
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    We have data on 152 SPAC initial public offerings between January 
1, 2016 and December 31, 2019.\458\ Among these SPACs, all disclosed in 
their IPO prospectus that they would be limited to a 24 month lifespan 
or less, where almost 59% (89 of 152) disclosed that they would be 
limited to a 24-month period, and the rest to a shorter time period, in 
some cases as short as 12 months (18, or 12%, of cases). In around 14% 
of the SPACs (22 of 152), there was disclosure in their IPO prospectus 
about a pre-commitment to hold a vote on an optional extension period 
ranging from three to 24 months. There were five cases in which the 
combination of the initial lifespan and pre-committed extension period 
exceeded a 24-month potential total lifespan for the SPAC. However, we 
recognize that SPACs may, and some currently do, ask shareholders to 
vote for an extension of the lifespan of the SPAC even if they did not 
pre-commit to such a vote or a specified extension period in the event 
of a vote.
---------------------------------------------------------------------------

    \458\ Based on data from Dealogic M&A module as of Jan. 2022.
---------------------------------------------------------------------------

    As of December 31, 2021, approximately 96% (146 of 152) of the 
SPACs in the sample had announced an agreement to enter into a de-SPAC 
transaction, and approximately 91% had completed a de-SPAC transaction. 
Among the 13 cases (9%) in the sample where SPACs had not completed a 
de-SPAC transaction at this time, seven SPACs had been formally 
liquidated,\459\ whereas six SPACs were still active (four of which had 
announced a de-SPAC transaction). As of December 31, 2021, the lifespan 
of the six still active SPACs ranged between 25 to 37 months since the 
IPO date.
---------------------------------------------------------------------------

    \459\ In two of these cases, a de-SPAC transaction was announced 
but later withdrawn.
---------------------------------------------------------------------------

    Overall, approximately 59% (89 of 152) of the SPACs in the sample 
announced an agreement to enter into a de-SPAC transaction no later 
than 18-months after the date of the initial public offering, and 88% 
(134 of 152) announced a transaction agreement no later than 24 months 
after the IPO date. Figure 5 shows the distribution of the timing of 
announcements for de-SPAC transaction agreements expressed in event-
time relative to the IPO effective date for the 146 sample SPACs that 
had made such an announcement by December 31, 2021. The longest time to 
an announcement was 39 months, and the shortest was four months.
BILLING CODE 8011-01-P

[[Page 29521]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.010

    Approximately 65% (99 of 152) of the SPACs in the sample had 
completed a de-SPAC transaction no later than 24 months after the IPO 
date, whereas only 31% (47 of 152) of the SPACs in the sample had 
completed a de-SPAC transaction no later than 18 months after the IPO 
date. Figure 6 shows the distribution of the timing of de-SPAC 
transactions expressed in event-time relative to the IPO effective date 
for the 139 SPACs in the sample that completed de-SPAC transactions by 
December 31, 2021. The longest time to completion was 43 months, and 
the shortest was eight months.

[[Page 29522]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.011

BILLING CODE 8011-01-C
    Among the 139 SPACs in the sample that completed a de-SPAC 
transaction by December 31, 2021, the average and median times between 
the announcement and the completion of the transaction were 
respectively 150 days (approximately 5 months) and 142 days 
(approximately 4.7 months). The time between announcement and 
completion of the merger was less than 6 months in 78% of the cases, 
and the shortest time observed in the sample was less than two months 
(50 days). For the subsample of 99 SPACs that completed the de-SPAC 
transactions in no more than 24 months since the IPO date, the average 
and median times between the announcement and the completion of the 
transaction were respectively 142 days (approximately 4.7 months) and 
125 days (approximately 4.1 months). For this subsample, approximately 
79% of the de-SPAC transactions occurred less than 6 months after the 
announcement, and there were 12 cases in which the announcement of the 
transaction agreement was made more than 18 months after the IPO date.

C. Benefits and Costs of the Proposed Rules

1. Disclosure-Related Proposals
a. SPAC Initial Public Offerings and Other Registered Offerings
1. Definitions (Item 1601)
    We are proposing Item 1601 to identify certain parties and 
transactions to which the requirements of the subpart, as well as other 
parts of this proposal, would apply. Defining the terms ``special 
purpose acquisition company,'' ``de-SPAC transaction,'' ``SPAC 
sponsor,'' and ``target company'' as proposed would establish the scope 
of the issuers and transactions subject to the requirements of Subpart 
1600, and thereby provide both registrants and investors with notice of 
the associated obligations. The definitions may impose costs if the new 
definitions are not consistent with current understanding and 
consequently cause confusion for registrants, investors and market 
participants. Both the costs and benefits would be small to the extent 
that the new definitions are consistent with widely accepted views.
2. Prospectus Cover Page and Prospectus Summary Disclosures (Item 1602)
    Proposed Item 1602 would require a prospectus filed in connection 
with a SPAC's initial public offering to disclose information on 
certain features unique to SPAC offerings and the potential associated 
risks, in addition to the information currently required by Item 501 
and Item 503 of Regulation S-K, on the prospectus cover page and in the 
prospectus summary, respectively, as discussed above.\460\ The proposed 
additional disclosures may reduce SPAC investors' information 
processing costs and improve their investment decisions. Investors in 
SPACs vary in

[[Page 29523]]

financial sophistication and ability to process the information 
provided in SPAC IPO prospectuses. We expect that the potential 
benefits may especially accrue to investors that are less financially 
sophisticated.
---------------------------------------------------------------------------

    \460\ See supra Section II.E for more information about current 
disclosure requirements.
---------------------------------------------------------------------------

    Specifically, because investors are likely to allocate their 
attention selectively,\461\ requiring disclosure regarding important 
features and associated risks of SPAC investments on the prospectus 
cover page (including cross-references to the locations of the more 
detailed related disclosures) and prospectus summary may increase the 
likelihood that investors pay attention to the information by making it 
more salient.\462\ In addition, the proposed additional disclosures in 
the prospectus summary may further reduce information processing costs, 
particularly for less financially sophisticated investors, by providing 
information in plain English about important SPAC features in a concise 
format.\463\
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    \461\ See, e.g., George Loewenstein, Cass R. Sunstein, & Russell 
Golman, Disclosure: Psychology Changes Everything, 6 Ann. Rev. Econ. 
391 (2014).
    \462\ Salience detection is a key feature of human cognition 
allowing individuals to focus their limited mental resources on a 
subset of the available information and can cause them to over-
weight this information in their decision making processes. See, 
e.g., Daniel Kahneman, Thinking, Fast and Slow (2013); Susan Fiske & 
Shelley E. Taylor, Social Cognition: From Brains to Culture (3d ed. 
2017). Moreover, for financial disclosures, research suggests that 
increasing signal salience is particularly helpful in reducing 
limited attention of individuals with lower education levels and 
financial literacy. See, e.g., Victor Stango & Jonathan Zinman, 
Limited and Varying Consumer Attention: Evidence from Shocks to the 
Salience of Bank Overdraft Fees, 27 Rev. of Fin. Stud. 990 (2014).
    \463\ Existing research notes that individuals bear costs in 
absorbing information and that the ability of individuals to process 
information is not unbounded. See Richard Nisbett & Lee Ross, Human 
Inference: Strategies and Shortcomings of Social Judgment (1980); 
David Hirshleifer & Siew Hong Teoh, Limited Attention, Information 
Disclosure, and Financial Reporting, 36 J. Acct. & Econ. 337 (2003). 
Thus, summary disclosure may provide benefits by focusing investors' 
attention and reducing information processing costs.
---------------------------------------------------------------------------

    Proposed Item 1602(b)(6) would require tabular disclosure in the 
prospectus summary regarding the nature and amount of the compensation 
received or to be received by the SPAC sponsor, its affiliates and 
promoters, and the extent to which this compensation may result in a 
material dilution of the purchasers' equity interests. There is 
empirical evidence that visualization improves individual perception of 
information.\464\ For example, one experimental study shows that 
tabular reports can lead to better decision making.\465\ Because 
sponsors' compensation may be a material cost to SPAC investors, the 
tabular format of these required disclosures may help investors 
(especially those that are less financially sophisticated) more easily 
process the financial implications of compensation of the SPAC sponsor, 
its affiliates and promoters, thereby potentially incrementally 
improving their investment decisions.\466\
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    \464\ See John Hattie, Visible Learning: A Synthesis of Over 800 
Meta-Analyses Relating to Achievement (2008).
    \465\ See Izak Benbasat & Albert Dexter, An Investigation of the 
Effectiveness of Color and Graphical Information Presentation Under 
Varying Time Constraints, 10-1 MIS Q. 59 (1986).
    \466\ See infra Section IX.C.1.a.4 for the discussion of 
proposed Item 1602(a)(4), which would require that the prospectus 
cover page include a simplified dilution table depicting the 
estimated remaining pro forma net tangible book value per share that 
would be realized at quartile intervals up to the maximum redemption 
threshold.
---------------------------------------------------------------------------

    Additionally, the proposed rules and amendments would standardize 
this disclosure across all registration statements filed for SPAC 
initial public offerings, which may make it easier and less costly for 
investors to compare terms across offerings and thereby promote better 
investment decisions.
    Finally, to the extent the proposed additional disclosures on the 
cover page and in the prospectus summary would increase investors' 
awareness of sponsors' incentives and potential conflicts of interest, 
it may have an incremental disciplining effect on sponsors' behavior. 
For example, to the extent sponsors would face potentially greater 
scrutiny by more attentive investors, they may take some additional 
care in finding and negotiating terms with target companies, or take 
steps to mitigate the extent of any disclosed conflict of interests.
    The proposed additional disclosures that would be required to be 
included on the prospectus cover page and in the prospectus summary may 
increase compliance costs for SPACs to the extent that they would need 
to provide additional information in their IPO prospectuses than they 
currently provide. We believe that SPACs should have this information 
readily available and in some cases may already be disclosing it, such 
as the time frame for the SPAC to consummate a de-SPAC transaction. 
Thus, we expect that any compliance costs resulting from these proposed 
items would not be significant.
    There could also be some potential costs for investors. In 
particular, there is a risk that, by requiring more items to be added 
to the cover page and the prospectus summary, the salience of the 
current required disclosures may be reduced because they will have to 
compete with the new required disclosures for investors' attention 
compared to the baseline. In addition, because Item 501(b) of 
Regulation S-K limits the information on the outside cover page to one 
page, there is a risk that the amount of information required to be 
included could generally impair the readability of the cover page. As a 
result, some investors may pay less attention to the cover page as a 
whole.
3. Sponsors and Conflicts of Interest (Item 1603)
    Proposed Item 1603(a) would require disclosure of certain 
information regarding a SPAC's sponsor, its affiliates and any 
promoters, both at the SPAC initial public offering stage and at the 
de-SPAC transaction stage. To the extent that such disclosures are not 
already provided or are partially provided, this proposed disclosure 
requirement would provide investors with information related to the 
experience and incentives (due to characteristics of the compensation 
structure, for example) of the sponsor.\467\ Investors may benefit from 
such disclosure, as it could allow them to better evaluate the 
circumstances that may impact their investment decision in a specific 
SPAC. The proposed disclosure is likely to be beneficial to investors 
who may consider investing in a SPAC at a point in time that precedes 
the existence and disclosure of information about an acquisition 
target, or to investors seeking to evaluate a proposed de-SPAC 
transaction.\468\
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    \467\ See supra Section II.B for more information about current 
disclosure requirements.
    \468\ Academic literature provides some evidence that 
characteristics of the SPAC sponsor, such as experience or network 
may be indicative of its ability to select and execute quality 
transactions. See, e.g., Lin, supra note 30.
---------------------------------------------------------------------------

    Proposed Item 1603(b) would require disclosure of conflicts of 
interest at both the SPAC initial public offering stage and at the de-
SPAC transaction stage. This disclosure would also be required in any 
Schedules TO filed in connection with a redemption. We believe that 
this proposed disclosure requirement would benefit investors by 
enabling them to better assess any actual or potential material 
conflicts of interest held by sponsors, its affiliates, officers and 
directors of the SPAC, and/or promoters. Such disclosure could allow 
investors to more accurately assess the potential risk associated with 
the conflicts of interest in a SPAC and thus make better investment 
decisions.
    Further, disclosure under proposed Item 1603(c) would provide 
investors information about the fiduciary duties that a SPAC's officers 
and directors owe to other companies. We expect that this

[[Page 29524]]

disclosure would allow the SPAC's shareholders and prospective 
investors to assess the extent to which the officers and directors may 
face outside obligations, including the possibility that they might be 
compelled to act in the interest of another company that compete with 
the SPAC. In addition, to the extent that a SPAC's officers and 
directors owe fiduciary duties to other companies, these obligations 
may limit the attention that they are able to provide to the SPAC. We 
expect that these disclosures would benefit investors by allowing them 
to better assess the actions of the officers and directors in managing 
the SPACs activities, including a proposed de-SPAC transaction.
    Proposed Item 1603(a) may increase compliance costs for SPACs, 
mainly in the form of collecting, preparing, and filing the required 
information for disclosure on sponsors, their affiliates and any 
promoters. We do not expect, however, such costs to be substantial 
because most of this information should be readily available, and some 
of it is currently being provided by SPACs.
    With respect to the conflicts of interest disclosures required by 
Item 1603(b), SPACs could bear direct costs associated with: (i) 
Reviewing and preparing disclosures describing any such conflicts of 
interest; (ii) developing and maintaining methods for tracking any such 
conflicts of interest; and (iii) seeking legal or other advice. While 
the direct costs associated with Item 1603(b) disclosure requirements 
would depend on the extent to which a SPAC already provides this 
disclosure under current practices, we expect these costs to generally 
be low. As a baseline matter, the common practice of a SPAC disclosing 
the presence of actual or potential conflicts of interest as a material 
risk factor predates SPACs listing on national exchanges.\469\ 
Therefore, it would appear that most SPACs are generally aware of these 
actual or potential conflicts and would therefore only bear costs 
insofar as our proposed requirements would involve providing greater 
detail or specificity in the disclosures of conflicts of interest.
---------------------------------------------------------------------------

    \469\ For examples of such disclosures, see Jog & Sun, supra 
note 386.
---------------------------------------------------------------------------

    Similarly, we do not expect the disclosures of a SPAC officer or 
director's fiduciary duties to other companies, as would be required by 
proposed Item 1603(c) to be very costly to prepare. Given the 
significance of a fiduciary relationship, it is unlikely that a 
director or officer--and, by extension, the SPAC--would not already 
know what relationships would require disclosure. The incremental costs 
to produce, track, or review records also should be low because signed, 
written documents typically accompany the entrance into a relationship 
that engenders a fiduciary duty.
4. Dilution (Items 1602(a)(4) and 1602(c))
    As discussed above,\470\ SPAC shares may experience dilution from 
various transactions by a number of parties or combinations of parties 
at various stages of a SPAC's lifecycle. For example, sponsors 
typically obtain their ``promote'' at a nominal value (e.g., $25,000) 
with most of their compensation typically contingent on the completion 
of a de-SPAC transaction. When sponsors receive compensation at the de-
SPAC transaction stage, their compensation comes out of the stakes of 
SPAC investors who do not redeem their shares, leading to an 
interactive effect between redemptions and the promote that magnifies 
the dilution. PIPE investments, due to their typical discount to the 
IPO offering price and potential interactive effects with redemptions, 
can further dilute non-redeeming SPAC investors. Finally, investors 
that redeem their shares typically get to keep their warrants. Future 
exercises of these warrants further dilutes non-redeeming SPAC 
shareholders' equity. Because most of these potentially dilutive 
transactions may occur after the SPAC's initial public offering and 
both the direct and indirect dilutive effects can be unique to the 
specific SPAC's structure, they may be difficult for prospective 
investors and other interested market participants to identify, 
anticipate, or adequately assess. In the absence of a more complete 
appreciation of these dilutive effects, the decision to invest, vote, 
or redeem, or the price at which one might be willing to enter or exit 
a position, may lack relevant information and, as a consequence, be 
suboptimal. SPAC investors who remain investors in the combined company 
absorb the above-mentioned dilution effects. To the extent that 
investors may not understand the extent of the dilution, or may exhibit 
inertia regarding the decision to redeem, the dilution may not be 
reflected in market prices at the time of the target acquisition.\471\
---------------------------------------------------------------------------

    \470\ See supra Section II.D for more information about existing 
disclosure requirements under Item 506 of Regulation S-K.
    \471\ See Gahng, Ritter, & Zhang, supra note 23; Klausner, 
Ohlrogge, & Ruan, supra note 17.
---------------------------------------------------------------------------

    Proposed Item 1602(c) would require that registration statements 
filed by SPACs, other than for de-SPAC transactions, describe all 
material potential sources of future dilution following the SPAC's 
initial public offering and include tabular disclosure of the amount of 
potential future dilution from the public offering price that will be 
absorbed by non-redeeming SPAC shareholders, to the extent known and 
quantifiable. The proposed rule would benefit investors by providing 
them with more detailed information on the potential impact of dilution 
on the value of their SPAC shares, thus enabling them to better 
understand the effects of dilution on their investments and ultimately 
make better investment decisions.
    We are further proposing to require that registration statements on 
Form S-1 or Form F-1 filed by SPACs, including for an initial public 
offering, include a simplified dilution table depicting the estimated 
remaining pro forma net tangible book value per share that would be 
realized at quartile intervals up to the maximum redemption threshold. 
Given the empirical evidence that visualization improves individual 
perception of information and that dilution that may occur due to 
redemption may be a significant cost to investors,\472\ we expect that 
the tabular format of this disclosure will help investors (especially 
those that are less financially sophisticated) more easily process the 
financial implications of dilution and potentially improve their 
investment decisions. Moreover, the tabular presentation may provide 
investors with this information in a format that might more accurately 
represent the dilution that they might experience if they choose to 
invest in the SPAC, as compared to current disclosures.\473\ For 
example, Figure 7 shows the average maximum allowable number of shares 
eligible to be redeemed prior to the de-SPAC transaction disclosed by 
SPACs in their registration statements. As shown, the maximum potential 
dilution is fairly stable over time, on average about 90% of net 
tangible book value per share.
---------------------------------------------------------------------------

    \472\ See Hattie, supra note 464, and Benbasat & Dexter, supra 
note 465.
    \473\ See supra note 74.

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[[Page 29525]]

Figure 7 also presents the average realized redemptions in de-SPAC 
transactions, which appear to vary considerably over time. Thus, 
despite the fact that SPACs are currently disclosing the maximum 
potential dilution that may occur as a function of redemptions, this 
information may not be as useful for investors as a presentation of the 
same information in a scenario table at quartile intervals of 
redemption, given that actual redemptions in connection with a de-SPAC 
transaction rarely reach the maximum allowable amount. The proposed 
amendments would provide investors with more granular information about 
potential dilution, which could allow them to better anticipate the 
effects of such dilution on future returns.\474\ Additionally, the 
tabular format of the disclosure would standardize the dilution 
information, allowing investors to more easily analyze it and compare 
it across SPACs.
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    \474\ See Klausner, supra note 71.
    [GRAPHIC] [TIFF OMITTED] TP13MY22.012
    
    We expect the incremental costs of these proposed disclosure 
requirements to be, in most cases, low. First, registrants should 
already have the underlying information at their disposal and are 
therefore unlikely to incur significant additional costs to procure the 
necessary data. Second, while the proposed rules would require 
registrants to account for potential future sources of dilution and 
analyze several levels of redemption, which may require the services or 
input of quantitative specialists (analysts, forecasters, or other 
consultants), the material sources and the levels of dilution are 
generally common across SPAC offerings (thus a standard approach based 
on best practices may emerge, reducing costs over time) and are known 
and quantifiable. For example, sources of dilution may include 
shareholder redemptions, sponsor compensation, underwriting fees, 
outstanding warrants and convertible securities, and PIPE financings. 
For proposed Item 1602(a)(4), registrants will be required to analyze 
only four levels of redemption (i.e., 25%, 50%, 75%, and maximum 
redemption). Third, many initial registration statements filed by SPACs 
already include disclosures regarding dilution. Thus, the additional 
burden of these disclosures becoming a formal requirement may be 
relatively modest. We therefore expect that the proposed disclosure 
requirements should benefit the market broadly and investors in 
particular, insofar as the enhanced information on potential sources of 
dilution improves price formation.
5. Structured Data Requirement (Item 1610)
    Proposed Item 1610 would require all disclosures in proposed Items 
1601-1609 of Regulation S-K to be tagged in Inline XBRL.\475\ We expect 
that this requirement would augment the informational benefits of the 
proposed new disclosure requirements by making them more easily 
retrievable and usable for aggregation, comparison, filtering, and 
other analysis. XBRL requirements for public operating company 
financial statement disclosures have been observed to mitigate 
information asymmetry by reducing information processing costs, thereby 
making the disclosures easier to access and analyze.\476\ This 
reduction in information processing cost has been observed to 
facilitate the monitoring of companies by external parties, and, as a 
result, to influence behavior of

[[Page 29526]]

companies, including their disclosure choices.\477\
---------------------------------------------------------------------------

    \475\ See supra Section II.G.
    \476\ See, e.g., Joung W. Kim, Jee-Hae Lim, & Won Gyun No, The 
Effect of First Wave Mandatory XBRL Reporting Across the Financial 
Information Environment, 26 J. Info. Sys. 127, 127-53 (2012) 
(finding evidence that ``mandatory XBRL disclosure decreases 
information risk and information asymmetry in both general and 
uncertain information environments''); Yuyun Huang, Jerry T. 
Parwada, Yuan George Shan, & Joey Wenling Yang, Insider 
Profitability and Public Information: Evidence From the XBRL Mandate 
(SSRN Working Paper, 2020) (finding that XBRL levels the playing 
field between insiders and non-insiders, in line with the hypothesis 
that ``the adoption of XBRL enhances the processing of financial 
information by investors and hence reduces information asymmetry'').
    \477\ See, e.g., Jeff Zeyun Chen, Hyun A. Hong, Jeong-Bon Kim, & 
Ji Woo Ryou, Information processing costs and corporate tax 
avoidance: Evidence from the SEC's XBRL mandate, 40 J. Acct. & Pub. 
Policy 106822 (2021) (finding XBRL reporting decreases likelihood of 
firm tax avoidance because ``XBRL reporting reduces the cost of IRS 
monitoring in terms of information processing, which dampens 
managerial incentives to engage in tax avoidance behavior''); Paul 
A. Griffin, Hyun A. Hong, Jeong-Bon Kim, & Jee-Hae Lim, The SEC's 
XBRL Mandate and Credit Risk: Evidence on a Link between Credit 
Default Swap Pricing and XBRL Disclosure (2014 a.m. Acct. Assoc. 
Annual Meeting Aug. 6, 2014) (finding XBRL reporting enables better 
outside monitoring of firms by creditors, leading to a reduction in 
firm default risk); Elizabeth Blankespoor, The Impact of Information 
Processing Costs on Firm Disclosure Choice: Evidence from the XBRL 
Mandate, 57 J. Acct. Research 919 (2019) (finding ``firms increase 
their quantitative footnote disclosures upon implementation of XBRL 
detailed tagging requirements designed to reduce information users' 
processing costs,'' and ``both regulatory and non-regulatory market 
participants play a role in monitoring firm disclosures,'' 
suggesting ``that the processing costs of market participants can be 
significant enough to impact firms' disclosure decisions'').
---------------------------------------------------------------------------

    While these observations are specific to operating company 
financial statement disclosures and not to disclosures outside the 
financial statements, such as the proposed specialized disclosure 
requirements applicable to SPACs, they indicate that the proposed 
Inline XBRL requirements could directly or indirectly (i.e., through 
information intermediaries, such as financial media, data aggregators, 
and academic researchers) provide investors with increased insight into 
the proposed specialized SPAC disclosures at specific SPACs, and allow 
them to compare it to information provided by other SPACs at the time 
of their initial public offerings, perhaps through filtering by 
criteria, such as offering size or the name of the sponsor.\478\ Also, 
like Inline XBRL financial statements (including footnotes), the 
proposed SPAC specialized disclosures would include tagged narrative 
disclosures in addition to tagged quantitative disclosures.\479\ 
Tagging narrative disclosures can facilitate analytical benefits, such 
as automatic comparison/redlining of these disclosures against that 
provided by other SPACs in their initial public offerings and the 
performance of targeted assessments of specific SPAC specialized 
disclosures.\480\
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    \478\ See, e.g., Nina Trentmann, Companies Adjust Earnings for 
Covid-19 Costs, but Are They Still a One-Time Expense?, Wall St. J., 
Sept. 24, 2020 (citing an XBRL research software provider as a 
source for the analysis described in the article); Bloomberg Lists 
BSE XBRL Data, XBRL.org (2018); Rani Hoitash & Udi Hoitash, 
Measuring Accounting Reporting Complexity with XBRL, 93 Acct. Rev. 
259, 259-287 (2018).
    \479\ For example, proposed Item 1603 would consist largely of 
narrative disclosure regarding the SPAC sponsor, but would also 
include quantitative disclosure regarding the compensation paid (or 
to be paid) to the SPAC sponsor, its affiliates, and any promoters 
for all services rendered in all capacities to the SPAC and its 
affiliates.
    \480\ To illustrate, using the search term ``warrant'' to search 
through the text of all SPAC registration statements for initial 
public offerings to determine how many such initial public offerings 
disclosed the inclusion of warrants within SPAC sponsor compensation 
could return many narrative disclosures outside of the discussion 
(e.g., disclosures related to warrants offered to investors as part 
of the initial public offering).
---------------------------------------------------------------------------

    We expect the proposed requirement to tag SPAC specialized 
disclosures in Inline XBRL would impose compliance costs on SPACs at an 
earlier stage of their life cycle than under the current baseline. 
Currently, SPACs are required to tag financial statements (including 
footnotes) and cover page information in certain registration 
statements and periodic reports in Inline XBRL. However, SPACs are not 
obligated to tag any disclosures until they file their first post-IPO 
periodic report on Form 10-Q, Form 20-F, or Form 40-F. Various 
preparation solutions have been developed and used by operating 
companies to fulfill XBRL requirements, and some evidence suggests 
that, for smaller companies, XBRL compliance costs have decreased over 
time.\481\ Generally, registrants without prior experience using such 
compliance solutions often incur initial implementation costs 
associated with Inline XBRL tagging, such as costs associated with 
licensing Inline XBRL compliance software and training staff to use the 
software to tag the disclosures. Because SPACs typically operate as 
shell companies with no or nominal operations, it may be more likely 
that SPACs outsource their tagging obligations to a third-party service 
provider, and thus avoid the aforementioned software licensing and 
training costs. They would, however, incur the costs of retaining such 
third party services.
---------------------------------------------------------------------------

    \481\ An AICPA survey of 1,032 reporting companies with $75 
million or less in market capitalization in 2018 found an average 
cost of $5,850 per year, a median cost of $2,500 per year, and a 
maximum cost of $51,500 per year for fully outsourced XBRL creation 
and filing, representing a 45% decline in average cost and a 69% 
decline in median cost since 2014. See Michael Cohn, AICPA Sees 45% 
Drop in XBRL Costs for Small Companies, Acct. Today (Aug. 15, 2018) 
(stating that a 2018 NASDAQ survey of 151 listed registrants found 
an average XBRL compliance cost of $20,000 per quarter, a median 
XBRL compliance cost of $7,500 per quarter, and a maximum, XBRL 
compliance cost of $350,000 per quarter in XBRL costs per quarter), 
available at https://www.accountingtoday.com/news/aicpa-sees-45-drop-in-xbrl-costs-for-small-reporting-companies (retrieved from 
Factiva database); Letter from Nasdaq, Inc., Mar. 21, 2019, to the 
Request for Comment on Earnings Releases and Quarterly Reports; 
Release No. 33-10588 (Dec. 18, 2018) [83 FR 65601 (Dec. 21, 2018)].
---------------------------------------------------------------------------

b. De-SPAC Transactions \482\
---------------------------------------------------------------------------

    \482\ The benefits of proposed Item 1603 in connection with 
disclosures regarding sponsors and conflicts of interest in 
connection with a de-SPAC transaction on a proxy, information, or 
registration statement or Schedule TO are expected to be largely the 
same as the effects of those disclosures made in connection with a 
SPAC IPO, though they may be incrementally higher in so far as the 
disclosures could also guide voting and redemption decisions at the 
de-SPAC transaction stage, which would not occur in connection with 
a SPAC IPO. See supra Section IX.C.1.a.3. We would similarly expect 
the costs of compliance with Item 1603 to be comparable at the de-
SPAC transaction stage as in connection with a SPAC IPO. However, to 
the extent that Item 1603 would require SPACs to disclose certain 
information in connection with their IPOs, the costs of making those 
same disclosures at the de-SPAC transaction stage should be lower 
because the materials necessary would have largely already been 
prepared.
---------------------------------------------------------------------------

1. Prospectus Cover Page, Summary, and Disclosure of Dilution (Item 
1604)
    In connection with a de-SPAC transaction, many SPACs currently 
register an offering of securities using a Form S-4 or F-4. We expect 
most de-SPAC transactions to include a Securities Act registration 
statement going forward. Proposed Items 1604(a) and 1604(b) would 
require any prospectus accompanying a registration statement at the de-
SPAC transaction stage to include certain information unique to the de-
SPAC transaction on the cover page and in the summary, in a style and 
substance comparable to the additional disclosures that proposed Item 
1602 would require at the initial public offering stage.\483\ In 
addition, proposed Item 1604(c) would require disclosure in the 
prospectus of each material potential source of additional dilution 
that non-redeeming shareholders may experience by electing not to 
redeem their shares in connection with the de-SPAC transaction, a 
sensitivity analysis in tabular format that expresses the amount of 
potential dilution under a range of reasonably likely redemption 
levels, and a description of the model, methods, assumptions, 
estimates, and parameters necessary to understand the sensitivity 
analysis disclosure.\484\
---------------------------------------------------------------------------

    \483\ See supra Section II.E for more information about the 
regulatory baseline.
    \484\ See supra Section II.D for more information about the 
regulatory baseline.
---------------------------------------------------------------------------

    We expect the proposed Items 1604(a) and 1604(b) would have similar 
potential direct benefits to investors as those we discussed for 
proposed Item 1602 above.\485\ That is, we expect that including the 
additional disclosures on the de-SPAC transaction prospectus cover page 
and in the prospectus

[[Page 29527]]

summary may increase the likelihood that investors pay attention to and 
process this information by making it more salient. Additionally, the 
proposed additions to the de-SPAC transaction prospectus summary may 
reduce information-processing costs of investors, particularly less 
financially sophisticated investors, by providing certain SPAC-specific 
disclosures concisely and in plain English. Moreover, like for proposed 
Item 1602(b)(6), proposed Item 1604(b)(4) would require tabular 
disclosure in the prospectus summary regarding the terms and amount of 
the compensation received or to be received by the SPAC sponsor and its 
affiliates in connection with the de-SPAC transaction or any related 
financing transaction, and whether that compensation has resulted or 
may result in a material dilution of the equity interests of 
unaffiliated security holders of the SPAC. Presenting this information 
in tabular format may further help reduce information-processing costs 
for some investors.\486\ Additionally, proposed Items 1604(a) and 
1604(b) would standardize the required information across all 
registration statements filed for de-SPAC transactions, making it 
potentially easier and less costly for investors to compare terms 
across transactions. Overall, because of the aforementioned potential 
effects on investors' attention and information processing costs, the 
proposed additional disclosures on the prospectus cover page and in 
prospectus summary may help improve investors' investment decisions.
---------------------------------------------------------------------------

    \485\ See discussion in supra Section IX.C.1.a.2.
    \486\ See supra notes 464 and 465 and accompanying text.
---------------------------------------------------------------------------

    Certain items that proposed Items 1604(a) and 1604(b) would require 
SPACs to include on the prospectus cover page and in the summary may 
potentially benefit investors through incrementally improved SPAC 
governance. For example, the inclusion of disclosures regarding 
material potential or actual conflicts of interest could increase 
investors' attention to such issues. In turn, this may have an ex ante 
disciplining effect on sponsors that would mitigate the potential costs 
to investors of conflicts of interests. In addition, the SPAC would be 
required to state whether it reasonably believes that the de-SPAC 
transaction is fair or unfair to unaffiliated security holders, the 
bases for such belief, and whether the SPAC or SPAC sponsor received 
any report, opinion, or appraisal from an outside party regarding the 
fairness of the de-SPAC transaction. Prominent disclosure of these 
items may increase investor attention to the fairness or unfairness of 
the transaction, which may incentivize sponsors to avoid transactions 
that could potentially be viewed as unfair.\487\
---------------------------------------------------------------------------

    \487\ Here we are considering the potential incremental benefits 
of the placement of this information on the cover page and in the 
summary. For a discussion of the incremental informational value of 
these disclosures, see infra Section IX.C.1.b.3.
---------------------------------------------------------------------------

    As with proposed Item 1602, the additional items that proposed 
Items 1604(a) and 1604(b) would require to be included on the de-SPAC 
transaction prospectus cover page and in the prospectus summary may 
increase compliance costs for SPACs to the extent that they would need 
to provide additional information compared to what they currently 
provide. To the extent that SPACs already disclose some of this 
information or have most of this information readily available, these 
costs would be mitigated.
    There could also be some potential costs to investors from proposed 
Items 1604(a) and 1604(b). In particular, as with proposed Item 1602, 
there is a risk that, by requiring more items to be added to the cover 
page and the summary, the salience of the current required disclosures 
may be reduced because they will have to compete with the new required 
disclosures for investors' attention compared to the baseline. In 
addition, because Item 501(b) of Regulation S-K limits the information 
on the outside cover page to one page, there is a risk that the amount 
of information required to be included could generally impair the 
readability of the cover page. As a result, some investors may pay less 
attention to the cover page as a whole.
    We expect proposed Item 1604(c) would benefit investors by 
providing them with detailed information on the potential impact of 
dilution on the value of their SPAC shares in connection with the de-
SPAC transaction, thus enabling them to better understand the effects 
of dilution on their investments and ultimately make better investment 
decisions. Besides requiring disclosure of each material potential 
source of future dilution that non-redeeming shareholders may 
experience, proposed Item 1604(c) also would require sensitivity 
analysis disclosure in tabular format that expresses the amount of 
potential dilution under a range of reasonably likely redemption 
levels. This sensitivity analysis may provide investors with 
information that could more accurately represent the dilution that they 
might experience if they choose not to redeem their shares as compared 
to current disclosures.\488\ Such more granular information about 
potential dilution may allow investors to better anticipate the effects 
of the dilution on future returns. In addition, as discussed 
above,\489\ we expect that the tabular format of this disclosure will 
further help investors (especially those that are less financially 
sophisticated) more easily process the financial implications of 
dilution.
---------------------------------------------------------------------------

    \488\ See supra note 74.
    \489\ See supra notes 464 and 465, and accompanying text.
---------------------------------------------------------------------------

    We expect some incremental compliance costs of proposed Item 
1604(c) to the extent registrants are not already providing disclosures 
similar in nature to what is required by the proposed amendment. In 
particular, the proposed rules would require registrants to engage in a 
sensitivity analysis to account for potential future sources of 
dilution and analyze several levels of redemption, which may require 
the services or input of quantitative specialists (analysts, 
forecasters, or other consultants). However, we expect the compliance 
costs of providing this disclosure would be mitigated by several 
factors. First, registrants should already have the underlying 
information at their disposal and are therefore unlikely to incur 
significant additional costs to procure the necessary data. Second, 
material sources and the levels of dilution are generally common across 
SPAC offerings (thus a standard approach based on best practices may 
emerge, reducing costs over time), and are known and quantifiable. For 
example, sources of dilution may include shareholder redemptions, 
sponsor compensation, underwriting fees, outstanding warrants and 
convertible securities, and PIPE financings. Third, although proposed 
Item 1604(c) does not specify the number of redemption levels to be 
analyzed, the fact that this disclosure could be calculated in a manner 
consistent with the methodologies and assumptions used in the 
disclosures provided pursuant to Item 506 elsewhere in the prospectus 
may reduce incremental costs. Thus, depending on how significant these 
mitigating factors are, the additional burden to registrants of this 
disclosure may be limited.
2. Background, Material Terms, and Effects of the De-SPAC Transaction 
(Item 1605)
    Proposed Items 1605(a), (b) and (c) of Regulation S-K would require 
disclosure of the background (e.g., description of any contacts, 
negotiations, or transactions concerning the transaction), material 
terms, and effects of the de-SPAC transaction and

[[Page 29528]]

any related financing transaction. In addition, proposed Item 1605(d) 
would require disclosure of any material interests of a SPAC's sponsor, 
officers, and directors in a de-SPAC transaction or any related 
financing transaction, including fiduciary or contractual obligations 
to other entities and any interest in, or affiliation with, the target 
company.\490\ Such disclosure would benefit investors by providing them 
with more detailed information about significant aspects of de-SPAC 
transactions, thereby enabling them to make more informed decisions. 
For example, some of the proposed disclosures may enable investors to 
better assess whether the de-SPAC transaction or any related financing 
transaction has been structured in a manner that would benefit, for 
example, the SPAC's sponsor to the detriment of unaffiliated security 
holders of the SPAC.
---------------------------------------------------------------------------

    \490\ See supra Section II.F.1 for information about the 
regulatory baseline.
---------------------------------------------------------------------------

    Proposed Item 1605(e) would require disclosure as to whether or not 
security holders are entitled to any redemption or appraisal rights, 
and if so, a summary of the redemption or appraisal rights. These 
disclosures would help investors to better assess the impact of any 
redemption or appraisal rights on a proposed de-SPAC transaction, 
including whether the existence of such rights might lead some 
investors to redeem their securities after voting in favor of a de-SPAC 
transaction.
    The proposed disclosures could increase the compliance costs for 
de-SPAC transactions. The magnitude of these costs would depend on the 
amount of information that SPACs and target companies are already 
disclosing in connection with de-SPAC transactions. To the extent that 
registrants already disclose some of this information or have most of 
this information readily available, these costs would be mitigated.
3. Fairness of the De-SPAC Transaction and Reports, Opinions, 
Appraisals and Negotiations (Items 1606 and 1607)
    Proposed Item 1606(a) would require a statement from a SPAC as to 
whether it reasonably believes that the de-SPAC transaction and any 
related financing transaction are fair or unfair to the SPAC's 
unaffiliated security holders, as well as disclosures regarding whether 
any director voted against or abstained from voting on, approval of the 
de-SPAC transaction or any related financing transaction. In addition, 
proposed Item 1606(b) would require a discussion of the material 
factors upon which the statement as to the fairness or unfairness of 
the transaction is based. Proposed Items 1606(c) through 1606(e) would 
provide additional information about the de-SPAC transaction and any 
related financing transaction, including whether a majority of 
unaffiliated security holders is required to approve the 
transaction(s), the involvement of any unaffiliated representative 
acting on behalf of unaffiliated shareholders, and whether the 
transaction(s) were approved by a majority of directors of the SPAC who 
are not employees of the SPAC. These proposed rules could allow 
investors to better evaluate potential conflicts of interest and 
misaligned incentives in connection with the decision to proceed with a 
de-SPAC transaction, which in turn would assist them in assessing the 
fairness of a particular de-SPAC transaction and any related financing 
transaction to unaffiliated security holders.\491\
---------------------------------------------------------------------------

    \491\ See supra Sections II.F.2 and II.F.3 for additional 
information about the regulatory baseline.
---------------------------------------------------------------------------

    As discussed in the baseline, SPACs rarely report the use of a 
fairness opinion when evaluations of prospective target are disclosed 
in de-SPAC-related filings.\492\ A recent review of de-SPAC 
transactions in 2021 reported that approximately 85% did not disclose 
that a fairness opinion was obtained in connection with a de-SPAC 
transaction.\493\ To the extent that the proposed required disclosures 
with respect to the fairness or unfairness of the proposed business 
combination would increase the use of fairness opinions, the cost of 
obtaining such services would present a new cost to the transaction 
that would likely be passed along to shareholders. The average costs 
for fairness opinions obtained by SPAC acquirers where such information 
was presented in an itemized format in SEC filings was approximately 
$270,000.00.\494\
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    \492\ See supra Section IX.B.2.e.
    \493\ See Levitt, Jacob, Fain, Marcogliese, Tiger, & Basham, 
supra note 416.
    \494\ As calculated over the observations in the baseline sample 
(reference first table in de-SPAC baseline (or its footnotes)) where 
data is available in the Dealogic M&A module or SDC Platinum 
database.
---------------------------------------------------------------------------

    Thus, SPACs may incur additional costs associated with proposed 
Item 1606(a) to the extent that, in response to this proposed item, 
SPACs newly seek to obtain fairness opinions. In addition, there is 
some potential for indirect costs to SPACs if they respond by providing 
for approval by unaffiliated security holders or directors, or retain 
an unaffiliated representative to act on behalf of unaffiliated 
security holders for purposes of negotiating the terms of a de-SPAC 
transaction of any related financing transaction. However, some costs 
to collecting or producing the newly required disclosures may be 
mitigated by other components of the regulatory baseline, which in this 
case includes the requirements imposed by self-regulatory organizations 
such a listing standards and FINRA rules.\495\
---------------------------------------------------------------------------

    \495\ For example, see existing FINRA Rule 5150 requirements for 
disclosures required of a broker-dealer when providing a fairness 
opinion in the role of financial advisor.
---------------------------------------------------------------------------

    In particular, if the SPAC obtained its fairness opinion from a 
FINRA member, some of the disclosures responsive to proposed Item 
1606(a) may already be prepared and provided to the SPAC because of 
existing FINRA requirements. Specifically, FINRA Rule 5150 requires its 
members (i.e., broker-dealers or underwriters) to provide specified 
disclosures in a fairness opinion if it knows, or has reason to know, 
that the opinion will be provided to shareholders.\496\ Some of the 
information that is required to be disclosed includes the following: 
(1) Whether the FINRA member will receive any additional significant 
payment or compensation contingent on the completion of the merger 
transaction; \497\ (2) if the FINRA member independently verified 
information provided by the company requesting the opinion, a 
description of the information that was verified; \498\ and (3) whether 
or not the fairness opinion addresses the fairness of the compensation 
to be received by the company's officers, directors or employees 
relative to the compensation to the public shareholders of the 
company.\499\
---------------------------------------------------------------------------

    \496\ Id.
    \497\ FINRA Rule 5150(a)(2).
    \498\ FINRA Rule 5150(a)(4).
    \499\ FINRA Rule 5150(a)(6).
---------------------------------------------------------------------------

    Proposed Item 1607(a) would require disclosure about whether or not 
the SPAC or its sponsor has received any report, opinion, or appraisal 
obtained from an outside party relating to the consideration or the 
fairness of the consideration to be offered to security holders or the 
fairness of the de-SPAC transaction or any related financing 
transaction to the SPAC, the sponsor or security holders who are not 
affiliates. Proposed Item 1607(c) would require any such report, 
opinion, or appraisal to be filed as an exhibit to the Form S-4, Form 
F-4, and Schedule TO for the de-SPAC transaction or included in the 
Schedule 14A or 14C for the transaction, as applicable. In addition, 
under proposed Item 1607(b), investors would receive information 
regarding, among

[[Page 29529]]

other things, the outside party, including its qualifications and 
certain material relationships with the SPAC, its sponsors and their 
affiliates. We expect that these disclosures would benefit investors by 
providing relevant information about the fairness of a de-SPAC 
transaction and any related financing transaction. In addition, by 
providing more information to investors, these disclosures may lead to 
improved market participation, liquidity, and price efficiency. We 
expect that these disclosures would increase the costs associated with 
the de-SPAC transaction. However, those costs should be mitigated 
because the disclosure requirement does not require preparation of 
additional reports, appraisals and opinions, rather, it requires 
disclosure of documents that were obtained by management.
4. Proposed Item 1608 of Regulation S-K
    We are proposing Item 1608 of Regulation S-K to codify a staff 
position that a Schedule TO filed in connection with a de-SPAC 
transaction should contain substantially the same information about a 
target private operating company that is required under the proxy rules 
and clarify that a SPAC must comply with the procedural requirements of 
the tender offer rules when conducting the transaction for which the 
Schedule TO is filed.\500\ For example, proposed Item 1608 would 
clarify that SPACs that file a Schedule TO for a redemption must comply 
with the procedural requirements of Rule 13e-4 and Regulation 14E, such 
as the requirement to keep the redemption period open for at least 20 
business days.
---------------------------------------------------------------------------

    \500\ See supra Section II.F.4
---------------------------------------------------------------------------

    We expect that both the benefits and costs associated with this 
proposal to present modest changes from current practice, if any, 
because, historically, relatively few de-SPAC transactions have 
involved the filing of a Schedule TO alone and because, due to the 
staff position, most of the proposed disclosures are currently already 
provided. Between 2000 and 2021, of the approximately 575 registrants 
that filed a proxy statement on Schedule 14A, an information statement 
on Schedule 14C, a Schedule TO, or a registration statement on Form S-4 
or F-4 that could relate to a de-SPAC transaction, a small portion of 
those registrants (approximately 7.1% or 41) filed a Schedule TO.\501\ 
A smaller portion of these Schedule TO filings (approximately 20% or 8) 
occurred alone (i.e., without the concurrent filing of a proxy 
statement, information statement, or registration statement that would 
provide additional disclosures regarding the de-SPAC transaction) (see 
Figure 8). However, given that the staff has historically expressed the 
view that a Schedule TO should include the same information about the 
target company that would be required in a Schedule 14A, in view of the 
requirements of Item 11 of Schedule TO and Item 1011(c) of Regulation 
M-A and the importance of this information in making a redemption 
decision, the proposed rule is unlikely to result in a meaningful 
difference in the nature or amount of information provided by 
registrants.\502\
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    \501\ Staff review of SPACs that conducted an IPO between 2000 
and 2021 and subsequently filed any type of potential de-SPAC 
transaction related filing (SC TO, SC13E4F, PRE 14A, PRE 14C, 
DEFA14A, DEFA14C, DEFM14A, DEFM 14C, DEF 14A, DEF 14C, S-4, or F-4) 
found that only approximately 7.1% of such SPACs, by unique CIK, 
filed a Schedule TO. It appears that the historic use of a Schedule 
TO in connection with a de-SPAC transaction corresponds to a period 
when share redemption was more limited and de-SPAC transactions were 
more commonly targeted by hedge funds engaged in `greenmailing.' 
See, e.g., Lucian Bebchuk, Alon Brav, Wei Jiang, Thomas Keusch, 
Dancing with Activists, 137 J. Fin. Econ. 1 (2020) (describing 
`greenmail' as an event in which a company targeted by an activist 
shareholder such as a hedge fund, purchases shares from the activist 
at a premium to the market price). In the SPAC context, the 
activists were most commonly hedge funds that would threaten to 
prevent an acquisition by voting against a de-SPAC transaction and 
redeeming a large enough block of shares to cross the SPAC's 
redemption threshold if the SPAC refused to buy back its shares at a 
premium. See, e.g., Leerskov, supra note 420 (``Many of these funds 
are arbitrage investors . . . turning a profit by voting against an 
acquisition, therefore recouping their initial investment while 
holding the associated warrants against any possible upside from a 
successful acquisition. Additionally, more investors began 
threatening to veto potential SPAC mergers in 2006 and 2007 unless 
they received deal sweeteners. Mostly, investors asked to be bought 
out at a premium in exchange for their votes in favor of a 
merger.''). This activity decreased, as did the use of a Schedule TO 
in connection with a de-SPAC transaction, as SPAC redemption 
thresholds increased in the early 2000s from approximately 20% on 
average to approximately 80% on average. See, e.g., Milan Lakicevic, 
Yochana Shachmrove, & Milos Vulanovic, Institutional Changes of 
Specified Purpose Acquisition Companies (SPACs), 28 N. Am. J. Econ. 
& Fin. 149 (2014) (20.47% to 84.24% from 2003-2006 to 2009-2012); 
Rodrigues, supra note 67 (20.0% to 74.4% from 2003-2011); Vulanovic, 
supra note 414 (20% to 81.52% from 2003-2013). As such, historic use 
may be a poor predictor for estimates of future usage.
    \502\ See supra note 103.

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[[Page 29530]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.013

    Finally, of the registrants that filed only a Schedule TO, 75% were 
foreign private issuers that originally registered an offering of 
shares via a Form F-1, while the remaining 25% were registrants 
incorporated or organized in a foreign jurisdiction that originally 
registered an offering of shares using a Form S-1. It is possible that, 
holding all else constant, any benefits or costs accruing as the result 
of proposed Item 1608 would do so to SPACs that are similar to these 
entities that may either not hold a shareholder vote or else hold a 
vote that is not subject to federal proxy rules. However, it is unclear 
what proportion of future SPACs would be of this type, since in the 
event proposed Rule 145a is also adopted, the number of SPACs may be 
less likely to file Schedules TO.
5. Enhanced Projections Disclosure Requirements (Item 1609)
    Proposed Item 1609 complements the proposed amendments to Item 
10(b) of Regulation S-K,\503\ and pertains to projections made in 
connection with an anticipated de-SPAC transaction.\504\ Proposed Item 
1609 would require a registrant to disclose who prepared the 
projections and the purposes for which the projections were prepared. 
It would also require a discussion of all material bases of the 
disclosed projections and all material assumptions underlying 
projections, and any factors that may impact such assumptions. 
Furthermore, the proposed rule would require the board or management of 
the SPAC or target company to confirm at the date of the filing whether 
the projections reflect their current view, and if not, the purpose of 
disclosing the projections and the reasons for any continued reliance 
by management or the board on the projections.
---------------------------------------------------------------------------

    \503\ See supra Section V.B.1; infra Section IX.C.4.
    \504\ See supra Section III.D & Section VI. For additional 
information about the regulatory baseline for Item 1609, see supra 
Section V.B.2.
---------------------------------------------------------------------------

    In general, we expect that proposed Item 1609 would allow investors 
to better evaluate and use projections in connection with de-SPAC 
transactions. The required disclosure of preparers' identity and 
purposes for which the projections were prepared would help reveal 
potential conflicts of interest and the qualifications of the 
preparers' projection ability. The requirement to discuss material 
assumptions and underlying rationales would also inform investors about 
the verifiability of the projections. The proposed requirement to 
disclose whether the projections still reflect the views of management 
or the board should provide investors with further insight into the 
reliability and utility of those projections. Overall, the proposed 
disclosure under Item 1609 should benefit investors by helping them 
assess whether and to what extent they should rely on projections used 
in a de-SPAC transaction in making voting, redemption, and investment 
decisions.\505\
---------------------------------------------------------------------------

    \505\ D. Eric Hirst, Lisa Koonce, & Shankar Venkatram, How 
Disaggregation Enhances the Credibility of Management Earnings 
Forecasts, 45 J. Acct. Research 811 (2007), experimentally show that 
disaggregated forecasts, which include forecasts of individual 
income statement line items, e.g., revenue and costs, are more 
credible to investors than aggregated forecasts that provide only 
the bottom-line earnings forecasts. Furthermore, Zahn Bozanic, 
Darren T. Roulston, & Andrew Van Buskirk, Management Earnings 
Forecasts and Other Forward-looking Statements, 65 J. Acct. & Econ. 
1 (2018), demonstrate that non-earnings-forecast forward-looking 
statements can generate significant responses from both investors 
and analysts. Their findings indicate that the forward-looking 
statements, even statements unrelated to earnings, can provide 
value-relevant information to the capital market participants.
---------------------------------------------------------------------------

    Proposed Item 1609, by requiring projection providers to identify 
themselves and related parties to confirm their reliance on the 
projections, would likely also increase the preparers' sense of 
accountability, and potentially increase their incentives to make 
reliable projections.\506\ In turn,

[[Page 29531]]

investors could benefit from potentially improved projections in their 
investment decisions. The enhanced disclosure transparency about 
projections and the plausible improved projection accuracy would, in 
turn, facilitate more efficient allocation of capital.\507\
---------------------------------------------------------------------------

    \506\ Auditing literature provides evidence that audit quality 
increases and misreporting decreases when engaging partners are 
required to sign the audit report or when their identities are 
disclosed. Joseph V. Carcello & Chan Li, Costs and Benefits of 
Requiring an Engagement Partner Signature: Recent Experience in the 
United Kingdom, 88 Acct. Rev. 1511 (2013), document evidence that 
audit quality and audit fees increase in the first year when 
engaging partners are required to sign the audit report in the 
United Kingdom. Allen D. Blay, Eric S. Gooden, Mark J. Mellon, & 
Douglas E. Stevens, Can Social Norm Activation Improve Audit 
Quality? Evidence from an Experimental Audit Market, 156 J. Bus. 
Ethics 513 (2019), experimentally demonstrate that PCAOB's 
requirement of disclosing engaging partners' identity can reduce 
misreporting.
    \507\ See Amy P. Hutton, Gregory S. Miller, & Gregory S. 
Skinner, The Role of Supplementary Statements with Management 
Earnings Forecasts, 41 J. Acct. Research 867, 867-890 (2003). They 
find that good news earnings forecasts are positively associated 
with investor reaction (i.e., have information content) only when 
the forecasts are accompanied by verifiable supplementary forward-
looking disclosures.
---------------------------------------------------------------------------

    We do not expect the direct compliance costs to be substantial 
since companies should have the required information (e.g., the party 
that provides the projections and the assumptions of growth rates or 
discount multiples) readily available at their disposal. To the extent 
that proposed Item 1609 increases contextual information related to 
SPAC projections, investors would incur incremental costs in processing 
the added information.\508\ Potentially heightened accountability under 
proposed Item 1609 may also dampen the willingness of the managements 
and boards of SPACs and target companies to provide projections, which 
may decrease the amount of forward-looking information made available 
to investors and thus increases valuation uncertainty. To the extent 
that proposed Item 1609 dampens the willingness to provide projections, 
it would likely reduce projections without reasonable bases more than 
those with reasonable bases. Thus, the incremental costs of proposed 
Item 1609 would likely be justified by the incremental benefit of 
increased investor protection against materially misleading or 
speculative projections in connection with de-SPAC transactions.
---------------------------------------------------------------------------

    \508\ See Elizabeth Blankespoor, Ed deHaan, & Iv[aacute]n 
Marinovic, Disclosure Processing Costs, Investors' Information 
Choice, and Equity Market Outcomes: A review, 70 J. Acct. & Econ. 1, 
1-46 (2020). They suggest that it is costly to process firms' 
disclosures, even for the most sophisticated investors, and they 
conceptualize processing costs as awareness cost, acquisition cost, 
and integration cost.
---------------------------------------------------------------------------

6. Structured Data Requirement
    As with the proposed specialized disclosure requirements applicable 
to SPACs at the IPO stage as discussed above, proposed Item 1610 would 
also require that the proposed disclosures prepared in compliance with 
respective sections of Regulation S-K Subpart 1600 applicable to de-
SPAC transactions be tagged in Inline XBRL.\509\ For the same reasons 
discussed above, we expect that the tagging requirement for de-SPAC 
transaction disclosures would augment the informational benefits to 
investors resulting from the proposed new disclosure requirements.\510\ 
For example, tagging the disclosure of terms and amounts of the 
compensation received or to be received by a SPAC's sponsor and its 
affiliates in connection with a de-SPAC transaction, and the potential 
dilutive effects related to such compensation, could allow investors to 
make quantitative and qualitative comparisons to similar disclosure in 
other de-SPAC transactions or make it easier to compare these 
disclosures--including numeric values--to those presented at the SPAC's 
IPO stage.\511\
---------------------------------------------------------------------------

    \509\ See supra Section II.G.
    \510\ See supra Section IX.C.1.a.5.
    \511\ See proposed Item 1604(a)(3) of Regulation S-K.
---------------------------------------------------------------------------

    Unlike the proposed Inline XBRL tagging requirement for SPAC 
specialized disclosures which would apply to registration statements 
for initial public offerings, the proposed tagging requirement for de-
SPAC transaction disclosures would not impose a tagging obligation on 
registrants that were not previously subject to tagging obligations, 
because SPACs are already subject to Inline XBRL tagging obligations as 
of their first periodic report on Form 10-Q, Form 20-F, or Form 40-
F.\512\ As such, the Inline XBRL tagging requirement for de-SPAC 
transaction disclosures would be limited to the cost of selecting, 
applying, and reviewing Inline XBRL tags to a new set of disclosures, 
or paying a third party to do so. As previously noted, there is some 
indication that these costs have trended downward in the years since 
the initial adoption of XBRL requirements for SEC filings.\513\
---------------------------------------------------------------------------

    \512\ See supra note 110 and accompanying text.
    \513\ See supra note 481 and accompanying text.
---------------------------------------------------------------------------

7. Minimum Dissemination Period
    The proposed minimum dissemination period for prospectuses and 
proxy and information statements filed in connection with de-SPAC 
transactions is designed to ensure that SPAC shareholders have adequate 
time to review the information disclosed therein before making voting, 
investment and redemption decisions. To the extent that this would 
provide investors with more time than they would otherwise have because 
the SPAC's jurisdiction of incorporation or organization does not 
provide for a minimum dissemination period before a shareholder meeting 
or action by consent, or has a minimum dissemination period of fewer 
than 20 calendar days, this may allow them to make more informed 
choices. Relative to the current baseline, this proposal is likely to 
provide its greatest potential benefits to SPAC shareholders in de-SPAC 
transactions involving SPACs that do not incorporate by reference any 
information about the SPAC or the target, and are not incorporated in 
Delaware, or do not file a Schedule TO.\514\ While Delaware General 
Corporation Law only requires that due notice of an upcoming meeting be 
provided 20 days prior to the event, and does not mandate a minimum 
period for dissemination of proxy statements or joint prospectus/proxy 
statements required by the federal securities laws,\515\ we believe, 
based on staff experience reviewing filings, that the notices of the 
meeting mandated by Delaware law are often included in the proxy 
statement or joint prospectus/proxy statements, with many companies 
then delivering the proxy statements or joint prospectus/proxy 
statements in time to meet the Delaware notice requirement.\516\
---------------------------------------------------------------------------

    \514\ Because a Schedule TO filed in connection with a de-SPAC 
transaction must already be filed 20 business days in advance of the 
close of the redemption period, the proposed 20 calendar day minimum 
dissemination period would not have an incremental effect. 
Similarly, there would be no incremental effect on the dissemination 
of Forms S-4 or F-4 in connection with a de-SPAC transaction if the 
registration incorporates any information about the registrant or 
its target by reference because a similar 20 business day 
requirement applies. See supra note 127. Further, in the event that 
proposed Rule 145a is adopted, we anticipate the majority of de-SPAC 
transactions would be accompanied by an S-4 or F-4 in which 
incorporation by reference is highly likely to occur.
    \515\ See supra Section II.F.5
    \516\ See supra Section III.B for more information about the 
regulatory baseline.
---------------------------------------------------------------------------

    While we recognize that the additional time we propose to provide 
to shareholders for review of de-SPAC transaction related disclosures 
may in effect shorten the time a SPAC may otherwise have to pursue a 
business combination within its limited time before dissolution, the 
incremental costs of formalizing a minimum review period should in most 
cases be low based on the existing requirements and practices discussed 
above and market-specific incentives. For example, as retail ownership 
of its shares increases, a SPAC may face increasing pressure to 
communicate with its investors earlier, more extensively, and with 
greater frequency to ensure that a quorum will be present at the 
shareholder meeting to approve a de-SPAC transaction and that a 
sufficiently high number of votes are cast in favor of the transaction.

[[Page 29532]]

    Notwithstanding this, we acknowledge that any costs associated with 
this proposal would likely increase as the dissolution date approaches, 
because, under such conditions, unique logistical costs like expedited 
printing and delivery would accrue. It is plausible that a de-SPAC 
transaction would not be able to proceed due to these proposed timing 
requirements, which could result in negative consequences (e.g., 
forgone returns) for sponsors and SPAC shareholders. Given the 
significance of a de-SPAC transaction to SPACs and targets, however, we 
think it is more likely that SPACs and targets will account for the 
proposed dissemination period in establishing a timeline for their 
business combination. Another potential cost of the minimum 
dissemination period is that it could cause SPACs to enter into sub-
optimal deals earlier in the process to avoid the risk of failing to 
acquire a company later in the window. However, given the state of 
current market practices as discussed above, we expect the incremental 
costs on this aspect of deal-formation uniquely attributable to the 
proposed minimum dissemination period are minimal.
8. Aligning Non-Financial Disclosures in De-SPAC Disclosure Documents
    We are proposing that, if the target company in a de-SPAC 
transaction is not subject to the reporting requirements of Section 
13(a) or 15(d) of the Exchange Act, the registration statement or 
schedule filed in connection with the de-SPAC must include disclosures 
relating to the target company that would be provided in a Form S-1 or 
F-1 for an initial public offering.\517\ Currently, this information is 
required to be included in a Form 8-K with Form 10 information that 
must be filed within 4 business days after the completion of a de-SPAC 
transaction. In contrast, the proposed disclosure requirements would 
require that target company information be provided to shareholders 
before they make voting, investment, or redemption decisions in 
connection with the de-SPAC transaction. This could reduce potential 
opportunities to engage in regulatory arbitrage, minimize differences 
in informational content, timing, and presentation, and potentially 
provide investors with more information about the target company when 
making such decisions. The benefits of such alignment to unaffiliated 
investors would depend on the ability of investors to otherwise procure 
such information prior to the filing of the Form 8-K with Form 10 
information.
---------------------------------------------------------------------------

    \517\ See supra Section III A.
---------------------------------------------------------------------------

    We expect that a SPAC or its sponsors would absorb the related 
costs if the proposed additional information necessitates earlier or 
increased information production and dissemination, although a portion 
of these costs may accrue to non-redeeming shareholders if costs are 
paid from the trust or escrow account of the SPAC. Generally, we expect 
that such costs will be low to the extent that SPACs disclose this 
information about the target company prior to the completion of the de-
SPAC transaction; however, we recognize that some items may be more 
costly to disclose earlier than others.
    The costs and benefits of these proposed disclosures depend on the 
baseline level of information available that is required to be 
disclosed in the Form 8-K with Form 10 information that is currently 
disclosed in advance of the filing of the Form 8-K. To assess the 
extent to which registrants may already disclose Form 10 information 
about the target company in a different Commission filing before filing 
the Form 8-K, the staff examined the frequency and scope of 
incorporation by reference in such 8-K filings, finding that 95% of the 
8-K filers incorporated at least one of the required Form 10 items by 
reference.\518\ Most of the Form 8-K filings that incorporated items by 
reference referred to disclosures previously filed in a proxy or 
information statement (88% of filers), and 46% of these filings 
incorporated disclosures from a registration statement filed in 
connection with the de-SPAC transaction.\519\
---------------------------------------------------------------------------

    \518\ Items 2.01(f), 5.01(a)(8), and 9.01(c) of Form 8-K each 
provide that if any required disclosure under these items has been 
previously reported, the registrant may, in lieu of including that 
disclosure in the Form 8-K, identify the filing in which that 
disclosure is included.
    \519\ Because some filers incorporate disclosure by reference 
from more than one source, the total percentage of usage across 
sources exceeds 100%.

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[[Page 29533]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.014

    Figure 9 shows the information that is incorporated by reference in 
the Forms 8-K filed in connection with de-SPAC transactions, as 
identified by the item requirement of Regulation S-K. Disclosures 
pursuant to Items 101 (description of business), Item 102 (description 
of property), and Item 103 (legal proceedings) of Regulation S-K are 
most commonly incorporated by reference. Less frequently incorporated 
by reference are disclosures pursuant to Item 304 (changes in and 
disagreements with accountants on accounting and financial disclosure), 
Item 403 (security ownership of certain beneficial owners and 
management, assuming the completion of the de-SPAC transaction and any 
related financing transaction), and Item 701 (recent sales of 
unregistered securities) of Regulation S-K.\520\ Thus, to the extent 
that registrants already provide this information in the proxy 
statements, information statements, registration statements, and 
Schedules TO filed in connection with the de-SPAC transaction, the 
benefits and costs of compliance with this proposed rule may be 
mitigated.
---------------------------------------------------------------------------

    \520\ While these items are less frequently incorporated by 
reference, their absence may not indicate missing information. For 
example, filers may not have provided Item 304 or Item 701 
disclosures in earlier filings because there were no changes in and 
disagreements with accountants or recent sales of unregistered 
securities to report. When disclosures are presented in the Form 8-
K, Item 304 disclosures are incorporated by reference in 
approximately 32% of filings and newly disclosed in 68% of filings. 
Similarly, for Item 701 disclosures, the proportions of Forms 8-K 
that incorporate by reference and include new disclosure, are 
respectively approximately 35% and 65%.
---------------------------------------------------------------------------

    As a result of this proposed rule, investors may obtain disclosure 
required by Item 403 of Regulation S-K regarding the target company's 
beneficial ownership structure before making a voting, redemption, or 
investment decision in connection with the de-SPAC transaction, which 
could, in some cases, represent a meaningful change to the 
informational environment in advance of the completion of a de-SPAC 
transaction, particularly when this information may be critical to an 
investor's ability to evaluate potential conflicts of interest. In 
addition, the disclosures may allow investors to identify potential 
misalignments of interests between non-redeeming shareholders and other 
parties to the de-SPAC transaction. This proposed requirement therefore 
may provide increased investor protections and generally improve the 
information environment for investors to make a voting, redemption, or 
investment decision in connection with the de-SPAC transaction.
    Because a SPAC and its intended target should have access to this 
information in advance of a de-SPAC transaction, we do not anticipate 
significant costs to preparing such information and incorporating it 
into disclosures disseminated at an earlier stage in the de-SPAC 
transaction process.
    We believe that the proposed additional information is unlikely to 
impose significant changes to the information that a SPAC would 
otherwise disclose or the costs for incremental changes relative to 
current market practice. To the extent that these requirements may lead 
to the production and dissemination of information that would not be 
disclosed until after the completion of the de-SPAC transaction, the 
availability of this information in the registration statement or 
schedule filed in connection with the de-SPAC transaction may improve 
investor decision-making.
9. Re-Determination of Smaller Reporting Company Status
    The main benefit from the proposed amendment to re-determine 
smaller reporting company status of a post-

[[Page 29534]]

business combination company following a de-SPAC transaction would be 
to reduce regulatory arbitrage by requiring a target company going 
public through a de-SPAC transaction to provide similar information to 
investors as a comparable company conducting a traditional initial 
public offering.\521\ For larger target companies, this would require 
providing more comprehensive and more detailed disclosure to investors 
soon after the de-SPAC transaction. Overall, we expect this amendment 
to increase investor protection by allowing investors to assess the 
combined company more thoroughly and sooner. Large target companies may 
also reap the benefit of reduced cost of capital insofar as providing 
additional historical periods of financial statement data might further 
reduce information asymmetries or otherwise improve price 
formation.\522\
---------------------------------------------------------------------------

    \521\ See infra Section III.C for more information on the 
regulatory baseline.
    \522\ See supra note 368.
---------------------------------------------------------------------------

    The proposed amendment would increase compliance costs compared to 
the current baseline for large target companies that, after combining 
with the SPAC, do not meet the smaller reporting company definition as 
of the proposed new re-determination date. Those companies may need to 
provide more detailed disclosure to investors soon after the de-SPAC 
transaction. We note, however, that some of these companies that meet 
the definition of emerging growth company could avail themselves of the 
accommodations associated with EGC reporting requirements, which could 
mitigate some of the disclosure costs required by the proposed 
amendment. We do not expect the proposed amendment to impose any costs 
on post-business combination companies when, at the time of the de-SPAC 
transaction, neither the SPAC nor the target company meet the smaller 
reporting company definition.
2. Liability-Related Proposals
    In addition to the proposals discussed above pertaining to 
disclosures, we are proposing to clarify and amend the existing 
liability framework in an effort to resolve certain ambiguities and 
protect investors. In this section, we discuss the potential costs and 
benefits of the proposed amendment to Form S-4 and Form F-4 to require 
that the SPAC and the target company be treated as co-registrants when 
these registration statements are filed by the SPAC in connection with 
a de-SPAC transaction. In addition, we discuss the proposed amendment 
to the definition of ``blank check company'' for purposes of the PSLRA 
to remove the ``penny stock'' condition, and proposed Rule 140a that 
would clarify the underwriter status of SPAC IPO underwriters in 
registered de-SPAC transactions.
a. Private Operating Company as Co-Registrant to Form S-4 and Form F-4
    When a de-SPAC transaction is registered on a Form S-4 or F-4, the 
party that files a registration statement currently depends on the 
structure of the merger or acquisition. While the result of any de-SPAC 
transaction involving a registered offering would be that the target 
company becomes a public reporting company, the liability it and its 
officers and directors face for disclosures in the registration 
statement that inform investors' decisions regarding the de-SPAC 
transaction is largely a function of how the transaction is structured. 
For example, when the de-SPAC transaction is structured such that the 
SPAC registers the offering of its shares to target shareholders and 
the target merges into the SPAC, the SPAC would typically sign the 
registration statement as the registrant and the SPAC and certain 
officers and directors of the SPAC that sign the registration statement 
would incur liability for disclosures in the registration statement. 
Alternatively, a de-SPAC transaction can be structured so that the 
target registers the offering of its shares to SPAC shareholders, such 
that the target would typically be the registrant, and the target and 
certain officers and directors of the target would sign the 
registration statement and incur liability for disclosures in the 
registration statement.\523\
---------------------------------------------------------------------------

    \523\ See supra Section III.C for more information about the 
regulatory baseline.
---------------------------------------------------------------------------

    We are proposing to amend Form S-4 and Form F-4 to require that the 
SPAC and the target company be treated as co-registrants when a 
registration statement is filed by the SPAC in connection with a de-
SPAC transaction. As a result, both the SPAC and the target, and 
certain officers and directors of the SPAC and target, would be 
required to sign the registration statement and incur potential 
liability for statements and omissions therein. Treating the target as 
a co-registrant in this situation is intended to provide similar 
investor protections as if the target had entered the public market 
through a traditional IPO (or a de-SPAC transaction structure in which 
a Securities Act registration statement is filed by the target, rather 
than the SPAC).
    The liability associated with being a co-registrant could 
incentivize the target company's directors and management to exercise 
greater care in the preparation and presentation of material 
information about the company, its financial condition, and its future 
prospects; perform more robust due diligence with respect to materials 
it obtains from third-party sources in connection with the de-SPAC 
transaction; and more closely monitor disclosures in the registration 
statement. Thus, the proposed requirement could improve the reliability 
of the disclosure provided to investors about the target company, 
reduce the instances of misstatements and omissions, and generally 
improve investors' decision making with regard to these transactions.
    The proposed co-registrant requirement would increase compliance 
costs for targets compared to the baseline in cases where the target 
would not already have been the registrant at the time of the de-SPAC 
transaction. Under the proposed rule, a target and its signing officers 
and directors would be liable to investors for the accuracy of the 
disclosures in such a registration statement. This increase in 
potential liability from the current baseline for targets and their 
signing officers and directors could impact the decision of a private 
company to go public via a de-SPAC transaction. It is possible that, 
due to some of the ways the proposed rules would alter differences, 
actual or perceived, between the disclosure requirements and 
liabilities associated with becoming a public reporting company via a 
traditional IPO versus being acquired by a SPAC, some targets could 
reconsider a traditional initial public offering instead. It is also 
possible that other potential targets may determine that the liability 
costs (including, but not limited to, increased litigation risk and the 
potential need for new insurance coverage or higher premiums for 
existing coverage) associated with being a co-registrant would be too 
high and elect not to go public. Given the multifaceted benefits of 
being a public company, however, it is unclear that the costs of being 
a co-registrant would be the determining factor that would discourage a 
target from going public through a de-SPAC transaction or outweigh 
other factors that typically drive the going public decision such as 
liquidity for company insiders and the lower cost of capital.
b. PSLRA Safe Harbor
    Defining the term ``blank check company'' for purposes of the PSLRA 
as proposed, would make the PSLRA safe harbor unavailable for forward-
looking

[[Page 29535]]

statements made in connection with an offering by a blank check company 
that is not issuing ``penny stock'' as defined in Exchange Act Rule 
3a51-1, including an offering of securities by a SPAC in connection 
with a de-SPAC transaction.\524\ As noted above, many commentators have 
raised concerns about the use of forward-looking statements that they 
believe to be unreasonable in de-SPAC transactions.\525\ By providing 
greater clarity regarding the availability of the PSLRA safe harbor, 
the proposed amendment should strengthen the incentives for a blank 
check company that is not issuing penny stock, including a SPAC, to 
avoid potentially unreasonable and potentially misleading forward-
looking statements, and to expend more effort or care in the 
preparation and review of forward-looking statements.\526\ For example, 
if less time and effort is required to produce meaningful cautionary 
statements than to produce careful and robust forward-looking 
statements, absent the proposed changes, market participants may have 
an incentive to underinvest in the production of reliable forward-
looking statements. By increasing the potential costs to companies of 
making forward-looking statements, the proposed changes are expected to 
increase the incentives for blank check companies that are not issuing 
penny stock to exercise more care in making any such statements. 
Similar investor protection benefits may apply to registered securities 
offerings of non-SPAC registrants that would meet the current 
definition of a ``blank check company'' but for the ``penny stock'' 
condition.
---------------------------------------------------------------------------

    \524\ See supra Section IX.B.3. See also supra Section III.E for 
more information about the regulatory baseline.
    \525\ See supra note 33.
    \526\ See supra note 279.
---------------------------------------------------------------------------

    The net economic effect of this proposed amendment, however, would 
depend on, among other things: (1) The extent to which practitioners 
currently are willing to advise their clients that the PSLRA safe 
harbor is available for forward-looking statements made by blank check 
companies that are not issuing penny stock that otherwise meet the 
conditions of the safe harbor; (2) the extent to which the market does 
not already discount the informational value of forward-looking 
statements; and (3) the costs associated with valuable information that 
may no longer be provided due to any perceived increase in the risk of 
potential litigation.
    While amending the definition of ``blank check company'' in this 
manner would clarify that the statutory safe harbor in the PSLRA is not 
available for forward-looking statements made in connection with 
offerings by SPACs or other blank check companies that are not penny 
stock issuers, it could impose costs on any such companies that 
currently attempt to rely upon the safe harbor to communicate value-
relevant information to investors through forward-looking statements. 
For such companies, this proposed amendment could increase the 
perceived risk of litigation and dissuade them from including such 
forward-looking information. This information could be valuable in 
offerings involving business combinations with private operating 
companies given that less historical information regarding private 
companies is likely otherwise available.\527\ In addition, we note 
that, while there is no prohibition on the use of forward-looking 
statements in connection with an initial public offering, the fact that 
the express terms of the PSLRA provide that the safe harbor is 
unavailable for such statements, and the concomitant heightened 
litigation risks associated with providing forward-looking statements, 
may have created a chilling effect given that, in staff experience, 
projections are almost never provided to the public in connection with 
an IPO. The proposed amendments similarly may lead to fewer forward-
looking statements in connection with offerings by SPACs or other blank 
check companies that are not penny stock issuers. This effect would 
likely be stronger for blank check companies affected by the proposal 
that are considering whether to include forward-looking statements 
about younger target companies with fewer observable periods of profit 
historically, as most of their value typically comes in the form of 
future growth options. Such blank check companies that are not penny 
stock issuers might otherwise be the most likely to use forward-looking 
statements to communicate the potential for future value creation to 
investors at the time of a business combination.
---------------------------------------------------------------------------

    \527\ See Vijay Jog & Bruce J. McConomy, 30 J. Bus. Fin. & 
Adver. 125 (2003) (finding that the voluntary provision of earnings 
forecasts in connection with Canadian IPOs (subject to a two-year 
horizon maximum and accompanied by a statement of opinion by a 
public accountant) had incremental value beyond other methods of 
signaling firm quality such as the use of a highly reputable 
underwriter or auditor, including ``a favorable and noticeable 
impact on the degree of underpricing and the post-issue return 
performance'' and that benefits are most pronounced for ``small 
firms and those making conservative forecasts.'').
---------------------------------------------------------------------------

    Additionally, if the proposed amendment reduces the amount of 
potentially relevant information presented to investors in connection 
with a de-SPAC transaction or other business combination involving a 
blank check company that is not a penny stock issuer due to perceived 
litigation risk, this may negatively affect investors' ability to 
accurately value these companies and allocate their investments 
accordingly. For blank check companies that are SPACs, such costs could 
be mitigated if some of the other amendments that we are concurrently 
proposing are adopted and improve the flow of relevant information to 
investors at the de-SPAC transaction stage. Similar costs may also be 
mitigated for investors in non-SPAC blank check companies not issuing 
penny stock that would be subject to proposed Rule 145a as reporting 
shell-companies.\528\ Because reporting shell company shareholders may, 
under proposed Rule 145a, receive registration statement disclosures in 
connection with a reporting shell company's merger activity, the 
proposed rule could result in incremental information about the target 
company being provided to reporting shell company shareholders, to the 
extent that those investors would not otherwise receive such 
information.
---------------------------------------------------------------------------

    \528\ See supra Section IX.B.4 and note 445.
---------------------------------------------------------------------------

c. Underwriter Status and Liability in Securities Transactions
    Proposed Rule 140a would clarify that a person who has acted as an 
underwriter in a SPAC IPO and participates in the distribution by 
taking steps to facilitate the de-SPAC transaction, or any related 
financing transaction, or otherwise participates (directly or 
indirectly) in the de-SPAC transaction will be deemed to be engaged in 
the distribution of the securities of the surviving public entity in a 
de-SPAC transaction within the meaning of Section 2(a)(11) of the 
Securities Act. The statutory definition of an ``underwriter'' under 
the Securities Act is broad and does not include an element of intent; 
as a result, a person could perform functions that would cause the 
person to meet the statutory definition of an ``underwriter'' within 
the meaning of Section 2(a)(11) of the Securities Act without 
appreciating that they are doing so. This may in turn lead to both 
deal-specific and market-wide economic inefficiencies such as 
underinvestment in diligence or screening. For example, an investment 
banker, or financial

[[Page 29536]]

advisor providing services in connection with a de-SPAC transaction may 
not adequately fulfill their role as a gatekeeper for disclosures in a 
de-SPAC transaction registration statement if they are unaware that 
they are an underwriter and face potential liability as such.\529\
---------------------------------------------------------------------------

    \529\ See supra Section III.E.3 for more regulatory baseline 
information.
---------------------------------------------------------------------------

    A key benefit from proposed Rule 140a would be the incentives that 
it would create for SPAC IPO underwriters that may be subject to 
Section 11 liability for registered de-SPAC transactions to perform due 
diligence to ensure the accuracy of the disclosures in these 
transactions. Improved due diligence would enhance investor protection 
by allowing investors to better evaluate the target company and, in 
turn, potentially make better investment decisions. We expect that 
clarifying the application of underwriter liability, combined with the 
disclosures of proposed Subpart 1600 of Regulation S-K, could 
significantly improve the ability of SPAC shareholders to evaluate the 
target company. This may allow these investors to better price the 
securities of the combined company and decrease the likelihood that 
they overvalue the target company under consideration. Additionally, 
more clearly defined Section 11 liability may enhance shareholders' 
ability to pursue a remedy, if needed.
    Potential Section 11 liability may deter a SPAC IPO underwriter 
from participating in the de-SPAC transaction or any related financing 
transactions by increasing their costs. The extent to which proposed 
Rule 140a would impose new costs on SPAC IPO underwriters would depend 
heavily on the extent to which they do not already perform due 
diligence that would be sufficient to perfect such a defense in 
connection with the de-SPAC transaction or a related financing 
transaction. If SPAC IPO underwriters decide not to provide services in 
connection with the de-SPAC transaction or a related financing 
transaction due to proposed Rule 140a, the SPAC may incur greater 
monetary and non-monetary costs related to identifying, negotiating 
with, and hiring financial advisors. Also, because a significant 
portion of SPAC IPO underwriting fees (typically 3.5% of IPO proceeds) 
is usually deferred until, and conditioned upon, the completion of the 
de-SPAC transaction, SPAC IPO underwriters that decide not to 
participate in the de-SPAC transaction as a result of this proposal may 
revise their compensation agreements so that they would be paid only at 
the time of the SPAC initial public offering. Such a change in the 
timing of compensation may increase the up-front transaction costs of 
the initial public offering for SPAC investors and sponsors. It is 
possible, however, that underwriter compensation may decrease if 
underwriters would not be expected to provide any services in 
connection with the de-SPAC transaction or any related financing 
transaction.
    Alternatively, proposed Rule 140a may cause SPAC IPO underwriters 
to demand higher compensation for their participation in the de-SPAC 
transaction or any related financing transaction given the potential 
exposure to Section 11 liability. The fees that SPAC IPO underwriters 
currently charge for their efforts in connection with a SPAC initial 
public offering generally range between 5% and 5.5% of the initial 
public offering proceeds, with potentially additional merger advising 
fees charged at the de-SPAC transaction stage. It is difficult to 
predict whether these fees would increase to incentivize SPAC 
underwriters to participate in de-SPAC transactions or the amount of 
any such increase. For comparison, the underwriter fees in the 
traditional initial public offering process, where underwriters have 
Section 11 liability, are, on average, 7% of the IPO proceeds.\530\ It 
is possible, however, that SPAC IPO underwriters could demand higher 
fees for potentially bearing Section 11 liability in connection with 
the de-SPAC transaction or any related financing transaction. Any 
increase in the compensation of SPAC IPO underwriters would increase 
the transaction costs to investors and sponsors, potentially lowering 
their returns on their investment.
---------------------------------------------------------------------------

    \530\ See, e.g., Hsuan-Chi Chen & Jay Ritter, The Seven Percent 
Solution, 55 J. Fin. 1105 (2000).
---------------------------------------------------------------------------

    Finally, to the extent that SPAC IPO underwriters decide not to 
participate in the de-SPAC transaction or any related financing 
transaction due to potential Section 11 liability, investors would not 
have the protection of any due diligence that SPAC IPO underwriters may 
have performed in connection with such transactions. However, if SPAC 
IPO underwriters are able and willing to absorb some of the costs 
associated with potential Section 11 liability (e.g., because of other 
benefits, such as revenues from future repeat business with sponsors), 
the potential cost increase for SPAC shareholders and sponsors may be 
small.
3. Shell-Company Related Proposals
a. Proposed Rule 145a
    Proposed Rule 145a would deem any business combination of a 
reporting shell company (that is not a business combination related 
shell company) involving an entity that is not a shell company to 
involve a sale of securities under the Securities Act to the reporting 
shell company's shareholders. Proposed Rule 145a is intended to address 
concerns regarding the use of reporting shell companies generally as a 
means by which private unregistered companies access the U.S. capital 
markets. One reason for these concerns is that reporting shell company 
shareholders may not receive the Securities Act protections (including 
disclosure and liability) they receive in a traditional IPO because of 
transaction structure. Under the proposed rule, SPACs and other 
reporting shell companies would have to register these deemed sales by 
filing a Securities Act registration statement unless there is an 
applicable exemption.\531\
---------------------------------------------------------------------------

    \531\ See supra Section IV.A.2 for more information about the 
regulatory baseline.
---------------------------------------------------------------------------

    Proposed Rule 145a would potentially provide shareholders in a 
reporting shell company, engaged in a business combination involving a 
non-shell company, with more consistent Securities Act protections, 
regardless of the structure used for the business combination. 
Currently, if a reporting shell company buys a target by issuing its 
shares as consideration for the interests of the target shareholders, 
and the reporting shell company is the surviving entity, reporting 
shell company investors are unlikely to receive a registration 
statement in connection with the transaction. In this example, the 
reporting shell company shareholders would not receive the protections 
afforded by the Securities Act, including any enhanced disclosure or 
liability that would be available if the transaction were registered 
under the Securities Act.
    Proposed Rule 145a is intended to address potential disparities in 
the types of disclosure and liability protections available to 
reporting shell company shareholders depending on the transaction 
structure used in a reporting shell company business combination, and 
thus, is expected to bolster investor protection for reporting shell 
company shareholders. This could be of particular benefit to 
shareholders in reporting shell companies that may not otherwise 
receive information about the intended target, or potentially even 
notification that a specific business combination

[[Page 29537]]

will be entered into, until after the transaction has occurred. 
Additionally, receipt of registration materials may provide a 
beneficial nudge to reporting shell company shareholders who might 
otherwise be vulnerable to inertia by calling attention to the nature 
in which their investment would be transformed should they continue to 
hold their securities.\532\ However, these informational benefits to 
affected reporting shell company shareholders may be mitigated to the 
extent that the reporting shell company is able to rely on an exemption 
from registration and shareholders do not receive offering materials in 
connection with the deemed sale. Because it is unclear the extent to 
which reporting shell company shareholders may be able to anticipate 
which disclosure and liability protections will be available to them at 
the time of a business combination (as a function of whether an 
exemption would be available), the extent to which proposed Rule 145a 
might improve price or capital formation is also unclear.
---------------------------------------------------------------------------

    \532\ Investor inertia refers to the tendency to avoid trading. 
See, e.g., Laurent E. Calvert, John Y. Campbell, & Paolo Sodini, 
Fight or Flight? Portfolio Rebalancing by Individual Investors, 124 
Q. J. Econ. 301 (2009) (``observing little aggregate rebalancing in 
the financial portfolio of participants'').
---------------------------------------------------------------------------

    As a result of proposed Rule 145a, reporting shell companies, 
including SPACs, would be required to register the deemed sale of their 
securities to their shareholders at the time of certain business 
combinations, unless there is an available exemption. Costs would 
increase to the extent that a business combination is not already 
structured in a manner that otherwise would have been considered a sale 
to the reporting shell company shareholders under the securities laws. 
This would include all costs associated with conducting a registered 
offering of securities, such as preparing a Securities Act registration 
statement, if no exemption is available. The proposed rule may also 
introduce opportunity costs in the form of transactions that might 
otherwise have occurred, but would be disincentivized under the new 
requirements. For example, under current rules, a business combination 
involving a reporting shell company can be structured to avoid 
registration, such as through the use of cash, rather than stock, as 
consideration. Because proposed Rule 145a would deem such a transaction 
to involve a sale to reporting shell company shareholders that would 
need to be registered unless there is an applicable exemption, affected 
parties may opt not to pursue such a transaction rather than incur the 
new transaction costs involved. There may also be financial-exclusion 
related costs if reporting shell companies are increasingly 
incentivized to pursue exemptions from registration and as a 
consequence pre-emptively seek to place their securities with only 
certain types of investors such as accredited investors or non-
accredited sophisticated investors.
    To the extent that this proposal would apply the strict liability 
standard of Section 11 to transaction-related disclosures to which it 
would not otherwise apply, we expect there to be extra costs associated 
with greater care in preparation and review of any reporting shell 
company registration statement.\533\ Also, there could be some costs 
associated with timing issues generated by SEC staff review of any 
registration statement. Some of these costs may be mitigated to the 
extent that the reporting shell company or target is already preparing 
disclosure documents, particularly Securities Act registration 
statements, in connection with a business combination that would be 
covered by proposed Rule 145a. For example, in a de-SPAC transaction, 
the SPAC and/or target company may already be preparing a Schedule 14A, 
14C, or TO, or a Form S-4 or F-4. Reporting shell companies and SPACs 
also typically prepare Forms 8-K containing Form 10 disclosures that 
are filed shortly after the business combination.
---------------------------------------------------------------------------

    \533\ See generally supra Section IX.C.2 discussion on costs of 
increased liability.
---------------------------------------------------------------------------

b. Financial Statement Requirements in Business Combination 
Transactions Involving Shell Companies
    Proposed Article 15 of Regulation S-X and related amendments aim to 
align more closely the financial statement reporting requirements in 
business combinations involving a shell company and a private operating 
company with those in traditional initial public offerings. These 
amendments may reduce the potential for regulatory arbitrage by private 
companies that go public through a business combination with a shell 
company rather than a traditional initial public offering. Furthermore, 
the proposed disclosure and audit requirements (e.g., proposed Rule 15-
01(a)) may reduce information asymmetry surrounding shell company 
business combinations, including de-SPAC transactions, which may in 
turn benefit private operating companies going public by reducing the 
cost of capital.\534\ The proposed rules and amendments that clarify 
applicable definitions and streamline compliance processes (e.g., Rule 
15-01(b), (c), (d), (e)), are expected to reduce ambiguity and 
facilitate compliance.
---------------------------------------------------------------------------

    \534\ See Michael Minnis, The Value of Financial Statement 
Verification in Debt Financing: Evidence from Private U.S. Firms, 49 
J. Acct. Research 457, 457-506 (2010). Using a large sample of 
privately held U.S. firms, the author found that audited firms enjoy 
a lower interest rate than unaudited firms, and that lenders place 
more weight on audited financial information in setting the interest 
rate. See also Mathieu Luypaert & Tom Van Caneghem, Can Auditors 
Mitigate Information Asymmetry in M&As? An Empirical Analysis of the 
Method of Payment in Belgian Transactions, 33 Auditing 57, 57-91 
(2014). This study finds that audits can mitigate information 
asymmetry about the target's value, reducing the need for a 
contingent payment.
---------------------------------------------------------------------------

    The proposed rules and amendments may allow investors to more 
readily locate and process relevant information, reduce processing 
costs, and increase their confidence in the reporting provided by 
entities involved in these business combinations.\535\ In turn, the 
proposed rules and amendments may help investors to more efficiently 
make voting, redemption, and investment decisions. In addition, many of 
the proposed rules and amendments would codify existing staff guidance 
or financial reporting practices. Thus, to the extent that registrants 
are already preparing statements and reports consistent with the 
proposed rules and amendments, the incremental benefits and costs would 
be limited. Below, we discuss the potential benefits and costs of each 
individual item under proposed Rule 15-01 of Regulation S-X and the 
other amendments.\536\
---------------------------------------------------------------------------

    \535\ See supra note 508.
    \536\ See supra Section IV.B for additional regulatory baseline 
information.
---------------------------------------------------------------------------

1. Rule 15-01(a) Audit Requirements of Predecessor
    Proposed Rule 15-01(a) would align the level of audit assurance 
required for the target private operating company in merger 
transactions involving a shell company with the audit requirements for 
an initial public offering of equity securities. The proposed rule 
would codify existing staff guidance that financial statements of the 
business, i.e., target private operating company, in a transaction 
involving a shell company should be audited to the same extent as a 
registrant in an initial public offering; that is, an examination of 
the financial statements by an independent accountant in accordance 
with the standards of the PCAOB for the purpose of expressing an 
opinion thereon.
    Proposed Rule 15-01(a) should benefit investors by requiring 
assurance over financial statements consistent with a traditional 
IPO.\537\ To the extent

[[Page 29538]]

that audited financial statements may have more predictive power of 
future cash flows, the proposed rule also may benefit shell companies 
and target private operating companies by lowering their cost of 
capital.\538\ The proposed amendment may, however, increase the 
compliance costs (e.g., audit costs) of the business combination. To 
the extent that target private operating companies are, in practice, 
already including financial statements audited under PCAOB standards, 
the above incremental benefits and costs likely would be limited.
---------------------------------------------------------------------------

    \537\ See Phillip Lamoreaux, Does PCAOB Inspection Access 
Improve Audit Quality? An Examination of Foreign Firms Listed in the 
United States, 61 J. Acct. & Econ. 313, 313-337 (2016). The author 
documented that PCAOB-inspected auditors, compared to auditors not 
subject to PCAOB inspections, provide higher quality audits, which 
are reflected by more going concern opinions, more reported material 
weaknesses, and less earnings management.
    \538\ See Michael Minnis, The Value of Financial Statement 
Verification in Debt Financing: Evidence from Private U.S. Firms, 49 
J. Acct. Research 457, 457-506 (2010) (finding that audited 
financial statements have more predictive power for future cash 
flows, which may explain lower cost of capital as well as greater 
reliance by lenders).
---------------------------------------------------------------------------

2. Rule 15-01(b) Number of Years of Financial Statements
    Under proposed Rule 15-01(b), a shell company registrant would be 
permitted to include in its Form S-4/F-4/proxy or information statement 
two years of statements of comprehensive income, changes in 
stockholders' equity, and cash flows for the private operating company 
for all transactions involving an EGC shell company and a private 
operating company that would qualify as an EGC, and this determination 
would not be dependent on whether the shell company has filed or was 
already required to file its annual report or not.
    For such transactions, registrants may benefit from reduced cost of 
producing audited financial statements because this rule would 
potentially reduce the number of years of financial statements required 
from three years to two years. For those transactions, this proposed 
rule would cause some information loss for investors. However, at least 
two years' of statements of comprehensive income, changes in 
stockholders' equity, and cash flows for the private operating company 
would be provided, the same amount that would be required for an 
initial public offering.
3. Rule 15-01(c) Age of Financial Statements of the Predecessor
    Proposed Rule 15-01(c) would provide that the age of financial 
statements for a private operating company that would be the 
predecessor to a shell company in a registration statement or proxy 
statement would be based on whether the private operating company would 
qualify as a smaller reporting company if it were filing its own 
initial registration statement. Because we believe that this proposed 
amendment would be consistent with existing practice, we do not expect 
it to have significant economic effects for registrants or investors. 
This proposed rule also should help maintain consistency in disclosure 
requirements across the different routes of going-public, which may 
reduce compliance uncertainty for registrants and their predecessors 
and increase investor confidence.
4. Rule 15-01(d) Acquisitions of Businesses by a Shell Company 
Registrant or Its Predecessor That Are Not or Will Not Be the 
Predecessor
    Proposed Rule 15-01(d) would require application of Rules 3-05 or 
8-04 (or Rule 3-14 as it relates to a real estate operation), the 
Regulation S-X provisions related to financial statements of an 
acquired business, to acquisitions of businesses by a shell company 
registrant, or its predecessor, that are not or will not be the 
predecessor to the registrant. Given our understanding that this 
proposed amendment codifies current market practices, we believe that 
the incremental benefits and costs should be limited.
    We also are proposing to amend Rule 1-02(w) of Regulation S-X to 
require that the significance of the acquired business be calculated 
using the private operating company's financial information as the 
denominator instead of that of the shell company registrant. The 
current use of the shell company registrant, which has nominal 
activity, for the denominator results in limited to no sliding scale 
for business acquisitions, including those made by the private 
operating company that will be the predecessor to the shell company 
because every acquisition would be significant and thus require 
financial statements. Therefore, the proposed amendment may alleviate 
registrants' compliance burden to the extent that it would not result 
in disclosure related to insignificant acquisitions. Although, the 
proposed amendment may reduce the information available to investors 
about business acquisitions by the private operating company that will 
be the predecessor to the shell company, it may also reduce investors' 
information processing costs by focusing on financial statements of 
acquired businesses that are significant rather than all acquired 
businesses.
    This proposed amendment to Rule 11-01(d) may change the application 
of Rule 11-01(b)(3) such that subsequent business acquisitions may be 
tested against pro forma amounts that combine the SPAC and the private 
operating company. This may result in fewer subsequent acquisitions 
being significant because the denominator of the significance tests, 
including the combined total assets of the private operating company 
and SPACs, are larger than only the private company's total assets. 
Accordingly, registrants' compliance burden would likely be reduced. We 
also believe any potential costs to investors as a result of decreases 
in disclosure may be mitigated by the fact that registrants must 
otherwise disclose material information about the acquisition that is 
necessary to make the required statements not misleading.
    Proposed Rule 15-01(d)(2) would require a shell company that omits 
from a registration statement or proxy statement the financial 
statements of a recently acquired business that is not or will not be 
its predecessor pursuant to Rule 3-05(b)(4)(i) file those financial 
statements in an Item 2.01(f) Form 8-K. The proposed amendment would 
alleviate any ambiguity regarding the timing in which these financial 
statements are required to be filed, which would facilitate compliance 
for the registrant. This amendment also should help ensure that 
investors receive predictable and timely disclosure about the acquired 
business.
5. Rule 15-01(e) Financial Statements of a Shell Company Registrant 
After the Combination With Predecessor
    Proposed Rule 15-01(e) would allow a registrant to exclude the pre-
acquisition financial statements of a shell company (including a SPAC) 
for periods prior to the acquisition once the following conditions have 
been met: (1) The financial statements of the shell company have been 
filed for all required periods through the acquisition date, and (2) 
the financial statements of the registrant include the period in which 
the acquisition was consummated. The proposed rule could reduce 
disclosure that may no longer be relevant or meaningful to investors 
when the pre-business combination financial statements of the shell 
company are included in previous filings and the historical financial 
statements of the shell company likely are no longer representative of 
the combined company. Thus, this proposed rule should reduce compliance 
costs related to filing previous year financial statements of a shell 
company. Investors may also benefit from the increased

[[Page 29539]]

efficiency in processing business combination filings.
6. Other Amendments
    We are proposing additional amendments to Regulation S-X, as well 
as an amendment to Form 8-K.\539\ The proposed amendment to Rule 11-
01(d) would state that a SPAC is a business for purposes of the rule, 
which may cause an issuer that is not a SPAC to be required to file 
financial statements of the SPAC in a resale registration statement on 
Form S-1. This proposed amendment may facilitate the compliance process 
for companies engaging in an acquisition with a SPAC and alleviate 
their compliance burden. Investors also would likely benefit from 
having the financial statements of the SPAC, particularly when they 
underpin adjustments to pro forma financial information in a 
transaction when an operating company is the legal acquirer of a SPAC. 
As a result of the proposed amendment, a registrant may incur 
additional compliance costs if it is required to provide financial 
statements of the SPAC in a resale registration statement. However, any 
additional costs should be mitigated to the extent that financial 
statements of the SPAC were previously prepared, audited, and filed 
with the Commission.
---------------------------------------------------------------------------

    \539\ See supra Section IV.B.6 for additional regulatory 
baseline information.
---------------------------------------------------------------------------

    The proposed revision to Item 2.01(f) of Form 8-K, which would 
apply to all shell companies, clarifies that the information provided 
in the Form 8-K should relate to the ``acquired business'' and not the 
``registrant,'' as currently stated in the Form. The proposed amendment 
is intended to eliminate any potential misunderstanding as to the 
entity for which Item 2.01(f) disclosure is necessary. The increased 
clarity may reduce registrants' compliance costs to the extent there is 
currently any confusion. In turn, investors may also benefit from the 
timely disclosure of information about ``acquired businesses'' due to 
registrants' more consistent application of Item 2.01(f).
    We are also proposing amendments to Rules 3-01, 8-02, and 10-
01(a)(1) of Regulation S-X to clarify that the requirement of 
``financial statements'' would apply to both the registrant and its 
predecessors rather than only to the registrant alone, as the existing 
rules may unintentionally imply for the balance sheet in Rules 3-01 and 
8-02 and financial statements for Rule 10-01(a)(1). Because these 
proposed amendments would codify existing financial reporting 
practices, they should not impact registrants' compliance costs.
4. Enhanced Projections Disclosure (Amendments to Item 10(b) of 
Regulation S-K)
    Item 10(b) of Regulation S-K sets forth the Commission's views on 
important factors to be considered in formulating and disclosing 
projections in certain filings with the Commission. The proposed 
amendments would update this guidance.\540\ More specifically, the 
proposed amendments would state that the guidelines also apply to 
projections of future economic performance of persons other than the 
registrant, such as the target company in a business combination 
transaction, that are included in the registrant's filings. The 
proposed amendments to Item 10(b) would also state that projections 
that are not based on historical financial results or operational 
history should be clearly distinguished from projected measures based 
on historical financial results or operational history. In addition, 
the proposed amendments would state that it generally would be 
misleading to present projections that are based on historical 
financial results or operational history without presenting such 
historical financial measure or operational history with equal or 
greater prominence. Finally, for projections based on a non-GAAP 
measure, the proposed amendments to Item 10(b) would state that the 
presentation should include a clear definition or explanation of the 
non-GAAP measure, a description of the most closely related GAAP 
measure, and an explanation why the non-GAAP measure was selected 
instead of a GAAP measure. To the extent that registrants conform 
projections included in Commission filings to some or all of the 
proposed amendments to the guidance set forth in Item 10(b), investors 
would have additional information to evaluate the reasonableness of the 
projections and make more informed investment decisions. For example, 
the proposals related to historical financial results or operational 
history could inform investors about potential biases in assumptions 
underlying different financial projections and help them more 
efficiently process the underlying assumptions of the financial 
projections in making their investment decisions.\541\ These benefits 
would be mitigated to the extent that registrants are already providing 
this information, or include projections of future economic performance 
that do not follow some or all of the proposed amendments.
---------------------------------------------------------------------------

    \540\ See supra Section V.B.1 for additional regulatory baseline 
information.
    \541\ See Anne Beyer, Daniel A. Cohen, Thomas Z. Lys, & Beverly 
R. Walther, The Financial Reporting Environment: Review of the 
Recent Literature, 50 J. Acct. & Econ. 296, 296-343 (2010) (By 
employing a sample from 1994 to 2007, this article shows management 
forecasts providing over half of accounting-based information to the 
market. In summary, the management forecast literature suggests that 
earnings projections and realizations both provide value-relevant 
information to the market.).
---------------------------------------------------------------------------

    In addition, to the extent that registrants have not previously 
applied the Commission's guidance in Item 10(b) to third-party 
projections included in the registrant's filings, and choose to do so 
as a result of the proposed amendments, investors may benefit from 
improved care and presentation with respect to any third-party 
projections in a registrant's filing. These benefits would be mitigated 
to the extent that registrants already follow the Commission's guidance 
set forth in Item 10(b) for third party projections included in their 
filings, or choose not to do so. To the extent that registrants follow 
the guidance in the proposed amendments to Item 10(b), the incremental 
compliance costs are likely to be limited. Registrants should already 
have information about historical financial results or operational 
history and GAAP financial measures, and should be able to easily 
obtain this information in connection with any included third-party 
estimates. Moreover, potential liability for false or misleading 
projections is likely to shape disclosure practices with respect to 
third-party projections in addition to the existing guidance in Item 
10(b).
    The proposed amendments to Item 10(b) could discourage registrants 
from including projections in their filings, which would provide 
investors with less information for their investment decisions. In 
addition, the proposed additional contextual disclosure, to the extent 
included by registrants, could increase investors' processing cost of 
any included financial projections.
5. Investment Company Act Safe Harbor
    As discussed above, whether a SPAC meets the definition of 
investment company under Section 3(a)(1)(A) of the Investment Company 
Act in the period between its IPO and either the completion of its de-
SPAC transaction or its dissolution is a question of facts and 
circumstances.\542\ Currently, SPACs typically provide disclosures 
indicating that they believe they do not meet the investment company 
definition under Section 3(a). They further typically disclose to 
prospective investors that if they are determined to be an investment

[[Page 29540]]

company in the future, the costs and logistics of compliance with the 
Investment Company Act would be prohibitive. We are, however, concerned 
that SPACs may fail to recognize when their activities raise the 
investor protection concerns addressed by the Investment Company Act. 
To assist SPACs in focusing on, and appreciating when, they may be 
subject to investment company regulation, we are proposing Rule 3a-10, 
which would provide a safe harbor from the definition of ``investment 
company'' under Section 3(a)(1)(A) of the Investment Company Act that 
we believe would enhance investor protection.\543\
---------------------------------------------------------------------------

    \542\ See supra Section VI.A.
    \543\ See supra Section VI.
---------------------------------------------------------------------------

    We have designed the proposed conditions of the safe harbor to 
align with the structures and practices that we preliminarily believe 
would distinguish a SPAC that is likely to raise investor protection 
concerns under the Investment Company Act from those that we believe 
generally do not.\544\ Specifically, the proposed rule would promote 
investor protection by highlighting to SPACs and their sponsors the 
potential Investment Company Act concerns that SPAC activities may 
raise, such that investors would benefit from a reduced risk that the 
SPACs they invest in will engage in activities typically associated 
with investment companies but without the investor protections provided 
by the Investment Company Act. This may, in turn, reduce the 
possibility for regulatory arbitrage, which may be used by some SPACs 
in an attempt to operate like an investment company without investment 
company registration.\545\ A reduction of the possibility of regulatory 
arbitrage would also reduce costs related to potential uncertainty 
about a SPAC's legal status and promote confidence in the SPAC market 
among market participants. Finally, a reduction in the possibility of 
regulatory arbitrage would potentially promote competition among all 
companies engaging in investment management activities regulated by the 
Investment Company Act.
---------------------------------------------------------------------------

    \544\ See supra note 295 for a description of investor 
protection concerns addressed by the Investment Company Act.
    \545\ The significant compliance costs of investment company 
registration under the Investment Company Act may give some SPACs an 
incentive to try to engage in such regulatory arbitrage.
---------------------------------------------------------------------------

    In terms of expected investor protection benefits for investors in 
SPACs that would rely on the proposed safe harbor, the safe harbor 
conditions are designed to ensure that SPACs do not engage in 
activities that would make them investment companies. For example, the 
proposed conditions on the nature and management of SPAC assets are 
designed to ensure that a SPAC relying on the safe harbor would not 
engage in portfolio management practices resembling those that 
management investment companies employ.\546\
---------------------------------------------------------------------------

    \546\ See supra Section VI.B.1.
---------------------------------------------------------------------------

    In addition, the proposed conditions for SPAC activities are 
designed to ensure that SPACs relying on the safe harbor would have a 
business purpose aimed at completing a single de-SPAC transaction, 
after which the surviving company would be primarily engaged in the 
business of the target company or companies and have at least one class 
of exchange listed securities.\547\ As a result, a SPAC relying on the 
safe harbor would not be engaging in activities that raise investor 
protection concerns addressed by the Investment Company Act.
---------------------------------------------------------------------------

    \547\ See supra Section VI.B.2.
---------------------------------------------------------------------------

    Finally, the proposed duration conditions are designed to ensure 
that a SPAC relying on the safe harbor would have a limited time period 
to announce and complete a de-SPAC transaction before being required to 
distribute the SPACs assets in cash to investors.\548\ The proposed 18-
month condition for the announcement of a de-SPAC agreement and 
condition that the de-SPAC transaction close within 24 months would 
potentially reduce the risk that investors may come to view a SPAC 
holding securities for a prolonged period as a fund-like investment, 
thereby necessitating the regulatory protections of the Investment 
Company Act. We recognize that most SPACs are listed on a national 
securities exchange and as such are subject to exchange listing 
standards requiring that the SPAC completes a de-SPAC transaction 
within 36-months (or three years) of the effectiveness of its IPO 
registration statement.\549\ For such SPACs the proposed safe harbor 
duration condition would have reduced benefits since the exchange rules 
already provide a limit on the duration of the SPAC, albeit 12 months 
longer that the proposed limit.
---------------------------------------------------------------------------

    \548\ See supra Section VI.B.3.
    \549\ See supra note 393 and accompanying text.
---------------------------------------------------------------------------

    Beyond providing investor protection benefits, we expect that the 
proposed safe harbor could reduce compliance costs for some market 
participants. Specifically, because registering as an investment 
company and complying with the associated Investment Company Act 
requirements would be potentially cost-prohibitive for most SPACs, we 
expect registrants, sponsors, and investors would all benefit from the 
additional certainty regarding a SPAC's status to the extent it meets 
the conditions of the safe harbor. Such benefits would directly accrue 
for SPACs that already meet the conditions of the proposed safe harbor, 
or for future SPACs that would meet the conditions even in the absence 
of the proposed safe harbor. Because of the compliance costs and 
significant operational changes involved with investment company 
registration, we expect that most SPACs that do not presently meet the 
conditions of the proposed safe harbor would seek to fall within the 
safe harbor by making changes to their operations in order to meet the 
safe harbor conditions. However, for some SPACs that currently do not 
meet such conditions, there may be potentially meaningful costs related 
to bringing the operations in line with the new safe harbor (discussed 
in more detail below).\550\ We also expect that most future SPACs that 
would otherwise under the baseline have run operations not meeting the 
safe harbor conditions would take advantage of the legal certainty 
conferred by the proposed safe harbor and elect to meet the conditions. 
In addition, because SPACs that operate within the boundaries of the 
safe harbor would be assured that they would not qualify as investment 
companies, there may also be an increased propensity for sponsors to 
launch new SPACs operating within the safe harbor conditions to the 
extent that they might not have otherwise chosen to create a SPAC due 
to the uncertainty of the Investment Company Act status. Thus, the 
reduced uncertainty regarding the legal status of SPACs operating 
within the proposed safe harbor could facilitate capital formation. 
Finally, the proposed safe harbor would also promote efficiency of a 
SPAC's compliance process by providing a clear framework for SPACs to 
determine their status under the Act.
---------------------------------------------------------------------------

    \550\ As discussed in more detail below, such SPACs may 
alternatively seek to operate outside the safe harbor without making 
any operational changes or make other changes to their operations in 
order to avoid meeting the definition of an investment company under 
Section 3(a)(1)(A) of the Investment Company Act, including, for 
example, by avoiding investing, reinvesting or trading in 
securities.
---------------------------------------------------------------------------

    To the extent the potential benefits to investors of current and 
future SPACs operating under the new safe harbor would be significant, 
we may see an increase in investor demand for SPACs that could 
potentially lower the cost of capital for SPACs. In turn, a lower cost 
of capital could increase the size and number of SPAC IPO offerings and 
thereby promote capital formation.

[[Page 29541]]

    For current or future SPACs that would meet the safe harbor 
conditions absent the proposed rule, we do not expect any direct costs 
from the proposed safe harbor. By contrast, for SPACs currently not 
meeting the proposed safe harbor conditions, or for future SPACs that 
would otherwise not meet the safe harbor conditions, there may be costs 
related to SPACs changing their operations to meet the conditions or to 
make other changes to their operations in order to avoid falling under 
the definition of an investment company under Section 3(a)(1)(A) of the 
Investment Company Act.
    In terms of potential costs of bringing SPAC operations in line 
with the proposed safe harbor conditions, we do not expect that the 
proposed safe harbor conditions with respect to the nature and 
management of SPAC assets would impose significant costs on SPACs and 
their sponsors and investors, as it is our understanding that most 
SPACs' assets are already held as government securities, government 
money-market funds, or cash items.\551\ We also understand that SPACs 
generally are not actively managing these assets, most of which are 
held in an escrow or trust account.\552\ To the extent there are some 
SPACs that are currently holding other types of assets, they would have 
to liquidate such assets and move them into an allowable asset class 
prior to completion of the de-SPAC transaction to rely on the proposed 
safe harbor, and would thereby incur some transactions costs and 
possibly also realize some capital losses depending on how market 
conditions for such assets have changed.
---------------------------------------------------------------------------

    \551\ See supra Section IX.B.6.a.
    \552\ Id.
---------------------------------------------------------------------------

    With respect to the proposed safe harbor conditions for SPAC 
activities, we do not expect the condition that SPACs have to seek to 
complete a single de-SPAC transaction to impose any significant costs 
on SPAC operations under the baseline. It is our understanding that 
almost all current SPACs seek to complete one single de-SPAC 
transaction, albeit such a transaction may involve multiple target 
companies, which would still be feasible under this proposed safe 
harbor condition.
    We also do not expect the proposed condition that a SPAC wishing to 
rely on the safe harbor to be primarily engaged in the business of 
seeking to complete a de-SPAC transaction would impose any significant 
incremental costly constraints on SPAC activities under the baseline. 
It is our understanding that most SPACs presently communicate to 
investors their sole intent to seek a target company to operate and 
that they do not intend to act as an investment company under the 
Investment Company Act.\553\
---------------------------------------------------------------------------

    \553\ See supra Section IX.B.6.b.
---------------------------------------------------------------------------

    Adherence to the proposed duration conditions under the safe harbor 
is likely to impose costs on SPACs that would seek to avail themselves 
of the proposed safe harbor by limiting the time they have to search 
for a target company and complete a de-SPAC transaction compared to the 
baseline. The option of waiting to invest can be valuable, and to the 
extent that SPACs would have to shorten the duration of their search 
for an appropriate target company and complete a de-SPAC transaction in 
order to take advantage of the safe harbor, the proposed duration 
conditions would potentially reduce the value of this option for 
SPACs.\554\ Additionally, to the extent an expected value-increasing 
de-SPAC transaction would not occur under the proposed duration 
conditions, but it could have under the baseline, the proposed rules 
may lead to forced liquidation of the SPAC and impose associated costs 
on both investors and sponsors (in particular, the loss of their 
respective portions of the expected value increase). However, because 
of the typical compensation structure of SPAC sponsors, they have 
strong incentives to complete a de-SPAC transaction rather than 
liquidating the SPAC and returning the proceeds in the trust or escrow 
account to the SPAC's shareholders. Therefore, SPACs that are seeking 
to meet the proposed safe harbor conditions may in some cases 
compromise on the quality of the type of targets pursued to speed up 
their search, or offer to pay more for the target to complete a de-SPAC 
transaction sooner, compared to under the baseline.\555\ In some 
circumstances, the duration conditions may give sponsors of SPACs 
seeking to avail themselves of the proposed safe harbor increased 
incentives to complete a de-SPAC transaction even if liquidation would 
be the better choice for investors. That is, the duration conditions 
may increase the agency costs of the sponsors' managerial control. 
However, such agency costs would be mitigated by other provisions of 
this proposal, such as the proposed specialized disclosure and 
procedural requirements in de-SPAC transactions and the proposed 
amendments aligning de-SPAC transactions with traditional initial 
public offerings.\556\
---------------------------------------------------------------------------

    \554\ The value of the option to wait derives from the fact that 
whereas the choice to wait is generally reversible, the choice to 
invest now rather than later is generally irreversible. See, e.g., 
Robert McDonald & Daniel Siegel, The Value of Waiting to Invest, 101 
Q. J. Econ. 707, 707-27 (1986).
    \555\ See supra note 454 for some evidence of such behavior 
under SPAC's current self-imposed duration limitations.
    \556\ See supra Sections II.F and III.
---------------------------------------------------------------------------

    Based on the data presented above for recent SPACs that have at 
least a 24-month history,\557\ approximately 65% completed a de-SPAC 
transaction no later than 24 months after the IPO date. Thus, the 
proposed 24-month condition for completion of a de-SPAC transaction may 
be a binding constraint for a significant percentage of SPACs. For the 
same sample of SPACs, the condition that a SPAC would need to announce 
a de-SPAC transaction agreement in a Form 8-K filing no later than 18 
months after the IPO date would have been met by approximately 59% of 
the SPACs.\558\ Therefore, unconditionally, the 18-month announcement 
condition is potentially binding for a larger percentage of SPACs than 
the 24-month de-SPAC transaction completion condition. The data also 
show that if a sample SPAC had met the 24-month transaction completion 
condition, around 12% of such SPACs (12 of 99 cases) would not have met 
the 18-month announcement condition. Conversely, among the sample SPACs 
meeting the 18 month announcement condition, only approximately 2.2% of 
such SPACs (2 cases of 89) would not have met the 24 month condition. 
Among all sample SPACs, around 57% (87 of 152) would have met both the 
18-month and the 24-month deadlines. Thus, we expect that the combined 
effect of the two proposed duration conditions would be to force a 
significant proportion of SPACs that would seek to take advantage of 
the safe harbor to conclude their search for a target sooner than they 
would have under the baseline or forgo a de-SPAC transaction, either of 
which could potentially impose costs on SPACs and their investors and 
sponsors, as discussed above.
---------------------------------------------------------------------------

    \557\ See supra Section IX.B.6.c.
    \558\ Id.
---------------------------------------------------------------------------

    A SPAC that seeks to rely on the proposed safe harbor would also be 
required to distribute its assets in cash to investors as soon as 
reasonably practicable if it does not meet either the 18 month deadline 
or the 24 month deadline. Because a SPAC would be required to hold only 
liquid assets such as cash items, government securities, or government 
money market funds, to rely on the proposed safe harbor, we do not 
expect SPACs to incur significant incremental cost from this condition 
in terms of direct transaction costs. Moreover, a SPAC already must 
plan for

[[Page 29542]]

the distribution of its assets back to the investors if not used in a 
de-SPAC transaction. Therefore, this condition should also not impose a 
new significant burden on a SPAC.
    The proposed duration conditions may lead SPACs to complete less 
profitable de-SPAC transactions, or fail to complete a de-SPAC 
transaction at all. To the extent investors anticipate this, there may 
be a reduction in investor demand that leads to fewer SPAC initial 
public offerings and/or less capital being raised in these offerings, 
which could potentially reduce capital formation depending on the type 
of investments SPAC investors would shift their funds to instead. In 
addition, an increase in SPACs that liquidate without a de-SPAC 
transaction and/or a reduction of capital raised through SPACs may 
ultimately result in fewer publicly traded operating companies and 
therefore a reduced investment opportunity set for investors. Such 
negative investment opportunity effects may be mitigated to the extent 
potential SPAC targets would instead go public through initial public 
offerings without SPAC involvement.
    The proposed duration conditions may also affect the bargaining 
environment in de-SPAC transactions. Knowing that SPACs would face a 
regulatory imposed deadline for when to announce an agreement in order 
to qualify for the safe harbor, target companies may deliberately 
prolong negotiations so that they can attempt to extract better terms 
as the regulatory imposed deadlines approaches. Such strategic behavior 
by targets may reduce returns to SPAC investors further, but may not be 
an economic loss per se if the transaction is still completed, as the 
immediate effect in such a case would be a pure wealth transfer from 
SPAC investors to target company owners. The potential for an increase 
in target bargaining power would be mitigated by the fact that most 
SPACs' securities are listed on a national securities exchange and 
therefore already subject to the exchanges' required deadlines (36 
months or 3 years) for completion of a business combination. However, 
to the extent target company bargaining power would increase and lead 
to worse terms in de-SPAC transactions for investors it could 
potentially reduce ex ante demand among investors for SPAC investments, 
which could reduce the number of operating companies ultimately being 
traded in public markets, all else being equal. However, such effects 
would be mitigated if potential target operating companies instead 
access public capital markets in alternative ways.
    Any SPAC that would find the proposed safe harbor conditions too 
costly to comply with could seek to not rely on the safe harbor and 
instead choose to bear the legal uncertainty of operating outside of 
it. Besides the direct compliance costs associated with being an 
investment company, a SPAC that operates as an investment company would 
also potentially be subject to delisting, as current exchange rules do 
not appear to provide for SPACs to operate as an investment company and 
maintain their listing.
    As an alternative to relying on the proposed safe harbor, it is 
possible that current or future SPACs would seek to avoid being 
considered an investment company under the Investment Company Act by 
holding different assets than are commonly held today. However, holding 
different assets (such as cash items) may provide a lower return than 
holding the types of assets permitted under the safe harbor conditions. 
Thus, the possibility of switching assets to cash items to avoid being 
an investment company may not fully mitigate the potential costs 
imposed on the SPAC market from the proposed safe harbor 
conditions.\559\
---------------------------------------------------------------------------

    \559\ As indicated in supra note 314, if a SPAC were to 
significantly change its asset composition contrary to its original 
representations, it would raise questions whether the initial 
representations were false and misleading.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

1. Efficiency
    The proposed rules and amendments would enhance and standardize 
disclosure about specific aspects inherent to the SPAC structure at 
both the SPAC initial public offering stage and the de-SPAC transaction 
stage. Requiring the SPAC and the target company to provide such 
disclosure may in some cases afford market participants greater access 
to information relevant to voting, redemption, and investment 
decisions. By increasing the standardization and comparability of 
disclosures, the proposed rules may make it easier for investors to 
properly and efficiently process information about SPACs and for market 
prices to reflect such information. In addition, invested capital may 
be more likely to be more efficiently deployed.
    Additionally, the proposed rules would increase the incentives for 
issuers and underwriters to exercise the care necessary to ensure 
accuracy in disclosures by affirming the underwriter status of SPAC IPO 
underwriters in connection with de-SPAC transactions and proposing a 
new definition of ``blank check company'' for purposes of the PSLRA 
safe harbor. In addition, the proposed rules regarding shell company 
business combination transactions would make certain disclosures and 
liabilities more consistent with traditional IPOs, which could benefit 
investors and potentially decrease the cost of capital for shell 
companies. To the extent that disclosure accuracy is improved, 
investors would have access to more reliable information when making 
their investing decisions, which would lead to an increase in market 
efficiency.
2. Competition
    By improving the informational environment at the SPAC initial 
public offering and the de-SPAC stages through changes in disclosure 
requirements and the scope of liability, the proposed rules and 
amendments could encourage greater competition between SPAC sponsors 
and SPAC underwriters, in both SPAC IPO and de-SPAC activities. For 
example, by standardizing and increasing the comparability between the 
disclosures provided by SPACs, the proposed rules and amendments may 
lead to improved investor awareness and more efficient information 
processing. To the extent that the proposed rules and amendments lead 
to an increase in competition between shell company mergers, including 
de-SPAC transactions, and traditional initial public offerings, they 
may bring down the costs of capital raising through these approaches.
    If the proposed rules and amendments create significant costs that 
lead to a reduction in shell company mergers and overall initial public 
offering activity in the SPAC market, this could reduce competition for 
investment opportunities. Such a reduction could result in higher fees 
in both the traditional IPO and SPAC markets. Additionally, if some of 
the proposed new rules and amendments disincentivize underwriters and 
PIPE investors from participating in de-SPAC transactions and related 
financings, it could reduce competition among service and capital 
providers in the SPAC market and lead to higher fees.
    To the extent that the proposed safe harbor from the Investment 
Company Act would reduce the costs of compliance, it may encourage 
additional sponsor participation in the SPAC market and thus encourage 
competition among SPACs. However, for potential SPACs that would not 
meet the safe harbor conditions, the proposed safe harbor may increase 
the costs of sponsoring a SPAC, and thus the

[[Page 29543]]

proposed rule may have an adverse effect on competition among SPACs.
3. Capital Formation
    Enhanced disclosure at both the SPAC initial public offering and 
the de-SPAC stages, combined with a stronger incentive to perform 
better due diligence in the de-SPAC transaction stage, would likely 
improve investor protection at both stages. In addition, the proposed 
rules and amendments for shell company mergers would likely improve 
investor protection. For example, proposed Rule 145a would help 
shareholders of reporting shell companies more consistently receive the 
full protections of the Securities Act disclosure and liability 
provisions in business combinations involving reporting shell 
companies, regardless of the transaction structure. Increased 
protections could incentivize more investors to invest in shell 
companies, including SPACs, thus enhancing capital formation. In 
addition, to the extent that the proposed safe harbor from the 
Investment Company Act reduces regulatory uncertainty and thus 
encourages participation in SPACs, it may also lead to an increase in 
capital formation.\560\
---------------------------------------------------------------------------

    \560\ As discussed in supra Section IX.C.5, an increase in 
investor demand for SPACs could potentially lower the cost of 
capital for SPAC, which may increase the size and number of SPAC IPO 
offerings.
---------------------------------------------------------------------------

    If the proposed rules and amendments create significant costs for 
shell companies, including SPACs, this may limit the number of private 
companies that go public through shell companies, including a de-SPAC 
transaction mechanism, or at all.\561\ Given the potential increase in 
the cost of going public through a shell company merger such as a de-
SPAC transaction compared to the current baseline, it is possible that 
some private companies could consider the traditional initial public 
offering channel a more viable alternative. We are not able to estimate 
how many companies would consider using a traditional initial public 
offering mechanism if the cost of the overall SPAC transaction 
structure increases. It is possible, however, that a significant 
increase in the cost of shell company mergers and de-SPAC transactions 
could deter some private companies from going public, and thus 
potentially reduce overall initial public offering activity and capital 
formation.
---------------------------------------------------------------------------

    \561\ For example, as discussed in more detail in supra Section 
IX.C.5, for SPACs that would take advantage of the proposed 
Investment Company Act Safe Harbor, the duration requirements could 
potentially lead investors to anticipate less profitable de-SPAC 
transactions or a lower likelihood of completion of de-SPAC 
transactions, which, in turn, could reduce investor demand for SPAC 
initial public offerings. Moreover, an increase in SPACs that 
liquidate without a de-SPAC transaction and/or a reduction of 
capital raised through SPACs may ultimately result in fewer publicly 
traded operating companies and therefore a reduced investment 
opportunity set for investors.
---------------------------------------------------------------------------

E. Reasonable Alternatives

1. Disclosure-Related Proposals
a. Require Disclosure of Policies and Procedures That Address Conflicts 
of Interest
    As an alternative to Item 1603 as proposed, we could include a 
complementary requirement to describe any policies and procedures used 
or to be used by a SPAC to minimize potential or actual conflicts of 
interest related to disclosures provided in response to proposed Items 
1603(b) and 1603(c). Such information could assist investors in gauging 
the economic significance, or lack thereof, of the various conflicts of 
interest given the presence, absence and likely degree of effectiveness 
of the policies and procedures designed to address or ameliorate them. 
On the other hand, requiring this information would increase compliance 
costs for SPACs and may cause some of these companies to adopt policies 
and procedures that would not be efficient or cost-effective given 
their particular organizational structure. In this regard, we note that 
there could be incentives to provide such disclosure voluntarily, as it 
would indicate to investors the degree to which conflicts of interest 
may be ameliorated.
b. Certain Reports, Opinions, or Appraisals
    We are proposing to require the filing of reports, opinions, or 
appraisals provided to the SPAC or its sponsor relating to valuation 
and/or fairness of a de-SPAC transaction or related financing 
transactions (Item 1607) as exhibits to registration statements and 
schedules provided in connection with a de-SPAC transaction. We are 
also proposing to require disclosures summarizing the negotiation, 
report, opinion, or appraisal and certain additional disclosures, such 
as for example, information about who prepared the report, opinion, or 
appraisal, and how they were selected. As an alternative, we could 
require disclosure of only a summary of the reports, opinions, 
appraisals, and negotiations. This could reduce some of the costs of 
compliance to the extent that it is more costly to obtain a report that 
will become public. At the same time, this alternative would reduce the 
benefits of the disclosure, as investors and market participants would 
have less information available to assess the quality and robustness of 
the analysis underlying such report, opinion, or appraisal.
c. Require a Fixed Re-Determination Date To Measure Public Float for 
Smaller Reporting Company Status
    When re-determining a post-business combination company's 
eligibility for smaller reporting company status, instead of requiring 
the public float threshold to be measured as of a date within four days 
after the consummation of the de-SPAC transaction, we could 
alternatively require the re-determination to occur on a fixed date, 
such as the consummation date or on the fourth day after consummation. 
A fixed re-determination date would have the benefit of establishing a 
consistent date for all post-business combination companies to use and 
remove any management judgment in the selection of a re-determination 
date, while still requiring that the re-determination of smaller 
reporting company status occur before the post-business combination 
company makes its first filing. However, reduced flexibility regarding 
the time frame within which the required re-determination must be made 
could increase costs for post-business combination companies without 
substantial additional benefits for investors.
d. Re-Determine Smaller Reporting Company Status of a Post-Business 
Combination Company Without a Public Float Test
    As another alternative, we considered whether the re-determination 
for smaller reporting company status of the combined company following 
a de-SPAC transaction should require only a re-measurement of the 
revenue component of smaller reporting company test and not its public 
float component. Generally, smaller reporting company status is re-
determined on an annual basis based on the issuer's public float as 
well as annual revenues. Revenues of the combined company may be more 
relevant to smaller reporting company status than public float because, 
generally, the target company has generated revenue while the SPAC has 
not done so. Accordingly, the revenue test may be the more 
determinative factor than the public float test in determining whether 
the combined company following de-SPAC transaction remains a smaller 
reporting company because, based on staff experience, the public float 
of most SPACs and subsequent combined companies typically is between 
$250

[[Page 29544]]

and $700 million, which exceeds the public float threshold for smaller 
reporting company status. Also, the public float component of this test 
is measured as of the last business day of the issuer's most recently 
completed second fiscal quarter. Given that the public float re-
measurement likely would not occur at the end of the second fiscal 
quarter when the annual public float measurement occurs, the combined 
company may have to measure its public float more than one time during 
the same fiscal year, which may impose additional burdens for the 
company.
    However, compared to public float, revenue, if used as a sole basis 
of the significance test, may be subject to a greater degree of 
managerial discretion.\562\ Also, using revenue alone may expose a 
large number of investors to business-specific risks because SPAC 
targets may represent nascent industries that could feature extended 
pre- or low-revenue periods but, as indicated above, may have a public 
float following a de-SPAC transaction that would exceed the threshold 
for smaller reporting company status. Thus, we believe it is 
appropriate that these companies should take the public float into 
account in re-determining smaller reporting company status following 
the consummation of a de-SPAC transaction.
---------------------------------------------------------------------------

    \562\ See Jenny Zha Giedt, Modelling Receivables and Deferred 
Revenues to Detect Revenue Management, 54 (2) Abacus 181, 181-209 
(2018) (focusing on the SEC Accounting and Auditing Enforcement 
Releases, i.e., AAER, from 1982 to 2016, and documenting that forty-
seven percent of all financial misstatements are related to 
revenue).
---------------------------------------------------------------------------

e. Structured Data Requirement
    We could change the scope of the proposed Inline XBRL tagging 
requirements for the proposed SPAC disclosures, such as by excluding 
certain subsets of registrants or disclosures. For example, the tagging 
requirements could exclude the SPAC initial public offering 
disclosures. Under such an alternative, SPACs would submit initial 
public offering disclosures in unstructured HTML or ASCII and would not 
incur Inline XBRL compliance costs until their first periodic filing on 
Form 10-Q, 20-F, or 40-F.\563\ This could make it incrementally easier 
for SPACs to consummate an initial public offering. However, narrowing 
the scope of the proposed tagging requirements, whether based on 
filing, offering size, or other criteria, would diminish the extent of 
any informational benefits that would accrue as a result of the 
proposed disclosure requirements by making the excluded disclosures 
comparatively costlier to process and analyze.
---------------------------------------------------------------------------

    \563\ The Commission's EDGAR electronic filing system generally 
requires filers to use ASCII or HTML for their document submissions, 
subject to certain exceptions. See EDGAR Filer Manual (Volume II) 
version 61 (Mar. 2022), at 5-1; 17 CFR 232.301 (incorporating EDGAR 
Filer Manual into Regulation S-T). See also 17 CFR 232.101 (setting 
forth the obligation to file electronically on EDGAR).
---------------------------------------------------------------------------

    As another alternative, we could require only the quantitative 
SPAC-related disclosures to be tagged in Inline XBRL. Excluding 
qualitative disclosures from the tagging requirements could provide 
some incremental cost savings for registrants compared to the proposal, 
because incrementally less time would be required to select and review 
the particular tags to apply to quantitative disclosures. However, we 
expect these incremental cost savings would be low, because SPACs would 
be subject to similar Inline XBRL requirements, including requirements 
to tag quantitative and qualitative disclosures, in other Commission 
filings.\564\ Moreover, narrowing the scope of tagging requirements to 
exclude qualitative information would diminish the extent of 
informational benefits that would accrue to investors by inhibiting the 
efficient extraction and searching of narrative SPAC-related 
disclosures (e.g., disclosures regarding conflicts of interest, 
fairness determinations, and financial projections), thus creating the 
need to manually review search results drawn from entire documents to 
find these disclosures.\565\ Such an alternative would also inhibit the 
automatic comparison of narrative disclosures against prior periods. It 
also may be harder for investors to perform a targeted assessment of a 
filing for particular types of narrative SPAC-related disclosures 
because they would need to assess the entire filing for relevant 
information.
---------------------------------------------------------------------------

    \564\ See supra Section IX.C.1.a.5.
    \565\ To illustrate, without Inline XBRL, using a search string 
such as ``dilution'' to search through the text of all de-SPAC 
filings, so as to determine the extent to which dilutive effects are 
among the material factors being considered by SPACs at arriving at 
fairness determinations, could return many narrative disclosures 
outside of the fairness determination disclosure that would be 
required by proposed Item 1606(b) of Regulation S-K, such as 
disclosures in the risk factors section or in the description of 
stock incentive plans. However, if Inline XBRL is used, it would 
enable a user to search for the term ``dilution'' exclusively within 
the proposed fairness determination disclosure, thereby likely 
reducing the number of irrelevant results.
---------------------------------------------------------------------------

2. Liability-Related Proposals
a. PSLRA Safe Harbor
    As an alternative to addressing the use of projections in de-SPAC 
transactions and other business combinations involving blank check 
companies that are not penny stock issuers by proposing to amend the 
``blank check company'' definition, we could have issued interpretive 
guidance stating that the PSLRA safe harbor for forward-looking 
statements is not available because business combinations with shell 
companies that are not penny stock issuers are ``initial public 
offerings'' by target private operating companies for purposes of the 
PSLRA. This alternative would avoid some of the complexity associated 
with defining blank check companies for purposes of the PSLRA, but 
issuing guidance rather than a rule may result in weaker incentives for 
SPACs or target companies to take greater care in preparing forward-
looking statements, such as projections, in de-SPAC transactions and 
thus result in fewer investor protection benefits than the proposed 
rule.
b. Issuing Guidance on Underwriter Status
    Instead of proposing Rule 140a, the Commission could issue guidance 
that would describe the factors that should be considered in 
determining underwriter status in connection with de-SPAC transactions, 
which could potentially be relevant for parties other than SPAC IPO 
underwriters. Issuing guidance rather than designating an underwriter 
by rule within the context of these transactions might prompt the full 
range of parties involved in facilitating de-SPAC transactions to 
consider their potential liability and thus take greater care in 
performing their designated functions. This could result in more robust 
investor protections overall. On the other hand, compared to the 
proposed rule, this alternative would rely on the judgment of de-SPAC 
participants to apply the guidance and may result in weaker incentives 
for those parties that are potentially subject to Section 11 liability 
to perform robust due diligence. As a result of such weaker incentives, 
there could be a reduced impact on the accuracy of the disclosure in 
de-SPAC transactions and investor protection benefits.
3. Expanding Disclosure in Reporting Shell Company Business 
Combinations
    Proposed Rule 145a would deem any business combination of a 
reporting shell company (that is not a business combination-related 
shell company) involving another entity that is not a shell company to 
involve a sale of securities to the reporting shell company's 
shareholders. As an alternative, instead of deeming all such 
transactions to be a sale that would need

[[Page 29545]]

to be registered under the Securities Act, absent an applicable 
exemption, we could expand the disclosure requirements applicable to 
reporting shell company business combinations such that the disclosure 
requirements would be the same as what would have been required if the 
transaction was registered under the Securities Act. Under this 
alternative, regardless of the document that is filed with the 
Commission (e.g., proxy or information statement, Schedule TO, or Form 
8-K), the set of disclosures investors receive would be the same as 
they would receive had a registration statement been filed for the 
transaction. This would ensure that the reporting shell company's 
shareholders receive the same information regardless of how the 
transaction is structured and would reduce regulatory arbitrage 
opportunities stemming from different disclosure requirements in 
different documents that may be filed with the Commission to report a 
shell company business combination. As a registration statement would 
not necessarily be required in all transaction structures, the costs of 
such an alternative would also be less that the costs of liability 
associated with the purchase and sale of securities and potential 
Securities Act registration of shell company business combinations 
under proposed Rule 145a, to the extent no exemption is available for 
the transaction.
    However, merely expanding the set of disclosures investors receive 
regardless of transaction structure does not provide investors with the 
same level of protection because the liability standards differ based 
on the type of filing that is required. Only by deeming the transaction 
to be a sale would investors necessarily receive the protections that 
apply in connection with a purchase and sale of securities under the 
federal securities laws, such as the availability of private actions 
under Section 10(b) and Rule 10b-5. In addition, to the extent there is 
not an available exemption for the reporting shell company business 
combination, only with Securities Act registration do investors receive 
the full panoply of available protections under that Act that they 
would receive in a traditional IPO, such as a private right of action 
under Section 11.
4. Enhanced Projections Disclosures
    The proposed amendments to Item 10(b) of Regulation S-K present our 
updated views on projected performance measures and include a statement 
that projections based on a non-GAAP financial measure should include a 
clear definition or explanation of the non-GAAP measure, and a 
description of the GAAP financial measure to which it is most closely 
related. As an alternative to this guidance, we could adopt a rule 
requiring firms, when providing projections, to present a 
reconciliation of projections based on a non-GAAP measure to those 
based on the nearest GAAP measure. While the reconciliation would 
further help investors understand the bases of projections involving 
non-GAAP measures, it would likely also increase compliance costs and 
in turn might reduce the provision of otherwise useful projections.
5. Investment Company Act Safe Harbor
a. Shorter Duration Limitations
    As an alternative, we considered shorter duration limitations by 
instead requiring a SPAC to announce a transaction no later than 12-
months from the IPO registration date, and to complete a de-SPAC 
transaction or liquidate the SPAC no later than 18-months after the IPO 
registrations date. The benefit of this alternative is that it would 
further decrease the possibility of regulatory arbitrage. It would also 
reduce the risk that investors may come to view a SPAC holding 
securities as a fund-like investment, and the related risk of investor 
protection concerns. We expect this alternative would impose the same 
type of costs we discussed above for the proposed duration conditions, 
but at a greater magnitude. Based on a sample of SPACs with effective 
IPO dates from January 1, 2016 to June 30, 2020 (i.e., a sample of 
SPACs with at least an 18-month history since the IPO date as of 
December 31, 2021; 189 SPACs in total), we find that approximately 36% 
of the SPACs in the sample announced a transaction agreement no later 
than 12-months after the date of the initial public offering and 40% of 
the SPACs had completed a de-SPAC transaction no later than 18-months 
after the date of the initial public offering. The proportion of SPACs 
in the sample that both announced a de-SPAC transaction by 12-months 
and completed the de-SPAC transaction by 18-months was approximately 
33%, which is a significantly lower proportion compared to 57% of 
sample SPACs that would have managed to meet both of the proposed 
duration conditions, as discussed above. Thus, we expect that costs 
would be greater under this alternative by forcing a greater proportion 
of SPACs to conclude their search for a target or liquidate earlier 
than they may otherwise do. In addition, because of the tighter 
deadlines this alternative would impose, those SPACs that would be at 
risk of not being able to meet the proposed longer duration conditions 
would likely be at comparatively greater risk of not meeting the 
deadlines under this alternative, which may also increase the costs 
such SPACs would face in trying to meet these alternative duration 
conditions.
b. No Announcement Condition
    We also considered an alternative that would keep the 24-month 
condition for completion of a de-SPAC transaction, but remove the 
duration condition for the announcement of a transaction. This 
alternative would increase the proportion of SPACs meeting the duration 
condition to 65% compared to 57% under the proposal. The benefit of 
this alternative would thus be to increase the proportion of SPACs not 
having to potentially sub-optimally come to a merger agreement earlier 
(or, in some circumstances, potentially inefficiently liquidating the 
SPAC), while still imposing a firm 24-month maximum lifespan for SPACs 
seeking to take advantage of the proposed safe harbor. However, by not 
imposing an 18-month announcement condition investors would lose any 
investor protection benefits that may be associated with an earlier 
signal of a SPAC's intent to complete a de-SPAC transaction than they 
might receive under this alternative.
c. Longer Duration Limitations
    As an alternative, we could require a longer duration before a SPAC 
would have to complete a de-SPAC transaction. For example, if we 
increase this duration to no later than 36 months after the IPO date 
(with no announcement condition), less than 4% of the sample SPACs that 
completed a de-SPAC transition would not have met such a condition. As 
discussed above, the national securities exchanges already require 
SPACs to complete a de-SPAC transaction within 36 months (or 3 years). 
Thus, based on both the recent evidence and the current exchange rules 
for SPACs, we expect that this alternative would not impose the 
potential costs of a truncated search period for a target company for 
most SPACs, in particular SPACs with exchange-traded securities. 
However, as discussed above, the longer the SPAC operates with its 
assets invested in securities and its income derived from securities, 
the more likely investors will come to view the SPAC as a fund-like 
investment and the more likely the SPAC appears to be deviating from 
its

[[Page 29546]]

stated business purpose. In turn, this may raise investor protection 
concerns and increase the possibility of regulatory arbitrage compared 
to the proposed duration conditions.

F. Requests for Comment

    155. Because of the potential for one or more of the proposed 
amendments to have interactive effects, we are requesting public input 
on the extent to which such interactive effects are likely to conflict 
with the overall aims of this rulemaking, if adopted as proposed.
    156. Have we correctly characterized the benefits and costs from 
the proposed new disclosure requirements at the SPAC IPO stage? Are 
there any other benefits or costs that should be considered? Please 
provide supportive data to the extent available.
    157. Our analysis suggests the proposed rules and amendments would 
generally strengthen the investor protection in SPAC transactions at 
the initial public offering stage. Are there any significant costs or 
benefits associated with adopting these rules and amendments that we 
have not considered that would lead to a different characterization? 
Please provide supportive data to the extent available.
    158. Have we correctly characterized the benefits and costs from 
the proposed new disclosure requirements at the de-SPAC transaction 
stage and the alignment of disclosure requirements in the de-SPAC 
disclosure documents with IPOs? Are there any other benefits or costs 
that should be considered? Please provide supportive data to the extent 
available.
    159. Our analysis suggests the proposed rules and amendments would 
generally strengthen investor protection in de-SPAC transactions. Are 
there any significant costs or benefits associated with adopting these 
rules and amendments that we have not considered that would lead to a 
different characterization? Please provide supportive data to the 
extent available.
    160. Have we correctly characterized the benefits and costs from 
proposed Item 1608 holding all other aspects of the proposed amendments 
constant? Have we correctly characterized the benefits and costs that 
would accrue given the potential interactive effects with proposed Rule 
145a? Are there other interactive effects with respect to other 
proposed items that, had we considered, would substantially alter our 
assessment of the associated costs, benefit, or anticipated effects on 
efficiency, competition, or capital formation?
    161. Have we correctly characterized the benefits and costs from 
the proposed amendments to the enhanced projections disclosure 
requirements (Item 1609 of Regulation S-K)? Are there any other 
benefits and costs that should be considered? Please provide supportive 
data to the extent available.
    162. Would the effects of the proposed amendments related to the 
PSLRA safe harbor have significant interactive effects with proposed 
Item 1609 of Regulation S-K such that our estimates of the incremental 
costs and benefits of adopting Item 1609 should be revised? Please 
provide either qualitative or quantitative data to the extent 
available.
    163. How, and to what extent, would investors benefit from the 
proposed requirement to tag the SPAC specialized disclosures in Inline 
XBRL? What would be the costs of the proposed requirement to 
registrants? Should we consider alternative tagging requirements for 
the proposed SPAC disclosures? If so, what would be their benefits and 
costs?
    164. Have we correctly characterized the benefits and costs from 
the proposed re-determination of smaller reporting company status? Are 
there any other benefits and costs that should be considered? Please 
provide supportive data to the extent available.
    165. For the re-determination of a post-business combination 
company's smaller reporting company status, what would be the benefits 
and costs of requiring a fixed date to measure public float? If the 
benefits outweigh the costs of requiring a fixed date, do the relative 
benefits and costs of different possible fixed dates indicate that one 
approach would be preferential?
    166. What would be the costs and benefits of relying solely on 
revenues to re-determine a post-business combination company's smaller 
reporting company status rather than including the public float?
    167. Have we correctly characterized the benefits and costs from 
the proposal to require target companies to be co-registrants to Form 
S-4 and F-4? Are there any other benefits and costs that should be 
considered? Please provide supportive data to the extent available.
    168. Would the relative benefits and costs associated with the 
proposed amendments related to de-SPAC-transaction disclosures and 
liability have additional effects on the calculus of pursuing a de-SPAC 
business combination versus a traditional IPO that we have not 
considered? In terms of the market choice to utilize a de-SPAC 
transaction versus a traditional IPO, would the change in relative 
benefits and costs associated with the proposed rules and amendments be 
beneficial or detrimental in terms of their effects on efficiency, 
competition and capital formation? Please provide supportive evidence 
or data to the extent available.
    169. Have we correctly characterized the benefits and costs from 
the proposed amendments related to the PSLRA safe harbor? Are there any 
other benefits and costs that should be considered? Please provide 
supportive data to the extent available.
    170. With respect to the proposed changes to the definition of 
``blank check company'' for purposes of the PSLRA safe harbor, are 
there any additional benefits and costs that would apply primarily to 
blank check companies that are not penny stock issuers and not SPACs? 
Please provide supportive data to the extent available.
    171. Have we correctly characterized the benefits and costs of the 
underwriter status and liability proposals? Are there any other 
benefits and costs for SPACs, SPAC IPO underwriters, target companies 
and investors that should be considered? Please provide supportive data 
to the extent available.
    172. Have we correctly characterized the scope and scale of both 
SPAC and non-SPAC shell companies that would be affected by proposed 
Rule 145a? Please provide data or analysis to the extent available.
    173. Have we correctly characterized the benefits and costs of 
proposed Rule 145a? Are there any other benefits and costs that should 
be considered? Are there any additional benefits and costs that would 
apply primarily to non-SPAC shell companies that are not business-
combination related shell companies? Please provide supportive data to 
the extent available.
    174. As noted above, we are unable to estimate the number of shell 
companies that are currently private that could be impacted by proposed 
Article 15 of Regulation S-X. We request data on the number of these 
entities that may be impacted by the proposed rule. Would analysis of 
the economic effects on these currently private entities broadly impact 
the balance of costs and benefits to adopting Article 15 of Regulation 
S-X as proposed?
    175. Have we correctly characterized the benefits and costs of 
proposed new Article 15 of Regulation S-X and the related proposed 
amendments? Are there any other benefits and costs that should be 
considered? Please provide supportive data to the extent available.
    176. Have we correctly characterized the benefits and costs to 
proposed Rule 15-01(b)? Are there additional costs,

[[Page 29547]]

particularly to investors, of permitting a shell company registrant to 
include in its Form S-4/F-4/proxy or information statement two (rather 
than three) years of statements of comprehensive income, changes in 
stockholders' equity, and cash flows for the private operating company 
for all transactions involving an EGC shell company and a private 
operating company that would qualify as an EGC that would affect our 
assessment of the likely effects of this proposed rule on investor 
protection?
    177. Have we correctly characterized the benefits and costs of the 
enhanced projection guidance (amendments to Item 10(b) of Regulation S-
K)? Are there any other benefits and costs that should be considered? 
Please provide supportive data to the extent available.
    178. Have we correctly characterized the benefits and costs of the 
proposed Investment Company Act safe harbor? Are there any other 
benefits and costs that should be considered? Please provide supportive 
data to the extent available.
    179. Is it feasible for SPACs to hold most of their assets in cash 
accounts rather than Government securities or Government money market 
funds? What would be the costs to SPACs of holding their assets in 
cash? How costly would it be for SPACs that are currently invested in 
Government securities or Government funds to switch to cash? Please 
provide supportive data or estimates to the extent available.
    180. Have we correctly characterized the effects on efficiency, 
competition and capital formation from the proposed rules and 
amendments? Are there any effects that should be considered? Please 
provide supportive data to the extent available.

X. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules, schedules, and forms that would be 
affected by the proposed new rules and amendments contain ``collection 
of information'' requirements within the meaning of the PRA.\566\ We 
are submitting the proposed new rules and amendments to the Office of 
Management and Budget (``OMB'') for review and approval in accordance 
with the PRA and its implementing regulations.\567\ The hours and costs 
associated with preparing, filing and sending the schedules and forms, 
and retaining records constitute reporting and cost burdens imposed by 
each collection of information.\568\ An agency may not conduct or 
sponsor, and a person is not required to comply with, a collection of 
information requirement unless it displays a currently valid OMB 
control number. The titles for the collections of information are:
---------------------------------------------------------------------------

    \566\ 44 U.S.C. 3501 et seq.
    \567\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \568\ The paperwork burdens for Regulation S-X, Regulation S-K, 
Regulation C, Regulation 12B, and Regulation S-T are imposed through 
the forms, schedules and reports that are subject to the 
requirements in these regulations and are reflected in the analysis 
of those documents.
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     Regulation 14A (Commission Rules 14a-1 through 14a-21 and 
Schedule 14A) (OMB Control No. 3235-0059);
     Regulation 14C (Commission Rules 14c-1 through 14c-7 and 
Schedule 14C) (OMB Control No. 3235-0057);
     Schedule TO (OMB Control No. 3235-0515);
     Form S-1 (OMB Control No. 3235-0065);
     Form S-4 (OMB Control No. 3235-0324);
     Form F-1 (OMB Control No. 3235-0258);
     Form F-4 (OMB Control No. 3235-0325);
     Form 10-K (OMB Control No. 3235-0063);
     Form 10-Q (OMB Control No. 3235-0070); and
     Rule 3a-10 under the Investment Company Act (a proposed 
new collection of information).\569\
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    \569\ We estimate that there would be a negligible or no change 
in burden to Form 20-F and Form 8-K as a result of the proposed 
amendments to Regulation S-X, in that these proposed amendments 
would be codifying existing interpretations of existing rules. 
Accordingly, we are not making any revisions to the PRA burden 
estimates for Form 20-F and Form 8-K at this time.
---------------------------------------------------------------------------

    The forms, schedules, and regulations listed above were adopted 
under the Securities Act, the Exchange Act, and/or the Investment 
Company Act. These regulations, schedules, and forms set forth the 
disclosure requirements for registration statements, annual and 
quarterly reports, current reports, proxy and information statements, 
and tender offer statements filed by registrants to provide investors 
with information to make informed investment, voting, and redemption 
decisions. In addition, we are proposing a new requirement that certain 
entities adopt a board resolution in order to rely on the safe harbor 
provided by proposed Rule 3a-10 of the Investment Company Act. 
Compliance with these information collections is mandatory to the 
extent applicable to each registrant.\570\ Other than the proposed new 
collection of information (Rule 3a-10 under the Investment Company 
Act), responses to these information collections are not kept 
confidential, and there is no mandatory retention period for the 
information disclosed. Responses to the information collection under 
the Investment Company Act are kept confidential, subject to the 
provisions of applicable law.
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    \570\ Registrants claiming smaller reporting company status have 
the option to comply with the scaled disclosures available to them 
on an item-by-item basis. In addition, if an entity determines not 
to rely on the safe harbor provided in Rule 3a-10 of the Investment 
Company Act, it would not be required to adopt the board resolution 
contemplated in that proposed rule.
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    A description of the proposed new rules and amendments, including 
the need for the information and its use, as well as a description of 
the likely respondents, can be found in Sections II through VI above, 
and a discussion of the economic effects of the proposed new rules and 
amendments can be found in Section IX above.

B. Estimates of the Effects of the Proposed New Rules and Amendments on 
the Collections of Information

    The following Table 1 summarizes the estimated effects of the 
proposed new rules and amendments on the paperwork burdens associated 
with the affected forms and schedules.
BILLING CODE 8011-01-P

[[Page 29548]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.015


[[Page 29549]]


[GRAPHIC] [TIFF OMITTED] TP13MY22.016


[[Page 29550]]


[GRAPHIC] [TIFF OMITTED] TP13MY22.017


[[Page 29551]]


[GRAPHIC] [TIFF OMITTED] TP13MY22.018

    In addition, we are proposing to require that a post-business 
combination company re-determine whether it is a smaller reporting 
company (SRC) following a de-SPAC transaction. As proposed, the post-
business combination company would be required to reflect this re-
determination in its first periodic report after the de-SPAC 
transaction and in Commission filings thereafter until its next annual 
re-determination of SRC status. We estimate that the proposed re-
determination of SRC status would result in increased burdens in filing 
Forms 10-K, Forms 10-Q, Schedules 14A, Schedules 14C, and Forms S-1 for 
those post-business combination companies that would lose SRC status, 
which takes into account the increased incremental burden in providing 
disclosures pursuant to non-SRC disclosure requirements. The following 
Table 2 sets forth our estimates regarding the increase in compliance 
burden when a post-business combination company loses SRC status:

[[Page 29552]]

[GRAPHIC] [TIFF OMITTED] TP13MY22.019

C. Incremental and Aggregate Burden and Cost Estimates

    We estimate below the incremental and aggregate increase in 
paperwork burden as a result of the proposed new rules and amendments. 
These estimates represent the average burden for all respondents, both 
large and small. In deriving our estimates, we recognize that the 
burdens will likely vary among individual respondents based on a number 
of factors, including the size and complexity of their business. These 
estimates include the time and the cost of preparing and reviewing 
disclosure, filing documents, and retaining records. We believe that 
some registrants will experience costs in excess of this average and 
some registrants will experience less than the average costs. Our 
methodologies for deriving these estimates are discussed below.
    Our estimates represent the burden for all SPACs that file 
registration statements with the Commission for registered offerings 
and all registrants that file disclosure documents in connection with a 
de-SPAC transaction or a business combination involving a shell company 
or a reporting shell company.\571\ Additionally, our estimates take 
into account an expected increase in the number of Securities Act 
registration statements as a result of proposed Rule 145a. Based on a 
review of Commission filings during the period 2011-2021 and an 
analysis of the effects of the proposed new rules and amendments,\572\ 
the staff estimates that:
---------------------------------------------------------------------------

    \571\ Throughout this release and as stated earlier, we use 
``shell company'' and ``reporting shell company'' in lieu of the 
phrases ``shell company, other than a business combination related 
shell company'' and ``reporting shell company, other than a business 
combination related shell company.''
    \572\ We based our estimates, in part, on a review of Commission 
filings over a 10-year period because we believe that this longer 
timeframe would more accurately reflect the average number of 
registration statements filed by SPACs and disclosure documents for 
de-SPAC transactions in a given year.
---------------------------------------------------------------------------

     SPACs will file an average of 90 registration statements 
each year for registered offerings on Form S-1 and 8 registration 
statements on Form F-1, other than for de-SPAC transactions;
     An average of 30 registration statements on Form S-4 and 4 
registration statements on Form F-4, 30 definitive proxy statements on 
Schedule 14A, 4 definitive information statements on Schedule 14C, and 
2 tender offer statements on Schedule TO will be filed each year in 
connection with de-SPAC transactions; and
     An average of 20 registration statements on Form S-4 and 2 
registration statements on Form F-4 will be filed each year for 
business combination transactions involving a reporting shell company 
and a non-shell company, other than de-SPAC transactions.\573\
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    \573\ This estimate represents the upper bound of the estimated 
number of Forms S-4 and F-4 filed for these transactions.

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[[Page 29553]]

    For purposes of the PRA, the burden is allocated between internal 
burden hours and outside professional costs. The portion of the burden 
carried by outside professionals is reflected as a cost, while the 
portion of the burden carried by the company internally is reflected in 
hours. The following Table 3 sets forth the percentage estimates we use 
for the burden allocation for each form and schedule, consistent with 
current OMB estimates and recent Commission rulemakings. We estimate 
that the average cost of retaining outside professionals is $400 per 
hour.\574\
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    \574\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis, we estimate that 
such costs would be an average of $400 per hour. This is the rate we 
typically estimate for outside legal services used in connection 
with public company reporting.
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BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TP13MY22.020


[[Page 29554]]


    The following Table 4 summarizes the estimated effects of the 
proposed new rules and amendments, other than Rule 145a, on the 
paperwork burdens associated with the affected forms, schedules, and 
records:
[GRAPHIC] [TIFF OMITTED] TP13MY22.021


[[Page 29555]]


    The following Table 5 summarizes the estimated effects of proposed 
Rule 145a on the paperwork burdens associated with the affected forms:
[GRAPHIC] [TIFF OMITTED] TP13MY22.022

    In addition, we estimate that an average of 50 fewer post-business 
combination companies following a de-SPAC transaction will qualify as 
smaller reporting companies than under the current rules until the next 
annual re-determination date.\575\ While we cannot predict with 
certainty the number of these post-business combination companies, we 
estimate for purposes of our PRA calculations that currently all post-
business combination companies qualify as SRCs following de-SPAC 
transactions in which the SPAC is the legal acquirer and that 80% of 
these companies that are eligible to use the scaled SRC disclosure 
provisions do so.\576\ We estimate that these registrants would file, 
on average, one Form 10-K, 1.5 Forms 10-Q, one Schedule 14A, and one 
registration statement on Form S-1 prior to the next re-determination 
of SRC status.
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    \575\ This estimate is based, in part, on our estimate of the 
number of de-SPAC transactions in which the SPAC is the legal 
acquirer.
    \576\ This estimated realization rate is based on the same 
methodology and data set forth in Release No. 33-10513, Section V.D. 
Though the estimated realization rate in Release No. 33-10513 
preceded the effective date of the amendments to the smaller 
reporting company definition in 2018, we expect that the current 
realization rate for eligible companies using the scaled SRC 
disclosure provisions to be generally consistent with the estimated 
realization rate in 2018.

---------------------------------------------------------------------------

[[Page 29556]]

    The following Table 6 summarizes the estimated effects of the 
proposed re-determination of SRC status on the paperwork burdens 
associated with the affected forms and schedules:
[GRAPHIC] [TIFF OMITTED] TP13MY22.023


[[Page 29557]]


    The following Table 7 summarizes the requested paperwork burden 
changes to existing information collections, including the estimated 
total reporting burdens and costs, under the proposed new rules and 
amendments.
[GRAPHIC] [TIFF OMITTED] TP13MY22.024

BILLING CODE 8011-01-C

D. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order 
to:
     Evaluate whether the proposed changes to the collections 
of information are necessary for the proper performance of the 
functions of the Commission, including whether the information will 
have practical utility;
     Evaluate the accuracy of our estimates of the additional 
burden hours that would result from adoption of the proposed new rules 
and amendments;
     Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of 
the collections of information on those who respond, including through 
the use of automated collection techniques or other forms of 
information technology; and
     Evaluate whether the proposed new rules and amendments 
would have any effects on any other collection of information not 
previously identified in this section.
    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons submitting comments on the collection of 
information requirements should direct their comments to the Office of 
Management and Budget, Attention: Desk Officer for the U.S. Securities 
and Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and send a copy to, Vanessa A. Countryman, 
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090, with reference to File No. S7-13-22. 
Requests for materials submitted to OMB by the Commission with regard 
to the collection of information should be in writing, refer to File 
No. S7-13-22 and be submitted to the U.S. Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736. OMB is required to make a decision concerning the 
collections of information between 30 and 60 days after publication of 
this release. Consequently, a comment to OMB is best assured of having 
its full effect if the OMB receives it within 30 days of publication.

XI. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\577\ the Commission must advise the OMB as to 
whether a proposed regulation constitutes a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results or 
is likely to result in:
---------------------------------------------------------------------------

    \577\ Public Law 104-121, Tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.


[[Page 29558]]


If a rule is ``major,'' its effectiveness will generally be delayed for 
60 days pending Congressional review.
    We request comment on whether our proposed amendments would be a 
``major rule'' for purposes of SBREFA. We solicit comment and empirical 
data on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment or 
innovation.

We request those submitting comments to provide empirical data and 
other factual support for their views to the extent possible.

XII. Initial Regulatory Flexibility Analysis and Certification

    The Regulatory Flexibility Act \578\ requires an agency, when 
issuing a rulemaking proposal, to prepare and make available for public 
comment an Initial Regulatory Flexibility Analysis (``IRFA'') that 
describes the impact of the proposed rule on small entities, unless the 
Commission certifies that the rule, if adopted, would not have a 
significant economic impact on a substantial number of small 
entities.\579\ This IRFA has been prepared in accordance with the 
Regulatory Flexibility Act. It relates to the proposed new rules and 
amendments described in Sections II through VI above.
---------------------------------------------------------------------------

    \578\ 5 U.S.C. 601 et seq.
    \579\ 5 U.S.C. 603(a); 5 U.S.C. 605(b).
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

    As discussed throughout the release, we are proposing new Subpart 
1600 of Regulation S-K and amendments to existing forms and schedules 
to require specialized disclosures in registered offerings by SPACs, 
including initial public offerings, and in disclosure documents for de-
SPAC transactions with respect to, among other things, compensation 
paid to sponsors, conflicts of interest, and dilution. For de-SPAC 
transactions, we are also proposing to require disclosure of a fairness 
determination, additional disclosures on the target private operating 
company, a re-determination of smaller reporting company status 
following the completion of a de-SPAC transaction, and a minimum 
dissemination period for certain disclosure documents in these 
transactions. These proposed rules and amendments would be applicable 
to, depending on the circumstances, registration statements on Forms S-
1, F-1, S-4 and F-4 filed under the Securities Act and Schedules 14A, 
14C and TO under the Exchange Act. The proposed rules would also 
clarify the underwriter status of SPAC IPO underwriters in connection 
with de-SPAC transactions and would require that the target company be 
named as a co-registrant in a Form S-4 or F-4 filed by a SPAC for a de-
SPAC transaction. Further, we are proposing to amend the definition of 
``blank check company'' for purposes of the PSLRA such that the safe 
harbor under the PSLRA for forward-looking information would not be 
available to SPACs and certain other blank check companies; to update 
and expand our guidance in Item 10(b) of Regulation S-K regarding the 
use of projections in Commission filings; \580\ and to require 
additional disclosure when projections are disclosed in connection with 
de-SPAC transactions.
---------------------------------------------------------------------------

    \580\ Item 10(b) sets forth guidelines representing the 
Commission's views on important factors to be considered in 
formulating and disclosing management's projections of future 
economic performance in Commission filings.
---------------------------------------------------------------------------

    In regard to business combination transactions involving a 
reporting shell company,\581\ we are proposing Securities Act Rule 145a 
to deem these transactions with a non-shell company to involve a sale 
of securities to the shell company's shareholders. In addition, we are 
proposing amendments to the financial statement reporting requirements 
for transactions involving shell companies in Regulation S-X. Finally, 
we are proposing a new safe harbor, Rule 3a-10, under the Investment 
Company Act that would provide that a SPAC that satisfies the 
conditions of the safe harbor would not be an investment company and 
therefore would not be subject to regulation as an investment company 
under the Investment Company Act.
---------------------------------------------------------------------------

    \581\ Throughout this release and as stated earlier, we use 
``shell company'' and ``reporting shell company'' in lieu of the 
phrases ``shell company, other than a business combination related 
shell company'' and ``reporting shell company, other than a business 
combination related shell company.''
---------------------------------------------------------------------------

    The need for and objectives of the proposed rules and amendments 
are discussed in more detail in Sections II-VI above. We discuss the 
economic impact, including the estimated costs and burdens, of the 
proposed rules and amendments on all registrants, including small 
entities, in Sections IX and X above.

B. Legal Basis

    We are proposing the new rules and rule amendments under the 
authority set forth in Sections 6, 7, 10, 19(a), and 28 of the 
Securities Act; Sections 3, 12, 13, 14, 15, 23(a), and 36 of the 
Exchange Act; and Sections 6(c) and 38(a) of the Investment Company 
Act.

C. Regulatory Flexibility Act Certification

    Pursuant to Section 605(b) of the Regulatory Flexibility Act, the 
Commission hereby certifies that proposed Rule 3a-10 under the 
Investment Company Act would not, if adopted, have a significant 
economic impact on a substantial number of small entities.\582\ Based 
on information available to the Commission, there were 861 initial 
public offerings conducted by SPACs in 2020 and 2021, of which 6 were 
for SPACs that sold $50 million or less in units.\583\ As a result, we 
believe that approximately 0.7% of SPACs directly affected by proposed 
Rule 3a-10 would be small entities.\584\ Accordingly, the Commission 
believes that proposed Rule 3a-10 would not, if adopted, have a 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \582\ The definition of ``small entity'' is set forth in Section 
XII.D below.
    \583\ Based on data from Dealogic M&A module as of Jan. 2022.
    \584\ While no SPAC would be required to rely on proposed Rule 
3a-10, for purposes of this analysis, we assume that all SPACs 
conducting an initial public offering subsequent to adoption of the 
proposed rule would rely on proposed Rule 3a-10.
---------------------------------------------------------------------------

D. Small Entities Subject to the Proposed Rules and Amendments

    The proposed rules and amendments would apply to registrants that 
are small entities. The Regulatory Flexibility Act defines ``small 
entity'' to mean ``small business,'' ``small organization,'' or ``small 
governmental jurisdiction.'' \585\ 17 CFR 230.157 (Securities Act Rule 
157) defines an issuer, other than an investment company, to be a 
``small business'' or ``small organization'' for purposes of the 
Regulatory Flexibility Act if it had total assets of $5 million or less 
on the last day of its most recent fiscal year and is engaged or 
proposing to engage in an offering of securities not exceeding $5 
million. 17 CFR 240.0-10(a) (Exchange Act Rule 0-10(a)) defines an 
issuer, other than an investment company, to be a ``small business'' or 
``small organization'' if it had total assets of $5 million or less on 
the last day of its most recent fiscal year. An investment company is a 
small entity if, together with other investment companies in the same 
group of related investment companies, it has net assets of $50 million 
or less as of the end of its most recent fiscal year.\586\
---------------------------------------------------------------------------

    \585\ 5 U.S.C. 601(6).
    \586\ See 17 CFR 270.0-10(a).

---------------------------------------------------------------------------

[[Page 29559]]

    The proposed specialized disclosure and other requirements 
applicable to SPACs would not apply to issuers that raise less than $5 
million at the time of their initial public offerings.\587\ However, we 
acknowledge that there may be instances where a SPAC may be a small 
entity at the time of a subsequent registered offering or at the time 
of a de-SPAC transaction.\588\ While we are not aware to date of any 
such instances, we request comment on the number of these small 
entities. In addition, due to data limitations, we are unable to 
estimate the number of potential target private operating companies in 
de-SPAC transactions that may be small entities; \589\ therefore, we 
request comment on the number of these small entities.
---------------------------------------------------------------------------

    \587\ See supra note 12 and the discussion of the proposed 
definition of ``special purpose acquisition company'' in Section 
II.A.
    \588\ As noted above, the vast majority of initial public 
offerings by SPACs in 2020 and 2021 raised more than $50 million. In 
2020, the smallest amount raised in an initial public offering by a 
SPAC was $40 million, and, in 2021, the smallest amount raised in an 
initial public offering by a SPAC was $44 million. When viewed over 
a 10-year period, we do not expect the outcome to be different due 
to how SPACs are structured to address Rule 419. See supra note 12. 
Further, with respect to proposed Rule 140a, we do not expect any 
underwriters in SPAC initial public offerings to be small entities.
    \589\ In this regard, we note that exchange listing requirements 
and provisions in the governing instruments of many SPACs, along 
with how SPACs are structured to avoid the application of Rule 419, 
make it less likely that SPACs would merge with or acquire a small 
entity. See supra notes 12 and 13.
---------------------------------------------------------------------------

    In regard to proposed Rule 145a and the proposed amendments to 
Regulation S-X, we estimate that there are 163 reporting shell 
companies that are small entities.\590\ However, due to data 
limitations, we are unable to estimate the number of private operating 
companies and private shell companies that are small entities that may 
engage in a business combination transaction.\591\ We request comment 
on the number of these small entities.
---------------------------------------------------------------------------

    \590\ This estimate does not include business combination 
related shell companies.
    \591\ We believe that it is unlikely that a reporting company 
would engage in a business combination transaction with a shell 
company such that it would be subject to proposed Rule 145a. 
Therefore, we are not estimating the number of reporting companies 
for purposes of this analysis.
---------------------------------------------------------------------------

E. Reporting, Recordkeeping, and Other Compliance Requirements

    We expect that the proposed specialized disclosure and other 
requirements applicable to SPACs and target private operating companies 
would have an incremental effect on reporting, recordkeeping and other 
compliance burdens for registrants, including small entities. These 
proposed requirements would increase compliance costs for registrants, 
and compliance with these proposed requirements would require the use 
of professional skills, including accounting, legal, and technical 
skills. We generally expect that the nature of any benefits and costs 
associated with the proposed rules and amendments to be similar for 
large and small entities. We also anticipate that the economic benefits 
and costs likely could vary among small entities based on a number of 
factors, such as the nature and conduct of their businesses, which 
makes it difficult to project the economic impact on small entities 
with precision.\592\ The proposed rules and amendments are discussed in 
detail in Sections II-VI above. We discuss the economic effect, 
including the estimated costs and burdens, of the proposed rules and 
amendments on all registrants, including small entities, in Section IX 
above.
---------------------------------------------------------------------------

    \592\ We do not expect the proposed re-determination of smaller 
reporting company status following a de-SPAC transaction to have any 
effect on small entities because we do not expect any small entities 
to lose smaller reporting company following this re-determination, 
based on the public float and revenue thresholds in the smaller 
reporting company definition.
---------------------------------------------------------------------------

    Proposed Rule 145a, in deeming certain business combination 
transactions involving a reporting shell company to involve a sale of 
securities to the reporting shell company's shareholders, may impose 
reporting, recordkeeping, or compliance requirements and related costs 
on small entities that are reporting shell companies to the extent such 
a deemed sale of securities would require such a small entity to 
register the transaction under the Securities Act or comply with an 
exemption from registration. These costs could also include the costs 
associated with the proposed amendments to Regulation S-X, which would 
require an issuer in a business combination transaction involving a 
shell company to comply with financial statement reporting requirements 
that would align with those applicable in traditional initial public 
offerings. The proposed changes to the financial statement requirements 
would increase compliance costs for small entities when these 
transactions are registered under the Securities Act, although we do 
not expect the increase in incremental compliance costs resulting from 
the proposed amendments to be significant because the proposed 
amendments would codify existing staff guidance on financial statement 
requirements for these transactions.

F. Duplicative, Overlapping or Conflicting Federal Rules

    The proposed disclosure requirements in Subpart 1600 may partially 
duplicate and overlap with a number of existing disclosure requirements 
under Regulation S-K that are currently applicable to SPAC registered 
offerings and in de-SPAC transactions. To the extent that the 
disclosure requirements in proposed Subpart 1600 overlap with these 
existing disclosure requirements, the requirements of proposed Subpart 
1600 would be controlling. Other than these proposed disclosure 
requirements, the Commission believes that the proposed new rules and 
amendments would not duplicate, overlap or conflict with other federal 
rules.

G. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider alternatives 
that would accomplish our stated objectives, while minimizing any 
significant adverse impact on small entities. Accordingly, we 
considered several alternatives, including the following:
     Establishing different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     Clarifying, consolidating or simplifying compliance and 
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the 
requirements.
    The proposed specialized disclosure and other requirements with 
respect to SPAC registered offerings and de-SPAC transactions are 
intended to improve the usefulness and clarity of the information 
provided to investors so that they can make better informed decisions 
as to whether to purchase securities in SPAC registered offerings, or 
in secondary trading markets, and in voting, investment and redemption 
decisions in connection with de-SPAC transactions. They are also 
intended to enhance investor protections as well as provide additional 
clarity regarding the legal obligations of target companies and others 
in connection with a de-SPAC transaction. We believe that these 
proposed requirements are equally appropriate for SPACs of all sizes 
that are engaged in a registered offering and for SPACs and target 
private operating companies that are engaged in a de-SPAC transaction. 
As a result, we do not believe that it is appropriate to propose 
different compliance or reporting requirements for small entities; 
clarify, consolidate or simplify compliance and

[[Page 29560]]

reporting requirements for small entities; or to exempt small entities 
from these requirements. As noted above, in our view, a private 
operating company's method of becoming a public company should not 
negatively impact investor protection.
    With respect to using performance rather than design standards, 
these proposed requirements use primarily design standards in order to 
promote uniform compliance requirements for all registrants. Further, 
we believe that the proposed requirements would be more beneficial to 
investors if there are specific disclosure requirements that apply to 
all registrants, regardless of size, for the reasons discussed above.
    Proposed Rule 145a would deem business combinations involving a 
reporting shell company and a non-shell company to involve a sale of 
securities to the reporting shell company's shareholders. Given that 
proposed Rule 145a is intended to address potential disparities in the 
disclosure and liability protections available to reporting shell 
company shareholders, we do not believe that it is appropriate to 
propose different compliance or reporting requirements for small 
entities; clarify, consolidate or simplify compliance and reporting 
requirements for small entities; or to exempt small entities from the 
proposed rule.
    The proposed amendments to Regulation S-X would generally codify 
existing staff guidance on financial statement requirements for certain 
business combinations involving shell companies, and, based on staff 
analysis of disclosures in these transactions, we believe that most 
companies already report consistent with this staff guidance. Further, 
the amendments are not expected to have any significant adverse effect 
on small entities (and are, in fact, expected to relieve burdens for 
some of these entities). Accordingly, we do not believe that it is 
necessary to exempt small entities from all or part of the proposed 
amendments to Regulation S-X; establish different compliance or 
reporting requirements for such entities; or clarify, consolidate or 
simplify compliance and reporting requirements for small entities. 
Likewise, while we primarily use design standards to promote 
consistency, we do not believe it is necessary to use performance 
standards in connection with this aspect of the proposed rules.

H. Request for Comment

    We encourage the submission of comments with respect to any aspect 
of this IRFA and certifications. In particular, we request comments 
regarding:
     The number of small entities that may be affected by the 
proposed rules and amendments;
     The existence or nature of the potential impact of the 
proposed rules and amendments on small entities discussed in the 
analysis;
     How the proposed amendments could further lower the burden 
on small entities; and
     How to quantify the impact of the proposed rules and 
amendments.
    Commenters are asked to describe the nature of any impact and 
provide empirical data supporting the extent of the impact. Comments 
will be considered in the preparation of the Final Regulatory 
Flexibility Analysis, if the proposed rules and amendments are adopted, 
and will be placed in the same public file as comments on the proposed 
rules and amendments themselves.

Statutory Authority and Text of Proposed Rule and Form Amendments

    We are proposing the rule and form amendments contained in this 
document under the authority set forth in Sections 6, 7, 10, 19(a), and 
28 of the Securities Act; Sections 3, 12, 13, 14, 15, 23(a), and 36 of 
the Exchange Act; and Sections 6(c) and 38(a) of the Investment Company 
Act.

List of Subjects

17 CFR Parts 210

    Accountants, Accounting, Banks, Banking, Employee benefit plans, 
Holding companies, Insurance companies, Investment companies, Oil and 
gas exploration, Reporting and recordkeeping requirements, Securities, 
Utilities.

17 CFR Parts 229, 230, 232, 239, 240, and 249

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 270

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

    In accordance with the foregoing, we are proposing to amend title 
17, chapter II of the Code of Federal Regulations as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL 
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 
1934, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 
1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

0
1. The authority citation for part 210 continues to read as follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n, 
78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30, 
80a-31, 80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c), 
Pub. L. 112-106, 126 Stat. 310 (2012), unless otherwise noted.

0
2. Amend Sec.  210.1-02 by revising paragraph (d) and paragraph (w)(1) 
introductory text to read as follows:


Sec.  210.1-02   Definitions of terms used in Regulation S-X (17 CFR 
part 210).

* * * * *
    (d) Audit (or examination). The term audit (or examination), when 
used in regard to financial statements of issuers as defined by Section 
2(a)(7) of the Sarbanes-Oxley Act of 2002, means an examination of the 
financial statements by an independent accountant in accordance with 
the standards of the Public Company Accounting Oversight Board (United 
States) (``PCAOB'') for the purpose of expressing an opinion thereon. 
See Sec.  210.15-01(a) for definition of an audit when used in regard 
to financial statements of a company that will be a predecessor to an 
issuer that is a shell company (other than a business combination 
related shell company). When used in regard to financial statements of 
entities that are not issuers as defined by Section 2(a)(7) of the 
Sarbanes-Oxley Act of 2002, the term means an examination of the 
financial statements by an independent accountant in accordance with 
either the standards of the PCAOB or U.S. generally accepted auditing 
standards (``U.S. GAAS'') as specified or permitted in the regulations 
and forms applicable to those entities for the purpose of expressing an 
opinion thereon. The standards of the PCAOB and U.S. GAAS may be 
modified or supplemented by the Commission.
* * * * *
    (w) * * *
    (1) The term significant subsidiary means a subsidiary, including 
its subsidiaries, which meets any of the conditions in paragraph 
(w)(1)(i), (ii), or (iii) of this section; however if the registrant is 
a registered investment company or a business development company, the 
tested subsidiary meets any of the conditions in paragraph (w)(2) of 
this section instead of any of the conditions in this paragraph (w)(1). 
In either an acquisition by a shell company (other than a business 
combination related shell company) of a business that is not the 
predecessor or an acquisition by the shell company's predecessor, use 
the predecessor's financial statements instead of the registrant and 
the subsidiaries

[[Page 29561]]

consolidated in applying the significance tests in paragraphs 
(w)(1)(i), (ii), and (iii) of this section.
* * * * *
0
3. Amend Sec.  210.3-01 by revising paragraph (a) to read as follows:


Sec.  210.3-01   Consolidated balance sheets.

    (a) There shall be filed, for the registrant and its subsidiaries 
consolidated and for its predecessors, audited balance sheets as of the 
end of each of the two most recent fiscal years. If the registrant has 
been in existence for less than one fiscal year, there shall be filed 
an audited balance sheet as of a date within 135 days of the date of 
filing the registration statement.
* * * * *
0
4. Amend Sec.  210.3-05 by revising paragraph (b)(4)(ii) to read as 
follows:


Sec.  210.3-05   Financial statements of businesses acquired or to be 
acquired.

* * * * *
    (b) * * *
    (4) * * *
    (ii) A registrant, other than a foreign private issuer required to 
file reports on Form 6-K (Sec.  249.306 of this chapter) or a shell 
company (other than a business combination related shell company), that 
omits from its initial registration statement financial statements of a 
recently consummated business acquisition pursuant to paragraph 
(b)(4)(i) of this section must file those financial statements and any 
pro forma information specified by Sec. Sec.  210.11-01 through 210.11-
03 (Article 11) under cover of Form 8-K (Sec.  249.308 of this chapter) 
no later than 75 days after consummation of the acquisition. A shell 
company (other than a business combination related shell company) that 
acquires a business, which is not or will not be its predecessor, that 
omits from a registration statement or proxy statement the financial 
statements of that recently consummated business acquisition pursuant 
to (b)(4)(i) of this section shall refer to Sec.  210.15-01(d)(2).
* * * * *
0
5. Amend Sec.  210.3-14 by revising paragraph (b)(3)(ii) to read as 
follows:


Sec.  210.3-14   Special instructions for financial statements of real 
estate operations acquired or to be acquired.

* * * * *
    (b) * * *
    (3) * * *
    (ii) A registrant, other than a foreign private issuer required to 
file reports on Form 6-K (Sec.  249.306 of this chapter) or shell 
company (other than a business combination related shell company), that 
omits from its initial registration statement financial statements of a 
recently consummated acquisition of a real estate operation pursuant to 
paragraph (b)(3)(i) of this section must file those financial 
statements and any pro forma information specified by Sec. Sec.  
210.11-01 through 210.11-03 (Article 11) under cover of Form 8-K (Sec.  
249.308 of this chapter) no later than 75 days after consummation of 
the acquisition. A shell company (other than a business combination 
related shell company) that acquires a real estate operation, which is 
not or will not be its predecessor that omits from a registration 
statement or proxy statement the financial statements of a recently 
consummated business acquisition pursuant to (b)(4)(i) of this section 
shall refer to Sec.  210.15-01(d)(2).
* * * * *
0
6. Amend Sec.  210.8-02 by revising it to read as follows:


Sec.  210.8-02   Annual financial statements.

    Smaller reporting companies shall file an audited balance sheet for 
the registrant and for its predecessors as of the end of each of the 
most recent two fiscal years, or as of a date within 135 days if the 
issuer has existed for a period of less than one fiscal year, and 
audited statements of comprehensive income, cash flows and changes in 
stockholders' equity for each of the two fiscal years preceding the 
date of the most recent audited balance sheet (or such shorter period 
as the registrant has been in business).
0
7. Amend Sec.  210.10-01 by revising paragraph (a)(1) to read as 
follows:


Sec.  210.10-01   Interim financial statements.

    (a) * * *
    (1) Interim financial statements required by this rule need only be 
provided as to the registrant and its subsidiaries consolidated and its 
predecessors and may be unaudited. Separate statements of other 
entities which may otherwise be required by this regulation may be 
omitted.
* * * * *
0
8. Amend Sec.  210.11-01 by revising paragraph (d) introductory text to 
read as follows:


Sec.  210.11-01   Presentation requirements.

* * * * *
    (d) For purposes of this rule, the term business should be 
evaluated in light of the facts and circumstances involved and whether 
there is sufficient continuity of the acquired entity's operations 
prior to and after the transactions so that disclosure of prior 
financial information is material to an understanding of future 
operations. A presumption exists that a separate entity, a subsidiary, 
or a division is a business. A special purpose acquisition company, as 
defined in Sec.  229.1601(a), is a business for purposes of this rule. 
However, a lesser component of an entity may also constitute a 
business. Among the facts and circumstances which should be considered 
in evaluating whether an acquisition of a lesser component of an entity 
constitutes a business are the following:
* * * * *
0
9. Add an undesignated center heading and Sec.  210.15-01 to read as 
follows:

Acquisitions of Businesses by a Shell Company (Other Than a Business 
Combination Related Shell Company)


Sec.  210.15-01   Acquisitions of businesses by a shell company (other 
than a business combination related shell company).

    (a) Audit requirements of predecessor. The term audit (or 
examination), when used in regard to financial statements of a business 
that is or will be a predecessor to a shell company (other than a 
business combination related shell company), means an examination of 
the financial statements by an independent accountant in accordance 
with the standards of the PCAOB for the purpose of expressing an 
opinion thereon.
    (b) Financial statements. When the registrant is a shell company 
(other than a business combination related shell company) and the 
financial statements of a business that will be a predecessor to the 
registrant are required in a registration statement or proxy statement, 
the registrant must file financial statements of the business in 
accordance with Sec. Sec.  210.3-01 through 210.3-12 and 210.10-01 
(Articles 3 and 10 of Regulation S-X) as if the filing were a 
Securities Act registration statement for the initial public offering 
of the business's equity securities. The financial statements of the 
business may be filed pursuant to Sec. Sec.  210.8-01 through 210.8-08 
(Article 8) when that business would qualify to be a smaller reporting 
company based on its annual revenues as of the most recently completed 
fiscal year, if it were filing a registration statement itself.
    (c) Age of financial statements of the predecessor. The financial 
statements of a business that will be a predecessor to a shell company 
(other than a business combination related shell company) shall comply 
with the requirements in Sec.  210.3-12 (Sec.  210.8-08 when that 
business would qualify to be a smaller reporting company based on its 
annual revenues as of the most recently completed fiscal year, if it 
were filing a registration statement itself) in determining the age of 
financial

[[Page 29562]]

statements of the predecessor business in the registration statement or 
proxy statement of the registrant.
    (d) Acquisitions of businesses by a shell company or its 
predecessor that are not or will not be the predecessor. Registrants 
shall apply Sec.  210.3-05 (Sec.  210.8-04 when that business would 
qualify to be a smaller reporting company based on its annual revenues 
as of the most recently completed fiscal year if it were filing a 
registration statement itself) to acquisitions of businesses by a shell 
company (other than a business combination related shell company) or 
its predecessor that are not or will not be the predecessor to the 
registrant.
    (1) See Sec.  210.1-02(w)(1) for rules on applying the significance 
tests to acquisitions of businesses by a shell company (other than a 
business combination related shell company) or its predecessor that are 
not or will not be the predecessor.
    (2) A shell company (other than a business combination related 
shell company) that omits from a registration statement or proxy 
statement the financial statements of a recently acquired business that 
is not or will not be its predecessor pursuant to Rule 3-05(b)(4)(i) of 
Regulation S-X (Sec.  210.1-02(b)(4)(i)) must file those financial 
statements in its Form 8-K filed pursuant to Item 2.01(f).
    (e) Financial statements of shell company. After a shell company 
(other than a business combination related shell company) acquires a 
business that is its predecessor, the financial statements of the shell 
company for periods prior to consummation of the acquisition are not 
required to be included in a filing once the financial statements of 
the predecessor have been filed for all required periods through the 
acquisition date and the financial statements of the registrant include 
the period in which the acquisition was consummated.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

0
10. The authority citation for part 229 continues to read as follows:

    Authority:  15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 
80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; 
sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec. 
102(c), Pub. L. 112-106, 126 Stat. 310 (2012).

0
11. Amend Sec.  229.10 by:
0
a. Revising paragraph (b); and
0
b. Adding paragraph (f)(2)(iv).
    The revisions and additions read as follows.


Sec.  229.10   (Item 10) General.

* * * * *
    (b) Commission policy on projections. The Commission encourages the 
use in documents specified in Rule 175 under the Securities Act (Sec.  
230.175 of this chapter) and Rule 3b-6 under the Exchange Act (Sec.  
240.3b-6 of this chapter) of management's projections of future 
economic performance that have a reasonable basis and are presented in 
an appropriate format. The guidelines set forth herein represent the 
Commission's views on important factors to be considered in formulating 
and disclosing such projections. These guidelines also apply to 
projections of future economic performance of persons other than the 
registrant, such as the target company in a business combination 
transaction, that are included in the registrant's Commission filings.
    (1) Basis for projections. The Commission believes that management 
must have the option to present in Commission filings its good faith 
assessment of a registrant's future performance. Management, however, 
must have a reasonable basis for such an assessment. Although a history 
of operations or experience in projecting may be among the factors 
providing a basis for management's assessment, the Commission does not 
believe that a registrant always must have had such a history or 
experience in order to formulate projections with a reasonable basis. 
An outside review of management's projections may furnish additional 
support for having a reasonable basis for a projection. If management 
decides to include a report of such a review in a Commission filing, 
there also should be disclosure of the qualifications of the reviewer, 
the extent of the review, the relationship between the reviewer and the 
registrant, and other material factors concerning the process by which 
any outside review was sought or obtained. Moreover, in the case of a 
registration statement under the Securities Act, the reviewer would be 
deemed an expert and an appropriate consent must be filed with the 
registration statement.
    (2) Format for projections. (i) In determining the appropriate 
format for projections included in Commission filings, consideration 
must be given to, among other things, the financial items to be 
projected, the period to be covered, and the manner of presentation to 
be used. Although traditionally projections have been given for three 
financial items generally considered to be of primary importance to 
investors (revenues, net income (loss) and earnings (loss) per share), 
projection information need not necessarily be limited to these three 
items. However, management should take care to assure that the choice 
of items projected is not susceptible of misleading inferences through 
selective projection of only favorable items. Revenues, net income 
(loss) and earnings (loss) per share usually are presented together in 
order to avoid any misleading inferences that may arise when the 
individual items reflect contradictory trends. There may be instances, 
however, when it is appropriate to present earnings (loss) from 
continuing operations in addition to or in lieu of net income (loss). 
It generally would be misleading to present sales or revenue 
projections without one of the foregoing measures of income. The period 
that appropriately may be covered by a projection depends to a large 
extent on the particular circumstances of the company involved. For 
certain companies in certain industries, a projection covering a two or 
three year period may be entirely reasonable. Other companies may not 
have a reasonable basis for projections beyond the current year. 
Accordingly, management should select the period most appropriate in 
the circumstances. In addition, management, in making a projection, 
should disclose what, in its opinion, is the most probable specific 
amount or the most reasonable range for each financial item projected 
based on the selected assumptions. Ranges, however, should not be so 
wide as to make the disclosures meaningless. Moreover, several 
projections based on varying assumptions may be judged by management to 
be more meaningful than a single number or range and would be 
permitted.
    (ii) The presentation of projected measures that are not based on 
historical financial results or operational history should be clearly 
distinguished from projected measures that are based on historical 
financial results or operational history.
    (iii) It generally would be misleading to present projections that 
are based on historical financial results or operational history 
without presenting such historical financial measure or operational 
history with equal or greater prominence.

[[Page 29563]]

    (iv) The presentation of projections that include non-GAAP 
financial measures should include a clear definition or explanation of 
those financial measures, a description of the Generally Accepted 
Accounting Principles (GAAP) financial measure to which it is most 
closely related, and an explanation why the non-GAAP measure was 
selected instead of a GAAP measure.
* * * * *
    (f) * * *
* * * * *
    (2) * * *
    (iv) Upon the consummation of a de-SPAC transaction, as defined in 
Item 1601(a) of Regulation S-K (17 CFR 229.1601(a)), an issuer must re-
determine its status as a smaller reporting company pursuant to the 
thresholds set forth in paragraph (f)(1) of this section prior to its 
first filing, other than pursuant to Items 2.01(f), 5.01(a)(8), and/or 
9.01(c) of Form 8-K, following the de-SPAC transaction and reflect this 
re-determination in its next periodic report.
    (A) Public float is measured as of a date within four business days 
after the consummation of the de-SPAC transaction and is computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates as of that date by the 
price at which the common equity was last sold, or the average of the 
bid and asked prices of common equity, in the principal market for the 
common equity; and
    (B) Annual revenues are the annual revenues of the target company, 
as defined in Item 1601(d) of Regulation S-K (17 CFR 229.1601(d)), as 
of the most recently completed fiscal year reported in the Form 8-K 
filed pursuant to Items 2.01(f), 5.01(a)(8), and/or 9.01(c) of Form 8-
K.
* * * * *
0
12. Amend Sec.  229.601 by adding paragraph (b)(101)(i)(D) to read as 
follows:


Sec.  229.601   (Item 601) Exhibits.

* * * * *
    (b) * * *
    (101) * * *
    (i) * * *
    (D) Any filing that is subject to the exceptions listed in 
paragraphs (A), (B), or (C), and contains any disclosure required by 
subpart 229.1600 of this part, must include an Interactive Data File 
consisting solely of that disclosure.
* * * * *
0
13. Amend part 229 by adding subpart 229.1600 to read as follows:

Subpart 229.1600--Special Purpose Acquisition Companies

Sec.
229.1601 (Item 1601) Definitions.
229.1602 (Item 1602) Registered offerings by special purpose 
acquisition companies.
229.1603 (Item 1603) SPAC sponsor; conflicts of interest.
229.1604 (Item 1604) De-SPAC transactions.
229.1605 (Item 1605) Background of and reasons for the de-SPAC 
transaction; terms of the de-SPAC transaction; effects.
229.1606 (Item 1606) Fairness of the de-SPAC transaction and any 
related financing transaction.
229.1607 (Item 1607) Reports, opinions, appraisals and negotiations.
229.1608 (Item 1608) Tender offer filing obligations in de-SPAC 
transactions.
229.1609 (Item 1609) Financial projections in de-SPAC transactions.
229.1610 (Item 1610) Structured data requirement.

Subpart 229.1600--Special Purpose Acquisition Companies


Sec.  229.1601   (Item 1601) Definitions.

    For the purposes of this subpart 229.1600:
    (a) De-SPAC transaction. The term de-SPAC transaction means a 
business combination such as a merger, consolidation, exchange of 
securities, acquisition of assets, or similar transaction involving a 
special purpose acquisition company and one or more target companies 
(contemporaneously, in the case of more than one target company).
    (b) Special purpose acquisition company (SPAC). The term special 
purpose acquisition company means a company that has indicated that its 
business plan is to:
    (1) Register a primary offering of securities that is not subject 
to the requirements of Sec.  230.419 (Rule 419 under the Securities 
Act);
    (2) Complete a de-SPAC transaction within a specified time frame; 
and
    (3) Return all remaining proceeds from the registered offering and 
any concurrent offerings to its shareholders if the company does not 
complete a de-SPAC transaction within the specified time frame.
    (c) SPAC sponsor. The term SPAC sponsor means the entity and/or 
person(s) primarily responsible for organizing, directing or managing 
the business and affairs of a special purpose acquisition company, 
other than in their capacities as directors or officers of the special 
purpose acquisition company as applicable.
    (d) Target company. The term target company means an operating 
company, business or assets.


Sec.  229.1602   (Item 1602) Registered offerings by special purpose 
acquisition companies.

    (a) Forepart of registration statement and outside cover page of 
the prospectus. In addition to the information required by Sec.  
229.501 (Item 501 of Regulation S-K), provide the following information 
on the outside front cover page of the prospectus in plain English as 
required by Sec.  230.421(d) of this chapter:
    (1) State the time frame for the special purpose acquisition 
company to consummate a de-SPAC transaction and whether this time frame 
may be extended.
    (2) State whether security holders will have the opportunity to 
redeem the securities offered and whether the redemptions will be 
subject to any limitations.
    (3) State the amount of the compensation received or to be received 
by the SPAC sponsor and its affiliates, and whether this compensation 
may result in a material dilution of the purchasers' equity interests. 
Provide a cross-reference, highlighted by prominent type or in another 
manner, to the locations of related disclosures in the prospectus.
    (4) Disclose in the tabular format specified below the estimated 
remaining pro forma net tangible book value per share at quartile 
intervals up to the maximum redemption threshold, consistent with the 
methodologies and assumptions used in the disclosure provided pursuant 
to Sec.  229.506 (Item 506 of Regulation S-K), and provide a cross-
reference, highlighted by prominent type or in another manner, to the 
locations of related disclosures in the prospectus:

[[Page 29564]]



                                           Table 1 to Paragraph (a)(4)
----------------------------------------------------------------------------------------------------------------
                              Remaining pro forma net tangible book value per share
-----------------------------------------------------------------------------------------------------------------
                           25% of maximum        50% of  maximum         75% of maximum
 Offering price of __        redemption             redemption             redemption        Maximum redemption
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------

    Instruction 1 to Item 1602(a)(4). If the offering includes an over-
allotment option, include separate rows in the tabular disclosure 
showing remaining pro forma net tangible book value per share with and 
without the exercise of the over-allotment option.
    (5) State whether there may be actual or potential conflicts of 
interest between the SPAC sponsor or its affiliates or promoters and 
purchasers in the offering. Provide a cross-reference, highlighted by 
prominent type or in another manner, to the locations of related 
disclosures in the prospectus.
    (b) Prospectus summary. The information required by Sec.  
229.503(a) (Item 503(a) of Regulation S-K) shall include, but not be 
limited to, a brief description of the following in plain English as 
required by Sec.  230.421(d) of this chapter:
    (1) The manner in which the special purpose acquisition company 
will identify and evaluate potential business combination candidates 
and whether it will solicit shareholder approval for the de-SPAC 
transaction;
    (2) The material terms of the trust or escrow account and the 
amount or percentage of the gross offering proceeds that the special 
purpose acquisition company will place in the trust or escrow account;
    (3) The material terms of the securities being offered, including 
redemption rights, and whether the securities are the same class as 
those held by the SPAC sponsor and its affiliates;
    (4) The period of time in which the special purpose acquisition 
company intends to consummate a de-SPAC transaction and its plans in 
the event that it does not consummate a de-SPAC transaction within this 
time period, including whether, and if so, how, it may extend the time 
period; any limitations on extensions, including the number of times; 
the consequences to the SPAC sponsor of not completing an extension of 
this time period; and whether security holders will have voting or 
redemption rights with respect to such an extension;
    (5) Any plans to seek additional financings and how the terms of 
additional financings may impact unaffiliated security holders;
    (6) In a tabular format, the nature and amount of the compensation 
received or to be received by the SPAC sponsor, its affiliates and 
promoters, and the extent to which this compensation may result in a 
material dilution of the purchasers' equity interests; and
    (7) Any material actual or potential conflicts of interest between 
the SPAC sponsor or its affiliates or promoters and purchasers in the 
offering, including those that may arise in determining whether to 
pursue a de-SPAC transaction.
    (c) Dilution. In addition to the disclosure required by Sec.  
229.506 (Item 506 of Regulation S-K), describe material potential 
sources of future dilution following the registered offering by the 
special purpose acquisition company. Disclose in tabular format the 
amount of future dilution from the public offering price that will be 
absorbed by purchasers of the securities being offered, to the extent 
known and quantifiable.


Sec.  229.1603   (Item 1603) SPAC sponsor; conflicts of interest.

    (a) SPAC sponsor, its affiliates and promoters. Provide the 
following information about the SPAC sponsor, its affiliates and 
promoters of the special purpose acquisition company:
    (1) State the SPAC sponsor's name and describe the SPAC sponsor's 
form of organization.
    (2) Describe the general character of the SPAC sponsor's business.
    (3) Describe the experience of the SPAC sponsor, its affiliates and 
any promoters in organizing special purpose acquisition companies and 
the extent to which the SPAC sponsor, its affiliates and the promoters 
are involved in other special purpose acquisition companies.
    (4) Describe the material roles and responsibilities of the SPAC 
sponsor, its affiliates and any promoters in directing and managing the 
special purpose acquisition company's activities.
    (5) Describe any agreement, arrangement or understanding between 
the SPAC sponsor and the special purpose acquisition company, its 
executive officers, directors or affiliates in determining whether to 
proceed with a de-SPAC transaction.
    (6) Disclose the nature (e.g., cash, shares of stock, warrants and 
rights) and amounts of all compensation that has or will be awarded to, 
earned by, or paid to the SPAC sponsor, its affiliates and any 
promoters for all services rendered in all capacities to the special 
purpose acquisition company and its affiliates. In addition, disclose 
the nature and amounts of any reimbursements to be paid to the SPAC 
sponsor, its affiliates and any promoters upon the completion of a de-
SPAC transaction.
    (7) Identify the controlling persons of the SPAC sponsor. Disclose, 
as of the most recent practicable date, the persons who have direct and 
indirect material interests in the SPAC sponsor, as well as the nature 
and amount of their interests. Provide an organizational chart that 
shows the relationship between the special purpose acquisition company, 
the SPAC sponsor, and the SPAC sponsor's affiliates.
    (8) Describe any agreement, arrangement or understanding, including 
any payments, between the SPAC sponsor and unaffiliated security 
holders of the special purpose acquisition company regarding the 
redemption of outstanding securities of the special purpose acquisition 
company.
    (9) Disclose, in a tabular format to the extent practicable, the 
material terms of any agreement, arrangement or understanding regarding 
restrictions on whether and when the SPAC sponsor and its affiliates 
may sell securities of the special purpose acquisition company, 
including the date(s) on which the agreement, arrangement or 
understanding may expire; the natural persons and entities subject to 
such an agreement, arrangement or understanding; any exceptions under 
such an agreement, arrangement or understanding; and any terms that 
would result in an earlier expiration of such an agreement, arrangement 
or understanding.

[[Page 29565]]

    (b) Conflicts of interest. Describe any actual or potential 
material conflict of interest, including any material conflict of 
interest in determining whether to proceed with a de-SPAC transaction 
and any material conflict of interest arising from the manner in which 
the special purpose acquisition company compensates the SPAC sponsor, 
executive officers and directors or the manner in which the SPAC 
sponsor compensates its executive officers and directors, between:
    (1) The SPAC sponsor or its affiliates or the special purpose 
acquisition company's officers, directors, or promoters; and
    (2) Unaffiliated security holders.
    (c) Briefly describe the fiduciary duties of each officer and 
director of the special purpose acquisition company to other companies 
to which they have fiduciary duties.


Sec.  229.1604  (Item 1604) De-SPAC transactions.

    (a) Forepart of registration statement and outside cover page of 
the prospectus. In addition to the information required by Sec.  
229.501 (Item 501 of Regulation S-K), provide the following information 
on the outside front cover page of the prospectus in plain English as 
required by Sec.  230.421(d) of this chapter:
    (1) State whether the special purpose acquisition company 
reasonably believes that the de-SPAC transaction is fair or unfair to 
unaffiliated security holders, and whether the special purpose 
acquisition company or the SPAC sponsor has received a report, opinion 
or appraisal from an outside party regarding the fairness of the 
transaction.
    (2) Describe briefly any material financing transactions that have 
occurred since the initial public offering of the special purpose 
acquisition company or will occur in connection with the consummation 
of the de-SPAC transaction.
    (3) State the amount of the compensation received or to be received 
by the SPAC sponsor, its affiliates and promoters in connection with 
the de-SPAC transaction or any related financing transaction, and 
whether this compensation may result in a material dilution of the 
equity interests of non-redeeming shareholders who hold the securities 
until the consummation of the de-SPAC transaction. Provide a cross-
reference, highlighted by prominent type or in another manner, to the 
locations of related disclosures in the prospectus.
    (4) State whether there may be material actual or potential 
conflicts of interest between the SPAC sponsor or its affiliates or 
promoters and unaffiliated security holders in connection with the de-
SPAC transaction. Provide a cross-reference, highlighted by prominent 
type or in another manner, to the locations of related disclosures in 
the prospectus.
    (b) Prospectus summary. The information required by Sec.  
229.503(a) (Item 503(a) of Regulation S-K) shall include, but not be 
limited to, a brief description of the following in plain English as 
required by Sec.  230.421(d) of this chapter:
    (1) The background and material terms of the de-SPAC transaction;
    (2) Whether the special purpose acquisition company reasonably 
believes that the de-SPAC transaction is fair or unfair to unaffiliated 
security holders, the bases for such belief, and whether the special 
purpose acquisition company or the SPAC sponsor has received any 
report, opinion or appraisal from an outside party concerning the 
fairness of the de-SPAC transaction;
    (3) Any material actual or potential conflicts of interest between 
the SPAC sponsor or its affiliates or promoters and unaffiliated 
security holders in connection with the de-SPAC transaction;
    (4) In a tabular format, the terms and amount of the compensation 
received or to be received by the SPAC sponsor and its affiliates in 
connection with the de-SPAC transaction or any related financing 
transaction, and whether that compensation has resulted or may result 
in a material dilution of the equity interests of unaffiliated security 
holders of the special purpose acquisition company;
    (5) The material terms of any financing transactions that have 
occurred or will occur in connection with the consummation of the de-
SPAC transaction, the anticipated use of proceeds from these financing 
transactions and the dilutive impact, if any, of these financing 
transactions on unaffiliated security holders; and
    (6) The rights of security holders to redeem the outstanding 
securities of the special purpose acquisition company and the potential 
impact of redemptions on the value of the securities owned by non-
redeeming shareholders.
    (c) Dilution. Describe each material potential source of future 
dilution that non-redeeming shareholders may experience by electing not 
to tender their shares in connection with the de-SPAC transaction.
    (1) Provide sensitivity analysis disclosure in tabular format that 
expresses the amount of potential dilution under a range of reasonably 
likely redemption levels. At each redemption level in the sensitivity 
analysis, quantify the dilutive impact on non-redeeming shareholders of 
each source of dilution, such as the amount of compensation paid or to 
be paid to the SPAC sponsor, the terms of outstanding warrants and 
convertible securities, and underwriting and other fees. For each 
redemption level in the sensitivity analysis, state the company 
valuation at or above which the potential dilution results in the 
amount of the non-redeeming shareholders' interest per share being at 
least the initial public offering price per share of common stock.
    (2) Provide a description of the model, methods, assumptions, 
estimates, and parameters necessary to understand the sensitivity 
analysis disclosure.


Sec.  229.1605  (Item 1605) Background of and reasons for the de-SPAC 
transaction; terms of the de-SPAC transaction; effects.

    (a) Furnish a summary of the background of the de-SPAC transaction. 
Such summary shall include, but not be limited to, a description of any 
contacts, negotiations or transactions that have occurred concerning 
the de-SPAC transaction.
    (b) State the material terms of the de-SPAC transaction, including 
but not limited to:
    (1) A brief description of the de-SPAC transaction;
    (2) A brief description of any related financing transaction, 
including any payments from the SPAC sponsor to investors in connection 
with the financing transaction;
    (3) A reasonably detailed discussion of the reasons for engaging in 
the de-SPAC transaction and for the structure and timing of the de-SPAC 
transaction and any related financing transaction;
    (4) An explanation of any material differences in the rights of 
security holders of the combined company as a result of the de-SPAC 
transaction after the completion of the de-SPAC transaction;
    (5) A brief statement as to the accounting treatment of the de-SPAC 
transaction, if material; and
    (6) The Federal income tax consequences of the de-SPAC transaction, 
if material.
    (c) Describe the effects of the de-SPAC transaction and any related 
financing transaction on the special purpose acquisition company and 
its affiliates, the SPAC sponsor and its affiliates, the target company 
and its affiliates, and unaffiliated security holders of the special 
purpose acquisition company. The description must include a

[[Page 29566]]

reasonably detailed discussion of both the benefits and detriments of 
the de-SPAC transaction and any related financing transaction to the 
special purpose acquisition company and its affiliates, the SPAC 
sponsor and its affiliates, the target company and its affiliates, and 
unaffiliated security holders. The benefits and detriments of the de-
SPAC transaction and any related financing transaction must be 
quantified to the extent practicable.
    (d) Disclose any material interests in the de-SPAC transaction or 
any related financing transaction held by the SPAC sponsor and the 
special purpose acquisition company's officers and directors, including 
fiduciary or contractual obligations to other entities as well as any 
interest in, or affiliation with, the target company.
    (e) State whether or not security holders are entitled to any 
redemption or appraisal rights. If so, summarize the redemption or 
appraisal rights. If there are no redemption or appraisal rights 
available for security holders who object to the de-SPAC transaction, 
briefly outline any other rights that may be available to security 
holders.


Sec.  229.1606  (Item 1606) Fairness of the de-SPAC transaction and any 
related financing transaction.

    (a) Fairness. State whether the special purpose acquisition company 
reasonably believes that the de-SPAC transaction and any related 
financing transaction are fair or unfair to unaffiliated security 
holders of the special purpose acquisition company. If any director 
voted against, or abstained from voting on, approval of the de-SPAC 
transaction or any related financing transaction, identify the 
director, and indicate, if known, after making reasonable inquiry, the 
reasons for the vote against the transaction or abstention.
    (b) Factors considered in determining fairness. Discuss in 
reasonable detail the material factors upon which the belief stated in 
paragraph (a) of this section is based and, to the extent practicable, 
the weight assigned to each factor. Such factors shall include, but not 
be limited to, the valuation of the target company, the consideration 
of any financial projections, any report, opinion or appraisal 
described in Sec.  229.1607 (Item 1607 of Regulation S-K), and the 
dilutive effects described in Sec.  229.1604(c) (Item 1604(c) of 
Regulation S-K).
    (c) Approval of security holders. State whether or not the de-SPAC 
transaction or any related financing transaction is structured so that 
approval of at least a majority of unaffiliated security holders is 
required.
    (d) Unaffiliated representative. State whether or not a majority of 
directors who are not employees of the special purpose acquisition 
company has retained an unaffiliated representative to act solely on 
behalf of unaffiliated security holders for purposes of negotiating the 
terms of the de-SPAC transaction or any related financing transaction 
and/or preparing a report concerning the fairness of the de-SPAC 
transaction or any related financing transaction.
    (e) Approval of directors. State whether or not the de-SPAC 
transaction or any related financing transaction was approved by a 
majority of the directors of the special purpose acquisition company 
who are not employees of the special purpose acquisition company.
    Instruction 1 to Item 1606: A statement that the special purpose 
acquisition company has no reasonable belief as to the fairness or 
unfairness of the de-SPAC transaction or any related financing 
transaction to unaffiliated security holders will not be considered 
sufficient disclosure in response to paragraph (a) of this section.


Sec.  229.1607  (Item 1607) Reports, opinions, appraisals and 
negotiations.

    (a) Report, opinion or appraisal. State whether or not the special 
purpose acquisition company or SPAC sponsor has received any report, 
opinion or appraisal from an outside party relating to the 
consideration or the fairness of the consideration to be offered to 
security holders or the fairness of the de-SPAC transaction or any 
related financing transaction to the special purpose acquisition 
company, SPAC sponsor or security holders who are not affiliates.
    (b) Preparer and summary of the report, opinion or appraisal. For 
each report, opinion or appraisal described in response to paragraph 
(a) of this section or any negotiation or report described in response 
to Sec.  229.1606(d) (Item 1606(d) of Regulation S-K) concerning the 
terms of the transaction:
    (1) Identify the outside party and/or unaffiliated representative;
    (2) Briefly describe the qualifications of the outside party and/or 
unaffiliated representative;
    (3) Describe the method of selection of the outside party and/or 
unaffiliated representative;
    (4) Describe any material relationship that existed during the past 
two years or is mutually understood to be contemplated and any 
compensation received or to be received as a result of the relationship 
between:
    (i) The outside party, its affiliates, and/or unaffiliated 
representative; and
    (ii) The special purpose acquisition company, the SPAC sponsor and/
or their respective affiliates,
    (5) State whether the special purpose acquisition company or SPAC 
sponsor determined the amount of consideration to be paid to the target 
company or its security holders, or the valuation of the target 
company, or whether the outside party recommended the amount of 
consideration to be paid or the valuation of the target company; and
    (6) Furnish a summary concerning the negotiation, report, opinion 
or appraisal. The summary must include, but need not be limited to, the 
procedures followed; the findings and recommendations; the bases for 
and methods of arriving at such findings and recommendations; 
instructions received from the special purpose acquisition company or 
SPAC sponsor; and any limitation imposed by the special purpose 
acquisition company or SPAC sponsor on the scope of the investigation.
    Instruction 1 to Item 1607(b): The information called for by 
paragraphs (b)(1), (2), and (3) of this section must be given with 
respect to the firm that provides the report, opinion, or appraisal 
rather than the employees of the firm that prepared the report.
    (c) All reports, opinions or appraisals referred to in paragraph 
(a) of this section shall be, as applicable, filed as exhibits to the 
registration statement or schedule or included in the schedule if the 
schedule does not have exhibit filing requirements.


Sec.  229.1608   (Item 1608) Tender offer filing obligations in de-SPAC 
transactions.

    If the special purpose acquisition company files a Schedule TO 
(Sec.  240.14d-100) pursuant to Sec.  240.13e-4(c)(2) (Rule 13e-
4(c)(2)) for any redemption of securities offered to security holders, 
such Schedule TO must provide the information required by General 
Instruction L.2. to Form S-4, General Instruction I.2. to Form F-4, and 
Item 14(f) of Schedule 14A, as applicable, in addition to the 
information otherwise required by Schedule TO. Such redemption shall be 
conducted in compliance with all other provisions of Rule 13e-4 and 
Regulation 14E.


Sec.  229.1609   (Item 1609) Financial projections in de-SPAC 
transactions.

    (a) With respect to any projections disclosed in the filing, 
disclose the purpose for which the projections were prepared and the 
party that prepared the projections.

[[Page 29567]]

    (b) Disclose all material bases of the disclosed projections and 
all material assumptions underlying the projections, and any factors 
that may impact such assumptions. The disclosure referred to in this 
section should include a discussion of any material growth rates or 
discount multiples used in preparing the projections, and the reasons 
for selecting such growth rates or discount multiples.
    (c) If the projections relate to the performance of the special 
purpose acquisition company, state whether the projections reflect the 
view of the special purpose acquisition company's management or board 
about its future performance as of the date of the filing. If the 
projections relate to the target company, disclose whether the target 
company has affirmed to the special purpose acquisition company that 
its projections reflect the view of the target company's management or 
board about its future performance as of the date of the filing. If the 
projections no longer reflects the views of the special purpose 
acquisition company's or the target company's management or board 
regarding the future performance of their respective companies as the 
date of the filing, state the purpose of disclosing the projections and 
the reasons for any continued reliance by the management or board on 
the projections.


Sec.  229.1610   (Item 1610) Structured data requirement.

    Provide the disclosure required by this subpart 229.1600 in an 
Interactive Data File in accordance with Rule 405 of Regulation S-T and 
the EDGAR Filer Manual.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
14. The general authority citation for part 230 continues to read as 
follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Public Law 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *
0
15. Revise Sec.  230.137(d)(1) to read as follows:


Sec.  230.137   Publications or distributions of research reports by 
brokers or dealers that are not participating in an issuer's registered 
distribution of securities.

* * * * *
    (d) * * *
    (1) A blank check company issuing penny stock, as defined in Sec.  
230.405 (Rule 405);
* * * * *
0
16. Revise Sec.  230.138(a)(4)(i) to read as follows:


Sec.  230.138   Publications or distributions of research reports by 
brokers or dealers about securities other than those they are 
distributing.

    (a) * * *
    (4) * * *
    (i) A blank check company issuing penny stock, as defined in Sec.  
230.405 (Rule 405);
* * * * *
0
17. Revise Sec.  230.139(a)(1)(ii)(A) to read as follows:


Sec.  230.139   Publications or distributions of research reports by 
brokers or dealers distributing securities.

    (a) * * *
    (1) * * *
    (ii) * * *
    (A) A blank check company issuing penny stock, as defined in Sec.  
230.405 (Rule 405);
* * * * *
0
18. Add Sec.  230.140a to read as follows:


Sec.  230.140a   Definition of ``distribution'' in section 2(a)(11) for 
certain parties.

    A person who has acted as an underwriter of the securities of a 
special purpose acquisition company and takes steps to facilitate the 
de-SPAC transaction, or any related financing transaction, or otherwise 
participates (directly or indirectly) in the de-SPAC transaction will 
be deemed to be engaged in the distribution of the securities of the 
surviving public entity in a de-SPAC transaction within the meaning of 
section 2(a)(11) of the Act. Terms used in this subsection have the 
same definitions as in Item 1601 of Regulation S-K (17 CFR 229.1601).
0
19. Add Sec.  230.145a to read as follows:


Sec.  230.145a   Business combinations with reporting shell companies.

    With respect to a reporting shell company's shareholders, any 
direct or indirect business combination of a reporting shell company 
that is not a business combination related shell company involving 
another entity that is not a shell company, as those terms are defined 
in Sec.  230.405, is deemed to involve an offer, offer to sell, offer 
for sale, or sale within the meaning of section 2(a)(3) of the Act. For 
purposes of this rule, a reporting shell company is a company other 
than an asset-backed issuer as defined in Item 1101(b) of Regulation AB 
(Sec.  229.1101(b) of this chapter), that has:
    (1) No or nominal operations;
    (2) Either:
    (i) No or nominal assets;
    (ii) Assets consisting solely of cash and cash equivalents; or
    (iii) Assets consisting of any amount of cash and cash equivalents 
and nominal other assets; and
    (3) an obligation to file reports under Section 13 (15 U.S.C. 78m) 
or Section 15(d) (15 U.S.C. 78o(d)) of the Securities Exchange Act of 
1934 (15 U.S.C. 78a et seq.).
* * * * *
0
20. Amend Sec.  230.163A by:
0
a. Removing the preliminary note;
0
b. Adding an introductory paragraph; and
0
c. Revising paragraph (b)(3)(i).
    The revision and addition read as follows:


Sec.  230.163A   Exemption from section 5(c) of the Act for certain 
communications made by or on behalf of issuers more than 30 days before 
a registration statement is filed.

    Attempted compliance with this section does not act as an exclusive 
election and the issuer also may claim the availability of any other 
applicable exemption or exclusion. Reliance on this section does not 
affect the availability of any other exemption or exclusion from the 
requirements of section 5 of the Act.
* * * * *
    (b) * * *
    (3) * * *
    (i) A blank check company issuing penny stock, as defined in Sec.  
230.405 (Rule 405);
* * * * *
0
21. Amend Sec.  230.164 by:
0
a. Removing the preliminary notes;
0
b. Adding an introductory paragraph; and
0
c. Revising paragraph (e)(2)(i).
    The revision and addition read as follows:


Sec.  230.164   Post-filing free writing prospectuses in connection 
with certain registered offerings.

    This section is not available for any communication that, although 
in technical compliance with this section, is part of a plan or scheme 
to evade the requirements of section 5 of the Act. Attempted compliance 
with this section does not act as an exclusive election and the person 
relying on this section also may claim the availability of any other 
applicable exemption or exclusion. Reliance on this section does not 
affect the availability of any other exemption or exclusion from the 
requirements of section 5 of the Act.
* * * * *
    (e) * * *
    (2) * * *

[[Page 29568]]

    (i) A blank check company issuing penny stock, as defined in Sec.  
230.405 (Rule 405);
* * * * *
0
22. Amend Sec.  230.174 by revising the heading and paragraph (g) to 
read as follows:


Sec.  230.174   Delivery of prospectus by dealers; exemptions under 
section 4(a)(3) of the Act.

* * * * *
    (g) If the registration statement relates to an offering of 
securities of a blank check company issuing penny stock, as defined in 
Rule 405 (Sec.  230.405), the statutory period for prospectus delivery 
specified in section 4(a)(3) of the Act shall not terminate until 90 
days after the date funds and securities are released from the escrow 
or trust account pursuant to Rule 419 under the Act (17 CFR 230.419).
* * * * *
0
23. Amend Sec.  230.405 by:
0
a. Adding the definition for ``blank check company'' in alphabetical 
order;
0
b. Adding the definition for ``blank check company issuing penny 
stock'' in alphabetical order;
0
c. Revising paragraph (1)(ii)(A) in the definition for ``ineligible 
issuer''; and
0
d. Adding paragraph (3)(iv) to the definition for ``smaller reporting 
company''.
    The additions and revisions read as follows:


Sec.  230.405   Definitions of terms.

* * * * *
    Blank check company. The term blank check company means a company 
that has no specific business plan or purpose or has indicated that its 
business plan is to engage in a merger or acquisition with an 
unidentified company or companies, or other entity or person.
* * * * *
    Blank check company issuing penny stock. The term blank check 
company issuing penny stock means a company that is subject to Sec.  
230.419 of this chapter.
* * * * *
    Ineligible issuer. (1) * * *
    (ii) * * *
    (A) A blank check company issuing penny stock (as defined in Sec.  
230.405);
* * * * *
    Smaller reporting company. * * *
    (3) * * *
    (iv) Upon the consummation of a de-SPAC transaction, as defined in 
Sec.  229.1601(a) (Item 1601(a) of Regulation S-K), an issuer must re-
determine its status as a smaller reporting company pursuant to the 
thresholds set forth in paragraphs (1) and (2) of this definition prior 
to its first filing, other than pursuant to Items 2.01(f), 5.01(a)(8), 
and/or 9.01(c) of Form 8-K, following the de-SPAC transaction and 
reflect this re-determination in its next periodic report.
    (A) Public float is measured as of a date within four business days 
after the consummation of the de-SPAC transaction and is computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates as of that date by the 
price at which the common equity was last sold, or the average of the 
bid and asked prices of common equity, in the principal market for the 
common equity; and
    (B) Annual revenues are the annual revenues of the target company, 
as defined in Sec.  229.1601(d) (Item 1601(d) of Regulation S-K), as of 
the most recently completed fiscal year reported in the Form 8-K filed 
pursuant to Items 2.01(f), 5.01(a)(8), and/or 9.01(c) of Form 8-K.
* * * * *
0
24. Amend Sec.  230.419 by:
0
a. Revising the heading;
0
b. Revising paragraph (a)(1);
0
c. Removing paragraph (a)(2);
0
d. Redesignating paragraph (a)(3) as paragraph (a)(2); and
0
e. Revising paragraph (b)(1)(i).
    The revisions read as follows:


Sec.  230.419   Offerings by blank check companies issuing penny stock.

    (a) * * *
    (1) The provisions of this section shall apply to every 
registration statement filed under the Act relating to an offering by a 
blank check company that:
    (i) Is a development stage company; and
    (ii) Is issuing ``penny stock,'' as defined in Sec.  240.3a51-1 of 
this chapter (Rule 3a51-1) under the Securities Exchange Act of 1934 
(``Exchange Act'').
* * * * *
    (b) * * *
    (1) * * *
    (i) Except as otherwise provided in this section or prohibited by 
other applicable law, all securities issued in connection with an 
offering by a blank check company subject to this section and the gross 
proceeds from the offering shall be deposited promptly into:
* * * * *
0
25. Revise Sec.  230.430B(b)(2)(iv)(A) to read as follows:


Sec.  230.430B   Prospectus in a registration statement after effective 
date.

    (b) * * *
    (2) * * *
    (iv) * * *
    (A) A blank check company issuing penny stock, as defined in Sec.  
230.405 (Rule 405);
* * * * *
0
26. Revise Sec.  230.437a(a)(1) to read as follows:


Sec.  230.437a   Written consents.

    (a) * * *
    (1) Are not a blank check company issuing penny stock, as defined 
in Sec.  230.405 (Rule 405); and
* * * * *

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
27. The general authority citation for part 232 continues to read in 
part as follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 
80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C. 1350, 
unless otherwise noted.
* * * * *
0
28. Amend Sec.  232.405 by:
0
a. Revising the introductory text and paragraphs (a)(2) and (4);
0
b. Removing ``and'' from the end of the paragraph (b)(1)(i);
0
c. Removing the period and adding in its place ``; and'' in paragraph 
(b)(1)(ii);
0
d. Adding paragraph (b)(1)(iii);
0
e. Adding paragraph (b)(4); and
0
f. Revising Note 1 to Sec.  232.405.
    The revisions and additions read as follows:


Sec.  232.405   Interactive Data File Submissions.

    This section applies to electronic filers that submit Interactive 
Data Files. Section 229.601(b)(101) of this chapter (Item 601(b)(101) 
of Regulation S-K), paragraph (101) of Part II--Information Not 
Required to be Delivered to Offerees or Purchasers of Form F-10 (Sec.  
239.40 of this chapter), Note D.5 of Exchange Act Rule 14a-101 (Sec.  
240.14a-101 of this chapter), General Instruction L of Exchange Act 
Rule 14d-100 (240.14d-100 of this chapter), paragraph 101 of the 
Instructions as to Exhibits of Form 20-F (Sec.  249.220f of this 
chapter), paragraph B.(15) of the General Instructions to Form 40-F 
(Sec.  249.240f of this chapter), paragraph C.(6) of the General 
Instructions to Form 6-K (Sec.  249.306 of this chapter), General 
Instruction C.3.(g) of Form N-1A (Sec. Sec.  239.15A and 274.11A of 
this chapter), General Instruction I of Form N-2 (Sec. Sec.  239.14 and 
274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 
(Sec. Sec.  239.17a and 274.11b of

[[Page 29569]]

this chapter), General Instruction C.3.(h) of Form N-4 (Sec. Sec.  
239.17b and 274.11c of this chapter), General Instruction C.3.(h) of 
Form N-6 (Sec. Sec.  239.17c and 274.11d of this chapter), and General 
Instruction C.4 of Form N-CSR (Sec. Sec.  249.331 and 274.128 of this 
chapter) specify when electronic filers are required or permitted to 
submit an Interactive Data File (Sec.  232.11), as further described in 
note 1 to this section. This section imposes content, format, and 
submission requirements for an Interactive Data File, but does not 
change the substantive content requirements for the financial and other 
disclosures in the Related Official Filing (Sec.  232.11).
    (a) * * *
    (2) Be submitted only by an electronic filer either required or 
permitted to submit an Interactive Data File as specified by Sec.  
229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S-K), 
paragraph (101) of Part II--Information Not Required to be Delivered to 
Offerees or Purchasers of Form F-10 (Sec.  239.40 of this chapter), 
Note D.5 of Exchange Act Rule 14a-101 (Sec.  240.14a-101 of this 
chapter), General Instruction L of Exchange Act Rule 14d-100 (240.14d-
100 of this chapter), paragraph 101 of the Instructions as to Exhibits 
of Form 20-F (Sec.  249.220f of this chapter), paragraph B.(15) of the 
General Instructions to Form 40-F (Sec.  249.240f of this chapter), 
paragraph C.(6) of the General Instructions to Form 6-K (Sec.  249.306 
of this chapter), General Instruction C.3.(g) of Form N-1A (Sec. Sec.  
239.15A and 274.11A of this chapter), General Instruction I of Form N-2 
(Sec. Sec.  239.14 and 274.11a-1 of this chapter), General Instruction 
C.3.(h) of Form N-3 (Sec. Sec.  239.17a and 274.11b of this chapter), 
General Instruction C.3.(h) of Form N-4 (Sec. Sec.  239.17b and 274.11c 
of this chapter), General Instruction C.3.(h) of Form N-6 (Sec. Sec.  
239.17c and 274.11d of this chapter), or General Instruction C.4 of 
Form N-CSR (Sec. Sec.  249.331 and 274.128 of this chapter), as 
applicable;
* * * * *
    (4) Be submitted in accordance with the EDGAR Filer Manual and, as 
applicable, Item 601(b)(101) of Regulation S-K (Sec.  229.601(b)(101) 
of this chapter), paragraph (101) of Part II--Information Not Required 
to be Delivered to Offerees or Purchasers of Form F-10 (Sec.  239.40 of 
this chapter), Note D.5 of Exchange Act Rule 14a-101 (Sec.  240.14a-101 
of this chapter), General Instruction L of Exchange Act Rule 14d-100 
(240.14d-100 of this chapter), paragraph 101 of the Instructions as to 
Exhibits of Form 20-F (Sec.  249.220f of this chapter), paragraph 
B.(15) of the General Instructions to Form 40-F (Sec.  249.240f of this 
chapter), paragraph C.(6) of the General Instructions to Form 6-K 
(Sec.  249.306 of this chapter), General Instruction C.3.(g) of Form N-
1A (Sec. Sec.  239.15A and 274.11A of this chapter), General 
Instruction I of Form N-2 (Sec. Sec.  239.14 and 274.11a-1 of this 
chapter), General Instruction C.3.(h) of Form N-3 (Sec. Sec.  239.17a 
and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 
(Sec. Sec.  239.17b and 274.11c of this chapter), General Instruction 
C.3.(h) of Form N-6 (Sec. Sec.  239.17c and 274.11d of this chapter); 
or General Instruction C.4 of Form N-CSR (Sec. Sec.  249.331 and 
274.128 of this chapter).
* * * * *
    (b) * * *
    (1) * * *
    (iii) The disclosure set forth in paragraph (4) of this section.
* * * * *
    (4) The disclosure provided under Regulation S-K (17 CFR 229) and 
related provisions that is required to be tagged, including, as 
applicable:
    (a) The information required by Subpart 1600 of Regulation S-K 
(Sec.  229.1601 through Sec.  229.1610 of this chapter).
* * * * *

    Note 1 to Sec.  232.405:  Section 229.601(b)(101) of this 
chapter (Item 601(b)(101) of Regulation S-K) specifies the 
circumstances under which an Interactive Data File must be submitted 
and the circumstances under which it is permitted to be submitted, 
with respect to Sec.  239.11 of this chapter (Form S-1), Sec.  
239.13 of this chapter (Form S-3), Sec.  239.25 of this chapter 
(Form S-4), Sec.  239.18 of this chapter (Form S-11), Sec.  239.31 
of this chapter (Form F-1), Sec.  239.33 of this chapter (Form F-3), 
Sec.  239.34 of this chapter (Form F-4), Sec.  249.310 of this 
chapter (Form 10-K), Sec.  249.308a of this chapter (Form 10-Q), and 
Sec.  249.308 of this chapter (Form 8-K). Note D.5 of Section 
240.14a-101 of this chapter (Note D.5 of Exchange Act Rule 14a-101) 
specifies the circumstances under which an Interactive Data File 
must be submitted with respect to Sec.  240.14a-101 of this chapter 
(Schedule 14A). General Instruction L of Section 240.14d-100 of this 
chapter (General Instruction L) of Exchange Act Rule 14d-100) 
specifies the circumstances under which an Interactive Data File 
must be submitted with respect to Sec.  240.14d-100 of this chapter 
(Schedule TO). Paragraph (101) of Part II--Information not Required 
to be Delivered to Offerees or Purchasers of Sec.  239.40 of this 
chapter (Form F-10) specifies the circumstances under which an 
Interactive Data File must be submitted and the circumstances under 
which it is permitted to be submitted, with respect to Form F-10. 
Paragraph 101 of the Instructions as to Exhibits of Sec.  249.220f 
of this chapter (Form 20-F) specifies the circumstances under which 
an Interactive Data File must be submitted and the circumstances 
under which it is permitted to be submitted, with respect to Form 
20-F. Paragraph B.(15) of the General Instructions to Sec.  249.240f 
of this chapter (Form 40-F) and Paragraph C.(6) of the General 
Instructions to Sec.  249.306 of this chapter (Form 6-K) specify the 
circumstances under which an Interactive Data File must be submitted 
and the circumstances under which it is permitted to be submitted, 
with respect to Sec.  249.240f of this chapter (Form 40-F) and Sec.  
249.306 of this chapter (Form 6-K). Section 229.601(b)(101) (Item 
601(b)(101) of Regulation S-K), paragraph (101) of Part II--
Information not Required to be Delivered to Offerees or Purchasers 
of Form F-10, paragraph 101 of the Instructions as to Exhibits of 
Form 20-F, paragraph B.(15) of the General Instructions to Form 40-
F, and paragraph C.(6) of the General Instructions to Form 6-K all 
prohibit submission of an Interactive Data File by an issuer that 
prepares its financial statements in accordance with 17 CFR 210.6-01 
through 210.6-10 (Article 6 of Regulation S-X). For an issuer that 
is a management investment company or separate account registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a et seq.) or 
a business development company as defined in Section 2(a)(48) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(48)), General 
Instruction C.3.(g) of Form N-1A (Sec. Sec.  239.15A and 274.11A of 
this chapter), General Instruction I of Form N-2 (Sec. Sec.  239.14 
and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form 
N-3 (Sec. Sec.  239.17a and 274.11b of this chapter), General 
Instruction C.3.(h) of Form N-4 (Sec. Sec.  239.17b and 274.11c of 
this chapter), General Instruction C.3.(h) of Form N-6 (Sec. Sec.  
239.17c and 274.11d of this chapter), and General Instruction C.4 of 
Form N-CSR (Sec. Sec.  249.331 and 274.128 of this chapter), as 
applicable, specifies the circumstances under which an Interactive 
Data File must be submitted.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
29. The general authority citation for part 239 continues to read as 
follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-
3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 
78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 
80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 
126 Stat. 312, unless otherwise noted.
* * * * *
0
30. Amend Form S-1 (referenced in Sec.  239.11) by adding General 
Instruction VIII to read as follows:

    Note: The text of Form S-1 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form S-1

* * * * *

General Instructions

* * * * *

[[Page 29570]]

VIII. Offering by a Special Purpose Acquisition Company

    If a registration statement on this Form S-1 is being used to 
register an offering of securities of a special purpose acquisition 
company, as defined in Item 1601(b) of Regulation S-K (17 CFR 
229.1601(b)), other than in connection with a de-SPAC transaction, as 
defined in Item 1601(a) of Regulation S-K (17 CFR 229.1601(a)), the 
registrant must furnish in the prospectus the information required by 
Items 1602 and 1603 of Regulation S-K (17 CFR 229.1602 and 229.1603), 
in the manner set forth by the structured data provision of Item 1610 
of Regulation S-K (17 CFR 229.1610), in addition to the Items that are 
otherwise required by this Form. If the securities to be registered on 
this Form will be issued in a de-SPAC transaction, attention is 
directed to the requirements of Form S-4 applicable to de-SPAC 
transactions, including, but not limited to, General Instruction L.
0
31. Amend Form S-4 (referenced in Sec.  239.25) by:
0
a. Adding General Instruction L;
0
b. Revising paragraph (b)(7) introductory text of Item 17 and 
Instruction 1 of paragraph (b)(7) of Item 17; and
0
c. Revising Instruction 1 to the signature block.
    The addition and revisions read as follows:

    Note: The text of Form S-4 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form S-4

* * * * *

General Instructions

* * * * *

L. De-SPAC Transactions

    1. If securities to be registered on this Form will be issued in a 
de-SPAC transaction, as defined in Item 1601(a) of Regulation S-K (17 
CFR 229.1601(a)), then the disclosure provisions of Items 1603 through 
1607 and 1609 of Regulation S-K (17 CFR 229.1603 through 229.1607 and 
229.1609), as well as the structured data provision of Item 1610 of 
Regulation S-K (17 CFR 229.1610), shall apply in addition to the 
provisions of this Form. To the extent that the applicable disclosure 
requirements of Subpart 229.1600 are inconsistent with the disclosure 
requirements of this Form, the requirements of Subpart 229.1600 are 
controlling. If the securities to be registered on this Form will be 
issued by a special purpose acquisition company, as defined in Item 
1601(b) of Regulation S-K (17 CFR 229.1601(b)), in a de-SPAC 
transaction, the term ``registrant'' for purposes of the disclosure 
requirements of this Form shall mean the special purpose acquisition 
company.
    2. If the target company, as defined in Item 1601(d) of Regulation 
S-K (17 CFR 229.1601(d)), in a de-SPAC transaction is not subject to 
the reporting requirements of either Section 13(a) or 15(d) of the 
Exchange Act, provide the following additional information with respect 
to the target company:
    a. Item 101 of Regulation S-K (Sec.  229.101 of this chapter), 
description of business;
    b. Item 102 of Regulation S-K (Sec.  229.102 of this chapter), 
description of property;
    c. Item 103 of Regulation S-K (Sec.  229.103 of this chapter), 
legal proceedings;
    d. Item 304 of Regulation S-K (Sec.  229.304 of this chapter), 
changes in and disagreements with accountants on accounting and 
financial disclosure;
    e. Item 403 of Regulation S-K (Sec.  229.403 of this chapter), 
security ownership of certain beneficial owners and management, 
assuming the completion of the de-SPAC transaction and any related 
financing transaction; and
    f. Item 701 of Regulation S-K (Sec.  229.701 of this chapter), 
recent sales of unregistered securities.
    If the target company is a foreign private issuer, as defined in 
Rule 405 (Sec.  230.405 of this chapter), information with respect to 
the target company may be provided in accordance with Items 3.C, 4, 
6.E, 7.A, 8.A.7, and 9.E of Form 20-F, in lieu of the information 
specified above.
    3. If securities to be registered on this Form will be issued in a 
de-SPAC transaction, as defined in Item 1601(a) of Regulation S-K (17 
CFR 229.1601(a)), the prospectus must be distributed to security 
holders no later than the lesser of 20 calendar days prior to the date 
on which action is to be taken or the maximum number of days permitted 
for disseminating the prospectus under the applicable laws of the 
jurisdiction of incorporation or organization.
* * * * *

Item 17. Information With Respect to Companies Other Than S-3 Companies

* * * * *
    (7) Financial statements that would be required in an annual report 
sent to security holders under Rules 14a-3(b)(1) and (b)(2) (Sec.  
240.14b-3 of this chapter), if an annual report was required. In a de-
SPAC transaction, provide the financial statements required by Sec.  
240.15-01 (Rule 15-01 of Regulation S-X). If the registrant's security 
holders are not voting, the transaction is not a roll-up transaction 
(as described by Item 901 of Regulation S-K (Sec.  229.901 of this 
chapter)), and:
* * * * *

Instructions

    1. The financial statements required by paragraph for the latest 
fiscal year need be audited only to the extent practicable. The 
financial statements for the fiscal years before the latest fiscal year 
need not be audited if they were not previously audited. If the company 
being acquired will be a predecessor to a registrant that is a shell 
company, see Sec.  210.15-01(a).
* * * * *

Signatures

* * * * *

Instructions

    1. The registration statement shall be signed by the registrant, 
its principal executive officer or officers, its principal financial 
officer, its controller or principal accounting officer, and by at 
least a majority of the board of directors or persons performing 
similar functions. If the registrant is a foreign person, the 
registration statement shall also be signed by its authorized 
representative in the United States. Where the registrant is a limited 
partnership, the registration statement shall be signed by a majority 
of the board of directors of any corporate general partner signing the 
registration statement. If the securities to be registered on this Form 
will be issued by the special purpose acquisition company in a de-SPAC 
transaction, as such terms are defined in Items 1601(b) and (a) of 
Regulation S-K, the term ``registrant'' for purposes of this 
instruction shall mean the special purpose acquisition and the target 
company, as such term is defined in Item 1601(d) of Regulation S-K.
* * * * *
0
32. Amend Form F-1 (referenced in Sec.  239.31) by adding General 
Instruction VII to read as follows:

    Note: The text of Form F-1 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form F-1

* * * * *

General Instructions

* * * * *

[[Page 29571]]

VII. Offering by a Special Purpose Acquisition Company

    If a registration statement on this Form F-1 is being used to 
register an offering of securities of a special purpose acquisition 
company, as defined in Item 1601(b) of Regulation S-K (17 CFR 
229.1601(b)), other than in connection with a de-SPAC transaction, as 
defined in Item 1601(a) of Regulation S-K (17 CFR 229.1601(a)), the 
registrant must furnish in the prospectus the information required by 
Items 1602 and 1603 of Regulation S-K (17 CFR 229.1602 and 229.1603), 
in the manner set forth by the structured data provision of Item 1610 
of Regulation S-K (17 CFR 229.1610), in addition to the Items that are 
otherwise required by this Form. If the securities to be registered on 
this Form will be issued in a de-SPAC transaction, attention is 
directed to the requirements of Form F-4 applicable to de-SPAC 
transactions, including, but not limited to, General Instruction I.
* * * * *
0
33. Amend Form F-4 (referenced in Sec.  239.34) by:
0
a. Adding General Instruction I;
0
b. Revising Instruction 1 to paragraph (b)(5) of Item 17; and
0
c. Revising the Instructions to paragraph (b)(5) and (b)(6) of Item 17; 
and
0
d. Revising Instruction 1 to the signature block.
    The addition and revisions read as follows:

    Note: The text of Form F-4 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form F-4

* * * * *

General Instructions

* * * * *

I. De-SPAC Transactions

    1. If securities to be registered on this Form will be issued in a 
de-SPAC transaction, as defined in Item 1601(a) of Regulation S-K (17 
CFR 229.1601(a)), then the disclosure provisions of Items 1603 through 
1607 and 1609 of Regulation S-K (17 CFR 229.1603 through 229.1607 and 
1609), as well as the structured data provision of Item 1610 of 
Regulation S-K (17 CFR 229.1610), shall apply in addition to the 
provisions of this Form. To the extent that the disclosure requirements 
of Subpart 229.1600 are inconsistent with the disclosure requirements 
of this Form, the requirements of Subpart 229.1600 are controlling. If 
the securities to be registered on this Form will be issued by a 
special purpose acquisition company, as defined in Item 1601(b) of 
Regulation S-K (17 CFR 229.1601(b)), in a de-SPAC transaction, the term 
``registrant'' for purposes of the disclosure requirements of this Form 
shall mean the special purpose acquisition company.
    2. If the target company, as defined in Item 1601(d) of Regulation 
S-K (17 CFR 229.1601(d)), in a de-SPAC transaction is not subject to 
the reporting requirements of either Section 13(a) or 15(d) of the 
Exchange Act, provide the following additional information with respect 
to the company:
    a. Item 101 of Regulation S-K (Sec.  229.101 of this chapter), 
description of business;
    b. Item 102 of Regulation S-K (Sec.  229.102 of this chapter), 
description of property;
    c. Item 103 of Regulation S-K (Sec.  229.103 of this chapter), 
legal proceedings;
    d. Item 403 of Regulation S-K (Sec.  229.403 of this chapter), 
security ownership of certain beneficial owners and management, 
assuming the completion of the de-SPAC transaction and any related 
financing transaction; and
    e. Item 701 of Regulation S-K (Sec.  229.701 of this chapter), 
recent sales of unregistered securities.
    If the target company is a foreign private issuer, as defined in 
Rule 405 (Sec.  230.405 of this chapter), information with respect to 
the target company may be provided in accordance with Items 3.C, 4, 
6.E, 7.A, 8.A.7, and 9.E of Form 20-F, in lieu of the information 
specified above.
    3. If securities to be registered on this Form will be issued in a 
de-SPAC transaction, as defined in Item 1601(a) of Regulation S-K (17 
CFR 229.1601(a)), the prospectus must be distributed to security 
holders no later than the lesser of 20 calendar days prior to the date 
on which action is to be taken or the maximum number of days permitted 
for disseminating the prospectus under the applicable laws of the 
jurisdiction of incorporation or organization.
* * * * *

Part I

* * * * *

Item 17. Information With Respect to Foreign Companies Other Than F-3 
Companies

* * * * *

Instructions

    1. The financial statements required by this paragraph for the 
latest fiscal year need be audited only to the extent practicable. The 
financial statements for the fiscal years before the latest fiscal year 
need not be audited if they were not previously audited. If the foreign 
company being acquired will be a predecessor to a registrant that is a 
shell company, see Sec.  210.15-01(a).
* * * * *

Instructions to Paragraph (b)(5) and (b)(6)

    If the financial statements required by paragraphs (b)(5) and 
(b)(6) are prepared on the basis of a comprehensive body of accounting 
principles other than U.S. GAAP, provide a reconciliation to U.S. GAAP 
in accordance with Item 18 of Form 20-F (Sec.  249.220f of this 
chapter) if the foreign business being acquired will be a predecessor 
to the issuer that is a shell company or, in all other circumstances, 
with Item 17 of Form 20-F (Sec.  249.220f of this chapter) unless a 
reconciliation is unavailable or not obtainable without unreasonable 
cost or expense. At a minimum, provide a narrative description of all 
material variations in accounting principles, practices and methods 
used in preparing the non-U.S. GAAP financial statements from those 
accepted in the U.S. when the financial statements are prepared on a 
basis other than U.S. GAAP.

Signatures

* * * * *

Instructions

    1. The registration statement shall be signed by the registrant, 
its principal executive officer or officers, its principal financial 
officer, its controller or principal accounting officer, at least a 
majority of the board of directors or persons performing similar 
functions and its authorized representative in the United States. Where 
registrant is a limited partnership, the registration statement shall 
be signed by a majority of the board of directors of any corporate 
general partner signing the registration statement. If the securities 
to be registered on this Form will be issued by the special purpose 
acquisition company in a de-SPAC transaction, as such terms are defined 
in Items 1601(b) and (a) of Regulation S-K, the term ``registrant'' for 
purposes of this instruction shall mean the special purpose acquisition 
and the target company, as such term is defined in Item 1601(d) of 
Regulation S-K.
* * * * *

[[Page 29572]]

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
34. The general authority citation for part 240 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; 
Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and sec. 503 and 602, 
Pub. L. 112-106, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
35. Amend Sec.  240.12b-2 by adding paragraph (3)(iv) to the definition 
of ``smaller reporting company'' to read as follows:


Sec.  240.12b-2   Definitions.

* * * * *
    Smaller reporting company. * * *
    (3) * * *
    (iv) Upon the consummation of a de-SPAC transaction, as defined in 
Item 1601(a) of Regulation S-K (17 CFR 229.1601(a)), an issuer must re-
determine its status as a smaller reporting company pursuant to the 
thresholds set forth in paragraphs (1) and (2) of this definition prior 
to its first filing, other than pursuant to Items 2.01(f), 5.01(a)(8), 
and/or 9.01(c) of Form 8-K, following the de-SPAC transaction and 
reflect this re-determination in in its next periodic report.
    (A) Public float is measured as of a date within 4 business days 
after the consummation of the de-SPAC transaction and is computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates as of that date by the 
price at which the common equity was last sold, or the average of the 
bid and asked prices of common equity, in the principal market for the 
common equity; and
    (B) Annual revenues are the annual revenues of the target company, 
as defined in Item 1601(d) of Regulation S-K (17 CFR 229.1601(d)), as 
of the most recently completed fiscal year reported in the Form 8-K 
filed pursuant to Items 2.01(f), 5.01(a)(8), and/or 9.01(c) of Form 8-
K.
* * * * *
0
36. Amend Sec.  240.14a-6 by adding paragraph (q) to read as follows:


Sec.  240.14a-6   Filing requirements.

* * * * *
    (q) De-SPAC transactions. If a transaction is a de-SPAC 
transaction, as defined in Sec.  229.1601(a) of this chapter (Item 
1601(a) of Regulation S-K), the proxy statement of the special purpose 
acquisition company as defined in Sec.  229.1601(b) of this chapter 
(Item 1601(b) of Regulation S-K) must be distributed to security 
holders no later than the lesser of 20 calendar days prior to the date 
on which the meeting of security holders is held or action is taken, or 
the maximum number of days permitted for disseminating the proxy 
statement under the applicable laws of the jurisdiction of 
incorporation or organization.
0
37. Amend Sec.  240.14a-101 by adding paragraph D.5 to the Notes and 
paragraph (f) to Item 14 to read as follows:
* * * * *


Sec.  240.14a-101   Schedule 14A. Information required in proxy 
statement.

* * * * *
    Notes * * *
    D. * * *
    5. Interactive Data File. An Interactive Data File must be included 
in accordance with Sec.  232.405 of this chapter (Rule 405 of 
Regulation S-T) and the EDGAR Filer Manual where applicable pursuant to 
Item 14(f) of this Schedule and Sec.  229.1610 of this chapter (Item 
1610 of Regulation S-K).
* * * * *
Item 14. * * *
* * * * *
    (f) De-SPAC transactions. (1) If the transaction is a de-SPAC 
transaction, as defined in Sec.  229.1601(a) (Item 1601(a) of 
Regulation S-K), then the disclosure provisions of Sec. Sec.  229.1603 
through 229.1607 and 229.1609 (Items 1603 through 1607 and 1609 of 
Regulation S-K), as well as the structured data provision of Sec.  
229.1610 (Item 1610 of Regulation S-K), shall apply to the transaction 
in addition to the provisions of this schedule. To the extent that the 
disclosure requirements of Subpart 229.1600 are inconsistent with the 
disclosure requirements of this schedule, the requirements of Subpart 
229.1600 are controlling.
    (2) Provide the following additional information for the target 
company:
    (i) Information required by Sec.  229.101 of this chapter (Item 101 
of Regulation S-K), description of business;
    (ii) Information required by Sec.  229.102 of this chapter (Item 
102 of Regulation S-K), description of property;
    (iii) Information required by Sec.  229.103 of this chapter (Item 
103 of Regulation S-K), legal proceedings;
    (iv) Section 229.304 of this chapter (Item 304 of Regulation S-K), 
changes in and disagreements with accountants on accounting and 
financial disclosure;
    (v) Information required by Sec.  229.403 of this chapter (Item 403 
of Regulation S-K), security ownership of certain beneficial owners and 
management, assuming the completion of the de-SPAC transaction and any 
related financing transaction;
    (vi) Information required by Sec.  229.701 of this chapter (Item 
701 of Regulation S-K), recent sales of unregistered securities; and
    (vii) If any directors are appointed without action by the security 
holders of the special purpose acquisition company, Sec. Sec.  
229.103(c)(2), 229.401, and 229.404(a) and (b) of this chapter (Items 
103(c)(2), 401, and 404(a) and (b) of Regulation S-K).
* * * * *
0
38. Amend Sec.  240.14c-2 by adding paragraph (e) to read as follows:


Sec.  240.14c-2   Distribution of information statement.

* * * * *
    (e) If a transaction is a de-SPAC transaction, as defined in Sec.  
229.1601(a) of this chapter (Item 1601(a) of Regulation S-K), the 
information statement of the special purpose acquisition company as 
defined in Sec.  229.1601(b) (Item 1601(b) of Regulation S-K) must be 
distributed to security holders no later than the lesser of 20 calendar 
days prior to the date on which the meeting of security holders is held 
or action is taken, or the maximum number of days permitted for 
disseminating the information statement under the applicable laws of 
the jurisdiction of incorporation or organization.
0
39. Amend Sec.  240.14d-100 by:
0
a. Redesignating General Instruction K as General Instruction M; and
0
b. Adding new General Instructions K and L.
    The additions read as follows:
* * * * *


Sec.  240.14d-100   Schedule TO. Tender offer statement under section 
14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934.

* * * * *
    General Instructions:
* * * * *
    K. De-SPAC Transactions. If the filing relates to a de-SPAC 
transaction, as defined in Sec.  229.1601(a) of this chapter (Item 
1601(a) of Regulation S-K), then the disclosure provisions of 
Sec. Sec.  229.1603 through 229.1609 of this chapter (Items 1603 
through 1609 of Regulation S-K), as well as the structured data 
provision of Sec.  229.1610 of this chapter (Item 1610

[[Page 29573]]

of Regulation S-K), shall apply to the transaction in addition to the 
provisions of this statement. To the extent that the disclosure 
requirements of Subpart 229.1600 of this chapter are inconsistent with 
the disclosure requirements of this filing, the requirements of Subpart 
229.1600 of this chapter are controlling.
    L. Interactive Data File. An Interactive Data File must be included 
in accordance with Sec.  232.405 of this chapter (Rule 405 of 
Regulation S-T) and the EDGAR Filer Manual where applicable pursuant to 
Item 14(f) of Sec.  240.14a-101 of this chapter (Schedule 14A) and 
Sec.  229.1610 of this chapter (Item 1610 of Regulation S-K).
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
40. The authority citation for part 249 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124 
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); 
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, 
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
    Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 401(b), 406 and 407, Pub. L. 107-204, 116 Stat. 745, 
and secs. 2 and 3, Pub. L. 116-222, 134 Stat. 1063.
* * * * *
    Section 249.308 is also issued under 15 U.S.C. 80a-29 and 80a-
37.
* * * * *
0
41. Amend Form 20-F (referenced in Sec.  249.220f) by adding 
Instruction 4 to Item 8 to read as follows:

    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 20-F

* * * * *
Item 8. Financial Information
* * * * *
    Instructions to Item 8:
* * * * *
    4. When the issuer is a shell company that will acquire a business 
that will be its predecessor, provide the information required by Sec.  
240.15-01 (Rule 15-01 of Regulation S-X).
* * * * *
0
42. Amend Form 8-K (referenced in Sec.  249.308) by revising paragraph 
(f) of Item 2.01 by removing the phrase ``the registrant were filing a 
general form for registration of securities on Form 10'' and adding in 
its place ``the acquired business were filing a general form for 
registration of securities on Form 10''. The revision reads as follows:

    Note: The text of Form 8-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 8-K

* * * * *

Item 2.01 Completion of Acquisition or Disposition of Assets

* * * * *
    (f) if the registrant was a shell company, other than a business 
combination related shell company, as those terms are defined in Rule 
12b-2 under the Exchange Act (17 CFR 240.12b-2), immediately before the 
transaction in which the registrant acquired a business, disclose the 
information that would be required if the acquired business were filing 
a general form for registration of securities on Form 10 under the 
Exchange Act reflecting all classes of the registrant's securities 
subject to the reporting requirements of Section 13 (15 U.S.C. 78m) or 
Section 15(d) (15 U.S.C. 78o(d)) of such Act upon consummation of the 
transaction. Notwithstanding General Instruction B.3. to Form 8-K, if 
any disclosure required by this Item 2.01(f) is previously reported, as 
that term is defined in Rule 12b-2 under the Exchange Act (17 CFR 
240.12b-2), the registrant may identify the filing in which that 
disclosure is included instead of including that disclosure in this 
report.
* * * * *

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
43. The authority citation for part 270 continues to read in part as 
follows:

    Authority:  15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, 
and Pub. L. 111-203, sec. 939A, 124 Stat. 1376, unless otherwise 
noted.

0
44. Add Sec.  270.3a-10 to read as follows:


Sec.  270.3a-10   Special Purpose Acquisition Companies.

    (a) Notwithstanding section 3(a)(1)(A) of the Act, a special 
purpose acquisition company (``SPAC'') will not be deemed to be an 
investment company; provided that:
    (1) The SPAC's assets consist solely of Government securities, 
securities issued by government money market funds as defined in Sec.  
270.2a-7(a)(14), and cash items prior to completion of the de-SPAC 
transaction;
    (2) The assets set forth in paragraph (a)(1) of this section are 
not at any time acquired or disposed of for the primary purpose of 
recognizing gains or decreasing losses resulting from market value 
changes;
    (3) The SPAC:
    (i) Seeks to complete a single de-SPAC transaction as a result of 
which:
    (A) The surviving company, either directly or through a primarily 
controlled company, will be primarily engaged in the business of the 
target company or companies, which business is not that of an 
investment company, and
    (B) The surviving company will have at least one class of 
securities listed for trading on a national securities exchange;
    (ii) Files a Form 8-K with the Commission, no later than 18 months 
after the effective date of its initial registration statement, 
disclosing an agreement to engage in the de-SPAC transaction with at 
least one target company; and
    (iii) Completes the de-SPAC transaction no later than 24 months 
after the effective date of its initial registration statement.
    (4) Any assets of the SPAC:
    (i) That are not used in connection with the de-SPAC transaction; 
or
    (ii) In the event of a failure of the SPAC to file a Form 8-K 
within the time frame set forth in paragraph (a)(3)(ii) of this section 
or complete a de-SPAC transaction within the time frame set forth in 
paragraph (a)(3)(iii) of this section will be distributed in cash to 
investors as soon as reasonably practicable thereafter;
    (5) The SPAC is primarily engaged in the business of seeking to 
complete a single de-SPAC transaction, as set forth in paragraphs 
(a)(3) of this section and evidenced by:
    (i) The activities of its officers, directors and employees;
    (ii) Its public representations of policies;
    (iii) Its historical development; and
    (iv) An appropriate resolution of its board of directors, which 
resolution or action has been recorded contemporaneously in its minute 
books or comparable documents; and
    (6) The SPAC does not hold itself out as being primarily engaged in 
the business of investing, reinvesting or trading in securities.
    (b) For purposes of this section:
    (1) Initial registration statement means the registration statement 
that the SPAC filed under the Securities Act of 1933 for its initial 
public offering.
    (2) Primarily controlled company means an issuer that:
    (i) Is controlled within the meaning of section 2(a)(9) of the Act 
by the

[[Page 29574]]

surviving company following a de-SPAC transaction with a degree of 
control that is greater than that of any other person; and
    (ii) Is not an investment company.
    (3) Surviving company means the public company issuer that survives 
a de-SPAC transaction and in which the shareholders of the SPAC 
immediately prior to the de-SPAC transaction will own equity interests 
immediately following the de-SPAC transaction.
    (4) De-SPAC transaction has the same meaning as defined in Sec.  
229.1601(a) of this chapter (Item 1601(a) of Regulation S-K).
    (5) Special purpose acquisition company has the same meaning as 
defined in Sec.  229.1601(b) of this chapter (Item 1601(b) of 
Regulation S-K).
    (6) Target company has the same meaning as defined in Sec.  
229.1601(d) of this chapter (Item 1601(d) of Regulation S-K).

    By the Commission.

     Dated: March 30, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-07189 Filed 5-9-22; 11:15 am]
BILLING CODE 8011-01-P