[Federal Register Volume 89, Number 38 (Monday, February 26, 2024)]
[Rules and Regulations]
[Pages 14158-14327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-01853]



[[Page 14157]]

Vol. 89

Monday,

No. 38

February 26, 2024

Part II





Securities and Exchange Commission





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





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

  Federal Register / Vol. 89 , No. 38 / Monday, February 26, 2024 / 
Rules and Regulations  

[[Page 14158]]


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SECURITIES AND EXCHANGE COMMISSION

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

[Release Nos. 33-11265; 34-99418; IC-35096; File No. S7-13-22]
RIN 3235-AM90


Special Purpose Acquisition Companies, Shell Companies, and 
Projections

AGENCY: Securities and Exchange Commission.

ACTION: Final rules; guidance.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
adopting rules intended to enhance investor protections in initial 
public offerings by special purpose acquisition companies (commonly 
known as SPACs) and in subsequent business combination transactions 
between SPACs and private operating companies (commonly known as de-
SPAC transactions). Specifically, we are adopting disclosure 
requirements with respect to, among other things, compensation paid to 
sponsors, conflicts of interest, dilution, and the determination, if 
any, of the board of directors (or similar governing body) of a SPAC 
regarding whether a de-SPAC transaction is advisable and in the best 
interests of the SPAC and its security holders. We are adopting rules 
that require a minimum dissemination period for the distribution of 
security holder communication materials in connection with de-SPAC 
transactions. We are adopting rules that require the re-determination 
of smaller reporting company (``SRC'') status in connection with de-
SPAC transactions. We are also adopting rules that address the scope of 
the safe harbor for forward-looking statements under the Private 
Securities Litigation Reform Act of 1995. Further, we are adopting a 
rule that would deem any business combination transaction involving a 
reporting shell company, including a SPAC, to be a sale of securities 
to the reporting shell company's shareholders and are adopting 
amendments to a number of financial statement requirements applicable 
to transactions involving shell companies. In addition, we are 
providing guidance on the status of potential underwriters in de-SPAC 
transactions and adopting updates to our guidance regarding the use of 
projections in Commission filings as well as requiring additional 
disclosure regarding projections when used in connection with business 
combination transactions involving SPACs. Finally, we are providing 
guidance for SPACs to consider when analyzing their status under the 
Investment Company Act of 1940.

DATES: Effective date: The final rules are effective on July 1, 2024.
    Compliance date: The compliance date for the final rules, other 
than 17 CFR 229.1610, is July 1, 2024. The compliance date for 17 CFR 
229.1610 is June 30, 2025.

FOR FURTHER INFORMATION CONTACT: Mark Saltzburg, Office of Rulemaking, 
Division of Corporation Finance, at (202) 551-3430; with respect to 17 
CFR 230.145a (Rule 145a under the Securities Act of 1933), the Office 
of Chief Counsel, Division of Corporation Finance, at (202) 551-3500; 
with respect to 17 CFR 210.15-01 (Rule 15-01 of Regulation S-X), Ryan 
Milne, Office of Chief Accountant, Division of Corporation Finance, at 
(202) 551-3400; with respect to 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 guidance under the Investment Company Act of 1940, 
Rochelle Kauffman Plesset, Seth Davis, or Taylor Evenson, Senior 
Counsels; or Lisa Reid Ragen, Branch Chief, 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 adopting new 17 CFR 
210.15-01, new 17 CFR 229.1601 through 229.1610 (Item 1600 series of 
Regulation S-K), and new 17 CFR 230.145a. We are also adopting 
amendments to:

------------------------------------------------------------------------
           Commission reference                 CFR citation (17 CFR)
------------------------------------------------------------------------
Securities Act of 1933
    Rule 405..............................  Sec.   230.405.
    Form S-1..............................  Sec.   239.11.
    Form F-1..............................  Sec.   239.31.
    Form S-4..............................  Sec.   239.25.
    Form F-4..............................  Sec.   239.34.
Securities Exchange Act of 1934
    Rule 12b-2............................  Sec.   240.12b-2.
    Rule 14a-6............................  Sec.   240.14a-6.
    Rule 14c-2............................  Sec.   240.14c-2.
    Schedule 14A..........................  Sec.   240.14a-101.
    Schedule TO...........................  Sec.   240.14d-100.
    Form 20-F.............................  Sec.   249.220f.
    Form 8-K..............................  Sec.   249.308.
Regulation S-K............................  Sec.  Sec.   229.10 through
                                             229.1406.
    Item 10...............................  Sec.   229.10.
    Item 601..............................  Sec.   229.601.
Regulation S-T............................  Sec.  Sec.   232.10 through
                                             232.903.
    Rule 405..............................  Sec.   232.405.
Regulation S-X............................  Sec.  Sec.   210.1-01
                                             through 210.13-02.
    Rule 1-02.............................  Sec.   210.1-02.
    Rule 3-01.............................  Sec.   210.3-01.
    Rule 3-05.............................  Sec.   210.3-05.
    Rule 3-14.............................  Sec.   210.3-14.
    Rule 8-02.............................  Sec.   210.8-02.
    Rule 10-01............................  Sec.   210.10-01.
------------------------------------------------------------------------

Table of Contents

I. Introduction
II. New Subpart 1600 of Regulation S-K
    A. Definitions
    1. Proposed Definition: ``De-SPAC Transaction''
    2. Comments: Definition of ``De-SPAC Transaction''
    3. Final Definition: ``De-SPAC Transaction''
    4. Proposed Definition: ``Special Purpose Acquisition Company 
(SPAC)''
    5. Comments: Definition of ``Special Purpose Acquisition Company 
(SPAC)''
    6. Final Definition: ``Special Purpose Acquisition Company 
(SPAC)''
    7. Proposed Definition: ``SPAC Sponsor''
    8. Comments: Definition of ``SPAC Sponsor''
    9. Final Definition: ``SPAC Sponsor''
    10. Proposed Definition: ``Target Company''
    11. Comments: Definition of ``Target Company''
    12. Final Definition: ``Target Company''
    B. Sponsors
    1. Proposed Rules
    2. Comments
    3. Final Rules
    C. Conflicts of Interest
    1. Proposed Rules
    2. Comments
    3. Final Rules
    D. Dilution
    1. Proposed Rules
    2. Comments
    3. Final Rules
    E. Prospectus Cover Page and Prospectus Summary Disclosure
    1. Proposed Rules
    2. Comments
    3. Final Rules
    F. De-SPAC Transactions: Background, Reasons, Terms, and Effects
    1. Proposed Item 1605
    2. Comments: Item 1605
    3. Final Item 1605
    G. Board Determination About the De-SPAC Transaction; Reports, 
Opinions, Appraisals, and Negotiations
    1. Proposed Item 1606(a)
    2. Comments: Item 1606(a)
    3. Final Item 1606(a)
    4. Proposed Item 1606(b)
    5. Comments: Item 1606(b)
    6. Final Item 1606(b)
    7. Proposed Items 1606(c) Through (e)
    8. Comments: Items 1606(c) Through (e)
    9. Final Items 1606(c) Through (e)
    10. Proposed Item 1607
    11. Comments: Item 1607
    12. Final Item 1607
    H. Tender Offer Filing Obligations
    1. Proposed Item 1608
    2. Comments: Item 1608
    3. Final Item 1608

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    I. Structured Data Requirement
    1. Proposed Item 1610
    2. Comments
    3. Final Item 1610 and Tagging Compliance Date
III. Disclosures and Liability in De-SPAC Transactions
    A. Non-Financial Disclosures in De-SPAC Disclosure Documents
    1. Proposed Rules
    2. Comments
    3. Final Rules
    B. Minimum Dissemination Period
    1. Proposed Rules
    2. Comments
    3. Final Rules
    C. Private Operating Company as Co-Registrant
    1. Proposed Rules
    2. Comments
    3. Final Rules
    D. Re-Determination of Smaller Reporting Company (SRC) Status
    1. Proposed Rules
    2. Comments
    3. Final Rules and Guidance
    E. PSLRA Safe Harbor
    1. Proposed Rules
    2. Comments
    3. Final Rules
    F. Underwriter Status and Liability in Securities Transactions
    1. Proposed Rule
    2. Comments
    3. Declining To Adopt Proposed Rule 140a; Commission Guidance on 
Underwriter Status in De-SPAC Transactions
IV. Business Combinations Involving Shell Companies
    A. Shell Company Business Combinations and the Securities Act of 
1933
    1. Proposed Rule
    2. Comments
    3. Final Rule
    B. Financial Statement Requirements in Business Combination 
Transactions Involving Shell Companies
    1. Proposed Rule 15-01(a), Rule 1-02(d), and Form Instructions: 
Audit Requirements
    2. Comments: Rule 15-01(a), Rule 1-02(d), and Form Instructions: 
Audit Requirements
    3. Final Rule 15-01(a), Rule 1-02(d), and Form Instructions: 
Audit Requirements
    4. Proposed Rule 15-01(b): Number of Years of Financial 
Statements
    5. Comments: Rule 15-01(b): Number of Years of Financial 
Statements
    6. Final Rule 15-01(b): Number of Years of Financial Statements
    7. Proposed Rule 15-01(c): Age of Financial Statements
    8. Comments: Rule 15-01(c): Age of Financial Statements
    9. Final Rule 15-01(c): Age of Financial Statements
    10. Proposed Rules: 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-
14(b)(3)(ii): Acquisition of a Business or Real Estate Operation by 
a Predecessor
    11. Comments: Rules 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-
14(b)(3)(ii): Acquisition of a Business or Real Estate Operation by 
a Predecessor
    12. Final Rules 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-
14(b)(3)(ii): Acquisition of a Business or Real Estate Operation by 
a Predecessor
    13. Proposed Rule 15-01(e): Financial Statements of a Shell 
Company Registrant After the Combination With Predecessor
    14. Comments: Rule 15-01(e): Financial Statements of a Shell 
Company Registrant After the Combination With Predecessor
    15. Final Rule 15-01(e): Financial Statements of a Shell Company 
Registrant After the Combination With Predecessor
    16. Proposed Rule 11-01(d)
    17. Comments: Rule 11-01(d)
    18. Decline to Adopt Rule 11-01(d)
    19. Proposed Item 2.01(f) of Form 8-K
    20. Comments: Item 2.01(f) of Form 8-K
    21. Final Item 2.01(f) of Form 8-K
    22. Proposed Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of 
Predecessors
    23. Comments: Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of 
Predecessors
    24. Final Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of 
Predecessors
    25. Other Shell Company Matters
V. Enhanced Projections Disclosure
    A. Proposed Items 10(b) and 1609 of Regulation S-K
    1. Proposed Rules
    2. Comments
    3. Final Rules
VI. The Status of SPACs Under the Investment Company Act
    A. Background
    B. SPAC Activities
    1. The Nature of SPAC Assets and Income
    2. Management Activities
    3. Duration
    4. Holding Out
    5. Merging With an Investment Company
    C. Conclusion
VII. Other Matters
VIII. Economic Analysis
    A. Baseline and Affected Parties
    1. SPAC Initial Public Offerings
    2. De-SPAC Transactions
    3. Blank Check Companies
    4. Shell Company Business Combinations
    B. Benefits and Costs of the Adopted Rules
    1. Disclosure-Related Rules
    2. Liability-Related Rules
    3. Shell Company-Related Rules
    4. Enhanced Projections Disclosure (Amendments to Item 10(b) of 
Regulation S-K)
    C. Effects on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    D. Reasonable Alternatives
    1. Disclosure-Related Rules
    2. PSLRA Safe Harbor Guidance
    3. Expanding Disclosure in Reporting Shell Company Business 
Combinations
    4. Enhanced Projections Disclosure
IX. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Estimates of the Effects of the Final Rules on the 
Collections of Information
    C. Incremental and Aggregate Burden and Cost Estimates
    1. Current Inventory Update To Reflect $600 Per Hour Rather Than 
$400 Per Hour Outside Professional Costs Rate
    2. PRA Burden and Cost Estimates Resulting From the Final Rules
X. Final Regulatory Flexibility Analysis
    A. Need for, and Objectives of, the Final Rules
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Final Rules
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Duplicative, Overlapping or Conflicting Federal Rules
    F. Agency Action To Minimize Effect on Small Entities
Statutory Authority

[[Page 14160]]

I. Introduction

    Special purpose acquisition companies, or SPACs, first began to 
emerge in the 1990s as an alternative to blank check companies after 
blank check companies began to be regulated more strictly pursuant to 
17 CFR 230.419 (``Rule 419'' \1\ under the Securities Act of 1933 
(``Securities Act'')),\2\ a rule the Commission adopted following the 
enactment of the Securities Enforcement Remedies and Penny Stock Reform 
Act of 1990 (``Penny Stock Reform Act'').\3\ SPACs are shell companies 
\4\ organized and managed by a sponsor for the purpose of merging with 
or acquiring one or more unidentified private operating companies, 
commonly known as a de-SPAC transaction, within a certain time 
frame.\5\ The de-SPAC transaction is a hybrid transaction that contains 
elements of both an initial public offering (``IPO'') and a merger and 
acquisition (``M&A'') transaction.\6\ While structured as an M&A 
transaction, the de-SPAC transaction also is the functional equivalent 
of the private target company's IPO, because it results in the target 
company becoming part of a combined company that is a reporting company 
and provides the private target company with access to cash proceeds 
that the SPAC had previously raised from the public. As part of this 
process, the shareholders of the SPAC go from owning shares in a shell 
company to owning shares in a combined company that conducts the 
business of the private target. As a result, the de-SPAC transaction 
implicates disclosure and liability concerns associated with both IPOs 
and M&A transactions. Additionally, parties involved in the SPAC 
process, such as the SPAC sponsor, may have incentives to consummate a 
de-SPAC transaction that are not present in a traditional IPO or M&A 
transaction. Further, as discussed in the Proposing Release,\7\ the 
shareholders and management of a private operating company may believe 
there to be certain advantages of combining with a SPAC compared with 
conducting an underwritten IPO.
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    \1\ The regulation at 17 CFR 230.419(a)(2) defines the term 
``blank check company'' 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 (``Rule 3a51-1'' under the 
Securities Exchange Act of 1934).
    \2\ 15 U.S.C. 77a et seq.
    \3\ Public Law 101-429, 104 Stat. 931 (Oct. 15, 1990). See Blank 
Check Offerings, Release No. 33-6932 (Apr. 13, 1992) [57 FR 18037 
(Apr. 28, 1992)]. A SPAC is not a ``blank check company'' because, 
given that it raises more than $5 million in a firm commitment 
underwritten initial public offering, it is not selling ``penny 
stock.'' See Penny Stock Definition for Purposes of Blank Check 
Rule, Release No. 33-7024 (Oct. 25, 1993) [58 FR 58099 (Oct. 29, 
1993)]. To that end, SPACs often have provisions in their governing 
instruments that prohibit them from being ``penny stock'' issuers.
    \4\ 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.
    \5\ The descriptions included in this release of common features 
and fees currently seen in SPACs and SPAC transaction structures are 
based, in part, on reviews by the Commission staff of SPAC filings 
with the Commission. Based on review by the Commission staff of SPAC 
filings, in the majority of transactions, SPACs typically combine 
with private operating companies. In some cases, however, SPACs may 
combine with other public companies. See, e.g., Bailey Lipschultz, 
Re-SPACs Gain Steam as Arrival Finds New Sponsor, Bloomberg News 
(Apr. 10, 2023), available at https://news.bloomberglaw.com/mergers-and-acquisitions/re-spacs-gain-steam-as-arrival-shares-sink-new-sponsor-steps-up.
    \6\ We use the terms ``initial public offering'' or ``IPO'' to 
refer 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 Securities Exchange Act of 1934 
immediately prior to the registration.
    \7\ Special Purpose Acquisition Companies, Shell Companies, and 
Projections, Release No. 33-11048 (Mar. 30, 2022) [87 FR 29458 (May 
13, 2022)] (``Proposing Release''), at 29461, nn.22-25 and 
accompanying text. See infra section VIII.A.1.ii.
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    To have the necessary context for the concerns unique to SPACs and 
de-SPAC transactions, it is critical to understand the structure and 
lifecycle of a SPAC. Once formed, a SPAC will conduct its IPO in the 
form of a firm commitment underwritten IPO of $5 million or more in 
units consisting of redeemable shares and of warrants. The underwriting 
fees for a SPAC IPO typically approximate 5% to 5.5% of the offering 
proceeds, and a significant portion of those fees (around 3% of the IPO 
proceeds) are conditioned on the completion of a de-SPAC 
transaction.\8\ The SPAC sponsor is usually compensated through a 
``promote'' or ``founder's shares''--i.e., discounted SPAC shares 
received prior to the SPAC's IPO that generally only have value if a 
de-SPAC transaction occurs.\9\
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    \8\ See infra section VIII.A.1.iii.
    \9\ The sponsor's compensation usually amounts to around 20% of 
the total shares of a SPAC after its IPO.
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    Following its IPO, a SPAC places all or substantially all of the 
IPO proceeds into a trust or escrow account. The SPAC typically 
registers its shares and warrants under section 12(b) of the Securities 
Exchange Act of 1934 (``Exchange Act'') \10\ and lists the units 
(typically consisting of a common share and a fraction of a warrant) 
for trading on a national securities exchange.\11\
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    \10\ 15 U.S.C. 78a et seq.
    \11\ 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 at a price that is higher (often 
$11.50) than the IPO price for common shares (which is often $10) 
upon the later of the passage of a certain time period following the 
SPAC's IPO (often one year) or a certain time period following the 
completion of a de-SPAC transaction (often 30 days). Many warrants 
have limitations on their potential upside as a result of the right 
of the issuer to call the warrant under certain conditions, which 
commonly include a condition that the underlying common stock have 
traded at or above a certain price (often $18) for a specified 
period of time. The redemption price in those call situations can 
vary based on the specific warrant agreement provisions, so 
investors commonly pay close attention to those pricing provisions.
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    Next, the SPAC seeks to identify a target company for a de-SPAC 
transaction within the time frame specified in its governing 
documents.\12\ If the SPAC does not complete a de-SPAC transaction 
within that time frame, it may seek an extension (often requiring 
approval from its shareholders) or dissolve and liquidate.\13\ If the 
SPAC enters into a business combination agreement with a target 
company, the SPAC files a Form 8-K (or Form 6-K if the SPAC is a 
foreign private issuer (``FPI'') that reports on Form 20-F) \14\ 
announcing the transaction that includes certain information on the 
material terms of the business combination agreement.\15\ The parties 
structure the de-SPAC transaction in different forms that may have tax 
or other regulatory advantages.\16\ Prior to the closing of the de-SPAC 
transaction, the shareholders of the SPAC typically have the

[[Page 14161]]

opportunity to either: (1) require the SPAC to redeem their shares 
prior to the de-SPAC transaction \17\ and receive a pro rata share of 
the amount in the IPO proceeds and related assets subject to the trust 
or escrow arrangements (including interest thereon and commonly less 
amounts released to pay income and franchise taxes), or (2) remain a 
shareholder of the surviving company after the business 
combination.\18\ To offset shareholder redemptions or 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.\19\
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    \12\ The governing documents often provide for a time frame of 
24 months, but it can be as long as 36 months. Exchange listing 
rules generally require a SPAC to complete a business combination 
within three years (or such shorter period specified in its 
registration statement or applicable governing documents). See, 
e.g., NYSE Listed Company Manual Section 102.06 and Nasdaq Listing 
Rule IM-5101-2.
    \13\ SPAC shareholders typically also have a redemption right in 
connection with any votes to extend the duration of the SPAC.
    \14\ See definition of ``foreign private issuer,'' infra note 
442.
    \15\ 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.
    \16\ Three examples of common de-SPAC transaction structures 
are: (i) the SPAC is the surviving company in a merger and the 
target company merges into the SPAC, (ii) the target company is the 
surviving company in a merger and the SPAC merges into the target 
company, and (iii) a new holding company is created and the SPAC and 
target company merge into that new holding company. The holding 
company structure referred to in (iii) above includes ``double-
dummy'' structure transactions.
    \17\ Until they become exercisable, warrants issued by the SPAC 
do not typically provide a right to require the redemption of the 
warrant by any party.
    \18\ De-SPAC transactions often result in the former SPAC 
shareholders owning a minority interest in the combined company. 
According to one study of the 47 de-SPAC transactions that occurred 
between Jan. 2019 and June 2020, SPAC shareholders, including the 
SPAC sponsor, held a median of 35% of the combined company after a 
de-SPAC transaction and the sponsor alone held a median of 12% of 
the combined company. Michael Klausner, Michael Ohlrogge & Emily 
Ruan, A Sober Look at SPACs, 39 Yale J. Reg., 228, 239-240 (2022).
    \19\ 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.
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    Regardless of its form, a de-SPAC transaction often is accompanied 
by the need to attain shareholder approval for certain items (e.g., 
amendments to the governing documents of the SPAC, or authorization of 
additional securities for issuance), and, in such cases, a SPAC 
provides its shareholders with a proxy statement on Schedule 14A or an 
information statement on Schedule 14C.\20\ If the SPAC, the target 
company, or a holding company \21\ must register the offer and sale of 
its securities to be issued in the de-SPAC transaction, the entity 
typically files a registration statement on Form S-4 or F-4 to do 
so.\22\ If no registration statement or proxy or information statement 
is required, the SPAC may disseminate a tender offer statement (i.e., a 
Schedule TO) for the redemption offer to its security holders with 
information about the target company.\23\
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    \20\ 17 CFR 240.14a-2; Exchange Act Rule 14c-2. The regulation 
at 17 CFR 240.3a12-3(b) provides an exemption from the proxy and 
information statement rules for FPIs, providing that ``[s]ecurities 
registered by a foreign private issuer, as defined in Rule 3b-4. . 
., shall be exempt from sections 14(a), 14(b), 14(c), 14(f) and 16 
of the Act.''
    \21\ In certain de-SPAC structures, a holding company is formed 
to acquire both the private operating company and the SPAC.
    \22\ As noted above, SPACs currently 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, (2) the entity that 
will have a continuing Exchange Act reporting obligation following 
the transaction, and (3) the disclosures provided in connection with 
the transaction.
    \23\ The Commission has promulgated rules under the Exchange Act 
setting forth filing, disclosure, and dissemination requirements in 
connection with tender offers. See, e.g., 17 CFR 240.14d-1 through 
240.14d-103, 17 CFR 240.14e-1 through 240.14e-8 (``Regulation 14E'' 
under the Exchange Act), and 17 CFR 240.13e-4 (``Rule 13e-4'' under 
the Exchange Act). When an issuer conducts a tender offer, the 
issuer may be required to file and disseminate a Schedule TO 
pursuant to Rule 13e-4. Because the redemption rights in a SPAC 
context generally have indicia of a tender offer, such as a limited 
period of time for the SPAC security holders to request redemption 
of their securities, SPACs will generally file a Schedule TO in 
circumstances where, in connection with a de-SPAC transaction, the 
parties are neither soliciting votes or consents nor registering the 
offer or sale of securities. The Commission staff has not objected 
if a SPAC does not comply with the tender offer rules when the SPAC 
files a required 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 17 CFR 240.14a-1 through 240.14b-2 (``Regulation 
14A'' under the Exchange Act) or 240.14c-1 through 240.14c-101 
(``Regulation 14C'' under the Exchange Act), 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 to a SPAC that does not 
file a required Schedule 14A or 14C in connection with the de-SPAC 
transaction or an extension. In these circumstances, SPACs have 
generally filed and disseminated Schedules TO, and 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.H for a 
discussion of 17 CFR 229.1608 (``Item 1608'' of Regulation S-K) that 
we are adopting in this release and section IV.A for a discussion of 
Rule 145a under the Securities Act that we are adopting in this 
release, which will affect when a SPAC may be required to file a 
registration statement in connection with a de-SPAC transaction. For 
exchange-listed SPACs, exchange rules may require a SPAC to file 
tender offer documents with the Commission in some circumstances. 
See, e.g., Nasdaq Listing Rule IM-5101-2; NYSE Listed Company Manual 
Section 102.06. The staff position discussed in this footnote and 
any other staff guidance or statements referenced in this release, 
including staff legal bulletins, staff compliance and disclosure 
interpretations, and the Division of Corporation Finance's Financial 
Reporting Manual (``FRM''), 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 views reflected 
in these staff positions or the content of these staff statements 
and, like all staff positions or 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.
---------------------------------------------------------------------------

    Finally, after the completion of the de-SPAC transaction, the 
combined company must file a Form 8-K within four business days that 
includes information about the target company equivalent to the 
information that a new reporting company would be required to provide 
when filing a Form 10 under the Exchange Act.\24\
---------------------------------------------------------------------------

    \24\ 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. If the 
shell company is an FPI then a Form 20-F should be filed no later 
than four business days after the consummation of the acquisition 
that includes all of the information for the target company that 
Form 20-F requires for registration of securities. By the time the 
Form 8-K with Form 10 information is filed, the securities of the 
combined company have often already begun trading on a national 
securities exchange with a new ticker symbol because the securities 
of the SPAC generally trade on an exchange until the consummation of 
the de-SPAC transaction and the securities of the combined company 
generally commence trading on the following business day.
---------------------------------------------------------------------------

    In recent years, the U.S. securities market experienced a 
significant increase in the number of SPAC IPOs, as shown in Table 1 
\25\ below.
---------------------------------------------------------------------------

    \25\ Estimates of SPAC IPO and IPO data in Table 1 are based on 
SPAC Analytics, SPAC and US IPO Activity, available at https://www.spacanalytics.com. Estimates of de-SPAC transactions in Table 1 
are based on data from Dealogic for SPACs registered with the 
Commission and where year is based on M&A Completion Date.

                                        Table 1--Number of SPAC IPOs in the U.S. Securities Market From 2012-2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           2012    2013    2014    2015    2016    2017    2018    2019    2020    2021    2022    2023
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Number of Offerings
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPAC IPOs...............................................       9      10      12      20      13      34      46      59     248     613      86      31
IPOs (including SPAC IPOs)..............................     147     220     258     173     111     189     225     213     450     968     118      72
Percentage from SPACs...................................      6%      5%      5%     12%     12%     18%     20%     28%     55%     63%     73%     43%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Total Proceeds (in billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
SPAC IPOs...............................................     0.5     1.4     1.8     3.9     3.5    10.0    10.8    13.6    83.4   162.5    13.4     3.8
IPOs (including SPAC IPOs)..............................    50.1    70.8    93.0    39.2    25.8    50.3    63.9    72.2   179.4   334.7    22.9    25.1

[[Page 14162]]

 
Percentage from SPACs...................................      1%      2%      2%     10%     14%     20%     17%     19%     46%     49%     59%     15%
Number of Completed De-SPAC Transactions................       6      11       5      10       9      13      23      28      64     199     101      89
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As shown above in Table 1, SPAC IPOs represent a significant share 
of the U.S. IPO market in recent years. While we recognize that, like 
overall IPO activity, the SPAC IPO market has declined recently, SPAC 
IPOs nonetheless constituted over half of all U.S. IPOs respectively in 
2020, 2021, and 2022, and constituted 43% of all U.S. IPOs in 2023.\26\ 
The number of de-SPAC transactions has also been significant relative 
to the number of non-SPAC U.S. IPOs.
---------------------------------------------------------------------------

    \26\ Id.
---------------------------------------------------------------------------

    A similar trend has occurred when considering total proceeds for 
SPAC IPOs as a percentage of total proceeds raised in all U.S. IPOs 
over this period. SPAC IPO proceeds represented 46%, 49%, and 59% of 
total proceeds raised in all U.S. IPOs respectively in 2020, 2021, and 
2022. This percentage declined to 15% in 2023.\27\
---------------------------------------------------------------------------

    \27\ Id.
---------------------------------------------------------------------------

    During the years of increase in SPAC IPOs, many market observers 
raised concerns about various aspects of the SPAC structure and the 
hybrid nature of the de-SPAC transaction.\28\ Among other things, 
commentators expressed concerns about SPAC sponsor compensation and 
other costs that can have a dilutive effect on a SPAC's 
shareholders,\29\ potential conflicts of interest in the SPAC structure 
and de-SPAC transactions (e.g., the SPAC sponsors' compensation being 
contingent on the completion of the de-SPAC transaction could lead 
sponsors to enter into de-SPAC transactions that are unfavorable to 
unaffiliated shareholders),\30\ and SPAC governing documents and stock 
exchange listing rules under which SPAC shareholders can vote in favor 
of a proposed de-SPAC transaction yet redeem their shares prior to the 
closing of the transaction.\31\
---------------------------------------------------------------------------

    \28\ 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. 
In addition, as discussed in the Proposing Release, the Commission's 
Investor Advisory Committee issued recommendations and expressed 
certain concerns regarding SPACs. See Proposing Release, supra note 
7, at 29462, nn.36-38 and accompanying text.
    \29\ 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, Wall St. J. (Apr. 25, 2021).
    \30\ See, e.g., Klausner, Ohlrogge & Ruan, supra note 18; Usha 
Rodrigues & Michael A. Stegemoller, Redeeming SPACs (2021), U. of 
Ga. Sch. of L. Legal Stud. Res. Paper No. 2021-09, available at 
https://ssrn.com/abstract=3906196 or http://dx.doi.org/10.2139/ssrn.3906196 (in the Proposing Release, a working paper of this 
article was cited as Usha R. Rodrigues and Michael Stegemoller, 
SPACs: Insider IPOs (SSRN Working Paper, 2021), with the short form 
citation ``Rodrigues and Stegemoller''); Minmo Gahng, Jay R. Ritter 
& Donghang Zhang, SPACs, 36 The Rev. of Financial Stu. 3463 (2023), 
available at https://doi.org/10.1093/rfs/hhad019; 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.
    \31\ See Mira Ganor, The Case for Non-Binary, Contingent, 
Shareholder Action, 23 U. Pa. J. Bus. L. 390 (2021); Rodrigues & 
Stegemoller, supra note 30. 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''). In April 2022, the Commission's Investor Advocate 
issued a recommendation to the NYSE and Nasdaq that their respective 
listing standards should prohibit consummation of a business 
combination when public SPAC shareholders exercise their conversion 
rights for a majority of the shares. See Memorandum, dated April 21, 
2022, from Rick A. Fleming, Investor Advocate, U.S. Securities and 
Exchange Commission, to Adena T. Friedman, President & Chief 
Executive Officer, and John Zecca, EVP & Global Chief Legal and 
Regulatory Officer, Nasdaq, Inc., available at https://www.sec.gov/about/offices/investorad/recommendation-of-the-investor-advocate-nasdaq-spac-listing-standards-042122.pdf; and Memorandum, dated 
April 21, 2022, from Rick A. Fleming, Investor Advocate, U.S. 
Securities and Exchange Commission, to Lynn Martin, President, and 
Jaime L. Klima, Chief Regulatory Officer, The NYSE Group, Inc., 
available at https://www.sec.gov/about/offices/investorad/recommendation-of-the-investor-advocate-nyse-spac-listing-standards-042122.pdf.
---------------------------------------------------------------------------

    Some commentators have expressed concerns regarding the adequacy of 
the disclosures provided to investors in SPAC IPOs and de-SPAC 
transactions \32\ in terms of explaining the potential risks and 
effects for investors related to these transactions and the potential 
benefits for the SPAC sponsor and other affiliates of the SPAC.\33\ For 
example, even though the de-SPAC transaction essentially serves as the 
IPO of the target company in the form of an M&A transaction, investors 
may not receive the same information about the target company as they 
would in a registration statement for a traditional IPO, because a 
filing for an M&A transaction has different disclosure 
requirements.\34\
---------------------------------------------------------------------------

    \32\ Throughout this release, when we discuss ``SPAC 
transactions,'' we are referencing both SPAC IPOs and de-SPAC 
transactions.
    \33\ 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 Commission actions have highlighted disclosures about the 
private operating company that are allegedly materially misleading, 
among other things. 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) (settled 
order); In the Matter of Nikola Corp., Release No. 33-11018, 34-
93838 (Dec. 21, 2021) (settled order); SEC v. Akazoo S.A., Case No. 
1:20-cv-e08101 (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).
    \34\ For example, a traditional IPO requires a more 
comprehensive description of the business of a prospective 
registrant than is required of a private target operating company in 
an M&A transaction. Compare Item 11(a) of Form S-1, with Item 
17(b)(1) of Form S-4, and Item 14(b)(3) of Schedule 14A. 
Additionally, a description of property and material legal 
proceedings is required for a prospective registrant in a 
traditional IPO, but these disclosure requirements do not apply to a 
private target operating company in an M&A transaction. See Item 
11(b)-(c) of Form S-1.
---------------------------------------------------------------------------

    There are also additional disclosure and liability concerns that 
stem from the hybrid nature of the de-SPAC transaction. For example, 
some 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 and have expressed concern that some SPACs have taken 
the

[[Page 14163]]

position that the Private Securities Litigation Reform Act of 1995 
(``PSLRA'') \35\ safe harbor applies to forward-looking statements made 
by SPACs in connection with de-SPAC transactions.\36\ The target 
company also is often not required to sign a registration statement 
filed for a de-SPAC transaction (except in transaction structures where 
the target company survives the de-SPAC transaction) and, by extension, 
would not take on section 11 liability even though, similar to a 
traditional IPO, reliable information about the business of the target 
company is critical to investors when deciding whether to approve the 
transaction and to invest in the combined company through their 
redemption decision. Finally, commentators have noted that, unlike a 
traditional IPO, a registered de-SPAC transaction lacks a named 
underwriter that would typically perform traditional gatekeeping 
functions, such as due diligence on the target company, and would be 
subject to liability under section 11 of the Securities Act for the 
registration statement.\37\
---------------------------------------------------------------------------

    \35\ Public Law 104-67, 109 Stat. 737 (1995).
    \36\ See, e.g., Michael Dambra, Omri Even-Tov & Kimberlyn 
George, Should SPAC Forecasts Be Sacked? (SSRN Working Paper, 2022), 
available at https://www.utah-wac.org/2022/Papers/even-tov_UWAC.pdf; 
AFR Letter; Park Testimony; Rodrigues & Stegemoller, supra note 30; 
see also Heather Somerville & Eliot Brown, SPAC Startups Made Lofty 
Promises. They Aren't Working Out., Wall St. J., Feb. 25, 2022.
    \37\ See AFR Letter; Deane Testimony; Rodrigues Testimony. For a 
general discussion of the role of gatekeepers in securities markets, 
see also John C. Coffee Jr., Gatekeeper Failure and Reform: The 
Challenge of Fashioning Relevant Reforms, 84 B. U. L. Rev. 301 
(2004); John C. Coffee, Jr., Gatekeepers: The Professions and 
Corporate Governance (2006).
---------------------------------------------------------------------------

    In response to a number of these and other concerns, the Commission 
staff provided guidance relating to SPACs on five occasions between 
December 2020 and April 2021.\38\ Then, in March 2022, the Commission 
proposed new rules and rule amendments to enhance existing disclosure 
requirements and investor protections in SPAC IPOs and in de-SPAC 
transactions.\39\ On July 13, 2022, the U.S. Securities and Exchange 
Commission Small Business Capital Formation Advisory Committee (``Small 
Business Capital Formation Advisory Committee'') issued recommendations 
related to this proposal.\40\
---------------------------------------------------------------------------

    \38\ 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); 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).
    \39\ In this release, unless otherwise indicated, comment 
letters cited refer to comment letters received in response to the 
Proposing Release, and are available at https://www.sec.gov/comments/s7-13-22/s71322.htm. On March 30, 2022, the Commission 
published the Proposing Release on its website. The comment period 
for the Proposing Release was open for 30 days from publication in 
the Federal Register and ended on June 13, 2022. Four commenters 
stated that the comment period was inadequate and/or recommended 
extending the comment period. See letters from Christopher 
Iacovella, Chief Executive Officer, American Securities Association 
(June 7, 2022) (``American Securities Association''); Jennifer 
Schulp, Director of Financial Regulation Studies, Center for 
Monetary and Financial Alternatives, Cato Institute (June 13, 2022) 
(``Cato Institute''); Bobby Franklin, President & CEO, National 
Venture Capital Association (June 13, 2022); Rod Miller, Chair, 
Securities Regulation Committee, New York City Bar Association (June 
13, 2022) (``NYC Bar''). In Oct. 2022, the Commission reopened the 
comment period for the Proposing Release and other rulemakings 
because certain comments on the Proposing Release and other 
rulemakings were potentially affected by a technological error in 
the Commission's internet comment form. See Resubmission of Comments 
and Reopening of Comment Periods for Several Rulemaking Releases Due 
to a Technological Error in Receiving Certain Comments, Release No. 
33-11117 (Oct. 7, 2022) [87 FR 63016 (Oct. 18, 2022)] (``Reopening 
Release''). The Reopening Release was published on the Commission's 
website on Oct. 7, 2022, and in the Federal Register on Oct. 18, 
2022, and the reopened comment period ended on Nov. 1, 2022. We have 
considered all comments received since Mar. 30, 2022, and do not 
believe an additional extension of the comment period is necessary.
    \40\ The Small Business Capital Formation Advisory Committee 
recommendations on the Proposing Release are available at https://www.sec.gov/spotlight/sbcfac/sbcfac-spac-recommendation-050622.pdf. 
The Small Business Capital Formation Advisory Committee made the 
following five recommendations, in summary: (1) SPACs should remain 
a viable path for companies to pursue as a means of getting access 
to public market capital and the committee is concerned the proposed 
rules, as written, might render SPACs unusable as an alternative to 
IPOs, (2) the committee is generally supportive of improving 
disclosures for SPACs, particularly in the period of time between 
the announcement of the merger and the closing of the de-SPAC 
transaction, (3) the Commission should clearly identify which 
participants would have underwriter liability and participants 
should be held accountable to the same extent they would be in 
traditional IPOs, (4) projections in de-SPAC transactions should be 
covered by the liability safe harbor provisions of the PSLRA, 
because management projections are an important part of the 
rationale for companies in determining whether to engage in a merger 
with a SPAC and they are necessary when financial intermediaries 
provide fairness opinions related to de-SPAC transactions, and (5) 
the Commission should expand or eliminate the 18-month and 24-month 
timelines provided in the Investment Company Act safe harbor for 
SPACs, because the requirement to engage in a de-SPAC transaction 
within 18 months after a SPAC IPO and complete a de-SPAC transaction 
within 24 months could incentivize SPAC sponsors to engage in 
riskier acquisitions to complete the merger process within 
artificially short periods. With respect to the Small Business 
Capital Formation Advisory Committee's first recommendation--that 
SPACs remain a viable path to access public market capital--we do 
not believe the final rules will vitiate this access or render SPACs 
unusable as an alternative to IPOs. On the contrary, we believe the 
final rules will support the SPAC market by enhancing SPAC 
disclosures and enhancing investor protection in ways that help 
investor decision-making and increase investor confidence that they 
have the necessary information to invest in the SPAC market. With 
respect to the Small Business Capital Formation Advisory Committee's 
second recommendation--supporting improved disclosures for SPACs, 
particularly in the period of time between the announcement of the 
merger and the closing of the de-SPAC transaction--we believe the 
final rules collectively will enhance such disclosure. We address 
the other specific recommendations of the Small Business Capital 
Formation Advisory Committee in the specific sections of this 
release related to those recommendations.
---------------------------------------------------------------------------

    While we recognize that the number of SPAC IPOs has declined since 
2021, the investor protection concerns regarding SPACs and the hybrid 
nature of the de-SPAC transaction identified in the Proposing Release 
do not depend on market fluctuations. In addition, as noted above, 
notwithstanding the recent decline, SPAC transactions have become a 
much larger part of the U.S. securities markets over the last decade 
and could continue to grow as macroeconomic and other factors change. 
Accordingly, after considering comments received on the proposal, we 
are adopting final rules that will provide for greater transparency and 
more robust investor protections in SPAC IPOs and de-SPAC transactions. 
The final rules will enhance the completeness, usefulness, and 
comparability of the disclosures provided by SPACs and target companies 
at the SPAC IPO and de-SPAC transaction stages and will provide other 
important protections for investors in this market, all of which may 
promote market efficiency. Further, given that the de-SPAC transaction 
essentially is an IPO of the target company in the form of an M&A 
transaction, the final rules also will ensure that investors receive 
similar information about the target company and similar protections as 
in a traditional IPO in connection with the de-SPAC transaction. The 
final rules also will provide investors with information about, and 
protections with respect to, the M&A elements of de-SPAC transactions, 
particularly regarding the transaction approval process and conflicts 
of interest.
    To these ends, we are adopting new subpart 229.1600 of 17 CFR part 
229 (``subpart 1600'' of Regulation S-K) that sets forth specialized 
disclosure requirements for SPAC IPOs and de-SPAC transactions. New 
subpart 1600 contains provisions that, among other things:

[[Page 14164]]

     Require additional disclosures about the SPAC sponsor, 
potential conflicts of interest, and dilution;
     Require certain disclosures on the prospectus outside 
front cover page and in the prospectus summary of registration 
statements filed in connection with SPAC IPOs and de-SPAC transactions; 
and
     Require additional disclosures regarding de-SPAC 
transactions, including (1) if the law of the jurisdiction in which the 
SPAC is organized requires its board of directors (or similar governing 
body) to determine whether the de-SPAC transaction is advisable and in 
the best interests of the SPAC and its shareholders, or otherwise make 
any comparable determination, disclosure of that determination, and (2) 
if the SPAC or SPAC sponsor has received any outside report, opinion, 
or appraisal materially relating to the de-SPAC transaction, certain 
disclosures concerning the report, opinion, or appraisal.
    In addition, we are adopting amendments to provide procedural 
protections and to align the disclosures provided to investors, as well 
as the legal obligations of companies, in de-SPAC transactions more 
closely with those in traditional IPOs. Specifically, we are adopting 
final rules that:
     Amend the registration statement forms and schedules filed 
in connection with de-SPAC transactions to require additional 
disclosures about the target company;
     Provide that a target company in a registered de-SPAC 
transaction is a co-registrant on the registration statement used for 
the de-SPAC transaction such that the target company will be subject to 
liability under section 11 of the Securities Act;
     Make the PSLRA safe harbor unavailable to SPACs (including 
with respect to projections of target companies seeking to access the 
public markets through a de-SPAC transaction), by defining ``blank 
check company'' to encompass SPACs (and other companies that would be 
blank check companies but for the fact that they do not sell penny 
stock); and
     Require re-determination of SRC status following a de-SPAC 
transaction.

We also are providing guidance regarding potential underwriter status 
under section 2(a)(11) of the Securities Act in de-SPAC transactions.
    In addition, to provide reporting shell company shareholders, 
including SPAC shareholders, with more consistent Securities Act 
liability protections regardless of transaction structure, we are 
adopting new Rule 145a that specifies that any business combination of 
a reporting shell company, other than a business combination related 
shell company, involving another entity that is not a shell company 
involves a sale of securities to the reporting shell company's 
shareholders.\41\ We are also adopting new 17 CFR 210.15-01 (``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 target company with those 
in traditional IPOs.
---------------------------------------------------------------------------

    \41\ Throughout this release, for readability, 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. 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.
---------------------------------------------------------------------------

    With respect to effectiveness and compliance with the final rules, 
in response to commenters,\42\ we have set an extended effective date 
for the new rules (i.e., July 1, 2024, which is 125 days after the date 
of publication of this release in the Federal Register). This extended 
period before the final rules are effective will provide sufficient 
time for an initial public filing to be made under the existing rules 
for any transactions that are currently pending or planned. Any filings 
made on or after the effective date must comply with the final rules.
---------------------------------------------------------------------------

    \42\ Some commenters indicated that some or all of the new rules 
should not apply to existing SPACs and/or should apply only 
prospectively. See, e.g., letters from American Securities 
Association; Cato Institute; Freshfields Bruckhaus Deringer US LLP 
(June 13, 2022) (``Freshfields''); Don Nguyen (Apr. 20, 2022); 
Nicholas Wilson (June 9, 2022).
---------------------------------------------------------------------------

    We are also issuing guidance regarding the status of SPACs under 
the Investment Company Act of 1940 (``Investment Company Act'').\43\ We 
have decided not to adopt proposed 17 CFR 270.3a-10 (``Rule 3a-10'' 
under the Investment Company Act) which would have provided a safe 
harbor from the definition of investment company under section 
3(a)(1)(A) to SPACs that complied with the rule's conditions. Whether a 
SPAC is an investment company as defined in the Investment Company Act 
is a question of facts and circumstances. Given the individualized 
nature of this analysis, and because, depending on the facts and 
circumstances, a SPAC could be an investment company at any stage of 
its operations such that a specific duration limitation may not be 
appropriate, we have decided not to adopt proposed Rule 3a-10. We are, 
however, providing guidance as to the type of activities that would 
likely raise serious questions about a SPAC's status as an investment 
company under the Investment Company Act.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 80a-1 et seq.
---------------------------------------------------------------------------

II. New Subpart 1600 of Regulation S-K

    The Commission is adopting final rules to add new subpart 1600 to 
Regulation S-K. The new subpart sets forth disclosure requirements 
applicable to SPACs regarding, among other things, the sponsor, 
potential conflicts of interest, and dilution and requires certain 
disclosures on the prospectus cover page and in the prospectus 
summary.\44\ The Commission is also adopting final rules to amend a 
number of forms and schedules used by SPACs for IPOs and de-SPAC 
transactions to require the information set forth in subpart 1600.\45\ 
To the extent that the disclosure requirements in subpart 1600 address 
the same subject matter as the existing disclosure requirements of the 
forms or schedules, the requirements of subpart 1600 are 
controlling.\46\
---------------------------------------------------------------------------

    \44\ The requirements in new subpart 1600 will codify and 
standardize some of the disclosures already commonly provided by 
SPACs.
    \45\ See the amendments to Forms S-1, F-1, S-4, F-4 and 8-K and 
Schedules 14A and TO. While the Commission did not propose 
amendments to Schedule 14C, the disclosure required by subpart 1600 
will 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 the requirements of Form S-4 or F-4 that 
the Commission is adopting, as applicable, in regard to de-SPAC 
transactions would apply in that context. Also, in both Form S-4 and 
Form F-4, we made technical changes from the proposal to clarify 
that the new Regulation S-K Item 1600 series of disclosures should 
be located in the prospectus part of these forms. As a result Form 
S-4 provides: ``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) apply in addition to the 
provisions of this Form and disclosure thereunder must be provided 
in the prospectus, and the structured data provisions of Item 1610 
of Regulation S-K (17 CFR 229.1610) apply to those disclosures.'' We 
made similar changes to Form F-4. For purposes of consistency across 
forms and schedules, we made similar changes as well to Schedule 14A 
and Schedule TO, although there is no requirement in these forms to 
locate the disclosure in the prospectus portion of these schedules. 
In both Schedule 14A and Schedule TO, we made technical changes from 
the proposal to clarify that Item 1604(a) does not apply since these 
disclosure documents do not include an outside front cover page 
similar to a prospectus and Item 1604(b) disclosure should be 
included in the front part of the disclosure document instead of the 
prospectus summary referred to in Item 1604(b).
    \46\ General Instruction L.1. to Form S-4; General Instruction 
I.1. to Form F-4; Item 14(f)(1) to Schedule 14A; General Instruction 
L to Schedule TO.

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[[Page 14165]]

A. Definitions

1. Proposed Definition: ``De-SPAC Transaction''
    The Commission proposed to define the term ``de-SPAC transaction'' 
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).\47\
---------------------------------------------------------------------------

    \47\ Proposed Item 1601(a).
---------------------------------------------------------------------------

2. Comments: Definition of ``De-SPAC Transaction''

    One commenter recommended we add the term ``reorganization'' to the 
non-exhaustive list of transactions set out in the proposed definition 
of de-SPAC transaction.\48\
---------------------------------------------------------------------------

    \48\ Letter from Jay Knight, Chair of the Committee on Federal 
Regulation of Securities of the Section of Business Law of the 
American Bar Association (June 17, 2022) (``ABA'').
---------------------------------------------------------------------------

    One commenter recommended the definition of de-SPAC transaction 
refer to ``initial business combination'' not ``business combination.'' 
\49\ Another commenter recommended the definition be named ``initial 
business combination'' instead of ``de-SPAC transaction.'' \50\
---------------------------------------------------------------------------

    \49\ Letter from ABA.
    \50\ Letter from Kirkland & Ellis LLP (June 15, 2022) 
(``Kirkland & Ellis'').
---------------------------------------------------------------------------

    In response to a request for comment,\51\ one commenter said there 
was no need to tie the definition of de-SPAC transaction to 
transactions that are permitted under exchange listing standards, 
particularly if the definition of SPAC includes non-listed shell 
companies.\52\
---------------------------------------------------------------------------

    \51\ Proposing Release, supra note 7, at 29466 (request for 
comment number 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?'').
    \52\ Letter from Vinson & Elkins (June 13, 2022) (``Vinson & 
Elkins'').
---------------------------------------------------------------------------

3. Final Definition: ``De-SPAC Transaction''
    After considering the comments received, we are adopting the 
definition of de-SPAC transaction as proposed with a modification 
discussed below.\53\ Under the final rules, the term de-SPAC 
transaction means a business combination, such as a merger, 
consolidation, exchange of securities, acquisition of assets, 
reorganization, 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).
---------------------------------------------------------------------------

    \53\ Item 1601(a) of Regulation S-K.
---------------------------------------------------------------------------

    We agree with one commenter's recommendation \54\ to add the term 
``reorganization'' to the non-exhaustive list of transactions set out 
in the definition of de-SPAC transaction. It is our understanding some 
transactions commonly considered to be de-SPAC transactions may be 
considered reorganizations. Hence, we have added the suggested term to 
the final definition.
---------------------------------------------------------------------------

    \54\ Letter from ABA.
---------------------------------------------------------------------------

    A few commenters suggested the definition of de-SPAC transaction 
should use the phrase ``initial business combination.'' \55\ We 
recognize the phrase ``initial business combination'' may be used 
interchangeably with ``business combination'' or ``de-SPAC 
transaction'' in the marketplace today, but we believe the simpler 
proposed term ``business combination'' used in the body of the de-SPAC 
transaction definition will be clearer to market participants. One of 
these commenters suggested the term ``initial business combination'' 
should be used because ``[s]ubsequent acquisitions by the former SPAC 
after Closing should not be considered a De-SPAC Transaction.'' \56\ We 
note that a company that is no longer a SPAC would not be subject to 
the disclosure items in subpart 1600 of Regulation S-K.\57\
---------------------------------------------------------------------------

    \55\ Letters from ABA, Kirkland & Ellis.
    \56\ Letter from ABA.
    \57\ See also infra note 94 and accompanying text concerning 
SPAC status after a de-SPAC transaction.
---------------------------------------------------------------------------

    We agree with the commenter who said there was no need to tie the 
definition of de-SPAC transaction to transactions that are permitted 
under exchange listing standards, particularly if the definition of 
SPAC includes non-listed shell companies.\58\ A narrower definition may 
inappropriately exclude transactions that should be included, such as 
those involving over-the-counter-traded SPACs. We continue to believe, 
as indicated in the Proposing Release,\59\ that the definition of de-
SPAC transaction should include less common transactions that may or 
may not be permitted under exchange listing rules but for which the 
enhanced disclosure and procedural requirements in the final rules may 
be appropriate because they raise the same investor protection 
concerns.\60\
---------------------------------------------------------------------------

    \58\ Letter from Vinson & Elkins.
    \59\ Proposing Release, supra note 7, at 29466.
    \60\ In adopting this definition of de-SPAC transaction, we do 
not intend to indicate that such transactions are or should be 
permitted under the exchanges' SPAC listing rules or that exchange 
listing requirements should not apply to SPACs seeking an exchange 
listing.
---------------------------------------------------------------------------

4. Proposed Definition: ``Special Purpose Acquisition Company (SPAC)''
    The Commission proposed Item 1601 to define the term ``special 
purpose acquisition company (SPAC)'' 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; \61\ 
(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.\62\
---------------------------------------------------------------------------

    \61\ Blank check companies subject to Rule 419 must comply with 
a comprehensive set of disclosure and investor protection 
requirements under the rule and were not proposed to be subject to 
the requirements applicable to SPACs under the proposed rules.
    \62\ Proposed Item 1601(b).
---------------------------------------------------------------------------

5. Comments: Definition of ``Special Purpose Acquisition Company 
(SPAC)''
    One commenter indicated they saw no need for a definition of the 
term ``SPAC,'' as the commenter saw ``no reason why the Proposed Rules 
should not apply to all shell companies, other than business 
combination shell companies, inclusive of blank check companies'' and 
also indicated the proposed definitions of ``SPAC'' and ``de-SPAC 
transaction'' were circular, stating, ``The proposed definition of `de-
SPAC transaction' should be revised to eliminate the reference to `a 
special purpose acquisition company' in order to eliminate 
circularity.'' \63\
---------------------------------------------------------------------------

    \63\ Letter from Vinson & Elkins (noting that ``as proposed, a 
special purpose acquisition company has a business plan to complete 
a de-SPAC transaction, and a de-SPAC transaction involves a special 
purpose acquisition company.'').
---------------------------------------------------------------------------

    A few commenters did not support including the requirement that a 
SPAC ``return all remaining proceeds from the registered offering and 
any concurrent offerings to its shareholders'' in the proposed SPAC 
definition.\64\ One of these commenters said this aspect of the 
definition is ``unnecessary and should be eliminated or revised to only 
refer to the plan to return proceeds from the registered offering'' 
because ``SPACs often hold a modest amount of working capital outside 
of their trust accounts that they use to fund operating expenses.'' 
\65\ According to the commenter, ``[i]f a shell company had such cash 
remaining at the point when the public shareholders exercise their 
redemption rights, it would be inappropriate to exclude such shell 
company from the [p]roposed [r]ules

[[Page 14166]]

based solely on retaining such cash.'' \66\ Another commenter 
recommended that we change this aspect of the definition to use the 
phrase ``redeem the equity securities issued in the registered offering 
if the company does not complete a de-SPAC transaction within the 
specified time frame.'' \67\
---------------------------------------------------------------------------

    \64\ Letters from ABA, Vinson & Elkins.
    \65\ Letter from Vinson & Elkins.
    \66\ Id.
    \67\ Letter from ABA.
---------------------------------------------------------------------------

    One commenter recommended we narrow the definition of SPAC to only 
``a blank check company as defined in Sec.  230.419(a)(2).'' \68\ 
Another commenter, who opposed defining ``SPAC,'' noted that the 
proposed definition ``is not limited to companies listed on a national 
securities exchange'' and ``would include shell companies traded in 
over-the-counter markets, which are not what would generally be 
considered to be `SPACs.' '' \69\ That commenter noted that a ``logical 
distinction could be drawn based on exchange listing, rather than on 
whether the offering is by a blank check company and therefor subject 
to Rule 419.'' \70\ The same commenter recommended that, if we adopt a 
new definition, we clarify that a company ``ceases to be a SPAC for 
purposes of the rules after consummation of a de-SPAC transaction.'' 
\71\
---------------------------------------------------------------------------

    \68\ Letter from ABA.
    \69\ Letter from Vinson & Elkins.
    \70\ Id.
    \71\ Id.
---------------------------------------------------------------------------

    In response to requests for comment,\72\ one commenter said that 
``it is clear what entities are SPACs, without the need for additional 
boxes to check.'' \73\
---------------------------------------------------------------------------

    \72\ Proposing Release, supra note 7, at 29466 (request for 
comment number 6) (``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?'').
    \73\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

6. Final Definition: ``Special Purpose Acquisition Company (SPAC)''
    After considering the comments received, we are adopting the 
definition of special purpose acquisition company (or SPAC) as 
proposed, with certain modifications discussed below.\74\ Under the 
final rules, the term special purpose acquisition company (SPAC) means 
a company that has: (1) indicated that its business plan is to: (i) 
conduct a primary offering of securities that is not subject to the 
requirements of Sec.  230.419 (Rule 419 under the Securities Act); (ii) 
complete a business combination, such as a merger, consolidation, 
exchange of securities, acquisition of assets, reorganization, or 
similar transaction, with one or more target companies within a 
specified time frame; and (iii) return proceeds from the offering and 
any concurrent offering (if such offering or concurrent offering 
intends to raise proceeds) to its security holders if the company does 
not complete a business combination, such as a merger, consolidation, 
exchange of securities, acquisition of assets, reorganization, or 
similar transaction, with one or more target companies within the 
specified time frame; or (2) represented that it pursues or will pursue 
a special purpose acquisition company strategy.
---------------------------------------------------------------------------

    \74\ Item 1601(b) of Regulation S-K.
---------------------------------------------------------------------------

    One commenter did not see a need for a new defined term ``SPAC,'' 
\75\ because, in the commenter's view, enhanced disclosures should 
apply to all shell companies (other than business combination shell 
companies) and not only to those companies defined as SPACs.\76\ 
Several of the rules being adopted in this release will enhance 
disclosures for investors in non-SPAC shell companies.\77\ However, the 
proposed individual disclosure items in the Item 1600 series of 
Regulation S-K were largely tailored to SPAC transactions. For the 
reasons we discuss in this release below in connection with the 
specific rules we are adopting, we believe it is appropriate at this 
time to apply enhanced disclosure in connection with companies meeting 
the definition of SPAC. However, we will continue to consider whether 
enhanced disclosure in other shell company transactions, such as 
reverse mergers with public shell companies, would be appropriate or 
necessary in the future.\78\
---------------------------------------------------------------------------

    \75\ Letter from Vinson & Elkins. See supra note 63 and 
accompanying text.
    \76\ Letter from Vinson & Elkins.
    \77\ See Rule 145a and definitions of ``blank check company'' in 
Securities Act Rule 405 and Exchange Act Rule 12b-2.
    \78\ According to data provided by The Deal during the years 
when it tracked this data, the number of reverse mergers not 
involving SPACs was as follows by year: (a) 48 in 2017, (b) 48 in 
2018, (c) 28 in 2019, and (d) 17 in 2020. The Deal staff indicated 
to the Commission staff they stopped tracking the data after 2020 
because of the small number of reverse mergers.
---------------------------------------------------------------------------

    This commenter further observed there was circularity in the 
proposed definitions of ``SPAC'' and ``de-SPAC transaction.'' \79\ We 
agree the final rules should eliminate this circularity. Although the 
commenter made the suggestion to revise the definition of ``de-SPAC 
transaction'' rather than addressing the issue by revising the 
definition of ``SPAC,'' we believe it would be clearer to avoid 
circularity by revising the definition of ``SPAC.'' We have replaced 
the term ``de-SPAC transaction'' in the definition of ``SPAC'' with 
``business combination, such as a merger, consolidation, exchange of 
securities, acquisition of assets, reorganization, or similar 
transaction, with one or more target companies.''
---------------------------------------------------------------------------

    \79\ Letter from Vinson & Elkins. See supra note 63 and 
accompanying text.
---------------------------------------------------------------------------

    Several comments focused on the aspect of the proposed SPAC 
definition regarding the return of proceeds and suggested that special 
purpose acquisition companies may not return ``all remaining 
proceeds.'' \80\ We agree with commenters that the proposed term 
``return all remaining proceeds'' could inappropriately exclude 
companies that take some portion of cash out of trust for anticipated 
expenses and therefore do not return ``all'' proceeds at the time of 
redemption.\81\ To avoid excluding such companies, we have revised the 
definition to use the term ``return proceeds'' instead of ``return all 
remaining proceeds.'' We have also added a parenthetical reference 
``(if such offering or concurrent offering intends to raise proceeds)'' 
that qualifies the term ``offering and any concurrent offering'' to 
account for the fact there may be some SPAC offerings that do not raise 
proceeds.
---------------------------------------------------------------------------

    \80\ Letters from ABA, Vinson & Elkins. See supra notes 64, 65, 
and 66 and accompanying text.
    \81\ See, e.g., letters from ABA (``In addition, SPACs are 
permitted to withdraw interest to pay income and franchise taxes, 
and, upon liquidation, pay certain liquidation costs. . . .''); 
Goodwin Procter LLP (June 14, 2022) (``Goodwin'') (``SPACs are 
permitted to withdraw interest to pay income and franchise taxes 
and, upon liquidation, pay certain liquidation costs. . . .''); 
White & Case LLP (June 17, 2022) (``White & Case'') (``In addition, 
SPACs are permitted to withdraw interest to pay income and franchise 
taxes, and, upon liquidation, pay certain liquidation costs, which 
would reduce overall returns.'').
---------------------------------------------------------------------------

    We do not believe it is necessary to revise the definition to refer 
only to the plan to return proceeds from the primary offering, rather 
than the primary offering and any concurrent offering. We understand 
SPACs typically place proceeds of concurrent offerings in trust and 
return these proceeds if the SPAC does not complete a de-SPAC 
transaction within the specified time frame.\82\
---------------------------------------------------------------------------

    \82\ See NYSE Listed Company Manual Section 102.06 and Nasdaq 
Listing Rule IM-5101-2 (providing for the placement of concurrent 
offering proceeds in trust).
---------------------------------------------------------------------------

    We are not adopting the recommendation that we should replace the 
terms related to the return of proceeds with alternative terms related 
to the redemption of equity securities. We continue to believe, as the 
Commission indicated in the Proposing Release, that the definition 
should not include certain criteria, including the issuance of 
redeemable securities, that

[[Page 14167]]

could 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.\83\
---------------------------------------------------------------------------

    \83\ Proposing Release, supra note 7, at 29466.
---------------------------------------------------------------------------

    One commenter recommended we narrow the definition of SPAC to only 
``a blank check company as defined in Sec.  230.419(a)(2).'' \84\ The 
Rule 419 definition of ``blank check company'' includes a requirement 
that the company is issuing penny stock.\85\ The proposed definition of 
SPAC reflects the fact that special purpose acquisition company 
structures often are designed to avoid issuing penny stock but continue 
to pose disclosure and other investor protection concerns.\86\ Special 
purpose acquisition companies frequently do not issue penny stock and, 
therefore, would not meet the definition in Sec.  230.419(a)(2). Thus, 
the inclusion of the suggested criterion would inappropriately exclude 
many or all special purpose acquisition companies from the SPAC 
definition.
---------------------------------------------------------------------------

    \84\ Letter from ABA.
    \85\ See supra notes 1 and 61 (discussion of Securities Act Rule 
419). As discussed in section III.E infra, in the final rules, we 
are not amending the definition of ``blank check company'' in Rule 
419 as proposed but are adopting a definition of ``blank check 
company'' in Securities Act Rule 405 that is exclusively for 
purposes of the safe harbor created by the PSLRA for forward-looking 
statements.
    \86\ Proposing Release, supra note 7, at 29465.
---------------------------------------------------------------------------

    Another commenter indicated the SPAC definition should draw a 
distinction based on exchange listing, which would exclude shell 
companies traded in over-the-counter markets. In the commenter's view, 
shell companies traded in over-the-counter markets are not generally 
considered to be SPACs.\87\ While companies commonly considered to be 
SPACs often list on a national securities exchange, we do not believe 
the SPAC definition should be limited to such listed entities. While 
carving out companies traded over-the-counter might leave out only a 
few (or zero) companies today, prevailing structures may further evolve 
over time just as they have evolved over time in the past,\88\ and we 
believe investors in those over-the-counter companies engaged in the 
same kinds of business as exchange-traded companies should have the 
same investor protections provided by the rules we are adopting.\89\
---------------------------------------------------------------------------

    \87\ Letter from Vinson & Elkins.
    \88\ See, e.g., Table 2 in section VIII (Economic Analysis) 
(statistics on over-the-counter SPACs for over a three-decade 
period).
    \89\ Prior to exchange rule changes permitting listing, shells 
commonly referred to as SPACs were not exchange-listed. See 
Securities Exchange Act Release Nos. 58228 (July 25, 2008) [73 FR 
44794 (July 31, 2008)] (Order Granting Approval to Proposed Rule 
Change, as modified by Amendment No. 1, to Adopt Additional Initial 
Listing Standards to list Securities of Special Purpose Acquisition 
Companies) (NASDAQ-2008-013); 57785 (May 6, 2008) [73 FR 27597 (May 
13, 2008)] (Order Approving Proposed Rule Change to Adopt New 
Initial and Continued Listing Standards to List Securities of 
Special Purpose Acquisition Companies) (SR-NYSE-2008-17). According 
to data from SPACInsider, in the years 2020 through 2022, there were 
zero SPAC IPOs in the over-the-counter market (i.e., that were not 
listed on an exchange in connection with the IPO).
---------------------------------------------------------------------------

    Furthermore, we are adding a new clause to the definition that 
provides that the term special purpose acquisition company also 
includes a company that has represented it pursues or will pursue a 
special purpose acquisition company strategy.\90\ In the Proposing 
Release, the Commission asked if the proposed definition provides a 
workable approach to determining which issuers would be subject to the 
requirements of proposed subpart 1600.\91\ In addition, the Commission 
asked whether there were any potential opportunities for regulatory 
arbitrage in shell company or SPAC transactions that the Commission 
should consider addressing.\92\ After further consideration of these 
regulatory arbitrage concerns, we have revised the final rule to 
include new paragraph (b)(2) to Item 1601 concerning pursuit of a 
special purpose acquisition company strategy. Variations on common SPAC 
structures could cause some companies to fall technically outside one 
of the three prongs of paragraph (1) of the final SPAC definition. When 
companies make representations they pursue or will pursue a special 
purpose acquisition company strategy, they may be indistinguishable to 
investors from companies that meet the other components of the 
definition. As a result, we believe investors in such companies should 
benefit from the enhanced disclosures applicable to SPACs. Therefore, 
even where a company technically does not meet one of the three prongs 
in paragraph (1) of the final definition of SPAC, if it represents, 
directly or indirectly, that it pursues or will pursue a SPAC strategy, 
then pursuant to paragraph (2) of the final definition of SPAC, the 
company would meet the definition of a SPAC.
---------------------------------------------------------------------------

    \90\ As a result of this change, the three prongs contained in 
the proposed definition (that had paragraph numbers (1), (2), and 
(3)) will be renumbered as paragraphs (1)(i), (ii), and (iii) and 
the clause regarding pursuit of a SPAC strategy will be numbered as 
paragraph (2). We have also added a parenthetical reference to the 
acronym ``(SPAC)'' in the body of the definition in the final rule 
as well as in the name of the defined term ``special purpose 
acquisition company (SPAC)'' to add incremental clarity that the 
acronym also refers to the defined term.
    \91\ Proposing Release, supra note 7, at 29466 (request for 
comment number 1).
    \92\ Proposing Release, supra note 7, at 29490 (request for 
comment number 102).
---------------------------------------------------------------------------

    Similarly, to avoid the risk that certain varieties of SPACs may 
fall outside the definition because of minor technical distinctions 
from the prongs of the definition, we have changed the proposed term 
``register a primary offering'' to ``conduct a primary offering'' to 
account for evolving SPAC structures that may not conduct a registered 
offering. We do not believe it would be appropriate for companies in 
de-SPAC transactions to avoid the disclosure (or any other) 
requirements of these final rules only because the initial SPAC 
transaction was not registered. As noted in the Proposing Release,\93\ 
we intend this definition to be sufficiently broad to take into account 
potential variations in the SPAC structure and the possibility that 
SPACs may continue to evolve. This adjustment to the definition will 
ensure that appropriate disclosures are provided at the de-SPAC stage 
regardless of the structure of the initial SPAC transaction. In the 
final definition, we have also made a corresponding revision to change 
the proposed term ``registered offering'' to ``offering.''
---------------------------------------------------------------------------

    \93\ Proposing Release, supra note 7, at 29465.
---------------------------------------------------------------------------

    One commenter recommended we clarify that a company ceases to be a 
SPAC upon consummation of a de-SPAC transaction.\94\ For the avoidance 
of doubt, we are providing guidance that, if a company that meets the 
SPAC definition has completed a de-SPAC transaction or, in the case of 
one or more target companies, contemporaneous de-SPAC transactions, 
then the company no longer meets the definition of a SPAC and that such 
companies are not required to comply with the enhanced disclosures 
under Regulation S-K applicable to SPACs in registration statements 
they file in later periods after the completion of such de-SPAC 
transactions.
---------------------------------------------------------------------------

    \94\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    We are not requiring a check box on form cover pages indicating 
SPAC status as the enhanced disclosure provided by registrants pursuant 
to the Item 1600 series of Regulation S-K will make clear the 
registrant is a SPAC.\95\
---------------------------------------------------------------------------

    \95\ See also section III.C (discussing co-registration on Forms 
S-4 and F-4 and the requirement to identify the target company as a 
registrant on the registration statement cover page).
---------------------------------------------------------------------------

7. Proposed Definition: ``SPAC Sponsor''
    The Commission proposed to define the term ``SPAC sponsor'' as the 
entity and/or person(s) primarily responsible

[[Page 14168]]

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.\96\
---------------------------------------------------------------------------

    \96\ Proposed Item 1601(c).
---------------------------------------------------------------------------

8. Comments: Definition of ``SPAC Sponsor''
    One commenter said the proposal ``should be revised to eliminate 
the need for a defined term `SPAC sponsor' '' and, ``[i]nstead, the 
rules should require disclosure regarding the SPAC's directors, 
officers and affiliates.'' \97\ This commenter also said ``the 
definition's exclusion of directors and officers in their capacities as 
such would result in there being no `sponsor' for many SPACs.'' This 
commenter also said the proposal ``blur[red] the lines between the 
roles and responsibilities of the SPAC sponsor and that of the SPAC 
board and officers.''
---------------------------------------------------------------------------

    \97\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Another commenter recommended an alternative definition of ``SPAC 
sponsor'': ``the entity and/or person(s) that (1) own all or a portion 
of the privately placed common equity securities of the special purpose 
acquisition company and (2) are primarily responsible for directing and 
managing the business and affairs of a special purpose acquisition 
company other than in their capacities as (i) directors or officers of 
the special purpose acquisition company or (ii) third-party service 
providers to the special purpose acquisition company, as applicable.'' 
\98\ The commenter said that ``the `SPAC sponsor' should be the entity 
or persons who have both ownership of [s]ponsor shares and 
responsibility for directing and managing the SPAC.'' The commenter 
said that their suggested definition will ``identify the entity or 
persons that are currently identified as [s]ponsors in registration 
statements for the SPAC.'' \99\
---------------------------------------------------------------------------

    \98\ Letter from ABA.
    \99\ Letter from ABA.
---------------------------------------------------------------------------

9. Final Definition: ``SPAC Sponsor''
    After considering the comments received, we are adopting the 
definition of SPAC sponsor as proposed with certain modifications 
discussed below.\100\ Under the final rules, the term SPAC sponsor 
means any entity and/or person primarily responsible for organizing, 
directing, or managing the business and affairs of a special purpose 
acquisition company, excluding, if an entity is a SPAC sponsor, 
officers and directors of the special purpose acquisition company who 
are not affiliates of any such entity that is a SPAC sponsor.
---------------------------------------------------------------------------

    \100\ Item 1601(c) of Regulation S-K.
---------------------------------------------------------------------------

    The definition is designed to be sufficiently broad that 
appropriate entities or persons will be subject to the enhanced 
disclosure requirements applicable to SPAC sponsors.\101\ Although a 
sponsor of a SPAC may perform a variety of functions within the SPAC's 
structure, we intend for the SPAC sponsor definition to encompass 
activities that, based on the staff's experience reviewing SPAC filings 
and public commentary, are commonly understood to be sponsors of SPACs 
or with persons referred to as sponsors in current registration 
statements.
---------------------------------------------------------------------------

    \101\ See, e.g., Item 1603 (regarding SPAC sponsors).
---------------------------------------------------------------------------

    We do not believe it would provide investors with adequate 
information to tie the SPAC sponsor definition to persons with 
particular titles, because the definition and corresponding disclosure 
requirements are intended to capture all parties who perform certain 
activities that result in such parties having key substantive influence 
over the SPAC. The suggestion to replace ``SPAC sponsor'' with 
``directors, officers, and affiliates of the SPAC'' would require 
disclosure from directors and officers not commonly considered to be 
sponsors today and, as indicated by the Commission in the Proposing 
Release, would overlap unnecessarily with current required disclosure 
concerning directors and officers.\102\ Also, ``directors, officers, 
and affiliates of the SPAC'' may not include external management 
companies and their principals that should be included in the 
definition on the basis of their activities. While State law may 
provide that directors manage the business and affairs of a corporation 
and may not provide that any one director has any more authority than 
any other director,\103\ the phrase ``primarily responsible'' in the 
definition of SPAC sponsor is not limited to solely directors or solely 
directors and officers. Other persons, such as third-party management 
companies and their affiliates, frequently are primarily responsible 
for the organization, direction, or management of the business and 
affairs of SPACs today and would be SPAC sponsors under the definition 
we are adopting.
---------------------------------------------------------------------------

    \102\ See Proposing Release, supra note 7, at 29466, n.58 (``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.'').
    \103\ See, e.g., DGCL Section 141(a) (``The business and affairs 
of every corporation organized under this chapter shall be managed 
by or under the direction of a board of directors, except as may be 
otherwise provided in this chapter or in its certificate of 
incorporation.'').
---------------------------------------------------------------------------

    One commenter recommended an alternative definition of SPAC sponsor 
that featured, among other things, carve-outs from that alternative 
definition for directors and officers of the SPAC and for third-party 
service providers.\104\ This commenter also suggested that the proposed 
definition's exclusion of directors and officers in their capacities as 
such would result in a null set of SPAC sponsors.\105\ Having 
considered this comment, we have made changes to the final definition. 
We are not adopting the proposed term ``other than in their capacities 
as directors or officers,'' because it could be unclear under the 
proposed definition whether any action taken on behalf of the SPAC by a 
director or officer of a SPAC is ``other than in that person's capacity 
as an officer or director.'' As the commenter noted, this could result 
in no such persons being considered SPAC sponsors. To address such 
potential ambiguities, in the final rule, we have changed the term 
``other than in their capacities as directors or officers of the 
special purpose acquisition company as applicable'' to ``excluding, if 
an entity is a SPAC sponsor, officers and directors of the special 
purpose acquisition company who are not affiliates of any such entity 
that is a SPAC sponsor.'' Based on the staff's experience, we 
understand that a SPAC sponsor entity is typically involved in the 
SPAC. However, if the SPAC sponsor is not an entity, then we want to 
make sure the appropriate persons are captured within the SPAC sponsor 
definition. An officer or director of the SPAC that is an affiliate of 
an entity that is a SPAC sponsor would also be a SPAC sponsor under the 
final definition. For example, in the case of a hypothetical SPAC where 
a third-party management company is a SPAC sponsor and a person is a 
director of both the SPAC and this third-party management company, then 
this person would also be a SPAC sponsor.
---------------------------------------------------------------------------

    \104\ Letter from ABA. See supra note 98 and accompanying text.
    \105\ Id.
---------------------------------------------------------------------------

    We are not adopting the suggestion to exclude ``third-party service 
providers'' from the definition of SPAC sponsor.\106\ As discussed 
above, some third-party service providers will be ``SPAC sponsors'' 
under the definition where they are ``primarily responsible for 
organizing, directing, or managing the business and affairs'' of the 
SPAC. Other

[[Page 14169]]

third-party service providers, however, will not fall within the 
definition of SPAC sponsor where they are not ``primarily responsible'' 
for organizing, directing, or managing the business and affairs of a 
SPAC. For example, external legal counsel that only assists in the 
formation of a SPAC by drafting its certificate of incorporation and 
bylaws on behalf of a client would not be ``primarily responsible'' for 
``organizing . . . the business and affairs of a SPAC.'' \107\ Other 
third-party service providers may perform similar administrative or 
ministerial activities for a SPAC or provide outside legal or 
accounting advice neither of which would cause them to be ``primarily 
responsible'' for organizing, directing, or managing the business and 
affairs of the SPAC and thus they would not be SPAC sponsors.
---------------------------------------------------------------------------

    \106\ Letter from ABA. See supra note 98 and accompanying text.
    \107\ Item 1601(c).
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10. Proposed Definition: ``Target Company''
    The Commission proposed to define the term ``target company'' as an 
operating company, business, or assets.\108\
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    \108\ Proposed Item 1601(d).
---------------------------------------------------------------------------

11. Comments: Definition of ``Target Company''
    One commenter asserted that ``the concept of `assets' being a 
`target company' yields anomalous results under certain proposed rules 
(such as requiring assets to sign a registration statement) and the 
concept of a `business' may be vague (as a business may be a product 
line, rather than an entity that could sign a registration 
statement).'' \109\ Another commenter suggested ``deleting the term 
`assets' from the definition or clarifying that a target company 
includes assets where the acquisition of such assets is intended to 
constitute the SPAC's initial business combination.'' \110\
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    \109\ Letter from Vinson & Elkins.
    \110\ Letter from Freshfields (``We believe there are 
circumstances where a SPAC may acquire some assets (such as cash) 
but would not yet have completed its acquisition of a target 
company.'').
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12. Final Definition: ``Target Company''
    After considering the comments received, we are adopting the 
definition of target company as proposed.\111\ Under the final rules, 
the term target company means an operating company, business or assets.
---------------------------------------------------------------------------

    \111\ Item 1601(d) of Regulation S-K.
---------------------------------------------------------------------------

    To address commenters' concerns about the use of the terms 
``assets'' and ``business'' in the definition of target company,\112\ 
we have revised certain registration statement form instructions, as 
discussed in more detail below.\113\ We believe these changes address 
the commenters' concerns. Therefore, we do not believe it is necessary 
to make changes to the proposed definition of ``target company.'' In 
addition, although an asset purchase transaction may be a different 
form of transaction for the purposes of other legal requirements, 
including State law, we do not believe a SPAC combination with a target 
company taking the form of an asset purchase should be excluded from 
the definition of de-SPAC transaction merely for this reason.
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    \112\ Letters from Freshfields, Vinson & Elkins. See supra notes 
65 and 66 and accompanying text.
    \113\ See infra section III.C.
---------------------------------------------------------------------------

B. Sponsors

1. Proposed Rules
    The Commission proposed Item 1603(a) to require additional 
disclosure about the SPAC sponsor, its affiliates, and promoters \114\ 
in registration statements and schedules filed in connection with SPAC 
registered offerings and de-SPAC transactions,\115\ including 
disclosure of the following:
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    \114\ The term ``promoter'' is defined in Securities Act Rule 
405 and Exchange Act Rule 12b-2.
    \115\ See (a) proposed General Instruction VIII to Form S-1, (b) 
proposed General Instruction I.1 to Form S-4, (c) proposed General 
Instruction VII to Form F-1, (d) proposed General Instruction I.1 to 
Form F-4. (e) proposed Item 14(f)(1) of Schedule 14A, and (f) 
proposed General Instruction K to Schedule TO.
---------------------------------------------------------------------------

     The experience, material roles, and responsibilities of 
these parties, as well as any agreement, arrangement, or understanding 
(1) between the SPAC sponsor and the SPAC, its executive officers, 
directors, or affiliates, with respect to determining whether to 
proceed with a de-SPAC transaction and (2) between the SPAC sponsor and 
unaffiliated security holders of the SPAC regarding the redemption of 
outstanding securities;
     The controlling persons of the SPAC sponsor and any 
persons who have direct and indirect material interests in the SPAC 
sponsor and the nature and amount of their interests, as well as an 
organizational chart that shows the relationship between the SPAC, the 
SPAC sponsor, and the SPAC sponsor's affiliates;
     Tabular disclosure of the material terms of any lock-up 
agreements with the SPAC 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 SPAC 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 SPAC sponsor, its 
affiliates, and any promoters upon the completion of a de-SPAC 
transaction.\116\
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    \116\ In the Proposing Release, the Commission stated that 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. Proposing 
Release, supra note 7, at 29467, n.64.
---------------------------------------------------------------------------

2. Comments
    Broadly categorized, commenters on proposed Item 1603(a) or 
generally on the types of SPAC sponsor issues covered by proposed Item 
1603(a) focused on six areas: (1) general comments that expressed 
support for the proposals, (2) promoter requirements, (3) compensation, 
(4) transfers of SPAC ownership, (5) interests in the SPAC sponsor and 
the organizational chart requirement, and (6) agreements.
i. General Comments
    A number of commenters generally supported the proposed enhanced 
disclosure requirements regarding SPAC sponsors.\117\ Commenters cited 
a number of benefits to investors as the reasons for their support, 
including the following five benefits: (a) placing investors in a 
better position to evaluate the merits of SPAC and de-SPAC 
transactions,\118\ (b) illuminating financial incentives of SPAC 
sponsors that may affect de-SPAC transaction outcomes,\119\ (c) 
providing compensation information that may promote more informed 
investment decisions,\120\ (d) providing SPAC

[[Page 14170]]

sponsor ownership interest information that may affect investor ability 
to vote on de-SPAC transactions,\121\ and (e) providing information 
about SPAC sponsor experience that may help investors assess the SPAC 
sponsor's ability to find a target company.\122\
---------------------------------------------------------------------------

    \117\ Letters from ABA; Stephen W. Hall, Legal Director and 
Securities Specialist, and Scott Farnin, Legal Counsel, Better 
Markets (June 13, 2022) (``Better Markets); Michael Ryan, Chief 
Executive Officer, Bullet Point Network, LP (June 13, 2022) 
(``Bullet Point Network''); Charles Pieper (May 13, 2022) (``Charles 
Pieper''); John L. Thornton, Co-Chair, Hal S. Scott, President, and 
R. Glenn Hubbard, Committee on Capital Markets Regulation (June 13, 
2022) (``Committee on Capital Markets Regulation''); Paul Andrews, 
Managing Director, Research, Advocacy and Standards, CFA Institute 
(May 31, 2022) (``CFA Institute''); Glenn Davis, Deputy Director, 
Council of Institutional Investors (June 9, 2022) (``CII''); Dylan 
Bruce, Financial Services Counsel, Consumer Federation of America 
(June 13, 2022) (``Consumer Federation''); Elizabeth Warren, United 
States Senator (July 8, 2022) (``Senator Elizabeth Warren''); Kerrie 
Waring, Chief Executive Officer, International Corporate Governance 
Network (June 13, 2022) (``ICGN''); Melanie Senter Lubin, President, 
North American Securities Administrators Association, Inc. (June 13, 
2022) (``NASAA''); Paul A. Swegle, Kinsel Law Offices (Apr. 9, 2022) 
(``Paul Swegle'').
    \118\ Letter from Committee on Capital Markets Regulation.
    \119\ Letter from CII.
    \120\ Letter from Consumer Federation.
    \121\ Letter from ICGN.
    \122\ Letters from ICGN, NASAA.
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    Also, several commenters suggested that proposed Item 1603(a) would 
codify, to an extent, existing disclosure practices.\123\
---------------------------------------------------------------------------

    \123\ Letters from ABA, NASAA, Vinson & Elkins.
---------------------------------------------------------------------------

ii. Promoters
    Some commenters said Item 1603 should not apply to ``promoters.'' 
\124\ One commenter asserted that application to the SPAC sponsor and 
its affiliates would include all significant participants in the SPAC 
and thus the ``promoter'' provision would not significantly benefit 
investors.\125\ Another commenter said that ``disclosure regarding a 
promoter of the SPAC's initial public offering that will have no 
involvement with the de-SPAC transaction would be immaterial to 
investors.'' \126\
---------------------------------------------------------------------------

    \124\ Letters from Freshfields, Vinson & Elkins.
    \125\ Letter from Freshfields (stating that ``the proposed rules 
also already require disclosure of all persons who have direct and 
indirect material interests in the SPAC sponsor and the amount and 
nature of their interests'' and that ``this should encompass the 
most relevant entities and persons'').
    \126\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

iii. Compensation
    A number of commenters suggested that the proposed disclosure 
requirements regarding sponsor compensation would provide useful 
information to investors.\127\ A few commenters expressed the view that 
sponsor compensation is already sufficiently disclosed.\128\
---------------------------------------------------------------------------

    \127\ Letters from Better Markets, Charles Pieper, Committee on 
Capital Markets Regulation, CFA Institute, Consumer Federation, 
Senator Elizabeth Warren, ICGN, NASAA.
    \128\ Letters from Samir Kapadia, Director, and Bobby 
Cunningham, Director, SPAC Association (June 13, 2022) (``SPAC 
Association''); Vinson & Elkins (expressing the view that sponsor 
compensation and reimbursement is already disclosed under existing 
disclosure requirements and the material terms of lock-up agreements 
are already sufficiently disclosed as a matter of industry 
practice).
---------------------------------------------------------------------------

    One commenter said the SPAC sponsor ``20 percent promote is fully 
and fairly disclosed and has been for decades.'' \129\ Another 
commenter said they ``believe the sponsor's compensation and 
reimbursement are already sufficiently disclosed in response to 
existing disclosure requirements and that incremental disclosure 
requirements are thus not merited.'' \130\
---------------------------------------------------------------------------

    \129\ Letter from SPAC Association. We understand that the term 
SPAC sponsor ``promote'' typically refers to the acquisition by the 
SPAC sponsor of a significant percentage of the shares of the SPAC, 
typically 20%. We observe the term used to connote a meaning of 
``special compensation,'' but it does not involve a preferred 
return, such as in real estate private equity investment structures 
that also use this terminology.
    \130\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    One commenter that did not support the additional proposed 
disclosure requirements stated that, if the Commission were nonetheless 
to impose new requirements, ``the reference to `compensation' should be 
revised to refer instead to all equity and rights to cash held by the 
SPAC directors and officers and their affiliates, as certain equity 
interests may be purchased for value (i.e., not be `compensation') and 
reimbursement of advances or repayment of loans would not be 
compensation.'' \131\ Another commenter said ``sponsor compensation 
comes almost entirely in the form of capital gains associated with 
securities issued in the `promote' resulting from stock price increases 
after the de-SPAC transaction, and quantifying such compensation may 
involve speculation or be subject to criticism as incomplete.'' \132\
---------------------------------------------------------------------------

    \131\ Letter from Vinson & Elkins.
    \132\ Letter from Loeb & Loeb LLP (June 13, 2022) (``Loeb & 
Loeb'').
---------------------------------------------------------------------------

    Another commenter said that, ``in addressing non-equity 
compensation and reimbursements, proposed Item 1603(a)(6) should 
explain its requirement to identify other compensation and 
reimbursements that are material, individually or in the aggregate and 
that the required disclosure may be qualitative and not quantitative, 
except where amounts are above a specified de minimis threshold, 
similar to the approach taken in certain respects under the existing 
compensation disclosure framework in Item 402 of Regulation S-K [17 CFR 
229.402].'' \133\
---------------------------------------------------------------------------

    \133\ Letter from ABA.
---------------------------------------------------------------------------

iv. Transfer of SPAC Ownership
    Several commenters recommended we adopt requirements to disclose 
transfers of SPAC securities by the SPAC sponsor and others. One 
commenter recommended, in response to request for comment,\134\ adding 
a sentence at the end of Item 1603(a)(6) that states: ``Disclose any 
arrangements under which the SPAC sponsor, its affiliates and any 
promoters have transferred ownership of any securities in the SPAC to 
other parties in exchange for compensation or other benefit to the 
sponsor, its affiliates, any promoters, or to the SPAC.'' \135\ The 
commenter said that ``SPAC sponsors at times sell off a portion of 
their promote or other securities to a `risk-capital syndicate' as a 
way of cashing out early on a portion of the compensation they receive 
for their work on the SPAC'' and that ``the amount of interest that a 
sponsor retains in securities of the SPAC is material for investors 
seeking to evaluate the incentive of the sponsor in pursuing a SPAC 
merger.'' \136\ Another commenter suggested expanding current Forms 3 
and 4 director and officer reporting requirements to cover SPAC 
sponsors and their transactions in SPAC securities after the de-SPAC 
transaction.\137\ Similarly, another commenter recommended disclosure 
of post-de-SPAC transaction transfers, noting ``this reporting could be 
time limited, for example to two years'' following the de-SPAC 
transaction.\138\
---------------------------------------------------------------------------

    \134\ Proposing Release, supra note 7, at 29467 (request for 
comment number 9) (``Should we require more or less information 
about the sponsor's compensation and reimbursements?'').
    \135\ Letter from Michael Klausner, Stanford Law School, and 
Michael Ohlrogge, NYU School of Law (June 13, 2022) (``Michael 
Klausner and Michael Ohlrogge''), included as an attachment to a 
letter from Michael Ohlrogge, NYU School of Law (June 13, 2022).
    \136\ Id.
    \137\ Letter from Paul Swegle.
    \138\ Letter from NASAA.
---------------------------------------------------------------------------

v. Interest in SPAC Sponsor and Organizational Chart
    One commenter said that the proposed approach departs from the 
traditional approach to beneficial ownership reporting and recommended 
that this item should clarify that ``an indirect economic interest in 
less than 10% of a SPAC's founder shares or warrants through ownership 
of equity interests in a [SPAC] [s]ponsor should not, in and of itself 
and absent other factors, be considered a direct or indirect material 
interest in the [SPAC] [s]ponsor.'' \139\ Another commenter said the 
identity of natural persons controlling the sponsor is already 
disclosed in response to existing 17 CFR 229.403 (``Item 403'' of 
Regulation S-K).\140\
---------------------------------------------------------------------------

    \139\ Letter from ABA.
    \140\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

vi. Agreements
    One commenter recommended that the Commission should revise 
proposed Item 1603(a)(8) to ``specify that if a SPAC, the SPAC sponsor, 
or any affiliated party enters into an agreement regarding the 
redemption of outstanding securities of the SPAC after the date of the 
merger registration statement or proxy, that the SPAC be required to 
issue a proxy amendment or similar

[[Page 14171]]

filing prior to the redemption deadline to inform SPAC shareholders of 
the new agreement.'' \141\
---------------------------------------------------------------------------

    \141\ Letter from Michael Klausner and Michael Ohlrogge.
---------------------------------------------------------------------------

    Another commenter said the material terms of lock-up agreements are 
already disclosed as a matter of industry practice and that requiring 
additional disclosure would ``go beyond the disclosure requirements 
applicable to lock-up agreements that are entered into in connection 
with a traditional IPO.'' \142\ Regarding proposed requirements to 
disclose any exceptions to relevant lock-up agreements, one commenter 
recommended excluding exceptions that are not material or are 
customary.\143\ This commenter noted that frequently these exceptions 
provide that the transferee agree to the lock-up agreement as a 
condition of the transfer.\144\
---------------------------------------------------------------------------

    \142\ Letter from Vinson & Elkins.
    \143\ Letter from Freshfields (``Exceptions to lockups that are 
customary and not significant or material [include]: transfers to 
affiliates, transfers to family members, gifts and other charitable 
donations, transfers by will or inheritance, transfers upon 
dissolution of a marriage, and in-kind distributions to an entity's 
members and partners'').
    \144\ Letter from Freshfields.
---------------------------------------------------------------------------

3. Final Rules
    After considering the comments received, we are adopting Item 
1603(a) as proposed with certain modifications we discuss below. 
Additionally, for clarity and consistency throughout Item 1603, we have 
replaced the term ``executive officers'' with the term ``officers.''
i. General Discussion
    Item 1603(a)'s disclosure requirements will provide a SPAC's 
prospective investors and existing shareholders with detailed 
information relating to the SPAC sponsor that could be important in 
understanding and analyzing a SPAC, including how the rights and 
interests of the SPAC sponsor, its affiliates, and any promoters may 
differ from, or may conflict with, those of public shareholders.\145\ 
Given that a SPAC does not conduct an operating business, information 
about the background and experience of the SPAC sponsor is important in 
assessing a SPAC's prospects for success and may be a relevant factor 
in the market value of a SPAC's securities.\146\ Corresponding 
disclosure with respect to SPAC sponsor affiliates and promoters will 
also provide investors with important information, because the SPAC 
sponsor's affiliates and any promoters of the SPAC may also carry out 
activities similar to those of a SPAC sponsor. Furthermore, the 
enhanced disclosure regarding the SPAC sponsor's compensation and the 
SPAC 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.
---------------------------------------------------------------------------

    \145\ Item 1603(a) will operate in addition to existing 
disclosure requirements that may be applicable to a SPAC's 
arrangements with SPAC sponsors such as 17 CFR 229.701 (``Item 701'' 
of Regulation S-K), which requires disclosure about, among other 
things, the terms of any private securities transactions between a 
SPAC and SPAC sponsors within the past three years, and 17 CFR 
229.404 (``Item 404'' of Regulation S-K), which requires disclosure 
about certain related party transactions.
    \146\ See, e.g., Chen Lin, Fangzhou Lu, Roni Michaely & Shihua 
Qin, SPAC IPOs and Sponsor Network Centrality (SSRN Working Paper, 
2021); 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).
---------------------------------------------------------------------------

    Several commenters suggested that proposed Item 1603(a) would 
codify, to an extent, existing disclosure practices.\147\ We agree that 
the requirements in Item 1603 to provide detailed disclosure about the 
SPAC sponsor, the SPAC sponsor's experience, and its rights and 
interests will codify existing disclosure practices. This will help 
ensure that issuers provide consistent and comprehensive information 
across transactions, so that investors can make more informed 
investment and voting decisions.
---------------------------------------------------------------------------

    \147\ Letters from ABA, NASAA, Vinson & Elkins.
---------------------------------------------------------------------------

i. Promoters
    We are retaining the applicability of Item 1603 to promoters.\148\ 
We disagree with the commenters who asserted that Item 1603 should not 
apply to ``promoters'' and that the disclosure regarding a promoter 
would not significantly benefit investors or would be immaterial to 
investors.\149\ Certain persons are explicitly included as a 
``promoter'' under Securities Act Rule 405 and Exchange Act Rule 12b-
2.\150\ There may be facts and circumstances involving a SPAC where a 
person may be considered either a ``promoter,'' ``SPAC sponsor,'' 
``officer,'' or ``director'' or may be more than one of these. As with 
a SPAC sponsor, the promoter's background and experience, compensation, 
and conflicts of interest are material information for investors in the 
SPAC IPO (particularly given the absence of an operating business) and 
any de-SPAC transaction. Such information will enable investors to 
better understand promoter incentives and activities.\151\ A registrant 
is not required to repeat the same disclosure twice merely because a 
person fits in two categories (for example, both a ``promoter'' and a 
``SPAC sponsor'').
---------------------------------------------------------------------------

    \148\ The proposal's disclosure requirements related to 
``promoters'' included the following proposed items: (1) Item 
1603(a)(3) (promoter's experience), (2) Item 1603(a)(4) (promoter's 
role), (3) 17 CFR 229.1602(b)(6) (``Item 1602(b)(6)'') and Items 
1603(a)(6), and 1604(a)(3) (promoter's compensation), and (4) Items 
1602(a)(5), 1602(b)(7), 1603(b)(1), 1604(a)(4), and 1604(b)(3) 
(promoter conflicts of interest).
    \149\ Letters from Freshfields, Vinson & Elkins. See supra notes 
124, 125, and 126 and accompanying text.
    \150\ Securities Act Rule 405 provides: The term promoter 
includes: (i) Any person who, acting alone or in conjunction with 
one or more other persons, directly or indirectly takes initiative 
in founding and organizing the business or enterprise of an issuer; 
or (ii) Any person who, in connection with the founding and 
organizing of the business or enterprise of an issuer, directly or 
indirectly receives in consideration of services or property, or 
both services and property, 10 percent or more of any class of 
securities of the issuer or 10 percent or more of the proceeds from 
the sale of any class of such securities. However, a person who 
receives such securities or proceeds either solely as underwriting 
commissions or solely in consideration of property shall not be 
deemed a promoter within the meaning of this paragraph if such 
person does not otherwise take part in founding and organizing the 
enterprise. Exchange Act Rule 12b-2 contains similar provisions.
    \151\ Item 1603 also applies to disclosure in de-SPAC 
transactions. See, e.g., instructions to Form S-4 and F-4.
---------------------------------------------------------------------------

    Additionally, in the final rules, we have made technical changes to 
ensure consistent reference to ``SPAC sponsor, its affiliates, and 
promoters'' among disclosure requirements relating to the cover page, 
summary, and body sections of the prospectus.\152\
---------------------------------------------------------------------------

    \152\ See Items 1602(a)(3) (adding term ``promoter'' in cover 
page requirements to be consistent with Item 1602(b)(6) prospectus 
summary requirements) and (b)(6), 1603(a)(6), and 1604(a)(3), (b)(4) 
(adding the term ``promoter'' to summary prospectus requirements to 
be consistent with cover page requirements in Item 1604(a)(3)), and 
(c)(1) (adding the terms ``its affiliates, and promoters'' to 
prospectus body requirements to be consistent with cover page and 
summary requirements in Item 1604(a)(3) and (b)(4)).
---------------------------------------------------------------------------

ii. Compensation
    We are adopting the SPAC sponsor compensation disclosure largely as 
proposed with certain modifications in response to comments. We 
disagree with the commenter who suggested that--because sponsor 
compensation and reimbursement are already disclosed under existing 
disclosure requirements and current market practice provides for 
similar disclosure as to the material terms of lock-up agreements--the 
proposed additional disclosure requirements should not be

[[Page 14172]]

adopted.\153\ On the contrary, we believe compliance with the final 
rules will be minimally burdensome where disclosure of this information 
is already market practice and will create a uniform and transparent 
regime across-the-board, maintaining a minimum standard of disclosure 
across transactions, even if market practice were to change in the 
future.
---------------------------------------------------------------------------

    \153\ Letter from Vinson & Elkins. See also letter from SPAC 
Association (asserting that ``the SPAC 20% promote is fully and 
fairly disclosed and has been for decades''). See supra notes 128, 
129, and 130 and accompanying text.
---------------------------------------------------------------------------

    We agree with comments that returns based on the price appreciation 
from the ``promote'' stake owned by the SPAC sponsor may be a 
significant source of potential remuneration to the SPAC sponsor that 
investors would want to know about in making their investment and 
voting decisions.\154\ As a result, we have added terms explicitly 
requiring disclosure of the amount of securities issued or to be issued 
by the SPAC to the SPAC sponsor, its affiliates, and promoters and the 
price paid or to be paid for such securities.\155\ For example, where a 
SPAC sponsor purchased a 20 percent ownership interest in the SPAC, 
this interest and the purchase price would be required to be disclosed 
under the revised provision and would not be excluded on the basis of 
not being ``compensation.''
---------------------------------------------------------------------------

    \154\ Letters from Loeb & Loeb, Vinson & Elkins. See supra notes 
131 and 132 and accompanying text.
    \155\ See Items 1602(a)(3) and (b)(6), 1603(a)(6), and 
1604(a)(3), (b)(4), and (c)(1). For the avoidance of doubt, in Items 
1602(a)(3) and (b)(6), 1603(a)(6), and 1604(a)(3), disclosure should 
be provided with respect to each person who is one of the types of 
named persons in those items; registrants may provide totals of 
those individual disclosures but the disclosure of a single lump sum 
covering all types of persons named in those items would be 
insufficient by itself.
---------------------------------------------------------------------------

    Pursuant to these changes, any mechanisms, such as an anti-dilution 
provision,\156\ to keep the SPAC sponsor ownership at a certain level 
(or similar mechanisms for affiliates or promoters) and any potential 
cancellation of shares issued or to be issued to the SPAC sponsor (or 
its affiliates or promoters) or increase in shares issued to the SPAC 
sponsor (or its affiliates or promoters) will be required to be 
disclosed since these features would affect shares issued or to be 
issued to those parties. The approach taken in the final rules will 
address the concerns over speculation related to quantifying 
compensation expressed by one commenter,\157\ because these contractual 
terms are known at the time of the IPO and therefore do not require any 
speculation about possible stock price changes after the de-SPAC 
transaction.
---------------------------------------------------------------------------

    \156\ See, e.g., Clifford Chance, Guide to Special Purpose 
Acquisition Companies 5 (Sept. 2021), available at https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2021/09/guide-to-special-purpose-acquisition-companies.pdf (``However, if 
additional public shares or equity-linked securities are issued in 
connection with the de-SPAC transaction, the exchange ratio for the 
founder shares will typically be adjusted to maintain the 20% 
promote for the sponsors.''); Michael Klausner, Michael Ohlrogge & 
Harald Halbhuber, Net Cash Per Share: The Key to Disclosing SPAC 
Dilution, 40 Yale J. on Reg. 18, 28 (2022) (stating that ``[s]ome 
SPACs also provide `anti-dilution' protection to sponsors by giving 
them the right to an additional 20% of newly raised PIPE equity at 
the time of a merger'' and stating that typically ``sponsors waive 
their right to some or all these additional shares, though in some 
cases they do so in exchange for additional shares.'').
    \157\ Letter from Loeb & Loeb. See supra note 132 and 
accompanying text.
---------------------------------------------------------------------------

    Regarding the comments concerning reimbursement of advances and 
repayment of loans,\158\ we do not believe it is necessary to modify 
the proposed term ``reimbursement.'' The term is not limited to 
specific types of reimbursements. Any funds outlaid by the SPAC sponsor 
that are later returned to the SPAC sponsor would constitute a 
``reimbursement'' under the rule, notwithstanding that the return of 
the funds to the SPAC sponsor may also include other amounts (such as 
accrued interest).
---------------------------------------------------------------------------

    \158\ Letter from Vinson & Elkins. See supra note 131 and 
accompanying text.
---------------------------------------------------------------------------

    We are not adopting another commenter's recommendation that 
required disclosure be qualitative rather than quantitative unless the 
amounts are above a specified de minimis threshold.\159\ Because de 
minimis thresholds for several categories of compensation could be 
significant on an aggregate basis, if quantitative disclosure were only 
required above a certain de minimis threshold, investors may not 
receive the complete set of compensation information they need to 
evaluate the structure of the SPAC in which they may invest. We would 
not object, however, to the registrant disclosing de minimis 
reimbursements (such as for perquisites that are de minimis) by 
providing an aggregate total of those de minimis reimbursements by 
category rather than on an item-by-item basis. We view such disclosure 
as consistent with the requirement in Item 1603(a)(6) to disclose the 
reimbursements' ``nature.''
---------------------------------------------------------------------------

    \159\ Letter from ABA. See supra note 133 and accompanying text.
---------------------------------------------------------------------------

iii. Transfer of SPAC Ownership
    In response to several commenters' recommendation to disclose 
transfers of SPAC securities by the SPAC sponsor and others, we are 
modifying Item 1603(a)(6) to require such disclosure.\160\ We agree 
that disclosure of share transfers by a SPAC sponsor, its affiliates, 
and promoters would provide important information to investors seeking 
to evaluate the incentives of these parties. We believe it would also 
be important for investors to know if the SPAC ownership level of these 
parties has changed because of cancellation of the securities.\161\ 
Accordingly, in the final rule, we have revised proposed Item 
1603(a)(6) to add the requirement: ``Disclose any circumstances or 
arrangements under which the SPAC sponsor, its affiliates, and 
promoters, directly or indirectly, have transferred or could transfer 
ownership of securities of the SPAC, or that have resulted or could 
result in the surrender or cancellation of such securities.'' With 
respect to indirect transfers, for example, if there was a transfer of 
ownership interests in the SPAC sponsor or ownership interests in a 
holding company that owns interests in the SPAC sponsor, then 
disclosure would be required under this item.\162\
---------------------------------------------------------------------------

    \160\ Letters from Michael Klausner and Michael Ohlrogge, NASAA, 
Paul Swegle. See supra notes 135, 136, 137, and 138 and accompanying 
text.
    \161\ Certain earn-out provisions entered into in connection 
with a de-SPAC transaction may involve cancellation of securities if 
certain targets are not met.
    \162\ In addition, in final Item 1603(a)(6) we replaced ``has or 
will be'' with ``has been or will be,'' and replaced ``rendered'' 
with ``rendered or to be rendered,'' for clarity.
---------------------------------------------------------------------------

    At this time, we are not making any changes to add requirements to 
disclose transfers after the de-SPAC transaction occurs, because we 
believe, for most SPACs, SPAC sponsors will already have Form 3 and 4 
reporting obligations.\163\
---------------------------------------------------------------------------

    \163\ See 17 CFR 240.16a-2 under the Exchange Act (Among others, 
any person who is the beneficial owner, directly or indirectly, of 
more than 10% of any class of equity securities registered pursuant 
to Exchange Act section 12 and any director or officer of the issuer 
of such securities shall be subject to the provisions of Exchange 
Act section 16); Exchange Act section 16(a). SPAC sponsors also may 
have beneficial ownership reporting obligations pursuant to sections 
13(d) and 13(g) of the Exchange Act and rules thereunder.
---------------------------------------------------------------------------

iv. Interest in SPAC Sponsor and Organizational Chart
    We are adopting Item 1603(a)(7) as proposed except that we are not 
adopting the proposal to provide an organizational chart.
    One commenter said that ``proposed Item 1603(a)(7) should clarify 
that . . . an indirect economic interest in less than 10% of a SPAC's 
founder shares or warrants through ownership of equity interests in a 
Sponsor should not, in and of itself and absent other factors, be 
considered a direct or indirect material

[[Page 14173]]

interest in the Sponsor.'' \164\ We do not believe that the disclosures 
of material interests in the SPAC sponsor should be based on a bright-
line absolute percentage of ownership, whether based on percentage 
ownership of shares of the SPAC or based on percentage ownership of 
shares of the SPAC sponsor. As a general matter, we note that 
registrants regularly apply materiality standards that are not tied to 
absolute percentages in connection with their disclosure under the 
Federal securities laws. We believe a bright-line standard would not be 
appropriate here because the percentage of ownership of a SPAC sponsor 
that is material could differ from SPAC sponsor to SPAC sponsor. Also, 
we note that percentage ownership is not the only way in which a 
material interest in the SPAC sponsor may be present.\165\ For example, 
where a person has a voting interest but no economic interest in the 
SPAC sponsor, the required disclosure would need to be provided with 
respect to such voting interest.
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    \164\ Letter from ABA.
    \165\ See, e.g., definition of ``control'' in Rule 405 (The term 
control . . . means the possession, direct or indirect, of the power 
to direct or cause the direction of the management and policies of a 
person, whether through the ownership of voting securities, by 
contract, or otherwise.).
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    Related to our consideration of this comment, however, we have 
determined not to adopt the proposed organizational chart requirement 
in Item 1603(a)(7). The proposed organizational chart requirement would 
have required graphical display of levels of ownership that are above 
the level of direct ownership of the SPAC sponsor (i.e., tracing 
``upstream'' through layers of interest-holders to the ultimate 
interest-holder). It also would have required graphical display of 
levels of ownership of companies other than the SPAC sponsor (but that 
would be under common control with the SPAC sponsor) that are below 
these interest-holders (i.e., tracing ``downstream'' through layers of 
affiliated controlled persons). We believe, in this context at this 
time, particularly with respect to institutions with an interest in the 
SPAC sponsor that may have complex company organizational structures, 
the complexity of the upstream and downstream tiers of ownership 
discussed above may be difficult to prepare graphically. As a result, 
we are not adopting the organizational chart requirement.
    Another commenter said the identity of natural persons controlling 
the sponsor is already disclosed in response to existing Item 403 of 
Regulation S-K.\166\ Item 403 requires security ownership information 
concerning certain beneficial owners and management, but new Item 
1603(a) will elicit additional information because of its requirements 
concerning background, experience, and roles, among other things. Also, 
while current Item 403(a) requires identifying any person who is known 
to be the beneficial owner of more than five percent of any class of 
the SPAC's voting securities, new Item 1603(a)(7) adds a requirement to 
name controlling persons of the SPAC sponsor. Furthermore, to the 
extent portions of Item 1603(a) may overlap with Item 403 as they may 
pertain to specific registrant facts and circumstances, registrants are 
not required to provide duplicative disclosure. Therefore, we do not 
expect that any partial overlap--depending on specific registrant facts 
and circumstances--in disclosure that could be required under the final 
rule with disclosure required under Item 403 would impose significant 
additional burdens on registrants.
---------------------------------------------------------------------------

    \166\ Letter from Vinson & Elkins.
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v. Agreements
    We are adopting Item 1603(a)(8) and (9), concerning agreements, as 
proposed. Final Item 1603(a)(8) provides that the registrant must 
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. One 
commenter recommended that the Commission should revise proposed Item 
1603(a)(8) to ``specify that if a SPAC, the SPAC sponsor, or any 
affiliated party enters into an agreement regarding the redemption of 
outstanding securities of the SPAC after the date of the merger 
registration statement or proxy, that the SPAC be required to issue a 
proxy amendment or similar filing prior to the redemption deadline to 
inform SPAC shareholders of the new agreement.'' \167\ We do not 
believe it is necessary to revise the item in the manner suggested to 
capture events that follow the filing of a proxy statement in 
connection with a de-SPAC transaction, as we believe registrant 
obligations to amend such filings under current law, including to 
ensure disclosure are not misleading, are sufficient.\168\
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    \167\ Letter from Michael Klausner and Michael Ohlrogge.
    \168\ See 17 CFR 240.14a-9 (``Rule 14a-9''). See also 17 CFR 
240.14a-6(h).
---------------------------------------------------------------------------

    Final Item 1603(a)(9) provides that the registrant must 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.
    In response to the commenter who stated that the required 
additional disclosure would go beyond the disclosure requirements 
applicable to lock-up agreements entered into in connection with a 
traditional IPO,\169\ we believe that, based on Commission staff 
experience reviewing filings, registrants in IPOs currently provide 
information that is analogous to the Item 1603(a)(9) required 
information. To the extent Item 1603(a)(9) may incrementally require 
more disclosure compared to IPOs, we believe this is appropriate 
because investors in SPACs often focus heavily on the nature of the 
SPAC sponsor's interest in the SPAC and because agreements, 
arrangements, or understandings regarding restrictions on whether and 
when the SPAC sponsor and its affiliates may sell securities of the 
SPAC often can be more complex than lock-up agreements in IPOs. For 
example, SPAC lock-up agreements often include provisions that depend 
on certain levels of stock price appreciation.\170\
---------------------------------------------------------------------------

    \169\ Letter from Vinson & Elkins. See supra note 142 and 
accompanying text.
    \170\ See, e.g., Connie Loizos, The Year of the Disappearing 
Lock-up, TechCrunch (Jan. 4, 2022) (``many related deals contain 
language that restricts sponsors from selling shares for a year from 
the day the deal is completed, but there are much faster ways out. 
According to one popular provision, if a SPAC's shares trade 
slightly above their initial pricing for more than 20 days in a 30-
day period, the lockup provision vanishes.''), available at https://techcrunch.com/2022/01/04/the-year-of-the-disappearing-lock-up/; 
Lock-Up Periods: Regular IPOS V/S SPACS IPOS, Legal Scale (Sept. 21, 
2022), available at https://www.legalscale.com/lock-up-periods-regular-ipos-v-s-spacs-ipos/; Ran Ben-Tzur, Itka Safir, Terms of IPO 
Lock-Up Agreements for Technology Companies Shift as Direct Listings 
and SPACs Gain Traction (2020), available at https://www.fenwick.com/insights/publications/terms-of-ipo-lock-up-agreements-for-technology-companies-shift-as-direct-listings-and-spacs-gain-traction (out of 80 traditional IPO-companies surveyed, 
four (i.e., 5%) used Price-based lock-up releases).

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[[Page 14174]]

    With respect to the suggestion to exclude from this disclosure 
customary exceptions to lock-up agreements,\171\ we are concerned that 
almost all, if not all, exceptions found in any lock-up agreement could 
be determined to be customary by a registrant, which would mean they 
would not be disclosed to investors under the suggested approach. 
Further, even where lock-up agreements are filed as an exhibit,\172\ 
exceptions to SPAC lock-up agreements considered ``customary'' by 
industry participants may be difficult for a reasonable investor to 
understand, and therefore narrative disclosure in the body of the 
filing may help investors understand these terms.\173\
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    \171\ Letter from Freshfields. See supra notes 143 and 144 and 
accompanying text.
    \172\ See 17 CFR 229.601(a) and (b)(10)(ii)(A) (requiring the 
filing of any contract to which directors, officers, promoters, 
voting trustees, security holders named in the registration 
statement or report are parties, with certain exceptions). See also 
requirements for registrant to furnish exhibits required by Item 601 
of Regulation S-K in: Form S-1, Item 16; Form F-1, Item 8; Form S-4, 
Item 21(a); Form F-4, Item 21.
    \173\ When we use the term ``narrative'' disclosure here, we do 
not mean that solely qualitative information should be provided. 
Depending on the facts and circumstances, quantitative information 
may be required in connection with these lock-up disclosures. 
Depending on the facts and circumstances, one example of such 
quantitative disclosure could be where the exception to the lock-up 
depends on application of a formula involving a financial measure.
---------------------------------------------------------------------------

    In addition, we believe each such exception to a lock-up agreement 
is important to investors because exceptions to restrictions on 
transfer in lock-up agreements can result in the sale of a significant 
amount of shares that could affect the trading price of the SPAC or of 
the post-de-SPAC transaction combined company.\174\ In addition, in 
connection with disclosure in a SPAC IPO, to the extent that an 
investor may have invested in the SPAC based in part on the experience 
and expertise of the SPAC sponsor and its affiliates, we believe the 
disclosure about exceptions to lock-up agreements could be important to 
these investors in understanding the extent to which the interests of 
the SPAC sponsor and investor are aligned.\175\ Similarly, this 
information is important in connection with disclosure in a de-SPAC 
transaction. For example, this information remains important in 
connection with a de-SPAC transaction where the SPAC sponsor will have 
a continuing management role at the post-de-SPAC transaction combined 
company. Also, for example, even where the SPAC sponsor may not have a 
continuing management role, this information is important where the 
SPAC sponsor may have the ability to express views that influence the 
current management of the post-de-SPAC transaction combined company--
potentially due to the size of the SPAC sponsor's ownership stake in 
the combined company or the value of the SPAC sponsor's ongoing counsel 
based on the SPAC sponsor's expertise. In each of these examples, we 
believe the disclosure about exceptions to lock-up agreements will be 
important because it will help the investor understand the extent to 
which the interests of the SPAC sponsor and investor are aligned.
---------------------------------------------------------------------------

    \174\ See, e.g., Cooley LLP, Blog: 10 Key Considerations for 
Going Public with a SPAC (Aug. 3, 2020), available at https://www.jdsupra.com/legalnews/blog-10-key-considerations-for-going-80315/ (``Most SPAC sponsors will be subject to a 1-year lock-up, 
which can create staggered releases of shares into the market after 
the combination and may at times try to push the target company 
holders to also have a 1-year lockup to align interests. Companies 
should be thoughtful, in discussions with their financial advisors, 
on how additional shares will come into the market and implications 
for the public company's trading volatility.'').
    \175\ With respect to lock-up agreements generally, see Alon 
Brav & Paul Gompers, The Role of Lockups in Initial Public 
Offerings, 16 The Rev. of Fin. Stud. 1 (2003), available at https://doi.org/10.1093/rfs/16.1.0001 (finding lockup agreements serve as a 
commitment device to address moral hazard concerns).
---------------------------------------------------------------------------

    While one commenter suggested that current market practice is for 
transferees who receive shares pursuant to an exception from a lock-up 
to agree to the lock-up as a condition of the transfer,\176\ we do not 
believe this means information about exceptions to lock-up agreements 
will not be important to investors. If the SPAC sponsor or affiliates 
may divest their ownership of the SPAC, this may affect investor 
evaluation of the SPAC and the incentives of the SPAC sponsor, 
regardless of whether a transferee is also subject to transfer 
restrictions. Investors may consider the potential amounts of shares 
that could be transferred to be an important factor that could affect 
the market valuation of the issuer. Moreover, based on the Commission 
staff's experience, some registrants today already discuss each 
exception in detail, while others discuss the exceptions in general 
terms.
---------------------------------------------------------------------------

    \176\ Letter from Freshfields. See supra note 144 and 
accompanying text.
---------------------------------------------------------------------------

C. Conflicts of Interest

1. Proposed Rules
    SPAC sponsors and others may have material potential or actual 
conflicts with the interests of investors that could have adverse 
effects on those investors. The Commission proposed conflicts of 
interest disclosure requirements in certain items in proposed Item 
1602, 1603, 1604, and 1605 in connection with SPAC registered offerings 
other than de-SPAC transactions, such as IPO transactions, and in 
connection with de-SPAC transactions, described in more detail below.
    The Commission proposed Item 1602(a)(5) and (b)(7), which apply to 
registered offerings other than de-SPAC transactions, to require that 
some of these conflicts of interest disclosure requirements appear on 
the prospectus front cover page and in the prospectus summary, 
respectively.\177\ The Commission also proposed prospectus cover page 
and prospectus summary conflict of interest disclosure requirements in 
connection with de-SPAC transactions in proposed Item 1604(a)(4) and 
(b)(3).\178\
---------------------------------------------------------------------------

    \177\ See also proposed General Instruction VIII to Form S-1, 
proposed General Instruction VII to Form F-1.
    \178\ See also proposed General Instruction I.1 to Form S-4, 
proposed General Instruction I.1 to Form F-4, proposed Item 14(f)(1) 
of Schedule 14A, and proposed General Instruction K to Schedule TO.
---------------------------------------------------------------------------

    The Commission proposed that Item 1603 (including 1603(b) regarding 
conflicts of interest) apply to de-SPAC transactions, as well as other 
registered offerings, including SPAC IPOs.\179\ Proposed Item 1603(b) 
would require disclosure of any actual or potential material conflict 
of interest between (1) the SPAC sponsor or its affiliates or the 
SPAC's officers, directors, or promoters, and (2) unaffiliated security 
holders. This proposed item included any conflict of interest with 
respect to determining whether to proceed with a de-SPAC transaction 
and any conflict of interest arising from the manner in which a SPAC 
compensates the SPAC sponsor or the SPAC's executive officers and 
directors or the manner in which the SPAC sponsor compensates its own 
executive officers and directors. In addition, the Commission proposed 
Item 1603(c) to require disclosure regarding the fiduciary duties each 
officer and director of a SPAC owes to other companies.
---------------------------------------------------------------------------

    \179\ See (a) proposed General Instruction VIII to Form S-1, (b) 
proposed General Instruction I.1 to Form S-4, (c) proposed General 
Instruction VII to Form F-1, (d) proposed General Instruction I.1 to 
Form F-4. (e) proposed Item 14(f)(1) of Schedule 14A, and (f) 
proposed General Instruction K to Schedule TO.
---------------------------------------------------------------------------

    Furthermore, in connection with de-SPAC transactions, the 
Commission proposed Item 1605(d) to require disclosure of any material 
interests in the de-SPAC transaction or any related financing 
transaction held by the SPAC sponsor and the SPAC's officers and 
directors, including fiduciary or contractual obligations to other 
entities

[[Page 14175]]

as well as any interest in, or affiliation with, the target 
company.\180\
---------------------------------------------------------------------------

    \180\ See also proposed General Instruction I.1 to Form S-4, 
proposed General Instruction I.1 to Form F-4, proposed Item 14(f)(1) 
of Schedule 14A, and proposed General Instruction K to Schedule TO.
---------------------------------------------------------------------------

2. Comments
    Broadly categorized, commenters on the conflicts of interest 
proposals focused on five areas: (1) general comments, including those 
with general expressions of support for or opposition to the proposals, 
(2) SPAC and target company officer and director conflicts of interest, 
(3) de-SPAC conflicts of interest, (4) addition of disclosure of 
``break-even'' thresholds, and (5) additional responses to Commission 
requests for comment.
    A number of commenters generally supported the proposed enhanced 
disclosure requirements in regard to conflicts of interest and 
fiduciary duties.\181\
---------------------------------------------------------------------------

    \181\ Letters from ABA, Better Markets, Bullet Point Network, 
CFA Institute, CII, Committee on Capital Markets Regulation, 
Consumer Federation, ICGN, NASAA, Paul Swegle, Public Citizen (June 
10, 2022) (``Public Citizen'').
---------------------------------------------------------------------------

    Several commenters suggested that the proposed disclosure 
requirements would codify, to an extent, existing disclosure 
practices.\182\ Some commenters suggested that proposed disclosure 
requirements about conflicts of interest and fiduciary duties would 
provide useful information to investors.\183\
---------------------------------------------------------------------------

    \182\ Letters from ABA, NASAA, Vinson & Elkins.
    \183\ Letters from Better Markets, CFA Institute, CII, Committee 
on Capital Markets Regulation, Consumer Federation, ICGN, NASAA.
---------------------------------------------------------------------------

    One commenter said that ``in requiring disclosure of known actual 
or potential material conflicts of interest, proposed Item 1603(b) 
should clarify that a knowledge-based standard is the appropriate 
standard in determining whether disclosure is required under this 
item.'' \184\
---------------------------------------------------------------------------

    \184\ Letter from ABA.
---------------------------------------------------------------------------

    Another commenter recommended ``that disclosures should include the 
names of all sponsors and their financial arrangements with SPACs'' and 
``information on the nature of the claims the investors have on the 
SPAC if no de-SPAC transaction takes place'' during the applicable 
period or they choose to exit before the de-SPAC is completed.\185\
---------------------------------------------------------------------------

    \185\ Letter from ICGN.
---------------------------------------------------------------------------

    A few commenters discussed issues related to potential SPAC and 
target company officer and director conflicts of interest.\186\ One of 
these commenters recommended that ``there should be mandatory 
disclosures of conflicts of interest among SPAC directors, SPAC 
officers, target company directors and target company officers.'' \187\ 
Another of these commenters recommended that ``proposed Item 1603(c) 
should be limited to those situations where the fiduciary duties of an 
officer or director owed to other companies might reasonably be 
expected to present a potential conflict with respect to a potential 
de-SPAC transaction or the SPAC's ability to pursue de-SPAC transaction 
opportunities.'' \188\
---------------------------------------------------------------------------

    \186\ Letters from ABA, CII.
    \187\ Letter from CII.
    \188\ Letter from ABA.
---------------------------------------------------------------------------

    Some commenters viewed proposed Item 1605, including proposed Item 
1605(d) concerning conflicts of interest in connection with de-SPAC 
transactions, as redundant with current rules.\189\ One of these 
commenters said these disclosures are ``duplicative of those already 
prescribed in the existing regulatory schemes for proxy materials and 
registration statements filed in connection with de-SPAC 
transactions.'' \190\ In lieu of adopting proposed Item 1605, the 
commenter recommended a ``uniform methodology to address conflicts of 
interest arising from business combinations in general by revising 
Items 1004(a)(2) and 1013(b) of Regulation M-A [17 CFR 229.1004(a)(2) 
and 229.1013(b)] and Item 403 of Regulation S-K to incorporate the 
provisions of proposed Item 1605.'' \191\ The other commenter opposed 
the adoption of new disclosure requirements 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,'' because this ``would be redundant with the existing 
requirements of Schedule 14A Item 5.'' \192\
---------------------------------------------------------------------------

    \189\ Letters from ABA, Vinson & Elkins.
    \190\ Letter from ABA.
    \191\ Letter from ABA.
    \192\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Some commenters recommended that certain additional disclosures 
should be required. One commenter on the proposal said that registrants 
``should also provide, in an easily understandable, tabular format. . 
.the break-even points for non-redeeming investors under different 
scenarios, the break-even point for the sponsor, the ownership 
distribution for non-redeeming investors, the effects of outstanding 
warrants and sponsor shares, and the resulting ownership of the target 
company for non-redeeming shareholders and alternative investors.'' 
\193\ Another commenter said that registrants should provide a break-
even average share price for the sponsor, which would inform investors 
and, in the commenter's opinion, the target company.\194\ The commenter 
said ``this will be a simple numerical representation of the effective 
cost basis of the sponsor and can be used to ascertain the extent to 
which a sponsor's position differs from that of other investors.'' 
\195\ One commenter stated that ``SPACs should disclose the minimum 
post-merger share value at which proceeding with the SPAC merger will 
yield a higher return to the SPAC sponsor than liquidating the SPAC.'' 
\196\
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    \193\ Letter from NASAA.
    \194\ Letter from Jonathan Kornblatt, CMT, Fintech Institutional 
Advisory (June 12, 2022) (``Jonathan Kornblatt'').
    \195\ Letter from Jonathan Kornblatt.
    \196\ Letter from Michael Klausner and Michael Ohlrogge.
---------------------------------------------------------------------------

    A few commenters responded to requests for comment in the proposal 
related to whether we should also require a description of any policies 
and procedures used to minimize potential or actual conflicts of 
interest.\197\ One commenter said that ``a requirement for disclosure 
of policies and procedures or assessment and management of conflicts of 
interest would result in incremental boilerplate disclosures.'' \198\ 
Another commenter said it would be ``superfluous to require a 
description of any policies and procedures used or to be used to 
minimize potential or actual conflicts of interest in addition to what 
proposed Item 1603 has already prescribed.'' \199\
---------------------------------------------------------------------------

    \197\ Proposing Release, supra note 7, at 29468 (request for 
comment number 17).
    \198\ Letter from Vinson & Elkins.
    \199\ Letter from ABA.
---------------------------------------------------------------------------

    One commenter responded to requests for comment related to whether 
SPACs should be required to provide additional disclosure regarding 
material conflicts of interest in Exchange Act reports following their 
IPOs.\200\ The commenter said that, ``regarding disclosure in Exchange 
Act reports following the SPAC IPO and the Form 8-K announcing the 
signing of the de-SPAC transaction, additional disclosure should be 
required only where the conflict of interest is material and has not 
been previously disclosed.'' \201\
---------------------------------------------------------------------------

    \200\ Proposing Release, supra note 7, at 29468 (request for 
comment number 18).
    \201\ Letter from Vinson & Elkins.
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3. Final Rules
    We are adopting Items 1602(a)(5) and (b)(7), 1603(b), 1604(a)(4) 
and (b)(3), and 1605(d) substantially as proposed, except for the 
changes discussed below. Having considered comments received, we are 
adopting the final rules to provide information to investors about the 
material potential or actual conflicts

[[Page 14176]]

that SPAC sponsors and others covered by the final rules may have with 
the interests of investors. These conflicts could influence the actions 
of the SPAC to the detriment of its unaffiliated security holders. The 
potential conflicts of interest of SPAC sponsors and others may be 
particularly relevant for investors to the extent that they arise when 
a SPAC and its management are deciding whether to engage in a de-SPAC 
transaction. The SPAC sponsor's compensation structure creates 
incentives to complete a de-SPAC transaction. These incentives may 
induce a SPAC sponsor and others to compel the SPAC to complete the de-
SPAC transaction on unfavorable terms to avoid liquidation of the SPAC 
at the expiry of this period.
    There are numerous situations that could give rise to these 
potential conflicts. For example, SPAC sponsors or their affiliates may 
have a potential conflict of interest stemming from the nature of the 
SPAC sponsor's compensation or security ownership (particularly where 
the security owned is purchased at disparate prices, often 
substantially lower than the price paid by public security holders). 
This type of potential conflict of interest may present significant 
financial incentives to pursue a de-SPAC transaction even in the 
absence of attractive target company transaction opportunities.\202\
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    \202\ See, e.g., Usha Rodrigues & Mike Stegemoller, Exit, Voice, 
and Reputation: The Evolution of SPACs, 37 Del. J. Corp. L. 849, 896 
(2013) (stating that ``sponsors were expected to put more and more 
of their own money at risk (in the form of private placements), 
setting themselves up for substantial losses if no acquisition 
occurred'' as the SPAC form evolved).
---------------------------------------------------------------------------

    SPAC sponsors and their affiliates may also sponsor multiple SPACs, 
which may result in decisions regarding the allocation of these 
persons' time and target company acquisition opportunities that may 
adversely affect SPAC security holders. Alternatively (or in addition), 
SPAC sponsors and their affiliates may owe employment, contractual, or 
fiduciary duties to other companies than the SPAC, which, among other 
things, may affect the ability of the SPAC to execute a de-SPAC 
transaction or may affect the terms to which a SPAC agrees in any 
ultimate de-SPAC transaction. In these situations, the SPAC sponsor and 
others covered by the final rules may not only be incentivized to take 
actions that benefit other entities, but they may be compelled by these 
other duties to do so, potentially at the expense of the SPAC and its 
security holders. In addition, SPAC sponsors and their affiliates may 
seek to enter a de-SPAC transaction with a target company they are 
affiliated with when superior target company transaction opportunities 
may be available.
    The final rules will provide investors with a more complete 
understanding of the conflicts of interest related to an investment in 
a SPAC, including in situations like the examples above. Investors will 
have improved information concerning interests of the SPAC sponsor and 
others covered by the final rule that could reduce the value of their 
investment or that could result in opportunities potentially available 
to the SPAC not being realized. In this way, the final rules will allow 
investors to analyze risks associated with potential conflicts of 
interest regarding a SPAC more accurately.
    We are not including a knowledge qualifier in conflicts of interest 
disclosure, as suggested by one commenter,\203\ because we expect the 
SPAC and its officers and directors will be in a position to know their 
own conflicts and that the SPAC may obtain similar information from the 
SPAC sponsor, its affiliates, and promoters (who will be in a position 
to know their own conflicts) by virtue of the relationship between the 
SPAC and the SPAC sponsor and between the SPAC and any promoters.\204\ 
In addition, we note that registrants can rely on 17 CFR 230.409 and 
240.12b-21 with respect to information unknown or not reasonably 
available.
---------------------------------------------------------------------------

    \203\ Letter from ABA. See supra note 184 and accompanying text.
    \204\ Similarly, current Item 404 regarding conflicts of 
interest does not contain such knowledge qualifier.
---------------------------------------------------------------------------

    Another commenter recommended the conflicts of interest disclosures 
should include: names of all sponsors and their financial arrangements 
with SPACs; claims investors have on the SPAC if no de-SPAC transaction 
takes place; and claims investors have on the SPAC if investors exit 
before the de-SPAC transaction.\205\ We note that all of those items 
were included in the proposal, and we are adopting them as 
proposed.\206\
---------------------------------------------------------------------------

    \205\ Letter from ICGN. See supra note 185 and accompanying 
text.
    \206\ See, e.g., proposed Items: 1603(a)(1) (names of sponsors) 
and (a)(5) through (6) (agreements and compensation) and 1602(b)(3) 
and (4) (redemption rights and plans in the event no de-SPAC 
transaction is consummated).
---------------------------------------------------------------------------

    A few commenters discussed issues related to potential SPAC and 
target company officer and director conflicts of interest.\207\ One of 
these commenters recommended the conflicts of interest disclosures 
cover SPAC officers, SPAC directors, target company officers, and 
target company directors.\208\ In considering the comment, we observed 
that proposed Item 1604 was inconsistent with proposed Items 1603(b) 
and 1605(d) by not covering SPAC officers and directors. We do not 
believe there are any special factors warranting such a difference. As 
a result, we have modified the language in Item 1604 to require 
disclosure regarding SPAC officers and directors as in the other 
adopted items. This change to Item 1604(a)(4) (cover page) and (b)(3) 
(prospectus summary) will ensure the benefits of the rule that we 
discuss generally above will apply to these rules as well.\209\ With 
respect to target company officers and directors, we believe that 
disclosure of their conflicts of interest is consistent with co-
registration requirements in connection with the final amendments to 
registration forms and with final Rule 145a.\210\ As discussed in 
connection with those requirements, since the de-SPAC transaction is in 
substance an offering by the target company, the conflicts of interest 
of target company officers and directors may be important to investor 
investment, redemption, and voting decisions. Thus, we have amended 
Items 1603(b), 1604(a)(4) (prospectus cover page) and (b)(3) 
(prospectus summary), and 1605(d) to require this disclosure.\211\ We 
would not expect registrants to provide duplicative disclosure merely 
because a person falls into more than one of the categories of persons 
covered by the final rules.\212\
---------------------------------------------------------------------------

    \207\ Letters from ABA, CII.
    \208\ Letter from CII. See supra note 187 and accompanying text.
    \209\ We are also making related minor changes for clarity in 
Item 1604(a)(4) and (b) to change the term ``or its affiliates'' to 
``, SPAC affiliates.'' In Item 1604(b) and in a number of other 
places in the final rules, we also eliminated the term ``shall'' 
(e.g., by replacing it with the word ``must'') consistent with 
relevant plain English guidance.
    \210\ See infra sections III.C and IV.A.
    \211\ In addition, in final Item 1603(b) we replaced ``with 
respect to'' with ``that may arise'' (in the phrase ``any material 
conflict of interest that may arise in determining whether to 
proceed with a de-SPAC transaction'') for clarity and consistency 
with Item 1602(b)(7). In final Item 1603(b) we also revised the 
phrase ``the manner in which the special purpose acquisition company 
compensates a SPAC sponsor, officers, or directors'' by replacing 
the term ``and'' with ``or,'' because the requirements of Item 
1603(b) should apply disjunctively where any of the named persons 
has a relevant material conflict of interest.
    \212\ For example, if the SPAC hypothetically happened to share 
officers or directors with the target company, the same disclosure 
(that was relevant for both the SPAC and target company) for the 
same individual person would not need to be provided once for the 
person as a SPAC official and a second time for the person as a 
target company official. The SPAC and target should be mindful, 
though, that different disclosures about conflicts arising under 
each role may be required.
---------------------------------------------------------------------------

    One commenter recommended that we limit Item 1603(c) disclosure to

[[Page 14177]]

those situations where officer or director fiduciary duties owed to 
other companies might reasonably be expected to present a potential 
conflict with a SPAC's de-SPAC transaction opportunities.\213\ We do 
not agree with this recommendation, because we do not believe conflicts 
will only arise in situations where there are fiduciary duties owed to 
other companies that are expected to present a potential conflict with 
a SPAC's de-SPAC transaction opportunities. For example, a director's 
obligations to other companies may compete with his or her attention to 
the SPAC. Because we believe this information is material to investors, 
we are not making any changes to the proposal in this respect in the 
final rules we are adopting.
---------------------------------------------------------------------------

    \213\ Letter from ABA. See supra note 188 and accompanying text.
---------------------------------------------------------------------------

    Some commenters expressed the view that proposed Item 1605, 
including proposed Item 1605(d) concerning conflicts of interest in 
connection with de-SPAC transactions, would be redundant with current 
rules.\214\ The Commission is not making changes in the final rules we 
are adopting in response to these comments. Given the unique qualities 
of de-SPAC transactions, we believe registrants will benefit from the 
centralization of the SPAC-related requirements in the Item 1600 series 
of Regulation S-K rather than in a different location as 
suggested.\215\ Regarding any potential for redundancy with other 
Commission rules, if there are facts and circumstances that may result 
in required disclosure under a current rule being the same as under any 
of the rules we are adopting, registrants will not be required to 
repeat disclosures (except where the applicable rule may require, such 
as by calling for the disclosure in a specific location such as the 
prospectus cover page or prospectus summary).
---------------------------------------------------------------------------

    \214\ Letters from ABA, Vinson & Elkins. See supra notes 189, 
190, 191, and 192 and accompanying text.
    \215\ The Commission adopted a similar approach in rules 
regarding limited partnership roll-up transactions. See 17 CFR 
229.900 through 229.915.
---------------------------------------------------------------------------

    Some commenters recommended we adopt certain requirements (in 
addition to those proposed) involving ``break-even'' disclosure.\216\ 
With respect to disclosure of a SPAC sponsor's ``break-even'' price per 
share, one commenter said this would help investors ``ascertain the 
extent to which a sponsor's position differs from that of other 
investors.'' \217\ We believe that the other conflicts of interest 
disclosures required by the final rules will provide sufficient 
information to allow investors to understand the potential differences 
in incentives between them and a SPAC sponsor, and as a result we are 
not adopting the suggested ``break-even'' disclosure.
---------------------------------------------------------------------------

    \216\ Letters from Jonathan Kornblatt, Michael Klausner and 
Michael Ohlrogge, NASAA. See supra notes 193, 194, 195, and 196 and 
accompanying text.
    \217\ Letter from Jonathan Kornblatt.
---------------------------------------------------------------------------

    We are not requiring registrants to provide ``break-even'' price 
per share disclosure regarding non-redeeming investors as suggested by 
commenters because each investor would already know the basis at which 
they acquired the shares of the SPAC and the SPAC may not know this 
information for many of its investors, who could have acquired the 
shares at a variety of prices through the public market. We are 
likewise not requiring disclosure suggested by commenters that would 
provide a price at which the SPAC sponsor would recoup their 
investments in the SPAC. We believe such disclosure could be confusing 
for investors, as many SPAC sponsors may consider such amounts as sunk 
costs, which they do not consider when deciding whether to proceed with 
a de-SPAC transaction. As a commenter notes,\218\ SPAC sponsors may be 
incentivized to proceed with de-SPAC transactions below the initial 
SPAC share price; however, that is largely because SPAC sponsors lack 
redemption rights. Generally, SPAC shareholders would seek de-SPAC 
transactions that result in share prices that exceed their redemption 
value. SPAC sponsor decisions to proceed with a transaction may be 
driven by the SPAC sponsor's expectation of their future deal flow and 
potential legal or reputational concerns among other factors. The 
``break-even'' disclosure suggested by commenters would not take into 
account these factors. Moreover, none of these factors can be easily 
quantified, and the ones that can be quantified would be burdensome to 
produce and potentially difficult for investors to analyze and assess 
(given the difficulty in reliably quantifying those factors) and also 
would not be easily comparable across different SPACs (given the SPAC-
specific and SPAC sponsor-specific nature of those factors). The rules 
as adopted will improve investors' ability to understand the SPAC 
sponsor's conflicts of interest, and we are concerned that adding a 
disclosure that takes into account difficult-to-quantify factors like 
the ones discussed above would detract from the disclosures that we are 
adopting.
---------------------------------------------------------------------------

    \218\ See letter from Michael Klausner and Michael Ohlrogge 
(``If a sponsor has committed to make no new investments in the SPAC 
at the time of its merger, then any post-merger share value greater 
than $0 will be preferable to the sponsor than receiving nothing in 
a liquidation. If, however, the sponsor commits to purchase new 
securities in the SPAC at the time of the SPAC merger, then the 
share value at which a merger will be a better deal for a sponsor 
than a liquidation will be above $0.'').
---------------------------------------------------------------------------

    In the final rules, we are not requiring a description of policies 
and procedures used to minimize potential or actual conflicts of 
interest. We believe the other disclosures we are adopting regarding 
conflicts of interest, including new Item 1603, will appropriately 
address investor protection concerns in this regard. We are also not 
making any changes that would expand the Series 1600 of Regulation S-K 
disclosures regarding conflicts of interest beyond registration 
statements, proxy statements, information statements, and tender offer 
statements as proposed to other Exchange Act reports (such as to Form 
10-Q, 10-K, or 8-K).\219\
---------------------------------------------------------------------------

    \219\ See letter from Vinson & Elkins, supra note 201 and 
accompanying text, and Proposing Release, supra note 7, at 29468 
(request for comment number 18).
---------------------------------------------------------------------------

    Finally, we are making additional minor or technical changes in the 
final rules. First, we are making a change to the description of 
persons against whose interests the conflicts must be compared against 
from ``unaffiliated security holders'' to ``unaffiliated security 
holders of the SPAC'' in Items 1603(b) and 1604(a)(4) (prospectus cover 
page) and (b)(3) (prospectus summary). This change will avoid any 
potential ambiguity or confusion regarding whether target company 
officers and directors must compare their interests to security holders 
of the target company or security holders of the SPAC.
    Second, we are making a technical change in final Item 1605(d) to 
use ``or'' instead of ``and'' each time in the phrase ``held by the 
SPAC sponsor and the special purpose acquisition company's officers . . 
. and directors.'' This change makes clear the disclosure should apply 
with respect to each named person and not only where all such persons 
share the same interest.
    Third, we have made certain technical changes in some of the final 
rules regarding conflicts of interest to clarify the sets of persons 
being compared.\220\
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    \220\ In final Item 1602(a)(5) and (b)(7), we have revised the 
punctuation and conjunctions compared to the proposal to clarify the 
two sets of persons that are to be compared in connection with the 
required potential or actual conflict of interest disclosure by 
changing the proposed phrase ``between the SPAC sponsor or its 
affiliates or promoters and purchasers in the offering'' to 
``between the SPAC sponsor, its affiliates, or promoters; and 
purchasers in the offering.'' To clarify the two sets of persons to 
be compared in Item 1604(a)(4), we have added the words ``, on one 
hand,'' before the first set of persons and the words ``, on the 
other hand,'' before the second set of persons. For clarity and 
consistency throughout Item 1603, we have also revised the term 
``executive officer(s)'' in each place where it is used in Item 
1603(b) and (c) to refer to ``officer(s).''

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[[Page 14178]]

    Fourth, in final Item 1603(b), we are changing each reference to 
``the SPAC sponsor'' to ``any SPAC sponsor'' because there can be more 
than one such sponsor.
    Fifth, we have revised the phrase ``State whether there may be 
actual or potential conflicts of interest . . .'' in proposed Item 
1602(a)(5) to add a materiality qualifier such that the phrase in final 
Item 1602(a)(5) provides ``State whether there may be actual or 
potential material conflicts of interest. . . .'' This change makes 
prospectus cover page disclosure requirements under Item 1602(a)(5) 
consistent with the similar provisions of Item 1603(b), which require 
disclosure in the body of the disclosure document. We believe both 
provisions should contain the same materiality qualifier, because the 
provisions are related since Item 1602(a)(5) requires the registrant to 
provide a cross-reference to related disclosures in the prospectus, 
which includes disclosures made under Item 1603(b).

D. Dilution

1. Proposed Rules
    Information about dilution conveys important information to 
investors about factors that may affect the value of a security 
holder's interest in a SPAC. Dilution in current Commission filings is 
typically measured by calculating changes in net tangible book value 
per share.\221\ There are a number of potential sources of dilution in 
common SPAC structures, including: (a) shareholder redemptions, (b) 
SPAC sponsor compensation, (c) underwriting fees, (d) warrants, (e) 
convertible securities, and (f) PIPE financings.
---------------------------------------------------------------------------

    \221\ See 17 CFR 229.506 (``Item 506'' of Regulation S-K). 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.
---------------------------------------------------------------------------

    The Commission proposed several new rules that would require 
additional information about SPAC dilution in connection with 
registered offerings by SPACs, including IPOs, and in connection with 
de-SPAC transactions.\222\ With respect to registered offerings by 
SPACs (including IPOs) other than de-SPAC transactions, the Commission 
proposed Item 1602(a)(3) and (4), (b)(6), and (c).\223\ With respect to 
de-SPAC transactions, the Commission proposed Item 1604(a)(3), (b)(4), 
(5), and (6), and (c).\224\ Each of these proposed disclosure 
requirements is addressed in more detail below.
---------------------------------------------------------------------------

    \222\ See proposed Items 1602(a)(3) and (4), (b)(6), and (c) and 
1604(a)(3), (b)(4), (5), and (6), and (c) of Regulation S-K.
    \223\ See proposed General Instruction VIII to Form S-1 and 
proposed General Instruction VII to Form F-1.
    \224\ See (a) proposed General Instruction VIII to Form S-1, (b) 
proposed General Instruction I.1 to Form S-4, (c) proposed General 
Instruction VII to Form F-1, (d) proposed General Instruction I.1 to 
Form F-4, (e) proposed Item 14(f)(1) of Schedule 14A, and (f) 
proposed General Instruction K to Schedule TO.
---------------------------------------------------------------------------

    First, with respect to SPAC IPOs, in Item 1602(a)(3), the 
Commission proposed that the prospectus outside front cover page 
include, among other things, disclosure of whether compensation of the 
SPAC sponsor and its affiliates may result in a material dilution of 
the purchasers' equity interests. Also, the Commission proposed Item 
1602(a)(4) to require on the outside front cover page of the 
prospectus, disclosure 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 Item 506 of Regulation S-K:

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

    Instruction 1 to Item 1602(a)(4) provided that, if the offering 
includes an over-allotment option, separate rows must be included in 
the tabular disclosure showing remaining pro forma net tangible book 
value per share with and without the exercise of the over-allotment 
option.\225\
---------------------------------------------------------------------------

    \225\ In this context, the Commission considers the term over-
allotment option to be interchangeable with the term ``greenshoe 
option.'' For a general description of the nature of a ``greenshoe'' 
or ``over-allotment option,'' see, e.g., Patrick M. Corrigan, 
Footloose with Green Shoes: Can Underwriters Profit from IPO 
Underpricing?, 38 Yale J. on Reg. 908, 917-918 (2021) 
(``Underwriting agreements in firm commitment offerings also give 
underwriters the right, but not the obligation, to purchase an 
additional amount of shares [(`Option Shares')] at the same price as 
the underwriter is obligated to purchase the [specified number of 
shares set out in the underwriting agreement (`Firm Shares')]. . . . 
Underwriters typically have 30 days following the execution of the 
underwriting agreement to exercise their option. The closing for the 
Option Shares may occur on the same closing date as for the Firm 
Shares, or on a later date. In modern IPOs, the size of the green 
shoe option is virtually always 15% of the Firm Shares, an amount 
that constitutes the maximum permissible under FINRA rules.'') 
(Footnotes omitted).
---------------------------------------------------------------------------

    In addition, in Item 1602(b)(6) the Commission proposed that for 
SPAC IPOs, the summary prospectus include, among other things, 
disclosure of the extent to which compensation of the SPAC sponsor, its 
affiliates, and promoters may result in a material dilution of the 
purchasers' equity interests. In addition to the prospectus cover page 
and prospectus summary requirements for SPAC IPOs, the Commission also 
proposed Item 1602(c) regarding dilution. This proposed item would 
require, in addition to the disclosure required by Sec.  229.506 (Item 
506 of Regulation S-K), a description of material potential sources of 
future dilution following the registered offering by the special 
purpose acquisition company. This proposed item also would require 
disclosure in tabular format of 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.
    The other dilution provisions proposed by the Commission related to 
de-SPAC transactions. The Commission proposed Item 1604(a)(3) to 
require on

[[Page 14179]]

the outside front cover page of the prospectus, among other things, 
disclosure of whether compensation of the SPAC sponsor, its affiliates, 
and promoters 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. Proposed Item 1604(a)(3) also 
required the provision of a cross-reference, highlighted by prominent 
type or in another manner, to the locations of related disclosures in 
the prospectus.
    Three additional proposed rules with respect to de-SPAC 
transactions, Item 1604(b)(4) through (6), each required prospectus 
summary disclosure. First, proposed Item 1604(b)(4) required, among 
other things, tabular disclosure of whether compensation of the SPAC 
sponsor and its affiliates has resulted or may result in a material 
dilution of the equity interests of unaffiliated security holders of 
the special purpose acquisition company. Second, proposed Item 
1605(b)(5) required, among other things, disclosure of the dilutive 
impact, if any, of any financing transactions that have occurred or 
will occur in connection with the consummation of the de-SPAC 
transaction on unaffiliated security holders. Third, proposed Item 
1604(b)(6) required disclosure of 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.
    For de-SPAC transactions, the Commission also proposed Item 1604(c) 
to require a description of 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. 
Under Item 1604(c), proposed Item 1604(c)(1) required the provision of 
a sensitivity analysis disclosure in tabular format that expresses the 
amount of potential dilution under a range of reasonably likely 
redemption levels. Proposed Item 1604(c)(1) also required, at each 
redemption level in the sensitivity analysis, quantification of 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. Additionally, proposed 
Item 1602(c)(2) required a description of the model, methods, 
assumptions, estimates, and parameters necessary to understand the 
sensitivity analysis disclosure.
2. Comments
    A number of commenters generally supported some or all of the 
proposed enhanced dilution disclosure requirements.\226\ Several of 
these commenters suggested that proposed dilution disclosure 
requirements would provide useful information to investors.\227\ Other 
commenters, however, generally opposed or raised concerns regarding 
some or all of the proposed enhanced dilution disclosure 
requirements.\228\ Several of these commenters expressed views that the 
proposed disclosure requirements regarding dilution would not be 
helpful to investors.\229\ Specific comments on various aspects of the 
proposal are described below.
---------------------------------------------------------------------------

    \226\ Letters from Better Markets (``The disclosures should 
assist shareholders in understanding . . . potential sources of 
dilution of their shares. . . .''), Bullet Point Network (``We also 
agree with the SEC's proposal to add sensitivity tables to show the 
dilution across a range of redemption scenarios. . . .''), CFA 
Institute (``we encourage a rapid implementation of the Proposed 
Rules on improving disclosures, transparency of dilution. . . .''), 
CII (``We generally agree . . . on the need to . . . bring greater 
clarity to dilution under various SPAC share redemption scenarios. . 
. .''), Committee on Capital Markets Regulation (``In particular, 
the Committee supports the proposed enhanced disclosures regarding . 
. . dilution. . . .''), Consumer Federation, ICGN (``Finally, the 
disclosure around dilution concerns . . . are also critical 
components for investor decision-making.''), PricewaterhouseCoopers 
LLP (June 10, 2022) (``PwC'') (``We believe the proposed disclosure 
changes will lead to greater transparency and clarity in important 
areas (e.g., actual or potential conflicts/misalignments of 
interests or actual or potential sources of dilution).'').
    \227\ See, e.g., Consumer Federation (``more detailed 
information on the potential impact of dilution on the value of SPAC 
shares could help investors better understand the various sources of 
dilution and the extent to which their investments might drop in 
value, which they could then factor into their decision making.''), 
NASAA (``NASAA believes that some of the most important de-SPAC 
disclosures proposed are those concerning the potential for dilution 
and the potential impacts to returns from sponsor compensation, 
`promote' shares, underwriting fees and warrants.'').
    \228\ Letters from ABA; Freshfields; Loeb & Loeb; Michael 
Klausner, Stanford Law School, Michael Ohlrogge, NYU School of Law, 
and Harald Halbhuber, NYU School of Law (June 13, 2022) (``Michael 
Klausner, Michael Ohlrogge, and Harald Halbhuber''); Letter from 
Christopher J. Capuzzi, Daniel L. Forman, Adam M. Harris, David B. 
Hennes, Carl P. Marcellino, and Paul D. Tropp, Ropes & Gray LLP 
(June 13, 2022) (``Ropes & Gray''); White & Case.
    \229\ See, e.g., Letters from ABA (``Generally, proposed Items 
1602(a)(4), 1602(c) and 1604(c) require disclosures and the 
application of financial analysis tools that we do not believe are 
grounded in methodologies used by investors or financial experts in 
valuing a common share. . . .''), Ropes & Gray (``We respectfully 
submit that the information called for by these proposed rules would 
not provide investors or analysts with meaningful information in 
valuing SPAC shares at the time of a SPAC IPO.''), White & Case 
(``We submit that proposed Items 1602(a)(4) and 1602(c) of 
Regulation S-K should not be adopted . . . such proposed disclosure 
would not provide any useful information to investors and would 
produce inherently misleading disclosure.'').
---------------------------------------------------------------------------

    Several commenters addressed issues related to levels of redemption 
in connection with proposed SPAC dilution disclosure. One commenter 
said that the ``quantitative disclosure currently required under S-K 
Item 506 at IPO is not helpful for investors, as the output is largely 
driven by the maximum redemption scenario which can differ based on (i) 
different provisions of the SPAC's constituent documents. . .and (ii) 
the interpretation of those constituent documents.'' \230\ In lieu of 
disclosure using the methodology in existing Item 506 as was proposed, 
this commenter said that ``SPACs should present the per share amount of 
cash (or securities) in trust, under a range of hypothetical redemption 
scenarios and after giving effect to sponsor equity, underwriter 
compensation and IPO expenses.'' To promote comparability, this 
commenter also suggested that ``the hypothetical redemption scenarios 
include a maximum of 100% of the public shares (regardless of any 
provisions of the SPAC's constituent documents that might theoretically 
limit redemptions) less any shares subject to a binding commitment to 
not be redeemed.''
---------------------------------------------------------------------------

    \230\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Another commenter, who expressed the general view that ``proposed 
Items 1602(a)(4) and 1602(c) of Regulation S-K should not be adopted,'' 
said that ``it is unclear whether a maximum redemption threshold for 
purposes of proposed Item 1602(a)(4) should require or call for 
anything other than the redemption of 100% of the SPAC's public 
shares.'' \231\ This commenter also said that ``a maximum redemption 
scenario for a SPAC would vary across different de-SPAC transactions'' 
because of the various ways the redemption level is impacted, including 
by the SPACs' governing documents, listing requirements, and negotiated 
conditions in the de-SPAC transaction.\232\ The commenter observed that 
``some de-SPAC transactions are structured such that certain funding 
mechanisms, such as backstop, forward purchase or PIPE arrangements, 
apply only in the event of certain redemption thresholds, further 
complicating the ability to make the assumptions required by proposed 
Item 1602(a)(4).'' \233\ As a result, this commenter asserted that 
``any purported maximum redemption scenario disclosed at the time of 
IPO cannot be based on reasonable assumptions given

[[Page 14180]]

the inherent lack of specifics available at the time of the IPO for a 
prospective de-SPAC transaction.'' \234\
---------------------------------------------------------------------------

    \231\ Letter from White & Case.
    \232\ Id.
    \233\ Id.
    \234\ Id.
---------------------------------------------------------------------------

    The same commenter said that ``a SPAC may actually become subject 
to a maximum redemption scenario that is lower than the quartile 
intervals required to be presented by proposed Item 1602(a)(4).'' \235\ 
One commenter recommended the Commission require dilution disclosure at 
a 90% redemption level, stating it ``could be particularly useful to 
investors if recent redemption activity is indicative of future 
activity.'' \236\
---------------------------------------------------------------------------

    \235\ Letter from White & Case.
    \236\ Letter from CII, citing Joanna Makris, SPAC Market Review 
2022 as ``finding February 2022 redemption rate of 89%'' available 
at https://www.boardroomalpha.com/spac-market-review-march-2022/.
---------------------------------------------------------------------------

    Commenters raised concerns that dilution disclosure would be 
characterized by uncertainty, be based on hypothetical assumptions, or 
depend on unknown variables.\237\ One commenter said that the proposed 
disclosure under Item 1602(a)(4) and (c) would require ``dilution 
disclosure informed by purely hypothetical assumptions'' and that 
``lengthy and detailed caveats regarding the assumptions would be 
needed.'' \238\ As a result of these concerns, the commenter concluded 
that ``proposed Items 1602(a)(4) and 1602(c) of Regulation S-K would 
only confuse and mislead investors.'' \239\ Other commenters noted that 
dilution disclosure at the IPO stage would depend on unknown 
variables,\240\ which one of these commenters said will mean the 
disclosure is not meaningful.\241\ One of these commenters suggested 
that ``tabular disclosure and sensitivity analyses in SPAC IPO 
registration statements should be limited to the sources of dilution in 
existence or contracted at the time of the IPO.'' \242\
---------------------------------------------------------------------------

    \237\ Letters from Freshfields, Vinson & Elkins, White & Case.
    \238\ Letter from White & Case.
    \239\ Letter from White & Case.
    \240\ Letters from Freshfields, Vinson & Elkins (stating that 
the specifics of the transaction that are unknown include: ``will 
there be a PIPE financing, at what per share valuation, will the 
PIPE issuance include warrants, will there be convertible equity or 
debt issued, what will transaction expenses be, are there 
convertible or derivative securities of the target that will be 
assumed,'' and ``Most importantly, the value of the target company 
is not known at the time of the IPO.'').
    \241\ Letter from Freshfields (stating that they did not think 
the dilution table on the cover of the SPAC's IPO prospectus ``will 
be meaningful because the SPAC does not yet know the amount of 
equity to be issued in a PIPE (if any) or to the target company's 
stockholders (if any) or the extent to which the SPAC sponsor's 
promote will be renegotiated in connection with the actual de-SPAC 
transaction.'').
    \242\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Several commenters expressed concerns that the proposed dilution 
disclosure would not provide meaningful information to investors.\243\ 
One of these commenters said that ``proposed Items 1602(c) and 1604(c) 
are ambiguous as to what is required to be considered as dilution and 
how that dilution is to be measured and presented.'' \244\ This 
commenter said they do not believe current Item 506 disclosures are 
useful to investors and do not believe investors will find the similar 
disclosures proposed to be required by Items 1602(a)(4) and (c) and 
1604(c) to be any more useful. One commenter said, ``the proposed 
additional dilution disclosure to be included in an IPO prospectus 
(proposed Item 1602) would just capture in one place information 
already being disclosed with perhaps some new caveats about potential 
for dilutive financings and accordingly not result in a better informed 
investor.'' \245\
---------------------------------------------------------------------------

    \243\ Letters from ABA, Ropes & Gray (``information called for 
by the proposed rules would not provide investors or analysts with 
meaningful information in valuing SPAC shares at the time of a SPAC 
IPO.''), Vinson & Elkins, White & Case.
    \244\ Letter from ABA.
    \245\ Letter from Loeb & Loeb.
---------------------------------------------------------------------------

    The Commission proposed that the calculation of pro forma net 
tangible book value be done consistent with the methodologies and 
assumptions used in the disclosure provided pursuant to Item 506 of 
Regulation S-K. One commenter said that ``[Item 506] presentation is 
not meaningful to investors and in some instances the presentation may 
actually show that there is a decrease in net tangible book value from 
the offering after giving effect to the redeemable shares.'' \246\
---------------------------------------------------------------------------

    \246\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Another commenter said that, without an identified de-SPAC target 
or structured de-SPAC transaction, the limited information at the time 
of the SPAC IPO used to calculate the proposed Item 1602(a)(4) 
disclosures would produce ``an absurd result.'' \247\ The commenter 
expressed the view that the disclosure provided based on this limited 
information would not be useful because ``all of a SPAC's shares sold 
to public investors in the SPAC's IPO (the public shares) are required 
to be classified as temporary equity upon the completion of the IPO,'' 
which would mean that ``the calculation of pro forma net tangible book 
value per share in accordance with U.S. GAAP [Generally Accepted 
Accounting Principles] inevitably produces a deficit and remains the 
same constant figure across any assumed redemption thresholds.'' \248\
---------------------------------------------------------------------------

    \247\ Letter from White & Case.
    \248\ Id.
---------------------------------------------------------------------------

    Another commenter said that ``proposed Item 1602(a)(4) would 
require disclosure of the estimated remaining pro forma net tangible 
book value per share at specified redemption levels consistent with the 
methodologies in Item 506 of Regulation S-K'' but noted that ``Item 506 
does not provide a definition for net tangible book value,'' and, as a 
result, the commenter has ``observed diversity in such calculations.'' 
\249\ The commenter recommended ``that the Commission include a 
definition of net tangible book value in the final rule to enhance the 
usefulness and comparability of the dilution disclosures for investors 
in SPAC transactions and other registered securities offerings as 
applicable.'' \250\
---------------------------------------------------------------------------

    \249\ Letter from Ernst & Young LLP (June 13, 2023) (``Ernst & 
Young'').
    \250\ Id.
---------------------------------------------------------------------------

    One commenter recommended that the Commission give ``illustrative 
examples and calculations'' of the dilution disclosure to ensure 
``robust, transparent, and consistent dilution disclosures.'' \251\ 
Another commenter said they ``agree with the proposal to add 
sensitivity tables to show the dilution across a range of redemption 
scenarios and would suggest the SEC provide a format to standardize 
that disclosure.'' \252\ One commenter recommended that ``sensitivity 
analyses should only be required for sources of dilution, such as 
warrants, where the dilutive impact varies based on changing equity 
values or other variables.'' \253\
---------------------------------------------------------------------------

    \251\ Letter from PwC.
    \252\ Letter from Bullet Point Network.
    \253\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    In response to a request for comment asking whether we should 
require disclosure of net cash per share (in addition to, or in lieu of 
the proposed dilution disclosures),\254\ several commenters recommended 
we require net cash per share disclosure.\255\ One commenter said that, 
in lieu of the proposed dilution disclosure, ``SPACs should present the 
per share amount of

[[Page 14181]]

cash (or securities) in trust, under a range of hypothetical redemption 
scenarios and after giving effect to sponsor equity, underwriter 
compensation and IPO expenses.'' \256\ Another commenter said that 
``the actual net cash per share for non-redeeming shareholders under 
different redemption scenarios should be displayed in an easily 
understandable, tabular format.'' \257\
---------------------------------------------------------------------------

    \254\ See Proposing Release, supra note 7, at 29470 (request for 
comment number 20) (``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?'').
    \255\ Letters from CII; Michael Klausner, Michael Ohlrogge, and 
Harald Halbhuber; NASAA; Vinson & Elkins.
    \256\ Letters from Vinson & Elkins.
    \257\ Letter from NASAA.
---------------------------------------------------------------------------

    A different commenter said they ``support clear disclosure of net 
cash per share after taking into account all sources of dilution and 
dissipation of cash, under various redemption scenarios.'' \258\ This 
commenter said that reductions in net cash may be attributable to a 
variety of sources, including: (a) sponsor compensation and investment 
terms, (b) share redemption, (c) exercise of warrants, fractional 
warrants and convertible securities, (d) PIPE financing, and (e) 
underwriting fees.\259\ The commenter also said that ``[g]iven the 
complexity and contingencies involved in the de-SPAC process, investors 
. . . need clear information about potential consequences to inform 
their understanding of the true cost of the business combination.'' 
\260\
---------------------------------------------------------------------------

    \258\ Letter from CII.
    \259\ Id.
    \260\ Id.
---------------------------------------------------------------------------

    One group of commenters said that ``the final rules for SPAC 
mergers should require SPACs to prominently disclose the amount of net 
cash underlying each share at the time of a de-SPAC transaction,'' 
including on the cover page of the registration statement.\261\ These 
commenters also said, with respect to the proposed Item 1604(c) 
requirement to describe ``each material potential source of future 
dilution'' for non-redeeming SPAC shareholders, that the dilution 
concept included in the provision reflects a concept of dilution that 
is focused on ``ownership dilution,'' not the kind of dilution (and 
dissipation of cash) that reduces the net cash underlying a SPAC 
share.\262\ These commenters concluded that, as proposed, none of the 
disclosures in Item 1604(c) of Regulation S-K would inform investors 
about the net cash underlying a SPAC share. These commenters also 
provided a formula for the calculation of net cash per share: (a) total 
cash (consisting of the sum of cash from SPAC public shareholders plus 
cash from PIPEs or forward purchase agreements minus cash expenses 
minus the value of warrants minus the value of other equity 
derivatives), divided by (b) total shares (consisting of public shares 
plus founder shares plus PIPE or forward purchase agreement shares plus 
other shares plus shares issuable under rights).\263\ Another commenter 
supported using this calculation of net cash per share after taking 
into account all sources of dilution and dissipated cash under 25%, 
50%, 75%, 90%, and 100% redemption scenarios.\264\
---------------------------------------------------------------------------

    \261\ Letter from Michael Klausner, Michael Ohlrogge, and Harald 
Halbhuber (providing that net cash per share should include: ``each 
material source of future dilution and dissipation of cash that non-
redeeming shareholders may experience by electing not to tender 
their shares in connection with the de-SPAC transactions and 
quantify its impact on the net cash underlying a share'').
    \262\ Letter from Michael Klausner, Michael Ohlrogge, and Harald 
Halbhuber, citing Klausner, Ohlrogge & Halhubber, Net Cash Per 
Share: The Key to Disclosing SPAC Dilution (NYU Law and Economics 
Research Paper No. 22-14, Mar. 28, 2022, last revised Sept. 17, 
2022), available at https://ssrn.com/abstract=4047180 (retrieved 
from SSRN Elsevier database) (see supra note 156). For treatment of 
warrants in connection with this net cash per share formula, see id. 
at 27 (``All warrants should be valued using standard accounting 
methodologies as of the day before the merger's announcement, and 
their aggregate value should be subtracted from total cash. This is 
consistent with most SPACs' accounting treatment of warrants as a 
liability. To ensure comparability across different SPACs, however, 
we propose subtracting the value of the warrants even when they are 
structured to avoid liability treatment under GAAP.'' (Footnotes 
omitted)); id. at 27, n.32 (``Alternatively, SPACs could be required 
to disclose the value of warrants at the time their proxy statement 
is filed. This would reflect the market's valuation of the warrants' 
dilution.''); but see Klausner, Ohlrogge & Ruan, supra note 18 at 
233, n.11 (2022) (``The concept of net cash per share is central to 
our analysis. We define that term to be cash in the SPAC minus 
underwriting fees and other fees incurred in connection with a 
SPAC's merger minus the value of warrants as of the day before the 
announcement of the merger, divided by shares issued in the SPAC's 
IPO plus shares issued to shares issued to PIPE investors. We follow 
the SEC's treatment of warrants as liabilities. If we treat warrants 
as equity of the same value in the denominator of net cash per 
share, the results would not be significantly different. For the few 
SPACs that have convertible debt, we treat the conversion feature as 
a warrant.'' (Emphasis added)).
    \263\ Id.
    \264\ Letter from CII.
---------------------------------------------------------------------------

    One commenter said they ``read proposed Item 1604(c)(1) as 
requiring a determination of the enterprise valuation that will result 
in a stockholder's `interest per share' (calculated by reference to a 
pro forma closing date balance sheet. . .). . .being at least equal to 
the $10 price per share paid in the IPO.'' \265\ The commenter said 
``this is the equivalent of requiring a traditional IPO to include in 
its Item 506 dilution section alternative price ranges, the midpoint of 
which would not result in dilution to IPO investors,'' which the 
commenter said ``we can safely assume would be materially different 
from the proposed cover page range due to the significant disconnect 
between market prices and net book value per share.'' \266\ The 
commenter said ``if misunderstood by the reader, this proposed 
disclosure also has the dangerous potential to lead a SPAC shareholder 
to view the disclosure as a guarantee that the stock will not trade 
down in the aftermarket.'' \267\
---------------------------------------------------------------------------

    \265\ Letter from Loeb & Loeb.
    \266\ Id.
    \267\ Id.
---------------------------------------------------------------------------

    One commenter on the proposal said that ``[f]or de-SPAC 
transactions, the most meaningful information would be the expected 
value per share, using the agreed equity value of the target company 
plus net cash proceeds from the de-SPAC transaction under a range of 
hypothetical redemption scenarios.'' \268\ The commenter said, ``Given 
that SPAC warrants are almost uniformly out of the money at the agreed 
per share equity value used in the de-SPAC transaction (typically the 
$10 IPO per unit price), conveying the potential dilutive effect of the 
warrants can be handled in many different ways.'' The commenter 
suggested disclosing ``the percentage ownership of the surviving 
company at various hypothetical share increments above $10 per share, 
utilizing the treasury share method.'' \269\
---------------------------------------------------------------------------

    \268\ Letter from Vinson & Elkins.
    \269\ Letter from Vinson & Elkins. Regarding the treasury stock 
method for warrants, see, e.g., Donald E. Kieso, Jerry J. Weygandt & 
Terry D. Warfield, Intermediate Accounting, Volume 2, 17 (2019) 
(``The treasury stock method applies to written call options and 
equivalents and assumes that: 1. the options and warrants or 
equivalents are exercised at the beginning of the year (or on the 
date of issue if it is later), and 2. the proceeds are used to 
purchase common shares for the treasury at the average market price 
during the year. If the exercise price is lower than the average 
market price, then the proceeds from exercise are not sufficient to 
buy back all the shares. This would result in more shares being 
issued than purchased and will therefore be dilutive. The excess 
number of the shares (incremental number) to be issued over the 
number of shares that would be purchased is added to the weighted 
average number of shares outstanding in calculating [per share 
ratios]. Note that no adjustment is made to the numerator.'').
---------------------------------------------------------------------------

    One commenter recommended that the Commission should consider 
requiring that intermediaries provide information about ``the sponsor, 
actual and potential conflicts of interest, [and] how much a non-
redeeming SPAC investor's interest will be diluted'' in a separate 
``Key Risks and Conflicts form'' that is detached from the prospectus, 
so that the disclosure receives more investor attention and focus.\270\
---------------------------------------------------------------------------

    \270\ Letter from CFA Institute.
---------------------------------------------------------------------------

    One commenter said that disclosures about ``any lock-up periods or 
earnout provisions for sponsors or underwriters

[[Page 14182]]

would be of significant interest to investors and should be required if 
part of the SPAC offering.'' \271\
---------------------------------------------------------------------------

    \271\ Letter from NASAA.
---------------------------------------------------------------------------

3. Final Rules
i. Overview of Final Rules and Changes From Proposal
    After considering the comments received, regarding dilution 
disclosure in SPAC registered offerings (such as SPAC IPOs) other than 
de-SPAC transactions, we are adopting Item 1602(a)(3) and (4), (b)(6), 
and (c) as proposed, except for certain modifications we discuss below. 
Regarding de-SPAC transactions, we are also adopting Item 1604(a)(3), 
(b)(4), (5), and (6), and (c) as proposed, except for certain 
modifications we discuss below. Each of these provisions is discussed 
in detail below.
a. Overview of Final Item 1602 Dilution Disclosure (IPOs and Non-De-
SPAC Transaction Registered Offerings) and Changes From Proposal
1. Item 1602(a)
    Final Item 1602(a)(3) requires, on the outside front cover page of 
the prospectus in plain English, a statement of the amount of the 
compensation received or to be received by the SPAC sponsor, its 
affiliates, and promoters, the amount of securities issued or to be 
issued by the SPAC to the SPAC sponsor, its affiliates, and promoters 
and the price paid or to be paid for such securities, and whether this 
compensation and securities issuance may result in a material dilution 
of the purchasers' equity interests. Final Item 1602(a)(3) also 
requires the provision of a cross-reference, highlighted by prominent 
type or in another manner, to the locations of related disclosures in 
the prospectus. Final Item 1602(a)(3) is different from the proposal 
only with respect to changes made regarding SPAC sponsors and 
securities issuances discussed above in section II.B.
    Final Item 1602(a)(4) requires, with respect to SPAC IPOs, on the 
outside front cover page of the prospectus in plain English, disclosure 
in the tabular format specified at quartile intervals based on 
percentages of the maximum redemption threshold: the offering price; as 
of the most recent balance sheet date filed, the net tangible book 
value per share, as adjusted, as if the offering and assumed redemption 
levels have occurred and to give effect to material probable or 
consummated transactions (other than the completion of a de-SPAC 
transaction); and the difference between the offering price and such 
net tangible book value per share, as adjusted.
    Final Table 1 to Paragraph (a)(4) provides:

                              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
----------------------------------------------------------------------------------------------------------------
                                  ..................  ..................  ..................  ..................
----------------------------------------------------------------------------------------------------------------

    Final Instruction 1 to Item 1602(a)(4) provides, if the offering 
includes an over-allotment option, separate rows in the tabular 
disclosure must be included showing the information required by 
paragraph (a)(4) with and without the exercise of the over-allotment 
option.
    Final Item 1602(a)(4) includes several changes compared to the 
proposal. First, we have clarified in the final rule how to calculate 
the required dilution information. In response to the proposal, some 
commenters generally sought clarification, such as illustrative 
examples, calculations, or definitions, in connection with the dilution 
calculation.\272\ We believe the changes in the final rules will be 
simpler for registrants to follow and comply with because they provide 
clear steps regarding how the dilution disclosure should be determined. 
In addition, we have deleted proposed references to calculating 
dilution ``consistent with the methodologies and assumptions used in 
the disclosure provided pursuant to Sec.  229.506 (Item 506 of 
Regulation S-K).'' These references to Item 506 are not necessary given 
the changes made to clarify how to calculate the required dilution 
information. This change also ensures that redeemable common stock is 
not treated as temporary equity for purposes of the calculation in a 
way that could undermine the meaningfulness of the dilution disclosure 
as we discuss in more detail below in response to comments. Relatedly, 
we are revising Item 6 of Form S-1 to state that the registrant must 
``Provide the information required by Item 506 of Regulation S-K (Sec.  
229.506 of this chapter), unless the registrant is a special purpose 
acquisition company (as defined in Item 1601 of Regulation S-K),'' 
because the requirements of Item 1602(a)(4) are intended to supplant 
the requirements of Item 506 for SPACs.
---------------------------------------------------------------------------

    \272\ See letters from PwC, Ernst & Young, supra notes 249 and 
251.
---------------------------------------------------------------------------

    In addition, we have deleted proposed references in Item 1602(a)(4) 
to ``estimated remaining pro forma net tangible book value per share'' 
as the name for the dilution measurement and instead refer to ``net 
tangible book value per share, as adjusted.'' We were concerned that 
references to ``estimated remaining pro forma net tangible book value 
per share'' could be ambiguous and that registrants could misinterpret 
the term to require estimation of what the net tangible assets of a 
combined company might be in any ultimate de-SPAC transaction. The 
deletion of this term and its replacement with the new term helps 
clarify that registrants should not include any estimates of the assets 
of any ultimate target company in this calculation.
    In addition, in final Item 1602(a)(4), we have replaced the 
proposed phrase ``at quartile intervals up to the maximum redemption 
threshold'' with ``at quartile intervals based on percentages of the 
maximum redemption threshold.'' We believe registrants could mistakenly 
interpret the proposed terms to require quartile intervals based on the 
total number of shares issued in the offering for the three redemption 
levels in the table other than the maximum redemption level. We believe 
this change will eliminate that potential for misinterpretation.
2. Item 1602(b)
    Final Item 1602(b)(6) requires the prospectus summary to include in 
plain English in a tabular format, the nature and amount of the 
compensation received or to be received by the SPAC sponsor, its 
affiliates, and promoters, the amount of securities issued or to be 
issued by the SPAC to the SPAC sponsor, its affiliates, and promoters 
and the price paid or to be paid for such

[[Page 14183]]

securities, and, outside of the table, the extent to which this 
compensation and securities issuance may result in a material dilution 
of the purchasers' equity interests. Final Item 1602(b)(6) is different 
from the proposal only with respect to changes made regarding SPAC 
sponsors and securities issuances discussed above in section II.B.
3. Item 1602(c)
    Final Item 1602(c) requires disclosure in a tabular format for the 
same quartile intervals as in Item 1602(a)(4): the offering price; net 
tangible book value per share, as adjusted, determined in the same 
manner as in Item 1602(a)(4); and the difference between the offering 
price and such net tangible book value per share, as adjusted. Final 
Item 1602(c) also requires that the tabular disclosure must show: the 
nature and amounts of each source of dilution used to determine net 
tangible book value per share, as adjusted; and the number of shares 
used to determine net tangible book value per share, as adjusted; and 
any adjustments to the number of shares used to determine the per share 
component of net tangible book value per share, as adjusted. Final Item 
1602(c) also requires a description of each material potential source 
of future dilution following the registered offering by the special 
purpose acquisition company, including sources not included in the 
table with respect to the determination of net tangible book value per 
share, as adjusted. Final Item 1602(c) also requires a description of 
the model, methods, assumptions, estimates, and parameters necessary to 
understand the tabular disclosure.
    Final Item 1602(c) contains several changes from the proposal. We 
have clarified in the final rule that Item 1602(c) dilution should be 
calculated in the same way as in Item 1602(a)(4) and have deleted 
references in proposed Item 1602(c) to Item 506 of Regulation S-K, 
consistent with changes discussed above made to final Item 1602(a)(4) 
in this respect. In addition, we have clarified that the table in Item 
1602(c) should show the nature and amounts of each source of dilution 
and the number of shares used in the calculation in order to eliminate 
any ambiguity and the potential that registrants could misinterpret the 
item to mean that the table merely needs to show the final dilution 
information and not the line items that went into its calculation.
    With respect to the proposed requirement to describe material 
potential sources of future dilution, the final rules specify that the 
description should be located outside the table. The final rules also 
state that the description of each material potential source of future 
dilution outside of the table should include ``sources not included in 
the table with respect to the determination of net tangible book value 
per share, as adjusted.'' We are making this change to clarify that the 
disclosure outside of the table is not to be merely duplicative of the 
sources of dilution used for the calculation of the measure of dilution 
within the table. Without these changes, the item could have been 
misinterpreted by registrants to require only disclosure of the same 
sources of dilution used in the tabular calculation of dilution, only 
in a non-tabular format. Depending on a SPAC's specific facts and 
circumstances, the non-tabular disclosure of ``each material potential 
source of future dilution'' under Item 1602(c) may need to discuss a 
broader set of items than ``material probable or consummated 
transactions'' that are included for purposes of calculating the 
tabular dilution measure.\273\
---------------------------------------------------------------------------

    \273\ Depending on the facts and circumstances, both qualitative 
and quantitative information may be required in the disclosures made 
outside of the table.
---------------------------------------------------------------------------

    We have also clarified that underlying factors such as assumptions 
that are necessary to understand the table must be described in order 
to eliminate any ambiguity under the proposal that no such information 
is required beyond the numbers in the dilution table. This 
clarification also makes final Item 1602(c) consistent with final Item 
1604(c), which contained a proposed provision to this effect (that we 
are adopting as discussed in detail below).
b. Overview of Final Item 1604 Dilution Disclosure (De-SPAC 
Transactions) and Changes From Proposal
1. Item 1604(a)
    Final Item 1604(a)(3) requires, on the outside front cover page of 
the prospectus in plain English, a statement of 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; the amount of securities issued or 
to be issued by the SPAC to the SPAC sponsor, its affiliates, and 
promoters and the price paid or to be paid for such securities in 
connection with the de-SPAC transaction or any related financing 
transaction; and whether this compensation and securities issuance 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. Final Item 1604(a)(3) also requires the provision of 
a cross-reference, highlighted by prominent type or in another manner, 
to the locations of related disclosures in the prospectus. Final Item 
1604(a)(3) is different from the proposal only with respect to changes 
made regarding SPAC sponsors and securities issuances discussed above 
in section II.B.
2. Item 1604(b)
    Final Item 1604(b)(4) requires that the prospectus summary must 
include in plain English, in a tabular format, the terms and 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, the amount of securities issued or 
to be issued by the SPAC to the SPAC sponsor, its affiliates, and 
promoters and the price paid or to be paid for such securities in 
connection with the de-SPAC transaction or any related financing 
transaction; and, outside of the table, the extent to which that 
compensation and securities issuance has resulted or may result in a 
material dilution of the equity interests of non-redeeming shareholders 
of the special purpose acquisition company.
    In final Item 1604(b)(4), we revised to clarify that certain 
disclosure should appear outside of the table (rather than within it). 
It also makes the item consistent with Item 1602(b)(6) in requiring 
disclosure of the extent of the material dilution not merely whether or 
not there is such material dilution. Also, in the final rule, we have 
replaced the term ``unaffiliated security holders'' with ``non-
redeeming shareholders'' to ensure consistency of usage throughout Item 
1604. In addition, this change eliminates any ambiguity that might have 
caused some registrants to believe they need to subtract affiliated 
shares from the denominator of the net tangible book value per share 
calculation, which the proposal did not intend. We also made changes to 
final Item 1604(b)(4) as compared to the proposal with respect to SPAC 
sponsors, promoters, and securities issuances discussed above in 
section II.B.
    Final Item 1604(b)(5) requires the prospectus summary to include a 
brief description in plain English of the material terms of any 
material 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 non-
redeeming shareholders. The sole change from the proposal is that, in 
final

[[Page 14184]]

Item 1604(b)(5), we have revised the term ``unaffiliated security 
holders'' to ``non-redeeming shareholders'' for the same reasons as 
discussed above regarding Item 1604(b)(4).\274\
---------------------------------------------------------------------------

    \274\ In addition, in final Item 1603(b)(5) we added the word 
``material'' before the words ``financing transactions'' for 
consistency with final Item 1604(a)(2).
---------------------------------------------------------------------------

    Final Item 1604(b)(6) requires the prospectus summary to include a 
brief description in plain English of the rights of security holders to 
redeem the outstanding securities of the special purpose acquisition 
company and the potential dilutive impact of redemptions on non-
redeeming shareholders. We made one change to final Item 1604(b)(6) 
compared to the proposal to clarify the disclosure required. Final 
1604(b)(6) contains the phrase ``potential dilutive impact of 
redemptions on non-redeeming shareholders'' instead of the proposed 
phrase ``impact of redemptions on the value of the securities owned by 
non-redeeming shareholders.'' We believe this clarification will 
eliminate ambiguity and the potential that registrants could 
misinterpret the item to require undertaking valuations under different 
scenarios of the securities owned by non-redeeming shareholders.
3. Item 1604(c)
    We received comments that indicated that we should provide a 
definition of net tangible book value or provide examples to enhance 
the comparability of the disclosures.\275\ In consideration of these 
comments, we have revised Item 1604(c) to more clearly set forth the 
dilution disclosures and calculations it requires and to align this 
dilution calculation with the dilution calculation under Item 
1602(a)(4) and (c), although, as we discuss herein, there are technical 
differences between the adjustments under Item 1602(a)(4) and (c) 
versus adjustments under Item 1604(c).
---------------------------------------------------------------------------

    \275\ See letters from PwC, Ernst & Young, supra notes 249 and 
251.
---------------------------------------------------------------------------

    Final Item 1604(c) requires disclosure in a tabular format that 
includes intervals representing selected potential redemption levels 
that may occur across a reasonably likely range of outcomes of: the 
offering price disclosed pursuant to Item 1602(a)(4) in the initial 
registered offering by the SPAC; as of the most recent balance sheet 
date filed, the net tangible book value per share, as adjusted, as if 
the selected redemption levels have occurred and to give effect to, 
while excluding the de-SPAC transaction itself, material probable or 
consummated transactions, and other material effects on the SPAC's net 
tangible book value per share from the de-SPAC transaction; and the 
difference between such offering price and such net tangible book value 
per share, as adjusted. Final Item 1604(c) also requires that the 
tabular disclosure must show: the nature and amounts of each source of 
dilution used to determine net tangible book value per share, as 
adjusted; the number of shares used to determine net tangible book 
value per share, as adjusted; and any adjustments to the number of 
shares used to determine the per share component of net tangible book 
value per share, as adjusted.
    Final Item 1604(c) also requires, outside of the table, a 
description of 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, including 
sources not included in the table with respect to the determination of 
net tangible book value per share, as adjusted.\276\ Final Rule 
1604(c)(1) requires, with respect to each redemption level, a statement 
of 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 IPO price per share of common stock. Final 
Item 1604(c)(2) requires the provision of a description of the model, 
methods, assumptions, estimates, and parameters necessary to understand 
the tabular disclosure.
---------------------------------------------------------------------------

    \276\ In final Item 1604(c) we moved the phrase ``that non-
redeeming shareholders may experience by electing not to tender 
their shares in connection with the de-SPAC transaction'' from the 
end of the relevant sentence to instead follow the words ``future 
dilution'' for clarity.
---------------------------------------------------------------------------

    Final Item 1604(c) introductory text and (c)(1) and (2) contain 
certain changes from the proposal. We believe the changes in the final 
rules will be simpler for registrants to follow and comply with because 
they provide clear steps regarding how the dilution disclosure should 
be determined. In addition, in clarifying how to calculate the required 
dilution, final Item 1604(c) also ensures that redeemable common stock 
is not treated as temporary equity for purpose of the calculation in a 
way that could undermine the meaningfulness of the dilution disclosure. 
As part of these clarifications, we have deleted the proposed provision 
in Item 1604(c)(1) that would have required ``sensitivity analysis 
disclosure in tabular format that expresses the amount of potential 
dilution under a range of reasonably likely redemption levels.'' We 
were concerned the meaning of that proposed provision could be unclear 
to registrants, particularly its references to ``sensitivity 
analysis.'' We believe there was potential for some registrants to 
interpret the proposed provision merely to mean a range of redemption 
levels must be analyzed, while other registrants could interpret the 
provision to mean that a range of redemption levels must be analyzed 
and also that a sensitivity analysis must be conducted that reflects a 
range of assumptions for the range of redemption levels.
    We also have deleted the following language of proposed Item 
1604(c)(1): ``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.'' We were 
concerned that the references in that proposed provision to certain 
sources of potential dilution could confuse registrants about how to 
calculate dilution and could produce inconsistent interpretations 
across different registrants.
    Final Item 1604(c) accomplishes the same goal as these deleted 
provisions in proposed Item 1604(c)(1) by requiring disclosure ``in a 
tabular format that includes intervals representing selected potential 
redemption levels that may occur across a reasonably likely range of 
outcomes.'' We believe the final rule will make it clear that the item 
does not prescribe the redemption levels for which dilution information 
must be provided (in contrast to Item 1602(a)(4) and (c)).
    Under Item 1604(c), registrants should not select redemption levels 
that are not possible. For example, registrants should not select 
levels that, combined with any other funding (such as PIPEs) in 
connection with the de-SPAC transaction, would result in the SPAC 
having cash that is lower than any minimum cash condition in the 
agreements related to the de-SPAC transaction. Registrants are not 
required to select exactly four levels for Item 1604(c) (which they are 
required to do in Item 1602(a)(4) and (c)) but should ensure the 
redemption levels reasonably inform investors of a range of potential 
outcomes.\277\
---------------------------------------------------------------------------

    \277\ While there may be exceptions depending on specific facts 
and circumstances, the presentation of fewer than four levels of 
redemption is unlikely to constitute a sufficient range of outcomes 
to inform investors. As discussed above, there is no requirement in 
Item 1604(c) to select four redemption levels as there is in Item 
1602(a)(4) and (c), but registrants who seek to provide less than 
four redemption levels pursuant to Item 1604(c) should ensure such 
presentation is appropriate and tailored to the unique circumstances 
of the relevant de-SPAC transaction warranting such a presentation.

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

[[Page 14185]]

    Furthermore, we have clarified that the table in final Item 1604(c) 
should show the nature and amounts of each source of dilution and the 
number of shares used in the calculation in order to eliminate any 
ambiguity and the potential that registrants could misinterpret the 
item to mean that the table needs to show only the final dilution 
information and not the line items that went into its calculation.
    In addition, with respect to the proposed requirement to describe 
material potential sources of future dilution, the final rule specifies 
that the description should be located outside of the table. The final 
rule also states that each material potential source of future dilution 
outside of the table should include ``sources not included in the table 
with respect to the determination of net tangible book value per share, 
as adjusted.'' We are making this change to clarify that the disclosure 
outside of the table is not merely duplicative of the sources of 
dilution used for the calculation of the measure of dilution within the 
table. Without these changes, the item could have been misinterpreted 
by registrants to require disclosure of the same sources of dilution 
used in the tabular calculation of dilution, only in a non-tabular 
format. Depending on a SPAC's specific facts and circumstances, the 
non-tabular disclosure of ``each material potential source of future 
dilution'' under Item 1604(c) may need to discuss a broader set of 
items than ``material probable or consummated transactions'' that are 
included for purposes of calculating the tabular dilution measure.
    Finally, to reflect the deletion discussed above of the proposed 
provision in Item 1604(c)(1) regarding ``sensitivity analysis,'' we 
have inserted in final Item 1604(c)(2) the words ``necessary to 
understand the tabular disclosure'' instead of the proposed words 
``necessary to understand the sensitivity analysis disclosure.''
ii. Value of SPAC Dilution Information to Investors as a General Matter 
and Under the Final Rules
    In adopting the final rules, we agree with the commenters that 
expressed the view that the dilution disclosures will provide helpful 
information to investors. There are a number of potential sources of 
dilution in common SPAC structures, including: (a) shareholder 
redemptions, (b) SPAC sponsor compensation, (c) underwriting fees, (d) 
warrants, (e) convertible securities, and (f) PIPE financings. The 
enhanced dilution disclosure required by the final rules will enable 
investors in a SPAC IPO 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.\278\
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    \278\ In this regard, we note that the initial purchasers in 
SPAC IPOs often resell or redeem their shares prior to the 
completion of the de-SPAC transaction. See, e.g., Benjamin Mullin & 
Amrith Ramkumar, BuzzFeed Suffers Wave of SPAC Investor Withdrawals 
Before Going Public, Wall St. J., Dec. 2, 2021. See also Klausner, 
Ohlrogge & Ruan, supra note 18.
---------------------------------------------------------------------------

    Dilution disclosure in Commission filings has evolved over 
time.\279\ Today, Commission dilution disclosure requirements remain 
important, including with respect to SPACs. The Commission disagrees 
with the views expressed by some commenters that dilution disclosure 
would not be meaningful for investors' investment decision-making or 
for valuation purposes at the IPO stage or de-SPAC transaction 
stage.\280\ Investors may use dilution information differently 
depending on the type of registrant, such as whether the issuer is an 
operating company or a shell company, such as a SPAC. For example, with 
an operating company some ``value investors'' may compare the offering 
price to net tangible book value.\281\ For a SPAC, however, this 
specific comparison may be less meaningful than with an operating 
company because SPACs typically have limited assets at the time of the 
IPO and the offering price is typically fixed at $10 per share. In 
addition, with an operating company, some ``value investors'' may 
compare the debt of the issuer to the net tangible book value. For a 
SPAC, however, this specific comparison may be less meaningful than 
with an operating company, because SPACs typically have limited debt at 
the time of the IPO and have limited assets. Furthermore, with an 
operating company, some investors may seek to determine a value for the 
issuer taking into account return on net tangible assets or by using a 
value calculated by multiplying a market average price-to-net-tangible-
book-value-per-share ratio times the issuer's net tangible book value 
per share. For a SPAC, however, these specific methods may be less 
meaningful than with an operating company because of the limited assets 
of the SPAC and limited, if any, net income at the time of the IPO.
---------------------------------------------------------------------------

    \279\ See Guides for Preparation and Filing of Registration 
Statements, Release No. 33-4666 (Feb. 7, 1964) [29 FR 2490, 2492 
(Feb. 15, 1964)]; Guides for the Preparation and Filing of 
Registration Statements, Release No. 33-4936 (Dec. 9, 1968) [33 FR 
18617, 18619 (Dec. 17, 1968)]; Contents of Prospectuses and to 
Guides for Preparation and Filing of Registration Statements, 
Release No. 33-5278 (Aug. 8, 1972) [37 FR 15985, 15986 (Aug. 9, 
1972)]; Proposed Revision of Regulation S-K and Guides for the 
Preparation and Filing of Registration Statements and Reports, 
Release No. 33-6276 (Dec. 23, 1980) [46 FR 78, 82-83 (Jan. 2, 
1981)]; Adoption of an Integrated Disclosure System, Release No. 33-
6383 (Mar. 19, 1982) [47 FR 11380, 11390 (Mar. 16, 1982)].
    \280\ Letters from ABA, Ropes & Gray, Vinson & Elkins, White & 
Case. See supra notes 243 and 244 and accompanying text.
    \281\ See, e.g., Klausner, Ohlrogge & Halbhuber, supra note 156 
at 19 (2022) (``Disclosure of net cash per share at the time of a 
SPAC's merger is necessary to allow shareholders to make an informed 
decision as to whether to redeem their shares (for roughly $10 per 
share) or to invest in a proposed merger. . . . One would expect the 
amount of net cash invested in a target to be closely related to the 
value of post-merger shares that SPAC shareholders receive in 
exchange. Our research bears this relationship out empirically, 
showing that the lower the net cash per share that a SPAC delivers, 
the lower the post-merger share price will be.'' (Footnotes 
omitted)). As discussed below in the section ``Net Cash Per Share 
Disclosure Recommendations,'' we agree with comments that suggested 
net cash per share information is important to investors, but we 
believe the net tangible book value per share calculation, which we 
discuss in more detail below, would substantially convey such 
information.
---------------------------------------------------------------------------

    Dilution disclosure is important to SPAC investors for two reasons 
at both the IPO and de-SPAC transaction stages: (1) it provides 
investors a way of understanding the impact of the disparity in price 
paid by insiders and the price paid by investors for shares, and (2) it 
enables investor comparisons to other SPACs. Additionally, at the de-
SPAC transaction stage, dilution disclosure is important to SPAC 
investors for a third reason: it helps investors evaluate the economics 
of the de-SPAC transaction, which can inform their investing and voting 
decisions. We discuss these three reasons in more detail as follows.
    First, the difference in per share net tangible book value, as 
adjusted, as compared to the $10 offering price, demonstrates to 
investors how the typically lower-priced SPAC sponsor promote stake 
affects these investors' claims on the tangible assets of the company. 
Similarly, at the de-SPAC transaction stage, when certain other 
transactions may become probable, the net tangible book value per 
share, as adjusted, will convey to investors a better understanding of 
the dilution that these other transactions may produce. Relatedly, net 
tangible book value per share, as adjusted, provides information to 
investors on dilution (in the sense of diminution in percentage 
ownership) resulting from the SPAC sponsor promote, because an increase 
in common shares in the denominator reduces net tangible book value per 
share, as adjusted.

[[Page 14186]]

    Second, investors may focus on the relative dilution in a 
particular SPAC offering as compared to other SPAC offerings. For 
example, some types of investors may be more focused on finding SPACs 
with the highest net tangible book values per share compared to the $10 
offering price and less focused on other qualitative factors about the 
SPAC.
    Third, as discussed above, SPAC shares can be redeemed at an agreed 
upon price. Some commentators have emphasized that it is important for 
investors to have information at the de-SPAC transaction stage that 
enables investors to value these shares on a basis other than the 
stated agreement price.\282\ The dilution information will help 
investors to evaluate the economics of the business combination 
transaction, assisting their investment and voting decision-making. 
Investors' redemption decisions are also likely informed by the market 
price of the SPAC shares, just as owners of stock options base their 
exercise decisions, in part, on the value of the underlying stock.
---------------------------------------------------------------------------

    \282\ See, e.g., Klausner, Ohlrogge & Halbhuber, supra note 156 
at 19 (2022) (``Disclosure of net cash per share at the time of a 
SPAC's merger is necessary to allow shareholders to make an informed 
decision as to whether to redeem their shares (for roughly $10 per 
share) or to invest in a proposed merger. . . . One would expect the 
amount of net cash invested in a target to be closely related to the 
value of post-merger shares that SPAC shareholders receive in 
exchange. Our research bears this relationship out empirically, 
showing that the lower the net cash per share that a SPAC delivers, 
the lower the post-merger share price will be.'' (Footnotes 
omitted)). As discussed below in the section ``Net Cash Per Share 
Disclosure Recommendations,'' we agree with comments that suggested 
net cash per share information is important to investors, but we 
believe the net tangible book value per share calculation, which we 
discuss in more detail below, would substantially convey such 
information.
---------------------------------------------------------------------------

    While dilution information is important to SPAC investors for the 
reasons discussed above, we acknowledge that SPAC investors may use 
dilution information differently than investors in an operating 
company. For example, with an operating company some ``value 
investors'' may compare the offering price to net tangible book 
value.\283\ For a SPAC, however, this specific comparison may be less 
meaningful than with an operating company because SPACs typically have 
limited assets at the time of the IPO and the offering price is 
typically fixed at $10 per share. In addition, with an operating 
company, some ``value investors'' may compare the debt of the issuer to 
the net tangible book value.\284\ For a SPAC, however, this specific 
comparison may be less meaningful than with an operating company, 
because SPACs typically have limited debt at the time of the IPO and 
have limited assets. Furthermore, with an operating company, some 
investors may seek to determine a value for the issuer that takes into 
account return on net tangible assets \285\ or by using a value 
calculated by multiplying a market average price-to-net-tangible-book-
value-per-share ratio times the issuer's net tangible book value per 
share. For a SPAC, however, these specific methods may be less 
meaningful than with an operating company because of the limited assets 
of the SPAC and limited, if any, net income at the time of the 
IPO.\286\
---------------------------------------------------------------------------

    \283\ See, e.g., Richard Phalon, Forbes Greatest Investment 
Stories 3 (2004) (``In his last years, Ben Graham,'' the co-author 
with David Dodd of Security Analysis (1934), ``distilled six decades 
of experience into ten criteria that would help the intelligent 
investor pick value stocks . . . The Ten: . . . [4.] A stock price 
down to two-thirds of tangible book value per share.'').
    \284\ See, e.g., ibid. (``Ben Graham distilled six decades of 
experience into ten criteria . . . [6.] Total debt less than 
tangible book value.'').
    \285\ See, e.g., Todd A. Finkle, Warren Buffett, Investor and 
Entrepreneur, (2023) (``To assess a company's potential as an 
investment vehicle,'' the investors discussed in the book ``are 
looking for a set of specific ratios that indicate potential for 
yielding high returns . . . Most of [these investors'] investments 
are in companies that earn `more than 20 percent' of what [one of 
the investors] calls the `net tangible equity capital or net 
tangible assets' required to run their businesses . . . The formula 
for returns on a company's net tangible assets is as follows: Return 
on Net Tangible Assets = Net Income/Net Tangible Assets.'').
    \286\ See, e.g., Mario Massari, Gianfranco Gianfrate & Laura 
Zanetti, The Valuation of Financial Companies: Tools and Techniques, 
Section 5.3.1 Market Multiples 126-127 (2014), David Frykman, Jakob 
Tolleryd, The Financial Times Guide to Corporate Valuation 58-59 
(2012) (book-value based multiples work ``best with a company with a 
lot of tangible assets like factories, hardware commodities, mines, 
etc. and that derives its revenue and cash flow from those assets. 
Examples of such companies today are banks, real estate and 
investment companies. . ..When calculating the P/BV ratio for a 
company in distress, usually intangible assets are removed from the 
book value since they most probably have no resale value. That ratio 
is sometimes referred to as price/tangible book value . . . .'').
---------------------------------------------------------------------------

    We disagree with comments that suggested market practice of 
disclosing dilution information obviates the need for the proposed 
rules regarding dilution.\287\ The final rules will help standardize 
dilution disclosures across registrants and provide a minimum 
transparent floor for disclosure, even if market practices change. To 
the extent potential future registrants may otherwise have provided 
these disclosures based on market convention or other reasons, such 
registrants are not likely to incur additional costs in preparing this 
disclosure.
---------------------------------------------------------------------------

    \287\ Letter from Loeb & Loeb. See supra note 245 and 
accompanying text.
---------------------------------------------------------------------------

    Some commenters suggested current dilution disclosure under Item 
506 produces--and the proposed dilution disclosure would produce--
results that are flawed or are calculated using varying methods by 
registrants.\288\ We acknowledge the concerns expressed by these 
commenters that using a method of calculating Item 506's measure of net 
tangible book value that substantively excludes the redeemable common 
stock classified as temporary equity may result in dilution disclosure 
that is less meaningful to an investor. For example, in a SPAC IPO, 
this calculation could produce negative net tangible book value per 
share despite the proceeds raised in the offering.
---------------------------------------------------------------------------

    \288\ Letters from Ernst & Young, Vinson & Elkins, White & Case. 
See supra notes 246, 247, 248, 249, and 250 and accompanying text.
---------------------------------------------------------------------------

iii. Discussion and Examples Regarding the Calculation of Net Tangible 
Book Value Per Share, As Adjusted, in SPAC IPOs (Item 1602(a)(4) and 
(c)) and in De-SPAC Transactions (Item 1604(c))
a. Dilution Disclosure Under Items 1602(a)(4) and (c) and 1604(c) 
Generally
    After considering the comments, we have made changes (as described 
above) in the final rules to clarify the calculation of net tangible 
book value per share, as adjusted, as the measure of dilution in Items 
1602(a)(4) and (c) and 1604(c). Without these revisions, there would be 
a risk that some disclosure, even under the new rules, could present 
results that are not meaningful to investors, such as negative net 
tangible book value per share in some transactions. In addition, we 
believe the changes in the final rules will be simpler for registrants 
to follow and comply with because they provide clear steps regarding 
how to determine dilution.
b. SPAC IPO Dilution Disclosure: Comparison of Item 1602(a)(4) and (c)
    Final Item 1602(a)(4) and (c) are similar in that they require the 
disclosure of net tangible book value per share, as adjusted, shown in 
a tabular format. These items, however, have four key differences. 
First, Item 1602(a)(4) tabular disclosure must be provided on the 
prospectus cover, while Item 1602(c) disclosure must be provided in the 
prospectus body. Second, unlike Item 1602(c), registrants providing the 
Item 1602(a)(4) tabular disclosure do not need to show individual line-
items for each source of dilution used to determine net tangible book 
value per share, as adjusted, in the table; for Item 1602(a)(4), they 
may simply show net tangible book value per share, as adjusted, in the 
table for the required quartiles. Third, Item 1602(c) also

[[Page 14187]]

contains the following requirement that Item 1602(a)(4) does not 
contain--to describe, outside of the table, each material potential 
source of future dilution following the registered offering by the 
special purpose acquisition company, including sources not included in 
the table with respect to the determination of net tangible book value 
per share, as adjusted. Fourth, unlike Item 1602(a)(4), Item 1602(c) 
requires the provision of a description of the model, methods, 
assumptions, estimates, and parameters necessary to understand the 
tabular disclosure.
    With respect to the requirement in final Item 1602(c) to describe 
each material potential source of future dilution (including those not 
shown in the table), these material potential sources of future 
dilution under final Item 1602(c) are to be disclosed outside of the 
table. These sources may not be the same as transactions that must be 
shown in the dilution table required by Item 1602(c). This non-tabular 
disclosure of ``each material potential source of future dilution'' in 
Item 1602(c) potentially may need to discuss a broader set of items 
than ``material probable or consummated transactions,'' although this 
would depend on a SPAC's specific facts and circumstances.
c. De-SPAC Dilution Disclosure Under Item 1604(c), Including Examples 
of Adjustments
    Dilution disclosure is also required in final Item 1604(c) in 
connection with de-SPAC transactions. An objective of the dilution 
disclosure required by Item 1604(c) is to depict the amount of net 
assets that the SPAC will contribute to the post-combination entity, as 
also noted by some commenters.\289\ In order to accomplish this 
objective of depicting the amount of net assets that the SPAC will 
contribute to the post-combination entity, final Item 1604(c) requires 
three adjustments of the SPAC's net tangible book value per share as of 
the most recent balance sheet filed. The first adjustment is for the 
redemption of the SPAC's shares. This adjustment is important because 
both the amount of net tangible assets in the numerator (for example, 
cash or securities held through the trust account) and the number of 
shares in the denominator will vary, depending on the redemption level. 
The second adjustment is to give effect to material probable or 
consummated transactions other than consummation of the de-SPAC 
transaction itself. This adjustment is also important because these 
transactions may affect the amount of net tangible assets in the 
numerator and the number of shares in the denominator. Examples of 
transactions that could be material probable or consummated 
transactions include funding backstops, forward purchases, or PIPE 
financings. We generally expect the term ``probable or consummated 
transactions'' to be applied in the net tangible book value per share, 
as adjusted, calculation, similar to its application in 17 CFR 210.11-
01 through 210.11-03 (``Article 11'' of Regulation S-X),\290\ which 
requires pro forma financial information that incorporates the effects 
of ``probable or consummated transactions.'' \291\ The third adjustment 
is for inclusion of other material effects of the de-SPAC transaction 
on the SPAC's net tangible book value per share but not the de-SPAC 
transaction itself. A consummation of the de-SPAC transaction could 
have material effects on the amount of net tangible book value that the 
SPAC contributes to the post-combination entity that do not stem from 
the types of transactions identified in the second adjustment discussed 
above. Two examples of such other effects would be the issuance of 
shares contingent on consummation of the de-SPAC transaction as 
compensation to a SPAC sponsor and the expected incurrence of 
transaction expenses to consummate the de-SPAC transaction.
---------------------------------------------------------------------------

    \289\ See accord Klausner, Ohlrogge & Halbhuber, supra note 156 
at 21, n.10 (``A post-merger calculation, which we explain below is 
an incorrect way to measure dilution, would include all shares 
outstanding of the combined post-merger company, including shares 
issued to shareholders of the target.''). In addition, inclusion of 
these shares in the denominator is inconsistent with the numerator 
calculation as it excludes the de-SPAC transaction itself.
    \290\ While we expect ``probable or consummated transactions'' 
to generally be applied similarly between the net tangible book 
value per share, as adjusted, calculation and Article 11 of 
Regulation S-X, we observe that the contexts of each disclosure are 
different and do not foreclose the possibility that different 
treatments of a transaction may arise depending on the particular 
circumstances.
    \291\ See, e.g., 17 CFR 210.11-01(a)(8) (``Consummation of other 
transactions has occurred or is probable for which disclosure of pro 
forma financial information would be material to investors.'') 
Notwithstanding this similarity with Article 11 of Regulation S-X, a 
company should not title or describe ``net tangible book value per 
share, as adjusted'' as a ``pro forma'' measure, which could mislead 
investors since target company assets are not included in the 
calculation.
---------------------------------------------------------------------------

    Further, to ensure ``net tangible book value per share, as 
adjusted'' depicts the amount of net assets that the SPAC will 
contribute to the post-combination entity, calculation of the measure 
excludes the effect of the consummation of the de-SPAC transaction 
itself. Thus, target company assets should not be included in net 
tangible book value per share, as adjusted and, in de-SPAC transactions 
where the consideration paid for the target company is securities of 
the SPAC, the SPAC should not include those securities paid as 
consideration in the denominator of the net tangible book value per 
share, as adjusted, calculation.\292\
---------------------------------------------------------------------------

    \292\ See accord Klausner, Ohlrogge & Halbhuber, supra note 156 
at 21, n.10 (``A post-merger calculation, which we explain below is 
an incorrect way to measure dilution, would include all shares 
outstanding of the combined post-merger company, including shares 
issued to shareholders of the target.''). In addition, inclusion of 
these shares in the denominator is inconsistent with the numerator 
calculation as it excludes the de-SPAC transaction itself. Also, as 
a result of our approach of excluding target company assets, we have 
not adopted a commenter suggestion that would have included the 
value of the target company. See letter from Vinson & Elkins, supra 
note 268 and accompanying text (expressing the view that the most 
meaningful information would be a per share value of the target 
company plus net cash).
---------------------------------------------------------------------------

iv. Discussion of Comments
a. Warrants
    We are not adopting one commenter's recommendation that dilution 
from warrants should be conveyed using the treasury share method.\293\ 
A treasury share method approach would involve calculating the 
difference between the strike price of a warrant and the trading price 
of the shares of the post-de-SPAC transaction combined company.\294\ At 
the time of the dilution disclosure, those trading prices are not 
known. The commenter suggested using ``various hypothetical share 
increments above $10 per share,'' which is the typical SPAC IPO 
offering price.\295\ We do not believe that conveying the dilutive 
effect of warrants using that approach would be appropriate in 
connection with the dilution disclosure requirements we are adopting, 
because the hypothetical prices used in the calculation may not be 
realistic. Further, we believe there is sufficient disclosure about the 
terms of the warrants \296\ that would enable an investor to conduct 
such analysis on the strike price of a warrant using assumptions of 
trading prices of shares.
---------------------------------------------------------------------------

    \293\ Letter from Vinson & Elkins. See supra note 269 and 
accompanying text.
    \294\ See Kieso, Weygandt & Warfield (discussing the treasury 
stock method), supra note 269.
    \295\ Id.
    \296\ See, e.g., final Item 1604(c), Item 1602(b)(3), Item 
1603(a)(6), and Item 1604(b)(5) and (c).
---------------------------------------------------------------------------

    The same commenter recommended that ``sensitivity analyses should 
only be required for sources of dilution, such as warrants, where the 
dilutive impact varies based on changing equity values or other 
variables.'' \297\ As discussed above, final Item 1604(c) does not 
include the proposed provisions related

[[Page 14188]]

to sensitivity analysis that concerned the commenter. For Item 
1602(a)(4) and (c) and 1604(c), with respect to classification of 
warrants on an unadjusted basis, as either a liability or equity, 
registrants should follow applicable GAAP.\298\ This classification may 
affect the calculation of net tangible book value per share, as 
adjusted, because a liability-classified warrant would increase 
liabilities thereby reducing net tangible book value, while an equity-
classified warrant would not do so, unless the effect of its exercise 
is included in the calculation. Whether to adjust net tangible book 
value per share to give effect to the exercise of a warrant is a 
judgment based on facts and circumstances, including whether the effect 
of the exercise would be consistent with the objective of the 
disclosure--to depict the amount of net assets the SPAC will contribute 
to the post-combination entity. When the exercise of the warrant is not 
contingent on the consummation of the de-SPAC transaction, then 
adjustment that includes the effect of the warrant's exercise in net 
tangible book value per share, as adjusted, generally would not be 
appropriate because those warrants will remain outstanding after the 
de-SPAC transaction.
---------------------------------------------------------------------------

    \297\ Letter from Vinson & Elkins.
    \298\ See Financial Accounting Standards Board Accounting 
Standards Codification 815-40 and International Financial Reporting 
Standard IAS 32, Financial Instruments: Presentation.
---------------------------------------------------------------------------

    As discussed above, the non-tabular disclosure of ``each material 
potential source of future dilution'' under Item 1604(c) potentially 
may need to discuss a broader set of items than ``material probable or 
consummated transactions,'' although this would depend on a SPAC's 
specific facts and circumstances. Thus, whether or not a registrant has 
made an adjustment for warrants in net tangible book value per share, 
as adjusted, the registrant may need to describe how the warrants are a 
material potential source of future dilution.
b. Redemptions
    We are not adopting a commenter's suggestion to include a 
redemption scenario that would reflect ``100% of the public shares 
(regardless of any provisions in the SPAC's governing documents that 
might theoretically limit redemptions).'' \299\ While we acknowledge 
that the suggested approach would permit an identical comparison across 
SPACs at the 100% redemption level, as the commenter noted, we believe 
that suggested approach would be less meaningful to investors than the 
maximum redemption level approach we are adopting in the final rules, 
because that suggested approach would not take into account the 
governing documents and so would present a scenario that may not in 
fact occur in practice. We agree that comparability is an important 
goal as there may be certain investors who focus on the relative 
dilution in a particular SPAC offering as compared to other SPAC 
offerings. However, that comparability across SPACs should be balanced 
with the need to disclose information tailored to the registrant. The 
requirement in Item 1602(a)(4) and (c) of the final rules to provide a 
maximum redemption level (instead of redemption based on 100% of 
securities sold) and other redemption levels as a percentage of this 
maximum will provide more issuer-specific information than absolute 
25%, 50%, 75%, and 100% levels.\300\ While the rules we are adopting 
will not necessarily provide comparability at identical percentages 
across SPACs, we believe investors nevertheless may make valuable 
comparisons across SPACs when looking at the dilution information 
supplied at each of the prescribed intervals in the rule.\301\
---------------------------------------------------------------------------

    \299\ Letter from Vinson & Elkins. See supra note 230 and 
accompanying text.
    \300\ Item 1604(c) allows more discretion over issuer-specific 
dilution information by requiring a range of reasonably likely 
redemption levels rather than the fixed percentages established by 
the table in Item 1602(a)(4).
    \301\ If the offering sizes across the SPACs being compared are 
similar and the restrictions on maximum redemptions in the governing 
documents of the SPACs being compared are similar, the percentages 
presented in the table may be close to identical across the relevant 
set of SPACs examined. Also, where the size of the offering is large 
and the restriction on redemption is small by comparison, the 
various 25, 50, and 75 percentages of maximum redemption may closely 
approximate 25, 50, and 75 absolute percentages of securities sold 
in the offering. For example, if the offering raises $1 billion and 
the redemption restriction is $5 million, then the maximum 
redemption level would be 99.5% ($995 million divided by $1 billion) 
and 75% of the maximum redemption level would be 74.625% (.75 times 
.995). See also Table 1 (Number of SPAC IPOs in the U.S. Securities 
Market from 2012-2023) in section I (providing data, including total 
capital raised per year and the number of offerings per year, from 
which an average offering size per year may be calculated).
---------------------------------------------------------------------------

    The same commenter expressed the view that current dilution 
disclosure under Item 506 of Regulation S-K is unhelpful for IPO-stage 
investors, as the output is driven by the maximum redemption scenario 
which can differ based on (i) different provisions of the SPAC's 
constituent documents and (ii) the interpretation of those constituent 
documents.\302\ We believe the dilution information requirements 
related to IPOs in Item 1602 that we are adopting will provide more 
helpful information to investors than current market practice under 
Item 506 with respect to SPACs, where, in the experience of the 
Commission staff, some registrants have focused solely on a maximum 
redemption scenario. Item 1602 as adopted will provide a greater range 
of redemption scenario dilution information to investors. Further, the 
Commission does not believe that different interpretations of a SPAC's 
governing documents will make a SPAC unable to provide the required 
dilution information at the maximum redemption level for two reasons. 
First, a SPAC will know how to interpret its own governance documents. 
In addition, in the experience of the Commission staff, many SPACs use 
similar, well-established governing document provisions that set their 
maximum redemption level at a level to avoid the SPAC being an issuer 
of penny stock.\303\ We do not anticipate these standardized provisions 
will involve difficult interpretive issues.
---------------------------------------------------------------------------

    \302\ Letter from Vinson & Elkins. See supra note 230 and 
accompanying text.
    \303\ See Rule 419 (Offerings by blank check companies); Rule 
3a51-1 (definition of ``penny stock'').
---------------------------------------------------------------------------

    One commenter said that ``a SPAC may actually become subject to a 
maximum redemption scenario that is lower than the quartile intervals 
required to be presented by proposed Item 1602(a)(4).'' \304\ As 
discussed above in the description of the dilution rules we proposed, 
the redemption levels required by Item 1602(a)(4) are ``25% of maximum 
redemption,'' ``50% of maximum redemption,'' and ``75% of maximum 
redemption'' and thus are relative to the maximum redemption level and 
are not an absolute percentage. To clarify for investors the percentage 
used, registrants may add information to the table headers. For 
example, where the maximum redemption is 97.5%, a registrant could add 
``25% of Maximum Redemption (24.375%).'' For greater clarity, in final 
Item 1602(a)(4), we have replaced the proposed terms ``at quartile 
intervals up to the maximum redemption threshold'' with the terms ``at 
quartile intervals based on percentages of the maximum redemption 
threshold,'' because we believe registrants could mistakenly interpret 
the proposed terms to require quartile intervals based on the total 
number of shares issued in the offering for the three redemption levels 
in the table other than the maximum redemption level.
---------------------------------------------------------------------------

    \304\ Letter from White & Case.
---------------------------------------------------------------------------

    One commenter recommended the Commission require dilution 
disclosure

[[Page 14189]]

at a 90% redemption level.\305\ We do not believe it is necessary to 
make such changes to the final rules. We believe the four redemption 
thresholds proposed will give investors a reasonable picture of the 
potential range of dilution outcomes pursuant to Item 1602(a)(4) and 
(c). For Item 1604(c) in connection with de-SPAC transactions, we 
believe providing a prescriptive level of 90% would be inconsistent 
with the requirement to provide SPAC-specific reasonably likely 
redemption levels.
---------------------------------------------------------------------------

    \305\ Letter from CII. See supra note 236 and accompanying text.
---------------------------------------------------------------------------

c. Assumptions
    Commenters raised concerns that dilution disclosure would be 
characterized by uncertainty, be based on hypothetical assumptions, or 
depend on unknown variables.\306\ As discussed above, we have made 
changes to final Items 1602(a)(4) and (c) and 1604(c) to clarify how 
registrants should calculate dilution. Where registrants are making 
adjustments consistent with ``net tangible book value per share, as 
adjusted'' or are making assumptions in connection with other dilution 
disclosures required under the final rules, we believe registrants 
should be able to provide the required dilution information based on 
reasonable assumptions. We do not believe that dilution disclosure 
would mislead investors, as suggested by one commenter, or that such 
assumptions would need to be presented with lengthy and detailed 
caveats.\307\ On the contrary, we believe investors will understand 
that assumptions being made in connection with required dilution 
disclosure do not mean the dilution has occurred or is certain to 
occur. The final rules require a description of the assumptions 
necessary to understand the tabular disclosure,\308\ and, in providing 
that disclosure, registrants may highlight that these are assumptions 
in order to make that point clearer for investors. While we do not 
believe that the assumptions necessarily need lengthy and detailed 
caveats,\309\ if there are facts and circumstances in which a 
registrant believes a lengthy or detailed discussion is needed, we 
believe that would be appropriate to allow investors to understand the 
accompanying tabular disclosure.
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    \306\ Letters from Freshfields, Vinson & Elkins, White & Case. 
See supra notes 237, 238, and 240 and accompanying text.
    \307\ Letter from White & Case. See supra note 238 and 
accompanying text.
    \308\ See final Items 1602(c) and 1604(c)(2).
    \309\ In this respect, as noted above, we disagree with the 
comment that ``lengthy and detailed caveats'' would be ``need[ed].'' 
See letter from White & Case, supra note 238 and accompanying text.
---------------------------------------------------------------------------

d. Net Cash Per Share Disclosure
    We are not adding an explicit net cash per share disclosure 
requirement as several commenters recommended that we require.\310\ One 
group of commenters said net cash per share disclosure should be 
provided on the cover page of the registration statement.\311\ These 
commenters expressed the view that the dilution concept included in the 
proposal reflects a concept of dilution that is focused on ``ownership 
dilution,'' not the kind of dilution (and dissipation of cash) that 
reduces the net cash underlying a SPAC share.\312\
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    \310\ Letters from CII; Michael Klausner, Michael Ohlrogge, and 
Harald Halbhuber; NASAA; Vinson & Elkins. See supra notes 254 
through 264 and accompanying text.
    \311\ Letter from Michael Klausner, Michael Ohlrogge, and Harald 
Halbhuber. See supra note 261 and accompanying text.
    \312\ Letter from Michael Klausner, Michael Ohlrogge, and Harald 
Halbhuber. See supra note 262 and accompanying text. These 
commenters also provided a formula for the calculation of net cash 
per share: (a) Total cash (consisting of the sum of cash from SPAC 
public shareholders plus cash from PIPEs or forward purchase 
agreements minus cash expenses minus the value of warrants minus the 
value of other equity derivatives), divided by (b) Total shares 
(consisting of public shares plus founder shares plus PIPE or 
forward purchase agreement shares plus other shares plus shares 
issuable under rights). See id.
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    We do not agree with that group of commenters that the proposal was 
limited to dilution focused solely on reduction in the percentage 
ownership of a shareholder out of total shares deemed to be issued and 
outstanding. We agree this form of dilution described by commenters is 
an element of the denominator in the net tangible book value per share, 
as adjusted, calculation, but the numerator of the net tangible book 
value per share, as adjusted, calculation will capture and convey other 
information--such as existing cash (prior to the relevant transaction, 
e.g., IPO or de-SPAC transaction), cash raised in securities issuances, 
and cash paid out to holders of redeemable securities--of the same type 
that these commenters focus on in recommending disclosure of net cash 
per share.\313\
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    \313\ When calculating return on net tangible book value per 
share, some investors may exclude non-operating assets, such as cash 
among others, in order limit the measure to those returns on net 
tangible book value per share that are sustainable. See, e.g., Gary 
R. Trugman, Understanding Business Valuation (2018) (recommending an 
analyst calculating return on net tangible assets ``remove any items 
on the balance sheet that may be attributable to non-operating 
assets or liabilities.''). However, for the avoidance of doubt on 
the part of registrants, this is not appropriate for a registrant 
with respect to the calculation on net tangible book value per 
share, as adjusted, in connection with dilution disclosure, which 
should include non-operating tangible assets such as cash among 
others.
---------------------------------------------------------------------------

    Because we believe substantially all the information that would be 
conveyed to an investor by a net cash per share measure will be 
conveyed by the required ``net tangible book value per share, as 
adjusted,'' we are not adding an explicit net cash per share disclosure 
requirement.\314\ But shareholders who seek to calculate ``net cash per 
share'' at different levels of redemption should have the information 
to perform this calculation based on the disclosure provided in 
connection with net tangible book value per share, as adjusted.
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    \314\ The calculations of net tangible book value per share, as 
adjusted, in final Item 1602(a)(4) and (c) and 1604(c), take into 
account similar elements as the cash component of net cash per 
share, such as the inclusion of cash held by the SPAC and securities 
purchased by the SPAC, as well as the removal of expenses and 
warrant liabilities. Net cash per share has aspects that make it 
less useful for investors than net tangible book value per share, as 
adjusted. First, with respect to the net cash per share calculation, 
``net cash'' in the numerator is reduced by the value of the equity-
classified awards, which would be inconsistent with GAAP. We do not 
believe this is appropriate and have not taken this approach with 
respect to net tangible book value per share, as adjusted (as 
discussed above). Second, the net cash per share calculation 
includes all shares issuable by rights, regardless of any conditions 
on such issuance, whereas net tangible book value per share, as 
adjusted, would only make an adjustment to include such shares where 
a criterion for making an adjustment is met (as discussed above).
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e. Cover Page
    Regarding comments that recommended that de-SPAC transaction 
dilution information be presented on the prospectus cover page,\315\ 
the Commission believes it is sufficient to require the tabular 
disclosure in the prospectus body in Item 1604(c).\316\ At the de-SPAC 
stage, there will be more registrant-specific information included in 
the dilution disclosure, as the registrant will have more information 
about potential causes of dilution (such as expected redemption levels 
and financings that will accompany the de-SPAC transaction). Due to 
this, these disclosures may not be as easily presentable in a 
straightforward way on the cover page. Item 1604(a)(3), however, will 
require the registrant to state on the prospectus cover page whether 
SPAC sponsor compensation and ownership may result in a material 
dilution of the equity interests of non-redeeming shareholders who hold 
the securities until the consummation of the

[[Page 14190]]

de-SPAC transaction and to provide a cross-reference highlighted by 
prominent type to the location of related disclosures in the 
prospectus.
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    \315\ Letter from Michael Klausner, Michael Ohlrogge, and Harald 
Halbhuber.
    \316\ As discussed above, in combined proxy statements and 
registration statements in connection with de-SPAC transactions, the 
cover page of the prospectus may be further back in the document.
---------------------------------------------------------------------------

f. Interest Per Share Disclosure
    We disagree in part with the commenter who suggested that the final 
sentence of proposed Item 1604(c)(1) required a determination of the 
enterprise valuation that will result in a shareholder's ``interest per 
share'' calculated by reference to a pro forma closing date balance 
sheet being at least equal to the $10 price per share paid in the 
IPO.\317\ The use of the term ``valuation'' in Item 1604(c)(1) would 
not require, as suggested by the commenter, an ``enterprise valuation'' 
(which typically values the sum of the equity and debt of a company 
minus cash).\318\ We agree, however, with the general point suggested 
by the commenter that a registrant's preparation of Item 1604(c)(1) 
disclosure could be assisted by reference to, among other potential 
sources, a pro forma balance sheet. But we believe this would be the 
case only where such pro forma balance sheet contains the number of 
total shares (calculated consistent with Item 1604(c)), because the 
amount of shares is a critical component of the calculation required to 
provide disclosure under this item. The pro forma balance sheet may not 
be capable of serving as the sole source of this information, because 
it may show total shares only for certain redemption levels, such as 
zero redemptions and maximum redemptions; hence, it may not provide the 
total share number ``with respect to each redemption level'' as 
required by Item 1604(c)(1).
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    \317\ Letter from Loeb & Loeb, supra notes 265, 266, and 267 and 
accompanying text. See also proposed Item 1604(c)(1) (``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.'').
    \318\ See, e.g., Jeffrey C. Hooke, Security Analysis on Wall 
Street: A Comprehensive Guide to Today's Valuation Methods 234 
(1998) (showing key valuation data of publicly traded stocks using 
enterprise value defined as (1) market value of equity, plus (2) 
outstanding debt, minus (3) cash on hand).
---------------------------------------------------------------------------

    To further clarify, we provide the following basic example of 
disclosure under Item 1604(c)(1). A hypothetical SPAC issued shares in 
an IPO at $10 per share. After giving effect to the IPO, the issued and 
outstanding shares of the SPAC are 20,000,000, for a total market 
capitalization of $200,000,000. In connection with the de-SPAC 
transaction, the SPAC issues 65,000,000 shares to the target company's 
shareholders and issues 15,000,000 shares in a private placement for a 
total of 100,000,000 outstanding shares. Two (out of several) 
redemption levels the SPAC has chosen to use for the disclosure 
required by Item 1604(c) are zero redemptions and 5,000,000 shares 
redeemed (5% of the total shares). Where redemptions are zero, for 
purposes of Item 1604(c)(1), the SPAC would have 100,000,000 total 
shares after giving effect to the de-SPAC transaction and related 
financing. Where redemptions are zero, the company valuation at or 
above which the non-redeeming shareholders' interest per share would be 
at least the IPO price per share ($10 in this example) would be 
calculated as: $10 (per share IPO price) times 100,000,000 shares, or 
$1,000,000,000. Where 5,000,000 shares are redeemed (5% of the total 
shares), the SPAC would have 95,000,000 total shares after giving 
effect to the de-SPAC transaction and related financing. At this 
redemption level, the company valuation at or above which the non-
redeeming shareholders' interest per share would be at least the IPO 
price per share ($10 in this example) would be calculated as: $10 (per 
share IPO price) times 95,000,000 shares, or $950,000,000. For the 
remaining redemption levels, the registrant would provide the required 
disclosure in a similar manner.
    With respect to the commenter's concern that some investors may 
misunderstand disclosure under the item and view it as a guarantee that 
the stock will not trade down in the aftermarket,\319\ we do not 
believe investors are likely to misunderstand disclosure under Item 
1604(c)(1) in that manner. As discussed above, we believe it will be 
clear to investors that the various valuation figures provided at each 
of the redemption levels are not guarantees about movements in or 
levels of future market trading prices of the post-de-SPAC transaction 
combined company. In addition, to the extent a registrant has a concern 
about investor confusion regarding the disclosure required under Item 
1604(c)(1), such a registrant could provide additional disclosure 
discussing this issue, such as, for example, explicitly stating that 
the required disclosure is not a guarantee that the trading price of 
the combined company will not be below the IPO price nor is the 
disclosure a guarantee the company valuation will attain one of the 
stated levels of valuation.
---------------------------------------------------------------------------

    \319\ Letter from Loeb & Loeb. See supra note 267 and 
accompanying text.
---------------------------------------------------------------------------

    Another commenter recommended that the Commission consider 
requiring that intermediaries provide information about ``the sponsor, 
actual and potential conflicts of interest, [and] how much a non-
redeeming SPAC investor's interest will be diluted'' in a separate 
``Key Risks and Conflicts form'' that is detached from the prospectus, 
so that the disclosure receives more investor attention and focus.\320\ 
We believe that the disclosure we are requiring in this release will 
receive an appropriate level of investor attention and focus and that 
no further amendments are needed in this regard.
---------------------------------------------------------------------------

    \320\ Letter from CFA Institute.
---------------------------------------------------------------------------

g. Lock-Up and Earnout Provisions
    One commenter said that ``any lock-up periods or earnout provisions 
for sponsors or underwriters would be of significant interest to 
investors and should be required if part of the SPAC offering.'' \321\ 
We are not making any changes in response to this comment because the 
final rules already will require such disclosure. Where there are 
earnout provisions for SPAC sponsors, the registrant would need to 
disclose these pursuant to Items 1602 and 1604 regarding compensation 
of SPAC sponsors and ownership of SPAC securities by SPAC sponsors. 
Also, where there are lock-ups for SPAC sponsors, the registrant would 
need to disclose these pursuant to Item 1603(a)(9) regarding 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 SPAC. In connection with 
underwriters, plan of distribution information is required by Forms S-1 
and F-1.\322\
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    \321\ Letter from NASAA.
    \322\ See Item 8 of Form S-1 (incorporating 17 CFR 229.508 (Item 
508 of Regulation S-K) (Plan of Distribution)) and Item 4 of Form F-
1 (requiring the furnishing of information pursuant to Part 1, Item 
9.B (Plan of Distribution) of Form 20-F).
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E. Prospectus Cover Page and Prospectus Summary Disclosure

1. Proposed Rules
i. Proposed Prospectus Cover Page Disclosure
    For registered offerings (including IPOs) by SPACs other than de-
SPAC transactions, the Commission proposed Item 1602(a) to require 
information on the prospectus outside front cover page in plain English 
about, among other things: (1) the time frame for the SPAC to 
consummate a de-SPAC transaction, (2) redemptions, (3) SPAC sponsor 
compensation, (4) dilution (including simplified tabular disclosure), 
and (5) conflicts of interest.

[[Page 14191]]

    For de-SPAC transactions, the Commission proposed Item 1604(a) to 
require that SPACs include information on the prospectus outside front 
cover page in plain English about, among other things: (1) the fairness 
of the de-SPAC transaction, (2) material financing transactions, (3) 
SPAC sponsor compensation and dilution, and (4) conflicts of interest.
ii. Proposed Prospectus Summary Disclosure
    For registered offerings (including IPOs) by SPACs other than de-
SPAC transactions, the Commission proposed Item 1602(b) to require in 
the prospectus summary a brief description in plain English about, 
among other things: (1) how the SPAC 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 SPAC 
intends to consummate a de-SPAC transaction, (5) any plans to seek 
additional financings and how the terms of additional financings may 
impact unaffiliated security holders, (6) in a tabular format, 
compensation of 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.
    For de-SPAC transactions, the Commission proposed Item 1604(b) to 
require in the prospectus summary a brief description in plain English 
about, among other things: (1) the background and material terms of the 
de-SPAC transaction, (2) whether the SPAC 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 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 SPAC and the potential impact of redemptions on the 
value of the securities owned by non-redeeming shareholders.
2. Comments
    Several commenters generally supported the proposed prospectus 
cover page and prospectus summary disclosure requirements.\323\ One of 
these commenters expressed the view that these requirements would 
assist shareholders in understanding: (a) the compensation structures 
for SPAC sponsors, (b) conflicts in the relationship between SPAC 
sponsor, underwriter, and shareholder, (c) potential sources of 
dilution, and (d) whether or not any fairness opinions were obtained 
from third parties in connection with the de-SPAC transaction.\324\ The 
commenter suggested this understanding would better equip investors to 
evaluate the wisdom of placing their money at risk in a SPAC, would 
closely align the information provided in SPAC IPOs with the 
information provided to investors in traditional IPOs, and would help 
to narrow the information asymmetries in the SPAC IPO model.
---------------------------------------------------------------------------

    \323\ Letters from ABA (expressing support for proposed Items 
1602 and 1604 but also expressing concern regarding the length and 
density of prospectus cover page and determining fairness in de-SPAC 
transactions), Better Markets, CFA Institute.
    \324\ Letter from Better Markets.
---------------------------------------------------------------------------

    Several commenters suggested the proposed prospectus cover page 
requirements would produce cover page disclosure that will be dense and 
longer than one page.\325\
---------------------------------------------------------------------------

    \325\ See, e.g., letters from ABA, Loeb & Loeb, Ropes & Gray, 
Vinson & Elkins. See also 17 CFR 229.501 (``Item 501'' of Regulation 
S-K) (one-page limit for prospectus cover page).
---------------------------------------------------------------------------

    One commenter said ``requiring disclosure to be included at least 
three times in the document (e.g., on the cover page, in the summary, 
and in the body of the document where the same information often 
appears multiple times) seems excessive and potentially distracting to 
investors.'' \326\ This commenter also expressed the view that the 
Commission should not require disclosure of `` `any plans to seek 
additional financing and how such additional financing might impact 
shareholders' in IPO registration statements.'' \327\ The commenter 
said that, at the time of the IPO, this disclosure would be ``purely 
hypothetical,'' and would lead to ``boilerplate'' disclosures that 
would ``distract'' investors from other more useful and material 
information.\328\ The commenter, however, said that, ``if the SPAC 
already has commitments for additional financing at the time of the IPO 
(e.g., a forward purchase agreement or a backstop commitment), the 
material terms of such financings and potential impact on shareholders 
or on the de-SPAC transaction should be disclosed.'' \329\
---------------------------------------------------------------------------

    \326\ Letter from Vinson & Elkins.
    \327\ Id.
    \328\ Id.
    \329\ Id.
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3. Final Rules
    After considering the comments received, we are adopting Items 
1602(a) and (b) and 1604(a) and (b) as proposed with certain 
modifications discussed below.\330\
---------------------------------------------------------------------------

    \330\ In certain rules, a cover page requirement may be similar 
to but not identical with a prospectus summary requirement. We note 
that the cover page disclosure for Item 1602(a)(3) (exclusive of 
securities issuance disclosure) is not required to contain the same 
level of detail as required in the tabular disclosure in the 
prospectus summary under Item 1603(b)(6), which should contain line 
items for each compensation item. Disclosure under Item 1603(a)(6) 
should provide a similar level of detail as under Item 1602(b)(6), 
except in non-tabular format.
---------------------------------------------------------------------------

    We agree with the commenter who expressed the view that investors 
will benefit from these provisions, including by better understanding 
factors including compensation, conflicts of interest, and 
dilution.\331\ Under the final rules, the key disclosures concerning 
SPAC offerings and de-SPAC transactions will be highlighted on the 
cover page and in the prospectus summary in an easily readable and 
understandable form. The disclosure under these items also will enable 
investors to better parse complex aspects of SPAC transactions. As a 
result, we believe investors will be

[[Page 14192]]

better able to identify and assess important aspects of the 
transactions that may affect their investment and voting decisions. 
Although in current market practice, many SPACs already disclose 
similar information on prospectus cover pages,\332\ the final rules we 
are adopting will standardize this information across all registration 
statements filed by SPACs for IPOs and for de-SPAC transactions. In 
addition, investors may benefit from comparing this information not 
only across other SPAC transactions but by comparing it to investments 
contemplated in securities of non-SPACs where those registrants provide 
similar disclosure under current market practice.
---------------------------------------------------------------------------

    \331\ Letter from Better Markets. See supra note 324 and 
accompanying text.
    \332\ 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.
---------------------------------------------------------------------------

    Several commenters suggested the proposed prospectus cover page 
requirements would produce cover page disclosure that will be dense and 
longer than one page.\333\ While we recognize that the new cover page 
requirements will increase the amount of information included on the 
prospectus outside front cover page, we believe these requirements will 
be a limited incremental increase compared to current prospectus 
outside front cover page disclosure and we do not believe that this 
incremental increase will undermine the overall clarity of the cover 
page disclosure. Also, we continue to believe outside front cover page 
prominence of the required information serves the key purpose of 
alerting investors to the importance of the information. We believe 
registrants will be able to fit the required dilution information in 
tabular form on the outside front cover page just as they currently fit 
required information on the securities offering price, underwriting 
fees, and net proceeds in tabular form on the outside front cover page. 
Based on Commission staff's experience with current outside front cover 
page disclosure and staff's consideration of how outside front cover 
page disclosure will appear under the final rules, we believe there 
will be space to add this additional table and other new disclosure 
required by the final rules without making the outside front cover page 
cramped or difficult to read. We also do not believe these requirements 
will compel registrants to abandon non-required elements that often 
appear on the outside front cover page such as company artwork and 
logos, use of large fonts for service provider names, and aesthetic use 
of empty space.
---------------------------------------------------------------------------

    \333\ See, e.g., letters from ABA, Loeb & Loeb, Ropes & Gray, 
Vinson & Elkins. See also Item 501 of Regulation S-K (one-page limit 
for prospectus cover page).
---------------------------------------------------------------------------

    One commenter on the proposal said requiring cover page, prospectus 
summary, and body of the document disclosures seems excessive and 
potentially distracting to investors.\334\ We disagree and believe the 
enhanced disclosures in each of the three locations will serve a 
valuable purpose for investors.\335\ The cover page provides the first 
alerts to investors about information that is important for their 
investment and voting decisions. In the prospectus summary, we believe 
the additional disclosures will reduce information processing costs, 
including for less financially sophisticated investors or investors 
with limited time to analyze the prospectus, by providing information 
in plain English about important SPAC features in a concise format. 
Finally, the prospectus body contains the detailed information needed 
for more comprehensive investor understanding.
---------------------------------------------------------------------------

    \334\ Letter from Vinson & Elkins. See supra note 326 and 
accompanying text.
    \335\ Staff experience in reviewing current SPAC filings is that 
some SPACs repeat disclosure numerous times in current registration 
statements even where not required by current rules; we infer from 
this market practice that some issuers may believe such repetition 
is helpful to investors in understanding important facts that may 
not be well understood through an isolated reference. The final 
rules we are adopting are not inconsistent with that current market 
practice.
---------------------------------------------------------------------------

    One commenter expressed the view that prospectus summary disclosure 
related to additional financings (other than committed financings) at 
the IPO stage would be hypothetical and boilerplate and would distract 
investors from more useful information.\336\ We agree that, if 
financing agreements have been entered into, then they must be 
disclosed. To this end, Item 1602(b)(5) requires disclosure of these 
agreements and how their terms may impact unaffiliated security 
holders. However, under final Item 1602(b)(5), as proposed, even if no 
such agreements have been entered at the time that Item 1602(b)(5) is 
applicable, registrants are required to generally describe any plans to 
seek additional financings and how the terms of additional financings 
may affect unaffiliated security holders even if the actual, specific 
terms of any financing agreements (should they ultimately be entered) 
may not be known.\337\ The disclosure of these plans will alert 
investors to the potential aspects of the overall de-SPAC transaction 
structure, including those that impact future dilution, which will help 
investors make informed investment and voting decisions. As with 
dilution disclosure in SPAC IPOs that we discuss in section II.D.3 
above (where commenters raised similar concerns), even where a 
registrant has not committed to a transaction or will not have 
consummated a transaction, registrants should be able to use reasonable 
assumptions about potential financing needs to provide the required 
disclosure. We disagree with the view that this prospectus summary 
information would be a distraction to investors from other important 
information. On the contrary, as we discuss generally above, we believe 
the prospectus summary disclosure regarding additional financing plans 
will highlight key issues for investors and the summary format will 
help them process the information, particularly when comparing 
potential investments in different SPACs. We do not believe investors 
will misconstrue this information to mean the additional financing is 
certain to occur. Registrants may highlight this lack of certainty in 
their disclosure if they have concerns their investors will misconstrue 
the information.\338\ We do not expect the additional financing 
prospectus summary disclosures will be boilerplate, as the additional 
financing disclosure will need to be tailored to the plans of the SPAC.
---------------------------------------------------------------------------

    \336\ Letter from Vinson & Elkins. See supra notes 328 and 329 
and accompanying text.
    \337\ Final Item 1602(b) provides that the disclosure required 
thereunder in the prospectus summary must be in the form of a 
``brief description.'' We expect that the level of detail of the 
disclosure under final Item 1602(b)(5) of ``[a]ny plans to seek 
additional financings'' will reflect the level of development of 
such plans. A registrant is only required to disclose plans that are 
known to the registrant to be ``plans to seek additional 
financings.''
    \338\ In connection with similar issues in the context of Item 
1602(c) disclosure of ``each material potential source of future 
dilution,'' we discuss above in section II.D.3.iii that registrants 
may warn investors that the disclosure about such potential sources 
should not be misconstrued as indications certain events are certain 
to occur in the future.
---------------------------------------------------------------------------

    In final Item 1602(a)(5), we replaced the proposed term ``SPAC 
sponsor or its affiliates or promoters and purchasers in the offering'' 
with the term ``SPAC sponsor, its affiliates, or promoters; and 
purchasers in the offering.'' We made the same changes to final Item 
1602(b)(7).\339\ Both the changes to Item 1602(a)(5) and (b)(7) were 
made to clarify that the interests of each of the listed persons should 
be assessed

[[Page 14193]]

against the interests of ``purchasers in the offering.'' \340\
---------------------------------------------------------------------------

    \339\ In addition, in final Items 1602(b)(7) and 1604(a)(4) and 
(b)(3) we moved ``material'' after ``actual or potential'' for 
consistency throughout new subpart 1600.
    \340\ In addition, in final Item 1602(b)(5) we replaced the 
proposed term ``impact'' with the term ``affect'' for clarity.
---------------------------------------------------------------------------

    In final Item 1604(a)(1) and (b)(2), we made revisions to reflect 
changes we are making to Items 1606 and 1607 that are discussed in 
section II.G.\341\
---------------------------------------------------------------------------

    \341\ See final Item 1604(a)(1) and (b)(2).
---------------------------------------------------------------------------

    In final Item 1604(a)(4), following the phrase ``State whether, in 
connection with the de-SPAC transaction, there may be any actual or 
potential material conflict of interest,'' we added the phrase 
``including any material conflict of interest that may arise 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 a SPAC sponsor, 
officers, and directors or the manner in which a SPAC sponsor 
compensates its officers and directors.'' This change makes Item 
1604(a)(4) required cover page disclosure congruent with Item 1603(b) 
(non-cover page) disclosure. In de-SPAC transactions, the cover page 
disclosure under Item 1604(a)(4) should provide a cross reference to, 
among other things, the description of these actual or potential 
material conflicts of interest under Item 1603(b).
    We also made a number of other changes to the final rules related 
to prospectus cover page and prospectus summary disclosure that are 
discussed above in other sections of this release.\342\
---------------------------------------------------------------------------

    \342\ See (a) section II.B (Sponsors) discussion of final Items 
1602(a)(3) and (b)(6) and 1604(a)(3) and (b)(4) and (5); (b) section 
II.C (Conflicts of Interest) discussion of final Items 1602(a)(5), 
1604(a)(4) and (b)(3), and 1602(b)(7); and (c) section II.D 
(Dilution) discussion of final Items 1602(a)(4) and 1604(b)(4) and 
(5). In addition to the changes to final Item 1604(b)(3) discussed 
in other sections of this release, we have moved the language ``in 
connection with the de-SPAC transaction'' from the end of the item 
to the beginning of the item and made punctuation and paragraph 
numbering changes to clarify the comparison of interests must be 
between each of ``the SPAC sponsor, SPAC officers, SPAC directors, 
SPAC affiliates or promoters, target company officers, or target 
company directors'' and ``unaffiliated security holders of the 
SPAC.''
---------------------------------------------------------------------------

F. De-SPAC Transactions: Background, Reasons, Terms, and Effects

1. Proposed Item 1605
    The Commission proposed Item 1605 of Regulation S-K to 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;
     A brief description of any related financing transaction, 
including any payments from the SPAC 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;
     Disclosure regarding the accounting treatment and the 
Federal income tax consequences of the de-SPAC transaction, if 
material;
     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; and
     A statement whether or not security holders are entitled 
to any redemption or appraisal rights, a summary of such redemption or 
appraisal rights, and, if there are no redemption or appraisal rights 
available for security holders who object to the de-SPAC transaction, a 
brief outline of any other rights that may be available to security 
holders.
2. Comments: Item 1605
    One commenter stated that proposed Item 1605 would provide useful 
information to investors.\343\ Some commenters, however, opposed 
proposed Item 1605, stating it would be duplicative of existing 
disclosure requirements.\344\ One of these commenters said that, in 
lieu of adopting Item 1605, they ``recommend a more uniform methodology 
to address conflicts of interest arising from business combinations in 
general by revising Items 1004(a)(2) and 1013(b) of Regulation M-A and 
Item 403 of Regulation S-K to incorporate the provisions of proposed 
Item 1605 taking into consideration that many issues addressed in 
proposed Item 1605 may arise and be applicable to business combinations 
that are not effected by a SPAC or a blind pool.'' \345\
---------------------------------------------------------------------------

    \343\ Letter from Committee on Capital Markets Regulation.
    \344\ Letters from ABA (``To eliminate duplication, we recommend 
against adoption of Item 1605''), Vinson & Elkins (``The SEC should 
not adopt a new disclosure requirement 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'').
    \345\ Letter from ABA (specifically suggesting ``revising Items 
1004(a)(2) and 1013(b) of Regulation M-A and Item 403 of Regulation 
S-K to incorporate the provisions of proposed Item 1605 taking into 
consideration that many issues addressed in proposed Item 1605 may 
arise and be applicable to business combinations that are not 
effected by a SPAC or a blind pool'').
---------------------------------------------------------------------------

    One commenter recommended that we revise proposed Item 1605(b)(2), 
with respect to descriptions of related financings.\346\ The commenter 
said, ``PIPE investors often buy into SPAC deals on discounted terms 
compared to the terms offered to public shareholders in a SPAC.'' The 
commenter said ``the discount that PIPE investors receive is in the 
form of additional derivative securities, guarantees, or other complex 
financial arrangements and it is difficult for public investors to know 
the effective price per share at which PIPE investors are buying.'' 
\347\ The commenter recommended that we revise proposed Item 1605(b)(2) 
to state: ``A brief description of related financing transactions, 
including the effective price per share at which investors are buying, 
after accounting for the value of any securities or guarantees they 
receive from the SPAC, SPAC sponsor or affiliate of either in 
connection with the financing transaction.'' \348\
---------------------------------------------------------------------------

    \346\ Letter from Michael Klausner and Michael Ohlrogge.
    \347\ Id. (``For instance, if a PIPE investor buys a share for 
$10, but also receives a free warrant worth $1.50, then the PIPE 
investor is in effect paying $8.50 for the share.'').
    \348\ Id.
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3. Final Item 1605
    After considering the comments received, we are adopting Item 1605 
as proposed, with several modifications discussed below.
    By providing a specialized disclosure rule tailored to de-SPAC 
transactions, the Item 1605 disclosure requirements will provide 
investors with information necessary to evaluate the reasons for a de-
SPAC transaction and for choosing a particular structure and financing 
for the transaction. These requirements will also help promote 
consistent disclosure, allowing for greater comparability of these 
disclosures across de-SPAC transactions.
    Given the unique qualities of de-SPAC transactions, we believe 
registrants will benefit from the centralization of the SPAC-related 
requirements in the Item 1600 series of Regulation S-K. If there are 
facts and circumstances that may result in required disclosure under a 
current rule being the same as under any of the rules we are adopting, 
registrants are not

[[Page 14194]]

required to repeat disclosures, except where the applicable rule may so 
require (such as by calling for the disclosure in a specific location 
such as the prospectus cover page or prospectus summary). We are not 
adopting the recommendation that we adopt a more uniform methodology to 
address conflicts of interest arising from business combinations in 
general,\349\ because it is beyond the scope of our proposals 
concerning conflicts of interest and Item 1605, both of which are 
focused on SPACs.
---------------------------------------------------------------------------

    \349\ Letter from ABA. See supra note 345 and accompanying text.
---------------------------------------------------------------------------

    We are not revising Item 1605(b)(2) to provide more specificity on 
the types of securities or guarantees received from the SPAC, as 
suggested by one commenter. We are adopting Item 1605(b)(2) as proposed 
to require the disclosure of material terms of the de-SPAC transaction, 
including a brief description of any related financing transaction, 
including any payments from the SPAC sponsor to investors in connection 
with the financing transaction. In most, if not all, cases, Item 
1605(b)(2) will require the registrant to disclose the price paid by 
PIPE investors and other benefits such as derivative securities that 
are acquired by PIPE purchasers (in addition to SPAC shares), because 
these are likely to be material terms. One commenter recommended we 
require ``A brief description of related financing transactions, 
including the effective price per share at which investors are buying, 
after accounting for the value of any securities or guarantees they 
receive from the SPAC, SPAC sponsor or affiliate of either in 
connection with the financing transaction.'' \350\ We are not revising 
the item to adopt this recommendation because we believe it would be 
difficult for registrants to calculate accurately or would result in 
inconsistent methodologies among registrants, or both, with respect to 
how registrants would convert various features, rights, or contractual 
provisions attendant to related financing transactions into amounts 
used to adjust actual transaction values to achieve the suggested 
effective price; we believe the resulting disclosure characterized by 
these issues could mislead investors or undermine the ability of 
investors to make comparisons across SPACs or both.
---------------------------------------------------------------------------

    \350\ Letter from Michael Klausner and Michael Ohlrogge. See 
supra notes 347 and 348 and accompanying text.
---------------------------------------------------------------------------

    We have made a number of modifications in final Item 1605 as 
compared to the proposal. First, in Item 1605(a), we have replaced the 
term ``Furnish'' with the term ``Provide'' in the sentence ``Furnish a 
summary of the background of the de-SPAC transaction'' to make it clear 
that we intend this disclosure to be filed. This change will also make 
Item 1605(a) consistent with the other items in Item 1605 in this 
respect.
    Second, in Item 1605(b)(5) and (6), we have deleted the phrase ``, 
if material'' to align the phrasing with the existing disclosure 
requirements in Item 4 of Form S-4 \351\ as it was our intent to 
capture the same information at the same threshold and we did not 
intend for the phrasing to imply that the accounting treatment or 
Federal income tax consequences may not be material disclosure in a 
business combination transaction.\352\
---------------------------------------------------------------------------

    \351\ See disclosure requirements in (a)(5) and (a)(6) under 
Item 4 of Form S-4.
    \352\ In addition, in final Item 1605(b)(4) we deleted the 
phrase ``after the completion of the de-SPAC transaction'' for 
clarity and to avoid redundancy with the immediately preceding words 
``as a result of the de-SPAC transaction.''
---------------------------------------------------------------------------

    Third, as discussed above in section II.C of this release regarding 
conflicts of interest, we are revising Item 1605(d) to address 
interests of target company officers and directors. Thus, in final Item 
1605(d), we have added the phrase ``; or held by the target company's 
officers or directors that consist of any interest in, or affiliation 
with, the SPAC sponsor or the special purpose acquisition company.''
    Fourth, in final Item 1605(d), we have revised the phrase ``held by 
the SPAC sponsor and the special purpose acquisition company's officers 
and directors'' by replacing the term ``and'' with ``or'' in each 
instance, because the requirements of Item 1605(d) should apply 
disjunctively where any of the named persons has a material interest in 
the de-SPAC transaction or any related financing (and not be limited to 
only those situations where every named person has such an interest).
    Fifth, we revised Item 1605(b)(3), (4), and (6) to clarify that 
these requirements will require disclosure with respect to the SPAC, 
target company, and/or security holders of the SPAC or target company. 
These changes eliminate potential ambiguity that could have caused 
registrants to inappropriately interpret the items as not including 
disclosure with respect to those persons in connection with de-SPAC 
transactions. Accordingly, as adopted:
     final Item 1605(b)(3) requires: ``A reasonably detailed 
discussion of the reasons of the SPAC and the target company for 
engaging in the de-SPAC transaction and reasons of the SPAC for the 
structure and timing of the de-SPAC transaction and any related 
financing transaction;''
     final Item 1605(b)(4) requires: ``An explanation of any 
material differences in the rights of SPAC and target company security 
holders as compared with security holders of the combined company as a 
result of the de-SPAC transaction;'' and
     final Item 1605(b)(6) requires: ``The Federal income tax 
consequences of the de-SPAC transaction to the SPAC, the target 
company, and their respective security holders.''

G. Board Determination About the De-SPAC Transaction; Reports, 
Opinions, Appraisals, and Negotiations

1. Proposed Item 1606(a)
    The Commission proposed Item 1606(a) to address concerns regarding 
potential conflicts of interest and misaligned incentives in connection 
with the SPAC's decision to proceed with a particular de-SPAC 
transaction and to assist investors in assessing the fairness of a 
particular de-SPAC transaction to unaffiliated investors. Specifically, 
the Commission proposed 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 transactions 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.
2. Comments: Item 1606(a)
    Commenters expressed differing views on proposed Item 1606(a). Some 
commenters supported the proposed requirement.\353\
---------------------------------------------------------------------------

    \353\ Letters from Better Markets; Marcie Frost, Chief Executive 
Officer, California Public Employees' Retirement System (June 9, 
2022) (``CalPERS''); Committee on Capital Markets Regulation; 
Consumer Federation; Professor Holger Spamann (June 12, 2022) 
(``Holger Spamann''); NASAA; Public Citizen.
---------------------------------------------------------------------------

    Other commenters opposed proposed Item 1606(a).\354\ Some of these 
commenters expressed the view that modeling rules applicable to de-SPAC 
transactions after the going private rules is inappropriate because the 
underlying

[[Page 14195]]

affiliate relationships present in a going private transaction are not 
present in a de-SPAC transaction.\355\ Some commenters observed that a 
fairness determination is not required or provided in an IPO and thus 
should not be required in a de-SPAC transaction.\356\
---------------------------------------------------------------------------

    \354\ Letters from ABA; Andrew Tuch, Professor of Law, 
Washington University in St. Louis (June 13, 2022) (``Andrew 
Tuch''); Cato Institute; CFA Institute; Davis Polk & Wardwell LLP 
(June 13, 2022) (``Davis Polk''); Freshfields; Goodwin; Alfredo 
Ortiz, President & CEO, Job Creators Network (June 13, 2022) (``Job 
Creators Network''); Jonathan Kornblatt; Kirkland & Ellis; Loeb & 
Loeb; NYC Bar; Paul Swegle; Ropes & Gray; Skadden Arps Slate Meagher 
& Flom LLP (June 13, 2022) (``Skadden''); White & Case.
    \355\ Letters from Andrew Tuch, Freshfields, Kirkland & Ellis, 
Loeb & Loeb, Skadden.
    \356\ Letters from ABA, Cato Institute, CFA Institute, Davis 
Polk, Freshfields, Kirkland & Ellis, NYC Bar, Ropes & Gray, Skadden, 
White & Case.
---------------------------------------------------------------------------

    One commenter said proposed Items 1606 and 1607 would represent a 
``dramatic shift to de-SPAC transactions processes and disclosures,'' 
because, in part, SPAC boards have not historically made a 
recommendation to shareholders regarding whether or not to redeem 
shares at the time of the business combination and fairness opinions 
obtained in connection with de-SPAC transactions are typically limited 
to whether the transaction is fair to the SPAC, not whether the 
transaction is fair to any particular class of shareholders.\357\ This 
commenter observed, ``By opining on whether the de-SPAC transaction and 
related financings are fair to unaffiliated stockholders, as opposed to 
the SPAC itself, the SPAC board and any fairness opinion provider would 
essentially be making a recommendation regarding whether or not to 
redeem shares.'' \358\
---------------------------------------------------------------------------

    \357\ Letter from Ropes & Gray.
    \358\ Id.
---------------------------------------------------------------------------

    Several commenters expressed the view that requiring disclosure of 
a fairness determination would result in increased liability and 
litigation risk in de-SPAC transactions \359\ and in fewer de-SPAC 
transactions.\360\ A few commenters indicated that financial advisors 
may refuse to provide fairness opinions due to concerns about the 
potential liability related to delivery of a fairness opinion, in which 
case the SPAC board of directors would decide not to proceed with an 
otherwise favorable de-SPAC transaction due to the board's concerns 
about its own liability.\361\
---------------------------------------------------------------------------

    \359\ Letters from Cato Institute, CFA Institute, Freshfields, 
Goodwin, Jonathan Kornblatt, White & Case.
    \360\ Letters from Davis Polk, Goodwin, Job Creators Network, 
Jonathan Kornblatt, Skadden, White & Case.
    \361\ Letters from ABA, Goodwin.
---------------------------------------------------------------------------

    Other commenters expressed the view that proposed Items 1606 and 
1607 would effectively require de-SPAC transactions to be 
``substantively fair,'' which, in the view of these commenters, would 
exceed the Commission's authority.\362\ One of these commenters 
expressed that imposing a substantive obligation on the SPAC board of 
directors to undertake an analysis of the fairness of the de-SPAC 
transaction is an issue that is the exclusive province of State 
law.\363\
---------------------------------------------------------------------------

    \362\ Letters from ABA, Goodwin, NYC Bar, White & Case.
    \363\ Letter from NYC Bar.
---------------------------------------------------------------------------

    One commenter stated that, while the disclosure in proposed Item 
1606(a) would be new, ``in light of the fiduciary duties applicable to 
SPACs and their directors and officers,'' the disclosure in proposed 
Item 1606(a) and (b) ``would likely be redundant with the standard 
disclosure of the SPAC board's reasons for approval of the de-SPAC 
transaction.'' \364\
---------------------------------------------------------------------------

    \364\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Several commenters expressed concern that the proposed fairness 
determination disclosure requirement would likely or effectively 
require a SPAC to obtain a fairness opinion from a financial advisor 
\365\ and raised concern about the cost of obtaining a fairness 
opinion.\366\ One of those commenters also expressed concern that the 
perceived requirement, under proposed Items 1606(a) and 1607, to obtain 
a fairness opinion could increase the need to include projections in 
the de-SPAC transaction disclosure documents in support of a SPAC 
sponsor's fairness determination.\367\
---------------------------------------------------------------------------

    \365\ Letters from ABA, Andrew Tuch, Cato Institute, Davis Polk, 
Freshfields, Job Creators Network, Jonathan Kornblatt, Paul Swegle.
    \366\ Letters from ABA, Cato Institute, Davis Polk, Freshfields, 
Goodwin, Jonathan Kornblatt, Paul Swegle, Ropes & Gray, Skadden.
    \367\ Letter from Cato Institute (indicating that disclosure of 
projections would raise potential liability for SPACs as a result of 
the amendments to the PSLRA safe harbor).
---------------------------------------------------------------------------

    Another commenter indicated that proposed Item 1606 (and Item 1607) 
would be burdensome and, to address that burden, suggested that 
proposed Item 1606 should not apply to de-SPAC transactions generally 
but only to those de-SPAC transactions that raise risks of ``severe 
conflicts of interest.'' \368\
---------------------------------------------------------------------------

    \368\ Letter from Andrew Tuch (``In short, the Proposed Rules 
would subject de-SPACs to more onerous regulation than either going-
private transactions subject to Rule 13e-3 [17 CFR 270.13e-3] or 
traditional IPOs. A way to address this is to apply Items 1606 and 
1607 more selectively, to those de-SPACs raising heightened risks of 
self-dealing by SPAC fiduciaries, or perhaps not to apply these 
particular provisions at all.'').
---------------------------------------------------------------------------

    Some commenters also said they prefer that any fairness 
determination be made as to the de-SPAC transaction as a whole (instead 
of the de-SPAC transaction and any related financing transaction 
separately) \369\ and with respect to all of a SPAC's shareholders 
(instead of to its unaffiliated shareholders).\370\ One of those 
commenters also suggested that a fairness determination should not 
include related financings because financial advisors providing a 
fairness opinion do not traditionally include such financing within the 
scope of the opinion.\371\
---------------------------------------------------------------------------

    \369\ Letters from ABA, Davis Polk, Freshfields, Goodwin, Ropes 
& Gray, Skadden, White & Case.
    \370\ Letters from ABA, Goodwin.
    \371\ Letter from Davis Polk.
---------------------------------------------------------------------------

3. Final Item 1606(a)
    We continue to believe that SPACs and the hybrid nature of de-SPAC 
transactions present potential conflicts of interest and misaligned 
incentives that are not present in other types of business combination 
transactions. As a result, we believe that it is appropriate for 
shareholders to have more complete information regarding the SPAC's 
decision to proceed with a particular de-SPAC transaction. Many 
commenters that supported proposed Item 1606(a) expressed similar 
views.\372\ At the same time, we acknowledge that many commenters 
raised significant concerns with the proposed disclosure 
requirement.\373\ Some commenters expressed concerns that the proposed 
rule could be interpreted to require a fairness opinion,\374\ even if 
not explicitly required, and concerns about the cost to obtain such an 
opinion.\375\ Some commenters also expressed concerns about imposing 
requirements in connection with the de-SPAC transaction process of 
going public that do not exist in the traditional IPO process, such as 
requiring a fairness determination.\376\ Regarding these concerns, 
while we acknowledge that disclosures regarding the board's 
determination to proceed with a particular transaction are more 
typically associated with merger transactions, as discussed above, the 
de-SPAC transaction is a hybrid capital raising transaction that marks 
the introduction of the target company to the U.S. public

[[Page 14196]]

securities markets (similar to an IPO), and such introduction is done 
by way of a business combination or similar transaction. As a result, 
while we believe that the similarity to an IPO is a reason that the de-
SPAC transaction regulatory framework generally should be similar to 
the IPO regulatory framework, the business combination element of de-
SPAC transactions makes certain differences in the final rules that 
apply to de-SPAC transactions appropriate.
---------------------------------------------------------------------------

    \372\ Letters from Better Markets, CalPERS, Committee on Capital 
Markets Regulation, Consumer Federation, Holger Spamann, NASAA, 
Public Citizen. See supra note 353 and accompanying text.
    \373\ Letters from ABA, Andrew Touch, Cato Institute, CFA 
Institute, Davis Polk, Freshfields, Goodwin, Job Creators Network, 
Jonathan Kornblatt, Kirkland & Ellis, Loeb & Loeb, NYC Bar, Paul 
Swegle, Ropes & Gray, Skadden, White & Case. See supra note 354 and 
accompanying text.
    \374\ Letters from ABA, Andrew Tuch, Cato Institute, Davis Polk, 
Freshfields, Job Creators Network, Jonathan Kornblatt, Paul Swegle. 
See supra note 365 and accompanying text.
    \375\ Letters from ABA, Cato Institute, Davis Polk, Freshfields, 
Goodwin, Jonathan Kornblatt, Paul Swegle, Ropes & Gray, Skadden. See 
supra note 366 and accompanying text.
    \376\ Letters from ABA, Andrew Tuch, Cato Institute, CFA 
Institute, Davis Polk, Freshfields, Kirkland & Ellis, Loeb & Loeb, 
NYC Bar, Ropes & Gray, Skadden, White & Case. See supra notes 355 
and 356 and accompanying text.
---------------------------------------------------------------------------

    In response to commenters' concerns, we are revising Item 1606(a) 
to focus on situations in which a determination as to the advisability 
of the de-SPAC transaction is required by the law of the jurisdiction 
in which the SPAC is organized.\377\ Doing so will make clear that Item 
1606(a) does not require the de-SPAC transaction to be substantively 
fair or the SPAC to make a fairness determination when it is not 
otherwise required to do so under applicable State or foreign corporate 
law.\378\
---------------------------------------------------------------------------

    \377\ See generally Section 251(b) of the Delaware General 
Corporation Law (``The board of directors . . . shall adopt a 
resolution approving an agreement of merger or consolidation and 
declaring its advisability.'').
    \378\ This revision also addresses the comments questioning the 
Commission's authority to require a fairness determination and the 
comment expressing the view that imposing an obligation on a board 
to undertake an analysis of the fairness of the de-SPAC transaction 
is an issue that is the exclusive province of State law. See supra 
notes 362 and 363, respectively, and accompanying text.
---------------------------------------------------------------------------

    Instead, under final Item 1606(a), if the law of the jurisdiction 
of the SPAC's organization requires the SPAC's board of directors (or 
similar governing body) \379\ to determine whether the de-SPAC 
transaction is advisable and in the best interests of the SPAC and its 
shareholders, or otherwise make any comparable determination, the SPAC 
will be required to disclose that determination. Under Delaware General 
Corporation Law, a board of directors of a corporation that seeks to 
enter a merger or consolidation is required to adopt a resolution 
approving the transaction agreement and declaring its 
advisability.\380\ In the experience of the Commission staff, many 
SPACs governed by Delaware law provide a statement in registration 
statements or proxy statements filed for de-SPAC transactions that the 
transaction agreement the board approved is advisable and in the best 
interests of shareholders. Comparable requirements may apply to 
registrants organized under the laws of other jurisdictions. The final 
rule would codify existing disclosure practices in this regard and 
serve to standardize the disclosure across a variety of State or 
foreign law requirements.
---------------------------------------------------------------------------

    \379\ This provision allows for the possibility that a SPAC's 
governing body may be other than a ``board of directors,'' whether 
as a result of a SPAC being organized as an entity other than a 
corporation or being a corporation organized in a jurisdiction where 
the governing body is different than a ``board of directors.''
    \380\ See supra note 377 and accompanying text.
---------------------------------------------------------------------------

    We believe that the approach taken in final Item 1606(a) represents 
an appropriate balance between our goal of providing more transparency 
around the SPAC's decision to proceed with a particular de-SPAC 
transaction and the concerns raised by commenters that the proposed 
rule would create a new substantive corporate law requirement \381\ as 
well as other concerns raised by commenters, including increased 
liability and risks of litigation and decreased de-SPAC 
transactions.\382\ The new disclosure requirement will help achieve the 
same goal sought by the proposed fairness determination requirement--
enhancing SPAC security holders' ability to assess the SPAC's decision 
to proceed with a particular de-SPAC transaction--without imposing new 
procedural obligations regarding how such a decision is made. While the 
final rule will not require a SPAC to make a determination regarding 
the fairness or suitability of the de-SPAC transaction, if such a 
determination is required by applicable corporate law, we believe 
investors should be informed of that fact and receive appropriate 
disclosure (as described below) regarding the considerations that went 
into such a determination.\383\ The fact that many registrants already 
provide such disclosure supports our view that the factual disclosures 
required by the final rule should not impose undue costs or create 
excessive exposure to new liability or litigation risk.
---------------------------------------------------------------------------

    \381\ The approach taken in final Item 1606(a) also addresses a 
related commenter's concern that disclosure arising from a fairness 
determination would be redundant in light of the fiduciary duties 
applicable to SPACs and their officers and directors. See letter 
from Vinson & Elkins. See also supra note 364 and accompanying text.
    \382\ Letters from Cato Institute, CFA Institute, Davis Polk, 
Freshfields, Goodwin, Job Creators Network, Jonathan Kornblatt, 
Skadden, White & Case. See supra notes 359 and 360 and accompanying 
text.
    \383\ Because final Item 1606(a) will require disclosure when a 
determination is required to be made under the law of the SPAC's 
jurisdiction of organization, rather than imposing a separate 
fairness determination that would be more burdensome, we do not 
believe there is a need to limit Item 1606(a) to instances of 
``severe conflicts of interest,'' as one commenter suggested. See 
letter from Andrew Tuch. See also supra note 368 and accompanying 
text.
---------------------------------------------------------------------------

    In addition, these changes from the proposal should avoid any 
misimpression that Item 1606(a) creates a requirement, implicit or 
explicit, or expectation that a fairness opinion must be obtained to 
comply with its requirements. We are mindful of commenters' concerns 
about increased liability and litigation risk associated with such 
opinions.\384\ We are also mindful of comments indicating that 
financial advisors may refuse to provide fairness opinions due to 
concerns about the potential liability related to delivery of a 
fairness opinion and that a SPAC's board of directors may decide not to 
proceed with an otherwise favorable de-SPAC transaction because it 
cannot obtain a fairness opinion.\385\ Cognizant of these concerns, we 
reiterate that nothing in the final rule requires a SPAC to obtain a 
fairness opinion in connection with a de-SPAC transaction.
---------------------------------------------------------------------------

    \384\ Letters from Cato Institute, CFA Institute, Freshfields, 
Goodwin, Jonathan Kornblatt, White & Case. See supra note 359 and 
accompanying text.
    \385\ Letters from ABA, Goodwin. See supra note 361 and 
accompanying text.
---------------------------------------------------------------------------

    The changes to Items 1606(a) and (b) and 1607 \386\ should also 
address one commenter's concern that the new requirements would 
represent ``a dramatic shift to de-SPAC transactions processes and 
disclosures'' by requiring more limited disclosure aligned with 
requirements already applicable to a SPAC by the law of its 
jurisdiction of incorporation.\387\
---------------------------------------------------------------------------

    \386\ See infra section II.G.10-12.
    \387\ Letter from Ropes & Gray. See supra notes 357 and 358 and 
accompanying text.
---------------------------------------------------------------------------

    We agree with commenters who stated that any rule addressing the 
board's decision to proceed with a de-SPAC transaction should focus on 
all of a SPAC's security holders rather than only its unaffiliated 
security holders.\388\ In response to these comments, we have revised 
the final rule to reference security holders of the SPAC generally, in 
contrast to the proposed rule, which addressed only unaffiliated 
security holders.
---------------------------------------------------------------------------

    \388\ Letter from ABA, Goodwin. See supra note 370 and 
accompanying text.
---------------------------------------------------------------------------

    The changes to Item 1606(a) address one commenter's concern that 
the perceived requirement to obtain a fairness opinion could increase 
the need to include projections in the de-SPAC transaction disclosure 
documents in support of such fairness determination.\389\
---------------------------------------------------------------------------

    \389\ Letter from Cato Institute. See supra note 367 and 
accompanying text.
---------------------------------------------------------------------------

    Finally, in response to commenters' recommendations that proposed 
Item 1606(a) be required with respect to the de-SPAC transaction and 
related financing as a whole,\390\ we are revising

[[Page 14197]]

Item 1606(a) to remove any reference to related financing. While the 
proposed rule was intended to result in the disclosure of a fairness 
determination with respect to a de-SPAC transaction as a whole, we were 
persuaded by commenters' concerns that including ``any related 
financing'' in the rule could have signaled a separate determination 
should be made with respect to the related financing.\391\ We continue 
to believe that related financing is usually fundamental to the success 
of the de-SPAC transaction but have adopted a final rule that 
simplifies the disclosure about the determinations made by a SPAC's 
board of directors (or similar governing body) with respect to the de-
SPAC transaction. On the other hand, given the continued importance to 
a SPAC's shareholders of the related financing, we are moving the 
reference to related financing to final Item 1606(b), which requires 
discussions of the factors considered by the SPAC board of directors 
(or similar governing body) in making the determination disclosed in 
response to Item 1606(a). This change is discussed further below.
---------------------------------------------------------------------------

    \390\ Letters from ABA, Davis Polk, Freshfields, Goodwin, Ropes 
& Gray, Skadden, White & Case. See supra notes 369-371 and 
accompanying text.
    \391\ Id.
---------------------------------------------------------------------------

4. Proposed Item 1606(b)
    The Commission proposed Item 1606(b) to supplement the fairness 
determination disclosure required by proposed Item 1606(a). 
Specifically, proposed Item 1606(b) would require a SPAC to discuss the 
material factors upon which the 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.
5. Comments: Item 1606(b)
    Commenters expressed differing views on proposed Item 1606(b). Some 
commenters supported the proposed requirement generally \392\ and some 
commenters specifically indicated the requirement would allow investors 
to conduct a better evaluation of the merits of a de-SPAC transaction 
and incentivize sponsors to avoid transactions that could potentially 
be viewed as unfair.\393\
---------------------------------------------------------------------------

    \392\ Letters from Better Markets, CalPERS, Holger Spamann.
    \393\ Letters from Committee on Capital Markets Regulation, 
Consumer Federation.
---------------------------------------------------------------------------

    Other commenters stated that the inclusion of a mandatory list of 
factors to be addressed in disclosure under proposed Item 1606(b) may 
force the SPAC to disclose information not actually considered by the 
SPAC in making its fairness determination.\394\ Some commenters also 
stated that the mandatory list of factors in proposed Item 1606(b) is 
at odds with the Commission's history of implementing a principles-
based disclosure regime and does not account for the fact that the 
factors relevant to making a fairness determination will vary from 
company to company and that different fairness assessors may also have 
different views on which factors are appropriate for the same 
company.\395\ These commenters proposed that the Commission modify 
proposed Item 1606(b) to provide that the factors should be discussed 
to the extent they were considered.\396\ One commenter said that it is 
``not within the Commission's authority to require SPAC boards of 
directors to conform their deliberative processes to the Commission's 
rules and that Item 1606(b) impermissibly encroaches upon the 
discretion of a board to evaluate whatever information it deems 
appropriate in deciding to proceed with a transaction.'' \397\
---------------------------------------------------------------------------

    \394\ Letters from ABA, Goodwin, White & Case.
    \395\ Letters from ABA, Goodwin.
    \396\ Id.
    \397\ Letter from White & Case.
---------------------------------------------------------------------------

    Some commenters stated that the factors the proposal required to be 
discussed should not be assigned weight because it would not be 
practical or workable to do so, such weighting could result in 
investors placing too much or not enough emphasis on the factors 
described by the SPAC, and various members of the SPAC board will 
likely assign differing weights to differing factors.\398\ Another 
commenter stated that a weighting of factors would require a high 
degree of professional subjectivity, which may expose boards and 
financial institutions to liability which would ultimately discourage 
them from pursuing de-SPAC transactions.\399\
---------------------------------------------------------------------------

    \398\ Letters from ABA, Goodwin, Ropes & Gray.
    \399\ Letter from Skadden.
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6. Final Item 1606(b)
    We are adopting Item 1606(b) as proposed, with certain 
modifications discussed below. We continue to believe that disclosure 
of the factors considered by a SPAC's board of directors (or similar 
governing body) in making the decision to proceed with a de-SPAC 
transaction, to the extent they were considered, would provide 
shareholders with important information to allow those shareholders to 
make informed voting or investment decisions.
    While several commenters supported proposed Item 1606(b),\400\ as 
discussed above, some commenters expressed the view that only factors 
actually considered should be required to be discussed.\401\ This was 
the intent of the language in the proposed rule requiring a discussion 
of ``factors upon which the belief stated in paragraph (a) . . . is 
based.'' In light of the comments received, however, to clarify our 
intent in the final rule, we have added the terms ``To the extent 
considered'' to qualify the factors and the analysis of those factors 
required to be discussed. This change will avoid any potential for 
ambiguity or misinterpretation that the rule requires a discussion of 
factors not considered or a more extensive analysis of any factor 
considered than would otherwise have taken place in the absence of the 
final rule.\402\ As a result, final Item 1606(b) requires a discussion 
of a non-exclusive list of factors the board of directors (or similar 
governing body) considered in making any determination disclosed in 
response to Item 1606(a) to the extent such factors were considered. 
These factors would include, but not be limited to, the valuation of 
the target company, financial projections relied upon by the board of 
directors (or similar governing body), the terms of financing 
materially related to the de-SPAC transaction, any report, opinion, or 
appraisal referred to in Item 1607(a), and the dilution described in 
Item 1604(c). We believe these factors are generally matters that a 
board of directors (or similar governing body) is likely to consider in 
determining whether a transaction is advisable and in the best 
interests of the SPAC and its security holders (or in making a 
comparable determination). At the same time, by revising the disclosure 
requirement to make clear that the listed factors must be disclosed to 
the extent considered, the final rule reflects our understanding that 
the fiduciary duties and discussions of boards of directors (or similar 
governing bodies) are not uniform across companies or jurisdictions. 
Moreover, this change makes clear that final Item 1606(b) does not 
require boards of directors (or similar governing bodies) to 
specifically consider the listed factors or, if considering them, 
dictate how thoroughly to consider them, when determining whether a 
transaction is advisable and in the best interests of the

[[Page 14198]]

SPAC and its security holders (or in making a comparable 
determination).
---------------------------------------------------------------------------

    \400\ Letters from Better Markets, CalPERS, Committee on Capital 
Markets Regulation, Consumer Federation, Holger Spamann, NASAA, 
Public Citizen. See supra note 393 and accompanying text.
    \401\ Letters from ABA, Goodwin, White & Case. See supra notes 
394-396 and accompanying text.
    \402\ This revision also addresses the comments questioning the 
Commission's authority to mandate the factors that a SPAC must 
discuss under Item 1606(b). See supra notes 362, 363, and 397 and 
accompanying text.
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    Some commenters expressed concern with the practicability of 
assigning weight to factors, the possibility that shareholders would 
emphasize those weights too much or too little,\403\ and that a 
weighting of factors, which may require a high degree of professional 
subjectivity, may expose boards and financial institutions to liability 
which would ultimately discourage them from pursuing de-SPAC 
transactions.\404\ Although proposed Item 1606(b) was never intended to 
force disclosure of the weight of each factor where the SPAC board did 
not, or could not, conduct such a weighting (proposed Item 1606(b) 
required a discussion of such weighting only ``to the extent 
practicable''), we nevertheless recognize commenters' concerns and the 
possibility that the proposed item requirement could be misunderstood. 
Based on commenters' suggestions, we have removed references to the 
weighting of factors from final Item 1606(b) to eliminate such 
potential misinterpretation and in recognition of the potential 
practical challenges to assigning a weight to various factors or 
discussing such weighting.
---------------------------------------------------------------------------

    \403\ Letters from ABA, Goodwin, Ropes & Gray. See supra note 
398 and accompanying text.
    \404\ Letter from Skadden. See supra note 399 and accompanying 
text.
---------------------------------------------------------------------------

    To reduce potential redundancy in the disclosure requirement, we 
have also removed the terms ``in reasonable detail'' from the first 
sentence of Item 1606(b). Any disclosure responsive to Item 1606(b) is 
already required to be complete, and the deleted terms are not 
necessary to confirm that such a principle applies here.
    Further, as discussed above, we are revising Item 1606(b) to 
include any financing materially related to the de-SPAC transaction in 
the non-exclusive list of factors to be discussed because PIPE 
offerings and other financings are a common feature of a de-SPAC 
transaction and, in some instances, the success of the de-SPAC 
transaction and of the post-de-SPAC company is dependent on the 
existence of related financing. Given the importance of such financing, 
we have revised final Item 1606(b) to include financing materially 
related to the de-SPAC transaction in the non-exclusive list of factors 
that a board of directors (or similar governing body) would be required 
to discuss, to the extent the board of directors (or similar governing 
body) considered such financing. By moving the reference to related 
financing from Item 1606(a) to Item 1606(b), we are also eliminating 
any potential confusion that the board of directors (or similar 
governing body) would need to make a separate Item 1606(a) 
determination for financing materially related to the de-SPAC 
transaction.
7. Proposed Item 1606(c) Through (e)
    The Commission proposed Item 1606(c) through (e) to 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 security holders, and whether the transaction(s) were 
approved by a majority of directors of the SPAC who are not employees 
of the SPAC.
8. Comments: Item 1606(c) Through (e)
    Commenters expressed differing views on proposed Item 1606(c) 
through (e). Some commenters supported the proposed requirements.\405\
---------------------------------------------------------------------------

    \405\ Letters from Better Markets, CalPERS, Committee on Capital 
Markets Regulation, Consumer Federation, Holger Spamann, NASAA, 
Public Citizen.
---------------------------------------------------------------------------

    With respect to proposed Item 1606(c), one commenter indicated that 
disclosure about whether the de-SPAC or related financing transaction 
was structured to require approval of at least a majority of 
unaffiliated security holders would be redundant due to the requirement 
of Item 21 of Schedule 14A to disclose similar information.\406\
---------------------------------------------------------------------------

    \406\ Letter from Vinson & Elkins.
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    With respect to proposed Item 1606(d), a few commenters expressed 
the view that retention of a representative to act solely on behalf of 
unaffiliated security holders in the negotiation of the de-SPAC 
transaction is rare and that, as a result, such a requirement will not 
result in meaningful additional disclosure.\407\ One of the commenters 
also indicated that the disclosure requirement would not result in a 
change in the use of unaffiliated representatives.\408\
---------------------------------------------------------------------------

    \407\ Letters from Freshfields, Vinson & Elkins.
    \408\ Letter from Freshfields.
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    One commenter supported the proposed requirement to disclose 
whether any non-executive director voted against, or abstained from 
voting on, the approval of the de-SPAC transaction \409\ and said it is 
consistent with current market practice.\410\ Another commenter stated 
that a requirement to identify any director that voted against or 
abstained from voting on the approval of the de-SPAC transaction would 
``prejudice[ ] companies against de-SPAC transactions'' and could 
inhibit board discussions.\411\ This commenter said that this proposed 
requirement would make it more difficult and less likely that 
individual directors would oppose a transaction if they know that their 
objection will be made public.\412\ This commenter also recommended 
that the proposed rule be more precise about its applicability being 
only to directors of the SPAC.\413\
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    \409\ We have moved this requirement from proposed Item 1606(a) 
to final Item 1606(e). Thus, we are including comments relating to 
that portion of proposed Item 1606(a) in this section.
    \410\ Letter from Davis Polk.
    \411\ Letter from Freshfields.
    \412\ Id.
    \413\ Id.
---------------------------------------------------------------------------

9. Final Item 1606(c) Through (e)
    We continue to believe that the new disclosures under Item 1606(c) 
through (e) will provide investors with important information and a 
better understanding of the process by which a SPAC determined to 
proceed with a particular de-SPAC transaction. We are adopting Item 
1606(c), (d), and (e) as proposed, with some modifications and minor 
technical changes discussed below. In the final rules, we moved the 
requirement to identify any director who voted against, or abstained 
from voting on, approval of the de-SPAC transaction from proposed Item 
1606(a) to final Item 1606(e), because, as Item 1606(e) is generally 
related to issues involving approval of the de-SPAC transaction by the 
board of directors (or similar governing body), we considered this a 
more appropriate place for this requirement.
    We disagree with the assertion made by a commenter that the 
disclosure required under proposed Item 1606(c) would be redundant 
given the existing requirement in Item 21 of Schedule 14A, which 
requires disclosure of the vote required for approval (among other 
things) of the matter by shareholders.\414\ Schedule 14A does not 
expressly differentiate among affiliated and unaffiliated security 
holders as with Item 1606(c). Also, a Schedule 14A may not be filed in 
connection with some de-SPAC transactions. Thus, we believe the 
information provided to investors under Item 1606(c) is not redundant 
and will benefit investors by improving their understanding of the 
SPAC's governance procedures followed in connection with approving the 
de-SPAC transaction. We expect this improved understanding will enhance 
investor voting, redemption, and other

[[Page 14199]]

investment decisions. We have revised Item 1606(c) to clarify that the 
shareholder approval relates to shareholders of the SPAC.
---------------------------------------------------------------------------

    \414\ Letter from Vinson & Elkins. See supra note 406 and 
accompanying text.
---------------------------------------------------------------------------

    A few commenters said the use of unaffiliated representatives in 
negotiations is rare.\415\ One of those commenters also said the 
disclosure requirement in proposed Item 1606(d) would not lead to a 
change in market practices.\416\ We note that the proposed rule was not 
intended and the final rule is not intended to change market practices 
relating to the retention of any such unaffiliated representative. As 
is the case with final Item 1606(c) and (e), final Item 1606(d) is a 
disclosure requirement intended to provide investors with important 
information and a better understanding of the process by which a SPAC 
determined to proceed with a particular de-SPAC transaction and does 
not require SPACs to change their processes in connection with de-SPAC 
transaction approval.
---------------------------------------------------------------------------

    \415\ Letters from Freshfields, Vinson & Elkins. See supra notes 
407 and 408 and accompanying text.
    \416\ Letter from Vinson & Elkins. See supra note 408 and 
accompanying text.
---------------------------------------------------------------------------

    One commenter said directors will be more reluctant to vote against 
a de-SPAC transaction if they know that their objection will be made 
public.\417\ We decline to revise Item 1606(e) in response to the 
commenter's concern. Directors are generally subject to fiduciary 
duties imposed by State or foreign law. We expect that directors will 
generally seek to make voting decisions consistent with their duties to 
security holders or the company irrespective of whether that decision 
is publicly disclosed.
---------------------------------------------------------------------------

    \417\ Letter from Freshfields. See supra notes 411 and 412 and 
accompanying text.
---------------------------------------------------------------------------

    We have also made conforming changes to Item 1606(c) through (e) to 
be consistent with final Item 1606(a), as discussed above.
10. Proposed Item 1607
    The Commission proposed Item 1607(a) to require disclosure about 
whether or not the SPAC or SPAC sponsor 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 SPAC, SPAC sponsor or unaffiliated security holders.
    The Commission proposed Item 1607(b) to require disclosure of 
certain information about any such report, opinion, or appraisal from 
an outside party as well as any negotiation or report by an 
unaffiliated representative, including the identity of the outside 
party or unaffiliated representative, the qualifications of the outside 
party or unaffiliated representative, any material relationship between 
the outside party, its affiliates, or unaffiliated representative and 
the SPAC, SPAC sponsor, or their respective affiliates, whether the 
SPAC or SPAC sponsor determined the amount of consideration to be paid 
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. Proposed Item 1607(b) would also require a summary 
of the negotiation, report, opinion, or appraisal, including a 
description of the procedures followed, the findings and 
recommendations, the bases for and methods used to arrive at such 
findings and recommendations, any instructions received from the SPAC 
or SPAC sponsor, and any limitation imposed by the SPAC or SPAC sponsor 
on the scope of the investigation.
    The Commission proposed Item 1607(c) to 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.
11. Comments: Item 1607
    We received differing views from commenters. Some commenters 
generally supported proposed Item 1607.\418\ Other commenters generally 
opposed, or expressed concerns regarding specific aspects of, proposed 
Item 1607.\419\ We discuss these specific concerns in more detail 
below.
---------------------------------------------------------------------------

    \418\ Letters from Committee on Capital Markets Regulation; 
Consumer Federation; ICGN; Michael Dambra, Ph.D., CPA, University at 
Buffalo, SUNY, Omri Even-Tov, Ph.D., University of California, 
Berkeley, Kimberlyn George, University of California, Berkeley (June 
3, 2022) (``Michael Dambra, Omri Even-Tov, and Kimberlyn George'').
    \419\ Letters from ABA (``with respect to proposed Item 1607, we 
believe it is unnecessary and unrealistic to require the filing of 
board books and other written materials presented to the board in 
connection with the reports, opinions or appraisals, as in the case 
with going-private transactions''), Andrew Tuch, Ernst & Young, 
Goodwin, Ropes & Gray, Vinson & Elkins.
---------------------------------------------------------------------------

    As discussed above in the comments on proposed Item 1606, several 
commenters stated that proposed Items 1606 and 1607 exceed the 
Commission's authority because they effectively require de-SPAC 
transactions to be ``substantively fair.'' \420\
---------------------------------------------------------------------------

    \420\ Letters from ABA, Goodwin, NYC Bar, White & Case. See 
supra note 362 and accompanying text.
---------------------------------------------------------------------------

    Some of these commenters suggested that the filing of board 
materials required under Item 1607(c) is inappropriate because it will 
``inevitably'' result in a reduction of information presented to, and 
considered by, a SPAC's board of directors, which may affect the 
board's ability to fulfill its fiduciary duties.\421\ Given that board 
materials are typically not prepared with a view that they will be 
included in public filings and subject to liability, these commenters 
also expressed the view that filing such materials may expose their 
preparers to liability under the Securities Act and the Exchange Act 
and that the proposed requirement would be ``impractical and 
unworkable'' because the preparers are not trained to prepare any such 
materials to withstand scrutiny under the Federal securities laws.\422\ 
Also, the commenters indicated that some preparers will not consent to 
the use of their materials in a public filing.\423\ Finally, these 
commenters stated that some information included in such reports may be 
immaterial, speculative, or ultimately determined to be 
unreliable.\424\
---------------------------------------------------------------------------

    \421\ Letters from ABA, Goodwin.
    \422\ Id.
    \423\ Id.
    \424\ Id.
---------------------------------------------------------------------------

    One commenter indicated that the requirement in proposed Item 
1607(c) to file as an exhibit (or include) any such report, opinion, or 
appraisal related to the fairness determination in addition to the 
requirement in proposed Item 1607(b) to disclose a summary of the 
report, opinion, or appraisal could limit any incremental benefit an 
investor would receive from the filing of such reports, opinions, or 
appraisals.\425\ Another commenter stated that proposed Item 1607 
should not apply to de-SPAC transactions generally but only to those 
de-SPAC transactions that raise risks of ``severe conflicts of 
interest.'' \426\ Yet another commenter suggested that the Commission 
consider whether the incremental cost and liabilities related to filing 
the reports would have the unintended consequence of discouraging SPACs 
from obtaining the reports because SPACs would not be required to 
obtain the reports as a basis for their fairness determination under 
proposed Item 1606(a).\427\ One commenter also proposed that we more 
narrowly tailor Item 1607(b)(6) to de-SPAC transactions and modify Item 
4(b) of Forms S-4 and F-4 to direct filers to comply with the 
requirements of Item 1607(b)(6), rather than 17 CFR 229.1015(b) (``Item 
1015(b)'' of

[[Page 14200]]

Regulation M-A), for de-SPAC transactions.\428\
---------------------------------------------------------------------------

    \425\ Letter from Ernst & Young.
    \426\ Letter from Andrew Tuch.
    \427\ Letter from Ernst & Young.
    \428\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

12. Final Item 1607
    We are adopting Item 1607(a) as proposed with the modifications 
discussed below. Final Item 1607(a) only requires the disclosure 
specified in Item 1607(b) if the SPAC or SPAC sponsor received any 
report, opinion (other than an opinion of counsel), or appraisal from 
an outside party or unaffiliated representative materially relating to 
a determination disclosed in response to Item 1606(a), the approval of 
the de-SPAC transaction, the consideration or the fairness of the 
consideration to be offered to security holders of the target company 
in the de-SPAC transaction, or the fairness of the de-SPAC transaction 
to the SPAC, its security holders, or SPAC sponsor. Thus, if such a 
report, opinion, or appraisal from an outside party or unaffiliated 
representative was not received, then no disclosure will be required 
under Item 1607.
    The final rule includes some clarifying revisions to Item 1607(a). 
We added a reference to an ``unaffiliated representative'' to avoid any 
confusion arising out of references to an ``unaffiliated 
representative'' in Item 1607(b) without a corresponding reference in 
Item 1607(a). We also added the parenthetical terms ``other than an 
opinion of counsel'' to clarify that an opinion of counsel is outside 
of the rule's scope. In addition, we included a reference to the target 
company in final Item 1607(a)(3) to specify which security holders are 
being offered the consideration. Finally, we reversed the order of 
``SPAC sponsor'' and ``security holders'' in final Item 1607(a)(4) to 
avoid the implication that the rule also applies to security holders of 
SPAC sponsor.
    To address commenters' concerns regarding the possible disclosure 
of immaterial, speculative, or unreliable materials,\429\ we are 
revising Item 1607(a) to limit the scope of the final rule to only 
reports, opinions, or appraisals that are materially related to any 
Item 1606(a) determination of the board of directors (or similar 
governing body) or the other matters listed in final Item 1607(a)(2) 
through (4). As they already do now in other filings relating to de-
SPAC transactions, SPACs may continue to add any supplemental, 
explanatory discussion so that investors can properly understand the 
context and purpose of the disclosed reports, opinions, or appraisals 
and assess these reports, opinions, or appraisals appropriately.
---------------------------------------------------------------------------

    \429\ Letters from ABA, Goodwin. See supra note 424 and 
accompanying text.
---------------------------------------------------------------------------

    In addition, by revising Item 1606 to remove the requirement to 
disclose a fairness determination in the context of a de-SPAC 
transaction and making corresponding revisions to Item 1607, the final 
rule should address commenters' concerns that proposed Item 1607 would 
exceed the Commission's authority.\430\
---------------------------------------------------------------------------

    \430\ Letters from ABA, Goodwin, NYC Bar, White & Case. See 
supra note 420 and accompanying text.
---------------------------------------------------------------------------

    We believe adopting final Item 1607 is more consistent with the 
remaining rules applicable to SPACs and de-SPAC transactions than the 
alternative suggested by a commenter to instead update similar existing 
requirements in Form S-4 and F-4.\431\ Item 1607(a) is limited to a 
specific set of events and determinations, unlike Item 4(b) in Form S-4 
and F-4, which more generally refer to reports, opinions, or appraisals 
materially relating to the subject transaction. Also, under the 
alternative suggested by the commenter, the Item 1607(b) disclosure 
would not be required to the extent a de-SPAC transaction is not 
registered on Form S-4 or F-4.\432\ Finally, we believe registrants 
will benefit from the centralization of the SPAC-related requirements 
in the Item 1600 series of Regulation S-K, which are primarily applied 
to de-SPAC transactions through new general instructions in the 
relevant forms and schedules,\433\ rather than through revisions to 
specific item requirements within each relevant form or schedule as 
suggested.
---------------------------------------------------------------------------

    \431\ Letter from Vinson & Elkins. See supra note 428 and 
accompanying text.
    \432\ Item 14(b)(6) of Schedule 14A directs filers to comply 
with Item 1015(b) of 17 CFR 229.1000 through 229.1016 (``Regulation 
M-A'') in the same manner as Form S-4 and F-4. But see the potential 
registration requirements for de-SPAC transactions, in the absence 
of an exemption, as a result of the adoption of Rule 145a.
    \433\ See General Instruction L.1 to Form S-4; General 
Instruction VIII to Form S-1; General Instruction I.1 to Form F-4; 
General Instruction VII to Form F-1; General Instruction K to 
Schedule TO.
---------------------------------------------------------------------------

    Several commenters expressed concern that compliance with Item 
1607(c) will result in a reduction of information presented to the 
SPAC's board of directors, which could negatively affect the ability of 
those directors to fulfill their fiduciary duties.\434\ Another 
commenter suggested that the incremental cost and liability of filing 
such materials would discourage a SPAC from obtaining those 
materials.\435\ While we recognize these concerns and acknowledge that 
the final rule could impact the information provided to the SPAC's 
board of directors,\436\ we believe there remain significant incentives 
(e.g., conducting due diligence on the target company or receiving an 
independent evaluation of the proposed de-SPAC transaction) for boards 
to seek and use this information as part of their decision-making 
process so we do not find this a persuasive reason to withhold such 
disclosure from investors. Directors are generally subject to fiduciary 
duties imposed by State or foreign law. We expect directors to seek to 
fulfill those duties by continuing to inform themselves of the 
potential merits of a de-SPAC transaction with the assistance of 
outside parties despite the potential public nature, added cost, or 
risk of liability associated with the filing of any report, opinion, or 
appraisal.
---------------------------------------------------------------------------

    \434\ Letters from ABA, Goodwin. See supra note 421 and 
accompanying text.
    \435\ Letter from Ernst & Young. See supra note 427 and 
accompanying text.
    \436\ See discussion of Item 1607, infra section VIII.B.1.iii.f.
---------------------------------------------------------------------------

    Furthermore, we believe that it would be impractical to require 
disclosure under Item 1607 only in instances of ``severe conflicts of 
interest'' as one commenter suggested \437\ because quantifying or 
classifying the extent of a conflict of interest is difficult given the 
wide variety of facts and circumstances in each de-SPAC transaction.
---------------------------------------------------------------------------

    \437\ Letter from Andrew Tuch. See supra note 426 and 
accompanying text.
---------------------------------------------------------------------------

    We are adopting Item 1607(b) and (c) as proposed, with two 
technical modifications. We revised Item 1607(b)(5) to specify that the 
related disclosure is only required for reports, opinions, or 
appraisals related to the fairness of the consideration to be offered 
to security holders of the target company in the de-SPAC transaction. 
We also revised Item 1607(c) to specify that the reports, opinions, or 
appraisals required to be filed are those referred to in Items 1607(a) 
and (b).
    We disagree with the comments that the filing of reports, opinions, 
or appraisals pursuant to Item 1607(c) would have limited incremental 
benefit to investors.\438\ Although the summary required by Item 
1607(b)(6) provides investors with useful information regarding the 
preparation and findings or recommendations of the report, opinion, or 
appraisal, we believe that it is important for investors to be able to 
review the actual report, opinion, or appraisal being summarized and, 
in many cases, being relied upon by the board when considering the 
transaction.
---------------------------------------------------------------------------

    \438\ Letter from Ernst & Young. See supra note 425 and the 
accompanying text.
---------------------------------------------------------------------------

    We also disagree with the comments that the filing of reports, 
opinions, or

[[Page 14201]]

appraisals pursuant to Item 1607(c) would present their preparers with 
an ``impractical and unworkable'' task or that the preparers would not 
consent to the public use of such materials.\439\ While the 
requirements of Item 1607(c) may affect how preparers price their 
services as well as the types of information included in their reports 
and opinions, such materials have historically and routinely been 
included with filings relating to transactions other than de-SPAC 
transactions,\440\ and in those cases, registrants and preparers have 
been able to navigate the preparation, filing, and evaluation of such 
materials. We are not aware of any reason (and commenters have not 
provided any specific reason) why materials used in de-SPAC 
transactions would be any different.
---------------------------------------------------------------------------

    \439\ Letters from ABA, Goodwin. See supra notes 422 and 423 and 
accompanying text.
    \440\ For example, in a going-private transaction subject to 
Rule 13e-3, any report, opinion (other than an opinion of counsel) 
or appraisal from an outside party that is materially related to the 
transaction is required to be filed as an exhibit to the Schedule 
13E-3. See Item 16 of Schedule 13E-3 and 17 CFR 229.1016(c) (Item 
1016(c) of Regulation M-A). Additionally, in other public company 
mergers and business combinations, Item 21(c) of Forms S-4 and F-4 
requires that any report, opinion or appraisal materially relating 
to the subject transaction and referred to in the prospectus be 
furnished as an exhibit to such form.
---------------------------------------------------------------------------

    We are also amending Item 601 of Regulation S-K, Schedule 14A, and 
Schedule TO to implement the final Item 1607(c) exhibit filing 
requirement. For Forms S-1, S-4, F-1, and F-4, which refer to the 
exhibit requirements in Item 601 of Regulation S-K, the Item 1607(c) 
exhibit filing requirement will be incorporated through new 17 CFR 
229.601(b)(98) (Item 601(b)(98) of Regulation S-K). Schedule 14A and 
Schedule TO will incorporate the Item 1607(c) exhibit filing 
requirement through new Item 25(b) of Schedule 14A and new Item 12(b) 
of Schedule TO, respectively. Because Item 1 of Schedule 14C generally 
requires compliance with the relevant items of Schedule 14A, the Item 
1607(c) exhibit filing requirement will be incorporated into Schedule 
14C through new Item 25(b) of Schedule 14A.

H. Tender Offer Filing Obligations

1. Proposed Item 1608
    The Commission proposed Item 1608 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.\441\ Proposed Item 
1608 would not affect the staff position for those SPACs that file 
Schedule 14A or 14C for their de-SPAC transactions or extensions. SPACs 
that do not file a Schedule 14A or 14C (such as FPIs) in connection 
with the de-SPAC transaction (or an extension of time to complete a de-
SPAC transaction),\442\ however, would be subject to the requirements 
of proposed Item 1608.\443\
---------------------------------------------------------------------------

    \441\ See supra note 23.
    \442\ ``Foreign private issuer'' is defined in Securities Act 
Rule 405 and 17 CFR 240.3b-4(c). The term ``foreign private issuer'' 
means any foreign issuer other than a foreign government except for 
an issuer meeting the following conditions as of the last business 
day of its most recently completed second fiscal quarter: (1) More 
than 50% of the issuer's outstanding voting securities are directly 
or indirectly held of record by residents of the United States; and 
(2) Any of the following: (i) The majority of the executive officers 
or directors are United States citizens or residents; (ii) More than 
50% of the assets of the issuer are located in the United States; or 
(iii) The business of the issuer is administered principally in the 
United States.
    \443\ 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 17 CFR 229.1011(c) 
(``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.''
---------------------------------------------------------------------------

2. Comments: Item 1608
    A few commenters generally supported the proposed rule but 
suggested certain changes.\444\
---------------------------------------------------------------------------

    \444\ Letters from ABA, Vinson & Elkins.
---------------------------------------------------------------------------

    One of these commenters recommended the Commission codify and 
clarify that a SPAC filing a Schedule 14A or 14C in connection with a 
de-SPAC transaction (or seeking an extension of time to complete a de-
SPAC transaction) would neither need to file a Schedule TO nor comply 
with the tender offer rules.\445\ While expressing support for proposed 
Item 1608, the same commenter stated that a SPAC stockholder's ability 
to redeem its shares at its option does not result in the existence of 
a tender offer.\446\ The same commenter stated that SPACs that are FPIs 
and that elect to report generally on domestic forms and whose de-SPAC 
transaction disclosure document is nearly ``identical'' to a proxy or 
information statement filed by a domestic filer pursuant to Regulation 
14A or 14C should not have to file a Schedule TO.\447\ Finally, the 
commenter stated that such a SPAC's investors are confused when 
presented with a proxy statement and a tender offer document that 
proceed as parallel but different processes while not having any added 
protection.\448\
---------------------------------------------------------------------------

    \445\ Letter from ABA.
    \446\ Id.
    \447\ Id.
    \448\ Id.
---------------------------------------------------------------------------

    Another commenter suggested that proposed Item 1608 is too broad 
because it would apply to tender offers conducted by SPACs but not 
related to a de-SPAC transaction.\449\ The same commenter stated that 
the adoption of proposed Securities Act Rule 145a would effectively 
require the use of Form S-4 or F-4 for all de-SPAC transactions, thus 
rendering Item 1608 unnecessary.\450\
---------------------------------------------------------------------------

    \449\ Letter from Vinson & Elkins.
    \450\ Id.
---------------------------------------------------------------------------

3. Final Item 1608
    After considering the comments, we are adopting Item 1608 as 
proposed.
    We decline to revise the final item to clarify that a SPAC filing a 
Schedule 14A or 14C in connection with a de-SPAC transaction (or 
seeking an extension of time to complete a de-SPAC transaction) would 
neither need to file a Schedule TO nor comply with the tender offer 
rules, as recommended by a commenter.\451\ We do not believe the 
codification of the commenter's view is necessary because Item 1608, as 
adopted, is a more precise way to address an exception to the standard 
de-SPAC transaction structures that have been used historically. We 
also note that Item 1608 applies only if a SPAC files a Schedule TO for 
the redemption of securities offered to security holders (e.g., in 
connection with a de-SPAC transaction or an extension of the timeframe 
to complete a de-SPAC transaction). We have revised General Instruction 
K to Schedule TO to

[[Page 14202]]

separately address the requirements for a filing that relates to a 
redemption of securities offered to security holders other than in 
connection with a de-SPAC transaction (e.g., the redemption of 
securities in connection with an extension of the timeframe to complete 
a de-SPAC transaction).
---------------------------------------------------------------------------

    \451\ Letter from ABA. See supra note 445 and accompanying text.
---------------------------------------------------------------------------

    With respect to the comment that the redemption of a SPAC's shares 
at the option of a stockholder is not a tender offer,\452\ as noted 
above, the Commission has expressed the view that SPAC redemptions 
conducted pursuant to a SPAC's organizational documents generally have 
indicia of being a tender offer. However, as discussed above, 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. Item 1608 does not affect this staff position 
for those SPACs that file a Schedule 14A or 14C for their de-SPAC 
transactions or extensions.
---------------------------------------------------------------------------

    \452\ Letter from ABA. See supra note 446 and accompanying text.
---------------------------------------------------------------------------

    Regarding the comment that FPIs whose de-SPAC transaction 
disclosure document is ``identical'' to a proxy or information 
statement filed by a domestic filer pursuant to Regulation 14A or 14C 
should not have to file a Schedule TO,\453\ we note that an FPI is not 
required to comply with Regulations 14A or 14C and, thus, any filing 
the FPI considers to be a proxy or information statement would not be 
subject to compliance with those regulations and would not be subject 
to the liability provisions associated with filings required to comply 
with those regulations (although the filing would be subject to the 
liability provisions associated with the specific filing made).
---------------------------------------------------------------------------

    \453\ Letter from ABA. See supra note 447 and accompanying text.
---------------------------------------------------------------------------

    Finally, with respect to the same commenter's statement that 
investors in a SPAC that is an FPI and which delivers both a disclosure 
document similar to a proxy statement and a tender offer document will 
be confused without any additional protection,\454\ we believe the SPAC 
should be able to provide enough clarity and investor support regarding 
the purposes of each such document to surmount these concerns.
---------------------------------------------------------------------------

    \454\ Letter from ABA. See supra note 448 and accompanying text.
---------------------------------------------------------------------------

    We also received a suggestion to expressly state that Item 1608 is 
applicable only to tender offers conducted by SPACs related to a de-
SPAC transaction.\455\ We decline to revise Item 1608 as suggested 
because Item 1608 is intended to apply to Schedule TO filings by SPACs 
for any redemption of securities offered to security holders, which 
would include the redemption of securities offered in connection with 
an extension of the timeframe to complete a de-SPAC transaction.\456\
---------------------------------------------------------------------------

    \455\ Letter from Vinson & Elkins. See supra note 449 and 
accompanying text.
    \456\ If a SPAC files a Schedule TO for any redemption of 
securities offered to security holders, final Item 1608 requires a 
Schedule TO to 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)(2) of Schedule 14A (Sec.  240.14a-101), as 
applicable, in addition to the information otherwise required by 
Schedule TO. If the Schedule TO relates to an extension of the 
timeframe to complete a de-SPAC transaction and a target company has 
not been identified by the SPAC, we would not expect this 
information required by Item 1608 regarding a target private 
operating company to be known or disclosed.
---------------------------------------------------------------------------

    In response to a commenter's view that the adoption of proposed 
Rule 145a may result in the requirement to use Form S-4 or F-4 for all 
de-SPAC transactions, thus rendering Item 1608 unnecessary,\457\ we 
note that there are certain situations today,\458\ and there could be 
situations under future SPAC structures, in which Item 1608 would still 
be applicable and provide security holders with important disclosure to 
use in making their investment decision.
---------------------------------------------------------------------------

    \457\ Id.
    \458\ For example, the redemption of securities offered by a 
foreign private issuer or in connection with an extension of the 
timeframe to complete a de-SPAC transaction where a Schedule 14A or 
14C is not filed.
---------------------------------------------------------------------------

I. Structured Data Requirement

1. Proposed Item 1610
    The Commission proposed Item 1610 to require SPACs to tag all 
information disclosed pursuant to subpart 1600 of Regulation S-K in 
Inline XBRL in accordance with Rule 405 of Regulation S-T and the EDGAR 
Filer Manual.
2. Comments
    A number of commenters supported proposed Item 1610.\459\ One of 
those commenters said that tagging the quantitative and narrative 
disclosures would provide investors with searchable formats to access 
the information they would like to review, including potential 
conflicts of interests and potential risks.\460\ Another commenter said 
the provision of structured data will make subpart 1600 of Regulation 
S-K information more easily accessible for purposes of aggregation, 
comparison, filtering, and other analysis.\461\
---------------------------------------------------------------------------

    \459\ Letters from ABA; Crowe LLP (June 13, 2022) (``Crowe''); 
ICGN; PwC; Campbell Pryde, President and CEO, XBRL US (June 13, 
2022) (``XBRL US'').
    \460\ Letter from ICGN.
    \461\ Letter from PwC.
---------------------------------------------------------------------------

    Some commenters addressed whether the Commission should provide 
exemptions or different requirements for FPIs, SRCs, or emerging growth 
companies (``EGCs'').\462\ One commenter said there was not a 
compelling reason to provide for such exemptions or different 
requirements.\463\ Another commenter said that ``[u]ltimately 
requirements should be the same'' across issuers ``to ensure the 
availability of a complete dataset for investors,'' but that ``the 
Commission may wish to offer a phase-in period for smaller companies 
and [foreign private issuers] that have more limited resources.'' \464\
---------------------------------------------------------------------------

    \462\ Letters from ICGN, XBRL US. See Proposing Release, supra 
note 7, at 29476 (request for comment number 55) (requesting comment 
on structured data with respect to FPIs, SRCs, and EGCs).
    \463\ Letter from ICGN.
    \464\ Letter from XBRL US.
---------------------------------------------------------------------------

    One commenter indicated they believe there is no need for 
structured data tagging for SPAC IPOs because SPAC IPOs are 
considerably simpler and easier to understand for investors than 
traditional IPOs and the redemption rights make an investment in a SPAC 
IPO considerably less risky.\465\ Another commenter recommended that 
the Commission evaluate responses from the issuer community regarding 
the costs of tagging this information.\466\
---------------------------------------------------------------------------

    \465\ Letter from Vinson & Elkins.
    \466\ Letter from PwC.
---------------------------------------------------------------------------

    One commenter said the Commission should provide detailed technical 
guidance prior to the rule implementation, taking account of all 
possible use cases for reporting, and an EDGAR Beta testing environment 
with voluntary early filing allowed 12 to 15 months prior to the first 
mandatory compliance date.\467\
---------------------------------------------------------------------------

    \467\ Letter from XBRL US.
---------------------------------------------------------------------------

    One commenter suggested the Commission consider use of Legal Entity 
Identifiers (LEIs) within the registration process and enhanced 
disclosures of IPOs by SPACs and in de-SPAC transactions.\468\
---------------------------------------------------------------------------

    \468\ Letter from Stephan Wolf, CEO, Global Legal Entity 
Identifier Foundation (June 13, 2022) (``Global Legal Entity 
Identifier Foundation'') (``The LEI itself is a 20-digit, alpha-
numeric code based on the ISO 17442 standard developed by the 
International Organization for Standardization (ISO).'').
---------------------------------------------------------------------------

3. Final Item 1610 and Tagging Compliance Date
    After considering the comments received, we are adopting Item 1610 
as

[[Page 14203]]

proposed,\469\ but we are providing a one year phased-in compliance 
date for the tagging requirements.
---------------------------------------------------------------------------

    \469\ The tagging requirements we are adopting are implemented 
by inclusion of a cross-reference to Rule 405 of Regulation S-T in 
Item 1610 of Regulation S-K and by revising 17 CFR 232.405(b) to 
include the proposed SPAC-related disclosures. We are also adopting 
amendments that add a corresponding Instruction to Schedule TO.
---------------------------------------------------------------------------

    We agree with the commenter who said that tagging the quantitative 
and narrative disclosures would provide investors with searchable 
formats to access the information they would like to review, including 
potential conflicts of interests and potential risks.\470\ We also 
agree with the commenter who said that the provision of structured data 
will make subpart 1600 of Regulation S-K information more easily 
accessible for purposes of aggregation, comparison, filtering, and 
other analysis.\471\
---------------------------------------------------------------------------

    \470\ Letter from ICGN. See supra note 460 and accompanying 
text.
    \471\ Letter from PwC. See supra note 461 and accompanying text.
---------------------------------------------------------------------------

    We believe that the structured data requirements will enhance the 
usability of the SPAC disclosures. The requirements we are adopting 
include detail tagging of the quantitative disclosures and block text 
tagging of the narrative disclosures required under subpart 1600. These 
structured data requirements will make SPAC disclosures more readily 
available and easily accessible to investors and other market 
participants for aggregation, comparison, filtering, and other 
analysis.\472\
---------------------------------------------------------------------------

    \472\ These considerations are generally consistent with 
objectives of the recently enacted Financial Data Transparency Act 
of 2022, which directs the establishment by the Commission and other 
financial regulators of data standards for collections of 
information. Such data standards must meet specified criteria 
relating to openness and machine-readability and promote 
interoperability of financial regulatory data across members of the 
Financial Stability Oversight Council. See James M. Inhofe National 
Defense Authorization Act for Fiscal Year 2023, Public Law 117-263, 
tit. LVIII, 136 Stat. 2395, 3421-39 (2022).
---------------------------------------------------------------------------

    One commenter suggested that the Commission may wish to ``offer a 
phase-in period for smaller companies and [foreign private issuers] 
that have more limited resources.'' \473\ To address these concerns, we 
have determined to provide a one-year phase in for the tagging 
requirements. We believe the additional one-year period for tagging 
compliance will help lessen burdens associated with the tagging 
requirements under the final rules for all registrants.\474\
---------------------------------------------------------------------------

    \473\ Letter from XBRL US. See supra note 464 and accompanying 
text.
    \474\ Furthermore, SRCs and FPIs are subject to Inline XBRL 
requirements for other filings, which minimizes the burden reduction 
associated with any tagging phase-in for those entities. See infra 
note 477.
---------------------------------------------------------------------------

    We disagree with one commenter's view that there is no need for 
structured data tagging for SPAC IPOs because SPAC IPOs are 
considerably simpler and easier to understand for investors than 
traditional IPOs and the redemption rights make an investment in a SPAC 
IPO considerably less risky.\475\ On the contrary, we believe 
structured data is useful to investors in the SPAC IPO setting (as well 
as the de-SPAC transaction setting), particularly by enabling 
comparison and the extraction and analysis of information, as discussed 
above. In addition, as discussed above, special risks such as conflicts 
of interest and dilution in SPAC IPOs and de-SPAC transactions may be 
complex and enhancing investor ability to use, compare, and analyze the 
data will help investors assess such risks.
---------------------------------------------------------------------------

    \475\ Letter from Vinson & Elkins. See supra note 465 and 
accompanying text.
---------------------------------------------------------------------------

    We have not received any responses from the issuer community 
regarding the costs of the data tagging requirements, but we 
nonetheless do not believe the structured data requirements will unduly 
add to companies' burden in preparing their filings based on our 
extensive experience with existing tagging requirements. We believe 
such incremental costs are appropriate given the significant benefits 
to investors, as described above.
    As a result of the requirement to tag SPAC IPO disclosures, SPACs 
will incur tagging compliance costs at an earlier stage of their 
lifecycle, because SPACs do not have to tag IPO registration statements 
under current Commission rules.\476\ While the tagging requirements for 
SPAC disclosures will impose additional compliance costs on 
registrants, we expect such costs will be modest and largely the final 
rules will simply shift the timing of such costs because under the 
current rules such registrants are subject to data tagging requirements 
in their first post-IPO periodic report on Form 10-Q, 20-F, or 40-
F,\477\ as discussed in greater detail in section VIII (Economic 
Analysis) below.
---------------------------------------------------------------------------

    \476\ SPACs are currently 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. See 17 CFR 229.601(b)(101)(i)(A).
    \477\ See 17 CFR 229.601(b)(101).
---------------------------------------------------------------------------

    One commenter recommended that the Commission provide an EDGAR 
beta-testing environment with voluntary early filing allowed 12 to 15 
months prior to the first mandatory compliance date.\478\ In lieu of 
the suggested beta-testing environment, we have determined to provide a 
one year phased-in compliance date for the tagging requirements, as 
noted above. This approach will provide additional time for registrants 
to prepare for the new requirements. It will also provide sufficient 
time for the adoption of a final taxonomy that will take into 
consideration initial disclosures that will be provided in response to 
the final rules, which should help lessen the compliance burden for 
registrants and improve data quality for investors by reducing the need 
for extensive custom tagging. The commenter also said the Commission 
should provide detailed technical guidance prior to the rule 
implementation, ``taking account of all possible use cases for 
reporting'' to ensure consistency of reported data.\479\ Consistent 
with the Commission's common practice, a draft taxonomy will be made 
available for public comment, and the Commission will incorporate a 
final taxonomy into an updated version of the EDGAR system before the 
tagging requirements take effect.
---------------------------------------------------------------------------

    \478\ Letter from XBRL US. See supra note 467 and accompanying 
text.
    \479\ Id.
---------------------------------------------------------------------------

    One commenter suggested the Commission consider use of Legal Entity 
Identifiers (LEIs) within the registration process and enhanced 
disclosures of IPOs by SPACs and in de-SPAC transactions.\480\ The 
Commission is not adopting requirements regarding LEIs in this 
rulemaking but will take the comment under advisement.\481\
---------------------------------------------------------------------------

    \480\ Letter from Global Legal Entity Identifier Foundation. See 
supra note 468 and accompanying text.
    \481\ See supra note 472 (regarding the Financial Data 
Transparency Act of 2022).
---------------------------------------------------------------------------

III. Disclosures and Liability in De-SPAC Transactions

    In light of the reliance on de-SPAC transactions as a vehicle for 
private operating companies to access the U.S. public securities 
markets with greater relative frequency than in the past, the 
Commission proposed a number of new rules and amendments to existing 
rules to more closely align the treatment of private operating 
companies entering the public markets through de-SPAC transactions with 
that of companies conducting traditional IPOs. In connection with these 
proposals, the Commission expressed the view in the Proposing Release 
that a private operating company's method of becoming a public company 
should not negatively impact investor protection.\482\
---------------------------------------------------------------------------

    \482\ Proposing Release, supra note 7, at 29477.

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

[[Page 14204]]

A. Non-Financial Disclosures in De-SPAC Disclosure Documents

1. Proposed Rules
    The Commission proposed to require certain non-financial statement 
disclosures in connection with de-SPAC transactions. The Commission 
proposed 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 the target company pursuant to 
the following items in Regulation S-K would be required in the 
registration statement or schedule \483\ filed in connection with the 
de-SPAC transaction: (1) Sec. Sec.  229.101 (``Item 101'') (description 
of business); (2) 229.102 (``Item 102'') (description of property); (3) 
229.103 (``Item 103'') (legal proceedings); (4) 229.304 (``Item 304'') 
(changes in and disagreements with accountants on accounting and 
financial disclosure); (5) 229.403 (``Item 403'') (security ownership 
of certain beneficial owners and management, assuming the completion of 
the de-SPAC transaction and any related financing transaction); \484\ 
and (6) 229.701 (``Item 701'') (recent sales of unregistered 
securities).\485\ Where the private operating company is an FPI, the 
proposed amended registration forms included 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 provided by FPIs in IPOs.\486\
---------------------------------------------------------------------------

    \483\ See (a) proposed Item 14(f)(2) of Schedule 14A; (b) 
proposed General Instruction L.2. to Form S-4; and (c) proposed 
General Instruction I.2 to Form F-4. See also proposed Item 1608 of 
Regulation S-K (incorporating into Schedule TO applicable 
information required by Item 14(f)(2) of Schedule 14A, General 
Instruction L.2. to Form S-4, and General Instruction I.2 to Form F-
4). Proposed Item 14(f)(2)(vii) of Schedule 14A would have required 
additional disclosure for any directors appointed without action by 
the security holders of the SPAC.
    \484\ 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.
    \485\ The proposed changes to Forms S-4 and F-4 regarding 
disclosure pursuant to Item 701 of Regulation S-K were proposed to 
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.
    \486\ Proposed General Instruction L.2 to Form S-4; proposed 
General Instruction I.2 to Form F-4.
---------------------------------------------------------------------------

    Also, the Commission proposed amendments to Forms S-1 and F-1 to 
provide that where these forms are used to register securities in 
connection with a de-SPAC transaction, these forms must include the 
information required in Forms S-4 (in the case of Form S-1) and F-4 (in 
the case of Form F-1).\487\ Finally, the Commission proposed General 
Instruction K to Schedule TO and new Item 14(f)(1) to Schedule 14A to 
incorporate into each of those forms, if the filing relates to a de-
SPAC transaction, the disclosure provisions of Items 1603 through 1609 
of Regulation S-K, as well as the structured data provision of Item 
1610 of Regulation S-K.
---------------------------------------------------------------------------

    \487\ See proposed General Instruction VIII to Form S-1 (``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.''); proposed General Instruction VII to 
Form F-1 (``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.'').
---------------------------------------------------------------------------

2. Comments
    Commenters generally supported the Commission's proposal to align 
non-financial disclosures for de-SPAC transactions with the 
requirements in a traditional IPO.\488\ A few commenters suggested the 
proposed disclosure requirements are consistent with current 
practice.\489\ These commenters said the proposed disclosure 
requirements would otherwise be required in a Form 8-K filing following 
the closing of the de-SPAC transaction.\490\ One commenter said the 
proposed requirements reflect ``current best practice'' and would not 
create a ``significant burden'' for targets.\491\
---------------------------------------------------------------------------

    \488\ Letters from ABA, CalPERS, Davis Polk, Ernst & Young, 
ICGN, NASAA, PwC.
    \489\ See letters from ABA, PwC.
    \490\ Letters from ABA, PwC.
    \491\ Letter from ABA.
---------------------------------------------------------------------------

    One commenter said that the proposed requirements, other than Item 
701, would require information ``already disclosed with respect to 
target companies.'' \492\ In the commenter's view, the proposed 
disclosures, including Item 701, ``would not provide meaningful 
information or benefits to investors.'' \493\
---------------------------------------------------------------------------

    \492\ Letter from Vinson & Elkins. This commenter also said, 
``We do not believe Item 701 disclosure with respect to the target 
company, as opposed to the registrant, would be consistent with IPO 
disclosure or provide meaningful information to investors.''
    \493\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Regarding the proposed amendment to Form S-1 to require the 
information required by Form S-4, one commenter recommended ``the final 
rule include explicit language that such Form S-1 should include all 
information for the private operating company that would have been 
required in a Form S-4.'' \494\
---------------------------------------------------------------------------

    \494\ Letter from Grant Thornton LLP (June 13, 2022) (``Grant 
Thornton'').
---------------------------------------------------------------------------

3. Final Rules
    Except for the modifications we discuss below, we are adopting as 
proposed: (a) General Instruction L.2 to Form S-4, (b) General 
Instruction I.2 to Form F-4,\495\ (c) Item 14(f)(2) of Schedule 14A, 
(d) General Instruction K to Schedule TO, (e) General Instruction VIII 
to Form S-1, and (f) General Instruction VII to Form F-1.\496\ We 
believe there will be two main benefits to investors from these 
requirements. First, the inclusion of these disclosures in a Form S-4 
or Form F-4 registration statement will mean that 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 IPO.
---------------------------------------------------------------------------

    \495\ The regulatory text section of the Proposing Release 
inadvertently omitted Item 304 of Regulation S-K from proposed 
General Instruction I.2 to Form F-4. We have corrected that 
oversight in this adopting release. Additionally, the cross-
references to the applicable Items from Form 20-F in the case where 
the target is a foreign private issuer have been corrected from 
those proposed to align with the requirements applicable to domestic 
targets, that is Items 4, 6.E, 7.A, 8.A.7, and 16F of Form 20-F. In 
addition, in Form F-4, we have added the term ``applicable'' to 
modify ``disclosure requirements'' in the following sentence in 
General Instruction I in order to be consistent with similar 
language in Form S-4: ``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.'' We made similar changes to add the term 
``applicable'' to Schedule 14A and Schedule TO for the same reason.
    \496\ Under the final rules, with respect to the requirements to 
provide Item 403 of Regulation S-K (security ownership of certain 
beneficial owners and management) information assuming the 
completion of the de-SPAC transaction and any related financing 
transaction, the Item 403 information that must be provided is with 
respect to certain beneficial owners, directors, named executive 
officers, and directors and executive officers as a group (i.e., the 
persons identified in Item 403) of the post-de-SPAC transaction 
combined company and not for the target company as a separate 
entity.
---------------------------------------------------------------------------

    Second, as a result of these new requirements, this information 
will be available to investors prior to the inception of trading of the 
post-business combination company's securities on a national securities 
exchange, rather than the earliest instance of such requirement being 
the requirement to set this information out in a Form 8-K due within 
four business days of the completion of the de-SPAC

[[Page 14205]]

transaction.\497\ As a result, shareholders will be able to consider 
this information when they make voting, investment, or redemption 
decisions in connection with a de-SPAC transaction.
---------------------------------------------------------------------------

    \497\ We note registrants should already be preparing this 
information in anticipation of making a Form 8-K filing (or a Form 
20-F for an FPI) in connection with a de-SPAC transaction. See supra 
note 489 (letters from ABA, PwC).
---------------------------------------------------------------------------

    One commenter suggested that disclosure under the proposed 
requirements is already provided with respect to target companies and 
would not provide meaningful benefits to investors.\498\ We disagree 
with this view that the requirements would not provide meaningful 
benefits to investors. Also, we believe compliance with these 
requirements will be minimally burdensome where disclosure of this 
information is already market practice and codifying this practice will 
create a uniform, transparent, minimum floor standard of disclosure 
across transactions, even if market practice were to change in the 
future.
---------------------------------------------------------------------------

    \498\ Letter from Vinson & Elkins. See supra notes 492 and 493 
and accompanying text.
---------------------------------------------------------------------------

    In response to the comment recommending that Form S-1 should 
include explicit language that Form S-1 should include all information 
for the private operating company that would have been required in a 
Form S-4,\499\ we have revised General Instruction VIII of Form S-1 to 
clarify that, if the securities to be registered on Form S-1 will be 
issued in a de-SPAC transaction, the requirements of Form S-4 apply to 
Form S-1, including, but not limited to, Item 17 and General 
Instruction L. Similarly, in the final rules, we have revised General 
Instruction VII of Form F-1 to clarify that, if the securities to be 
registered on Form F-1 will be issued in a de-SPAC transaction, the 
requirements of Form F-4 apply to Form F-1, including, but not limited 
to, Item 17 and General Instruction I.
---------------------------------------------------------------------------

    \499\ Letter from Grant Thornton. See supra note 494 and 
accompanying text.
---------------------------------------------------------------------------

    With respect to instructions in both General Instruction L.2 to 
Form S-4 and General Instruction I.2 to Form F-4 that apply with 
respect to the target company ``[i]f the target company is a foreign 
private issuer,'' we made several corrections from the proposal. First, 
we deleted the requirement to provide target company information 
pursuant to Item 3.C of Form 20-F (reasons for the offer and use of 
proceeds), because there is not a similar analog in the list of 
disclosure items to be provided with respect to the target company when 
the target company is not an FPI in the same instructions. Second, we 
deleted the requirement to provide target company information pursuant 
to Item 9.E of Form 20-F (dilution) because dilution information will 
already be required through the application of Item 1604 in the forms 
in connection with a de-SPAC transaction.\500\ Third, we added a 
requirement to provide target company information pursuant to Item 16F 
of Form 20-F (change in registrant's certifying accountant), because 
the intent of the proposal was that there should be an analog for FPI 
target companies to Item 304 of Regulation S-K (changes in and 
disagreements with accountants on accounting and financial disclosure) 
in the list of disclosure items to be provided with respect to the 
target company when the target company is not an FPI in the same 
instructions and the reference to Item 16F of Form 20-F was 
inadvertently omitted from the proposal.
---------------------------------------------------------------------------

    \500\ We made a similar change to Form F-1. We added new Item 
9.E.4 to Form F-1 that provides: Where the registrant is a special 
purpose acquisition company (as defined in Item 1601 of Regulation 
S-K), in lieu of providing the information required under Item 9.E.1 
and Item 9.E.2, provide the disclosure required pursuant to Item 
1602(a)(4) and (c) of Regulation S-K in an offering other than a de-
SPAC transaction (as defined in Item 1601 of Regulation S-K) and 
provide the disclosure required under Item 1604(c) of Regulation S-K 
in connection with a de-SPAC transaction.
---------------------------------------------------------------------------

    In the final rules, we have also revised Item 14(f)(2) of Schedule 
14A to remove the additional disclosure required for any directors 
appointed without action by the security holders of the SPAC to align 
the disclosure required under Item 14(f)(2) of Schedule 14A with that 
required under General Instruction L.2 to Form S-4 and General 
Instruction I.2 to Form F-4.

B. Minimum Dissemination Period

1. Proposed Rules
    Historically, in business combination transactions, there has been 
no requirement under Commission rules to provide security holders with 
a minimum amount of time to consider proxy statement or other 
disclosures.\501\ In view of the unique circumstances surrounding de-
SPAC transactions, the Commission proposed to amend Exchange Act Rule 
14a-6 and Rule 14c-2, as well as to add instructions to Forms S-4 
(General Instruction L.3) and F-4 (General Instruction I.3), to require 
that prospectuses and proxy and information statements filed in 
connection with de-SPAC transactions be distributed to security holders 
at least 20 calendar days in advance of a security holder 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.\502\
---------------------------------------------------------------------------

    \501\ In Form S-4 and Form F-4, however, there is a requirement 
to send a prospectus to security holders a minimum of 20 business 
days prior to a security holder meeting, or, if no meeting is held, 
other action, 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.
    \502\ The 20-calendar day period is the same length of time as 
the 20-day advance disclosure period in 17 CFR 240.13e-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)].
---------------------------------------------------------------------------

2. Comments
    A number of commenters generally supported the proposed minimum 
dissemination periods for disclosure documents in de-SPAC 
transactions.\503\
---------------------------------------------------------------------------

    \503\ Letters from ABA, Better Markets (supporting the 20-day 
dissemination period, stating that ``[t]o make meaningful decisions, 
investors in a SPAC need the information regarding the proposed 
transaction in a timely manner'' and that ``[i]n the absence of a 
federally mandated minimum time period to disseminate information 
regarding the transaction, the potential for abuse is clear''); 
CalPERS; CFA Institute (``CFA Institute supports as much lead time 
as possible for dissemination of disclosure documents regarding the 
de-SPAC transaction and agrees with the proposed minimum of twenty 
(20) calendar days in advance merger approval vote''); Davis Polk 
(``the minimum dissemination period proposed in the amendments to 
Exchange Act rules 14a-6 and [14c-2] is a welcome modification to 
improve public confidence by providing a minimum period to review 
the disclosures provided in connection with a de-SPAC 
transaction.''); ICGN (``For investors, after a SPAC has searched 
for a potential business candidate for up to two years, time may be 
running out. Investors should be able to receive proxy and 
prospectus statements within a reasonable time frame that provides 
them with the ability to assess the de-SPAC business transaction and 
vote accordingly.''); NASAA.
---------------------------------------------------------------------------

    One commenter on the proposal supported ``as much lead time as 
possible for dissemination'' and suggested the Commission ``consider 
whether federal securities laws should override the laws of the 
jurisdiction of incorporation or organization if such jurisdictions 
allow less than 20 calendar days advance dissemination for de-SPAC 
merger/proxy vote documentation where such de-SPAC will be trading on 
SEC regulated markets.'' \504\
---------------------------------------------------------------------------

    \504\ Letter from CFA Institute.
---------------------------------------------------------------------------

    Another commenter said that the period of 20 calendar days ``is 
consistent with current market practice

[[Page 14206]]

for the solicitation period in de-SPAC transactions.'' \505\ The 
commenter said that, if the safe harbor from the Investment Company Act 
is adopted as proposed, the Commission should ``consider an exception 
to the minimum dissemination period in the event necessary to stay 
within the safe harbor.'' \506\
---------------------------------------------------------------------------

    \505\ Letter from Davis Polk.
    \506\ Letter from Davis Polk.
---------------------------------------------------------------------------

    Another commenter said, ``The SEC's proposed solution does not 
align with the treatment of IPOs. An IPO prospectus is substantially 
final at launch of the IPO roadshow; however, since there is no 
required length for a roadshow, investors in an IPO may only have 
access to a substantially final version of the prospectus for a few 
days prior to making their investment decision.'' \507\ The commenter 
said that stockholder meeting notices required to be provided certain 
numbers of days prior to a stockholder meeting are typically included 
in proxy statements and stated that, ``Under the current framework, the 
final registration statement or proxy statement in a de-SPAC 
transaction is available for at least 10 days and a preliminary version 
is typically publicly available for up to several months longer than in 
an IPO.'' This commenter also stated, ``The SEC justifies this 
differential treatment by citing 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, but it fails to 
appreciate that many of these same considerations can be present in IPO 
transactions and that this proposed rule is decidedly contrary to the 
SEC's stated intention of aligning de-SPAC transactions with IPOs.''
---------------------------------------------------------------------------

    \507\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Another commenter appeared to suggest that the minimum 
dissemination period for purposes of proposed General Instruction L.3 
to Form S-4 should be the same as the IPO ``48 hour'' rule of 17 CFR 
240.15c2-8 (``Rule 15c2-8'').\508\
---------------------------------------------------------------------------

    \508\ Letter from Loeb & Loeb.
---------------------------------------------------------------------------

3. Final Rules
    We are adopting the amendments to Rules 14a-6 and 14c-2 and Forms 
S-4 (General Instruction L.3) and F-4 (General Instruction I.3) as 
proposed, except for clarifying changes discussed below. In addition to 
the need for enhanced disclosure in de-SPAC transactions, we continue 
to believe that it is important to ensure that SPAC security holders 
have adequate time to analyze the information presented in these 
transactions.
    Although the laws of a SPAC's jurisdiction of incorporation or 
organization may require the SPAC to send a notice to its security 
holders at least a specified number of days before the security holder 
meeting to approve a proposed business combination transaction, the 
information in such notices is often limited.\509\ These laws do not 
generally require a minimum period of time for dissemination of other 
information about the transaction (including any proxy statements or 
other materials required by the Federal securities laws) to security 
holders.\510\ Exchange listing standards also do not impose such 
requirements.\511\ Without a minimum period for dissemination of 
prospectuses, proxy statements, and other materials before a security 
holder meeting (or action by consent), SPACs and SPAC sponsors may 
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.
---------------------------------------------------------------------------

    \509\ See, e.g., Del. Code Ann. tit. 8, sec. 222; Del. Code Ann. 
tit. 8, sec. 251(c) (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]'').
    \510\ See R. Franklin Balotti, Jesse A. Finkelstein, John Mark 
Zeberkiewicz & Blake Rohrbacher, 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.'').
    \511\ See, e.g., NYSE Listed Company Manual Section 401.03 which 
``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'' and 402.05 which ``recommends the [proxy soliciting] 
material be provided 30 days prior to the meeting date in order to 
allow the firms ample time to mail the material to beneficial owners 
and receive replies from them.''
---------------------------------------------------------------------------

    We recognize that SPACs are often required under their governing 
instruments and applicable exchange listing rules to complete de-SPAC 
transactions within a certain time frame. Nevertheless, given the 
complexity of the structure of SPACs, the conflicts of interest that 
are often present in this structure and the effects of dilution on non-
redeeming shareholders, the 20-calendar day minimum dissemination 
periods we are adopting will provide an important investor protection 
by establishing a minimum time period for security holders to review 
prospectuses and proxy and information statements in de-SPAC 
transactions.\512\
---------------------------------------------------------------------------

    \512\ The requirements to ``distribute'' the various security 
holder materials under the minimum dissemination time periods in the 
rules we are adopting are satisfied when the materials are sent and 
not when they are received by the security holder. Thus, where the 
registrant is mailing a full set of hard copy materials to security 
holders, the requirement would be met when the materials are placed 
in the mail.
---------------------------------------------------------------------------

    In order to account for the prospect that the laws of a SPAC's 
jurisdiction of incorporation or organization may have a maximum 
advance time period provision applicable to the dissemination of 
materials to security holders, the rules we are adopting include 
provisions 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. One commenter suggested that the 
Commission should override the laws of the jurisdiction of 
incorporation or organization of the SPAC where such jurisdictions 
provide a maximum period for dissemination of less than 20 days.\513\ 
We are not adopting such suggestion because we believe the instances 
where there is a maximum period of less than 20 days will be 
limited.\514\
---------------------------------------------------------------------------

    \513\ Letter from CFA Institute. See supra note 117 and 
accompanying text.
    \514\ A review, in June 2023, by the Commission staff of the 
corporation laws of each of the 50 U.S. States found there are 
currently no U.S. States with a maximum period of notice for a 
stockholder meeting that is less than 20 days. We acknowledge that 
there remains the possibility a U.S. State could change its law to 
provide for a maximum period of notice less than 20 days or foreign 
law could contain such a provision.
---------------------------------------------------------------------------

    Another commenter said that the Commission should consider an 
exception to the minimum dissemination period where necessary to stay 
within the Investment Company Act safe harbor.\515\ As discussed below 
in section VI, we are not adopting the proposed Investment Company Act 
safe harbor.
---------------------------------------------------------------------------

    \515\ Letter from Davis Polk. See supra note 506 and 
accompanying text.
---------------------------------------------------------------------------

    One commenter suggested that the proposed minimum dissemination 
period is contrary to the Commission's stated purpose of aligning de-
SPAC transactions with IPOs because investors in IPOs typically have 
only short periods of time to review prospectuses.\516\ While we 
acknowledge that, under the final rules, investors may

[[Page 14207]]

have more time to review prospectuses in a de-SPAC transaction than in 
an IPO, we believe this is appropriate because in the Commission 
staff's experience, due to the hybrid nature of SPAC transactions, 
registration statements in de-SPAC transactions in some cases are 
substantially lengthier than both the earlier IPO registration 
statement for the specific SPAC (that is involved in the de-SPAC 
transaction) and registration statements for IPOs of traditional 
operating companies, as the registration statements contain both IPO-
like information about the target company and M&A-like information 
about the de-SPAC (and other related) transactions. Further, as noted 
by a different commenter \517\ and as observed by Commission staff, 
current market practice appears to be that many SPACs deliver these 
disclosures to investors earlier than 20 calendar days prior to the 
meeting date, meaning the final rules we are adopting should impose 
minimal burdens in such instances and would provide a uniform and 
transparent minimum floor standard for the dissemination of such 
disclosure should market practices change.
---------------------------------------------------------------------------

    \516\ Letter from Vinson & Elkins. See supra note 507 and 
accompanying text.
    \517\ Letter from Davis Polk.
---------------------------------------------------------------------------

    One commenter also said that a preliminary version of the final 
registration statement may be available for months prior to the 
security holder meeting date related to the de-SPAC transaction.\518\ 
We do not believe this fact provides a basis for not adopting the 
proposed rules regarding minimum dissemination periods. These 
preliminary filings may be amended prior to their becoming effective 
and, in the case of a combined registration and proxy statement that 
has not yet become effective, this disclosure would not yet have been 
delivered to security holders.
---------------------------------------------------------------------------

    \518\ Letter from Vinson & Elkins. See supra note 507 and 
accompanying text.
---------------------------------------------------------------------------

    To the extent one commenter appeared to suggest that the minimum 
dissemination period should be the same as the IPO ``48 hour'' rule of 
Exchange Act Rule 15c2-8,\519\ we do not believe a 48-hour period would 
provide investors sufficient time to review the disclosure, 
particularly given the complex hybrid nature of de-SPAC transactions. 
Moreover, providing only 48 hours before the shareholder meeting will 
not provide enough time for certain shareholders' votes to be 
considered as a practical matter, given that many shares are held 
through securities intermediaries such as broker-dealers and such 
intermediaries often require voting instruction forms to be submitted 
to them at least 48 hours prior to the shareholder meeting.\520\
---------------------------------------------------------------------------

    \519\ Letter from Loeb & Loeb. See supra note 508 and 
accompanying text.
    \520\ As discussed in sections III.C and IV.A, the Commission is 
adopting Rule 145a and amendments to registration statement forms 
that are related to certain co-registration obligations. As a 
result, in connection with de-SPAC transactions, Rule 15c2-8 may 
apply and require the delivery of the preliminary prospectus to any 
person who is expected to receive a confirmation of sale pursuant to 
the terms of that rule, because the target company is typically not 
such a reporting company before the transaction. We will continue to 
consider the effect of Rule 15c2-8 on de-SPAC transactions. At the 
present time, however, we are not making any changes to Rule 15c2-8.
---------------------------------------------------------------------------

    We are making minor changes in the final rules compared to the 
proposals for purposes of clarity and to make the registration forms 
congruent with the amendments to Rules 14a-6 and 14c-2 that we are 
adopting. The final rules provide that each of Rules 14a-6 and 14c-2 
and Forms S-4 and F-4 will contain the language ``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 to be held or 
action is to be taken in connection with the de-SPAC transaction.'' 
Where the proposed amendments to Forms S-4 and F-4 referred to the 
``date on which action is to be taken,'' these revisions eliminate any 
potential for misinterpretation that the proposed language only 
referred to action by consent and not at a meeting of security holders. 
In addition, the terms ``to be held'' and ``to be taken'' are intended 
to clarify these rules since these events are in the future when viewed 
from the point in time at which the security holder materials are 
distributed.

C. Private Operating Company as Co-Registrant

1. Proposed Rules
    Under section 6(a) of the Securities Act, each ``issuer'' \521\ 
must sign a Securities Act registration statement.\522\ In the 
Proposing Release, the Commission stated that a de-SPAC transaction 
marks the introduction of a 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.\523\ The Commission stated that, 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.\524\
---------------------------------------------------------------------------

    \521\ The Securities Act broadly defines the term ``issuer'' to 
include every person who issues or proposes to issue any securities. 
See section 2(a)(4) of the Securities Act [15 U.S.C. 77b].
    \522\ 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.
    \523\ Proposing Release, supra note 7, at 29479.
    \524\ Proposing Release, supra note 7, at 29479.
---------------------------------------------------------------------------

    Given that the target company therefore is, in substance, an 
``issuer'' of securities in a de-SPAC transaction regardless of 
transaction structure,\525\ the Commission proposed to amend 
Instruction 1 to the signatures section of both Form S-4 and Form F-4 
to require that, when the SPAC would be the issuer filing the 
registration statement for a de-SPAC transaction, the term 
``registrant'' would mean not only the SPAC but also the target 
company.\526\ The Commission also proposed to amend the general 
instructions to Forms S-4 and F-4 to provide that, if the securities to 
be registered on the form will be issued by a SPAC in a de-SPAC 
transaction, the term ``registrant'' for purposes of the disclosure 
requirements of the form means the SPAC.\527\
---------------------------------------------------------------------------

    \525\ See section 2(a)(4) of the Securities Act.
    \526\ See Proposed Instruction 1 to the Signatures section of 
Form S-4 and Form F-4. Securities Act registration statement forms 
use the term ``registrant'' throughout rather than the term 
``issuer.'' See, e.g., Form S-4. A ``registrant'' is a type of 
``issuer.'' Rule 405 defines the term ``registrant'' as ``the issuer 
of the securities for which the registration statement is filed.'' 
For the purposes of this release, we are using the terms ``co-
registrant'' and ``co-registration'' to describe the situation where 
the target company must be included as a registrant on a 
registration statement for a de-SPAC transaction given that the 
target company is an ``issuer'' of securities in a de-SPAC 
transaction regardless of transaction structure. Moreover, 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.
    \527\ Proposed General Instruction L.1 to Form S-4; proposed 
General Instruction I.1 to Form F-4.
---------------------------------------------------------------------------

2. Comments
    A number of commenters generally supported the proposal.\528\ These 
commenters indicated that the co-registration proposal would better 
align liability and disclosure in de-SPAC transactions with IPOs. One 
stated that ``the proposed changes that would treat a target operating 
company as a co-

[[Page 14208]]

registrant at the time a Form S-4 or F-4 is filed would contribute to 
the Commission achieving its objective to better align de-SPAC 
transactions with traditional IPOs and afford investors with consistent 
protections.'' \529\ Another stated that, ``By making target companies 
co-registrants, the Proposed Rules ensure that target operating 
companies and their directors and officers have strong incentives under 
section 11 to deter disclosure errors and other misconduct, even in 
conventionally structured de-SPACs.'' \530\ Yet another stated, ``We 
believe that treating both the SPAC and the target as an issuer under 
Section 6(a) of the Securities Act would help to align investor 
protections with those of a traditional IPO.'' \531\
---------------------------------------------------------------------------

    \528\ Letters from Andrew Tuch; Americans for Financial Reform 
Education Fund (June 13, 2022) (``Americans for Financial Reform 
Education Fund''); Better Markets; CalPERS; CFA Institute; CII; 
Senator Elizabeth Warren; ICGN; KPMG LLP (June 13, 2022) (``KPMG''); 
Loeb & Loeb; NASAA; Paul Swegle.
    \529\ Letter from KPMG.
    \530\ Letter from Andrew Tuch.
    \531\ Letter from CII.
---------------------------------------------------------------------------

    Several of these commenters also indicated that the rule proposal 
would benefit investors by increasing the quality and reliability of 
the disclosure provided in de-SPAC transaction registration statements. 
One argued that the disclosures provided in de-SPAC registration 
statements should be ``enhanced'' due to the fact that ``both parties 
to the de-SPAC transaction [would be] liable for material misstatements 
and omissions to investors and shareholders,'' \532\ while another 
stated ``the proposed co-registrant requirements, and attendant 
liabilities for misstatements or omissions, would ensure that target 
company directors, boards and managements make accurate representations 
regarding the status of the pre-merger entity.'' \533\
---------------------------------------------------------------------------

    \532\ Letter from Better Markets.
    \533\ Letter from NASAA.
---------------------------------------------------------------------------

    Other commenters generally opposed or had concerns regarding the 
proposal,\534\ generally characterizing the proposal as ``not 
necessary'' \535\ or ``inappropriate.'' \536\ Several commenters stated 
that the rule proposal would not benefit investors or that the benefit 
would be uncertain.\537\ A number of commenters indicated that there 
are already strong incentives under the existing framework to ensure 
that disclosures in registration statements for de-SPAC transactions 
are accurate and complete, pointing to the existing liability 
frameworks that they state apply to de-SPAC transactions, such as 
sections 11 and 17(a) of the Securities Act, sections 10(b) and 14(a) 
of the Exchange Act, and 17 CFR 240.10b-5 (``Rule 10b-5''), and the 
Commission's ability to bring enforcement actions.\538\ A few of these 
commenters suggested it is unnecessary to impose additional liability 
because target company officers and directors, by virtue of their roles 
in the combined company, will effectively ``own'' any Exchange Act 
liabilities related to the disclosure in the de-SPAC transaction 
registration statement inherited by the combined company.\539\
---------------------------------------------------------------------------

    \534\ Letters from ABA, Davis Polk, Freshfields, Job Creators 
Network, NYC Bar, Skadden, Vinson & Elkins.
    \535\ Letter from Davis Polk.
    \536\ Letter from ABA.
    \537\ Letters from ABA (``It is unclear if the Co-Registrant 
Amendment would meaningfully enhance disclosures and protections for 
investors in practice''), Davis Polk (``we do not expect that the 
disclosure practice will be improved by such amendments''), Job 
Creators Network.
    \538\ Letters from ABA (stating that ``the Target and its 
affiliates--while not signatories of the Merger Registration 
Statement--may nonetheless still be subject to liability for 
disclosures in the Merger Registration Statement under Rule 10b-5 of 
the Exchange Act and potential enforcement actions by the Commission 
under Section 17(a) of the Securities Act and Section 10(b) of the 
Exchange Act, and under the proxy rules as participants in the proxy 
solicitation by the SPAC.''), Davis Polk (``the private operating 
target company and its affiliates are already subject to enforcement 
actions by the Commission irrespective of these amendments . . . 
.''), Kirkland & Ellis (noting that ``alternative statutory 
liability schemes cover various aspects of the de-SPAC transaction, 
including Section 11 where appropriate.''), NYC Bar, Skadden, Vinson 
& Elkins, Winston & Strawn LLP (June 13, 2022) (``Winston & 
Strawn'') (``In connection with the stockholder vote to approve the 
business combination and the repurchase of shares from redeeming 
SPAC stockholders, a SPAC already has liability under Section 14(a) 
of the Exchange Act and the antifraud provisions of Rule 10b-5.'').
    \539\ Letters from ABA (noting that under current law ``the 
Target's directors and officers will `own' the disclosures going 
forward . . . so there is already a strong incentive for the 
Target's directors and officers to ensure the accuracy and 
completeness of the initial Merger Registration Statement 
disclosures''), NYC Bar (``it is unnecessary to impose additional 
liability on the Target's directors and management in connection 
with the registration statement because those parties, by virtue of 
inheriting the disclosures of the registration statement and the 
ongoing disclosure obligations of the combined public company, will 
have Exchange Act liability going forward and with respect to 
historical disclosures as a result of the business combination.'').
---------------------------------------------------------------------------

    Several commenters suggested the co-registrant proposal would 
create a disparity compared to traditional M&A business combination 
transactions where a target is not a co-registrant.\540\ In contrast, 
another commenter stated that de-SPAC transactions involve ``clearly 
different facts and circumstances than a non-SPAC merger because the 
SPAC board is not making a decision about the benefits of changing its 
operating business model via merger but rather is offering its 
shareholders the alternative of investing in the surviving company if 
they prefer that to $10 in cash.'' \541\
---------------------------------------------------------------------------

    \540\ Letters from ABA (``Inasmuch as a De-SPAC Transaction is 
fundamentally an M&A transaction, and no different than business 
combinations in other contexts, the Commission has never required 
targets in other business combinations in these circumstances to be 
added as co-registrants of a merger registration statement.''), CFA 
Institute (``As to the need to amend the merger registration 
statement forms and schedules filed in connection with de-SPAC 
mergers involving a private operating company target, but not other 
mergers, creates regulatory uncertainty and confusion.''), Skadden 
(``Moreover, the proposed co-registrant changes may occasion 
inconsistent treatment of de-SPAC transactions compared to other 
business combination transactions that are substantively similar and 
where the Commission's concerns about the adequacy of target company 
disclosure also could exist.''). See also letter from Nicholas 
Pappas, King & Wood Mallesons (June 13, 2022) (``King & Wood 
Mallesons'') (``An example of the species of transaction in respect 
of which the Proposed Rules require qualification is where a seller 
is proposing to sell a subsidiary/target company. . . . At the time 
of running the sale process there is generally no intention on the 
part of the seller to IPO the target company.'').
    \541\ Letter from Bullet Point Network.
---------------------------------------------------------------------------

    Other commenters suggested the co-registration proposal is 
inconsistent with existing definitions of registrant and issuer 
because, they asserted, the target in a de-SPAC transaction is not 
issuing or proposing to issue any securities pursuant to the de-SPAC 
registration statement.\542\
---------------------------------------------------------------------------

    \542\ Letters from ABA, Freshfields. See also definitions of 
``issuer'' and ``registrant,'' supra notes 521 and 526.
---------------------------------------------------------------------------

    One commenter opposed the co-registration proposal and expressed 
the view that: ``[i]n most de-SPAC transactions the shares being 
registered on the SPAC's registration statement are being issued only 
to the target's shareholders and are not being issued or sold by the 
target company. Adding the target company as a co-registrant means 
that, in most cases, the target company will have potential Section 11 
liability with respect to its own shareholders, but this is not logical 
or intuitive and is not consistent with the structure of a traditional 
IPO. In a traditional IPO, a company's existing shareholders at the 
time of the IPO do not receive registered shares and would not have 
potential Section 11 claims against the company due to the disclosures 
in the IPO registration statement.'' \543\
---------------------------------------------------------------------------

    \543\ Letter from Freshfields.
---------------------------------------------------------------------------

    Another commenter suggested the co-registration proposal is 
inconsistent with 17 CFR 230.140 (``Rule 140'').\544\ The commenter 
said the purpose of Rule 140--to ``ensure[ ] that the requisite 
information about the underlying issuer is adequately disclosed so new 
investors are fully informed of the attendant risks and returns 
relating to a potential investment''--is ``not a concern in de-SPAC 
transactions,'' because ``full Form 10-type information'' is already 
provided under current rules about the

[[Page 14209]]

SPAC and the target company.\545\ This commenter also said that in a 
de-SPAC transaction ``no new proceeds are being received by the 
Combined Company,'' which is a ``notable difference'' from Rule 
140.\546\
---------------------------------------------------------------------------

    \544\ Letter from ABA.
    \545\ Id.
    \546\ Id.
---------------------------------------------------------------------------

    Other commenters on the co-registration proposal requested certain 
clarifications. One commenter supported the co-registration requirement 
but suggested the Commission clarify whether ``liability correctly or 
mistakenly extends to anyone other than unaffiliated, non-redeeming 
SPAC shareholder[s].'' \547\ A different commenter asked the Commission 
to clarify ``which entities would be considered co-registrants in these 
types of transactions and therefore subject to the applicable 
requirements under the securities laws.'' \548\
---------------------------------------------------------------------------

    \547\ Letter from CFA Institute (``For example, could such 
liability extend to various SPAC `insiders' who may claim they are 
unaffiliated and do not redeem, even though they have conducted 
detailed due diligence and have negotiated special deal terms with 
the SPAC such as anchor and PIPE investors. Moreover, would this 
provision extend the target company liability to its own, private 
company shareowners.'').
    \548\ Letter from KPMG (specifically noting that ``SPACs may 
acquire more than one operating company as part of a de-SPAC 
transaction'').
---------------------------------------------------------------------------

    Several commenters addressed issues related to the scope of section 
11 liability that may stem from the co-registration proposal. One 
commenter suggested that, as drafted, the proposal would make the 
target company a signer but not a co-registrant.\549\ Specifically, 
this commenter said that the proposed change to Instruction 1 to the 
Signatures section of the forms purports to make the target company a 
registrant ``for purposes of this instruction'' but that ``the change 
would solely require that the target company, along with its specified 
officers and directors, sign the registration statement,'' citing for 
purposes of comparison ``existing Instruction 3 to the Signatures 
section of the forms, which the commenter said is not limited solely to 
the Signatures section.'' \550\ The commenter opposed the proposed co-
registration requirements and said that, ``if the regulatory goal is 
exposing the target company and its officers and directors, as 
signatories, to Section 11 liability for material misstatements or 
omissions in the registration statement, the proposed amendment to 
Instruction 1 of the forms accomplishes that.'' \551\
---------------------------------------------------------------------------

    \549\ Letter from Vinson & Elkins.
    \550\ Letter from Vinson & Elkins. See also supra note 526 
(describing Instruction 3 to the Signatures sections of Forms S-4 
and F-4).
    \551\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Other commenters expressed views on which entity and which officers 
and directors should be required to sign the de-SPAC transaction 
registration statement. One commenter said that the Commission should 
``clarify that directors and executive officers of the target company, 
who will not be directors or executive officers of the target company 
following the consummation of the de-SPAC transaction, are not required 
to sign the registration statement used for the de-SPAC transaction and 
are not deemed to be directors or executive officers of the target 
company for purposes of the liability provisions of the securities 
laws.'' \552\ Another commenter stated that the ``required signatories 
should be the surviving company, which might be a new registrant and 
the directors and officers of that entity.'' \553\ In contrast, another 
commenter expressed the view that ``[t]arget company managers and 
directors are responsible for providing the information necessary for 
investor approval of a de-SPAC merger, and must provide accounting 
information as well as current operations and forecasts,'' because they 
``also profit significantly from selling private shares and/or 
receiving significant ownership positions in the post-SPAC entity.'' 
\554\ A different commenter suggested that liability under the co-
registration proposal would be both over-inclusive and under-inclusive, 
because new officers or directors may be appointed \555\ and because 
target company officers or directors may resign.\556\ Finally, one 
commenter pointed out that in a de-SPAC transaction structured as an 
acquisition of assets, the assets acquired could not sign a 
registration statement.\557\
---------------------------------------------------------------------------

    \552\ Letter from Freshfields (``This would be consistent with 
the obligations in a traditional IPO, where the registrant 
identifies in the prospectus who will be its directors following the 
IPO'').
    \553\ Letter from Vinson & Elkins (``Putting aside the 
signatory/registrant distinction, we believe that the SEC should not 
make the target company sign the registration statement or be a full 
co-registrant'').
    \554\ Letter from NASAA (``With this in mind, [the commenter] 
supports the attachment of Section 11 responsibilities to the 
managers and directors of target companies.'').
    \555\ Letter from ABA (``in many (if not substantially all) De-
SPAC Transactions, given the minimum 20-day gap period between the 
Merger Registration Statement's effectiveness and Closing, and 
significant Closing uncertainty at the time of registration 
statement effectiveness, additional directors (such as `outside' 
independent directors or Sponsor designees) will join the Combined 
Company board just prior to or concurrent with Closing.'').
    \556\ Letter from ABA (``In many De-SPAC Transactions, certain 
legacy Target directors (and sometimes officers) will resign 
immediately prior to Closing. So the group of individuals to whom 
Securities Act liability attaches (i.e., the persons signing the 
Merger Registration Statement) under the Co-Registrant Amendment is 
at the same time both under-inclusive and over-inclusive.'').
    \557\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    A number of commenters addressed Exchange Act reporting company 
obligations of the target company as a result of proposed co-
registration requirements. Several commenters raised concerns that if 
the target company is a co-registrant on a de-SPAC registration 
statement, the target company would become an Exchange Act reporting 
company at the time of effectiveness.\558\ Specifically, commenters 
raised concerns about the target company being required to file 
Exchange Act reports during the interim period between when the 
registration statement for the de-SPAC transaction becomes effective 
and the closing of the de-SPAC transaction.\559\
---------------------------------------------------------------------------

    \558\ Letters from ABA (noting that, in the time between 
effectiveness and closing of the merger, ``there is a risk that the 
parties may terminate a De-SPAC Transaction subsequent to the Merger 
Registration Statement effectiveness date, including (among other 
reasons) for failure to obtain stockholder approval, failure to 
satisfy a `minimum cash' or `maximum redemption' closing condition, 
or failure to obtain a required regulatory or third-party approval. 
However, once the Merger Registration Statement has been declared 
effective, under the Co-Registrant Amendment, the Target would 
nonetheless be subject to ongoing Exchange Act reporting obligations 
for at least 12 months, even if a De-SPAC Transaction is 
terminated.''), Crowe, Davis Polk, Freshfields (``[I]f the Form S-4 
or Form F-4 is declared effective by the SEC, but the de-SPAC 
transaction does not close, the target, previously a private 
company, would be burdened with disclosure obligations as if it was 
a public company for at least the remainder of the year but would 
have no securities trading in the public markets.''), Grant 
Thornton, KPMG.
    \559\ Letters from ABA (``The Co-Registrant Amendment, if 
adopted as proposed, would subject Targets to reporting obligations 
pursuant to Section 15(d) of the Exchange Act following 
effectiveness of the Merger Registration Statement. Given the 
proposed 20-day minimum solicitation period prior to the SPAC 
stockholders' meeting, it is entirely possible that the SPAC 
acquirer and the Target could each be required to file a quarterly 
report on Form 10-Q or annual report on Form 10-K prior to the 
Closing date.''), KPMG (``The Proposed Rules indicate that the 
target operating company would be an issuer, therefore subjecting it 
to the reporting obligations of a public company and requiring it to 
file a periodic report for that recently ended reporting period. 
This would create circumstances where multiple periodic filings, 
such as Forms 10-K or 10-Q, are required to be filed for the same 
period for multiple entities involved in the transaction.''), PwC.
---------------------------------------------------------------------------

    A different commenter said ``the proposed rules should clarify that 
a target company that will ultimately not be the public company parent 
following the de-SPAC transaction does not become subject to the 
periodic reporting requirements of Section 13 of the Exchange Act as a 
result of being a co-registrant in the registration statement for the 
de-SPAC transaction.'' \560\ If a

[[Page 14210]]

target company that does not become the public company parent does 
become subject to periodic reporting, the commenter said that ``upon 
effectiveness of such registration statement, the target company would, 
as a result of Section 15(d) of the Exchange Act, automatically be 
required to begin filing 10-Ks, 10-Qs and other periodic reports 
required by the Exchange Act, and this would be an Exchange Act 
reporting obligation that is separate from the public company Exchange 
Act reporting obligation. These reports would be essentially the same 
reports as filed by its public parent company and would create 
significant additional compliance costs while resulting in no 
substantive additional public disclosure.'' The commenter expressed the 
view that this was not an intended consequence of the rule proposal and 
said the Commission should clarify this aspect of the co-registration 
proposal.
---------------------------------------------------------------------------

    \560\ Letter from Davis Polk.
---------------------------------------------------------------------------

    Some commenters suggested the Commission should clarify in any 
final rules whether, in a situation where the de-SPAC transaction is 
not ultimately consummated, a target company that is a co-registrant 
for a de-SPAC registration statement that has been declared effective 
may suspend its periodic reporting obligations under procedures similar 
to those set out in Staff Legal Bulletin 18 regarding abandoned IPOs 
and acquired issuers.\561\ A number of commenters raised concerns about 
costs for target companies as co-registrants, particularly with respect 
to the cost of directors and officers insurance.\562\ One commenter 
stated, ``Targets will be forced to substantially enhance their D&O 
[directors and officers] liability insurance coverage . . . [and], if 
the De-SPAC Transaction is never completed for some reason, Targets 
would likely not be able to `ratchet down' their coverage to more 
typical private company levels until the next policy renewal date.'' 
\563\ One commenter stated that co-registration would result in 
disclosure requirements that are inconsistent with the proposed 
revisions to Regulation S-X, raising the issue of whether, if there 
were multiple target companies, if each company would be required to 
provide financials audited in accordance with the standards of the 
Public Company Accounting Oversight Board (United States) (``PCAOB''), 
rather than solely the predecessor pursuant to proposed Rule 15-01(a) 
of Regulation S-X.\564\ This commenter indicated that co-registration 
would result in inconsistencies with IPOs where there are multiple 
target companies and queried whether all target companies ``should be 
required to sign the registration statement or just the accounting 
predecessor or acquiror, the one whose shareholders own the largest 
amount of the surviving company, etc.'' \565\ A different commenter 
asked for guidance regarding a target company's section 15(d) reporting 
obligation in the case where there are multiple targets.\566\
---------------------------------------------------------------------------

    \561\ Letters from Crowe, Grant Thornton. See also KPMG (``It is 
also possible that a SPAC merger is terminated after the effective 
date of a Form S-4 or F-4 registration statement, due to the vote 
from shareholders or for other reasons. In this situation, the 
Proposal indicates that the target operating company is a 
registrant, with ongoing filing obligations, but without having 
completed the merger. We recommend the Commission consider 
clarifying the reporting obligations of target operating companies 
in such circumstances.''). See Staff Legal Bulletin No. 18 (CF) 
(Mar. 15, 2010).
    \562\ Letters from ABA; Anonymous (Apr. 7, 2022) (``Anonymous 
(Apr. 7, 2022)''); Skadden (``Given the potential for increased risk 
of liability to boards, we also expect D&O liability insurance 
premiums to increase significantly, further diluting the value of 
the transaction to stockholders.''). See also letters from ABA, 
Goodwin, White & Case (each discussing directors and officers 
insurance premium costs in connection proposed Item 1606(a)) and Job 
Creators Network (noting that costs generally will increase, as 
``SPACs and target companies should expect extensive diligence 
requests from financial institutions, advisors, and their counsel in 
connection with a de-SPAC transaction'' (citations omitted)).
    \563\ Letter from ABA.
    \564\ Letter from Vinson & Elkins.
    \565\ Letter from Vinson & Elkins.
    \566\ Letter from PwC.
---------------------------------------------------------------------------

    One commenter suggested the Commission create a new form for de-
SPAC transactions.\567\ The commenter, who supported ``the SEC's stance 
that SPAC business combinations should be treated as de facto IPOs,'' 
suggested the Commission align SPAC disclosures with Form S-1 by 
creating a SPAC-specific form that would ``closely resemble a 
traditional IPO S-1, rather than the traditional S-4 used for merger 
transactions.'' \568\ The commenter proposed that, in this new SPAC-
specific form, ``management projections should not be disclosed to 
public SPAC shareholders . . . even if management projections have been 
reviewed by the SPAC board of directors in their role as shareholder 
fiduciaries.'' \569\
---------------------------------------------------------------------------

    \567\ Letter from Bullet Point Network.
    \568\ Id.
    \569\ Id.
---------------------------------------------------------------------------

3. Final Rules
    After considering the comments received, we are adopting the co-
registration proposal substantially as proposed, with some 
modifications.
    Under existing rules, when a SPAC or a holding company offers and 
sells its securities in a registered de-SPAC transaction, staff 
observed a majority of the relevant disclosure in the de-SPAC 
transaction registration statement is about the target company, but 
only the SPAC or holding company, 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 de-SPAC transaction. These signers are 
subject to liability under section 11 of the Securities Act (along with 
other persons who have liability under section 11). In these 
situations, the private operating company and its officers and 
directors may therefore not incur liability as signatories to the 
registration statement under section 11 of the Securities Act, even 
though information about the target company is highly significant to 
investors and this result is unlike if the target company had conducted 
a traditional IPO registered on Form S-1 or Form F-1. As discussed in 
more detail below, it is our view that in a de-SPAC transaction the 
target company is an issuer of securities under section 2(a)(4) of the 
Securities Act, and, therefore, the target company along with its 
required officers and directors must sign a registration statement 
filed by a SPAC or another shell company for the de-SPAC transaction, 
because both in substance and by operation of new Securities Act Rule 
145a, the target company is issuing or proposing to issue securities in 
a de-SPAC transaction, regardless of the transaction structure. In 
addition, the business operations of the target company will be those 
that are carried on by the combined company going forward. The co-
registration requirements will therefore enhance investor protection by 
aligning Federal securities law liability with the entity that is the 
primary source of the information disclosed about the new public 
operating company.\570\
---------------------------------------------------------------------------

    \570\ Although target companies' Federal securities law 
liability is not currently aligned with the liability of a company 
in a traditional IPO, they may be exposed to other liability (as are 
companies in a traditional IPO) from Commission enforcement actions 
or potentially to investors under anti-fraud statutory provisions 
and rules that require scienter or negligence to the extent the 
elements of the relevant cause of action are met. See, e.g., 
Exchange Act section 10(b) and Rule 10b-5 thereunder (imposing 
liability for false or misleading statements made in connection with 
a purchase or sale of securities) and, where applicable, Rule 14a-9 
(for false and misleading statements made in connection with the 
solicitation of proxies).
---------------------------------------------------------------------------

    Section 2(a)(4) of the Securities Act broadly defines the term 
``issuer'' to include every person who issues or proposes to issue 
securities. The

[[Page 14211]]

legislative history of this broad definition 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 Securities Act, the person(s) that have 
access to the information most relevant to investors are responsible as 
an ``issuer'' for providing such information.\571\ However, certain 
commenters asserted that a target company cannot fall within the 
definition of issuer in a de-SPAC transaction because ``[t]he [t]arget 
in a De-SPAC Transaction ordinarily is not issuing or proposing to 
issue any securities pursuant to the Merger Registration Statement--it 
is the SPAC's securities to be issued.'' \572\ We disagree. As 
explained below, even in transaction structures where a target company 
does not issue its own securities in the course of the de-SPAC 
transaction, it will always be proposing to issue the securities of the 
combined company in connection with the Rule 145a transaction that is 
occurring when the SPAC conducts a business combination that changes it 
from a shell company to an operating company.\573\
---------------------------------------------------------------------------

    \571\ 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.'').
    \572\ Letter from ABA.
    \573\ See infra section IV.A.
---------------------------------------------------------------------------

    The final rules will ensure that, when a registration statement is 
filed for a de-SPAC transaction, a target company, its principal 
executive officer or officers, its principal financial officer, its 
comptroller or principal accounting officer, and a majority of its 
board of directors or persons performing similar functions sign the 
registration statement.\574\ These signatories, among others, will be 
liable under section 11, for any material misstatements or omissions in 
the registration statement (subject to a due diligence defense for all 
parties other than an issuer) and will thereby be held accountable to 
investors for the accuracy of the disclosures in the registration 
statement that previously would have been signed only by the SPAC or a 
holding company and its officers and directors.\575\ We continue to 
believe such liability, and the corresponding accountability to 
investors, is appropriate given that it is the private operating 
company that, in substance, issues or proposes to issue its securities, 
as securities of the newly combined public company. We expect that this 
requirement will improve the reliability of the disclosure provided to 
investors in connection with de-SPAC transactions by creating strong 
incentives for such additional signing persons (among others who would 
have liability under section 11 as a result of these requirements, such 
as non-signing directors) to conduct thorough diligence in connection 
with the de-SPAC transaction and review more closely the disclosure 
about the target company.
---------------------------------------------------------------------------

    \574\ See section 6(a) of the Securities Act [15 U.S.C 77f].
    \575\ In this regard, we note that the target company's officers 
and directors are the parties most similarly situated to the 
officers and directors of a private company conducting a traditional 
IPO, in terms of their knowledge of, and background in, the company 
going public through a de-SPAC transaction.
---------------------------------------------------------------------------

    As noted above, the final rules reflect certain modifications to 
the proposed rules. First, we are requiring that the names of all co-
registrants appear on the cover page. Second, we are clarifying that 
the target company is a registrant and not merely a signatory to the 
registration statement, as suggested by some commenters. Third, we are 
addressing scenarios where the target company is a business or assets. 
Finally, we are expanding the instructions to Forms S-4 and F-4 to also 
require that the target company and its related section 6(a) 
signatories sign a registration statement for a de-SPAC transaction 
filed by a holding company. This change is intended to ensure that the 
target company signs the registration statement in a transaction 
structure involving a holding company given that, as noted above, the 
target company is an ``issuer'' of the securities in any registered de-
SPAC transaction. We have also added the same requirements to Form S-1 
and Form F-1. We discuss these changes to the final rules and the 
comments received on the proposal in more detail below.
    Several commenters suggested that there are already strong 
incentives under the existing framework to ensure that disclosures in 
registration statements for de-SPAC transactions are accurate and 
complete.\576\ A few of these commenters suggested it is unnecessary to 
impose additional liability because target company officers and 
directors, by virtue of their roles in the combined company, will 
effectively ``own'' any Exchange Act liabilities related to the 
disclosure in the de-SPAC transaction registration statement inherited 
by the combined company.\577\
---------------------------------------------------------------------------

    \576\ Letters from ABA, Kirkland & Ellis, NYC Bar, Skadden, 
Vinson & Elkins, Winston & Strawn. See supra note 538.
    \577\ See supra note 539.
---------------------------------------------------------------------------

    As commenters noted, currently when a SPAC \578\ files a 
registration statement in connection with a de-SPAC transaction that 
becomes effective, the SPAC is exposed to strict liability for material 
misstatements regarding all disclosures in the registration statement, 
including the disclosures related to the target company. In addition, 
the SPAC and/or target company may be exposed to liability from 
Commission enforcement actions or potentially to investors under anti-
fraud statutory provisions and rules that require scienter or 
negligence.\579\
---------------------------------------------------------------------------

    \578\ The discussion, with respect to SPACs filing a 
registration statement, applies equally to de-SPAC transaction 
structures where a holding company is created and files a 
registration statement.
    \579\ See supra note 570.
---------------------------------------------------------------------------

    We disagree with the commenters who suggested that existing 
liability protections make it unnecessary for the target company to 
have strict liability for statements in the de-SPAC registration 
statement. In the Securities Act, Congress determined that an issuer 
that offers and sells its securities to the public using a registration 
statement should be strictly liable to investors for any material 
misstatements and omissions in the effective registration 
statement.\580\ Furthermore, strong private liability in registered 
transactions is one of the central tenets of the Securities Act.\581\ 
As discussed throughout this release, in a de-SPAC transaction, the 
target company is an issuer because it, in substance, issues or 
proposes to issue its securities, as securities of the newly combined 
public company. As an issuer and the primary source of information 
disclosed about the combined operating company in registered de-SPAC 
transactions, the

[[Page 14212]]

target company and its officers and directors are best situated to 
ensure the accuracy and completeness of such disclosures. Accordingly, 
investors in de-SPAC transactions are entitled to the protections 
arising from having the target company and other issuers sign the de-
SPAC registration statement, including strict liability for statements 
in the effective registration statement, regardless of any other 
liabilities that may apply.
---------------------------------------------------------------------------

    \580\ Under section 6(a) of the Securities Act, each ``issuer'' 
must sign the registration statement, and ``every person who signed 
the registration statement'' has liability under section 11(a) of 
the Securities Act. See 15 U.S.C. 72(a) and 77k(a). The provisions 
of section 11(b) of the Securities Act provide limited situations 
where no liability under section 11(a) will attach but exclude 
issuers from applying that provision. See 15 U.S.C. 77k(b) 
(``Notwithstanding the provisions of subsection (a) no person, other 
than the issuer, shall be liable as provided therein who shall 
sustain the burden of proof. . . .'' (Emphasis added)).
    \581\ See William O. Douglas & George E. Bates, The Federal 
Securities Act of 1933, 43 Yale L.J. 171, 173 (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.''). See also supra note 850 
and accompanying text (noting the importance of private rights of 
action in addition to Commission enforcement mechanisms as part of 
the Federal securities law statutory scheme, which provides for 
several private rights of action).
---------------------------------------------------------------------------

    With respect to commenters' argument that the target company, and 
its officers and directors, will ``own'' liability for statements made 
in the de-SPAC registration statement going forward, we acknowledge 
that, under the existing framework, in specific situations where the 
target company survives and/or the officers and directors of the target 
company are officers and directors of the surviving company, they would 
potentially have liability, including strict liability, for statements 
in the de-SPAC registration statement. However, that assumption of 
liability under current regulations does not change the fact that in 
other transaction structures, the target company and its officers and 
directors may not be strictly liable for the statements made in any 
registration statement filed in connection with the de-SPAC 
transaction, notwithstanding that the target company is, in substance, 
an issuer in these transaction structures for the reasons discussed 
above. So that target company liability is consistent across de-SPAC 
transaction structures, we are adopting the co-registration proposal as 
proposed, subject to the changes discussed herein.
    A few commenters suggested the co-registrant proposal would create 
a disparity compared to traditional business combination transactions, 
because the target company is not a co-registrant in those 
transactions.\582\ In contrast, another commenter said, ``These are 
clearly different facts and circumstances than a non-SPAC merger'' 
because the SPAC board is not deciding whether to change its operating 
business model via merger but rather is offering its shareholders the 
opportunity to invest in the surviving company.\583\ One commenter 
suggested that requiring the target company to sign a registration 
statement for a de-SPAC transaction would be inconsistent with how 
section 11 liability applies in a traditional IPO because, under the 
co-registrant proposal, the target company could be liable to its 
existing shareholders for information about the target company included 
in the de-SPAC registration statement.\584\ As discussed above,\585\ 
the hybrid nature of de-SPAC transactions makes them distinguishable 
from other business combinations or traditional IPOs, because the 
transaction simultaneously: (i) functions as a form of public capital 
raising for the target company, (ii) transforms a shell company, that 
is not a business combination related shell company, into an operating 
company, and (iii) commonly represents the introduction of a formerly 
private company to the public markets for the first time. In a de-SPAC 
transaction, the target company is, in substance, acting as issuer of 
securities and therefore should incur section 11 liability for the 
disclosures about its business and its financial results and condition, 
which constitute critical information for investors making investment, 
redemption, and voting decisions.
---------------------------------------------------------------------------

    \582\ Letters from ABA, Skadden. See supra note 540.
    \583\ Letter from Bullet Point Network.
    \584\ Letter from Freshfields.
    \585\ See supra section I.
---------------------------------------------------------------------------

    As noted above, the de-SPAC transaction commonly marks the 
introduction of the target company to the U.S. public securities 
markets, and investors look to the business and prospects of the target 
company in evaluating an investment in the combined company.\586\ 
Moreover, new Rule 145a recognizes that a de-SPAC transaction involves 
a sale of the securities of the combined company to the SPAC's 
shareholders. Information relating to the target company is the most 
significant factor in investor decisions to participate in the de-SPAC 
transaction because the target company will become the operating 
business of the combined company upon consummation of the de-SPAC 
transaction. In addition, the target company is the principal 
beneficiary of the capital that the SPAC has previously raised and is 
contributing to the combined company. Co-registration is necessary in 
these circumstances so that appropriate levels of liability for the 
related disclosures attaches to the entity that is the primary source 
of the information disclosed--information that relates to and 
ultimately benefits the target company itself. Requiring the target 
company and its officers and directors to sign the registration 
statement will help to ensure that the information provided to 
investors in connection with a de-SPAC transaction is accurate, 
complete, and reliable by incentivizing such parties to exercise more 
care in the preparation of that information.
---------------------------------------------------------------------------

    \586\ Less commonly, the target company may be a public company 
or may be a previously public company that went private.
---------------------------------------------------------------------------

    One commenter suggested the co-registration proposal is 
inconsistent with Securities Act Rule 140, which according to the 
commenter ``ensures that the requisite information about the underlying 
issuer is adequately disclosed,'' and does not apply to de-SPAC 
transactions, because de-SPAC registration statements already provide 
registrants with disclosures about the target company, and the target 
company already may be subject to some liability for disclosures 
contained therein.\587\ While Rule 140 and these new co-registration 
requirements both expose parties to liability, they do so in different 
factual situations and for different purposes, and therefore are not 
inconsistent. As discussed above, we acknowledge that disclosure about 
target companies is already included in de-SPAC registration statements 
and target companies may have liability under de-SPAC registration 
statements in some situations. However, target companies do not have 
liability as issuers in all transaction structures, notwithstanding the 
fact that a de-SPAC transaction marks the introduction of the target 
company to the U.S. public securities markets and investors look to the 
business and prospects of the target company in evaluating an 
investment in the combined company.
---------------------------------------------------------------------------

    \587\ Letter from ABA. See Rule 140.
---------------------------------------------------------------------------

    One commenter supported the proposal but suggested that the 
Commission clarify whether ``liability correctly or mistakenly extends 
to anyone other than unaffiliated, non-redeeming SPAC shareholder[s].'' 
\588\ Under the final rules, the target company, its section 6(a) 
signing persons, and its directors will be subject to the same 
liability as any other issuer (including to affiliated shareholders).
---------------------------------------------------------------------------

    \588\ Letter from CFA Institute.
---------------------------------------------------------------------------

    A different commenter recommended that the Commission clarify 
``which entities would be considered co-registrants in these types of 
transactions and therefore subject to the applicable requirements under 
the securities laws.'' \589\ We have provided additional clarification 
regarding which entities would be a co-registrant in connection with 
changes to the instructions to registration forms compared to the 
proposed instructions that we discuss below.
---------------------------------------------------------------------------

    \589\ Letter from KPMG (specifically noting that ``SPACs may 
acquire more than one operating company as part of a de-SPAC 
transaction'').
---------------------------------------------------------------------------

    As noted above, one commenter suggested the proposal would make the 
target company a signer but not a co-

[[Page 14213]]

registrant on Forms S-4 and F-4.\590\ We do not agree with this 
assessment because, as an ``issuer'' of the securities in a registered 
de-SPAC transaction, the target company is both a required signatory of 
the registration statement pursuant to section 6(a) and a 
``registrant'' under Rule 405. To that end, Rule 405 states that a 
``registrant'' is a type of ``issuer''--i.e., ``the issuer of the 
securities for which the registration statement is filed.''
---------------------------------------------------------------------------

    \590\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    The proposed instruction that the term ``registrant'' means the 
SPAC for purposes of the disclosure obligations of the form was not 
intended to mean that a target company would not also be considered a 
registrant. The purpose of that instruction was to make clear that the 
defined term ``registrant'' on the form refers to the ``SPAC'' and to 
allow for a different defined term to be used on the form when 
specialized disclosure with respect to the ``target company'' is 
required. The proposed instruction to the Signatures section was 
intended to clarify that both the SPAC and target company and their 
required officers and directors must sign the form but would not have 
made the target company a ``signer not a registrant.''
    Nevertheless, to clarify this point, in the final rules, we are 
making technical changes to the instructions to the forms. In 
connection with the request by a commenter to compare the proposed 
instructions to current Instruction 3 to the Signatures section, we are 
revising the instructions to Forms S-4 and F-4 to require that the 
names of each co-registrant appear on the cover page consistent with 
current Instruction 3. We are also revising the instructions to require 
that the target company and its related section 6(a) signatories sign a 
registration statement for a de-SPAC transaction filed by a holding 
company, to account for the fact that the target company is an 
``issuer'' of the securities in any registered de-SPAC transaction. As 
a result, in the final rules, the last sentence of General Instruction 
L.1 of Form S-4 provides: ``If the securities to be registered on this 
Form will be issued by a special purpose acquisition company (as such 
term is defined in Item 1601 of Regulation S-K) or another shell 
company in connection with a de-SPAC transaction, the registrants also 
include the target company (as such term is defined in Item 1601 of 
Regulation S-K), and it must be so designated on the cover page of this 
Form. In such a de-SPAC transaction, where the target company consists 
of a business or assets, the seller of the business or assets is deemed 
to be a registrant instead of the business or assets and must be so 
designated on the cover page of this Form. Further, in such a de-SPAC 
transaction, the term `registrant' for purposes of the disclosure 
requirements of this Form means the special purpose acquisition 
company, and the term `company being acquired' for the purposes of the 
disclosure requirements of this Form means the target company.'' 
Similarly, we are revising the last sentence of Instruction 1 of the 
Signatures section and revising proposed General Instruction I.1 to 
Form F-4 and the last sentence of Instruction 1 of the Signatures 
section of Form F-4 in the same manner as with Form S-4.
    Also with respect to changes in the forms to implement the co-
registration requirements, in the Proposing Release, the Commission 
solicited comment on whether Form S-1 and Form F-1 should be amended to 
include instructions as to signatures which, when used for a de-SPAC 
transaction, would align the signature requirements of these forms to 
Form S-4 and Form F-4.\591\ Because Form S-1 and, where issuers are 
eligible, Form F-1, remain available for de-SPAC transactions, it is 
consistent with the protection of investors to include equivalent 
instructions as to signatures to ensure consistent liability for de-
SPAC transactions regardless of which Securities Act form is used for 
registration. Accordingly, we are adopting amendments to the 
instructions to signatures in Form S-1 and Form F-1 that correspond to 
those in Form S-4 and Form F-4.
---------------------------------------------------------------------------

    \591\ See Proposing Release, supra note 7, at 29480 (request for 
comment number 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?'').
---------------------------------------------------------------------------

    A number of commenters stated that liability under the co-
registration proposal would be over and/or under-inclusive with respect 
to the target company's officers and directors. As discussed above, the 
final rules make clear that the target company is a co-registrant (and 
not merely a signer) with respect to the de-SPAC transaction. 
Therefore, as with any registrant, the target company will be required 
to have its principal executive officer or officers, principal 
financial officer and controller or principal accounting officer, and 
at least a majority of its board of directors or persons performing 
similar functions sign the registration statement.
    With respect to commenter suggestions that only continuing target 
company officers and directors should sign the registration 
statement,\592\ we do not believe it would be necessary or appropriate 
to adopt such a requirement for several reasons. First, to require 
signatures only from continuing target company officers and directors 
would be inconsistent with the statutory signature requirements under 
Securities Act section 6(a), which requires each issuer's ``principal 
executive officer or officers, its principal financial officer, its 
comptroller or principal accounting officer, and the majority of its 
board of directors or persons performing similar functions'' to sign 
the registration statement.\593\ Moreover, non-continuing directors who 
did not sign the registration statement nonetheless may be liable under 
section 11, because section 11(a)(2) provides that the persons with 
liability to persons who acquired securities include ``[e]very person 
who was a director of (or person performing similar functions) or 
partner in the issuer at the time of the filing of the part of the 
registration statement with respect to which his liability is 
asserted.'' \594\ Second, if a target company officer or director will 
not be a continuing officer or director in the combined company, it is 
within the control of the target company officer or director to resign 
prior to the effectiveness of the de-SPAC registration statement.\595\ 
Finally, we note that Securities Act section 6 requires only the 
issuer's ``principal executive officer or officers, its principal 
financial officer, [and] its comptroller or principal accounting 
officer,'' but not other officers, to sign the registration 
statement.\596\ Accordingly, if the non-continuing target company 
officers are not one of these officers, they are not required to sign 
the registration statement.
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    \592\ See letters from Freshfields, Vinson & Elkins.
    \593\ 15 U.S.C. 77f(a).
    \594\ 15 U.S.C. 77k(a)(2).
    \595\ See also 15 U.S.C. 77(k)(b)(1) (allowing for the potential 
removal of section 11 liability from persons who ``before the 
effective date . . . had resigned from or had taken such steps as 
are permitted by law to resign from, or ceased or refused to act in, 
every office, capacity, or relationship in which he was described in 
the registration statement as acting or agreeing to act, and . . . 
had advised the Commission and the issuer in writing that he had 
taken such action'').
    \596\ 15 U.S.C. 77f(a).
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    The proposed definition of target company included a ``business'' 
or ``assets'' and the proposed definition of ``de-SPAC transaction'' 
included an ``acquisition of assets.'' One commenter pointed out that 
in a de-SPAC transaction structured as an acquisition of assets, the 
assets acquired could not sign a registration statement.\597\ We are 
not making any changes in the final definitions of those terms. 
However, to align the signature requirements for the

[[Page 14214]]

acquisition of a business or assets as closely as possible to the 
signature requirements being adopted for all other target companies, we 
are revising the instructions to Forms S-4 and F-4 to provide that, in 
de-SPAC transactions involving the purchase of assets or a business, 
the term ``registrant'' includes the seller of the business or assets. 
As with target companies in non-asset deals, the signatories of the 
asset purchase agreement (or similar transaction agreement) would be 
the sellers required to sign the registration statement.\598\ When a 
de-SPAC transaction involves the sale of assets that meet the 
definition of a business in Article 11 of Regulation S-X,\599\ the 
seller of the assets must provide the historical financial information 
regarding the acquisition in the registration statement.\600\ Thus, 
such seller of assets and its officers and directors are similarly 
situated to the target company and its officers and directors (i.e., 
the seller of a business that will continue as the combined company) in 
a de-SPAC transaction not structured as an asset sale.\601\
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    \597\ See supra note 557 and accompanying text.
    \598\ This is consistent with the functional approach taken in 
the language of section 6(a) of the Securities Act, whereby the 
signatories of a registration statement, who incur section 11 
liability, must include ``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).''
    \599\ 17 CFR 210.11-01(d) (``Rule 11-01(d)'' of Regulation S-X).
    \600\ In the unusual event that the assets do not meet the 
definition of a business, registrants may wish to contact the 
Division of Corporation Finance about the reporting of historical 
financial information for the assets.
    \601\ The disclosure provided as to the assets acquired that 
constitute a business would be that which is required for 17 CFR 
210.3-05(e), as applicable.
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    Several commenters raised concerns that, if the target company is a 
co-registrant on a de-SPAC registration statement, then the target 
company would become an Exchange Act reporting company at the time of 
effectiveness and would be required to file reports during the interim 
period between when the registration statement for the de-SPAC 
transaction becomes effective and the closing of the de-SPAC 
transaction.\602\ Relatedly, several commenters noted that the target 
company would incur this reporting obligation even if the de-SPAC 
transaction does not ultimately close.\603\ In response to these 
concerns, some commenters suggested the final rules should either 
clarify that a target company that is a co-registrant on a de-SPAC 
registration statement does not become subject to periodic reporting 
requirements,\604\ or, in a situation where the de-SPAC transaction is 
not ultimately consummated, a target company that is a co-registrant 
for a de-SPAC registration statement may suspend its periodic reporting 
obligations under procedures similar to those set out in Staff Legal 
Bulletin 18 regarding abandoned IPOs and acquired issuers.\605\
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    \602\ Letters from ABA, KPMG, PwC (also noting this would be the 
case in de-SPAC transactions involving multiple target companies). 
See supra note 559.
    \603\ Letters from ABA, Crowe, Davis Polk, Freshfields, Grant 
Thornton, KPMG. See supra note 558.
    \604\ Letter from Davis Polk.
    \605\ Letters from Crowe, Grant Thornton. See supra note 561. 
See also KPMG, supra note 561.
---------------------------------------------------------------------------

    As ``registrants'' and ``issuers,'' target companies will be 
required by applicable Exchange Act provisions to file periodic reports 
after the effectiveness of the de-SPAC registration statement and until 
the target company terminates and/or suspends its Exchange Act report 
obligations. We do not believe an exemption from the Exchange Act's 
reporting requirements is necessary or appropriate in the public 
interest or consistent with the protection of investors because, during 
the pendency of the de-SPAC transaction, SPAC investors will benefit 
from receiving updated information about the target company that, in 
substance and as reflected in Rule 145a, proposes to issue securities 
of the newly combined public company, through which the formerly 
private company will operate its business. In the event that a target 
company that is not the predecessor \606\ to the shell company is 
required to file a periodic report such as a Form 10-K or 10-Q as a 
standalone issuer, the periodic report would be required to comply with 
the form requirements and doing so could require the disclosure of 
updated information about the target company that is not the 
predecessor that would not have been required in the registration 
statement.\607\
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    \606\ The term ``predecessor'' when used in this section has the 
same meaning as applied under Regulation S-X and the determination 
of financial statement requirements. To have a target company that 
is not the predecessor, the de-SPAC transaction must include 
multiple targets. We note that the overwhelming majority of de-SPAC 
transactions only involve one target. See infra discussion at note 
1226 (indicating that approximately 97% of de-SPAC transactions 
involve only one target).
    \607\ For example, a Form 10-K would require the financial 
statements of a non-predecessor target company to be audited in 
accordance with the standards of the PCAOB (17 CFR 210.1-02(d)) as 
well as disclosure of certain information specified in Regulation S-
K, such as executive compensation (17 CFR 229.402).
---------------------------------------------------------------------------

    We agree with commenters,\608\ however, that a target company (that 
became a reporting company by virtue of being a co-registrant for a de-
SPAC transaction registration statement that has been declared 
effective) may look to 17 CFR 240.12h-3 (Exchange Act Rule 12h-3) and 
Staff Legal Bulletin 18 for guidance regarding how it can suspend its 
reporting obligations under section 15(d) of the Exchange Act in 
situations in which: (1) the de-SPAC transaction does not close, or (2) 
at the closing of the de-SPAC transaction, the target company is 
acquired and another company has become a public reporting company with 
respect to the combined business created by the de-SPAC transaction.
---------------------------------------------------------------------------

    \608\ See supra note 561.
---------------------------------------------------------------------------

    A number of commenters raised concerns about costs for target 
companies as co-registrants, particularly with respect to the cost of 
directors and officers insurance.\609\ We recognize that the final 
rules, in particular the co-registration requirements, could result in 
increased costs for target companies. Based on Commission staff's 
experience, target companies that enter de-SPAC transactions may have 
directors and officers insurance, and business combination agreements 
in connection with de-SPAC transactions may contain provisions 
regarding the provision of directors and officers insurance to target 
company officials.\610\ As a result, any increased costs incurred by 
target companies in connection with de-SPAC transactions with respect 
to directors and officers insurance under the final rules will be 
incremental to those already incurred. Furthermore, we believe these 
incremental costs are justified by the enhanced investor protections 
that will be realized by the co-registration requirements. We discuss 
our analysis of the costs and benefits of the final rules in more 
detail in section VIII below.
---------------------------------------------------------------------------

    \609\ Letters from ABA, Anonymous (Apr. 7, 2022), Skadden. See 
supra note 562. See also ABA, Job Creators Network, Goodwin, White & 
Case. See supra note 562.
    \610\ De-SPAC transaction agreements (such as merger agreements) 
commonly contain a target company covenant, representation, or 
similar provision that the target company will maintain its 
directors and officers insurance or contain a representation or 
warranty that the target company's directors and officers insurance 
listed on the target company's disclosure schedules to the agreement 
is in force and effect.
---------------------------------------------------------------------------

    One commenter said that co-registration would result in disclosure 
requirements that are inconsistent with the proposed revisions to 
Regulation S-X, raising the issue of whether, if there were multiple 
target companies, each company would be required to provide

[[Page 14215]]

financial statements audited in accordance with PCAOB standards in the 
de-SPAC registration statement, rather than solely the predecessor 
pursuant to proposed Rule 15-01(a) of Regulation S-X.\611\ This 
commenter indicated that co-registration would result in 
inconsistencies with IPOs where there are multiple target companies.
---------------------------------------------------------------------------

    \611\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    As the commenter notes, in the case of multiple companies being 
acquired by the SPAC, if each of those companies meets the definition 
of ``target company'' being adopted,\612\ then each would be required 
to be a co-registrant on the de-SPAC registration statement. Under the 
final rules all target companies are issuers, as defined by section 
2(a)(7) of the Sarbanes-Oxley Act of 2002 (``Sarbanes-Oxley 
Act''),\613\ and therefore, under current 17 CFR 210.1-02(d) (``Rule 1-
02(d)'' of Regulation S-X), any audit of the target's financial 
statements would be required to be performed in accordance with PCAOB 
standards by a PCAOB-registered audit firm. However, also as noted by 
the commenter, proposed Rule 15-01(a) provided that only target 
companies that would constitute the predecessor for financial reporting 
purposes would be required to comply with Rule 15-01 of Regulation S-X 
in connection with a de-SPAC transaction and provide financial 
statements audited in accordance with PCAOB standards.\614\ We continue 
to believe this is the appropriate outcome given the hybrid nature of 
de-SPAC transactions, as it aligns the de-SPAC transaction financial 
reporting to that of an IPO that includes multiple companies.\615\ All 
target companies provide information that is included in the 
registration statement and therefore should face Securities Act 
liability as co-registrants and issuers on the de-SPAC registration 
statement.\616\
---------------------------------------------------------------------------

    \612\ See Item 1601(d) of Regulation S-K, adopted herein.
    \613\ Public Law 107-204, Sec. 404(b) 116 Stat. 745 (2002).
    \614\ See Rule 15-01 of Regulation S-X, adopted herein.
    \615\ In an IPO where a shell company acquires multiple 
businesses in a ``put together'' transaction, only the 
predecessor(s) (in some transactions, there may be more than one 
predecessor) would be required to provide historical financial 
statements audited in accordance with PCAOB standards. See Rule 1-
02(d) of Regulation S-X for the audit requirements and Rule 3-02(a) 
of Regulation S-X which incorporates a predecessor into these 
requirements.
    \616\ Entities for which their financial statements are included 
in the Form S-4 or F-4 through application of Rule 3-05 of 
Regulation S-X, Rule 3-14 of Regulation S-X, or 17 CFR 210.8-04 
(``Rule 8-04'' of Regulation S-X) that are not target companies 
would not be considered a registrant to the Form S-4 or F-4.
---------------------------------------------------------------------------

    In order to address the tension identified by the commenter, and to 
clarify that all target companies are co-registrants and issuers but 
only target companies that are predecessors \617\ must provide 
financial statements audited in accordance with PCAOB standards, we are 
modifying the proposed revisions to the definition of ``audit (or 
examination)'' in Rule 1-02(d) to clarify that Rule 15-01(a) governs 
the audit requirements for all issuers (both predecessors and non-
predecessors) that combine with a shell company.\618\ We have also 
added language to Rule 15-01(a) to clarify that for non-predecessor 
issuers--in the context of a registration statement or proxy statement 
filed for the combination with an issuer that is a shell company \619\ 
(e.g., in a de-SPAC transaction, non-predecessor co-registrant target 
companies)--the term ``audit (or examination)'' is defined as ``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.'' \620\ In addition to 
adopting the proposed changes to Item 17 of Form S-4 or Form F-4 that 
direct companies to Article 15 for the financial statements required in 
a de-SPAC transaction, we have revised the proposed Instruction L to 
Form S-4 and Instruction I to Form F-4 to clarify that for purposes of 
the disclosure requirements in those forms, the target company is the 
``company being acquired.''
---------------------------------------------------------------------------

    \617\ See supra note 606.
    \618\ See Rule 1-02(d) of Regulation S-X, adopted herein.
    \619\ In the event a non-predecessor issuer is required to file 
a Form 10-K on a standalone basis, the financial statements would be 
required to be audited under PCAOB standards, pursuant to Rule 1-
02(d) of Regulation S-X because the entity is filing an Exchange Act 
report for itself and not as a non-predecessor issuer under Rule 15-
01(a).
    \620\ See Rule 15-01(a) of Regulation S-X, adopted herein. An 
issuer that is not a predecessor that is already registered under 
Exchange Act sections 13(a) or 15(d) would be required to file 
financial statements audited in accordance with PCAOB standards 
pursuant to Rule 1-02(d) of Regulation S-X.
---------------------------------------------------------------------------

    As stated in the proposal,\621\ the proposed financial reporting 
requirements were intended to more closely align the de-SPAC 
transaction disclosures to the disclosures made where a shell company 
acquires multiple businesses in a ``put together'' transaction before 
an IPO. This approach recognizes the hybrid nature of the de-SPAC 
transaction and the fact that the historical financial statements of 
the predecessor(s), and in some circumstances the SPAC, would be the 
historical financial information that would be presented in the 
combined company's Exchange Act reporting. The Commission proposed 
Article 15 of Regulation S-X instead of proposing a requirement that 
all target companies provide audited financial statements under the 
registrant disclosure requirements of Item 14 of Form S-4 and Form F-4, 
which apply to the information required to be provided by registrants 
other than Form S-3 and Form F-3 eligible registrants, respectively.
---------------------------------------------------------------------------

    \621\ See Proposing Release at section IV.B.
---------------------------------------------------------------------------

    To illustrate application of the final rules, assume a SPAC files a 
Form S-4 to register the issuance of shares to acquire two unrelated 
businesses and only one of the businesses will be the predecessor for 
financial reporting purposes. Under the final rules, each ``issuer'' 
(the SPAC and the two unrelated businesses) must sign the registration 
statement.\622\ The pro forma financial statements included in the Form 
S-4 depict a reverse recapitalization with the predecessor and an 
acquisition of the other business. Subsequent Exchange Act reports, 
such as the next Form 10-K, will include the historical financial 
statements of the predecessor. In this scenario, the Form S-4 would 
require two to three years of historical financial statements for the 
business that will be the predecessor audited in accordance with PCAOB 
standards. By contrast, the non-predecessor business will be a company 
being acquired under Item 17 of Form S-4 and its financial statements 
may be audited in accordance with either PCAOB standards or U.S. GAAS 
standards, despite it being an issuer.
---------------------------------------------------------------------------

    \622\ 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.
---------------------------------------------------------------------------

    We recognize that predecessor determinations in de-SPAC 
transactions may include scenarios that differ from the above 
illustrative example. For example, a transaction with two target 
companies could instead result in a determination that there are two 
predecessors. In that example, the financial statements of both target

[[Page 14216]]

companies must be audited in accordance with PCAOB standards.\623\
---------------------------------------------------------------------------

    \623\ Determination of the predecessor(s) in a de-SPAC 
transaction, as in any other transaction, is a facts and 
circumstances driven determination made by the registrant(s).
---------------------------------------------------------------------------

    Section 102 of the Sarbanes-Oxley Act makes it ``unlawful for any 
person that is not a registered public accounting firm to prepare or 
issue . . . any audit report with respect to any issuer.'' \624\ The 
final rules do not change this requirement for issuers to engage PCAOB-
registered accounting firms, and therefore all issuers, including non-
predecessor target companies, will need to engage a PCAOB-registered 
audit firm when the de-SPAC transaction requires audited historical 
financial statements (but, as discussed above, the PCAOB-registered 
firm could audit the financial statements of non-predecessor target 
companies either under the standards of the PCAOB or U.S. GAAS). We 
acknowledge commenter concerns that, because PCAOB Rule 3211 requires a 
registered audit firm to file a Form AP with the PCAOB when its audit 
report for an issuer is included in a filing with the Commission,\625\ 
multiple Forms AP may be required for a single transaction where the 
related registration statement requires audit reports for multiple 
issuers and when more than one registered audit firm was involved.\626\ 
To the extent that the PCAOB deems it necessary to provide guidance or 
take other action in response to the final rules, the Commission and 
its staff will work with the PCAOB, as appropriate.
---------------------------------------------------------------------------

    \624\ See 15 U.S.C. 7212(a).
    \625\ See PCAOB Rule 3211, Auditor Reporting of Certain Audit 
Participants, available at https://pcaobus.org/about/rules-rulemaking/rules/section_3/section-3-auditing-and-related-professional-practice-standards-rule-3211-amended. Note 2 to PCAOB 
Rule 3211 states that the rule requires the filing of a report on 
Form AP regarding an audit report only the first time the audit 
report is included in a document filed with the Commission. 
Subsequent inclusion of precisely the same audit report in other 
documents filed with the Commission does not give rise to a 
requirement to file another Form AP. See id.
    \626\ Letters from Crowe, Grant Thornton.
---------------------------------------------------------------------------

    Regarding a commenter's suggestion that the Commission create a new 
S-1-like form for de-SPAC transactions, which should not include 
management projections,\627\ we do not believe that is necessary. The 
amendments to existing registration statement forms that we are 
adopting in this release accomplish our enhanced disclosure goals, 
including addressing similarities between IPOs and de-SPAC 
transactions, and appropriately take into account the business 
combination context of de-SPAC transactions. With respect to 
projections in registration statements, as we discuss in detail below, 
our final definitions of ``blank check company'' should address the 
commenter's concerns regarding the use of projections in de-SPAC 
transaction registration statements.\628\ In addition, as noted below, 
there is no prohibition under current rules on including projections in 
registration statements on Form S-1 or F-1.\629\
---------------------------------------------------------------------------

    \627\ Letter from Bullet Point Network.
    \628\ See infra section III.E discussion of PSLRA Safe Harbor.
    \629\ See infra discussion in section III.E proximate to notes 
836 and 858.
---------------------------------------------------------------------------

D. Re-Determination of Smaller Reporting Company (SRC) Status

1. Proposed Rules
    SRCs constitute 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.\630\ 
For example, SRCs are not required to provide quantitative and 
qualitative information about market risk pursuant to 17 CFR 229.305 
(Item 305 of Regulation S-K).\631\ In general, an SRC is a company that 
is not an investment company, an asset-backed issuer or a majority-
owned subsidiary of a parent that is not an SRC and (1) had 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.\632\ SRC 
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.\633\ Once a company 
determines that it is not an SRC, it will retain this non-SRC 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.\634\
---------------------------------------------------------------------------

    \630\ See, e.g., 17 CFR 229.10(f) (``Item 10(f)'' of Regulation 
S-K); 17 CFR 210.8-01 (``Rule 8-01'' of Regulation S-X), 17 CFR 
210.8-02 (``Rule 8-02'' of Regulation S-X), 17 CFR 210.8-03, 17 CFR 
210.8-07, and 17 CFR 210.8-08 (``Rule 8-08'' of Regulation S-X); 
Item 1A of Form 10 and Form 10-K; Item 3.02 of Form 8-K. An FPI is 
not eligible to use the scaled disclosure requirements for SRCs 
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) of Regulation S-K; Instruction 2 
to definition of ``smaller reporting company'' in Securities Act 
Rule 405 and Exchange Act Rule 12b-2.
    \631\ 17 CFR 229.305(e) (Item 305(e) of Regulation S-K).
    \632\ 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.
    \633\ See 17 CFR 229.10(f)(2)(i) and (f)(2)(ii) (``Item 
10(f)(2)(ii)'' of Regulation S-K). In re-determining SRC 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.
    \634\ See 17 CFR 229.10(f)(2)(iii); Securities Act Rule 405; 
Exchange Act Rule 12b-2.
---------------------------------------------------------------------------

    The Commission proposed to require a re-determination of SRC status 
following the consummation of a de-SPAC transaction through proposed 
amendments to the definition of ``smaller reporting company'' in each 
of Securities Act Rule 405, Exchange Act Rule 12b-2, and Item 10(f) of 
Regulation S-K. Specifically, the Commission proposed that the post-de-
SPAC transaction registrant must re-determine its SRC status prior to 
the time it makes its first Commission filing, other than the Form 8-K 
filed with Form 10 information,\635\ and reflect this re-determination 
in the issuer's next periodic report.\636\
---------------------------------------------------------------------------

    \635\ 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.
    \636\ Proposed Item 10(f)(2)(iv) of Regulation S-K; proposed 
paragraph (3)(iv) in the definition of ``smaller reporting company'' 
in Securities Act Rule 405; proposed paragraph (3)(iv) in the 
definition of ``smaller reporting company'' in Exchange Act Rule 
12b-2.
---------------------------------------------------------------------------

    The Commission also proposed, in connection with this re-
determination: (a) that public float be measured as of a date within 
four business days after the consummation of the de-SPAC transaction; 
\637\ and (b) that annual revenues be measured using the annual 
revenues of the target company as of the most recently completed fiscal 
year reported in the Form 8-K filed with Form 10 information.\638\ The 
Commission did not propose any changes to the float and revenue 
thresholds in the current definitions of ``smaller reporting company.''
---------------------------------------------------------------------------

    \637\ Proposed Item 10(f)(2)(iv)(A) of Regulation S-K; proposed 
paragraph (3)(iv)(A) in the definition of ``smaller reporting 
company'' in Securities Act Rule 405; proposed paragraph (3)(iv)(A) 
in the definition of ``smaller reporting company'' in Exchange Act 
Rule 12b-2.
    \638\ Proposed Item 10(f)(2)(iv)(B) of Regulation S-K; proposed 
paragraph (3)(iv)(B) in the definition of ``smaller reporting 
company'' in Securities Act Rule 405; proposed paragraph (3)(iv)(B) 
in the definition of ``smaller reporting company'' in Exchange Act 
Rule 12b-2.
---------------------------------------------------------------------------

2. Comments
    Broadly categorized, commenters on the SRC re-determination 
proposal focused on four areas: (1) general comments, including those 
with general expressions of support for or opposition to the proposals, 
(2) timing and re-determination of public float, (3) ramifications of 
loss of SRC status, and (4) requests for guidance. In addition, in 
response to a request for comment from

[[Page 14217]]

the Commission in the Proposing Release, several commenters addressed 
issues of re-determination of the following: accelerated filer and 
large accelerated filer status, EGC status, and FPI status.
    A few commenters generally supported the proposed re-determination 
of SRC status following a de-SPAC transaction.\639\ One commenter noted 
that such re-determination would ``generally align that determination 
with that of an IPO.'' \640\ Another commenter noted that such re-
determination was a signal that ``the Commission appears to be 
forestalling a situation in which a company that would not have been 
eligible to use the scaled disclosures and other accommodations 
available to a smaller reporting company if it had become public 
through a traditional initial public offering would, nonetheless, be 
eligible to take advantage of those accommodations based on the smaller 
reporting company status of the pre-merger SPAC.'' \641\
---------------------------------------------------------------------------

    \639\ Letters from KPMG, PwC.
    \640\ Letter from KPMG.
    \641\ Letter from PwC.
---------------------------------------------------------------------------

    Others opposed, or raised concerns regarding, the proposed re-
determination of SRC status following a de-SPAC transaction.\642\ One 
commenter stated that such a re-determination immediately after the de-
SPAC transaction is inconsistent with the Commission's objective of 
aligning the requirements with those of IPOs.\643\ Another commenter 
indicated that the change could be problematic for certain 
transactions, such as ``where (1) the SPAC is an SRC and the legal 
acquirer, (2) the target company was an SRC prior to the closing of the 
de-SPAC transaction and filed two years of audited financial statements 
and (3) the post-closing public float exceeds $700 million.'' \644\
---------------------------------------------------------------------------

    \642\ Letters from Ernst & Young, Vinson & Elkins.
    \643\ Letter from Ernst & Young.
    \644\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    One commenter stated they did not object to re-determination based 
on public float within a short time following closing of the de-SPAC 
transaction.\645\
---------------------------------------------------------------------------

    \645\ Letter from ABA.
---------------------------------------------------------------------------

    Another commenter recommended an alternative approach to re-
determining SRC status similar to the determination of SRC status used 
by an IPO company filing its initial registration statement under Item 
10(f)(2)(ii) of Regulation S-K but based on ``the revenues and public 
float of the target company that will be the predecessor for financial 
reporting purposes.'' \646\ This commenter proposed the public float 
should be calculated ``as the agreed value of the equity consideration 
payable to the owners of the target company, plus the total outstanding 
shares of the SPAC (valued at $10 per share, or whatever the agreed 
per-share valuation of the equity consideration is), plus any common 
equity to be issued to finance the de-SPAC transaction.'' \647\ The 
commenter further stated, ``The surviving company should have the 
option to redetermine its status based on the number of shares 
outstanding after the closing of the de-SPAC transaction (i.e., 
reflecting redemptions and any equity not issued in the financing 
transaction or as equity consideration), consistent with the last 
sentence of S-K Item 10(f)(2)(ii)(C).'' \648\
---------------------------------------------------------------------------

    \646\ Letter from Vinson & Elkins.
    \647\ Letter from Vinson & Elkins.
    \648\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Several commenters addressed the ramifications of the loss of SRC 
status. Commenters observed that one such ramification is that a 
registration statement filed after the point at which non-SRC status 
must be reflected could require incremental disclosure for a non-SRC, 
such as an additional year of financial statements beyond what was 
provided in the Form S-4 in connection with a de-SPAC transaction.\649\ 
One of these commenters suggested, ``An alternative approach would be 
for a company, upon completion of a de-SPAC transaction, to transition 
into or out of SRC status in conjunction with the annual report to be 
filed for the year of the transaction based upon the public float as of 
the later of four business days after the merger transactions or the 
end of the second fiscal quarter.'' \650\ The commenter also added, 
``Such a revision could still result in an SRC merging with a public 
shell exiting SRC status more quickly than under current rules while 
mitigating the burden and inconsistency of providing incremental 
information not previously required for companies accessing the public 
market shortly after the de-SPAC transaction.'' \651\
---------------------------------------------------------------------------

    \649\ Letters from Ernst & Young (``For example, the proposed 
redetermination timing could result in a post-business combination 
company losing its SRC status and having to provide an additional 
year of audited financial statements (i.e., for the year preceding 
the earliest period included in the Form S-4/proxy) in a follow-on 
registration statement. . . .''), Grant Thornton (``the proposed 
rule would preclude the post-combination entity to use scaled 
disclosure alternatives in registration statements filed after it 
files the first periodic report on Form 10-Q but before it files its 
first annual report on Form 10-K.''), Vinson & Elkins (``If the 
post-closing public float exceeds $700 million, the post-closing 
company would be required to include three years of audited 
financial statements in its annual report and any registration 
statement, which may be more than what was included in the Form S-4 
or proxy statement filed in connection with the de-SPAC 
transaction.'').
    \650\ Letter from Ernst & Young.
    \651\ Letter from Ernst & Young.
---------------------------------------------------------------------------

    Another commenter recommended that the Commission consider whether 
``accommodations may be warranted to the post-combination entity 
regarding presentation of audited financial statements and related 
information (such as MD&A or separate financial statements of 
significant equity method investees) for periods prior to those 
presented in the Form S-4 or F-4 for the private operating company.'' 
\652\
---------------------------------------------------------------------------

    \652\ Letter from Grant Thornton (``We note that while the 
provision in Section 7(a)(2)(A) of the Securities Act for providing 
only two years of audited financial statements is limited to initial 
registration statements, the SEC staff does not object if emerging 
growth companies (EGCs) do not present, in other registration 
statements, audited financial statements for any periods prior to 
the earliest audited period presented in its initial registration 
statement,'' citing Generally Applicable Questions on Title I of the 
JOBS Act, Question 12).
---------------------------------------------------------------------------

    One commenter recommended that the Commission clarify whether an 
amendment to a Form 8-K with Form 10 information (often referred to as 
a ``super 8-K'') to include pre-acquisition annual financial statements 
of the private operating company ``will be deemed to be the first 
periodic report for the purposes of effectiveness of the SRC status in 
connection with a de-SPAC transaction'' in circumstances where a de-
SPAC transaction is consummated shortly after the fiscal year-end of 
the private operating company but before its financial statements for 
that annual period are required in a Form 10 registration 
statement.\653\
---------------------------------------------------------------------------

    \653\ Letter from Grant Thornton.
---------------------------------------------------------------------------

    Another commenter recommended, for purposes of determining whether 
the post-de-SPAC registrant may exclude management's assessment of 
internal control over financial reporting in the Form 10-K covering the 
fiscal year in which the transaction was consummated, that the 
Commission codify the staff's view \654\ that a SPAC's need to file an 
amended super 8-K to update the target company's financial statements 
for its most recent year[hyphen]end is the equivalent to the first 
annual report.\655\
---------------------------------------------------------------------------

    \654\ Letter from BDO USA, LLP (June 13, 2022) (``BDO''). See 
CDI 215.02 Division of Corporation Finance, Compliance and 
Disclosure Interpretations: Regulation S-K, Section 215.02, 
available at https://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm.
    \655\ The Commission views this comment from BDO, which 
discussed considering the amended ``super 8-K'' as the first annual 
report following the de-SPAC transaction, as a different comment 
than the one from Grant Thornton, supra note 653, which discussed 
considering the amended ``super 8-K'' as the first periodic report 
following the de-SPAC transaction.
---------------------------------------------------------------------------

    Another commenter stated that the Commission ``should revisit and 
revise

[[Page 14218]]

its guidance in 5230.1 of the Division of Corporation Finance's 
Financial Reporting Manual, which could result in more information 
being required in a Super 8-K . . . than would be required in a Form S-
1 for the target company.'' \656\
---------------------------------------------------------------------------

    \656\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    In response to a request for comment in the Commission in the 
Proposing Release,\657\ several commenters addressed issues of re-
determination of filer status, EGC status, and FPI status.
---------------------------------------------------------------------------

    \657\ Proposing Release, supra note 7, at 29481 (request for 
comment number 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?'').
---------------------------------------------------------------------------

    Some commenters recommended that the Commission should put post-de-
SPAC transaction registrants on the same footing with respect to filer 
status as a company that has recently undertaken an IPO, because, 
otherwise, where a post-de-SPAC transaction registrant inherits the 
SPAC's reporting history, this could impact the timing of when the 
post-de-SPAC transaction registrant becomes subject to accelerated 
filing obligations.\658\ Other commenters suggested the Commission 
should further analyze or consider the issue.\659\
---------------------------------------------------------------------------

    \658\ See letters from BDO (``If a de[hyphen]SPAC transaction is 
considered the equivalent of an IPO, it is not clear why the 
post[hyphen]merger filer status would be treated differently for a 
company that chooses one going[hyphen]public transaction over the 
other.''), Ernst & Young (``We recommend aligning the determination 
of EGC status, filer status and foreign private issuer status for 
the post-business combination company with the requirements that 
apply to a traditional IPO. We believe that, if the post-business 
combination company is not eligible to file a Form S-3 shelf 
registration statement, it would be consistent to disregard the 
SPAC's reporting history for purposes of determining filer status 
(i.e., a post-business combination company would generally be a non-
accelerated filer). Such entities should also be permitted to 
`reset' the EGC clock of five years for considering their status as 
an EGC. We have observed an evolution in the structuring of SPAC 
transactions (e.g., use of a double-dummy structure) that can 
achieve certain financial reporting results (e.g., filer status and 
foreign private issuer status). Therefore, we support aligning the 
redetermination requirements so that the transaction structure would 
not result in financial reporting differences.''), Fenwick & West 
LLP (June 7, 2022) (``Fenwick'') (``The de-SPAC Issuer should 
benefit from the transition, grace periods and other accommodations 
following the Closing Date that IPO Issuers benefit from following 
the Effective Date (for example, the de-SPAC Issuer should benefit 
from the same exemption from Sarbanes-Oxley Act Section 404(a) 
compliance under Item 308 of Regulation S-K [17 CFR 229.308] in 
respect of its first Annual Report on Form 10-K filed after the 
Closing Date.''), Vinson & Elkins.
    \659\ Letters from KPMG (``we recommend the Commission consider 
clarifying the determination of the combined company's filer status 
upon consummation of the de-SPAC transaction.''), PwC (``We believe 
that the underlying policy objectives associated with each type of 
filer status should be evaluated to determine whether the goals 
would be furthered by re-determination. . . .For instance, in 
proposing that the post-business combination company re-determine 
its smaller reporting company status shortly after consummating the 
de-SPAC transaction. . . .We support the proposal to require timely 
re-determination in this circumstance. We believe a similar analysis 
should be undertaken with respect to other statuses.'').
---------------------------------------------------------------------------

    A few commenters recommended that the EGC status of the combined 
company following a de-SPAC transaction should be re-determined upon 
consummation of the de-SPAC transaction.\660\
---------------------------------------------------------------------------

    \660\ Letters from Ernst & Young (``We recommend aligning the 
determination of EGC status, filer status and foreign private issuer 
status for the post-business combination company with the 
requirements that apply to a traditional IPO. . . . Such entities 
should also be permitted to `reset' the EGC clock of five years for 
considering their status as an EGC.''), KPMG (recommending the 
Commission consider clarifying the determination of a combined 
company's filer status, including EGC status, upon consummation of a 
de-SPAC transaction), PwC (supporting SRC re-determination proposal 
and stating that ``We support the proposal to require timely re-
determination in this circumstance. . . . We believe a similar 
analysis should be undertaken with respect to other statuses.''), 
Vinson & Elkins.
---------------------------------------------------------------------------

    Several commenters, including some who made recommendations 
regarding EGC status, recommended that the Commission provide for re-
determination of FPI status in connection with the de-SPAC 
transaction.\661\
---------------------------------------------------------------------------

    \661\ Letters from Ernst & Young, KPMG, Vinson & Elkins.
---------------------------------------------------------------------------

    One commenter noted that they have ``observed an evolution in the 
structuring of SPAC transactions (e.g., use of a double-dummy 
structure) that can achieve certain financial reporting results (e.g., 
filer status and foreign private issuer status)'' and expressed support 
for ``aligning the redetermination requirements so that the transaction 
structure would not result in financial reporting differences.'' \662\
---------------------------------------------------------------------------

    \662\ Letter from Ernst & Young.
---------------------------------------------------------------------------

    Another commenter stated: ``Allowing redetermination of foreign 
private issuer status would result in disclosure requirements and filer 
status determinations that are consistent with what would apply if the 
target company went public via an IPO, without regard to the de-SPAC 
transaction structure. A de-SPAC transaction may be structured so that 
an entity other than the SPAC is the acquiror for tax reasons, due to 
the domicile of the surviving company, or due to required consents and 
approvals applicable to the target company. Aligning the disclosure 
requirements so that, for example, a target company that would have 
qualified as a foreign private issuer could be acquired by a domestic 
SPAC and then the surviving company could be immediately eligible for 
foreign private issuer status would allow de-SPAC transactions to be 
structured in the best interests of shareholders.'' \663\ Similar views 
were expressed by another commenter.\664\
---------------------------------------------------------------------------

    \663\ Letter from Vinson & Elkins.
    \664\ See letter from Freshfields.
---------------------------------------------------------------------------

3. Final Rules and Guidance
    After considering the comments received, we are adopting amendments 
regarding SRC re-determination as proposed with certain modifications 
discussed below. We are not adopting requirements, as suggested by 
several commenters, to re-determine filer status, EGC status, or FPI 
status upon the completion of a de-SPAC transaction. We are providing 
guidance, however, concerning FPI status, as discussed further below.
    Currently, most SPACs qualify as SRCs,\665\ and Commission rules 
permit a post-business combination company after a de-SPAC transaction 
\666\ to retain this status until its next annual determination date in 
cases where the legal entity that was the SPAC is the legal entity that 
is the combined company in connection with the de-SPAC transaction. 
Under current rules, the absence of a re-determination of SRC status 
upon the completion of these de-SPAC transactions has permitted certain 
post-business combination companies to avail themselves of scaled 
disclosure and other accommodations when they otherwise would not have 
qualified as a SRC had they become public companies through a 
traditional IPO. The final rules will help level the playing field with 
a traditional IPO in this respect and reduce information asymmetries 
that result when a target company

[[Page 14219]]

chooses to go public through a de-SPAC transaction.\667\
---------------------------------------------------------------------------

    \665\ Based on data from SPACInsider (using fields ``IPO Date'' 
(2021) and ``SPAC Status'' (Searching)), the Commission staff 
observed that out of 163 SPACs that had an IPO in 2021 and had not 
found a target company by the end of 2021, only two SPACs had 
outstanding shares of more than 70,000,000. Assuming a per share 
price of $10 at the time of the IPO and no changes in outstanding 
shares since the time of the IPO, the Commission staff views this 
data as indicating that the 161 other SPACs among that cohort did 
not have a float at the time of IPO of more than $700 million, the 
threshold under paragraph (2)(ii) of the definition of ``smaller 
reporting company'' in Rule 12b-2. (In an actual public float 
calculation for purposes of the ``smaller reporting company'' 
definition, affiliate shares would be subtracted from total 
outstanding shares used in this example, resulting in a lower value 
than produced in this example, because the applicable value would be 
multiplied by fewer shares.) With respect to the $100 million 
revenue test under paragraph (2) of the definition of ``smaller 
reporting company'' in Rule 12b-2, income statement items such as 
``Interest earned on marketable securities held in trust account'' 
and ``Unrealized gain on marketable securities held in trust 
account'' are generally not revenue for SPACs and SPACs typically do 
not record revenue.
    \666\ See Item 10(f)(2) of Regulation S-K; Securities Act Rule 
405; Exchange Act Rule 12b-2.
    \667\ In the Proposing Release, the Commission said, if a SPAC 
qualified as an SRC 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 SRCs when filing a registration statement between 
the re-determination date and the post-business combination 
company's first periodic report. Proposing Release, supra note 7, at 
29480. For the avoidance of any doubt on the part of registrants 
related to the references to ``legal acquirer'' in the Proposing 
Release, the Commission is clarifying that the final rules we are 
adopting--that provide re-determined SRC status be reflected in 
filings 45 days after consummation of the de-SPAC transaction--are 
not strictly limited to that particular transaction structure for 
the de-SPAC transaction and apply to any post-de-SPAC transaction 
combined company registrant that is the same legal entity as the 
legal entity that was a SPAC (prior to the de-SPAC transaction) 
regardless of the structure of the de-SPAC transaction.
---------------------------------------------------------------------------

    As adopted, a post-de-SPAC transaction registrant must re-determine 
its SRC status prior to the time it makes its first Commission filing, 
other than the Form 8-K filed with Form 10 information, with public 
float measured as of a date within four business days after the 
consummation of the de-SPAC transaction and annual revenues measured 
using the annual revenues of the target company as of the most recently 
completed fiscal year reported in such Form 8-K.
    We disagree with the commenter who recommended an alternative 
approach similar to the SRC determination for IPO companies under Item 
10(f)(2)(ii) of Regulation S-K but based on the revenues and public 
float of the target company that will be the predecessor for financial 
reporting purposes.\668\ In an IPO, with respect to public float, Item 
10(f)(2)(ii) looks to: the estimated offering price per share at the 
time of filing of the registration statement; the number of shares of 
common stock outstanding that are held by non-affiliates before the 
offering; and the number of shares of common stock to be sold at the 
estimated offering price. Item 10(f)(2) of Regulation S-K also gives 
the registrant the option to recalculate its public float at the time 
the company completes the IPO. As described above, under the 
commenter's suggested approach, the SRC determination would be made 
prior to the filing of the de-SPAC registration statement or proxy 
statement using an ``agreed value'' method.\669\ Although Item 
10(f)(2)(ii) does allow for the use of estimations in the IPO context, 
we believe that the approach we are adopting, which focuses on a 
determination of SRC status based on actual post-transaction public 
float, is a more effective measure of the registrant's size in the 
context of a de-SPAC transaction. While in many cases the commenter's 
suggested recalculation after closing to capture the actual number of 
shares outstanding would result in the same determination of SRC status 
post-transaction, the adopted approach helps to ensure the appropriate 
level of disclosures to investors both before and after the closing of 
the transaction.
---------------------------------------------------------------------------

    \668\ Letter from Vinson & Elkins. See supra notes 646, 647, and 
648 and accompanying text.
    \669\ See id.
---------------------------------------------------------------------------

    Pursuant to the final rules, the four-business-day window to 
calculate the public float threshold following a de-SPAC transaction 
would begin the first business day after the day of closing of the de-
SPAC transaction and end four business days later (on the due date for 
the Form 8-K with Form 10 information that the post-de-SPAC transaction 
combined company registrant is required to file after the completion of 
a de-SPAC transaction). Each of the number of shares outstanding that 
are held by non-affiliates and the price per share would be determined 
on the same day within the four-business-day window. This window will 
provide some flexibility for issuers to measure public float compared 
to the annual re-determination of SRC status (which is determined based 
on a single business day, the last business day of the most recently 
completed second fiscal quarter). This four-business-day window will 
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.
    Under the proposed rule, a post-de-SPAC transaction registrant 
would be required to reflect its re-determined SRC status in its next 
periodic report after the filing of the Form 8-K with Form 10 
information (often referred to as a ``super 8-K''). We are aware that, 
if a registrant loses SRC status upon re-determination, there may be 
certain ramifications. Several commenters observed that one such 
ramification is that a registration statement filed after the point at 
which non-SRC status must be reflected could require incremental 
disclosure for a non-SRC, such as an additional year of financial 
statements beyond what was provided in the Form S-4 in connection with 
a de-SPAC transaction.\670\ Inclusion of such incremental disclosure as 
a result of losing SRC status might present challenges for some 
registrants in situations where a periodic report becomes due shortly 
after the closing of the de-SPAC transaction.\671\
---------------------------------------------------------------------------

    \670\ Letters from Ernst & Young, Grant Thornton, Vinson & 
Elkins. See supra note 649.
    \671\ See letters from Vinson & Elkins (indicating that the 
issue is particularly acute ``if the post-closing company's first 
annual report is due shortly after closing or the company is 
required to file a registration statement after the company's first 
periodic report,'' and advocating for a redetermination based on 
Item 10(f)(2)(ii) (as discussed above), but stating that ``longer 
periods or accommodations could ameliorate the issues with the 
proposed amendments to S-K Item 10(f)''), Ernst & Young (indicating 
that ``companies [could be] required to provide additional 
information in a follow-on registration statement as soon as four 
days after the de-SPAC transaction'').
---------------------------------------------------------------------------

    In response to these comments, in a change from the proposal, the 
final rules provide that a registrant does not need to reflect non-SRC 
status in any filing that is due in the 45-day period following the 
consummation of the de-SPAC transaction; the registrant would begin to 
reflect non-SRC status in filings made no later than after the end of 
this 45-day period. In contrast, under the proposal, a registrant would 
have needed to reflect non-SRC status in its next periodic report that 
could be due as soon as one day after the filing of the ``super 8-K,'' 
which is due a maximum of four days after the consummation of the de-
SPAC transaction. We believe the final rule represents a reasonable 
compromise between the proposed rule's transition period (until the 
next periodic report, which could be as soon as one day after the de-
SPAC transaction) and a commenter's recommended transition period 
(until filing of the next Form 10-K, which could be as long as nearly 
15 months). Another benefit of affording this additional time to 
registrants that lose SRC status upon re-determination is that, where 
the registrant intends to file a resale registration statement shortly 
after the de-SPAC transaction, the registrant will retain its SRC 
status for purposes of any such resale registration statement filed 
during this additional time period.\672\
---------------------------------------------------------------------------

    \672\ Section 230.401(a) of title 17 of the CFR states that a 
registration statement shall conform to the applicable rules and 
forms in effect on the initial filing date of such registration 
statement, and the rule would apply to SRC status. Accordingly, if 
the registrant is an SRC at the initial public filing date of the 
resale registration statement, then it may comply with rules for an 
SRC in subsequent amendments of that registration statement.
---------------------------------------------------------------------------

    We are not adopting the commenter's recommendation to exclude, in 
post-de-SPAC transaction filings, any financial statements that predate 
the financial statements presented in the Form S-4.\673\ In our view a 
registrant that is re-determined to be a non-SRC should not be able to 
avail itself of the scaled-down requirements applicable to SRCs.

[[Page 14220]]

Furthermore, we believe the adopted approach will provide registrants 
with sufficient time to prepare the additional incremental information 
that may be required in a situation where the registrant has lost its 
SRC status. We further note that a registrant that loses SRC 
eligibility may continue to be an EGC, which includes certain scaled 
reporting accommodations. In light of new Rule 15-01(b), which requires 
a business combining with a shell company to comply with Regulation S-X 
as if the transaction were an IPO of common equity securities, we 
believe that if the registrant retained its EGC status after the 
transaction, then the registrant would not be required to present 
audited financial statements for any period prior to the earliest 
audited period presented in connection with the de-SPAC transaction. We 
evaluated whether a minimum transition period should be longer or 
shorter than 45 days. We concluded that 45 days provided an appropriate 
balance between providing investors with the scaled-up information as 
soon as reasonably possible and providing registrants with time to 
prepare for compliance and the ability, in a limited number of 
instances,\674\ to avoid the costs of preparing an additional year of 
audited financial statements beyond what was required in the Form S-4.
---------------------------------------------------------------------------

    \673\ Letter from Grant Thornton. See supra note 652 and 
accompanying text.
    \674\ We understand that most post-de-SPAC registrants would be 
EGCs and would not be required to file the additional year of 
financial statements in reliance on the EGC accommodations.
---------------------------------------------------------------------------

    Commenters also requested guidance on certain issues. One commenter 
recommended that the Commission clarify whether an amendment to a 
``super 8-K'' could be the first periodic report for the purposes of 
effectiveness of the SRC status.\675\ Under the final rules, any filing 
made 45 days after the consummation of the de-SPAC transaction must 
reflect re-determined SRC status, including a filing to amend a ``super 
8-K.''
---------------------------------------------------------------------------

    \675\ Letter from Grant Thornton. See supra note 653.
---------------------------------------------------------------------------

    Unrelated to SRC re-determination, other commenters recommended 
codification of, or revisions to, staff guidance relating to the 
position that a SPAC's need to file an amended Form 8-K to update the 
target company's financial statements for its most recent 
year[hyphen]end is the equivalent to the first annual report \676\ and, 
separately, the guidance in FRM 5230.1, which summarizes the 
Commission's basis for requiring Form 10 information under Item 2.01(f) 
of Form 8-K and how the staff looks to the accounting acquirer's SRC-
eligibility at the time of the transaction for purposes of the 
disclosure in the Form 8-K.\677\ We do not believe that such 
codification or revisiting of the referenced staff guidance is 
necessary in connection with the final amendments. We believe the 
guidance in FRM 5230.1 is consistent with the final rules because the 
final rules look to the target company's SRC-eligibility in all shell 
company transactions, including where the target company is the 
accounting acquirer.
---------------------------------------------------------------------------

    \676\ Letter from BDO that references Division of Corporation 
Finance, Compliance and Disclosure Interpretations: Regulation S-K, 
Section 215.02, which discusses the application of management's 
assessment of internal control over financial reporting (ICFR) in 
Item 308(a) of Regulation S-K when there has been a reverse 
acquisition between an issuer and a private operating company. See 
further discussion of the application of ICFR at infra note 685.
    \677\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

    Rule 12b-2 provides the definitions of accelerated filer and large 
accelerated filer, including requisite conditions.\678\ Accelerated 
filer and large accelerated filer status are re-determined annually as 
of the end of the issuer's fiscal year.\679\ For a new registrant that 
just completed an IPO, however, a period of at least twelve months 
would need to elapse before it would be required to comply with rules 
as an accelerated filer or a large accelerated filer.\680\ In contrast, 
after consummation of the de-SPAC transaction, depending on the timing 
of the SPAC IPO and the de-SPAC transaction, because of the SPAC's 
reporting history, where the legal entity that was the SPAC is the same 
legal entity that is the post-de-SPAC transaction combined company, the 
post-de SPAC transaction combined company may not have the same period 
until it must make filings pursuant to accelerated filer or large 
accelerated filer status as compared to a registrant that just 
completed an IPO.\681\ By virtue of being an accelerated or large 
accelerated filer, among other differences compared to a non-
accelerated or non-large accelerated filer, the post-de-SPAC 
transaction combined registrant would be required to: (a) file its 
periodic reports sooner than otherwise required; \682\ and (b) subject 
its management's assessment of internal controls over financial 
reporting to auditor attestation.\683\ As noted above, several 
commenters recommended that the Commission put post-de-SPAC transaction 
registrants on the same footing with respect to filer status as a 
company that has recently undertaken an IPO.\684\
---------------------------------------------------------------------------

    \678\ The four existing conditions for qualifying as an 
accelerated filer are that an issuer: (i) had an aggregate worldwide 
public float of $75 million or more, but less than $700 million, as 
of the last business day of the issuer's most recently completed 
second fiscal quarter; (ii) has been subject to the requirements of 
15 U.S.C. 78m (Exchange Act section 13(a)) or 15 U.S.C. 78o(d) 
(Exchange Act section 15(d)) for a period of at least twelve 
calendar months; (iii) has filed at least one annual report pursuant 
to those sections; and (iv) the issuer is not eligible to use the 
requirements for SRCs under the revenue test in paragraph (2) or 
(3)(iii)(B) of the ``smaller reporting company'' definition in Rule 
12b-2, as applicable. For a large accelerated filer, conditions (ii) 
through (iv) are the same, but condition (i) is that an issuer had 
an aggregate worldwide public float of $700 million or more, as of 
the last business day of the issuer's most recently completed second 
fiscal quarter. See paragraphs (1) and (2) in the definition of 
``accelerated filer and large accelerated filer'' in Rule 12b-2.
    \679\ See paragraphs (1), (2), and (3) in the definition of 
``accelerated filer and large accelerated filer'' in Rule 12b-2.
    \680\ See paragraph (1)(ii) in the definition of ``accelerated 
filer and large accelerated filer'' in Rule 12b-2 (``The issuer has 
been subject to the requirements of section 13(a) or 15(d) of the 
Act (15 U.S.C. 78m or 78o(d)) for a period of at least twelve 
calendar months;'') and paragraph (2) in the definition.
    \681\ If a new holding company is created to effect the de-SPAC 
transaction and the new holding company is the post-de-SPAC 
transaction combined company that will continue to be an Exchange 
Act reporting company, the same logic applies because the holding 
company would be the Exchange Act reporting successor to the SPAC. 
See definition of ``Succession'' in Exchange Act Rule 12b-2, 17 CFR 
240.12g-3.
    \682\ See Form 10-Q, General Instruction A.1; Form 10-K, General 
Instruction A(2).
    \683\ 17 CFR 229.308(b). A registrant's status as an accelerated 
filer or a large accelerated filer triggers the requirement 
contained in section 404(b) of the Sarbanes-Oxley Act to have the 
auditor provide an attestation report on internal control over 
financial reporting.
    \684\ See letters from BDO, Ernst & Young, Fenwick, Vinson & 
Elkins.
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    One of the main consequences of the approach suggested by these 
comments--that the reporting history of the SPAC should be disregarded 
such that the post-de-SPAC transaction combined company could 
recommence the 12-month period that must elapse (pursuant to paragraphs 
(1)(ii) and (2)(ii) in the definition of ``accelerated filer and large 
accelerated filer'' in Rule 12b-2) before it is possible to acquire 
accelerated or large accelerated filer status--would be to delay 
management's assessment of internal control over financial reporting 
and outside auditor attestation of management's assessment for 
companies that are not EGCs. We do not believe it is necessary or 
appropriate to amend the filer status requirements for this reason; 
however, we note that the Commission staff has taken the position that 
under certain conditions, the Commission staff would not object if the 
post-combination registrant were to exclude management's assessment of 
internal control over financial reporting in the Form 10-K covering the 
fiscal

[[Page 14221]]

year in which the transaction was consummated.\685\ Since the staff 
position about management's assessment of internal control over 
financial reporting is broader than the transactions covered by this 
rulemaking, as it applies to reverse acquisitions between an issuer and 
a private operating company, we did not codify it as part of this 
rulemaking.
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    \685\ See Division of Corporation Finance, Compliance and 
Disclosure Interpretations: Regulation S-K, Section 215.02, 
available at https://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm, which states that the staff would not object if a 
surviving issuer in a reverse acquisition were to exclude 
management's assessment of internal control over financial reporting 
(ICFR) in the Form 10-K covering the fiscal year in which the 
reverse acquisition was consummated when it is not possible to 
conduct an assessment of the private operating company's ICFR in the 
period between the consummation date of the reverse acquisition and 
the date of management's assessment of ICFR required by Item 308(a) 
of Regulation S-K and when the internal controls of the shell 
company may be insignificant when compared to the consolidated 
entity.
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    In 2012, the Jumpstart Our Business Startups Act amended the 
Securities Act and Exchange Act to add provisions regarding and to 
define an ``emerging growth company.'' \686\ Commission rules also 
define an ``emerging growth company.'' \687\ The Commission has amended 
the definition of ``emerging growth company'' in the past to adjust the 
total annual revenue threshold in these rules for inflation.\688\
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    \686\ Section 101(a) of the JOBS Act amended the Securities Act 
and the Exchange Act to provide in section 2(a)(19) of the 
Securities Act (15 U.S.C. 77b(a)(19)) and section 3(a)(80) of the 
Exchange Act (15 U.S.C. 78c(a)(80)) a definition of ``emerging 
growth company.'' These statutes provided as follows. An ``emerging 
growth company'' is an issuer that had total annual gross revenues 
of less than $1,000,000,000 (as such amount is indexed for inflation 
every 5 years by the Commission to reflect the change in the 
Consumer Price Index for All Urban Consumers published by the Bureau 
of Labor Statistics, setting the threshold to the nearest 1,000,000) 
during its most recently completed fiscal year. An issuer that is an 
emerging growth company as of the first day of that fiscal year 
shall continue to be deemed an emerging growth company until the 
earliest of--(A) the last day of the fiscal year of the issuer 
during which it had total annual gross revenues of $1,000,000,000 
(as such amount is indexed for inflation every 5 years by the 
Commission to reflect the change in the Consumer Price Index for All 
Urban Consumers published by the Bureau of Labor Statistics, setting 
the threshold to the nearest 1,000,000) or more; (B) the last day of 
the fiscal year of the issuer following the fifth anniversary of the 
date of the first sale of common equity securities of the issuer 
pursuant to an effective registration statement under this 
subchapter; (C) the date on which such issuer has, during the 
previous 3-year period, issued more than $1,000,000,000 in non-
convertible debt; or (D) the date on which such issuer is deemed to 
be a ``large accelerated filer'', as defined in 17 CFR 240.12b-2, or 
any successor thereto.
    \687\ Pursuant to Securities Act Rule 405 and Exchange Act Rule 
12b-2, the term ``emerging growth company'' means an issuer that had 
total annual gross revenues of less than $1.235 billion during its 
most recently completed fiscal year. Pursuant to these rules, if an 
issuer qualifies as an ``emerging growth company'' on the first day 
of its fiscal year, it maintains that status until the earliest of: 
(i) the last day of the fiscal year of the issuer during which it 
had total annual gross revenues of $1.235 billion or more; (ii) 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 under the Securities Act; (iii) the date on 
which the issuer has, during the previous three-year period, issued 
more than $1 billion in nonconvertible debt; or (iv) the date on 
which the issuer is deemed to be a ``large accelerated filer'' (as 
defined in Exchange Act Rule 12b-2).
    \688\ In 2017, the Commission changed the $1 billion revenue 
threshold in these rules to $1.07 billion to account for inflation 
and, effective Sept. 20, 2022, the Commission further changed this 
$1.07 billon threshold to account for inflation to $1.235 billion. 
See Inflation Adjustments and Other Technical Amendments Under 
Titles I and III of the Jobs Act, Release No. 33-10332 (Mar. 31, 
2017) [82 FR 17545 (Apr. 12, 2017)]; Inflation Adjustments under 
Titles I and III of the JOBS Act, Release No. 33-11098 (Sept. 9, 
2022) [87 FR 57394 (Sept. 20, 2022)].
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    A SPAC typically qualifies as an EGC.\689\ A post-de-SPAC 
transaction combined company would lose EGC status on the last day of 
its fiscal year following the fifth anniversary of the first sale of 
its common equity securities pursuant to an effective Securities Act 
registration statement.\690\ A post-de-SPAC transaction combined 
company may also lose EGC status on the last day of a fiscal year 
during which it had total annual gross revenues of $1.235 billion or on 
the date on which it has issued more than $1 billion in nonconvertible 
debt during the previous three-year period.\691\ Finally, a post-de-
SPAC transaction combined company may also lose EGC status on the date 
on which it is deemed to be a ``large accelerated filer'' (as defined 
in Exchange Act Rule 12b-2).\692\
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    \689\ With respect to the $1.235 billion revenue threshold in 
the definition of ``emerging growth company'' under Securities Act 
Rule 405 and Exchange Act Rule 12b-2, a pre-IPO SPAC may have 
limited or no revenue and post-IPO SPACs typically do not record 
revenue (because income statement items such as ``Interest earned on 
marketable securities held in trust account'' and ``Unrealized gain 
on marketable securities held in trust account'' are generally not 
revenue). With respect to the large accelerated filer provision in 
these rules: (a) paragraph (2)(ii) in the definition of 
``accelerated filer and large accelerated filer'' in Rule 12b-2 
requires that the issuer has been subject to the requirements of 
Exchange Act section 13(a) or 15(d) for a period of at least twelve 
calendar months, a period that generally would not yet have elapsed 
for a newly public SPAC after an IPO and (b) paragraph (2)(i) in the 
definition of ``accelerated filer and large accelerated filer'' in 
Rule 12b-2 requires aggregate worldwide market value of the voting 
and non-voting common equity held by non-affiliates be $700 million 
or more, as of the last business day of the issuer's most recently 
completed second fiscal quarter, a value threshold that many SPACs 
may be below. See supra note 665 (discussing frequency of SPACs with 
a market capitalization of greater than $700 million).
    \690\ Paragraph (2)(ii) of the definition of ``emerging growth 
company'' under Securities Act Rule 405 and Exchange Act Rule 12b-2. 
For example, in a case where the legal entity that is the SPAC 
becomes the post-de-SPAC transaction combined company, the five-year 
reference period would run from the date of the IPO of the SPAC and 
not the date of the de-SPAC transaction.
    \691\ Paragraphs (2)(i) and (iii) of the definition of 
``emerging growth company'' under Securities Act Rule 405 and 
Exchange Act Rule 12b-2.
    \692\ Paragraph (2)(iv) of the definition of ``emerging growth 
company'' under Securities Act Rule 405 and Exchange Act Rule 12b-2.
---------------------------------------------------------------------------

    Several commenters recommended that the EGC status of the combined 
company following a de-SPAC transaction should be re-determined upon 
consummation of the de-SPAC transaction.\693\ As with filer status, we 
are not adopting any amendments concerning EGC status at this time but 
will consider whether future adjustments are appropriate.
---------------------------------------------------------------------------

    \693\ See letters from Ernst & Young, KPMG, PwC, Vinson & 
Elkins, supra note 660.
---------------------------------------------------------------------------

    Several commenters addressed determination of FPI status issues 
raised in a request for comment.\694\
---------------------------------------------------------------------------

    \694\ Proposing Release, supra note 7, at 29481 (request for 
comment number 74). See letters from Ernst & Young, KPMG, Vinson & 
Elkins.
---------------------------------------------------------------------------

    A new registrant, such as a SPAC in an IPO, makes the determination 
of its FPI status \695\ as of a date within 30 days prior to filing its 
initial registration statement.\696\ A reporting registrant that seeks 
to file as an FPI is required to determine its FPI status once a year 
on the last business day of its second fiscal quarter.\697\ A 
registrant that qualifies as an FPI upon such determination is 
immediately able to use the forms and rules designated for FPIs.\698\
---------------------------------------------------------------------------

    \695\ See supra note 442.
    \696\ Paragraph (2) of the definition of ``foreign private 
issuer'' in Securities Act Rule 405.
    \697\ Paragraph (3) of the definition of ``foreign private 
issuer'' in Securities Act Rule 405.
    \698\ Paragraph (3) of the definition of ``foreign private 
issuer'' in Securities Act Rule 405.
---------------------------------------------------------------------------

    A domestic SPAC (e.g., incorporated in a U.S. State) that intends 
to enter a de-SPAC transaction with a foreign target company would be 
required to file a Form S-4 (and not a Form F-4), because a domestic 
issuer cannot qualify as an FPI.\699\ Accordingly, where a domestic 
SPAC combines with a target company that is an FPI, the financial 
statements of the foreign target company would have to be presented in 
accordance with U.S. GAAP in Form S-4,\700\ among other differences 
that exist

[[Page 14222]]

between the requirements of Form S-4 and Form F-4.\701\
---------------------------------------------------------------------------

    \699\ See definitions of ``foreign issuer'' and ``foreign 
private issuer'' in Securities Act Rule 405.
    \700\ As the target will be the predecessor to the SPAC and will 
report as a domestic registrant after the de-SPAC transaction, 
including reporting its financial statements on an Item 2.01 Form 8-
K within four business days after the transaction, the target should 
comply with Regulation S-X and provide financial statements in 
accordance with U.S. GAAP.
    \701\ Item 17 of Form S-4.
---------------------------------------------------------------------------

    If such a domestic SPAC registrant were to reincorporate under the 
laws of a foreign country prior to the filing of the registration 
statement in connection with a de-SPAC transaction, that 
reincorporation may require the foreign SPAC, as a new entity, to file 
an initial registration statement. The new entity's FPI status would be 
determined as of a date within 30 days prior to the filing of the 
initial registration statement, as described above. If the new foreign 
entity were to qualify as an FPI, it may be eligible to file a Form F-4 
registration statement in connection with the de-SPAC transaction. 
Currently, the FPI status of the post-de-SPAC transaction combined 
company would not affect the registration form to be filed in 
connection with the de-SPAC transaction, regardless of whether the SPAC 
was an existing registrant or a new foreign entity. Also, currently, 
where the legal entity that was the SPAC is not an FPI and is the legal 
entity that is the combined company following the de-SPAC transaction, 
even where the combined company may meet the definition of an FPI after 
the de-SPAC transaction, the combined company would need to wait until 
the end of the next second fiscal quarter to re-determine its status as 
an FPI.
    Several commenters recommended that we should provide for re-
determination of FPI status in connection with a de-SPAC 
transaction.\702\
---------------------------------------------------------------------------

    \702\ Letters from Ernst & Young, Freshfields, KPMG, Vinson & 
Elkins. See supra notes 662, 663, and 664 and accompanying text.
---------------------------------------------------------------------------

    We have considered these comments and recognize that, depending on 
the structure of a specific de-SPAC transaction, there may be some 
fact-specific circumstances in which an FPI registration statement may 
be used. For example, a SPAC's use of an FPI registration statement 
(e.g., Form F-4) and compliance with FPI rules in connection with the 
de-SPAC transaction may be appropriate when, as of a date within 30 
days prior to the filing of the de-SPAC transaction registration 
statement, the SPAC is a foreign issuer that is entering a de-SPAC 
transaction with a target company that is an FPI but is not a shell 
company, the legal entity that is the SPAC will be the legal entity 
that is the combined company registrant following the de-SPAC 
transaction, and the combined company registrant created in connection 
with the de-SPAC transaction is expected to be an FPI at the time of 
consummation of the de-SPAC transaction.
    Contrary to the suggestion of some commenters,\703\ we believe that 
earlier re-determination of FPI status would be inappropriate when a 
SPAC is a domestic SPAC (and therefore not a foreign issuer) prior to 
the de-SPAC transaction but enters a de-SPAC transaction with an FPI 
target company. If the legal entity that is the SPAC is a domestic 
entity, the combined company following the de-SPAC transaction would 
also be a domestic entity, in which case use of FPI forms would not be 
appropriate.
---------------------------------------------------------------------------

    \703\ Letters from Freshfields, Vinson & Elkins. See supra notes 
663 and 664 and accompanying text.
---------------------------------------------------------------------------

E. PSLRA Safe Harbor

1. Proposed Rules
    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 conditions, the forward-looking statement is identified as such 
and is accompanied by meaningful cautionary statements.\704\ Under the 
PSLRA, the safe harbor is not available, however, when a forward-
looking statement is made in connection with, among other things, an 
offering by a blank check company, an offering by an issuer of penny 
stock, or an IPO.\705\
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    \704\ 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.
    \705\ Section 27A(b) of the Securities Act and section 21E(b) of 
the Exchange Act. 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. SPACs 
that raise more than $5 million in a firm commitment underwritten 
IPO may be excluded from this definition of ``blank check company'' 
because they are not selling ``penny stock.'' See Penny Stock 
Definition for Purposes of Blank Check Rule, Release No. 33-7024 
(Oct. 25, 1993) [58 FR 58099 (Oct. 29, 1993)]. The Commission's 
definition of ``blank check company'' in Rule 419 was adopted in 
1992 to implement provisions of the Penny Stock Reform Act relating 
to registration statements filed by blank check companies offering 
penny stock. This definition predates the PSLRA (which was enacted 
in 1995) and has not been amended since it was adopted by the 
Commission.
---------------------------------------------------------------------------

    The Proposing Release discussed the Commission's concerns about the 
use of forward-looking statements, such as projections, in connection 
with de-SPAC transactions.\706\ The Commission stated that some market 
participants in de-SPAC transactions may not exercise the same level of 
care in preparing forward-looking statements, such as projections, as 
in a traditional IPO.\707\ The Commission also noted that a number of 
commentators had raised concerns about the use of projections that they 
believe to be unreasonable in de-SPAC transactions.\708\ In addition, 
the Commission stated that it saw 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 IPO and thus are not selling penny stock.\709\
---------------------------------------------------------------------------

    \706\ Proposing Release, supra note 7, at 29482.
    \707\ Proposing Release, supra note 7, at 29482, n.162 and 
preceding text, citing, 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, 
Wall St. J., Mar. 15, 2021; Public Statement on SPACs, IPOs and 
Liability Risk under the Securities Laws (Division of Corporation 
Finance, Apr. 8, 2021).
    \708\ Proposing Release, supra note 7, at 29482, n.163 and 
preceding text, citing, see, e.g., Dambra, Even-Tov & George, supra 
note 36; AFR Letter, supra note 30; Park Testimony, supra note 30; 
Usha R. Rodrigues & Michael Stegemoller, SPACs: Insider IPOs (SSRN 
Working Paper, 2021).
    \709\ Proposing Release, supra note 7, at 29482.
---------------------------------------------------------------------------

    To address these concerns, the Commission proposed using its 
statutory authority under the PSLRA to amend the definition of ``blank 
check company'' \710\ to include companies that would otherwise meet 
the Securities Act Rule 419 definition of ``blank check company,'' 
except that they are not issuers of penny stock (such as a SPAC in a 
de-SPAC transaction).\711\ Specifically, the Commission proposed a 
revised definition of ``blank check company'' to be located in 
Securities Act Rule 405 that would, for purposes of the PSLRA, remove 
the ``penny stock'' condition from the rule and 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.'' \712\
---------------------------------------------------------------------------

    \710\ See, e.g., Securities Act section 27A(b)(7) (``The terms 
`blank check company', `rollup transaction', `partnership', `limited 
liability company', `executive officer of an entity' and `direct 
participation investment program', have the meanings given those 
terms by rule or regulation of the Commission.'').
    \711\ The target company typically cannot rely on the PSLRA safe 
harbor because at the time the statement is made it is not subject 
to the reporting requirements of section 13(a) or section 15(d) of 
the Securities Exchange Act of 1934 and thus does not meet the 
requirements of section 27A(a)(1) of the Securities Act.
    \712\ The Commission also proposed to amend the definition to 
remove the reference to ``development stage company'' on the basis 
that the reference was unnecessary for purposes of the proposed 
definition.

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

[[Page 14223]]

    The Commission proposed corresponding technical changes to Rule 
419, the rule the Commission adopted to implement provisions of the 
Penny Stock Reform Act relating to registration statements filed by 
blank check companies offering penny stock, that were intended to 
maintain consistency with that rule's historic scope which is limited 
to blank check companies that issue penny stock. Similarly, the 
Commission proposed a new definition in Rule 405, ``Blank check company 
issuing penny stock,'' and proposed conforming amendments to existing 
references to ``blank check company'' as defined in Rule 419 in various 
Securities Act rules in order to maintain the scope of those 
rules.\713\
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    \713\ Proposed amendments to 17 CFR 230.137 (``Rule 137''), 
230.138 (``Rule 138''), 230.139 (``Rule 139''), 230.163A (``Rule 
163A''), 230.164 (``Rule 164''), 230.174 (``Rule 174''), 230.430B 
(``Rule 430B''), and 230.437a (``Rule 437a''). The Commission 
proposed that the term ``blank check company issuing penny stock'' 
be defined as a company that is subject to Rule 419. Due to current 
Federal Register formatting requirements, the Commission also 
proposed technical changes to Rules 163A and 164 to move the 
Preliminary Note(s) in these rules to introductory paragraphs of the 
respective rules.
---------------------------------------------------------------------------

2. Comments
    A number of commenters expressed general support for the 
proposal.\714\ One of these commenters said, ``Both the regular IPO and 
de-SPAC approaches for taking a new, emerging company public should be 
treated similarly in this critical area for market integrity--the 
legitimacy of forward-looking projections.'' \715\ Other commenters 
said they did not see a reason SPACs should be treated differently than 
traditional IPO participants \716\ or companies that issue penny stock 
\717\ with respect to forward-looking statements. One commenter focused 
on the benefits of mitigating the risk of harm to investors, stating 
that the proposal ``would significantly curb SPAC sponsors' abilities 
to make overblown and false projections, and increase their liability 
when this fraud occurs.'' \718\ Another commenter said that ``[t]his 
safe harbor enables SPAC sponsors and underwriters to make future 
projections of the performance of the SPAC to investors with relative 
impunity. This legal loophole enables SPAC sponsors to sell investors 
on bold projections that have little basis in reality. These legal 
loopholes, including the PSLRA safe harbor, among others, have created 
a regulatory arbitraged race-to-the-bottom IPO model. . . .'' \719\ 
This commenter further said, ``It is clear that far too many SPAC 
sponsors have utilized the PSLRA safe harbor to paint bold and enticing 
pictures of the financial outlook of their post-merger companies that 
were divorced from reality. . . . The safe harbor from the PSLRA for 
forward-looking statements in de-SPAC transactions has fueled this 
trend, undermined public confidence in our capital markets, and harmed 
investors by enabling SPAC sponsors to make reckless projections about 
future financial performance. In any final rule, the Proposal must 
retain the clarification that the PSLRA safe harbor does not apply in 
connection with de-SPAC transactions.'' A separate commenter similarly 
said that ``amending the definition of a `blank check' company in The 
Private Securities Litigation Reform Act of 1995 would prevent SPACs 
from exploiting the safe harbor provision to make overblown and 
fraudulent projections.'' \720\ Another commenter said the proposal 
``would resolve ambiguities about how the law applies in this context 
and promote accountability for SPAC market participants.'' \721\
---------------------------------------------------------------------------

    \714\ Letters from Andrew Tuch, Americans for Financial Reform 
Education Fund (``Amending the definition of a `blank check company' 
and ensuring that the forward-looking projections of SPACs are 
subject to the same level of legal liability that currently exists 
for IPOs is an important step to protect investors.''), Better 
Markets (``Perhaps one of the most important provisions in the 
Proposal is the provision clarifying that the statutory safe harbor 
in the PSLRA does not apply to forward-looking statements made in 
connection with a de-SPAC transaction.''), CFA Institute, CII, 
Consumer Federation, Senator Elizabeth Warren, ICGN, NASAA.
    \715\ Letter from CFA Institute.
    \716\ Letter from NASAA.
    \717\ Letters from Consumer Federation, NASAA.
    \718\ Letter from Senator Elizabeth Warren.
    \719\ Letter from Better Markets.
    \720\ Letter from Senator Elizabeth Warren.
    \721\ Letter from Consumer Federation.
---------------------------------------------------------------------------

    A number of commenters suggested that unreasonably optimistic or 
inflated projections are prevalent in de-SPAC transactions.\722\ One of 
these commenters said that SPACs sometimes make ``utterly absurd 
forward-looking projections.'' \723\ This commenter also said, ``Post-
merger investors in SPACs, who are predominantly retail investors, are 
often lured by ambitious projections of growth--made with the 
protection of the safe harbor--and unfortunately have already lost 
significant amounts of money as a result.'' A different commenter said, 
``In fact, it is nearly impossible to ignore the research and findings 
of the wild and indiscriminate use of projections in de-SPAC 
transactions by sponsors with seemingly little care given to the 
accuracy or reality of those projections.'' \724\ Another of these 
commenters said that ``too many of these de-SPAC forward-looking 
statements are an exercise in creative writing, baseless hype and 
embellishment.'' \725\ Another commenter said, ``We believe historical 
uncertainty surrounding the availability of the safe harbor may have 
contributed to the proliferation of unreasonably optimistic forward 
projections that would not have been made if liability had more clearly 
paralleled the traditional IPO regime.'' \726\ Finally, one commenter 
said that ``SPACs are rife with disclosures that border on or cross 
into outright fraud'' and that ``there have been multiple cases where 
companies used inflated information about their financials, their 
future business, or even their underlying technology.'' \727\
---------------------------------------------------------------------------

    \722\ Letters from Americans for Financial Reform Education 
Fund, Better Markets, CFA Institute, CII, Senator Elizabeth Warren.
    \723\ Letter from Americans for Financial Reform Education Fund.
    \724\ Letter from Better Markets.
    \725\ Letter from CFA Institute.
    \726\ Letter from CII.
    \727\ Letter from Senator Elizabeth Warren.
---------------------------------------------------------------------------

    Several commenters expressed support for the proposal because they 
believed it would curb the use of unrealistic and potentially 
misleading projections that harm investors.\728\ One of these 
commenters said, ``We support the proposal's revision to the definition 
of `blank check company' to ensure that the safe harbor against a 
private right of action for forward-looking statements under the PSLRA 
is not available. We believe this clarification may reduce the 
inclusion of unreasonably optimistic forward projections in SEC 
filings, which may in turn help SPAC investors avoid overestimating 
future revenues and other measures of future company performance.'' 
\729\ Another of these commenters said that ``the proposal's approach 
to amend the definition of blank check company for purposes of the 
PSLRA safe harbor for forward-looking statements'' would ``strengthen 
incentives for SPACs to avoid potentially unrealistic and potentially 
misleading forward-looking statements and to expend more effort or care 
in the preparation and review of forward-looking statements.'' \730\ 
Another commenter said, ``The Commission's proposal to amend the 
definition of `blank check company' to remove the safe harbor in the 
Private Securities Litigation Reform Act of 1995 for

[[Page 14224]]

forward-looking statements would significantly curb SPAC sponsors' 
abilities to make overblown and false projections, and increase their 
liability when this fraud occurs.'' \731\
---------------------------------------------------------------------------

    \728\ Letters from Better Markets, CII, Consumer Federation, 
Senator Elizabeth Warren. See also letter from Anonymous (Oct. 11, 
2022) (``Please do not permit SPAC sponsors, their CEO or their 
board members to engage with the public in such a way that could 
create a false representation of . . . [p]rojections of value. . . 
.'').
    \729\ Letter from CII.
    \730\ Letter from Consumer Federation.
    \731\ Letter from Senator Elizabeth Warren.
---------------------------------------------------------------------------

    Other commenters were generally opposed to the proposal.\732\ Some 
commenters who expressed general opposition to the proposal discussed 
the value of forward-looking information to investors. One of these 
commenters said, ``This safe harbor incentivizes the disclosure of 
potentially valuable information as to a company's future outlook.'' 
\733\ Another of these commenters said, ``By removing the safe harbor 
provisions from SPAC mergers, the proposed rules would replicate the 
biggest flaw of IPOs, hindering investor visibility toward management 
expectations and related future prospects.'' \734\ A number of 
commenters focused on comparing de-SPAC transactions to other kinds of 
transactions in their comments. One of the commenters who expressed 
general opposition to the proposal said, ``We believe there are 
important distinctions between a De-SPAC Transaction and a traditional 
IPO that justify maintaining the PSLRA safe harbor in the form enacted 
by Congress.'' This commenter said, ``The PSLRA safe harbor . . . does 
not cover all forward-looking statements. It contains a number of 
exclusions. . . . [One] category of exclusions cover[s] situations--
like tender offers, roll-up and going-private transactions--where 
companies are compelled by law to share projections with investors. In 
such situations, there is less risk that liability will chill 
disclosure and the safe harbor exclusion can be understood as an effort 
to increase the accuracy of disclosures.'' Further, this commenter 
said, ``Projections disclosure in De-SPAC Transactions fall under this 
. . . category.'' \735\ Another commenter who generally opposed the 
proposal questioned whether it would benefit investors, stating that 
``the Commission's proposal to remove the PSLRA safe-harbor for de-SPAC 
transactions is unnecessarily broad with no real benefit to 
investors.'' \736\
---------------------------------------------------------------------------

    \732\ Letters from ABA; Amanda M. Rose, Professor of Law, 
Vanderbilt University Law School (June 16, 2022) (``Amanda Rose''); 
American Securities Association; Bullet Point Network; Cato 
Institute; Cowen; Goodwin; Job Creators Network; Loeb & Loeb; 
Michael Dambra, Omri Even-Tov, and Kimberlyn George; Jennifer W. 
Han, Executive Vice President, Chief Counsel & Head of Regulatory 
Affairs, Managed Funds Association (June 13, 2022) (``Managed Funds 
Association''); NYC Bar; Paul Swegle; SPAC Association; Kristi 
Marvin, SPACInsider (June 13, 2022) (``SPACInsider''); Vinson & 
Elkins; Winston & Strawn. Also, the Small Business Capital Formation 
Advisory Committee recommended that projections in de-SPAC 
transactions should be covered by the liability safe harbor 
provisions of the PSLRA, supra note 40.
    \733\ Letter from Cato Institute.
    \734\ Letter from SPAC Association.
    \735\ Letter from Goodwin.
    \736\ Letter from Cowen.
---------------------------------------------------------------------------

    A number of commenters on the proposal provided views related to 
the statutory authority of the Commission to amend the definition of 
blank check company as proposed. These comments fell into two main 
categories. First, some of these commenters suggested the Commission 
does not have discretion to adopt or amend a definition of blank check 
company for purposes of the PSLRA that differs from the current Rule 
419 definition (which includes the qualification the relevant company 
is issuing penny stock).\737\ One of these commenters said, ``The 
elimination of the safe harbor for forward-looking statements under the 
Private Securities Litigation Reform Act (PSLRA) is unlawful. The 
Proposal would--without any authorization by Congress--amend the 
definition of a `blank check' company under the PSLRA to prevent SPACs 
from utilizing the PSLRA safe harbor for forward-looking statements. 
Given that de-SPAC transactions necessarily involve making a good deal 
of projections, there has been an underlying assumption that the PSLRA 
safe harbor applies to such projections. . . . The SEC should drop this 
idea and recognize that it has no legal authority under law to change 
Congressional statutes on its own.'' \738\ Another of these commenters 
said that ``this change alters the scope and effect of the PSLRA by 
substantially revising the definition that Congress relied on when it 
wrote the statute. Such an alteration to the statute's scope should be 
made by Congress, not the Commission.'' \739\ Another of these 
commenters said, ``I believe the SEC would be overreaching its 
authority in eliminating the availability of the PSLRA safe harbor for 
forward-looking statements in de-SPAC transactions. The Projection 
Proposal would change the existing definition of `blank check company' 
for purposes of the PSLRA by removing the `penny stock' condition. That 
was the definition Congress specifically relied upon when it wrote the 
PSLRA. I believe it would be improper for the SEC to willfully ignore 
statutory language in this manner.'' \740\ Another commenter said that 
``de-SPAC transactions were not within the scope of issuers and 
transactions excluded from the PSLRA by Congress. The PSLRA excludes 
from the safe harbor, among other things, forward-looking statements 
made in connection with an IPO, and an offering of securities by a 
blank check company or by an issuer that issues penny stock.'' \741\ 
This commenter also said that SPACs are not blank check companies 
subject to Rule 419 nor do SPACs issue penny stock. This commenter also 
stated, ``In transactions where the de-SPAC transaction is structured 
with the SPAC as the surviving company, the transaction is not an IPO 
of the SPAC. As a result, we believe the proposed expansion of the 
exclusions from the PSLRA that were legislated by Congress are not 
merely clarifying or interpretive in nature; rather, they go beyond the 
Commission's rulemaking authority and should be addressed by statute.'' 
Finally, one commenter said the proposed changes regarding the 
definition of blank check company ``appears inconsistent with the 
exemptive authority found in Section 27A(g) and (h), which makes clear 
the Commission's ability to extend the scope of the safe harbor 
protections rather than narrow them.'' \742\
---------------------------------------------------------------------------

    \737\ Letters from ABA, Cato Institute, Paul Swegle, Winston & 
Strawn.
    \738\ Letter from American Securities Association.
    \739\ Letter from Cato Institute.
    \740\ Letter from Paul Swegle.
    \741\ Letter from Winston & Strawn.
    \742\ Letter from ABA. See also letter from Goodwin.
---------------------------------------------------------------------------

    Second, some commenters suggested that the Commission's proposed 
definition of blank check company is inconsistent with the Penny Stock 
Reform Act's statutory definition of blank check company, which 
includes the qualification that the relevant company is issuing penny 
stock and which predated the PSLRA.\743\ One of these commenters 
stated, ``As the Commission noted, the current definition of `blank 
check company' predates the enactment of the PSLRA in 1995 and 
evidences a clear intent to exclude from that definition SPACs that 
raise more than $5 million in a firm commitment underwritten IPO for 
not selling `penny stock.' '' \744\ Another of these commenters said 
that ``the SPAC Proposal's proposed elimination of the PSLRA safe 
harbor . . . is illegal for

[[Page 14225]]

[the] reason [that]: it proposes an unreasonable definition of `blank 
check company.' The PSLRA generally provides a safe harbor for forward-
looking statements, but the safe harbor is not available for `blank 
check companies.' The PSLRA states that the term `blank check company' 
has `the meaning[ ] given . . . by rule or regulation of the 
Commission,' but of course the SEC does not have carte blanche to 
define the term however it wants--its proposal must be `reasonable.' '' 
\745\ The commenter also said, ``The SEC's discretion in defining blank 
check company is accordingly cabined and informed by other relevant 
statutory provisions.'' \746\ This commenter also said, ``In 
particular, Congress has already defined a blank check company in the 
Securities Act, and the only absolute requirement in that definition is 
that the company issue `penny stocks.' '' \747\ This commenter further 
stated that ``the SPAC Proposal would eliminate the penny stock 
requirement, even though Congress has made clear that that requirement 
is the core aspect that defines a blank check company. The SPAC 
Proposal's definition of blank check company is hardly `reasonable' 
when it eliminates the core of Congress's definition of that term 
within the same statutory regime, nor is it `consistent with the 
statute's purpose' to allow the SEC to relabel any entity it chooses as 
a blank check company by disregarding the core aspect of what makes a 
blank check company.'' \748\ Another of these commenters said, ``The 
Proposal to redefine `blank check company' is not a clarification of 
existing law. We disagree with the Commission that the proposed 
amendment to the definition of `blank check company' is a clarification 
that the statutory safe harbor of the PSLRA is not available for 
forward-looking statements made in connection with offerings by SPACs. 
As noted by the Commission, the current definition of a `blank check 
company' predates the enactment of the PSLRA and this amendment changes 
the applicability of the PSLRA safe harbor.'' \749\
---------------------------------------------------------------------------

    \743\ Letters from ABA, Job Creators Network, Kirkland & Ellis. 
Section 508 of the Penny Stock Reform Act amended Securities Act 
section 7 to provide for new section 7(b)(3) that provides: ``For 
purposes of paragraph (1) of this subsection, the term `blank check 
company' means any development stage company that is issuing a penny 
stock (within the meaning of section 3(a)(51) of the Securities 
Exchange Act of 1934) and that--(A) has no specific business plan or 
purpose; or (B) has indicated that its business plan is to merge 
with an unidentified company or companies.''
    \744\ Letter from ABA.
    \745\ Letter from Job Creators Network, citing Chevron, U.S.A., 
Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 844 (1984) 
(statutory citations have been omitted from the quotation).
    \746\ Id., citing see, e.g., Van Hollen, Jr. v. FEC, 811 F.3d 
486, 492 (D.C. Cir. 2016) (for the principle, according to the 
commenter, that ``[at] Chevron step two, courts look at how Congress 
`elsewhere defines' the specific term at issue'').
    \747\ Id. (statutory citation omitted).
    \748\ Id., citing Chem. Mfrs. Ass'n v. EPA, 919 F.2d 158, 163 
(D.C. Cir. 1990) (footnotes omitted).
    \749\ Letter from Kirkland & Ellis.
---------------------------------------------------------------------------

    Finally, in addition to these two main groups of comments related 
to statutory authority issues, one commenter expressed the view that 
the proposed changes to the definition of ``blank check company'' are 
contrary to the Administrative Procedure Act of 1946 \750\ because 
``the SEC is seeking to amend the PSLRA on its own without any explicit 
statutory authority or directive from Congress.'' \751\ A different 
commenter argued that the proposal was ``unlawful, arbitrary, and 
capricious'' because Congress already defined blank check company in 
the Securities Act and ``the only absolute requirement in that 
definition is that the company issue `` `penny stocks.' '' \752\
---------------------------------------------------------------------------

    \750\ 5 U.S.C. 551 et seq.
    \751\ Letter from American Securities Association.
    \752\ Letter from Job Creators Network.
---------------------------------------------------------------------------

    A number of commenters focused on comparing de-SPAC transactions to 
two categories of other kinds of transactions: (1) traditional IPOs and 
(2) other business combinations. Some commenters supported the proposal 
with respect to rules related to the PSLRA safe harbor on the basis 
that it would level the playing field with IPOs.\753\ Other commenters, 
however, expressed concerns regarding how the playing field for 
traditional IPOs operates with respect to the interaction of issuers 
who provide projections, research analysts, and investors. These 
commenters generally observed that, in traditional IPOs, issuers often 
provide projections to securities analysts who often share these 
projections with certain institutional investors (on a private and 
informal basis, i.e., not in the form of published research reports) 
but these issuers do not make this information available to other 
investors, particularly retail investors.\754\ One commenter said, 
``The [PSLRA] Safe Harbor, and subsequently Regulation FD, . . . had 
the desirable effect of leveling the playing field so that certain 
investors with access to management meetings and sell-side research 
analysts do not have an information advantage over less well-resourced 
retail investors.'' \755\ But the commenter indicated that, because 
``IPOs . . . are expressly excluded from the [PSLRA] Safe Harbor and 
Regulation FD is only applicable to companies that are already public, 
. . . companies do not provide any projections or forward-looking 
statements in the S-1s relating to their IPOs but generally do hold 
private meetings with qualified institutional investors.'' Some 
commenters suggested that, instead of the proposed rule changes, IPO 
regulation should be put on a level playing field with de-SPAC 
transactions by Commission rule amendments or through statutory 
amendment to extend the PSLRA safe harbor to IPOs.\756\
---------------------------------------------------------------------------

    \753\ Letters from Bullet Point Network, CFA Institute (``both 
the regular IPO and de-SPAC approaches for taking a new, emerging 
company public should be treated similarly in this critical area for 
market integrity--the legitimacy of forward-looking projections.''), 
NASAA (``We see no reason why de-SPAC transactions should be treated 
differently than penny stock issuers or traditional IPO participants 
with respect to forward looking statements.'').
    \754\ Letters from Bullet Point Network (expressing the view 
that the inapplicability of the PSLRA safe harbor to traditional 
IPOs ``effectively prohibit[s] management projections from S-1 
filings'' and that ``[t]his relegates the topic to the game of `20 
questions' privileged investors play. Asking the right questions in 
the right way allows these investors to get valuable information 
others don't get, while technically staying on the right side of the 
published rules. Issuers can essentially transmit projections by 
helping research analysts employed by their underwriters develop 
financial estimates, the substance of which are communicated 
verbally to privileged investors in private meetings ahead of an 
IPO.''); SPACInsider (``It's quite common for a company that is 
going through the traditional IPO process to talk to a bank's 
research analyst, discuss their forward earnings, at which point, 
the analyst then models out the company into the future and then . . 
. ONLY distributes that information to the bank's key and favored 
clients (which usually pay the bank a lot of money in trading fees). 
This is a far less democratic and equitable process to the investing 
public, and in particular, retail investors . . . . This is in 
contrast to the SPAC process in which all investors get a free look 
at projections by filing them publicly, not just the wealthiest 
investors.'' (Emphasis in the original)); Ropes & Gray (``a key 
challenge of the traditional IPO market is that it ends up depriving 
retail investors from participating in IPOs through an IPO 
allocation, and such investors are often unable to purchase at the 
same price as institutional investors. Retail investors in companies 
that access the public markets through traditional IPOs also do not 
have the same access to third-party analysis as larger institutional 
investors who have ready access to the research analyst community. 
SPAC transactions have served to democratize the process in enabling 
prospective investors to have the ability to participate on equal 
footing with initial investors . . . by way of . . . access to 
information.''); SPAC Association (``we believe that an opposite 
result may take place if these proposed rules were to be 
promulgated: the public may be deprived of potentially helpful 
information and that same information will only be made available to 
institutional investors in private settings, like what happens in 
the IPO market . . . . ''); Vinson & Elkins (``Projections are used 
in IPOs--they are just customarily not included in the registration 
statement and prospectus. Instead, they are disclosed to analysts at 
the investment banks, who use them to assist in pricing the 
securities and in building the analysts' models for disclosure to 
institutional investors.''); White & Case (``issuers in IPOs 
indirectly provide investors with financial projections by sharing 
their financial models, including projections, with research 
analysts, who then provide their models to their institutional 
investor clients considering whether to participate in the IPO.'').
    \755\ Letter from Bullet Point Network. See also letter from 
Ropes & Gray (``if these proposed rules were to be promulgated: the 
public may be deprived of potentially helpful information and that 
same information will only be made available to institutional 
investors in private settings, like what happens in the IPO 
market'').
    \756\ Letters from Bullet Point Network (recommending that the 
PSLRA safe harbors ``should be available for IPOs of all Types 
[defined by the commenter as traditional IPOs, SPAC business 
combinations and Direct Listings], but should only be available for 
projections that serve the public interest by clearly communicating 
the risk and uncertainty associated with the projections in a 
standardized format.''), Loeb & Loeb, Kirkland & Ellis, SPACInsider. 
See also letter from ABA (``This also appears inconsistent with the 
exemptive authority found in Section 27A(g) and (h), which makes 
clear the Commission's ability to extend the scope of the safe 
harbor protections rather than narrow them.''), Amanda Rose 
(discussing ``serious questions about the wisdom of the existing 
exclusion for communications made in connection with an IPO, which 
has the practical effect of silencing nearly all public disclosure 
of management projections in connection with IPOs to the detriment 
of reasonable investors''), SPAC Association (``By removing the safe 
harbor provisions from SPAC mergers, the proposed rules would 
replicate the biggest flaw of IPOs, hindering investor visibility 
toward management expectations and related future prospects.'').

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

[[Page 14226]]

    Other commenters, however, suggested de-SPAC transactions should be 
treated differently than IPOs because de-SPAC transactions involve 
business combinations, which may be subject to disclosure obligations 
under State law.\757\ One of these commenters said that ``unlike 
companies undertaking a traditional IPO, SPACs are compelled by a 
combination of federal securities regulation and state corporate law to 
share Target projections with stockholders.'' \758\ This commenter also 
said, ``To truly place De-SPAC Transactions on a `level playing field' 
with traditional IPOs in connection with forward-looking statements, 
the Commission would have to change its disclosure requirements in 
connection with De-SPAC Transactions and somehow override the state 
fiduciary obligations that compel disclosure of projections.'' Another 
of these commenters said that ``SPACs will not be able to avoid 
liability by refraining from speaking, as many traditional IPOs do. 
SPAC sponsors generally must provide forward-looking information in 
connection with the de-SPAC transaction to satisfy state fiduciary 
requirements in connection with mergers.'' \759\ Another of these 
commenters said, ``With respect to forward looking statements, the 
SEC's `de-SPAC transactions are merely IPOs of the target company' 
theory has flaws. Specifically, the SPAC is a publicly traded company . 
. . and the directors and officers of the SPAC have fiduciary duties. 
They are required to conduct substantial diligence (arguably more than 
underwriters in an IPO), and are required to disclose the material 
reasons for approving and proposing the de-SPAC transactions to the 
SPAC's shareholders, which frequently include projections provided to 
the directors in connection with their evaluation of the de-SPAC 
transaction.'' \760\ Another of these commenters said that 
``traditional IPOs and de-SPAC transactions are fundamentally different 
transactions. Financial projections are not required to be included, 
and are rarely included, in IPO registration statements. On the other 
hand, both Delaware jurisprudence and the Commission's staff now 
require inclusion of management projections in proxy statements and 
registration statements on Form S-4/F-4 where such projections were 
relied upon by a board of directors in approving a transaction.'' \761\ 
This commenter also said, ``The projections included in the de-SPAC 
transaction registration statement or proxy statement are not included 
in order to promote capital formation. In fact, such projections are 
generally only current as of the date a board of directors approved the 
execution of the acquisition agreement. Such projections are not 
typically updated because they are being provided to SPAC shareholders 
to evaluate the board of directors' recommendation to approve the de-
SPAC transaction, rather than to solicit a new investment. As such, 
projections are often out of date, or `stale', by the time the SPAC's 
shareholders receive them. Issuers generally include disclosure to the 
effect that investors should not consider projections to be financial 
guidance, and investors are generally cautioned not to place undue 
reliance on such projections.'' Another commenter said, ``Under 
Delaware case law, the Board has a fiduciary duty to disclose to 
investors in a merger proxy (often in an S-4 registration statement) 
the projections it utilized in making its decision. Moreover, if the 
SPAC receives a fairness opinion from a financial advisor (as the 
proposing release suggests will be required) that fairness opinion will 
be based on projections, which will have to be disclosed to investors. 
Therefore, unlike a typical IPO, in the vast majority of de-SPAC 
transactions, projections will have to be disclosed, which further 
underscores the reasonableness of giving such statements PSLRA safe 
harbor protection, just as they would have in a typical M&A transaction 
that was not a de-SPAC.'' \762\
---------------------------------------------------------------------------

    \757\ Letters from ABA, Amanda Rose, Cato Institute, Cowen, 
Goodwin, Vinson & Elkins, NYC Bar. Also, the Small Business Capital 
Formation Advisory Committee recommended that projections in de-SPAC 
transactions should be covered by the liability safe harbor 
provisions of the PSLRA, because management projections are an 
important part of the rationale for companies in determining whether 
to engage in a merger with a SPAC and they are necessary when 
financial intermediaries provide fairness opinions related to de-
SPAC transactions. See supra note 40.
    \758\ Letter from ABA.
    \759\ Letter from Cato Institute (footnotes omitted).
    \760\ Letter from Vinson & Elkins.
    \761\ Letter from NYC Bar.
    \762\ Letter from Cowen.
---------------------------------------------------------------------------

    Furthermore, other commenters suggested de-SPAC transactions should 
be treated differently than IPOs, because of concerns about the 
interaction of the proposed changes regarding availability of the PSLRA 
safe harbor with other proposals in the Proposing Release.\763\ One of 
these commenters said, ``This aspect of the Proposal is in direct 
opposition to the provisions of the Proposal that require the SPAC to 
disclose the material reasons for which the SPAC believes its proposed 
de-SPAC transaction is fair to its public shareholders.'' \764\ Another 
of these commenters said, ``The combination of removing the safe harbor 
while adding amendments to Item 10(b) of Regulation S-K and Item 1609 
of Regulation [S-K] essentially mandating some level of [forward-
looking statement] projections, goes beyond leveling de-SPACs with 
IPOs.'' \765\
---------------------------------------------------------------------------

    \763\ Letters from American Securities Association; CFA 
Institute; Cowen (``if the SPAC receives a fairness opinion from a 
financial advisor (as the proposing release suggests will be 
required) that fairness opinion will be based on projections, which 
will have to be disclosed to investors.'').
    \764\ Letter from American Securities Association.
    \765\ Letter from CFA Institute.
---------------------------------------------------------------------------

    Some commenters suggested the proposal would create inconsistency 
by making the PSLRA safe harbor unavailable for one kind of business 
combination transaction (de-SPAC transactions) but not for other kinds 
of business combination transactions.\766\ One of these commenters 
said, ``The Commission stated that the proposed change to the PSLRA 
definition is necessary to align traditional IPOs more closely with de-
SPAC transactions. However, the Commission's position is inconsistent 
with the provisions of Regulation M-A, which actually require 
disclosure of target company projections if the SPAC's board relied on 
such projections when approving the de-SPAC transaction. There is no 
similar requirement in the IPO context. We can see no justification for 
treating a de-SPAC transaction differently from any other stock-for-
stock merger for this purpose.'' \767\
---------------------------------------------------------------------------

    \766\ Letters from Cowen, SPAC Association, Winston & Strawn.
    \767\ Letter from Winston & Strawn.
---------------------------------------------------------------------------

    A number of commenters suggested the proposal would have a chilling 
effect on the use of projections that investors find useful.\768\ One 
of the

[[Page 14227]]

commenters said that ``we believe the removal of the PSLRA safe harbor 
would have a significant chilling effect on De-SPAC Transactions'' and 
that this ``chilling effect is also demonstrated by the fact that IPO 
issuers rarely publicly include projections in the registration 
statement.'' \769\ One of these commenters said the proposal 
``undoubtedly will'' reduce ``the amount of potentially relevant 
information presented to investors'' and suggested this would 
negatively affect investor ability to accurately value combined 
companies in de-SPAC transactions.\770\ Another of the commenters said 
that ``the proposed amendment may discourage the disclosure of 
projections--especially given the Commission's broad statements on 
potential underwriter liability.'' \771\ A different commenter referred 
to an article that said, ``Offering [mandated forward-looking] 
disclosures safe harbor protection may decrease their accuracy relative 
to a world in which safe harbor protection were not available, if 
companies emboldened by the liability shield approach the preparation 
of such disclosures with less care or honesty than they otherwise 
would. But it could also increase the quality of the disclosures by 
reducing an incentive that might otherwise exist to negatively bias 
projections or obfuscate them, which has the twin effects of making 
them less vulnerable to attack in litigation and less useful to 
investors.'' \772\ The same article also said allowing a safe harbor to 
apply to forward-looking statements in de-SPAC transactions ``might 
also work to lower liability insurance premiums.'' \773\
---------------------------------------------------------------------------

    \768\ Letters from ABA, Amanda Rose, Cato Institute, CFA 
Institute, Goodwin, Kirkland & Ellis, Managed Funds Association, NYC 
Bar, SPAC Association, Vinson & Elkins, Winston & Strawn. See also 
letter from Davis Polk (stating that the absence of the safe harbor 
will not ``have a substantial impact'' but may ``be an additional 
factor that will cause many investment banks to refuse to 
participate in de-SPAC transactions to avoid liability'').
    \769\ Letter from ABA.
    \770\ Letter from Cato Institute.
    \771\ Letter from Kirkland & Ellis.
    \772\ Letter from Amanda Rose, including attachment of a 
forthcoming article that was published as: Amanda M. Rose, SPAC 
Mergers, IPOs, and the PSLRA's Safe Harbor: Unpacking Claims of 
Regulatory Arbitrage, 64 William & Mary L. Rev. 1757, 1806 (2023), 
available at https://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=3995&context=wmlr (emphasis in original).
    \773\ Id. at 1806.
---------------------------------------------------------------------------

    Commenters also expressed concerns about the combined effect of the 
proposed change in PSLRA safe harbor availability and proposed 17 CFR 
230.140a (``Rule 140a'') concerning underwriters.\774\ One of these 
commenters said, ``In particular, when coupled with other proposed 
amendments that would require disclosure of a fairness determination 
(effectively mandating the provision of projections) as well as impose 
underwriter liability in a De-SPAC Transaction, we believe removal of 
the PSLRA safe harbor protections would have a chilling effect on De-
SPAC Transactions and significantly disadvantage a De-SPAC Transaction 
compared to a traditional IPO.'' \775\ Another of these commenters 
said, ``We do have a concern that the proposed amendment may discourage 
the disclosure of projections--especially given the Commission's broad 
statements on potential underwriter liability.'' \776\ Another of these 
commenters said, ``The elimination of the PSLRA safe harbor, combined 
with the Commission's proposed Rule 140a, may have a chilling effect on 
the use of projections in de-SPAC transactions, which may preclude 
investors from receiving information that sponsors and boards of 
directors rely in part on in connection with valuation determination.'' 
\777\
---------------------------------------------------------------------------

    \774\ Letters from ABA, Kirkland & Ellis, NYC Bar. See also 
letter from Vinson & Elkins (``However, the expansion of underwriter 
liability to cover de-SPAC transactions may cause an increased focus 
on projections, and more thorough discussion regarding the 
assumptions and considerations underlying the projections, as well 
as material risks that could cause such projections to not be 
satisfied. Where projections are not a material consideration for a 
SPAC board, under the Proposed Rules that SPAC will be less likely 
to disclose projections.'').
    \775\ Letter from ABA.
    \776\ Letter from Kirkland & Ellis.
    \777\ Letter from NYC Bar.
---------------------------------------------------------------------------

    Other commenters, however, expressed the view that PSLRA safe 
harbor availability does not meaningfully affect existing disclosure 
practices.\778\ One of these commenters said that ``the availability of 
the PSLRA safe harbor may not be a significant factor in determining 
the use of forward-looking statements in de-SPACs.'' \779\ Another of 
these commenters said that ``the safe harbor has never provided a 
meaningful shield from liability'' and that ``we do not expect that the 
absence of the safe harbor will have a substantial impact on current 
market disclosure practices and we do not object to the disapplication 
of the safe harbor to de-SPAC transactions.'' \780\ Another of these 
commenters said, ``In our experience, the availability of the PSLRA 
safe harbor for forward-looking statements in certain de-SPAC 
transactions does not alter the decision on the presentation of 
projections. Conversely, where the safe harbor is clearly available, 
such as for follow-on offerings by existing public companies, it 
remains rare to see the inclusion of projections in the actual offering 
documents.'' \781\
---------------------------------------------------------------------------

    \778\ Letters from Andrew Tuch, Davis Polk, Kirkland & Ellis. 
See also letter from Jeffrey M. Solomon, Chair and Chief Executive 
Officer, Cowen Inc. (June 8, 2022) (``Cowen'') (``If the perceived 
`problem' is unreasonable projections or projections not being made 
in good faith, it should be noted that such unreasonable, bad-faith 
projections would not qualify for PSLRA (or any other) safe harbor 
protection in the first instance, irrespective of the stay of 
discovery. . . .'').
    \779\ Letter from Andrew Tuch.
    \780\ Letter from Davis Polk.
    \781\ Letter from Kirkland & Ellis.
---------------------------------------------------------------------------

    Several commenters observed that other safe harbors in Commission 
rules and legal doctrines protecting against liability under common law 
would continue to be available with respect to forward-looking 
statements notwithstanding the proposed changes regarding the 
availability of the PSLRA safe harbor.\782\ One of these commenters 
said, ``An issuer's ability to rely on the judicial `bespeaks caution' 
doctrine may mitigate to some extent liability concerns associated with 
providing projections.'' \783\ Another of these commenters said that 17 
CFR 230.175 (``Rule 175'' under the Securities Act) and 17 CFR 240.3b-6 
(``Rule 3b-6'' under the Exchange Act), which were ``adopted . . . 
prior to the PSLRA . . . provide safe harbor protection similar to that 
of the PSLRA safe harbor.'' \784\ This commenter also said that under 
the ``judicially-created `bespeaks caution' doctrine . . . now accepted 
in 11 federal judicial circuits . . . forward-looking statements 
accompanied by sufficient cautionary language'' are rendered ``non-
actionable under securities laws if such statements are proved 
incorrect in the future.'' Under the bespeaks caution doctrine, this 
commenter said, ``Essentially, the same requirements apply as would 
under the PSLRA to obtain protection--that the forward-looking 
statements be accompanied by `meaningful cautionary language.' '' 
Another of these commenters said that ``even if the proposed amendment 
is adopted, under the so-called `bespeaks caution' doctrine, SPACs 
should still be able to make forward-looking statements in the absence 
of the PSLRA safe harbor.'' \785\ A different commenter stated that the 
main difference between the PSLRA and the other safe harbors is that 
``the PSLRA safe harbor provides a stay of discovery while a motion to 
dismiss based upon the safe harbor protections is under review by the 
court,'' and that

[[Page 14228]]

``[t]he Commission's proposal, in stripping away the protection of the 
PSLRA safe harbor for projections in de-SPAC transactions, has in 
actuality not increased anyone's exposure for the projections--it has 
simply increased the cost of defense.'' \786\ Another of these 
commenters expressed the view that the proposal ``would only increase 
transaction costs and administrative burdens on de-SPAC transactions.'' 
\787\
---------------------------------------------------------------------------

    \782\ Letters from ABA, Cowen, Winston & Strawn.
    \783\ Letter from ABA.
    \784\ Letter from Cowen. Securities Act Rule 175 and Exchange 
Act Rule 3b-6 were adopted in 1979. See Safe Harbor for Projections, 
Release No. 33-6084 (June 25, 1979) [44 FR 38810 (July 2, 1979)]. 
The PSLRA was enacted in 1995.
    \785\ Letter from Winston & Strawn.
    \786\ Letter from Cowen.
    \787\ Letter from Winston & Strawn.
---------------------------------------------------------------------------

    Some commenters questioned the need for the amendments, expressing 
the view that investors are well-capable of assessing the 
reasonableness of projections used by SPACs.\788\ One of these 
commenters said, ``The Commission is concerned that investors are 
misled by forward-looking statements, but some researchers have found 
that hype, if present, does not sway investors and that forecasts are 
often related to positive outcomes. These types of findings should lead 
the Commission to question whether an effective prohibition on forward-
looking disclosure in traditional IPOs is itself a good policy idea 
where it may inhibit price discovery and capital formation.'' \789\ 
Another commenter said that ``the proposed amendment with respect to 
the PSLRA will not meaningfully affect the quality of projections made 
available for the review of the SPAC's board of directors and PIPE 
investors, if any'' and that, ``the proposed revisions to Item 10(b) 
and Item 1609(a) will assist in the comparability of projections 
included in the disclosure of materials reviewed by the board of 
directors of a SPAC. In this way, investors will be able to assess for 
themselves whether underlying assumptions are reasonable rather than 
rely on the assertions of commentators in the market.'' \790\ Another 
of these commenters said, ``It is also already standard practice to 
disclose key underlying risks and assumptions regarding projections and 
I find it hard to believe that investors are incapable of thoughtfully 
weighing projections together with a company's other disclosures in 
their decision-making processes.'' \791\
---------------------------------------------------------------------------

    \788\ Letters from Cato Institute, Jonathan Kornblatt (``It is 
arguably much better to have a responsible party issuing projections 
rather than have a void of such filled by bloggers or posters on 
social media. Individual investors may be far better served by 
having the C-suite as an accountable source of information instead 
of an anonymous chat room. I hope the Commission will keep in mind 
that the purpose of the PSLRA safe harbor was to encourage companies 
to share their forecasts with investors, and that shielding the 
liability risk was necessary to encourage such disclosure.''), 
Kirkland & Ellis, Paul Swegle.
    \789\ Letter from Cato Institute.
    \790\ Letter from Kirkland & Ellis.
    \791\ Letter from Paul Swegle.
---------------------------------------------------------------------------

    Some commenters suggested that the need to alter the availability 
of the PSLRA safe harbor is overstated.\792\ One of these commenters 
said that, because target companies may register securities in a de-
SPAC transaction, in that situation, the PSLRA safe harbor is already 
not available to them.\793\ This commenter also suggested the need to 
alter the availability of the PSLRA is overstated because boards of 
directors of SPACs review projections, including related assumptions 
and cautionary language, consistent with their fiduciary duty of 
care.\794\ A different commenter suggested the need to alter the 
availability of the PSLRA safe harbor is overstated because the PSLRA 
safe harbor only affects private litigation and does not prevent the 
Commission from pursuing claims for misleading disclosure.\795\
---------------------------------------------------------------------------

    \792\ Letters from Kirkland & Ellis, Winston & Strawn.
    \793\ Letter from Kirkland & Ellis.
    \794\ Letter from Kirkland & Ellis.
    \795\ Letter from Winston & Strawn.
---------------------------------------------------------------------------

    Several commenters suggested that the proposal would invite 
litigation against SPACs.\796\ One commenter said, ``The intent of 
removing the safe harbor for de-SPAC transactions is undeniable--it 
would open SPACs to a flood of private litigation that, when added to 
other provisions of the Proposal, would effectively kill the existing 
SPAC market.'' \797\
---------------------------------------------------------------------------

    \796\ Letters from American Securities Association, Anonymous 
(Apr. 7, 2022). In addition, one commenter discussed generally the 
occurrence of litigation as a check against ``inaccurate 
projections'' already under the status quo. See letter from Vinson & 
Elkins (stating, ``We do not believe an amendment (and the proposed 
change is not a `clarification') would improve the quality of 
projections in connection with de-SPAC transactions. SPACs and 
target companies already have strong incentives to make sure that 
the projections are as reasonable as possible. They may face suits 
over inaccurate projections . . .,'' and noting in a footnote, ``The 
PSLRA safe harbor only protects against civil suits, and in a civil 
case it is not a shield against a fraud claim.'') (Other footnotes 
omitted).
    \797\ Letter from American Securities Association.
---------------------------------------------------------------------------

    Other commenters suggested alternative policy approaches and other 
recommendations in connection with projection disclosure. One commenter 
suggested the Commission should restrict the use of projections because 
``[a]s written, the Proposal would leave the door open for projections 
for which there are little to no reasonable basis, when an issuer has 
no historical operations, and when the company or asset acquisition is 
speculative in nature without any disclosure'' and because 
``[s]ponsors, target companies and underwriters that would become 
liable under the Proposal may attempt to evade liability by combining 
boilerplate risk factors with forward looking cautionary information 
that prefaces claims of unreasonable upside potential to investors.'' 
\798\ Other commenters suggested the Commission should mandate 
qualifying language or additional disclosure around the use of 
projections.\799\ One of these commenters said, ``Rather than barring 
forward-looking projections entirely, we recommend that the Commission 
instead consider requiring any such projections to include appropriate 
qualifying language, including the background and assumptions 
underlying such projections, along with any downside case analysis that 
was done in preparation of such projections.'' \800\ This commenter 
said, ``We believe that such an approach would be consistent with the 
disclosure-based approach the Commission has used in similar 
circumstances, including in the case of Regulation G [12 CFR part 244] 
with respect to the regulation of the use of financial measures that 
vary from those included within generally accepted accounting 
principles.'' Another of these commenters said that ``rather than 
barring such young growth firms from providing forward looking 
information, we feel that additional disclosure should be provided 
around these forecasts.'' \801\
---------------------------------------------------------------------------

    \798\ Letter from NASAA.
    \799\ Letters from Managed Funds Association; Michael Dambra, 
Omri Even-Tov, and Kimberlyn George.
    \800\ Letter from Managed Funds Association.
    \801\ Letter from Michael Dambra, Omri Even-Tov, and Kimberlyn 
George.
---------------------------------------------------------------------------

    One commenter suggested that, instead of adopting the PSLRA 
proposal, the Commission should require that earnings statements 
include a comparison of past projections in earning statements to 
actual results in order to enhance issuer accountability.\802\ Other 
commenters suggested that market forces would hold accountable issuers 
with unmet projections by preventing future capital access.\803\
---------------------------------------------------------------------------

    \802\ Letter from SPAC Association.
    \803\ Letters from Jonathan Kornblatt, Vinson & Elkins.
---------------------------------------------------------------------------

    Two other alternative policy approaches suggested by commenters 
were that: (a) the safe harbor should be made unavailable only to the 
``maker'' of the statement but that others such as ``underwriters (or 
sellers) could continue to enjoy the full protection of the PSLRA;'' 
\804\ and (b) the safe harbor

[[Page 14229]]

should be unavailable for longer-term projections (where the commenter 
provided the example of a statement ``we will penetrate 50% of [total 
addressable market] in 10 years'') but available for short-term 
projections (where the commenter provided the example of a statement 
``we expect to make revenue in 1 year or have positive [free cash flow] 
in 2 years'').\805\
---------------------------------------------------------------------------

    \804\ Letter from Cowen.
    \805\ Letter from Charles Pieper.
---------------------------------------------------------------------------

    One commenter said the Commission should ``monitor the effects of 
the safe harbor removal for de-SPACs on the availability and quality of 
forward-looking information critical for SPAC investor decisions on 
merger approval votes and exercising redemption rights.'' \806\ 
Finally, one commenter said, ``While some de-SPAC transactions are in 
form `initial public offering[s]' (e.g., where the target or a new 
company is formed to acquire the SPAC), it is inappropriate to deem a 
de-SPAC transaction where an existing public company stays public 
(e.g., where the SPAC survives the de-SPAC transaction as the publicly 
traded company) as an `initial public offering.' '' This commenter 
suggested the Commission should provide an interpretation that de-SPAC 
transactions are ``tender offers'' which would make the PSLRA safe 
harbor unavailable.\807\
---------------------------------------------------------------------------

    \806\ Letter from CFA Institute.
    \807\ Letter from Vinson & Elkins (footnotes omitted).
---------------------------------------------------------------------------

3. Final Rules
    After considering the comments received, we are adopting a new 
definition of ``blank check company'' in Securities Act Rule 405 and 
Exchange Act Rule 12b-2 under the PSLRA. The new definition of ``blank 
check company'' in Rule 405 provides that for purposes of section 27A 
of the Securities Act of 1933 (15 U.S.C. 77z-2), 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. The new definition of ``blank check company'' in Rule 12b-2 
provides that for purposes of section 21E of the Securities and 
Exchange Act of 1934 (15 U.S.C. 78u-5), 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.
    We are not amending Securities Act Rule 419 as proposed. Instead, 
as discussed in detail below, we are adopting a definition of ``blank 
check company'' under the PSLRA in Securities Act Rule 405 and Exchange 
Act Rule 12b-2 to clarify that such definitions are solely for purposes 
of the PSLRA and not for purposes of any other rules (including rules 
the Commission adopted pursuant to mandates under the Penny Stock 
Reform Act, such as Securities Act Rule 419). The final rules have the 
same substantive effect as the proposal, notwithstanding the different 
approach taken.\808\
---------------------------------------------------------------------------

    \808\ The final rules and concomitant unavailability of the 
PSLRA safe harbor for forward-looking statements are not intended to 
have any retroactive effect related to forward-looking statements 
made prior to the effective date of the final rules.
---------------------------------------------------------------------------

    We also are not adopting any amendments as proposed to Securities 
Act Rules 137, 138, 139, 163A, 164, 174, 405, 430B, and 437a, because 
the definition of blank check company in Rule 419 that these rules 
cross-reference will not be changed as a result of the final rules. In 
addition, we also are not adopting a definition of ``blank check 
company issuing penny stock'' in Securities Act Rule 405 as proposed. 
This proposed amendment is also unnecessary since the definition of 
``blank check company'' in Rule 419 will not change.
    Having considered the comments received, we continue to believe 
that it is appropriate that forward-looking statements made in 
connection with de-SPAC transactions should be treated similarly with 
forward-looking statements made in traditional IPOs, because the de-
SPAC transaction results in public shareholders acquiring a formerly 
private company, similar to an IPO. In both IPOs and de-SPAC 
transactions, similar informational asymmetries exist between issuers 
(and their insiders and early investors) and public investors and there 
are similar risks of generating unfounded interest on the part of 
investors. In both IPOs and de-SPAC transactions, there is no track 
record of public disclosure to help investors evaluate projections. 
Moreover, these risks do not disappear merely because a blank check 
company raised more than $5 million in a firm commitment underwritten 
IPO (and therefore may not be issuing penny stock). The definitions of 
``blank check company'' we are adopting and the concomitant changes to 
the availability of the PSLRA will help protect investors because blank 
check companies \809\ may take more care in avoiding the use of 
forward-looking statements that are unreasonable. As we discuss in 
detail below, we are not barring the use of forward-looking statements 
and recognize that forward-looking statements can provide useful and 
necessary disclosure.\810\
---------------------------------------------------------------------------

    \809\ In this subsection III.E.3, where we refer to ``blank 
check companies'' in connection with our discussion of the final 
rules, unless otherwise indicated, we are referring to blank check 
companies that are not limited by any qualification that the company 
is an issuer of penny stock.
    \810\ Depending on specific facts and circumstances, protections 
other than the PSLRA safe harbors may apply in connection with 
forward-looking statements. See letters from ABA, Cowen, Winston & 
Strawn, supra notes 782, 783, 784, and 785 and accompanying text, 
and discussion below proximate to note 840.
---------------------------------------------------------------------------

    We disagree, based on the text of the PSLRA, with the commenters 
who expressed the view that the PSLRA does not give the Commission 
authority to amend the Commission's definition of ``blank check 
company'' that existed at the time the PSLRA was adopted. On the 
contrary, in providing in the PSLRA that definitions, including blank 
check company, ``have the meanings given those terms by rule or 
regulation of the Commission,'' Congress expressly provided the 
Commission the authority to define these terms and to amend those 
definitions, consistent with the text, structure, and purpose of the 
PSLRA.
    The text of the PSLRA demonstrates in other ways as well that the 
Commission has the authority to define, and amend its definition of, 
``blank check company.'' For example, Congress did not use tracking 
language in the PSLRA to define blank check companies, such as by a 
statutory definition of blank check company that closely resembles or 
mirrors the definition in the rules of the Commission at the time of 
the legislation. In contrast, with respect to other defined terms in 
the PSLRA, Congress did provide long-form definitions (rather than 
cross-referencing by citation an existing Commission rule) that closely 
resemble the content of definitions in Commission rules.\811\ Congress 
also did not define the term blank check company in the PSLRA by 
referencing the statutory definition in section 7(b)(3) of the 
Securities Act, as Congress did elsewhere in the PSLRA where it defined 
terms related to forward-looking statement safe harbors by cross-
referencing to those terms.\812\ The absence in the PSLRA of such a

[[Page 14230]]

statutory cross-reference to define the term blank check company is 
consistent with Congress's express grant of authority to the 
Commission, as discussed above, to define these terms and amend them 
consistent with the text, structure, and purpose of the PSLRA.
---------------------------------------------------------------------------

    \811\ For example, the definition of ``forward-looking 
statement'' in the PSLRA is similar to the content of Securities Act 
Rule 175 (which pre-dated the PSLRA). Compare Securities Act section 
27A(i)(1) (15 U.S.C. 77z-2(i)(1)), with 17 CFR 230.175(c).
    \812\ See infra note 818 and accompanying text.
---------------------------------------------------------------------------

    In addition, the PSLRA safe harbors provide that they are 
unavailable to issuers that issue ``penny stock.'' \813\ The 1995 
version of the definition of blank check company in Securities Act Rule 
419 contained (and still contains) a restriction that it applies only 
to companies issuing penny stock. This suggests that Congress did not 
intend to permanently fix the Commission's definition of ``blank check 
company'' to the 1995 version of that definition in Securities Act Rule 
419, because it would have been redundant for Congress to include a 
carve-out for blank check companies that are penny stock issuers and 
also carve out penny stock issuers.
---------------------------------------------------------------------------

    \813\ 15 U.S.C. 77z-2(b)(1)(C); 15 U.S.C. 78u-5(b)(1)(C).
---------------------------------------------------------------------------

    Furthermore, we also do not agree, based on the legislative history 
of the PSLRA, with commenters that asserted that Congress fixed the 
definition of ``blank check company'' to the Commission's rules as they 
existed in 1995, when the PSLRA was enacted. Commission staff reviewed 
the complete legislative history of the PSLRA and found no evidence of 
any intent on the part of Congress to fix the definition of ``blank 
check company'' as the term was defined in Securities Act Rule 419 at 
the time of the adoption of the PSLRA in 1995.\814\ The staff also 
found no evidence in the legislative history of the PSLRA of any intent 
on the part of Congress to restrict the authority of the Commission to 
amend the definition of this term.
---------------------------------------------------------------------------

    \814\ See, e.g., S. Rep. No. 104-98 (1995); H.R. Rep. No. 104-
369 (1995) (Conf. Rep.).
---------------------------------------------------------------------------

    One commenter said the proposed change regarding the definition of 
blank check company ``appears inconsistent with the exemptive authority 
found in section 27A(g) and (h), which makes clear the Commission's 
ability to extend the scope of the safe harbor protections rather than 
narrow them.'' \815\ We disagree. While Securities Act sections 27A(g) 
and 27A(h) and Exchange Act sections 21E(g) and 21E(h) provide the 
Commission with authority to create new exemptions, subject to the 
conditions that they are in the public interest and protect investors, 
and clarify that the PSLRA did not limit the ability of the Commission 
to create new safe harbors for forward-looking statements, there is no 
limitation in these provisions on the express authority provided under 
Securities Act section 27A(i)(7) and Exchange Act section 21E(i)(5) to 
define ``blank check company.'' \816\
---------------------------------------------------------------------------

    \815\ Letter from ABA. See also letter from Goodwin. Securities 
Act section 27A(g) (15 U.S.C. 77z(g)) provides: ``In addition to the 
exemptions provided for in this section, the Commission may, by rule 
or regulation, provide exemptions from or under any provision of 
this title, including with respect to liability that is based on a 
statement or that is based on projections or other forward-looking 
information, if and to the extent that any such exemption is 
consistent with the public interest and the protection of investors, 
as determined by the Commission.'' Securities Act section 27A(h) (15 
U.S.C. 77z(h)) provides: ``Nothing in this section limits, either 
expressly or by implication, the authority of the Commission to 
exercise similar authority or to adopt similar rules and regulations 
with respect to forward-looking statements under any other statute 
under which the Commission exercises rulemaking authority.''
    \816\ Regarding Securities Act section 27A(b)(7), see supra note 
710.
---------------------------------------------------------------------------

    With respect to the commenters who expressed the view that the 
Commission's definition of ``blank check company'' under the PSLRA may 
not be broader than the statutory definition of this term in the Penny 
Stock Reform Act, nothing in the text of either statute limits the 
Commission's definition for the term ``blank check company'' for 
purposes of the PSLRA to be no broader (i.e., not contain a 
qualification that the issuer issue penny stock) than how this term is 
defined in the Penny Stock Reform Act (i.e., containing a qualification 
that the issuer issue penny stock).
    Congress did not define ``blank check company'' in the PSLRA with 
language that tracks the definition of ``blank check company'' under 
the Penny Stock Reform Act.\817\ In contrast, with respect to other 
defined terms in the PSLRA, Congress did define terms using language 
that closely tracks existing definitions in other sources, such as the 
definition of ``forward-looking statement'' in the PSLRA which is 
similar to Securities Act Rule 175 and Exchange Act Rule 3b-6 (which 
both pre-dated the PSLRA).
---------------------------------------------------------------------------

    \817\ See supra note 710.
---------------------------------------------------------------------------

    Also, Congress did not define ``blank check company'' in the PSLRA 
by cross-referencing the definition of ``blank check company'' in 
Securities Act section 7(b)(3) that was added by the Penny Stock Reform 
Act, but, instead, Congress defined ``blank check company'' and other 
defined terms in the PSLRA as having ``the meanings given those terms 
by rule or regulation of the Commission.'' In contrast, with respect to 
other defined terms in the PSLRA, Congress did cross-reference existing 
statutes as a means of supplying definitions for those terms.\818\
---------------------------------------------------------------------------

    \818\ For example, Congress defined the terms ``penny stock'' 
and ``investment company'' in the PSLRA by cross-referencing 
existing statutory provisions providing definitions of those terms. 
The PSLRA added Securities Act section 27A(i)(2) (15 U.S.C. 77z-
2(i)(2)) (``The term `investment company' has the same meaning as in 
section 3(a) of the Investment Company Act of 1940.'') and section 
27A(i)(3) (15 U.S.C. 77z-2(i)(3)) (``The term `penny stock' has the 
same meaning as in section 3(a)(51) of the Securities Exchange Act 
of 1934, and the rules and regulations, or orders issued pursuant to 
that section.'').
---------------------------------------------------------------------------

    Furthermore, the PSLRA legislative history does not evidence an 
intent by Congress to require the Commission's PSLRA ``blank check 
company'' definition to be fixed to a specific definition (e.g., to be 
no broader than the Penny Stock Reform Act definition). In contrast, 
Congress did fix the definition in the Penny Stock Reform Act. The 
legislative history of the Penny Stock Reform Act documents Congress's 
concerns that overbroad restrictions on ``blank check company'' 
issuances, with respect to penny stock abuses, could interfere with 
legitimate capital raising in connection with that statute. The 
legislative history of the Penny Stock Reform Act--which mandated the 
Commission to adopt restrictions on blank check companies and 
ultimately led the Commission to adopt Rule 419 \819\--documents that 
Congress was concerned about blank check companies in connection with 
penny stock abuses (the focus of the legislation) because blank check 
companies were viewed as providing a large inventory of securities that 
fed into the market for penny stocks.\820\ The legislative history of 
the

[[Page 14231]]

Penny Stock Reform Act indicates that members of Congress were aware of 
concerns expressed by hearing witnesses that, if regulation of blank 
check companies were unduly restrictive, this could disrupt funding for 
investment vehicles such as private equity investment entities, 
particularly in real estate, hydrocarbons and technology sectors.\821\
---------------------------------------------------------------------------

    \819\ H.R. Rep. No. 101-617, at 23 (1990) (``The bill thus 
mandates that the Commission adopt new blank check rules which the 
Committee expects will contain at least three critical elements: (1) 
information regarding the company to be acquired by the blank check 
company prior to or after the date the registration becomes 
effective; (2) limitations on the use of proceeds of blank check 
offerings and the distribution of the securities of the issuer until 
such time as adequate disclosure has been made; and (3) a right of 
rescission for shareholders who disapprove of the disclosed 
acquisition.''); Penny Stock Reform Act of 1990, H.R. 4497, 101st 
Cong., sec. 9(a)(2) (1990).
    \820\ H.R. Rep. No. 101-617, at 22 (1990) (``nearly 70 percent 
of all penny stock issues offered in 1988 and through the third 
quarter of 1989 were blank checks; money raised with no purpose 
stated for its use.''); Penny Stock Market Fraud (Part 2): Hearing 
on H.R. 4497 Before the Subcomm. on Telecomm. and Fin. of the Comm. 
on Energy and Com., 101st Cong. 31 (1990) (Statement of Hon. Richard 
C. Breeden, Chairman, Securities and Exchange Commission) (``The 
Commission recognizes that blank check offerings have been used 
extensively for abusive and fraudulent practices in the penny stock 
market. We empathize with the desire to ban these types of 
offerings.''); The Securities Law Enforcement Remedies Act of 1989: 
Hearing on S. 647 Before the Subcomm. on Sec. of the Comm. On 
Banking, Housing, and Urban Aff., 101st Cong. 351 (1990) (testimony 
of Joseph Goldstein, Associate Director, Division of Enforcement, 
Securities and Exchange Commission, stating that ``from the 
enforcement side, we have seen widespread abuse with blank checks. 
They are a very popular vehicle for committing penny stock 
fraud.'').
    \821\ Penny Stock Market Fraud (Part 2): Hearing on H.R. 4497 
Before the Subcomm. on Telecomm. and Fin. of the Comm. on Energy and 
Com., 101st Cong. 31-32 (1990) (Statement of Hon. Richard C. 
Breeden, Chairman, Securities and Exchange Commission) (``If blank 
checks were outlawed, it would be relatively easy for promoters to 
specify a particular field of investment, essentially turning what 
had been a blank check offering into a blind pool. While these, too, 
could be barred, the blind pool financing approach has been used for 
years by legitimate issuers in venture capital, real estate, oil and 
gas exploration, and equipment leasing programs. Thus, a proven 
mechanism for raising capital for productive uses could be 
eliminated or, at least, subjected to costs and additional 
regulation. While the bill grants the Commission powers to define 
which issuers could be subject to regulation we are concerned that, 
at least as it is currently written, any such definition would most 
likely be circumvented by unethical issuers.''); Penny Stock Market 
Fraud (Part 2): Hearing on H.R. 4497 Before the Subcomm. on 
Telecomm. and Fin. of the Comm. on Energy and Com., 101st Cong. 47-
48 (1990) (Testimony of Richard C. Breeden, Chairman, U.S. 
Securities and Exchange Commission) (``H.R. 4497 would prohibit both 
blank check and certain blind pool offerings. However, blind pool 
financings have been used for years by issuers in venture capital, 
real estate, oil and gas exploration programs, equipment leasing and 
other areas. Thus, substantial costs and burdens could be imposed on 
this kind of financing technique for which disclosure regulation has 
been adequate in the past, and which has been an important source of 
producing capital.'') Penny Stock Market Fraud (Part 2): Hearing on 
H.R. 4497 Before the Subcomm. on Telecomm. and Fin. of the Comm. on 
Energy and Com., 101st Cong. 189 (1990) (Statement of John Guion, 
President, National Association of Publicly Traded Companies) 
(``There has been much said about blank check and blind pools. Our 
comment here is that they have been used legitimately by some 
organizations, particularly in gas and oil exploration, and I would 
assume that the subcommittee would take that into consideration in 
resolving that particular area.''). The U.S. House of 
Representatives documented these concerns in House Report No. 101-
617 (1990) to accompany H.R. 4497. See H.R. Rep. No. 101-617, at 22 
(1990) (``While Commission Chairman Richard Breeden and NASD 
enforcement director John Pinto agreed that blank check offerings 
were a source of problems, they were also of the view that blank 
check offerings could be and were used in legitimate business 
transactions outside of the penny stock arena. Accordingly, they 
opposed an outright ban of all blank check offerings.''). Ultimately 
H.R. 4497 was not approved by the House of Representatives. The 
House of Representatives and the Senate approved the same versions 
of S. 647, which became law when it was signed by the President. See 
govtrack (regarding H.R. 4497 and S. 647 in the 101st Congress), 
available at https://www.govtrack.us/congress/bills/101/s647 and 
https://www.govtrack.us/congress/bills/101/hr4497.
---------------------------------------------------------------------------

    Some commenters suggested that the proposed changes to the 
definition of ``blank check company'' are contrary to the 
Administrative Procedure Act of 1946, because the Commission does not 
have explicit statutory authority to make the changes.\822\ The final 
rules are consistent with the express statutory authority of the 
Commission as discussed above.
---------------------------------------------------------------------------

    \822\ Letter from American Securities Association, supra note 
751. See also letter from Job Creators Network, supra note 751.
---------------------------------------------------------------------------

    Notwithstanding the foregoing, the final rules include technical 
changes from the proposal to clarify that the definitions of ``blank 
check company'' that we are adopting are solely for purposes of the 
PSLRA and not for purposes of any rules the Commission adopted pursuant 
to mandates under the Penny Stock Reform Act, such as Rule 419. In the 
Proposing Release, the Commission proposed moving the definition of 
blank check company out of Rule 419 (into Rule 405) and amending Rule 
419 to use the proposed blank check company definition with a 
qualification in Rule 419 (that would be outside of that definition) 
limiting the applicability of Rule 419 to issuers of penny stocks.\823\ 
We are adopting a definition of ``blank check company'' that will be 
located in Securities Act Rule 405, as proposed, but that includes 
revised language stating that the definition is ``For purposes of 
section 27A of the Securities Act of 1933 (15 U.S.C. 77z-2).'' As a 
result, we are not amending Rule 419 as the Commission proposed; thus, 
the existing definition of ``blank check company'' in Rule 419 will 
remain unchanged.\824\ We are also adding to Exchange Act Rule 12b-2 a 
nearly identical definition of ``blank check company'' as with the 
final Securities Act Rule 405 definition, except that it provides that 
the definition is ``For purposes of section 21E of the Securities and 
Exchange Act of 1934 (15 U.S.C. 78u-5).'' \825\
---------------------------------------------------------------------------

    \823\ Proposing Release, supra note 7, at 29481-29482.
    \824\ The Proposing Release requested comment on the following: 
``Should we consider retaining a separate definition of ``blank 
check company'' for purposes of Rule 419?'' See Proposing Release, 
supra note 7, at 29482 (request for comment number 78).
    \825\ Notwithstanding several references to section 21E of the 
Exchange Act in the Proposing Release, we did not propose an 
Exchange Act rules definition of ``blank check company'' in the 
Proposing Release to accompany the proposed amendments to the 
Securities Act rules and Regulation S-K. We are adopting an Exchange 
Act rule definition of ``blank check company'' as well as a 
Securities Act rule definition, because this approach should be 
clearer for registrants and other relevant parties and is more 
consistent with how the Commission has traditionally exercised its 
authority to define terms in the acts.
---------------------------------------------------------------------------

    As discussed above, some commenters did not support the proposal or 
expressed a view it is inappropriate to adopt the proposal because of 
concerns related to the definition of ``blank check company'' in the 
Penny Stock Reform Act.\826\ We do not agree with the commenters that 
suggested we could not adopt the proposed definition of blank check 
company on these grounds. However, in order to make clear that we are 
using our authority to define terms under the PSLRA and not under the 
Penny Stock Reform Act, we are not amending Rule 419 as proposed. 
Rather, we are amending Securities Act Rule 405 and Exchange Act Rule 
12b-2, as discussed above. The final rules have the same substantive 
effect as the proposal notwithstanding the different approach taken.
---------------------------------------------------------------------------

    \826\ Letters from ABA, Job Creators Network. See supra notes 
743, 744, 745, 746, 747, and 748 and accompanying text. See also 
letter from Kirkland & Ellis, supra note 749 and accompanying text.
---------------------------------------------------------------------------

    As discussed above, some commenters suggested that projections are 
rarely used in traditional IPOs.\827\ Traditional IPOs, however, may 
include projections. IPO issuers commonly provide certain disclosures 
about the future in their registration statements, including estimates 
in historical financial statements and disclosure provided pursuant to 
17 CFR 229.303 (``Item 303'' of Regulation S-K) (Management's 
Discussion and Analysis of Financial Condition and Results of 
Operations) and Items 5 and 9 of Form 20-F. In an IPO, disclosures 
under Item 303 of Regulation S-K (for example, which may include 
statements about the effects of changing prices and future economic 
performance) are outside the bounds of the PSLRA safe harbor (which is 
not applicable to IPOs pursuant to Securities Act section 
27A(b)(2)(D)). In any offering, including an IPO, estimates in 
financial statements prepared in accordance with generally accepted 
accounting principles are outside the bounds of the PSLRA safe harbor 
pursuant to Securities Act section 27A(b)(2)(A).
---------------------------------------------------------------------------

    \827\ Letter from Cato Institute, supra note 759 and 
accompanying text; letter from NYC Bar, supra note 761 and 
accompanying text.
---------------------------------------------------------------------------

    Issuers in certain types of IPOs also often include industry- or 
offering-specific projections. For example, Commission staff has 
observed that real estate investment trusts may disclose dividend 
distribution plans and anticipated cash available for distribution 
(sometimes referred to by industry participants as the ``Magic Page''). 
One commenter also noted that ``while it may not be common in certain

[[Page 14232]]

industries, many types of IPO issuers (e.g., REITs [real estate 
investment trusts], yieldcos, and master limited partnerships) do 
regularly disclose projections in their IPO registration statements and 
those projections are expected, and relied upon, by underwriters and 
institutional and retail investors.'' \828\ Furthermore, the fact that 
registrants in traditional IPOs (where there is no PSLRA safe harbor 
available) provide projections voluntarily and provide them to comply 
with applicable requirements reinforces our view that blank check 
companies will be able to provide projections where they may be 
required to disclose projections they have relied upon under Commission 
rules or may be required to disclose projections under State law.\829\
---------------------------------------------------------------------------

    \828\ Letter from Winston & Strawn.
    \829\ In connection with the disclosure of any determination of 
a board of directors under Item 1606(a), Item 1606(b) requires a 
discussion of financial projections relied upon by the board of 
directors. See supra section II.G. In certain situations, it is also 
possible a fair summary of projections would be required under State 
law. See, e.g., In re Pure Resources Inc. S'holders Litig., 808 A.2d 
421, 449 (Del. Ch. 2002) (requiring a fair summary of the 
substantive work performed by investment bankers advising a board of 
directors); In re Netsmart Technologies, Inc. S'holders Litig., 924 
A.2d 171, 176 (Del. Ch. 2007) (``In the context of a cash-out 
merger, reliable management projections of the company's future 
prospects are of obvious materiality to the electorate.''); Louden 
v. Archer-Daniels-Midland Co., 700 A.2d 135, 145 (Del. 1997) 
(``Speculation is not an appropriate subject for a proxy 
disclosure.''); In re PNB Holding Co. S'holders Litig., 2006 WL 
2403999, at *16 (Del. Ch. Aug. 18, 2006) (``our law has refused to 
deem projections material unless the circumstances of their 
preparation support the conclusion that they are reliable enough to 
aid the stockholders in making an informed judgment.'').
---------------------------------------------------------------------------

    Some commenters expressed concern with the proposal because State 
law may require disclosure of certain projections \830\ or because of 
the interaction of the proposed change in safe harbor availability with 
other aspects of the proposal, such as Item 1609.\831\ We do not 
believe, under the final rules, that registrants will be unable to 
provide a fair summary \832\ of any projections considered material and 
reliable that the registrant considers to be required to be disclosed 
under State law or will be unable to provide the disclosure required by 
Item 1609. As discussed in detail below, the final rules we are 
adopting do not bar SPACs from making forward-looking statements or any 
required disclosures. The changes to the availability of the PSLRA safe 
harbor in connection with the definition of blank check company we are 
adopting will help protect investors by incentivizing SPACs to take 
more care in avoiding the use of forward-looking statements that are 
unreasonable.
---------------------------------------------------------------------------

    \830\ Letters from ABA, Amanda Rose, Cato Institute, Cowen, 
Goodwin, Vinson & Elkins, NYC Bar. See supra notes 757, 758, 759, 
760, 761, and 762 and accompanying text. See also recommendation of 
the Small Business Capital Formation Advisory Committee, supra note 
40.
    \831\ Letters from American Securities Association, CFA 
Institute, Cowen. See supra note 763.
    \832\ See supra note 829.
---------------------------------------------------------------------------

    In addition, investors are likely to understand the difference 
between: (i) on one hand, third-party projections provided to the 
management of a SPAC about a target company prior to the business 
combination agreement with the target company; and (ii) on the other 
hand, disclosure by registrants in registration statements in 
connection with de-SPAC transactions that include SPAC or target 
company management projections regarding certain financial statement 
line items or financial measures in future years with respect to the 
target company that is intended to guide investors in connection with 
the de-SPAC transaction.\833\ To the extent a SPAC is concerned that 
security holders may rely on a summary of third-party projections that 
the SPAC believes it is required to disclose under State law in 
instances where the SPAC believes the projections are no longer 
reliable, a SPAC could provide supplemental disclosure advising and 
alerting security holders of this fact.\834\
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    \833\ One commenter expressed similar views in connection with 
their comments on proposed Item 1609. See letter from Freshfields 
(``The projections are included in the de-SPAC offering document in 
order to describe the basis upon which the board of directors of the 
SPAC approved the de-SPAC transaction--not to serve as a basis for 
investors to make an investment decision.'').
    \834\ For example, final Item 1609 requires certain disclosure 
where projections no longer reflect the views of a SPAC's or a 
target company's management or board of directors (or similar 
governing body) regarding the future performance of their respective 
companies.
---------------------------------------------------------------------------

    Some commenters suggested that the proposal potentially would have 
a chilling effect on the use of projections in de-SPAC transactions and 
give rise to one of the perceived downsides of an IPO, where a limited 
group of institutional investors may receive issuer projections 
indirectly (i.e., from securities analysts who have received 
projections directly from the issuer).\835\ While we acknowledge that 
there may be increased liability for projections disclosed in 
connection with de-SPAC transactions, we believe the rules we are 
adopting are necessary to protect investors receiving such projections. 
As we discuss in connection with other comments expressing concerns 
there may be a chilling effect on projection use, the final rules do 
not prohibit the use of projections in connection with blank check 
company business combinations. As in an IPO and as SPACs have done in 
the past, SPACs will continue to be able to disclose projections in 
connection with de-SPAC transactions after the effective date of the 
final rules, and securities analysts may elect to use such forward-
looking statements as appropriate. In some cases, a SPAC may decide to 
qualify its disclosure to put it in the proper context.\836\
---------------------------------------------------------------------------

    \835\ Letters from Bullet Point Network, Ropes & Gray, 
SPACInsider, SPAC Association, Vinson & Elkins, White & Case. See 
supra note 754. In addition, certain comments also expressed 
concerns about the potential chilling effect on the use of 
projections in the SPAC market due to the combination of the change 
in the PSLRA safe harbor availability and proposed Rule 140a 
concerning underwriters. We expect the same incentives to take more 
care in avoiding the use of unreasonable forward-looking statements 
will apply to underwriters. See letter from NYC Bar, supra note 777 
and accompanying text. See also letter from Vinson & Elkins, supra 
note 774.
    \836\ See supra note 834 regarding required disclosures where 
projections no longer reflect views on future performance.
---------------------------------------------------------------------------

    Some commenters suggested the proposal would create inconsistency 
by making the PSLRA safe harbor unavailable for one kind of business 
combination transaction (de-SPAC transactions) but not for other kinds 
of business combination transactions.\837\ In contrast, another 
commenter said that ``[t]he rationale for treating SPAC business 
combinations differently from other mergers with respect to the 
disclosure of projections is exactly that the SPAC is a shell company 
designed exclusively to merge with a private company seeking public 
listing and SPAC shareholders have an unconditional right to redeem for 
the initial price per share paid (typically $10 per share).'' \838\
---------------------------------------------------------------------------

    \837\ Letters from SPAC Association, Winston & Strawn.
    \838\ Letter from Bullet Point Network.
---------------------------------------------------------------------------

    As discussed above, there are certain differences between SPACs and 
other business combination transactions due to the hybrid nature of de-
SPAC transactions.\839\ In light of these differences, we believe it is 
appropriate to take a different regulatory approach with respect to de-
SPAC transactions--including in connection with the final definitions 
of ``blank check company'' we are adopting--in order to ensure that 
investors in these hybrid transactions are adequately protected.
---------------------------------------------------------------------------

    \839\ See supra section III.C.
---------------------------------------------------------------------------

    As discussed above, several commenters addressed protections from 
liability in Commission rules and in common law other than the PSLRA 
safe harbor.\840\ We agree with commenters that these protections for 
defendants

[[Page 14233]]

remain potentially applicable, depending upon specific facts and 
circumstances.\841\ We disagree, however, with the commenters who 
stated that adopting a new definition of blank check company under the 
PSLRA will merely increase costs such as by eliminating the stay of 
discovery during the pendency of a motion for summary judgment.\842\ 
Rather, we believe that removal of the procedural protections under the 
PSLRA will incentivize SPACs and other blank check companies to take 
greater care to avoid the use of forward-looking statements that are 
unreasonable. We analyze the impact of costs related to the final 
definition of blank check company in section VII (Economic Analysis).
---------------------------------------------------------------------------

    \840\ Letters from ABA, Cowen, Winston & Strawn. See supra notes 
782, 783, 784, 785, 786, and 787 and accompanying text.
    \841\ With respect to Securities Act Rule 175, which defines the 
term fraudulent statement to include, among other things, a 
statement which is an untrue statement of a material fact and a 
statement false or misleading with respect to any material fact, 
see, e.g., Wielgos v. Commonwealth Edison Co., 892 F.2d 509, 513 
(7th Cir. 1989) (court determined that Rule 175 applies to actions 
under Securities Act section 11 even though liability under that 
section does not depend on fraud). See also Arazi v. Mullane, 2 F.3d 
1456, 1468 (7th Cir. 1993) (``Bally's public statements fell within 
the safe harbor created by Exchange Act Rule 3b-6, and the 
plaintiffs have failed to allege with the particularity required by 
Fed.R.Civ.P. 9(b) that these statements lacked a reasonable 
basis.''), Roots Partnership v. Lands' End, Inc., 965 F.2d 1411 (7th 
Cir. 1992) (``Defendants . . . are entitled to dismissal under Rule 
175. . . .''). With respect to the bespeaks caution doctrine, see, 
e.g., In re Donald J. Trump Casino Sec. Litig.-Taj Mahal Litig., 7 
F.3d 357, 371-373 (3d Cir. 1993) (upholding district court grant of 
defendant's motion to dismiss claims that included section 11 claims 
and applying bespeaks caution doctrine), In re Worlds of Wonder Sec. 
Litig., 35 F.3d 1407, 1427 n.3 (9th Cir. 1994) (``The plaintiffs 
appear to contend that, if the bespeaks caution doctrine is viable, 
it applies only to section 10(b) claims and not to section 11 
claims. This argument is plainly wrong. . . . [C]ourts have applied 
the doctrine to section 11 claims as well as section 10(b) 
claims.''), I. Meyer Pincus & Assoc., P.C. v. Oppenheimer & Co., 
Inc., 936 F.2d 759, 763 (2d Cir. 1991) (``The statements contained 
within the prospectus clearly `bespeak caution'. . . .'' and ``We 
conclude that Pincus can prove no set of facts which would 
demonstrate that the language . . . of the prospectus, read in 
context, is materially misleading. . . . The complaint thus fails to 
state a claim under either Section 11 of the 1933 Act [or] Section 
10(b) of the 1934 Act.'').
    \842\ 15 U.S.C. 77z-2(f), 15 U.S.C. 78u-5(f). See letters from 
Cowen, Winston & Strawn. See supra notes 786 and 787 and 
accompanying text. We note these final rules do not affect the stay 
of discovery during the pendency of a decision on a motion to 
dismiss under Securities Act section 27(b)(1) (15 U.S.C. 77z-
1(b)(1)) or Exchange Act section 21D(b)(3)(B) (15 U.S.C. 78u-
4(b)(3)(B).
---------------------------------------------------------------------------

    With respect to commenters that expressed the view that the PSLRA 
safe harbor availability does not meaningfully affect existing 
disclosure practices,\843\ we do not agree that the PSLRA safe harbor 
has no effect on the accuracy and reliability of disclosure. For 
example, with respect to knowingly misleading statements, courts are 
split on whether knowingly false or even fraudulent forward-looking 
statements are protected by the PSLRA safe harbor; \844\ whereas 
removing any doubt about the applicability of the safe harbor would 
incentivize parties to take care to avoid the use of unreasonable 
forward-looking statements. We do agree, however, as discussed above, 
that the removal of the PSLRA safe harbor will not eliminate forward-
looking statements.
---------------------------------------------------------------------------

    \843\ Letters from Andrew Tuch, Davis Polk, Kirkland & Ellis. 
See supra notes 778, 779, 780, and 781 and accompanying text. See 
also letter from Cowen, supra note 778.
    \844\ Compare Miller v. Champion Enters., Inc., 346 F.3d 660, 
672 (6th Cir. 2003) (``[I]f the statement qualifies as `forward-
looking' and is accompanied by sufficient cautionary language, a 
defendant's statement is protected regardless of the actual state of 
mind.''), and Harris v. Ivax Corp., 182 F.3d 799, 803 (11th Cir. 
1999) (``[I]f a statement is accompanied by `meaningful cautionary 
language,' the defendants' state of mind is irrelevant.''), with 
Lormand v. US Unwired, Inc., 565 F.3d 228, 244 (5th Cir. 2009) 
(``Because the plaintiff adequately alleges that the defendants 
actually knew that their statements were misleading at the time they 
were made, the safe harbor provision is inapplicable to all alleged 
misrepresentations.''), and In re Enron Corp. Securities, Derivative 
& ERISA Litigation, 235 F.Supp.2d 549, 576 (S.D. Tex. 2002) (``The 
safe harbor provision does not apply where the defendants knew at 
the time that they were issuing statements that the statements 
contained false and misleading information and thus lacked any 
reasonable basis for making them.''). Compare also Brief for 
Securities and Exchange Commission as Amicus Curiae, Slayton v. Am. 
Express Co., No. 08-5442-cv (2d Cir. 2010) (``[T]o remove a forward-
looking statement from the protection of the safe harbor, a 
plaintiff must show that the defendant (i) actually knew (ii) that 
the statement was misleading.''), with Amanda M. Rose, SPAC Mergers, 
IPOs, and the PSLRA's Safe Harbor: Unpacking Claims of Regulatory 
Arbitrage (May 19, 2022), at 26-27, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3945975, submitted as 
attachment to letter from Amanda Rose (``Prongs A and B of the 
PSLRA's safe harbor are written in the disjunctive, meaning that if 
either prong is met the suit must be dismissed. . . . This reading 
of the safe harbor was critiqued by some as giving rise to a `right 
to lie' on the part of defendants, but it can be defended from a 
public policy perspective in light of the broader goals of the 
legislation . . . mistaken scienter determinations are a real risk 
in suits challenging forward-looking statements due to the 
phenomenon of hindsight bias, and the need to fight over this fact-
laden issue may preclude early termination of the case, inviting 
strike suit litigation.'').
---------------------------------------------------------------------------

    Some commenters suggested the need to alter the availability of the 
PSLRA safe harbor is overstated.\845\ One of these commenters said 
that, because target companies may register securities in a de-SPAC 
transaction, in that situation, the PSLRA safe harbor is already not 
available to them.\846\ We agree that, since the PSLRA safe harbor is 
not applicable to non-reporting companies and is not applicable to 
IPOs, in certain deal structures where a non-publicly traded target 
company is registering securities that it is offering in the de-SPAC 
transaction, the PSLRA safe harbor is already unavailable. There are, 
however, a number of de-SPAC transactions that are not structured in 
this manner.
---------------------------------------------------------------------------

    \845\ Letters from Kirkland & Ellis, Winston & Strawn.
    \846\ Letter from Kirkland & Ellis. See also letter from Andrew 
Tuch (``Just as the legal structure of de-SPACs determines the 
threat of liability to transaction participants, it also determines 
the application of the PSLRA safe harbor.'').
---------------------------------------------------------------------------

    This commenter also suggested the need to alter the availability of 
the PSLRA is overstated because boards of directors of SPACs review 
projections, including related assumptions and cautionary language, 
consistent with their fiduciary duty of care.\847\ Despite these 
existing fiduciary duties, as discussed by commentators cited in the 
Proposing Release and by several commenters on the Proposing Release, 
there have been uses of projections in de-SPAC transactions that appear 
to be unreasonable, unfounded, or potentially misleading, particularly 
where the target company is an early stage company with no or limited 
sales, products, or operations.\848\ Therefore, we believe that the 
final rules will supplement such State legal or equitable doctrines 
imposing fiduciary duties and help ensure blank check companies take 
more care to avoid the use of unreasonable forward-looking statements.
---------------------------------------------------------------------------

    \847\ Letter from Kirkland & Ellis.
    \848\ Proposing Release, supra note 7, at 29462, n.33, and at 
29482; letters from Americans for Financial Reform Education Fund, 
Better Markets, CFA Institute, CII, Senator Elizabeth Warren, supra 
notes 722-727 and accompanying text. The Commission has brought a 
number of enforcement actions involving SPACs alleging the use of 
baseless or unsupported projections about future revenues and the 
use of materially misleading underlying financial projections. See, 
e.g., SEC v. Ulrich Kranz and Paul Balciunas, No. 23-cv-06332 (C.D. 
Cal. filed Aug. 4, 2023); In the Matter of Momentus, Inc., et. al., 
Exchange Act Release 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, Exchange Act Release No. 34-86164 
(June 20, 2019); SEC vs. Milton, Case No. 1:21-cv-6445 (S.D.N.Y., 
filed July 29, 2021).
---------------------------------------------------------------------------

    A different commenter suggested the need to alter the availability 
of the PSLRA safe harbor is overstated because the PSLRA safe harbor 
only affects private litigation and does not prevent the Commission 
from pursuing claims for misleading disclosure.\849\ We disagree with 
this view to the extent that it implies there is no need for investor 
private rights of action under the Federal securities laws when 
Commission enforcement actions are available. We consider that view to 
be inconsistent with the Federal securities

[[Page 14234]]

law statutory scheme, which provides for several private rights of 
action.\850\
---------------------------------------------------------------------------

    \849\ Letter from Winston & Strawn.
    \850\ See, e.g., Securities Act section 11 (15 U.S.C. 77k); 
Securities Act section 12 (15 U.S.C. 77l).
---------------------------------------------------------------------------

    Several commenters suggested that the proposal regarding the change 
in availability of the PSLRA safe harbor would invite litigation 
against SPACs.\851\ While it is possible that litigation may increase 
as a result of the removal of the PSLRA safe harbor protections, it is 
also possible litigation may not increase or may decrease if some 
issuers who otherwise would have provided unreasonable projections 
instead provide reasonable projections as a result of the final 
rules.\852\
---------------------------------------------------------------------------

    \851\ Letters from Anonymous (Apr. 7, 2022), American Securities 
Association, Vinson & Elkins.
    \852\ See also supra note 844 (discussing splits among courts on 
whether knowingly false or fraudulent forward-looking statements are 
protected by the PSLRA safe harbor).
---------------------------------------------------------------------------

    Several commenters provided a range of views on how the proposal 
could or should change the current use of forward-looking statements, 
such as projections. Some commenters expressed concerns that the 
proposal would bar issuers from using projections.\853\ These 
commenters suggested that, rather than barring the use of projections, 
the Commission should mandate qualifying language or additional 
disclosure around the use of projections.\854\ Other commenters 
expressed concerns that the proposal would have a chilling effect on 
the use of projections.\855\ Another commenter suggested the Commission 
should restrict the use of projections.\856\ Other commenters asked the 
Commission to expand the PSLRA safe harbor to cover IPOs.\857\
---------------------------------------------------------------------------

    \853\ Letters from Managed Funds Association (referring to the 
proposal as ``barring forward-looking projections entirely''); 
Michael Dambra, Omri Even-Tov, and Kimberlyn George (referring to 
the proposal as ``barring . . . young growth firms from providing 
forward looking information.''). See supra notes 800 and 801 and 
accompanying text.
    \854\ Id.
    \855\ Letters from ABA, Amanda Rose, Cato Institute, CFA 
Institute, Goodwin, Kirkland & Ellis, NYC Bar, SPAC Association, 
Vinson & Elkins, Winston & Strawn. See supra notes 768, 769, 770, 
771, and 772 and accompanying text.
    \856\ Letter from NASAA. See supra note 798 and accompanying 
text.
    \857\ See supra note 756 (letters from Bullet Point Network, 
Loeb & Loeb, Kirkland & Ellis, SPACInsider). See also letters from 
ABA, Amanda Rose, SPAC Association, supra note 756.
---------------------------------------------------------------------------

    The final definition of ``blank check company'' we are adopting 
would not prohibit the use of projections in SPAC registration 
statements. In this respect, the final rules are not a departure from 
the Commission's general policies towards projections held since 1973 
when the Commission moved away from its previous ``long standing policy 
generally not to permit projections to be included in prospectuses and 
reports filed with the Commission.'' \858\ That the final definition of 
``blank check company'' does not prohibit projections is also 
consistent with existing 17 CFR 229.10(b) (``Item 10(b)'' of Regulation 
S-K), which we are amending in this release, and new Regulation S-K 
Item 1609. These rules both relate to the use of projections, including 
those of SPACs--rules which would be unnecessary if projections were 
barred in registration statements of blank check companies.
---------------------------------------------------------------------------

    \858\ Disclosure of Projections of Future Economic Performance, 
Release No. 33-5362 (Feb. 2, 1973) [38 FR 7220 (Mar. 19, 1973)]. 
With respect to development of policies towards projections, see 
also Guides for Disclosure of Projections of Future Economic 
Performance, Release No. 33-5992 (Nov. 7, 1978) [43 FR 53246 (Nov. 
15, 1978)]; Rescission of Guides and Redesignation of Industry 
Guides, Release No. 33-6384 (Mar. 16, 1982) [47 FR 11476 (Mar. 16, 
1982)].
---------------------------------------------------------------------------

    We recognize that forward-looking statements can provide useful and 
necessary disclosure to investors, and that such statements may be 
mandated by State and/or fiduciary legal obligations. We also recognize 
that removing certain liability protections for these forward-looking 
statements could lead some blank check companies to provide fewer 
forward-looking statements or no forward-looking statements compared 
with what they might have provided in the absence of the final rules. 
However, we believe the definition of ``blank check company'' that we 
are adopting and the concomitant impact on the availability of the 
PSLRA safe harbors are necessary and appropriate to help address 
concerns over the misuse of forward-looking statements in de-SPAC 
transactions and other business combinations involving blank check 
companies.\859\ These risks to investors are present in de-SPAC 
transactions just as in IPOs; in both transactions, there is no track 
record of public disclosure for a target company to help investors 
evaluate forward-looking statements.\860\ The final definition of 
``blank check company'' we are adopting will better protect these 
investors by incentivizing blank check companies to take more care in 
avoiding the use of unreasonable forward-looking statements. In 
addition, we note that the final rules require a discussion of 
qualifying information, such as assumptions, in connection with the use 
of projections in de-SPAC transactions as recommended by one of the 
commenters, which will further enhance investor protections in 
connection with such forward-looking statements.\861\
---------------------------------------------------------------------------

    \859\ See letters from Americans for Financial Reform Education 
Fund, Better Markets, CFA Institute, CII, Senator Elizabeth Warren, 
supra notes 722-727 and accompanying text.
    \860\ For the same reason, we disagree with the commenters who 
suggested the Commission should expand the PSLRA safe harbor to 
apply to IPOs. See letters from Bullet Point Network, Loeb & Loeb, 
Kirkland & Ellis, SPACInsider, supra note 756 and accompanying text. 
See also letters from ABA, Amanda Rose, SPAC Association, supra note 
756. The concerns we have about the use of forward-looking 
statements in de-SPAC transactions and other business combinations 
involving blank check companies discussed above are equally 
prevalent in traditional IPOs.
    \861\ See Item 1609 of Regulation S-K. See also letter from 
Managed Funds Association supra note 800.
---------------------------------------------------------------------------

    Some commenters suggested that market forces would hold issuers 
with unmet projections accountable by preventing future capital 
access.\862\ While accountability-imposing market reactions potentially 
could limit future capital-raising ability of some SPACs that provide 
unreasonable projections, relying solely on such market-based 
protections would not provide investors with any recourse at the time 
the projections are made. In addition, some companies may not return to 
the capital markets in the future to raise additional cash. In such 
cases, to the extent that market accountability mechanisms may operate 
in the manner suggested by these commenters, we believe that the 
passage of time creates risks that such accountability mechanisms may 
be less likely to operate as theorized.
---------------------------------------------------------------------------

    \862\ Letters from Jonathan Kornblatt, Vinson & Elkins.
---------------------------------------------------------------------------

    One commenter suggested allowing the PSLRA safe-harbor to apply to 
de-SPAC transactions might lower liability insurance premiums.\863\ We 
recognize that removal of PSLRA safe-harbor protection from SPACs could 
result in increased insurance costs for target companies. Based on 
Commission staff's experience, companies that enter business 
combination agreements with blank check companies may have directors 
and officers insurance, and such business combination agreements may 
contain provisions regarding the provision of directors and officers 
insurance to company officials.\864\ As a result, any increased costs 
incurred by companies in connection with business combinations with 
blank check companies with respect to directors and officers insurance 
under the final rules will be incremental to those already

[[Page 14235]]

incurred. Furthermore, we believe these incremental costs are justified 
by the enhanced investor protections that will be realized by the 
incentives created by the final rules for blank check companies to take 
care to avoid the use of forward-looking statements that are 
unreasonable. We discuss our analysis of the costs and benefits of the 
final rules in more detail in section VIII below.
---------------------------------------------------------------------------

    \863\ See letter from Amanda Rose.
    \864\ Business combination agreements (such as merger 
agreements) between a company and a blank check company commonly 
contain a company covenant, representation, or similar provision 
that the company will maintain its directors and officers insurance 
or contain a representation or warranty that the company's directors 
and officers insurance listed on the company's disclosure schedules 
to the agreement is in force and effect.
---------------------------------------------------------------------------

    One commenter suggested the Commission should require that earnings 
statements include a comparison of past projections to actual results 
in order to enhance issuer accountability.\865\ While we recognize the 
potential benefits of such disclosure, in order to achieve our goals of 
incentivizing SPACs and other blank check companies to take more care 
in avoiding the use of unreasonable forward-looking statements, we do 
not believe it is necessary to adopt the commenter's suggestion and 
believe that these goals will be achieved by the final rules.
---------------------------------------------------------------------------

    \865\ Letter from SPAC Association.
---------------------------------------------------------------------------

    Another commenter suggested that the safe harbor should be made 
unavailable only to the ``maker'' of the statement but that others such 
as ``underwriters (or sellers) could continue to enjoy the full 
protection of the PSLRA.'' \866\ ``Sellers'' are not one of the 
enumerated persons whose forward looking statements are covered by the 
PSLRA safe harbors.\867\ With respect to underwriters, Securities Act 
section 27A(a)(4) provides that section 27A's safe harbor for forward-
looking statements applies only to a forward-looking statement ``made 
by'' certain persons, including ``an underwriter, with respect to 
information provided by such issuer or information derived from 
information provided by the issuer.'' Exchange Act section 21E(a)(4) 
contains similar provisions. Sections 27A(a)(4) and 21E(a)(4) do not 
explicitly discuss situations where an underwriter is not the maker of 
the statement. Securities Act section 27A(g) and Exchange Act section 
21E(g) give the Commission exemptive authority to adopt rules or 
regulations to provide exemptions from or under any provision of the 
PSLRA ``with respect to liability that is based on a statement or that 
is based on projections or other forward-looking information if and to 
the extent that any such exemption is consistent with the public 
interest and the protection of investors, as determined by the 
Commission.'' We are not exercising that authority and are not adopting 
the commenter's suggestion with respect to sellers and underwriters 
because we do not believe that it is consistent with the public 
interest and the protection of investors to expand the protections of 
the PSLRA safe harbors in this manner and believe it would be 
inconsistent with the purpose of the final rules to incentivize blank 
check companies to take more care in avoiding the use of unreasonable 
forward-looking statements.\868\
---------------------------------------------------------------------------

    \866\ Letter from Cowen.
    \867\ See, e.g., Securities Act section 27A(a) (15 U.S.C. 77z-
2(a)) (``This section shall apply only to a forward-looking 
statement made by--(1) an issuer that, at the time that the 
statement is made, is subject to the reporting requirements of 
section 78m(a) or section 78o(d) of this title; (2) a person acting 
on behalf of such issuer; (3) an outside reviewer retained by such 
issuer making a statement on behalf of such issuer; or (4) an 
underwriter, with respect to information provided by such issuer or 
information derived from information provided by the issuer.''). 
Exchange section 21E(a) contains similar provisions.
    \868\ As noted by a commenter and as discussed above, other safe 
harbors, such as Securities Act Rule 175 and Exchange Act Rule 3b-6 
and the bespeaks caution may continue to apply, depending on 
specific facts and circumstances. In contrast to the PSLRA, Rules 
175 and 3b-6 do not explicitly refer to statements made by 
underwriters. Rules 175 and 3b-6 apply to statements ``made by or on 
behalf of an issuer or by an outside reviewer retained by the 
issuer.''
---------------------------------------------------------------------------

    Another commenter suggested that the safe harbor should be 
unavailable for longer-term projections (where the commenter provided 
the example of a statement, ``we will penetrate 50% of [total 
addressable market] in 10 years'') but available for short-term 
projections (where the commenter provided the example of a statement, 
``we expect to make revenue in 1 year or have positive [free cash flow] 
in 2 years.'') \869\ We believe that it is equally important for 
investor protection purposes that blank check companies take care to 
avoid the use of unreasonable short-term projections as well as 
unreasonable longer-term projections.\870\ Therefore, we are not 
adopting this suggestion.
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    \869\ Letter from Charles Pieper.
    \870\ We note that 17 CFR 229.10(b)(1), as amended in this 
release, sets out the policy of the Commission that registrant 
assessments of future performance must have a reasonable basis. In 
addition, 17 CFR 229.10(b)(2), as amended in this release, provides: 
``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.'' Blank check companies should 
consider whether projections that extend a substantial period into 
the future, such as the 10-year projection provided in the 
commenter's example, are consistent with this policy.
---------------------------------------------------------------------------

    One commenter said it is inappropriate to deem a transaction to be 
a de-SPAC transaction where the SPAC survives as an IPO and suggested 
the Commission should provide an interpretation that de-SPAC 
transactions are ``tender offers'' which would make the PSLRA safe 
harbor unavailable.\871\ We disagree with the view de-SPAC transactions 
should not be considered the IPO of the target company. As we discuss 
in detail in this release,\872\ the de-SPAC transaction is functionally 
the IPO of the target company. While redemption rights exercisable by 
security holders in connection with the de-SPAC transaction (or 
extension of the timeframe to complete a de-SPAC transaction) generally 
have indicia of a tender offer,\873\ the business combination component 
of the de-SPAC transaction is typically structured as a statutory 
merger, and not as a tender offer. Therefore, we disagree with the 
commenter's suggestion that entire de-SPAC transactions could be 
interpreted or viewed as tender offers.
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    \871\ Letter from Vinson & Elkins. See supra note 807.
    \872\ In particular, see supra section III.C and infra section 
IV.A.
    \873\ Proposing Release, supra note 7, at 29461, n.21.
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F. Underwriter Status and Liability in Securities Transactions

1. Proposed Rule
    The Commission proposed Rule 140a to clarify that anyone who acts 
as an underwriter in a SPAC IPO and participates in the distribution 
associated with a de-SPAC transaction by taking steps to facilitate 
such transaction, or any related financing transaction, or otherwise 
participates (directly or indirectly) in the de-SPAC transaction is 
engaged in the distribution of securities of the surviving public 
entity and, therefore, is an ``underwriter'' within the meaning of 
section 2(a)(11) of the Securities Act.\874\ In this way, the proposed 
rule was intended to clarify that liability protections similar to 
those in traditional underwritten IPOs would apply to de-SPAC 
transactions in which a statutory underwriter has participated. The 
Commission also described in the Proposing Release some of the 
activities sufficient to establish a SPAC IPO underwriter as a 
participant in the distribution of target company securities, as 
securities of the combined company.\875\ The Proposing Release stated 
that the discussion of such activities was non-exhaustive and not 
intended to limit the definition of underwriter for purposes of section 
2(a)(11) of the Securities Act.
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    \874\ Proposing Release, supra note 7, at 29483.
    \875\ See Proposing Release, supra note 7, at 29486.

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[[Page 14236]]

2. Comments
    Several commenters generally supported proposed Rule 140a.\876\ 
However, several other commenters expressed concerns about the 
potential impact on transaction participants and the overall market if 
proposed Rule 140a were adopted.\877\ Several commenters also expressed 
concerns about increased costs if proposed Rule 140a were adopted.\878\ 
In addition, numerous commenters expressed concerns that the proposed 
rule could result in increased liability and/or litigation risk for 
transaction participants.\879\ Several commenters also expressed 
broader concerns about the effects of proposed Rule 140a on M&A 
transactions other than de-SPAC transactions.\880\ A Commission 
advisory committee recommended that participants who would have 
underwriter liability should be clearly identified and participants 
should be held accountable to the same extent they would be in 
traditional IPOs.\881\
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    \876\ Letters from Andrew Tuch, Americans for Financial Reform 
Education Fund, Better Markets, Bullet Point Network, CII, Consumer 
Federation, Senator Elizabeth Warren, ICGN, Mohammed Ali Rashid (May 
7, 2022) (``Mohammed Ali Rashid''), NASAA, Public Citizen.
    \877\ Letters from Andrew Tuch, ABA, Anonymous (May 9, 2022) 
(``Anonymous (May 9, 2022)''), American Securities Association, 
Committee on Capital Markets Regulation, CFA, Cleary Gottlieb Steen 
& Hamilton LLP (June 13, 2022) (``Cleary Gottlieb''), Cowen, Davis 
Polk, Fenwick, Freshfields, Goodwin, ICGN, Cato Institute, Job 
Creators Network, King & Wood Mallesons, Kirkland & Ellis, Loeb & 
Loeb, Managed Funds Association, NYC Bar, Paul Swegle, Ropes & Gray, 
Securities Industry and Financial Markets Association (June 10, 
2022) (``SIFMA''), Skadden, SPAC Association, Usha Rodrigues and 
Mike Stegemoller (May 31, 2022) (``Usha Rodrigues and Mike 
Stegemoller''), Vinson & Elkins, White & Case, Winston & Strawn.
    \878\ Letters from ABA, Anonymous (May 9, 2022), Committee on 
Capital Markets Regulation, Cowen, Davis Polk, Goodwin, Cato 
Institute, Managed Funds Association, Paul Swegle, SIFMA, Skadden, 
Vinson & Elkins.
    \879\ Letters from ABA, Anonymous (May 9, 2022), American 
Securities Association, Cleary Gottlieb, Cowen, Davis Polk, 
Freshfields, Goodwin, King & Wood Mallesons, Kirkland & Ellis, Loeb 
& Loeb, Managed Funds Association, NYC Bar, Ropes & Gray, SIFMA, 
Skadden, Tony Crom (May 18, 2022), Usha Rodrigues and Mike 
Stegemoller, Vinson & Elkins, White & Case, Winston & Strawn.
    \880\ Letters from Andrew Tuch, ABA, Davis Polk, Ropes & Gray, 
White & Case.
    \881\ See Small Business Capital Formation Advisory Committee 
recommendations, supra note 40.
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    Several commenters disagreed with the discussion in the Proposing 
Release regarding what it means to participate in a distribution.\882\ 
A number of commenters asserted that proposed Rule 140a was 
inconsistent with the statutory text of section 2(a)(11), other 
Commission rules, and case law construing the application of section 11 
to parties other than named underwriters.\883\ In particular, 
commenters argued that the term ``underwriter'' as used in section 
2(a)(11) does not have unlimited applicability to capture anyone 
associated with an issuance of securities within its meaning.\884\ Some 
commenters argued that no person in a de-SPAC transaction purchases 
with a view to distribution or sells for an issuer or participates in 
any purchase, offer, or sale of securities for distribution or that a 
de-SPAC transaction generally does not involve underwriters.\885\
---------------------------------------------------------------------------

    \882\ Letters from Davis Polk, Kirkland & Ellis, NYC Bar, SIFMA, 
Vinson & Elkins.
    \883\ Letters from ABA, Cleary Gottlieb, Cowen, Davis Polk, 
Freshfields, Goodwin, SIFMA.
    \884\ Letters from ABA, Cleary Gottlieb, Cowen, Davis Polk, 
Freshfields, Goodwin, SIFMA.
    \885\ Letters from ABA, SIFMA.
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    Some commenters questioned the scope of the section 11 liability 
that would attach to any underwriter under the proposed rule.\886\ In 
addition, commenters questioned how a court would apportion damages 
among underwriters were Rule 140a to be adopted as proposed.\887\ While 
some commenters stated that underwriter status would improve diligence 
performed by parties in a de-SPAC transaction,\888\ other commenters 
disagreed that proposed Rule 140a would improve diligence performed in 
de-SPAC transactions.\889\
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    \886\ Letters from ABA, American Securities Association, CFA, 
Cowen, Cleary Gottlieb, Davis Polk, Freshfields, Goodwin, Kirkland & 
Ellis, Managed Funds Association, Ropes & Gray, SIFMA, Skadden, 
Vinson & Elkins, White & Case, Winston & Strawn.
    \887\ Letter from Cowen.
    \888\ Letters from Americans for Financial Reform Education 
Fund, Better Markets, Consumer Federation, ICGN, Mohammed Ali 
Rashid, Managed Funds Association, NASAA.
    \889\ Letters from ABA, Davis Polk, Freshfields, Goodwin, 
Kirkland & Ellis, Managed Funds Association, Skadden, Vinson & 
Elkins.
---------------------------------------------------------------------------

    To the extent the Commission were to adopt Rule 140a, some 
commenters requested specific changes or additional provisions related 
to the rule. Several commenters asked the Commission to limit the scope 
of proposed Rule 140a underwriter liability in a de-SPAC transaction to 
disclosures akin to those in a traditional IPO.\890\
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    \890\ Letters from ABA, Better Markets, Davis Polk, ICGN, Ropes 
& Gray, Vinson & Elkins, White & Case.
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    Several commenters proposed alternatives to adopting Rule 140a, 
including:
     Relying on statutory ``seller'' liability under Securities 
Act section 12(a)(2); \891\
---------------------------------------------------------------------------

    \891\ Letter from Cowen.
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     Requiring a SPAC to file a current report upon 
announcement of a signed agreement to consummate a de-SPAC 
Transaction;'' \892\
---------------------------------------------------------------------------

    \892\ Letter from NYC Bar.
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     Mandating ``a new role for an investment bank in de-SPAC 
transactions for all exchange-listed SPACs;'' \893\ and
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    \893\ Letter from Vinson & Elkins.
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     Establishing a maximum threshold on redemptions in order 
for a de-SPAC transaction to proceed.\894\
---------------------------------------------------------------------------

    \894\ Letter from Usha Rodrigues and Mike Stegemoller.
---------------------------------------------------------------------------

    Finally, several commenters asked the Commission to apply proposed 
Rule 140a on a prospective basis or to adopt a phase in period.\895\
---------------------------------------------------------------------------

    \895\ Letters from ABA, Committee on Capital Markets Regulation, 
Davis Polk, Ropes & Gray, SIFMA, Winston & Strawn.
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3. Declining To Adopt Proposed Rule 140a; Commission Guidance on 
Underwriter Status in De-SPAC Transactions
    As discussed in the Proposing Release, underwriters play an 
important role in the U.S. financial markets, acting as gatekeepers for 
the investing public in the distribution of a new issuer's securities 
to the public markets for the first time.\896\ Section 2(a)(11) of the 
Securities Act defines underwriter as ``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.'' \897\ The Commission and courts 
generally have emphasized that such concepts should be applied broadly 
and not formulaically.\898\
---------------------------------------------------------------------------

    \896\ New High Risk Ventures, Release No. 33-5275 (July 27, 
1972) [37 FR 16011, 16013 (Aug. 9, 1972)] (``Also unique is the 
importance of the underwriter in the distribution of the securities. 
His role is central as the intermediary between the issuer and the 
investing public. Correspondingly, the public looks to the 
underwriter for protection and expects him to verify the accuracy of 
the statements in the registration statement.'').
    \897\ 15 U.S.C. 77b(a)(11).
    \898\ See Definition of Terms ``Underwriter'' and ``Brokers' 
Transactions,'' Release No. 33-5223 (Jan. 11, 1972) [37 FR 591, 592 
(Jan. 14, 1972)] (``Rule 144 Adopting Release'') (``The term 
underwriter is broadly defined in section 2[(a)](11) of the Act. . . 
. Thus, an investment banking firm which arranges with an issuer for 
the public sale of its securities is clearly an `underwriter' under 
that section. Not so well understood is the fact that individual 
investors who are not professionals in the securities business may 
be `underwriters' within the meaning of that term as used in the Act 
if they act as links in a chain of transactions through which 
securities move from an issuer to the public.''). See also Harden v. 
Raffensperger, Hughes & Co., 65 F.3d 1392, 1400 (7th Cir. 1995) 
(``Both the Supreme Court and this court have interpreted broadly 
the phrases `participate in' and `participation' found in 15 U.S.C. 
77b(11). In Pinter v. Dahl, 486 U.S. 622, 108 S. Ct. 2063, 100 
L.Ed.2d 658 (1988), for example, the Supreme Court discussed whether 
the Congress intended to impose liability under section 12[(a)](1) 
of the Securities Act on those collateral to the offer or sale of a 
security. Rejecting the possibility, the Court commented, in dictum, 
that `Congress knew of the collateral participation concept and 
employed it in the Securities Act. . . . Liabilities and obligations 
expressly grounded in participation are found elsewhere in the Act, 
see, e.g., 15 U.S.C. 77b(11).' Dahl, 486 U.S. at 650 n. 26, 108 S. 
Ct. at 2080 n. 26. The Court's footnoted discussion makes clear 
that, in its view, one who `participates,' or `takes part in,' an 
underwriting is subject to section 11 liability.'').

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[[Page 14237]]

    Having considered the comments received on proposed Rule 140a and 
given the broad nature of the definition of underwriter in section 
2(a)(11), we are not adopting Rule 140a. Although we agree with 
commenters that the term underwriter does not have ``unlimited 
applicability,'' as further explained below, the statutory definition 
of underwriter, itself, encompasses any person who sells for the issuer 
or participates in a distribution associated with a de-SPAC 
transaction. To assist parties in applying section 2(a)(11) to de-SPAC 
transactions, we are providing the following general guidance regarding 
statutory underwriter status. For the avoidance of doubt, this guidance 
does not implement proposed Rule 140a. Rather than promulgate a rule 
clarifying when a specific party is an underwriter for de-SPAC 
transactions, we intend to follow the Commission's longstanding 
practice of applying the statutory terms ``distribution'' and 
``underwriter'' broadly and flexibly, as the facts and circumstances of 
any transaction may warrant.
i. A De-SPAC Transaction Is a Distribution of Securities
    The concept of distribution within section 2(a)(11) is not limited 
to a transaction taking the form of a traditional IPO or traditional 
capital raising. For example, a spin-off is not traditional capital 
raising; yet, in certain circumstances, has been found to constitute a 
distribution of securities for the purposes of section 2(a)(11).\899\ 
In the Proposing Release, the Commission stated that the de-SPAC 
transaction marks the introduction of the private operating company to 
the public capital markets 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.\900\
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    \899\ A ``spin-off'' is a transaction by which a parent company 
distributes shares of a subsidiary to the parent company's 
shareholders. These transactions are frequently accompanied by the 
creation of a public market for the subsidiary's securities via 
listing on a national securities exchange. See, e.g., Spin Offs and 
Shell Corporations, Release No. 33-4982 (July 14, 1969) [34 FR 11581 
(July 15, 1969)] (``Spin Offs Release'') (``It is accordingly the 
Commission's position that the shares which are distributed in 
certain spin offs involve the participation of a statutory 
underwriter and are thus, in those transactions, subject to the 
registration requirements of the Act. . . .''). See also Revisions 
to Rules 144 and 145, Release No. 33-8869 (Dec. 6, 2007) [72 FR 
71546, 71559 (Dec. 17, 2007)] (``The presumptive underwriter 
provision in Rule 145 is no longer necessary in most circumstances. 
However, based on our experience with transactions involving shell 
companies that have resulted in abusive sales of securities, we 
believe that there continues to be a need to apply the presumptive 
underwriter provision to reporting and non-reporting shell companies 
and their affiliates and promoters.'').
    \900\ Proposing Release, supra note 7, at 29485.
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    Some commenters asked the Commission to better explain the 
distribution that occurs in a de-SPAC transaction.\901\ Although the 
word ``distribution'' has no definition in the Securities Act, the term 
``distribution'' refers to the entire process in a public offering 
through which a block of securities is dispersed and ultimately comes 
to rest in the hands of the investing public.\902\ In a traditional 
IPO, an underwriter distributes shares in a private company to 
investors thereby providing access to capital and the public markets. 
Although different in form from traditional capital raising in an IPO, 
the purpose of a de-SPAC transaction is to provide the target company 
with capital and access to the public markets.\903\ In the course of 
such a transaction, regardless of the transaction structure, public 
shareholders of the SPAC become owners of the combined operating 
company through the business combination.\904\ Given this, in the 
context of a de-SPAC transaction, interests in the typically private 
target company are dispersed to the public via a business combination 
with a SPAC. The distribution is therefore the process by which the 
SPAC's investors, and therefore the public, receive interests in the 
combined operating company.
---------------------------------------------------------------------------

    \901\ Letter from ABA.
    \902\ See Geiger v. SEC, 363 F.3d 481, 487 (D.C. Cir. 2004) 
(finding that 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 a distribution ``comprises the 
entire process by which in the course of a public offering the block 
of securities is dispersed and ultimately comes to rest in the hands 
of the investing public'') (internal quotation marks omitted).
    \903\ Such transactions historically have been known as ``going 
public through the back door.'' See, e.g., Leib Orlanski, Going 
Public Through the Back Door and the Shell Game, 58 Va. L. Rev. 1451 
(1972), available at https://heinonline.org/HOL/Page?public=true&handle=hein.journals/valr58÷=72&start_page=1451&collection=usjournals&set_as_cursor=0&men_tab=srchresults.
    \904\ For example, shareholders of a SPAC become shareholders of 
a combined operating company by operation of State or local law in a 
statutory merger.
---------------------------------------------------------------------------

    One commenter asserted that not every de-SPAC transaction would 
involve a distribution of securities because in at least some de-SPAC 
transactions the target company is not ``selling'' or ``distributing'' 
any securities in the transaction.\905\ As discussed elsewhere in this 
release, however, the statutory concepts of offer and sale have a very 
broad meaning and can encompass situations in which there is no actual 
exchange of securities.\906\ However, assuming, for the sake of 
addressing this commenter's argument, that a distribution requires a 
``sale'' that meets the definition of such term under section 2(a)(3), 
we are adopting Rule 145a, which deems there to be a sale from the 
combined company to the SPAC's existing shareholders even in de-SPAC 
transaction structures where the target company is not ``selling'' or 
``distributing'' its own securities into the market.\907\
---------------------------------------------------------------------------

    \905\ Letter from ABA.
    \906\ See the discussion regarding the broad definition of 
``sale'' in section 2(a)(3) and the related examples in infra 
section IV.A.3.i.
    \907\ See infra section IV.A. As discussed below, Rule 145a 
applies regardless of the structure the de-SPAC transaction may 
take.
---------------------------------------------------------------------------

ii. Statutory Underwriters in De-SPAC Transactions
    While one commenter asserted that there is not always a 
distribution of securities associated with a de-SPAC transaction,\908\ 
another asserted that the de-SPAC distribution ``occurs directly from 
the issuer to the counterparties to the business combination, without 
the involvement of underwriters.'' \909\ It is well established that 
the statutory definition of underwriter is not limited to traditional 
underwriters in firm commitment IPOs, but also includes anyone who 
otherwise meets the statutory definition.\910\ Anyone in this second 
category is generally known as a ``statutory underwriter'' because, 
although they may not be named as an underwriter in a given offering 
and may not engage in activities typical of a

[[Page 14238]]

named underwriter, they nevertheless meet the definition of underwriter 
in the statute. As such, the statute applies to such parties in the 
same way as it would to a named underwriter in a firm commitment 
offering. In addition, the Commission has previously stated 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, does not participate or have a direct 
or indirect participation in any such undertaking, and does not 
participate or have a participation in the direct or indirect 
underwriting of such an undertaking.'' \911\
---------------------------------------------------------------------------

    \908\ Letter from ABA.
    \909\ Letter from SIFMA.
    \910\ See 2 Louis Loss, Joel Seligman & 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.'').
    \911\ Rule 144 Adopting Release, supra note 898, at 596.
---------------------------------------------------------------------------

    Several commenters disagreed with the discussion in the Proposing 
Release regarding what it means to participate in a distribution.\912\ 
These commenters asserted that some courts have adopted a narrower view 
of the concept of ``participation'' than what was discussed in the 
Proposing Release.\913\ We acknowledge that some courts have declined 
to find that parties other than named underwriters were acting as 
distribution participants. These cases, however, arose in more 
conventional capital raising contexts and were based on the particular 
facts and circumstances before the court. It is far from clear that the 
cases cited by the commenters should be determinative of how the 
concepts of ``distribution'' and ``underwriter'' apply in the context 
of a de-SPAC transaction, which combines elements of both a traditional 
IPO and an M&A transaction.
---------------------------------------------------------------------------

    \912\ Letters from Davis Polk, Kirkland & Ellis, NYC Bar, SIFMA, 
Vinson & Elkins.
    \913\ Many such commenters have pointed to In re Lehman Bros. 
Mortgage-Backed Sec. Litig., 650 F.3d 167 (2d Cir. 2011) as evidence 
that the Second Circuit has more narrowly defined the concept of 
participant in a distribution. See letters from ABA, Cleary 
Gottlieb, Committee on Capital Markets Regulation, Kirkland & Ellis, 
SIFMA, Skadden, Vinson & Elkins, Winston & Strawn. There, the Court 
held that the various credit rating agency defendants could not be 
liable as underwriters section 2(a)(11). See also commenter 
references to Silvercreek Mgmt., Inc. v. Citigroup, Inc., 346 F. 
Supp. 3d 473, 507-09 (S.D.N.Y. 2018); In re REFCO, Inc. Sec. Litig., 
2008 WL 3843343, at *4 (S.D.N.Y. Aug. 14, 2008).
---------------------------------------------------------------------------

    We acknowledge that in a de-SPAC transaction, there is generally no 
single party accepting securities from the issuer with a view to resell 
such securities to the public in a distribution in the same manner as a 
traditional underwriter in traditional capital raising. Nevertheless, 
in a de-SPAC distribution, there would be an underwriter present where 
someone is selling for the issuer or participating in the distribution 
of securities in the combined company to the SPAC's investors and the 
broader public. Depending on the facts and circumstances, such an 
entity could be deemed a ``statutory underwriter'' even though it may 
not be named as an underwriter in any given offering or may not be 
engaged in activities typical of a named underwriter in traditional 
capital raising. Section 11 would apply as it would to anyone acting as 
underwriter with respect to a registered de-SPAC transaction, and such 
person will have liability for any material misstatement or omission in 
the registration statement.\914\ Similarly such person would have any 
defenses available to the parties upon whom the statute imposes 
liability.\915\
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    \914\ 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. 15 U.S.C. 77l(a)(2).
    \915\ See the defenses to section 11 liability in 15 U.S.C. 
77k(b).
---------------------------------------------------------------------------

    The prior discussion is not intended to signal that we believe that 
every de-SPAC transaction or offering of securities generally involves 
or needs the involvement of an underwriter. But where a distribution 
and an underwriter are present, the party acting as underwriter will 
need to perform the necessary due diligence of the disclosures made in 
connection with the registered offering of securities or face full 
exposure to liability without the benefit of the due diligence defense 
under the Securities Act of 1933.\916\
---------------------------------------------------------------------------

    \916\ 15 U.S.C. 77k(b)(3).
---------------------------------------------------------------------------

iii. A De-SPAC Transaction Is Distinguishable From Other M&A 
Transactions
    By its terms, proposed Rule 140a would have applied only to SPAC 
IPO underwriters that took steps to facilitate a de-SPAC transaction or 
any related financing transaction, or otherwise participated (directly 
or indirectly) in the de-SPAC transaction. However, as noted above, 
commenters indicated that the proposal raised numerous questions about 
whether other parties that similarly facilitate de-SPAC transactions 
would be subject to liability and, whether a similar analysis applies 
to other types of transactions, such as more ``traditional'' M&A 
transactions (i.e., those not involving a SPAC).\917\
---------------------------------------------------------------------------

    \917\ Letters from ABA, Andrew Tuch, Davis Polk, Ropes & Gray, 
White & Case.
---------------------------------------------------------------------------

    In response to these comments, we note that Rule 140a was not 
intended to address any business combination transaction not involving 
a de-SPAC transaction. Similarly, the guidance presented in this 
release is not intended to influence current practice in traditional 
M&A, as the two situations are readily distinguishable. As discussed 
above,\918\ although de-SPAC transactions have many of the same 
features of traditional M&A transactions, they have a different 
purpose. While they take the form of a business combination, de-SPAC 
transactions serve as the means by which a private company may enter 
the public market for the first time and thus are the equivalent of an 
IPO by the target company. Indeed, it is in recognition of this unique 
method of conducting a public offering that we are adopting Rule 145a 
and the co-registration requirements to account for the fact that the 
combined company in a de-SPAC transaction is effectively acting as an 
issuer engaged in a sale of its securities to the public shareholders 
of the SPAC. We reiterate, however, that nothing in this release is 
intended to limit or alter the definition of underwriter for purposes 
of section 2(a)(11) of the Securities Act.
---------------------------------------------------------------------------

    \918\ See supra section I and infra section IV.A.3.
---------------------------------------------------------------------------

IV. Business Combinations Involving Shell Companies

    In response to concerns regarding the use of shell companies \919\ 
as a means of accessing the U.S. capital markets, the Commission 
proposed new rules that would apply to business combination 
transactions involving shell companies, which include de-SPAC 
transactions. First, the Commission proposed 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. The Commission is adopting that rule as proposed as 
discussed below. Second, the Commission proposed 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

[[Page 14239]]

in registration statements on Form S-1 or F-1 for an IPO.\920\ The 
Commission is adopting those rules mostly as proposed, with certain 
changes discussed below. The issues the Commission is addressing with 
the adoption of both of these sets of final rules are common to these 
shell company transactions, regardless of whether the shell company is 
a SPAC.
---------------------------------------------------------------------------

    \919\ 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 41 for the 
definition of ``reporting shell company.''
    \920\ 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 18990 (May 6, 1985)].
---------------------------------------------------------------------------

A. Shell Company Business Combinations and the Securities Act of 1933

1. Proposed Rule
    The Commission proposed Rule 145a to address the use of reporting 
shell companies as a means to enter the U.S. capital markets without 
Securities Act registration and the related disclosures which are 
intended to protect investors. The rule was proposed due to the 
significant increase in such reporting shell company business 
combination transactions, including through the use of a SPAC, in an 
effort to provide reporting shell company shareholders with more 
consistent Securities Act protections regardless of transaction 
structure.\921\ Proposed Rule 145a would deem 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 to involve a sale of securities to the 
reporting shell company's shareholders. While 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, the Commission stated that the exemption under 
section 3(a)(9) of the Securities Act generally would not be available 
for the sales covered by the proposed rule.\922\ The proposed rule 
would not apply to the merger of an existing reporting shell company 
into a new shell company where the surviving company remains a shell.
---------------------------------------------------------------------------

    \921\ See Proposing Release, supra note 7, at 29488.
    \922\ Id. at 29489.
---------------------------------------------------------------------------

2. Comments
    Several commenters generally supported proposed Rule 145a.\923\ 
Some of these commenters pointed to investor protection concerns 
related to SPACs and de-SPAC transactions and the benefits associated 
with registration under the Securities Act.\924\ In this regard, some 
commenters pointed out that the reform contemplated by Rule 145a would 
help prevent certain disparities in regulation for transactions that 
vary in legal structure but not in economic substance, ensuring that 
unaffiliated security holders enjoy the protections that come from 
investing in a registered offering.\925\ Other commenters noted that 
the likely registration of de-SPAC transactions as a result of Rule 
145a would result in enhanced liabilities for signatories to any 
registration statement and underwriter and expert liability, thereby 
ensuring investors receive fair and reliable information.\926\
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    \923\ Letters from Andrew Tuch, Bullet Point Network, ICGN, 
Public Citizen. See also letter from Jorge Stolfi (May 30, 2022) 
(``Jorge Stolfi'') (``Ideally, ANY merger involving a publicly 
traded company should require evaluation and approval of the stock 
of the proposed merged company's stock by the SEC, as if it was a 
new security.'').
    \924\ Letters from Andrew Tuch, ICGN, Jorge Stolfi, Public 
Citizen.
    \925\ Letter from Andrew Tuch.
    \926\ Letter from IGCN.
---------------------------------------------------------------------------

    Other commenters generally opposed, or expressed concerns 
regarding, proposed Rule 145a.\927\ Some commenters discussed the 
potential costs and effects of proposed Rule 145a.\928\ Certain 
commenters questioned the Commission's authority to adopt Rule 145a 
where, in commenters' views, no distribution of securities actually 
occurs \929\ or for situations in which there is neither a vote nor any 
securities changing hands as there is no traditional ``investment 
decision.'' \930\ Some commenters asserted that proposed Rule 145a is 
unnecessary for the protection of investors and that de-SPAC 
transactions, in particular, are already accompanied by a full set of 
disclosures.\931\ Other commenters asserted that proposed Rule 145a 
conflicted with proposed Rule 140a because proposed Rule 140a implied 
that there is a single distribution occurring between a SPAC's IPO and 
the de-SPAC transaction.\932\
---------------------------------------------------------------------------

    \927\ Letters from ABA, Freshfields, Kirkland & Ellis, NYC Bar, 
Vinson & Elkins, Winston & Strawn.
    \928\ Letters from ABA, Freshfields, Loeb & Loeb, Vinson & 
Elkins. See infra section VIII.
    \929\ Letter from Vinson & Elkins.
    \930\ Letter from ABA.
    \931\ Letters from Freshfields, Kirkland & Ellis, NYC Bar, 
Vinson & Elkins.
    \932\ Letters from ABA, Kirkland & Ellis, SIFMA.
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    One commenter asserted that not all shell company business 
combinations are similar and, in particular, that de-SPAC transactions 
are not comparable to shell company transactions with microcap 
companies.\933\ Another commenter stated that it is unclear to them why 
de-SPAC transactions should be treated differently than other reverse 
mergers.\934\
---------------------------------------------------------------------------

    \933\ Letter from Kirkland & Ellis.
    \934\ Letter from Winston & Strawn.
---------------------------------------------------------------------------

    A number of commenters requested that the Commission clarify and/or 
modify aspects of proposed Rule 145a. In particular, a commenter 
requested, if Rule 145a were adopted, that ``[i]n the spirit of 
aligning treatment of IPOs and de-SPAC transactions, Rule 145 [17 CFR 
230.145] should be revised to not apply to any transaction that Rule 
145a applies to.'' \935\ The same commenter requested that the 
Commission limit the scope of proposed Rule 145a so as not to apply to 
business combination related shell companies.\936\ Another commenter 
asked us to further clarify the application or operation of proposed 
Rule 145a.\937\ In particular, this commenter asked that the Commission 
clarify the intended trigger for the application of Rule 145a in a de-
SPAC transaction.
---------------------------------------------------------------------------

    \935\ Letter from Vinson & Elkins.
    \936\ Id.
    \937\ Letter from ABA.
---------------------------------------------------------------------------

    Finally, certain commenters questioned the Commission's explanation 
of the application of section 3(a)(9) in Rule 145a transactions.\938\ 
In particular one commenter stated that they did not agree that the 
``deemed exchange'' should be integrated with the exchange of the 
private company's securities for interests in the SPAC, such that 
section 3(a)(9) would be unavailable because a proxy solicitor is paid 
to solicit proxies from SPAC shareholders in connection with the 
shareholder vote on a de-SPAC transaction.\939\ The commenter asserted 
that any vote associated with the de-SPAC transaction and the related 
proxy solicitation is irrelevant to whether the transaction would be 
deemed a sale under existing rules. A different commenter asserted that 
if there is an exchange it is embodied in the redemption decision, not 
the vote in connection with a de-SPAC transaction, and thus payment of 
compensation for a proxy solicitor should not prevent reliance on 
Securities Act section 3(a)(9).\940\
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    \938\ Letters from Kirkland & Ellis, Vinson & Elkins.
    \939\ Letter from Kirkland & Ellis.
    \940\ Letter from Vinson & Elkins.

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[[Page 14240]]

3. Final Rule
    We are adopting Rule 145a as proposed. Currently, investors in 
reporting shell companies may not always receive the disclosures and 
other protections afforded by the Securities Act at the time when there 
is a fundamental change in the nature of their investment due to the 
business combination involving another entity that is not a shell 
company.\941\
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    \941\ Although other private liability may apply in situations 
where disclosures are provided to investors in connection with 
business combinations involving reporting shell companies, such 
liability is not as extensive as the protections investors receive 
under the Securities Act. See Douglas & Bates, supra note 581.
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    To address this, Rule 145a specifies that a sale occurs from the 
post-transaction company to the existing shareholders of a reporting 
shell company in situations where a reporting shell company that is not 
a business combination related shell company enters into a business 
combination transaction involving another entity that is not a shell 
company.\942\ In these situations, Rule 145a deems there to be a share 
exchange implicating the requirements and protections of section 5 of 
the Securities Act because the interests the former reporting shell 
company shareholders owned have been exchanged for something entirely 
different--interests in an operating company in the course of a 
transaction whereby the former reporting shell company provides the 
operating company with access to the public markets. The sale 
identified by the rule occurs regardless of whether securities are 
changing hands in the business combination transaction, and thus the 
transaction will need to be registered in accordance with the 
Securities Act unless an exemption from registration is available. The 
final rule also applies regardless of transaction structure or the form 
of business combination (e.g., statutory merger, share exchange, stock 
purchase, asset purchase, etc.).
---------------------------------------------------------------------------

    \942\ As noted above, certain commenters asserted that proposed 
Rule 145a was inconsistent with proposed Rule 140a because proposed 
Rule 140a implied that there is a single distribution occurring 
between a SPAC's IPO and its de-SPAC transaction. Letters from ABA, 
Kirkland & Ellis, SIFMA. As discussed in further detail above, we 
are not adopting proposed Rule 140a; rather, we have noted that the 
statutory definition of underwriter is sufficient to encompass any 
person who sells for the issuer or participates in a distribution 
associated with a de-SPAC transaction. See supra section III.F.
---------------------------------------------------------------------------

    As discussed in the Proposing Release, Rule 145a will apply to any 
reporting shell company that has assumed the appearance of having more 
than ``nominal'' assets or operations.\943\ However, as proposed and 
for the avoidance of doubt, the final rule will not have any impact on 
traditional business combination transactions between operating 
businesses, including transactions structured as traditional reverse 
mergers and traditional business combination transactions that make use 
of only business combination related shells.\944\ In addition, we note 
that Rule 145a is not intended to change the treatment of any 
transaction, whether or not involving a shell company, under State or 
other Federal laws, including, but not limited to, State corporate law 
and the Internal Revenue Code. Finally, because it is premised upon the 
change in the nature of a security when a reporting shell company 
changes its status to an operating company, Rule 145a specifically does 
not apply to a transaction where a reporting shell company combines 
with another shell company. Below we respond to various objections 
raised by commenters regarding the proposal and provide additional 
explanation to clarify the scope and application of Rule 145a.
---------------------------------------------------------------------------

    \943\ Proposing Release, supra note 7, at 29489. We reiterate 
the Commission's previous position on structuring transactions to 
avoid shell company status in adopting the 2005 shell company 
limitations. 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, 42236, 
n.32 (July 21, 2005)] (``Shell Company Adopting Release''). Rule 
145a as well as any other requirements applicable to reporting shell 
company business combinations apply in situations where, in 
substance, a shell company business combination is used to convert a 
private company into a public company. For example, the requirements 
applicable to reporting shell company business combinations adopted 
herein will apply to any company that sells or otherwise disposes of 
its historical assets or operations in connection with or as part of 
a plan to combine with a non-shell private company in order to 
convert the private company into a public one. This is true 
regardless of whether such sale or disposal of the legacy assets or 
operations occurs prior to or after the consummation of the business 
combination.
    \944\ By its terms, Rule 145a only impacts business combinations 
involving shell companies that are not business combination related 
shell companies. 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.'' Neither a 
SPAC nor any entity formed for facilitating a transaction with a 
SPAC is ever a business combination related shell company because 
neither of these entities would be 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. See 
Proposing Release, supra note 7, at 29489, n.243.
---------------------------------------------------------------------------

i. Arguments Regarding No Investment or Vote
    Some commenters questioned the Commission's authority to adopt Rule 
145a because, in the commenters' view, a sale cannot be deemed to occur 
in situations where no actual distribution of securities occurs \945\ 
or there is no traditional ``investment decision.'' \946\ Section 
2(a)(3) of the Securities Act broadly defines the terms ``sale'' or 
``sell'' to include every contract of sale or disposition of a security 
or interest in a security, for value.\947\ Finding it necessary for 
investors to have the protections of the Securities Act, the Commission 
has previously applied this definition broadly, including in cases 
where there is no affirmative decision from investors to buy or sell 
securities. For example, the Commission has previously determined that 
the following transactions may involve a sale even where there is no 
vote or investment decision: spin-offs, split-offs and similar 
transactions; \948\ short-form mergers; \949\ and distributions of 
``free stock.'' \950\
---------------------------------------------------------------------------

    \945\ See letter from Vinson & Elkins.
    \946\ See letter from ABA.
    \947\ 15 U.S.C. 77b(a)(3).
    \948\ See Spin Offs Release, supra note 899, at 11581 (The 
Commission explained that the theory had been advanced that since a 
sale is not involved in the distribution of the shares in a spin off 
that registration is not required and that even if it is required, 
no purpose would be served by filing a registration statement and 
requiring the delivery of a prospectus since the persons receiving 
the shares are not called upon to make an investment judgment. 
However, such a theory ignores what appears to be the primary 
purpose of the spin off in numerous circumstances which is to create 
quickly, and without the disclosure required by registration, a 
trading market in the shares of the issuer. As the Commission 
explained, devices of this kind contravene the purpose, as well as 
the specific provisions, of the Securities Act, which are to provide 
full and fair disclosure of the character of the securities sold in 
interstate and foreign commerce and through the mails, and to 
prevent frauds in the sale thereof.).
    \949\ See Registration of Certain Transactions Involving 
Mergers, Consolidations and Acquisitions of Assets, Release No. 33-
5316 (Oct. 6, 1972) [37 FR 23631, 23633 (Nov. 7, 1972)] (Short form 
mergers that do not require a vote or consent are not within the 
scope of Rule 145(a). However, if a security is to be issued in such 
short form mergers, the Commission stated that it is of the opinion 
that the transaction involves an ``offer,'' ``offer to sell,'' 
``offer for sale,'' or ``sale,'' within the meaning of section 
2(a)(3) of the Securities Act, and accordingly that such 
transactions are subject to the registration provisions of the 
Securities Act unless an exemption is available.).
    \950\ See, e.g., In the Matter of Capital General Corp., Release 
No. 33-7008 (July 23, 1993) (``Capital General'') in which the 
Commission concluded that Capital General's unregistered 
distributions of securities in a shell company as purported gifts 
were a sale in violation of section 5 because value accrued to the 
defendants ``by virtue of the creation of a public market for the 
issuer's securities, and the fact that, as a public company, the 
issuer could be sold for greater consideration.''

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

[[Page 14241]]

    Similarly, here, we have concluded that, notwithstanding the fact 
that there may be no traditional investment decision or vote in 
connection with a business combination transaction where a shell 
company changes its status from a shell company to an operating company 
through a business combination, such a change is nonetheless a sale of 
securities for the purposes of section 2(a)(3) because investors are 
exchanging their interests in a shell company for interests in a 
combined public operating company, which is a transaction ``for 
value.''
a. The ``For Value'' Requirement
    Several commenters questioned whether the constructive sale would 
be ``for value,'' within the meaning of this term in section 
2(a)(3).\951\ We disagree with the commenter that asserted that, 
similar to an ordinary M&A transaction, a de-SPAC transaction will not 
result in a fundamental change in the nature of the security held by 
SPAC stockholders that would constitute an exchange of value and, thus, 
should not be deemed to constitute consideration in connection with the 
business combination.\952\ Likewise, we disagree with the commenter 
that asserted that even though the specific target company is 
unidentified at the time of the SPAC's IPO, when acquired, a SPAC 
security represents an investment in a target company because the sole 
purpose of a SPAC is to engage in a business combination.\953\
---------------------------------------------------------------------------

    \951\ Letters from ABA, Kirkland & Ellis.
    \952\ Letter from ABA.
    \953\ Letter from Kirkland & Ellis.
---------------------------------------------------------------------------

    A change in a reporting shell company's status via a business 
combination with an operating company results in the reporting shell 
company investors effectively exchanging their security representing an 
interest in the reporting shell company, an entity that has no or 
nominal operations and 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, for a new security representing an interest in a combined 
operating company.\954\ This is a change in the nature of the 
investment, which does not occur in traditional M&A transactions.\955\ 
Although shell company shareholders may not actually be receiving 
shares from the combined public operating company, they have 
surrendered ``value'' for purposes of section 2(a)(3) because, unlike a 
business combination not involving a reporting shell company and an 
operating company, they have effectively surrendered their shares in a 
public shell company for shares in a fundamentally different company, a 
combined operating company. In addition, unlike a business combination 
that does not involve a reporting shell company and an operating 
company, such a transaction involves the use of a public shell to 
create a public market for the combined operating company.\956\
---------------------------------------------------------------------------

    \954\ 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.
    \955\ As discussed above, Rule 145a is limited to business 
combinations that involve reporting shell companies. See supra 
section IV.A.3.
    \956\ See SEC v. Datronics Engineers, Inc., 490 F.2d 250 (4th 
Cir. 1973) cert. denied, 416 U.S. 937 (1974) (``Datronics'') 
(finding a sale under the Securities Act requiring registration or 
an exemption from registration when a parent company, Datronics, 
created shell subsidiaries for the purpose of merging them with 
private companies. Datronics reserved approximately one-third of the 
shares of the post-merger subsidiary for itself and distributed the 
remainder to its shareholders without registration. Secondary market 
trading of the shares began promptly. Datronics' only business 
purpose was to create a trading market for the shares). See also SEC 
v. Harwyn Industries Corp., 326 F. Supp. 943 (S.D.N.Y. 1971) 
(``Harwyn''). In Harwyn, the court found a sale under the Securities 
Act requiring registration or an exemption from registration when 
each of several subsidiaries of the public parent acquired assets 
from a corporation in exchange for a controlling interest in the 
subsidiary. The parent then spun off shares of the subsidiaries to 
its stockholders in an unregistered transaction, creating over-the-
counter trading markets in the shares. The court stated that 
``value'' was received by Harwyn and other insiders ``in the form of 
a contribution of substantially new assets to each subsidiary and 
the creation of a public market in the shares.''
---------------------------------------------------------------------------

    Moreover, courts \957\ and the Commission \958\ have determined 
that it does not matter what party in the course of a transaction 
receives value--as long as any party receives value, the ``for value'' 
requirement in section 2(a)(3) is satisfied. In particular, 
transactions involving the use of public shells to provide access to 
the public markets have been found to constitute a sale under section 
2(a)(3) of the Securities Act.\959\ We view a reporting shell company 
(that is not a business combination related shell company) merging with 
a private operating company as similarly providing access to the public 
markets, and thus creating value. Therefore, the business combination 
transaction is a sale which entitles the reporting shell company's 
existing shareholders, who are the investors acquiring securities in 
this sale, to all applicable protections provided by the Securities 
Act.
---------------------------------------------------------------------------

    \957\ See Datronics, supra note 956, at 253-254 (``Value accrued 
to Datronics in several ways. First, a market for the stock was 
created by its transfer to so many new assignees--at least 1000, 
some of whom were stockbroker-dealers, residing in various States. 
Sales by them followed at once--the District Judge noting that `in 
each instance dealing promptly began in the spun-off shares'. [sic] 
This result redounded to the benefit not only of Datronics but, as 
well, to its officers and agents who had received some of the spun-
off stock as compensation for legal or other services to the spin-
off corporations. Likewise, the stock retained by Datronics was 
thereby given an added increment of value.''); Harwyn, supra note 
956, at 954 (``We see no reason to construe Sec. Sec.  2[(a)](3) and 
5 as requiring that the `value' requiring registration must flow 
from the immediate parties who received the stock, in this case 
Harwyn's shareholders.'').
    \958\ See Capital General, supra note 950, at *11 (The 
Commission found that ``the analysis of whether a sale occurred 
focuses not only on whether the recipient of the securities gives 
something of value in exchange for the securities, but also on 
whether value is received from any other source. Harwyn Industries 
and Datronics also make clear that the analysis must include the 
entire transaction--the distribution of the issuer's shares, and 
subsequent change in control of the issuer--to determine whether 
value was received from the distribution.'').
    \959\ Id.
---------------------------------------------------------------------------

    Finally, one commenter asked that we clarify within the rule text 
that the sale contemplated by Rule 145a would be ``a disposition of a 
security or an interest in a security . . . for value.'' \960\ 
Although, as we explain above, we agree with the commenter that such a 
transaction would be ``for value,'' we do not believe it is necessary 
to add that detail within the text of Rule 145a because the Securities 
Act, itself, already contains the ``for value'' requirement in section 
2(a)(3).\961\
---------------------------------------------------------------------------

    \960\ Letter from ICGN.
    \961\ See 15 U.S.C. 77b(a)(3).
---------------------------------------------------------------------------

ii. No Additional Registration Statement Required Where a Shell Company 
Business Combination Is Already Registered
    If, in the course of a business combination with a reporting shell 
company, the exchange of the shell company shares for securities of the 
surviving combined operating business is already being registered, then 
there is no need to register any additional transaction under the 
Securities Act to comply with Rule 145a because the transaction that is 
recognized as a sale by Rule 145a is already being registered. For 
example, in many de-SPAC transactions, an actual exchange of securities 
between the SPAC's existing shareholders and the target company or a 
new holding company is already being registered at the time of the 
business

[[Page 14242]]

combination transaction.\962\ In these circumstances, the transaction 
that Rule 145a construes as a sale is typically already being 
registered because the SPAC's existing shareholders are receiving 
securities of the combined company in exchange for their shares of the 
SPAC. Where Securities Act registration of this transaction is already 
occurring, Rule 145a would not require the filing of an additional 
registration statement. However, Rule 145a only applies with respect to 
a shell company's existing security holders. The surviving company in a 
de-SPAC transaction must give separate consideration as to whether a 
registration statement or exemption would be required for any offer and 
sale of securities to the target company's security holders.
---------------------------------------------------------------------------

    \962\ Share exchanges in which the target company survives the 
business combination as the public entity are commonly referred to 
as ``Target-on-Top'' structures. Alternatively, the combining 
entities may also form a new holding company such that both holders 
of the SPAC and the target company receive securities in the holding 
company in exchange for their existing interests in the target 
company.
---------------------------------------------------------------------------

iii. Where Rule 145a Requires Registration in the Absence of an 
Exemption
    However, in transaction structures where reporting shell company 
shareholders are not actually exchanging their shell company shares for 
securities of a combined operating company, the parties will need to 
consider Rule 145a in structuring the transaction. For example, in a 
de-SPAC transaction structured such that the shareholders of the SPAC 
keep their existing shares in the SPAC throughout the business 
combination transaction, and those interests change into interests in 
the combined company, the parties would need to consider the impact of 
Rule 145a on the transaction and either register the transaction or 
find an exemption for the constructive exchange between the shell 
company's pre-transaction shareholders and the surviving combined 
company.\963\ Such transactions would be situations implicating a Rule 
145a constructive sale.
---------------------------------------------------------------------------

    \963\ This would typically be any transaction where the SPAC 
survives the business combination as the public company. Such 
transactions are commonly referred to ``SPAC-on-Top.'' Where 
registration is required for a Rule 145a constructive sale, the 
registration statement should register the exchange of the number of 
outstanding shares that represent the interests of all shareholders 
of the shell company immediately preceding the business combination.
---------------------------------------------------------------------------

iv. Investor Protection and Liability
    While we acknowledge, as several commenters have argued,\964\ that 
certain transactions, such as de-SPAC transactions, may already be 
accompanied by a set of disclosures provided to the reporting shell 
company's shareholders, the timing and nature of such disclosures may 
not be equivalent,\965\ and such disclosures do not have equivalent 
levels of investor protection as there currently would be in a 
transaction involving Securities Act registration. To the extent that 
Rule 145a transactions are registered, registration would result in 
enhanced liabilities for the registrant and other parties who have 
liability under the Federal securities laws with respect to the 
registration statement, including potential underwriter liability (as 
described elsewhere in this release) and liability under Securities Act 
section 11(a)(4) for experts. Given the change in the nature of an 
investor's security when a reporting shell company engages in a 
business combination transaction with an operating company, Rule 145a 
is designed to ensure that shareholders more consistently receive the 
full protections of Securities Act disclosure and liability provisions, 
as applicable, and that such investor protections will apply regardless 
of transaction structure.
---------------------------------------------------------------------------

    \964\ Letters from Freshfields, Kirkland & Ellis, NYC Bar, 
Vinson & Elkins.
    \965\ For example, investors in a reporting shell company 
undergoing a business combination in which there is no shareholder 
vote and no redemption feature currently may receive no disclosure 
about the pending business combination until four business days 
after closing at which time the shell company would be required to 
file a Form 8-K to provide the disclosure required by Items 5.06 and 
9.01. Even though pursuant to these items shareholders will receive 
the equivalent of Form 10 information about the combined company, 
investors will still not receive certain transaction-specific 
information that would be required in a Securities Act registration 
statement. For example, a Securities Act registration statement 
would require disclosure of a summary of the terms of the 
acquisition agreement and the reasons of the registrant and of the 
company being acquired for engaging in the transaction. See Items 
4(a)(1) and (2) of Form S-4.
---------------------------------------------------------------------------

v. Market for Shell Company Mergers
    A commenter asserted that the Commission had not previously found 
it necessary to adopt a provision like Rule 145a to regulate shell 
company mergers ``and was amenable at that time to allow such 
transactions to proceed so long as public investors were given current 
and complete information about the new business they owned.'' \966\ The 
commenter further asserted that proposed Rule 145a no longer reflects 
this Commission position on shell company mergers and can be expected 
``to shut down [the shell company] market.'' \967\ We disagree. 
Although the Commission adopted rules and rule amendments addressing 
the use of Form S-8, Form 8-K, and Form 20-F by shell companies,\968\ 
the Commission is not precluded from revisiting shell company 
transactions and considering the investor protections applicable to 
these transactions. In this regard, we believe Rule 145a complements 
the disclosure protections that the Commission adopted in 2005.\969\ In 
addition, we do not believe that a requirement to register a 
transaction or find an applicable exemption when a reporting shell 
company becomes an operating company, would ``shut down the market.'' 
Indeed, depending on the structure, many business combinations 
involving reporting shell companies are already registered under the 
Securities Act.
---------------------------------------------------------------------------

    \966\ See letter from Loeb & Loeb.
    \967\ See id.
    \968\ See Shell Company Adopting Release, supra note 943.
    \969\ See id.
---------------------------------------------------------------------------

vi. Perceived Conflicts Between Non-SPAC Reporting Shell Companies and 
SPACs
    A commenter stated that an investment in a SPAC transaction is not 
comparable to other reporting shell company business combinations.\970\ 
In particular, the commenter indicated that an investor in a non-SPAC 
reporting shell company does not necessarily invest in a company 
seeking a business combination opportunity. While we acknowledge that 
non-SPAC shell companies typically have some investors that predated 
the company's shell company status, this distinction is not relevant 
for this purpose because the effect of a business combination 
transaction in both cases is the same. Both involve a situation where a 
public shell company is no longer going to be a shell company and the 
nature of the investor's shares has changed to an investment in an 
entirely new operating business. Moreover, the purpose of the 
transaction is to provide the formerly private company with access to 
the public markets. As such, the concerns that we are addressing in 
adopting Rule 145a are present in both non-SPAC reporting shell company 
business combinations and de-SPAC transactions.
---------------------------------------------------------------------------

    \970\ See letter from Kirkland & Ellis.
---------------------------------------------------------------------------

vii. Perceived Analogies to Traditional Reverse Mergers
    A commenter argued that de-SPAC transactions should not be 
distinguished

[[Page 14243]]

from other reverse mergers because the accounting predecessor in a 
reverse merger is not currently deemed to be engaged in a distribution 
of its securities to stockholders of the non-predecessor entity.\971\ 
We do not agree with the commenter's analogy because in traditional 
mergers, regardless of the accounting treatment of the respective 
parties, the issuer of securities whose offer and sale is registered is 
the entity whose securities are being sold to investors (e.g., in a 
share exchange, the entity whose securities are being offered in 
exchange for outstanding securities of another entity).\972\ The 
commenter further asserted that if the SPAC is not actually issuing 
securities, the SPAC should not be a ``registrant'' and that, to the 
extent Rule 145a is adopted, only the target should be considered a 
registrant. We disagree, in part, with this argument. While we agree 
that the target company must be a registrant in all registered de-SPAC 
transactions,\973\ we see no basis to disregard the SPAC's status as a 
registrant, where applicable, even in cases where the SPAC is issuing 
securities only within the meaning of Rule 145a. Rule 145a is designed 
to identify a sale between the combined company and pre-business 
combination shareholders of the reporting shell company. For the 
reasons discussed above, we view this to be a sale even if the 
reporting shell company is not actually issuing securities. Given that 
this constructive sale occurs even if shares do not actually change 
hands, we decline to narrow Rule 145a by concluding that a sale occurs 
in a de-SPAC transaction only by the target company. To the extent that 
the choice of transaction structure may impact who is a registrant that 
must sign a registration statement, that is a separate analysis.\974\
---------------------------------------------------------------------------

    \971\ Letter from Winston & Strawn.
    \972\ Although the commenter seeks to analogize de-SPAC 
transactions to reverse mergers in traditional M&A, such 
transactions are readily distinguishable. With respect to other 
reverse mergers not involving shell companies, although the entity 
surviving the transaction may acquire new assets or new lines of 
business as a result of the transaction, it is not changing the 
actual nature of the investment--from a company with no operations 
to an operating company--and it is not a means to provide a company 
access to the public markets for the first time.
    \973\ See supra section III.C.
    \974\ Id.
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    Additionally, some commenters asked for clarification regarding the 
intended trigger for the application of Rule 145a in a de-SPAC 
transaction \975\ and who would be the exchanging parties in a Rule 
145a constructive sale.\976\ As discussed above, Rule 145a specifies 
that a sale occurs from the post-transaction company to the existing 
shareholders of a reporting shell company in situations where a 
reporting shell company that is not a business combination related 
shell company enters into a business combination transaction involving 
another entity that is not a shell company. Pursuant to Rule 145a, all 
existing holders of the reporting shell company's shares, at the time 
of the business combination, are constructively exchanging their 
securities for securities in the combined company, whether or not these 
investors are actually exchanging any shares to complete the business 
combination.\977\ The surviving public company will be the entity that 
is constructively selling the securities of the combined company.
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    \975\ Letter from ABA.
    \976\ Letter from Winston & Strawn.
    \977\ See supra section IV.A.3.iii regarding when a shell 
company must consider registering the sale identified by Rule 145a.
---------------------------------------------------------------------------

viii. Section 3(a)(9) Does Not Apply to Rule 145a Constructive Sales
    Having considered the views of commenters regarding the application 
of the section 3(a)(9) exemption in Rule 145a constructive sales,\978\ 
we continue to believe section 3(a)(9) would not be available for a 
transaction that is a Rule 145a constructive sale. There are several 
features of these transactions which cast doubt on the availability of 
the exemption. In particular, section 3(a)(9) was designed to 
facilitate ``certain voluntary readjustment[s] of [an issuer's] 
obligations.'' \979\ A reporting shell company business combination 
with an operating company is not merely a voluntary readjustment, but 
the combination of such an entity with an entirely new business.
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    \978\ Letters from Kirkland & Ellis, Vinson & Elkins.
    \979\ H.R. Rep. No. 152, 73rd Cong. 1st Sess. 25 (1933).
---------------------------------------------------------------------------

    In addition, the four requirements of an exchange qualifying for 
the section 3(a)(9) exemption are as follows:
     Same issuer--the issuer of the old securities being 
surrendered must be the same as the issuer of the new securities;
     No additional consideration from the security holder;
     Offer must be made exclusively with existing security 
holders; and
     No commission or compensation may be paid for soliciting 
the exchange.
    The failure to meet any single one of these requirements would be 
enough to preclude use of the section 3(a)(9) exemption.
    First, section 3(a)(9) is limited to securities exchanged by the 
issuer with its existing shareholders. In the case where shareholders 
of a reporting shell company constructively exchange their shares with 
securities of the combined entity, we view the combined entity to be a 
different issuer than the shell that originally issued the securities 
even if the reporting shell company is the entity that survives the 
merger. Although the combined company may retain the legal identity of 
the shell for the purposes of State or local law, it is substantively a 
new entity. To hold otherwise would place form over substance, given 
that the use of the section 3(a)(9) exemption is premised upon an 
investor's familiarity with the company in which they have already 
invested.\980\
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    \980\ The Commission has stated that the rationale for the 
section 3(a)(9) exemption, in part, is that the market already has 
adequate familiarity with the issuer, and thus, the protections 
under the registration provisions of the Securities Act are not 
necessary. See, e.g., Form for Registration of Securities When 
Issuers Qualify Under Certain Proposed Rule, Release No. 33-5011 
(Oct. 7, 1969) [34 FR 17033, 17033 (Oct. 18, 1969)] (``[T]he 
exemption in section 3(a)(9) of the Act applies only where the 
issuer of the convertible security and the security issuable on 
conversion is the same. In such a situation the information 
available to the trading markets through periodic reports filed by 
the issuer under the Securities Exchange Act should provide an 
adequate substitute for the disclosure which would be provided by 
the registration and prospectus delivery provisions of the 
Securities Act.'').
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    Second, the section 3(a)(9) exemption would not be available where 
the Rule 145a constructive sale occurs in connection with the offer and 
sale of securities to target company security holders. Such a sale 
would not occur exclusively to the reporting shell company's existing 
security holders. Thus, where interests in the existing reporting shell 
are also being exchanged with the target company's shareholders, the 
exchange would not be exclusively with the reporting shell company's 
existing security holders and section 3(a)(9) would not be available to 
exempt the deemed sale to the reporting shell company shareholders.
    Finally, section 3(a)(9) is not available where a commission or 
other remuneration is paid or given directly or indirectly for 
soliciting participation in the deemed exchange. This would occur, for 
example, if a proxy solicitor is compensated to solicit the reporting 
shell company's shareholders for proxy votes in connection with the 
business combination. Certain commenters asserted that section 3(a)(9) 
of the Securities Act should not be rendered unavailable simply because 
a proxy solicitor is paid to solicit proxies from SPAC shareholders in 
connection with the shareholder vote on a de-SPAC transaction.\981\ As 
discussed above, Rule 145a deems there to be a share exchange in 
situations, such as de-SPAC

[[Page 14244]]

transactions, where a reporting shell company that is not a business 
combination related shell company enters into a business combination 
transaction involving another entity that is not a shell company. In 
our view, if shareholder approval is being solicited on a matter that 
is required to accomplish a reporting shell company business 
combination,\982\ and compensation is being paid for such solicitation, 
then that is, in substance, a solicitation for approval of the Rule 
145a transaction. This is consistent with views the Commission 
previously has expressed in analogous contexts. For example, the 
Commission has previously taken the position that where a solicitation 
of security holders is for the purpose of approving the authorization 
of additional securities which are to be used to acquire another 
specified company, and the security holders will not have a separate 
opportunity to vote upon the transaction, the solicitation to authorize 
the securities is also a solicitation with respect to the 
acquisition.\983\ Accordingly, if a proxy solicitor is compensated to 
solicit the reporting shell company's shareholders for proxy votes in 
connection with the shareholder vote on a de-SPAC transaction, such 
solicitation would mean the transaction would not qualify for the 
section 3(a)(9) exemption for the Rule 145a constructive sale.
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    \981\ Letters from Kirkland & Ellis, Vinson & Elkins.
    \982\ For example, approval of the business combination, the 
authorization of additional shares, revisions to the articles of 
incorporation, or a reincorporation to a different jurisdiction.
    \983\ See, e.g., Note A to Schedule 14A (``Where any item calls 
for information with respect to any matter to be acted upon and such 
matter involves other matters with respect to which information is 
called for by other items of this schedule, the information called 
for by such other items also shall be given. For example, where a 
solicitation of security holders is for the purpose of approving the 
authorization of additional securities which are to be used to 
acquire another specified company, and the registrants' security 
holders will not have a separate opportunity to vote upon the 
transaction, the solicitation to authorize the securities is also a 
solicitation with respect to the acquisition.'').
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B. Financial Statement Requirements in Business Combination 
Transactions Involving Shell Companies

    After a business combination involving a shell company, the 
financial statements of a business \984\ that will be a predecessor 
\985\ to the shell company registrant become those of the registrant 
for financial reporting purposes.
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    \984\ We use the term ``business'' throughout, rather than 
``private operating company'' (or ``target company'') as it 
encompasses both terms. In the Proposing Release, the Commission 
stated, in a business combination transaction involving a shell 
company, the private operating company would meet the definition of 
a ``business'' in Rule 11-01(d) of Regulation S-X. Proposing 
Release, supra note 7, at 29491, n.253. In connection with the 
adoption of final Rule 15-01(b) in this release, we reiterate that, 
in a business combination transaction involving a shell company, a 
``business'' includes but is not limited to a private operating 
company or a target company that is not an asset acquisition.
    \985\ 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.
---------------------------------------------------------------------------

    How a business 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 or F-1 (for IPOs) and the 
requirements of registration statements on Form S-4 or F-4 (regarding 
business combination transactions). 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.
    In the Proposing Release, the Commission proposed amendments to its 
forms and rules to more closely align the financial statement reporting 
requirements in business combinations involving a shell company 
registrant and a business with those in traditional IPOs.\986\ The 
financial statement requirements that are being adopted under the final 
amendments are based, in part, on current Commission staff guidance for 
transactions involving shell companies.\987\ In proposing to codify 
this guidance, the Commission sought to reduce any asymmetries between 
financial statement disclosures in business combination transactions 
involving shell companies and traditional IPOs.
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    \986\ See Proposing Release, supra note 7, at 29490-29494. See 
also proposed amendments to Forms S-4, F-4, and 8-K and to 
Regulation S-X.
    \987\ Commission staff has provided informal guidance to address 
practical questions related to financial reporting issues for shell 
company mergers in the FRM.
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1. Proposed Rule 15-01(a), Rule 1-02(d), and Form Instructions: Audit 
Requirements
    In the Proposing Release, the Commission proposed Rule 15-01(a), 
amendments to Rule 1-02(d), and related new instructions to Forms S-4 
and F-4.\988\ The Commission noted in the Proposing Release that these 
changes would align the level of audit assurance required for the 
target business in business combination transactions involving a shell 
company with the audit requirements for an IPO.\989\ Specifically, 
proposed Rule 15-01(a) provided that the term ``audit (or 
examination),'' when used with respect to financial statements of a 
business that is or will be a predecessor to a shell company,\990\ 
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. The Commission also proposed 
to amend Rule 1-02(d) to include the following new provision: ``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).'' The combined effect of the proposals would be 
that a predecessor to a shell company, including one that is a target 
private operating company, would be required to comply with the same 
definition of audit as in Rule 1-02(d) of Regulation S-X for its 
audited financial statements as if it were filing for an IPO.
---------------------------------------------------------------------------

    \988\ See proposed Rule 15-01(a) of Regulation S-X, proposed 
Rule 1-02(d), proposed Instruction 1 to Item 17(b)(7) of Form S-4 
(adding requirement, in a de-SPAC transaction to provide the 
financial statements required by Sec.  240.15-01 (Rule 15-01 of 
Regulation S-X)), proposed Instruction 1 to Item 17(b)(5) of Form F-
4 (adding requirement, in a de-SPAC transaction to provide the 
financial statements required by Sec.  240.15-01 (Rule 15-01 of 
Regulation S-X) at Proposing Release, supra note 7, at 29491.
    \989\ See Proposing Release supra note 39, at 29491.
    \990\ See definition of the term ``business combination related 
shell company'' in Securities Act Rule 405 and Exchange Act Rule 
12b-2.
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2. Comments: Rule 15-01(a), Rule 1-02(d), and Form Instructions: Audit 
Requirements
    We received comments from several commenters that were supportive 
of proposed Rule 15-01(a), because it would codify existing staff 
guidance.\991\ No commenters opposed proposed Rule 15-01(a), the 
proposed amendments to Rule 1-02(d), or the proposed new instructions 
to Forms S-4 and F-4. One commenter recommended that we adopt an 
exception to the audit requirements applicable to SPACs to permit the 
audits of the financial statements of target companies that would 
otherwise be eligible for multijurisdictional disclosure system 
(``MJDS'') reporting to be able to use Canadian Generally Accepted 
Auditing Standards (``Canadian GAAS'').\992\
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    \991\ Letters from PwC, RSM US LLP (May 25, 2022) (``RSM'') 
(``We believe the proposed rule, if finalized, would appropriately 
codify current SEC staff guidance and align the level of audit 
assurance required for the target private operating company in 
business combination transactions involving a shell company with the 
current requirements for an audit of a private operating company in 
a traditional IPO to be performed in accordance with the standards 
of the Public Company Accounting Oversight Board.''), Vinson & 
Elkins.
    \992\ Letter from ABA.
---------------------------------------------------------------------------

    As noted in section III.C above, one commenter said that co-
registration

[[Page 14245]]

would result in disclosure requirements that are inconsistent with the 
proposed revisions to Regulation S-X, raising the issue of whether, if 
there were multiple target companies, each company would be required to 
provide financial statements audited in accordance with PCAOB standards 
in the de-SPAC registration statement, rather than solely the 
predecessor pursuant to proposed Rule 15-01(a) of Regulation S-X.\993\ 
This commenter indicated that co-registration would result in 
inconsistencies with IPOs where there are multiple target companies.
---------------------------------------------------------------------------

    \993\ Letter from Vinson & Elkins.
---------------------------------------------------------------------------

3. Final Rule 15-01(a), Rule 1-02(d), and Form Instructions: Audit 
Requirements
    After considering the comments, we are adopting Rule 15-01(a), the 
amendments to Rule 1-02(d), and the instructions to Forms S-4 and F-4 
largely as proposed, with a few modifications discussed below.
    In the past, the Commission staff has advised shell companies that 
it expects the financial statements of the predecessor, including a 
private operating company, in a transaction involving a shell company, 
to be audited under the same standards as a registrant in an IPO, 
because, at consummation, the financial statements of the business 
become that of the shell company.\994\ As noted in section III.C above, 
the amendments to Form S-4 and Form F-4 will result in each business 
that is reported as a company being acquired on Form S-4 or F-4 being 
an issuer under section 2(a)(7) of the Sarbanes-Oxley Act. The final 
amendments to Rule 1-02(d) have been modified to refer any entity that 
is involved in a combination with a shell company to Rule 15-01(a), 
which in turn provides rules as to the level of audit assurance 
required depending on whether the entity in the combination is a 
predecessor or non-predecessor. Consistent with existing staff guidance 
and the proposal, an entity that is or will be a predecessor, whether 
it is part of a shell company transaction or an issuer under the 
amendments to Form S-4 and Form F-4 that is part of a shell company 
transaction, will be required to have its financial statements audited 
by an independent accountant in accordance with the standards of the 
PCAOB. Consistent with the level of assurance in an IPO involving 
multiple businesses today, the financial statements of an entity that 
is not a predecessor that are included in a registration statement or 
proxy statement \995\ filed for a combination with an issuer that is a 
shell company may be audited in accordance with either the standards of 
the PCAOB or U.S. GAAS as specified or permitted in the regulations and 
forms applicable to those entities for the purpose of expressing an 
opinion thereon.\996\ The final rule has been revised from that 
proposed in order to codify existing staff practice that the 
predecessor in a shell company transaction that does not involve a SPAC 
and is not an issuer be audited by an independent accountant registered 
with the PCAOB.\997\ In addition, the final rule refers to ``entity'' 
instead of ``issuer,'' as proposed, in order for the rule to apply to 
shell company business combinations that are not de-SPAC transactions. 
All issuers in a de-SPAC transaction would still need a PCAOB-
registered audit firm in accordance with section 102 of the Sarbanes-
Oxley Act to perform the audit. Further, these amendments that permit 
U.S. GAAS audits for the financial statements of an issuer that is not 
the predecessor apply to a small subset of de-SPAC transactions 
involving multiple target companies where there may be an issuer that 
is a not a predecessor.\998\
---------------------------------------------------------------------------

    \994\ See FRM at Sections 1140.5 and 2200.7 that discusses 
``Audit Requirement for Non-Reporting Target'' in relation to Form 
S-4 or F-4 when the registrant is a SPAC. In addition, Section 
4110.5 includes a chart that outlines the staff's views on the 
application of certain PCAOB requirements in various filings with 
the SEC, which includes transactions involving a shell company.
    \995\ For ease of reference, when we refer to disclosures in a 
``proxy statement,'' the same discussion applies to ``information 
statement.'' Information statements call for the same information as 
a proxy statement. See Item 1 of Sec.  240.14c-101 (Schedule 14C).
    \996\ See supra section III.C for additional discussion 
regarding the definition of audit for issuers that are not 
predecessors in business combination transactions with a shell 
company involving multiple targets.
    \997\ See FRM at Section 12250.1, which stipulates in a reverse 
recapitalization by a non-public company with a public shell 
company, the financial statements of the non-public company filed in 
the Form 8-K or Form 20-F must be audited by a public accounting 
firm registered with the PCAOB. Further, the auditor would need to 
be independent under PCAOB and Commission independence rules for all 
years required to be in the Form 8-K. For Form 20-F, the auditor of 
the non-public company that is an FPI must comply with the PCAOB and 
Commission independence rules for at least the latest fiscal year as 
long as the auditor is independent in accordance with home-country 
standards for earlier periods.
    \998\ See infra section VIII.A. There were approximately 17 out 
of 583 de-SPAC transactions between 1990-2022 that had two or more 
targets.
---------------------------------------------------------------------------

    We are not adopting amendments to permit the use of Canadian GAAS 
in connection with de-SPAC transactions involving a Canadian business. 
Under current rules, a registrant must meet the MJDS requirements and 
register on an MJDS form in order to rely on such accommodations.\999\ 
Also, under current rules, a SPAC that satisfies the MJDS-eligibility 
requirements and is involved in a de-SPAC transaction involving a 
Canadian business that also meets the MJDS-eligibility requirements 
once combined is permitted to use Canadian GAAS post-combination if it 
files on an MJDS form. Moreover, virtually all MJDS issuers provide 
audit opinions under PCAOB standards, even though they are able to 
provide audit opinions under Canadian GAAS, so it is unclear whether 
any Canadian registrants would provide audit opinions under Canadian 
GAAS even if that were an option at the time of filing the registration 
statement.\1000\ MJDS accommodations go beyond the use of Canadian 
GAAS.
---------------------------------------------------------------------------

    \999\ See Multijurisdictional Disclosure and Modifications to 
the Current Registration and Reporting System for Canadian Issuers, 
Release No. 33-6902 (June 21, 1991) [56 FR 30036 (July 1, 1991)] 
(adopting the MJDS system).
    \1000\ See General Instruction B to Form 40-F.
---------------------------------------------------------------------------

    In final Rule 1-02(d), we have deleted the proposed term 
``financial statements of a company'' and replaced it with the term 
``financial statements of an issuer.'' The use of ``issuer'' rather 
than ``company'' will ensure consistency with related provisions in 
Rule 15-01.
    We have revised proposed Instruction 1 to Item 17(b)(7) of Form S-4 
and Instruction 4 to Item 8 of Form 20-F by replacing ``provide the 
financial statements required by Sec.  240.15-01 (Rule 15-01 of 
Regulation S-X)'' with ``see Sec.  240.15-01 (Rule 15-01 of Regulation 
S-X),'' because the financial statement requirements extend beyond Rule 
15-01. We further revised Instruction 4 to Item 8 of Form 20-F by 
clarifying that it is applicable for filings on Form 20-F filed 
pursuant to General Instruction A.(d) of this form and for registration 
statements, so that a shell company would not consider Rule 15-01 when 
it is filing its annual report in due course before acquiring a 
business. Also, for this Instruction 4, we revised ``shell company that 
will acquire a business'' to ``shell company that is combining with a 
business,'' in order for the reference to Rule 15-01 to apply in more 
structures. Lastly, we have revised each of these instructions to 
remove reference to the predecessor because the instruction would apply 
to a non-predecessor as well.
4. Proposed Rule 15-01(b): Number of Years of Financial Statements
    Currently, a registration statement in connection with a de-SPAC 
transaction on Form S-4 or F-4 and a proxy or information statement 
must include financial statements of the target

[[Page 14246]]

company for the same number of years as would be required by the target 
company in an annual report and any subsequent interim periods, which 
could require three years of comprehensive income, changes in 
stockholders' equity, and cash flows even if the target company 
qualifies as an EGC.\1001\ In contrast, in a traditional IPO under the 
Securities Act, a registrant that qualifies to be an EGC may provide 
only two years of these financial statements.\1002\
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    \1001\ 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. Balance sheets as of the end of the 
two most recent fiscal years are always required.
    \1002\ Only two years of these financial statements may be 
required in other scenarios, such as when the registrant is an SRC.
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    In the Proposing Release, the Commission proposed Rule 15-01(b) in 
order to align the number of fiscal years required to be included in 
the financial statements for a business \1003\ that will be the 
predecessor(s) in a shell company business combination with the 
financial statements required to be included in a Securities Act 
registration statement for an IPO of equity securities.\1004\ Proposed 
Rule 15-01(b) provided that when the registrant is a shell company, and 
the financial statements of a business that will be a predecessor(s) to 
the shell company registrant are required in a registration statement 
or proxy statement, the shell company registrant must file financial 
statements of that business(es) in accordance with Sec. Sec.  210.3-01 
through 210.3-12 and 210.10-01 (Articles 3 and 10 of Regulation S-X) or 
Sec. Sec.  210.8-01 through 210.8-08 (Article 8), if applicable, as if 
the filing were a Securities Act registration statement for the IPO of 
that business's equity securities. The effect of proposed Rule 15-01(b) 
would be that, when the registrant filing is a shell company (which 
would include, but not be limited to, any SPAC), the Forms S-4 or F-4 
or proxy statement may include only two years of statements of 
comprehensive income, changes in stockholders' equity, and cash flows 
for the business(es) that would be the predecessor when those 
business(es) would qualify as an EGC and/or SRC if it were doing its 
own IPO for equity securities.
---------------------------------------------------------------------------

    \1003\ The Commission proposed to use the term ``business'' in 
this context, rather than ``private operating company'' (or ``target 
company'' which would have been a different, potentially narrower, 
set of persons than a ``business'' in the context of the proposed 
rule's reference to ``any shell company,'' which thereby was not 
limited to SPACs) 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.
    \1004\ See Proposing Release, supra note 39, at 29491.
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5. Comments: Rule 15-01(b): Number of Years of Financial Statements
    Several commenters supported this proposed rule, noting generally 
that it would align the number of fiscal years required to be included 
in the financial statements for a private company that will be the 
predecessor in a shell company combination with those that would be 
required for a traditional IPO.\1005\ No commenters opposed the 
proposed rule.
---------------------------------------------------------------------------

    \1005\ Letters from Ernst & Young, PwC, RSM.
---------------------------------------------------------------------------

6. Final Rule 15-01(b): Number of Years of Financial Statements
    Having considered the comments received, we are adopting Rule 15-
01(b) largely as proposed, except for certain revisions, in order to 
align the number of fiscal years required to be included in the 
financial statements for a business that will combine with a shell 
company registrant with the financial statements required to be 
included in a Securities Act registration statement for an IPO of 
equity securities. We are clarifying that a business that is combining 
with a shell company registrant, beyond just the predecessor, must 
comply with the financial statement requirements of Regulation S-X as 
if the filing were a registration statement for its own IPO by removing 
the reference to predecessor in this rule. Absent this revision, three 
years of financial statements for a business that would be an EGC but 
is not a predecessor may be required, which would exceed the two years 
required for a predecessor that qualifies as an EGC.\1006\ We believe 
that the predecessor and another business combining with the shell 
company registrant should both be subject to Rule 15-01(b). Further, we 
are replacing the proposed term ``the registrant'' with ``such 
registrant'' to recognize there may be multiple registrants and promote 
readability. Also, in the final sentence of the rule, we have revised 
the phrase ``if it were filing a registration statement itself'' to 
delete the word ``itself'' and replace it with the word ``alone''; we 
believe the term ``alone'' will more clearly convey the intent of the 
rule.\1007\ Last, we added to final Rule 15-01(b), as well as Rule 15-
01(c) and (d), ``for which audited financial statements are available'' 
to ``most recently completed fiscal year'' in order to conform to its 
usage in Item 10(f)(2) of Regulation S-K.
---------------------------------------------------------------------------

    \1006\ Financial statements being provided under Rule 3-05 or 8-
04 of Regulation S-X, 17 CFR 210.8-06 (``Rule 8-06'' of Regulation 
S-X), or Rule 3-14 of Regulation S-X for a business being acquired 
by the predecessor are addressed in Rule 15-01(d) and the number of 
years of financial statements provided would be based on the 
significance test in those rules, which is two years or less.
    \1007\ See supra sections III.C and IV.A. (discussing co-
registration of target companies and Rule 145a respectively).
---------------------------------------------------------------------------

7. Proposed Rule 15-01(c): Age of Financial Statements
    In the Proposing Release, the Commission proposed Rule 15-01(c) 
regarding the age of predecessor financial statements. The proposed 
rule provided that the financial statements of a business that will be 
the predecessor to a shell company must comply with the requirements in 
17 CFR 210.3-12 (``Rule 3-12'' of Regulation S-X) (Rule 8-08 when that 
business would qualify to be an SRC based on its annual revenues as of 
the most recently completed fiscal year, if it were filing a 
registration statement alone) in determining the age of the financial 
statements of the predecessor business in the registration statement or 
proxy statement of the registrant.
8. Comments: Rule 15-01(c): Age of Financial Statements
    Several commenters indicated support for proposed Rule 15-
01(c).\1008\ No commenters opposed the proposed rule.
---------------------------------------------------------------------------

    \1008\ Letters from ABA, PwC, RSM.
---------------------------------------------------------------------------

9. Final Rule 15-01(c): Age of Financial Statements
    We are adopting Rule 15-01(c) largely as proposed, with certain 
modifications discussed below.
    Currently--with respect to companies being acquired that do not 
meet Form S-3 use requirements and are not subject to the reporting 
requirements of either section 13(a) or 15(d) of the Exchange Act, 
which is the case with most target companies in de-SPAC transactions--
Form S-4 (under Item 17(b)(7)) requires inclusion of financial 
statements that would be required in an annual report sent to security 
holders under 17 CFR 240.14a-3(b)(1) and (2) (Rule 14a-3(b)(1) and 
(2)), if an annual report is required. In summary, Rule 14a-3(b)(1) and 
(2) require the inclusion of consolidated audited balance sheets as of 
the end of the two most recent fiscal years and consolidated audited 
statements of income and cash flows for each of the three most recent 
fiscal years prepared in accordance with Regulation S-X. Form F-4 is 
similar in this respect.\1009\ The position of the

[[Page 14247]]

Commission's staff is that the requirement to update target company 
financial statements in a Form S-4 is based on the obligation of the 
registrant filing the Form S-4 to update under Rule 3-12 (or Rule 8-08 
for a smaller reporting company). Rule 3-12 addresses the age of 
financial statements at the effective date of a registration statement 
or at the mailing date of a proxy statement.\1010\ A registration 
statement on Form S-1 for an IPO would also require application of Rule 
3-12 \1011\ (or Rule 8-08 \1012\ for SRCs), regarding the age of 
financial statements at the effective date of a registration statement 
or at the mailing date of a proxy statement. However, Rule 3-12 
requires application of Rule 3-01(c), which permits reporting companies 
45 more days to update annual financial statements when certain 
conditions are met.
---------------------------------------------------------------------------

    \1009\ See Form F-4, Item 17(b)(5) (for company being acquired 
that may not use Form F-3 and is not a reporting company, include 
financial statements that would have been required to be included in 
an annual report on Form 20-F); Form 20-F, Item 17(b) (The financial 
statements shall disclose an information content substantially 
similar to financial statements that comply with U.S. generally 
accepted accounting principles and Regulation S-X.).
    \1010\ See FRM 2200.8. As further described in Section 2045.5 of 
the FRM, while the age of financial statements is dependent on the 
registrant's requirements and eligibility for relief under Rule 3-
01(c) of Regulation S-X, after a reverse acquisition accounted for 
as a business combination, the position of the Commission's staff is 
that the accounting acquirer's ability to meet those requirements 
should be considered in determining the need to update.
    \1011\ See Rule 3-12 of Regulation S-X, which stipulates for 
registrants that are not FPIs and are not large accelerated filers 
or accelerated filers that the balance sheet date in an initial 
registration statement must not be more than 134 days old, except 
that third quarter data is timely through the 45th day after the 
most recent fiscal year-end. For FPIs, Rule 3-12 requires compliance 
with the age requirements in Form 20-F. Form 20-F requires financial 
statements of an FPI must be as of a date within nine months of the 
effective date of a registration statement, and audited financial 
statements for the most recently completed fiscal year must be 
included in registration statements declared effective three months 
or more after fiscal year-end.
    \1012\ See 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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    Absent this amendment, the required financial statements of each 
company being acquired in a Form S-4, because the shell company is a 
reporting company, would not have the same age requirements as those in 
the context of an initial registration statement.
    Thus, in order to align the age requirements for financial 
statements for each business involved in a business combination with a 
shell company filed on Form S-4 or F-4 with those for an issuer in an 
IPO on Form S-1 or F-1, we are adopting final Rule 15-01(c). Further, 
we revised the rule to clarify that Rule 3-12 or 8-08 must be applied 
to each business involved in a business combination with a shell 
company as if the financial statements were included in an initial 
registration statement. Based on the Commission staff's experience 
reviewing filings in de-SPAC transactions and other shell company 
business combination transactions, Rule 15-01(c) is consistent with 
existing market practice for the age of financial statements, where 
they are updated similar to an IPO. We further revised the rule to 
clarify that the rule applies to any business being acquired by a shell 
company, and not only a predecessor, that is included in registration 
statement under Item 17 of Form S-4, in order to ensure that the 
financial statements of non-predecessors are subject to the same age 
requirements. Also, in the parenthetical in the final sentence of the 
rule, we have revised the phrase ``if it were filing a registration 
statement itself'' to delete the word ``itself'' and replace it with 
the word ``alone''; we believe the term ``alone'' will more clearly 
convey the intent of the rule.\1013\
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    \1013\ See supra sections III.C and IV.A. (discussing co-
registration of target companies and Rule 145a respectively).
---------------------------------------------------------------------------

10. Proposed Rules: 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-
14(b)(3)(ii): Acquisition of a Business or Real Estate Operation by a 
Predecessor
    Currently, the financial statements of a business 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.\1014\ Aside from the predecessor, the financial statements 
of any other businesses that have been, or are probable to be, acquired 
may also be required.\1015\ For example, ``Shell Company A'' and 
``Target Business B'' are part of a business combination and a Form S-4 
registration statement is filed. Target Business B, the predecessor, 
acquired ``Company C'' before the Form S-4 was filed, so Company C is 
not another company being acquired by Shell Company A (the registrant) 
as Company C will have been subsumed into Target Business B before the 
Form S-4 is filed. The proposed rules and amendments addressed the 
financial reporting required for Company C in this non-exclusive 
example.
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    \1014\ See Item 17 of Form S-4 and Form F-4; Sec.  240.14A-3(b); 
Items 13 and 14 of Schedule 14A.
    \1015\ See 17 CFR 230.408(a) (``Rule 408(a)'' under the 
Securities Act); 17 CFR 240.12b-20 (``Rule 12b-20'' under the 
Exchange Act).
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    Commission staff has taken the position that existing Securities 
Act Rule 408(a) and Exchange Act Rule 12b-20, elicit financial 
statements of a business (e.g., ``Company C'' in the above example) 
acquired or probable of being acquired by the target business (e.g., 
``Target Business B'' in the example) in a shell company business 
combination filed in a registration statement or proxy statement only 
when omission of those financial statements would render the target 
business's financial statements substantially incomplete or 
misleading.\1016\ The Commission proposed Rule 15-01(d) of Regulation 
S-X to reduce the judgment required in determining when to include 
financial statements of a business other than the shell company 
registrant or its predecessor and instead provide certainty by 
requiring application of Rule 3-05 or Rule 8-04 of Regulation S-
X,\1017\ aligning with the reporting in an IPO when there is a similar 
acquisition. These provisions would dictate when the financial 
statements of a non-predecessor business \1018\ that has been acquired, 
or is probable to be acquired, by a shell company registrant or its 
predecessor should be included in the registration statements or proxy 
statements related to the business combination.
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    \1016\ See FRM at Section 2005.5. If a company being acquired 
that is not the predecessor acquired a business, the registrant must 
evaluate Securities Act Rule 408 and disclose the financial 
statements for that acquired business when omission of those 
financial statements would render the financial statements for the 
company being acquired substantially incomplete or misleading.
    \1017\ Rule 8-04 applies when the registrant or, depending on 
the context, its predecessor would qualify to be an SRC based on its 
annual revenues as of the most recently completed fiscal year if it 
were filing a registration statement alone.
    \1018\ For ease of reference, in this section, when we refer to 
``business,'' we also mean ``real estate operation.'' When we refer 
to ``Rule 3-05,'' we also mean Rule 3-14 of Regulation S-X. When we 
refer to ``Rule 8-04,'' we also mean 17 CFR 210.8-06 (``Rule 8-06'' 
of Regulation S-X).
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    Since proposed Rule 15-01(d) would require the application of Rule 
3-05 or 8-04, which in turn would require application of 17 CFR 210.1-
02(w)(1) (``Rule 1-02(w)(1)'' of Regulation S-X) in measuring 
significance, the Commission also proposed amendments to Rule 1-
02(w)(1) and a new Rule 15-01(d)(1) to change how significance is 
measured in a shell company business combination transaction.
    The existing significance tests in 17 CFR 210.1-02(w) (``Rule 1-
02(w)'' of Regulation S-X), as applied to acquisitions involving shell 
companies where significance would be measured

[[Page 14248]]

against the shell company registrant, appeared inconsistent with the 
reasons underlying the sliding scale approach adopted in Rule 3-05 (or 
Rule 8-04). The sliding scale approach recognizes that certain 
acquisitions have a greater impact on a company than others and those 
acquisitions should result in additional financial information about 
the acquired business. The significance tests in Rule 1-02(w) \1019\ do 
not address the scenario when there is both a shell company registrant 
and a business that is or will be its predecessor. Because a shell 
company has nominal activity and therefore the denominator for the 
tests would be minimal, the application of such tests generally result 
in an acquisition being significant at the maximum level, which 
suggests that the existing sliding scale for business acquisitions may 
not be effective in the context of a shell company business combination 
transaction.\1020\ In order to address the ineffectiveness of the 
existing sliding scale in these specific transactions, the proposed 
amendments to Rule 1-02(w) would require the significance of the 
acquired business that is not the predecessor to be calculated using 
the predecessor's financial information as the denominator instead of 
that of the shell company registrant.
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    \1019\ 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.
    \1020\ See Proposing Release, supra note 7, at 29492.
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    The Commission also proposed Rule 15-01(d)(2) to specify when the 
proposed Rule 15-01(d)-required financial statements, through 
application of Rule 3-05 (or Rule 8-04), for a business that is not the 
predecessor to a shell company, would be required to be filed if such 
financial statements are properly omitted from a registration, 
information, or proxy statement under Regulation S-X. Specifically, 17 
CFR 210.3-05(b)(4)(i) (``Rule 3-05(b)(4)(i)'' of Regulation S-X) 
provides that financial statements of a recently acquired or to be 
acquired business may be omitted from a registration or proxy statement 
when the significance of that acquisition, under the required 
significance tests in Rule 3-05, is measured at 50% or less. Rule 3-05 
further provides that such omitted financial statements must be filed 
under cover of Form 8-K within 75 days after consummation of the 
acquisition.\1021\ A company that is not required to register a class 
of securities under the Exchange Act is not required to file a current 
event report, such as Form 8-K, and we are not changing that in our 
final rules.\1022\ However, the Commission proposed in Rule 15-01(d)(2) 
that the financial statements of the business acquired by the shell 
company or the predecessor that were properly omitted under Rule 3-05 
from the previously-filed registration or proxy statement would be 
required as part of the already-required Item 2.01(f) Form 8-K filed 
with Form 10 information within four business days of the de-SPAC 
transaction. The Commission also proposed amendments to Rules 3-05 and 
3-14 to refer to Rule 15-01(d)(2) for completeness and to avoid 
confusion on when such financial statements are due when a shell 
company business combination transaction is involved.
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    \1021\ See Rule 3-05 (generally requiring the filing of 
financial statements of an acquired business when the conditions in 
Rule 1-02(w) related to significant subsidiary exceed 20%).
    \1022\ As a co-registrant, target companies will have an 
Exchange Act reporting obligation. See supra sections III.C and IV.A 
(discussing co-registration of target companies and Rule 145a 
respectively).
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11. Comments: Rules 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-
14(b)(3)(ii): Acquisition of a Business or Real Estate Operation by a 
Predecessor
    Several commenters expressed general support for proposed Rule 15-
01(d) or general support for proposed changes to Regulation S-X.\1023\ 
However, each of the commenters who were generally supportive of Rule 
15-01(d) and a few other commenters suggested changes to Rule 15-
01(d)(2).\1024\ Specifically, these commenters observed that the 
proposed rule could accelerate the filing of financial statements of an 
acquired business in a Form 8-K that have previously been omitted from 
a registration statement, compared to the timing that would be required 
after an IPO, and recommended that we conform the timing.\1025\ After 
an IPO, a registrant must file the omitted financial statements no 
later than 75 days after consummation of the acquisition.\1026\ In 
contrast, commenters suggested the proposed rule could give the 
combined company insufficient time to prepare the financial statements 
of the acquired business because the proposed rule could require the 
omitted financial statements to be filed sooner than 75 days after the 
relevant acquisition in cases where the Form 8-K filed in connection 
with the consummation of the de-SPAC transaction is filed earlier than 
71 days after such acquisition.\1027\
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    \1023\ Letters from ABA (expressing support for Rule 15-01(d) 
but suggesting changes to Rule 15-01(d)(2)), Freshfields (expressing 
support for Rule 15-01(d)(1) but suggested changes to proposed Rule 
15-01(d)(2)), ICGN (supporting Article 15), PwC (expressing support 
for Regulation S-X changes to align with an IPO with respect to 
acquisitions by a predecessor but suggesting changes be made to 
proposed Rule 15-01(d)(2)), Vinson & Elkins (expressing support for 
Rule 15-01 but suggesting changes to proposed Rules 15-01(d)(2) and 
15-01(e)), Winston & Strawn (expressing general support for 
Regulation S-X proposed amendments but suggesting changes to 
proposed Rule 15-01(d)(2)). See also letters from BDO, Deloitte & 
Touche LLP (June 7, 2022) (``Deloitte''), Ernst & Young, KPMG, Loeb 
& Loeb, RSM (expressing general support for proposed Regulation S-X 
amendments).
    \1024\ Letters from ABA, BDO, Freshfields, Goodwin, PwC, Vinson 
& Elkins, Winston & Strawn.
    \1025\ Id.
    \1026\ Rule 3-05(b)(4)(ii) of Regulation S-X.
    \1027\ Letters from ABA, Freshfields, Goodwin, Vinson & Elkins, 
Winston & Strawn.
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    One commenter recommended ``that the Commission address the 
interaction between proposed Rule 15-01(d)(2) of Regulation S-X and the 
company's reporting requirements under section 15(d) as it relates to 
recently acquired businesses (or real estate operations) which are 
excluded from a registration or proxy or information statement prepared 
in connection with the de-SPAC transaction.'' \1028\
---------------------------------------------------------------------------

    \1028\ Letter from PwC.
---------------------------------------------------------------------------

    This same commenter also recommended that Rule 15-01(d) reference 
Rule 3-14 for real estate operations the same way the proposed rule 
referenced Rules 3-05 and 8-04 for businesses so that the acquisition 
of real estate operations is explicitly addressed.\1029\
---------------------------------------------------------------------------

    \1029\ Id.
---------------------------------------------------------------------------

    Several commenters supported,\1030\ and no commenters opposed, the 
proposed amendments to Rule 1-02(w)(1) that required that the 
significance of acquired businesses be measured using the predecessor's 
financial information as the denominator, instead of the shell 
company's, because use of the predecessor's financial statements for 
the denominator should produce results more consistent with the sliding 
scale approach in Rule 3-05.
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    \1030\ Letters from ABA, Freshfields, PwC, RSM, Vinson & Elkins.
---------------------------------------------------------------------------

12. Final Rules 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-14(b)(3)(ii): 
Acquisition of a Business or Real Estate Operation by a Predecessor
    We are adopting new Rule 15-01(d) introductory text and (d)(1) and 
(2), as well as the amendments to Rules 1-02(w)(1), 3-05, and 3-14, 
substantially as proposed, except for certain modifications discussed 
below. New Rule 15-01(d) and corresponding amendments more closely 
align the financial reporting of an acquired business in a shell 
company business combination transaction reported on

[[Page 14249]]

Form S-4 or F-4 or proxy statement with that in an IPO by requiring 
application of Rule 3-05 or 8-04 of Regulation S-X to acquisitions of a 
business or real estate operation, respectively, by a predecessor to 
the shell company. They are also consistent with the Commission staff 
observations that current market practice applies Rule 3-05 (or Rule 8-
04) to acquisitions by the business that will be the predecessor.
    In the context of a registration statement on Form S-4 or F-4, the 
acquired business financial statements addressed in Rule 15-01(d) that 
are filed pursuant to Rule 3-05 do not represent financial statements 
of a company being acquired that would be a co-registrant in a shell 
company business combination.\1031\ For example, the financial 
statements of a business when its acquisition is cross-conditioned on 
the acquisition of a predecessor would ordinarily fall under Item 17 of 
Form S-4 or Form F-4, rather than under Rule 3-05. Judgment may be 
required in other examples when determining whether the financial 
statements of a business would be required under Item 17 of Form S-4 or 
Form F-4 \1032\ as a ``company being acquired'' or under the provisions 
of Rule 3-05 for a significant acquisition.
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    \1031\ See infra section III.C.
    \1032\ We are adopting as proposed the amendment to Instructions 
to paragraph (b)(5) and (b)(6) of Item 17 of Form F-4. This 
amendment requires a reconciliation under Item 18 of Form 20-F when 
a shell company acquires a foreign business that will be a 
predecessor that prepares financial statements on the basis of a 
comprehensive body of accounting principles other than U.S. GAAP. 
Absent this amendment, the foreign business being acquired would 
present a reconciliation under Item 17 of Form 20-F, which does not 
include the disclosures required under U.S. GAAP. A predecessor that 
applies IFRS, as adopted by the IASB, in financial statements 
presented in Form F-4 would not have to present a reconciliation to 
U.S. GAAP, pursuant to Item 17(c) of Form 20-F.
---------------------------------------------------------------------------

    New Rule 15-01(d)(1) directs registrants to Rule 1-02(w)(1) in 
order to determine how significance is measured in certain shell 
company business combination transactions. New Rule 15-01(d)(2) 
clarifies when and how financial statements for a recently acquired or 
to be acquired business should be filed.
    We have made a few revisions to the final rule in response to 
comments received and some other revisions to improve the clarity of 
the final rules. First, consistent with commenters' suggestions,\1033\ 
we revised Rule 15-01(d)(2) from the proposal so that when the 
financial statements of a recently acquired business that is not or 
will not be the predecessor to the shell company are omitted from a 
registration statement or proxy statement pursuant to Rule 3-
05(b)(4)(i) of Regulation S-X, those financial statements must be filed 
in a Form 8-K by the later of the filing of the Form 8-K filed pursuant 
to Item 2.01(f) or 75 days after consummation of the acquisition. This 
revision does not accelerate the filing of such financial statements 
when compared to the application of Rule 3-05(b)(4)(i) outside of a 
shell company transaction.
---------------------------------------------------------------------------

    \1033\ Letters from ABA, Freshfields, Vinson & Elkins, Winston & 
Strawn. See supra note 1027.
---------------------------------------------------------------------------

    In response to a comment about the interaction of this rule and 
section 15(d) of the Exchange Act,\1034\ which includes requirements 
relating to periodic reporting on Forms 10-K and 10-Q and current 
reporting on Form 8-K, the revised rule specifies that a business whose 
financial statements are omitted from the registration statement in 
reliance on Rule 3-05(b)(4)(i) will be required to file those financial 
statements in a Form 8-K.
---------------------------------------------------------------------------

    \1034\ Letter from PwC.
---------------------------------------------------------------------------

    Next, we have revised Rule 15-01(d) to add references to Rule 3-14 
and Rule 8-06 regarding real estate operations, which were 
inadvertently omitted from the proposal, as noted by a commenter.\1035\ 
For similar reasons we have also revised Rule 15-01(d)(2) to change the 
reference from ``recently acquired business'' to ``recently acquired 
business or real estate operation.'' We reference ``real estate 
operation'' in the context of Rule 15-01(d) and not the other rules in 
Article 15 because a real estate operation can meet the definition of a 
business under 17 CFR 210.11-01(d) (``Rule 11-01(d)'' of Regulation S-
X), but the permitted financial statement presentation for an acquired 
real estate operation (Rule 3-14) is different than that for other 
acquired businesses (Rule 3-05). Where the rules in Article 15, other 
than Rule 15-01(d), refer to ``business,'' such references contemplate 
a real estate operation.
---------------------------------------------------------------------------

    \1035\ Id.
---------------------------------------------------------------------------

    Unrelated to commenter feedback, we revised the parenthetical in 
Rule 15-01(d) related to when Rules 8-04 and 8-06 for SRCs will apply 
to clarify that these rules would apply when the predecessor qualifies 
as an SRC.
    We also made several technical changes to improve the clarity of 
each of final Rule 15-01(d) introductory text and (d)(1) and (2). In 
final Rule 15-01(d), in place of the proposed term ``when that 
business,'' we have inserted instead the term ``when the predecessor.'' 
This change will help clarify which entity's SRC status is being 
referred to. Also, we have changed the term ``itself'' to ``alone'' for 
the same reasons the same change was made in Rule 15-01(b) and (c) as 
discussed above.\1036\
---------------------------------------------------------------------------

    \1036\ We also changed the plural term ``businesses'' to 
singular ``business'' and changed the related plural verb ``are'' to 
singular ``is'' in Rule 15-01(d), as well as in Rule 15-01(d)(1), in 
order to be consistent throughout Rule 15-01(d).
---------------------------------------------------------------------------

    We also removed from final Rule 15-01(d) references to acquisitions 
by a shell company, because we determined that the financial statements 
for acquisitions by a shell company would be required by Item 17 of 
Form S-4 or F-4 as a ``company being acquired'' and not required 
through application of Rule 3-05 or 3-14. Relatedly, we revised Rules 
1-02(w), 3-05, and 3-14 so that they pertain to acquisitions by a 
predecessor rather than an acquisition by a shell company. Lastly, we 
reorganized some of the language in Rule 15-01(d)(2) to improve the 
readability of the requirement.
    We are adopting the amendments to Rule 1-02(w) largely as proposed, 
except for two modifications discussed below. Final Rule 1-02(w) 
provides for the use of the predecessor's financial statements as the 
denominator in the significance tests, which determine when financial 
statements are required for an acquired business, instead of those of 
the shell company registrant. We expect the rule will produce results 
more consistent with the objective of the sliding scale approach in 
Rule 3-05 and appropriately differentiate for investors those 
acquisitions that have a greater impact to the predecessor than others.
    In the final rule, we made some technical changes and the 
modification already discussed above, in relation to final Rule 15-
01(d), to remove the reference to acquisitions by a shell company. In 
the final rule, we also added the terms ``consolidated'' before 
``predecessor'' and ``those of'' before ``the shell company 
registrant'' as well as eliminated ``the subsidiaries consolidated'' 
for clarity. We also added ``shell company'' before ``registrant'' in 
order to clarify which registrant should not be used as part of the 
significance test.
13. Proposed Rule 15-01(e): Financial Statements of a Shell Company 
Registrant After the Combination With Predecessor
    In recent years, the Commission staff has received questions on 
whether the historical financial statements of a shell company 
registrant are required in filings made after a business combination. 
The Commission proposed new Rule 15-01(e) to allow a shell company, 
including a SPAC, to exclude

[[Page 14250]]

the financial statements of the shell company, for periods prior to a 
business combination that results in the combined entity no longer 
being a shell company, once the following conditions have been met: (1) 
the financial statements of the predecessor, as that term is used in 
financial reporting, have been filed for all required periods through 
the acquisition date, and (2) the financial statements of the combined 
entity registrant include the period in which the acquisition was 
consummated, which would also include the accounting for the business 
combination.
    In the example of a de-SPAC transaction, assuming the first 
condition is met, the financial statements of the SPAC, as a shell 
company, would generally no longer be relevant or meaningful to an 
investor once the financial statements of the registrant include the 
period in which the de-SPAC transaction was consummated for any 
filing.\1037\
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    \1037\ 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.
---------------------------------------------------------------------------

14. Comments: Rule 15-01(e): Financial Statements of a Shell Company 
Registrant After the Combination With Predecessor
    Several commenters were supportive of the proposed rule.\1038\ One 
of these commenters expressed the view that shell company financial 
statements would no longer be relevant or meaningful once the financial 
statements of the registrant include the period in which the 
combination was consummated.\1039\
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    \1038\ Letters from Ernst & Young, PwC, RSM.
    \1039\ Letter from RSM.
---------------------------------------------------------------------------

    Two commenters, however, asserted that the financial statements of 
the shell company should no longer be required in any filings made 
after consummation of a transaction because the shell company's 
financial statements would no longer be relevant or material.\1040\ Two 
commenters highlighted an inconsistency between the proposed rule text 
and the discussion of the proposed rule in the Proposing Release as it 
relates to one of the conditions for when the shell company's financial 
statements may be omitted.\1041\
---------------------------------------------------------------------------

    \1040\ Letters from Ernst & Young, Freshfields. See also letter 
from Vinson & Elkins, which stated: ``We disagree that financial 
statements of the SPAC could ever be material to an investor in the 
combined company, as surmised by the SEC in the Proposing Release, 
but if they were material then Exchange Act Rule 12b-20 or 
Securities Act Rule 408(a) would require their disclosure.''
    \1041\ Letters from Freshfields, Vinson & Elkins (both 
highlighting that Rule 15-01(e), as proposed, would permit the 
financial statements of the shell company for periods prior to the 
consummation of the acquisition to be omitted once the financial 
statements of the predecessor have been filed for all required 
periods through the acquisition date, whereas the Proposing Release 
refers to financial statements of the shell company (and not the 
predecessor)). See Proposing Release, supra note 7, at 29493.
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15. Final Rule 15-01(e): Financial Statements of a Shell Company 
Registrant After the Combination With Predecessor
    We are adopting Rule 15-01(e) substantially as proposed, except for 
modifications discussed further below. The final rules reflect our 
belief that the financial statements of a shell company would be 
necessary and material to an investor until such time that the combined 
registrant's financial statements include the period in which the 
acquisition was consummated.
    We disagree with commenters' assertions that the shell company's 
financial statements would provide no material information prior to the 
point in time when the financial statements of the combined entity 
registrant include the period in which the acquisition was consummated. 
Specifically, we note that the shell company's financial statements may 
include material information about its equity or outstanding derivative 
financial instruments. While we understand, as a commenter 
asserted,\1042\ that application of Securities Act Rule 408(a) may 
result in inclusion of the shell company's financial statements in a 
registration statement because of a determination that they are 
material, we believe that the new rule appropriately eliminates a 
determination that could result in the financial statements' exclusion 
and the related regulatory uncertainty involved in such judgment 
because we believe the shell company's financial statements would be 
material. The staff has not objected to the registrant excluding the 
historical financial statements of the shell company from periodic 
reports once the financial statements include the period in which the 
acquisition or recapitalization was consummated.\1043\ Further, in the 
staff's experience with reviewing these filings, the registrant has 
continued to include the historical shell company's financial 
statements until that time period. Thus, the new rule codifies the 
existing staff view and current practice.
---------------------------------------------------------------------------

    \1042\ Letter from Vinson & Elkins.
    \1043\ Proposing Release, supra note 7, at 29493.
---------------------------------------------------------------------------

    In response to the comments on the inconsistency between the 
proposed rule text and the discussion in the Proposing Release, we 
added ``registrant'' to ``shell company'' for clarity that the shell 
company in this rule represented a registrant. As a registrant, the 
shell company is required to file financial statements for all required 
periods through the acquisition date under Exchange Act section 13(a) 
or 15(d) and rules thereunder.
    In final Rule 15-01(e), we have made a change from the proposal to 
include a provision that has a similar effect as the proposed 
amendments to Rule 11-01(d) would have had if we had adopted them. This 
added provision states that if a registrant \1044\ is to acquire or has 
acquired a shell company, the financial statements of the shell company 
are required to be included in any filing that requires the 
registrant's financial statements, as if the shell company were the 
registrant for the filing, unless the financial statements of the 
registrant include the period in which the acquisition of the shell 
company was consummated. As also discussed below, as a result of this 
change, it is unnecessary to adopt proposed Rule 11-01(d) which would 
have had a similar effect.
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    \1044\ A registrant that would be required to include the 
financial statements of a shell company is a new holding company 
that is created where a SPAC and a target company merge into that 
new holding company.
---------------------------------------------------------------------------

    The final rule will provide clarity as to when the financial 
statements of a shell company are required after a shell company 
business combination transaction. The final rule applies regardless of 
whether the business combination is accounted for by the shell company 
as a forward acquisition of the business, which may be a private 
operating company, or as a reverse recapitalization of the 
business.\1045\ Under the final rule, the historical financial 
statements of the shell company will be required in all filings that 
require financial statements (including registration statements and the 
Form 8-K with Form 10 information filed following the de-SPAC 
transaction) filed prior to the first periodic report, such as Form 10-
Q, that includes those post-business combination financial 
statements.\1046\ For example, under the final rule, registration 
statements filed before the first periodic report filed with the post-
business combination financial statements, such as a registration 
statement to register the resale of shares issued in connection with a 
PIPE financing filed shortly after the de-SPAC

[[Page 14251]]

transaction, will require the SPAC's financial statements.
---------------------------------------------------------------------------

    \1045\ A reverse recapitalization is considered to be an 
equivalent to the issuance of stock by a private company for the net 
monetary assets of a shell company accompanied by a 
recapitalization.
    \1046\ Proposing Release, supra note 7, at 29493.
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16. Proposed Rule 11-01(d)
    The Commission proposed to amend Rule 11-01(d) of Regulation S-X to 
state that 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.\1047\ The Commission noted in the Proposing 
Release that, given the significant equity transactions generally 
undertaken by a SPAC, the Commission believes 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.
---------------------------------------------------------------------------

    \1047\ Proposing Release, supra note 7, at 29494.
---------------------------------------------------------------------------

    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.\1048\
---------------------------------------------------------------------------

    \1048\ Proposing Release, supra note 7, at 29493. By contrast, 
application of Rule 3-05 to a significant business under Rule 11-
01(d) requires its financial statements to continue to be filed in 
any subsequent registration statements until the acquired business 
is included in the registrant's results for at least nine months 
subsequent to acquisition. As proposed, the application of Rule 3-05 
would require the SPAC financial statements for a longer duration 
subsequent to the de-SPAC transaction than the application of 
proposed Rule 15-01(e).
---------------------------------------------------------------------------

    Further, the proposed amendment to Rule 11-01(d) would change the 
application of 17 CFR 210.11-01(b)(3)(i)(B) (``Rule 11-01(b)(3)(i)(B)'' 
of Regulation S-X) \1049\ by allowing the significance of a future 
acquired business to be compared to the pro forma amounts related to 
the shell company and target company business combination transaction 
in filings made after the consummation of the business combination 
transaction.\1050\ The impact of such application would be that the 
shell company's financial statements, including its cash, would be part 
of the pro forma financial information and would likely increase the 
denominator in the significance tests compared to measuring the 
significance of an acquisition against only the target private 
operating company's financial information. While the Commission did not 
propose amendments to Rule 11-01(b)(3)(i)(B), the Proposing Release 
sought feedback on the potential change in its application as a result 
of the proposed amendments to Rule 11-01(d).\1051\
---------------------------------------------------------------------------

    \1049\ 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. 
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, 8-04, or 3-14 and the pro forma information 
required by 17 CFR 210.11-01 through 210.11-02.
    \1050\ Proposing Release, supra note 7, at 29493. The Commission 
also said in the Proposing Release that, pursuant to the proposed 
amendment to Rule 11-01(d) that would stipulate that the SPAC is a 
business, an acquisition of the SPAC would be considered an 
acquisition of a business, and the conditions under Rule 11-
01(b)(3)(i)(B) to use pro forma financial statements depicting the 
acquisition as the denominator in the significance tests may be met. 
Proposing Release, supra note 7, at 29493, n.273.
    \1051\ Proposing Release, supra note 7, at 29494.
---------------------------------------------------------------------------

17. Comments: Rule 11-01(d)
    Several commenters opposed the proposed amendments to Rule 11-01(d) 
that would treat the SPAC as a business for purposes of 17 CFR 210.11-
01.\1052\ One commenter, while not specifically referring to proposed 
Rule 11-01(d), expressed views consistent with support for the 
rule.\1053\
---------------------------------------------------------------------------

    \1052\ Letters from Davis Polk, Vinson & Elkins, Ernst & Young.
    \1053\ Letter from Freshfields.
---------------------------------------------------------------------------

    One commenter that opposed the amendments said that the SPAC 
historical financial statements are not relevant to the ongoing 
business of the target operating company.\1054\ The commenter said that 
the balance sheet of the combined public company will already reflect 
the impact of the combination of the SPAC with the target operating 
company.\1055\ The commenter also said that the proposed amendment 
would result in significant additional compliance costs while resulting 
in no substantive additional public disclosure.\1056\
---------------------------------------------------------------------------

    \1054\ Letter from Davis Polk.
    \1055\ Id.
    \1056\ Id.
---------------------------------------------------------------------------

    One commenter expressed the view that the proposed amendment is 
contradictory to current Rule 11-01(d)'s requirement to evaluate 
whether there is sufficient continuity of the acquired entity's 
operations prior to and after the transaction so that disclosure of 
prior financial information is material to an understanding of future 
operations.\1057\ Another commenter expressed similar views, asserting 
that, ``[i]n a de-SPAC transaction there is no continuity of operations 
between the SPAC and the surviving company, and the SPAC's revenue 
producing activities (interest on short term U.S. government securities 
or money market funds investing in the same) do not continue post-
closing and are not material to investors in the surviving company.'' 
\1058\
---------------------------------------------------------------------------

    \1057\ Letter from Ernst & Young.
    \1058\ Letter from Vinson & Elkins (also expressing the view 
that Exchange Act Rule 12b-20 or Securities Act Rule 408(a) would 
require disclosure of the SPAC's financial statements if they were 
material).
---------------------------------------------------------------------------

    This commenter also said, ``[w]hile there is a presumption that a 
separate entity, such as a SPAC, is a business, none of the attributes 
identified in S-X Rule 11-01(d)(2) for evaluation of whether a lesser 
component of a business constitutes a business (i.e. physical 
facilities, employee base, market distribution system, sales force, 
customer base, operating rights, production techniques or trade names) 
remain after the de-SPAC transaction.''
    Current Rule 11-01(b)(3)(i)(B) permits pro forma information to be 
used in the denominator of significance tests under certain 
circumstances. This commenter also said that ``[t]he use of pro forma 
financials should only be allowed to the extent they would be permitted 
for an acquisition in connection with a pending or completed IPO.'' 
\1059\
---------------------------------------------------------------------------

    \1059\ Id.
---------------------------------------------------------------------------

    One commenter said that the proposed amendment to Rule 11-01(d) is 
contradictory to proposed Rule 15-01(e), about which the Proposing 
Release stated: ``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.'' \1060\ The commenter expressed a similar 
view with respect to pro forma information as the foregoing, stating 
that the historical financial statements of the SPAC are not necessary 
for the purposes of the pro forma financial information. The commenter 
said, ``[f]or example, the trust account amounts in the pro forma 
information significantly differ from actual amounts due to transaction 
costs and redemptions. Any private investment in public equity (PIPE) 
transaction is also not reflected in the historical SPAC financials, 
and much of the SPAC's historical income statement activity is 
generally eliminated in the preparation of the pro forma financial 
statements.''
---------------------------------------------------------------------------

    \1060\ Letter from Ernst & Young.
---------------------------------------------------------------------------

    One commenter, while not specifically referring to proposed Rule 
11-01(d), expressed views consistent with proposed Rule 11-01(d).\1061\ 
The commenter said, ``we agree that the pro forma financial information 
that gives effect to the shell company transaction

[[Page 14252]]

should be allowed to be used as the denominator in measuring the 
significance of other acquisitions not involving a predecessor.'' The 
commenter also indicated that the use of pro forma financial 
information to measure significance should not be limited to 
acquisitions that occur subsequent to a de-SPAC transaction. The 
commenter said, ``[i]n most de-SPAC transactions there are numerous 
other contemporaneous transactions occurring that affect the target's 
capital structure and, as a result, using proforma financial statements 
for measuring significance can produce a more accurate analysis of an 
acquiree's significance.''
---------------------------------------------------------------------------

    \1061\ Letter from Freshfields.
---------------------------------------------------------------------------

18. Decline To Adopt Rule 11-01(d)
    After considering the comments received, we are not adopting the 
proposed amendment of Rule 11-01(d), because we agree with a 
commenter's feedback \1062\ that it would be contradictory to proposed 
Rule 15-01(e). In this regard, the proposed amendment to Rule 11-01(d) 
could require filing of the shell company's financial statements in 
subsequent registration statements despite Rule 15-01(e) potentially 
permitting their omission.\1063\ Instead we are making revisions to 
proposed Rule 15-01(e) to require that, if a registrant is to acquire 
or has acquired a shell company, the financial statements of the shell 
company must be filed, as if the shell company were the registrant for 
the filing, unless the financial statements of the registrant include 
the period in which the acquisition was consummated. Accordingly, in 
structures where another issuer is the legal acquirer of a shell 
company, that issuer will look to final Rule 15-01(e), rather than 
Rules 11-01(d) and 3-05, for determining whether financial statements 
of the shell company are required in filings made subsequent to the 
transaction. Final Rule 15-01(e) will require financial statements of 
the SPAC in registration statements filed subsequent to the de-SPAC 
transaction when the de-SPAC transaction has not yet been reflected in 
in the financial statements filed by the registrant. In contrast to the 
proposed rule,\1064\ the final rule would not require financial 
statements of the SPAC once the de-SPAC transaction has been reported 
on in the financial statements filed by the registrant. The final rules 
reflect our view that the financial statements of the SPAC could be 
material to an investor.
---------------------------------------------------------------------------

    \1062\ Letter from Ernst & Young.
    \1063\ See supra section IV.B.15.
    \1064\ If Rule 3-05 were applied to the SPAC because the SPAC 
was considered a business under Proposed Rule 11-01(d), then 
financial statements of the SPAC may be required in registration 
statements of the registrant until the SPAC has been included in the 
registrant's financial statements for at least nine months.
---------------------------------------------------------------------------

    As highlighted in the Proposing Release, application of the 
proposed amendment to Rule 11-01(d) that would treat a shell company as 
a business could have resulted in significance testing of a future 
acquired business (i.e., numerator) being measured against pro forma 
amounts that combine the shell company and target private operating 
company (i.e., denominator).\1065\ Because the proposed amendment to 
Rule 11-01(d) is not being adopted, the shell company will not be 
included in the denominator, similar to how proceeds from an offering 
would not be included in the comparison.
---------------------------------------------------------------------------

    \1065\ Proposing Release, supra note 7, at 29493.
---------------------------------------------------------------------------

19. Proposed Item 2.01(f) of Form 8-K
    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 under the Exchange Act. The 
Commission proposed 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 for periods 
prior to consummation of the acquisition and not the shell company 
registrant.\1066\
---------------------------------------------------------------------------

    \1066\ Proposing Release, supra note 7, at 29294.
---------------------------------------------------------------------------

20. Comments: Item 2.01(f) of Form 8-K
    One commenter supported the proposed amendment to refer to 
``acquired business'' instead of ``registrant.'' \1067\ Another 
commenter recommended that we use the term ``predecessor,'' instead of 
``acquired business,'' in order to avoid potential confusion with 
acquired businesses that are not the predecessor.\1068\
---------------------------------------------------------------------------

    \1067\ Letter from PwC.
    \1068\ Letter from Ernst & Young.
---------------------------------------------------------------------------

    Currently, a Form 8-K filed pursuant to Item 2.01(f) may require 
three fiscal years of financial statements for an acquired business 
that is the predecessor to a shell company, while only two fiscal years 
may be required in the Form S-4 for the de-SPAC transaction for the 
same company under Rule 15-01(b).\1069\ For example, an EGC that is not 
an SRC would need to present an additional year of financial statements 
within four business days of consummation of the de-SPAC transaction. 
Several commenters responded to a request for comment that asked 
whether we should amend the Form 8-K requirement to provide an 
exception to the required Form 10 type-information so that the 
financial statements of the acquired business need not be presented for 
any period prior to the earliest audited period of that acquired 
business previously presented in connection with a registration, proxy, 
or information statement of the registrant.\1070\ Each of the 
commenters that responded to the request for comment supported the 
exception,\1071\ with one commenter stating that it was not clear why 
an earlier annual period would be required in the Form 8-K filed after 
consummation of the merger when such information was not considered 
necessary for an investment decision by the SPAC's shareholders.\1072\ 
No commenters opposed such an exception.
---------------------------------------------------------------------------

    \1069\ As discussed above, we are adopting Rule 15-01(b) largely 
as proposed, with certain technical modifications in the final rule.
    \1070\ Proposing Release, supra note 7, at 29494 (request for 
comment number 109).
    \1071\ Letters from BDO, PwC, Deloitte, RSM, Freshfields, Vinson 
& Elkins.
    \1072\ Letter from BDO.
---------------------------------------------------------------------------

21. Final Item 2.01(f) of Form 8-K
    We are adopting the proposed amendments to Item 2.01 of Form 8-K, 
with modifications made in response to comments received. We agree with 
the commenter's recommendation that we use the term ``predecessor,'' 
instead of ``acquired business,'' in order to avoid potential confusion 
with acquired businesses that are not the predecessor.\1073\
---------------------------------------------------------------------------

    \1073\ Letter from Ernst & Young. See supra note 1068.
---------------------------------------------------------------------------

    We agree with the comments suggesting that, when the predecessor 
meets the conditions of an EGC at the time of filing the Form 8-K, the 
registrant should not be required to present audited financial 
statements for any period prior to the earliest audited period 
presented in the predecessor's financial statements in connection with 
a de-SPAC registration or proxy statement of the registrant.\1074\ The 
final rule provides that, when, at the time of filing of the Item 
2.01(f) Form 8-K, the predecessor meets the conditions of an ``emerging 
growth company,'' as defined in Securities Act Rule 405 or Exchange Act 
Rule 12b-2, the registrant need not present audited financial 
statements for the predecessor for any period prior to the earliest 
audited period presented in its financial statements included in a 
previously filed registration or proxy

[[Page 14253]]

statement for the transaction resulting in the loss of shell company 
status.
---------------------------------------------------------------------------

    \1074\ Letters from BDO, PwC, Deloitte, RSM, Freshfields, Vinson 
& Elkins. See supra note 1071.
---------------------------------------------------------------------------

22. Proposed Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of 
Predecessors
    Currently, 17 CFR 210.3-02 (``Rule 3-02'' of Regulation S-X) 
requires that statements of comprehensive income be filed for the 
registrant and its predecessors. Rules 3-01 and 8-02 and 17 CFR 210.10-
01(a)(1) (``Rule 10-01(a)(1)'' of Regulation S-X), however, specify 
that balance sheets be filed for the registrant but do not specifically 
refer to balance sheets of predecessors. In the Proposing Release, the 
Commission proposed amendments to Rules 3-01, 8-02, and 10-01(a)(1) of 
Regulation S-X to refer specifically to financial statements of 
predecessors (consistent with the provision in current Rule 3-02 
regarding statements of comprehensive income).\1075\
---------------------------------------------------------------------------

    \1075\ Proposing Release, supra note 7, at 29494.
---------------------------------------------------------------------------

23. Comments: Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of 
Predecessors
    One commenter expressed support for the proposed amendments.\1076\ 
No commenters opposed the proposed amendments.
---------------------------------------------------------------------------

    \1076\ Letter from PwC.
---------------------------------------------------------------------------

24. Final Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of Predecessors
    We are adopting the amendments largely as proposed, with a 
technical modification discussed below. We do not believe the intent of 
current Rules 3-02, 8-01, and 10-01(a)(1) is to require a predecessor's 
statements of comprehensive income without the balance sheets as that 
would not be considered a complete set of financial statements, which 
would be inconsistent with Article 3 of Regulation S-X.
    These final amendments are consistent with existing financial 
reporting practices of registrants. We do not expect the final 
amendments to result in any changes in disclosures.
    Finally, we made a technical revision to Rule 8-02 to add ``and its 
subsidiaries consolidated'' to ``registrant'' in order to conform to 
Rule 3-01.
25. Other Shell Company Matters
    In order to deter potential abuses involving shell company 
transactions,\1077\ the Commission has adopted various rules and 
limitations over the years, some of which apply to former shell 
companies.\1078\ For example:
---------------------------------------------------------------------------

    \1077\ See, e.g., Shell Company Adopting Release, supra note 
943. Also affiliates of any non-issuer party to a transaction 
identified in 17 CFR 230.145(a) must consider 17 CFR 230.145(c) and 
(d).
    \1078\ These rules and limitations generally do not apply to 
shell companies that qualify as ``business combination related shell 
companies'' as defined in Rule 405.
---------------------------------------------------------------------------

     For a person to resell securities initially issued by a 
shell company in reliance on 17 CFR 230.144, a former shell company 
must satisfy the requirements of 17 CFR 230.144(i)(2); \1079\
---------------------------------------------------------------------------

    \1079\ See 17 CFR 230.144(i), 17 CFR 230.145(c) and (d); 
Revisions to Rules 144 and 145, Release No. 33-8869 (Dec. 6, 2007) 
[72 FR 71546 (Dec. 17, 2007)].
---------------------------------------------------------------------------

     A former shell company may not use Form S-8 until at least 
60 calendar days after the company is no longer a shell company and has 
filed current Form 10 information; \1080\
---------------------------------------------------------------------------

    \1080\ See General Instruction A.1, Form S-8 (17 CFR 239.16b); 
Shell Company Adopting Release, supra note 943.
---------------------------------------------------------------------------

     For three years following the change in shell company 
status, a former shell company is an ``ineligible issuer'' under Rule 
405 that may not, among other things, use free writing prospectuses for 
communications during a registered offering or rely on the safe harbor 
of Rule 163A from section 5(c) of the Securities Act for pre-filing 
communications; \1081\ and
---------------------------------------------------------------------------

    \1081\ See 17 CFR 230.165(e)(2)(ii); 17 CFR 230.163A(b)(3)(ii); 
Securities Offering Reform, Release No. 33-8591 (July 19, 2005) [70 
FR 44722 (Aug. 3, 2005)].
---------------------------------------------------------------------------

     For three years following the change in shell company 
status, a broker-dealer may not rely on the safe harbors of Securities 
Act Rules 137, 138, and 139 for research reports regarding a former 
shell company.\1082\
---------------------------------------------------------------------------

    \1082\ See 17 CFR 230.137(d)(2); 17 CFR 230.138(a)(4); 17 CFR 
230.139(a)(1)(ii).
---------------------------------------------------------------------------

    Several commenters asked the Commission to carve out a post-de-SPAC 
transaction combined company from these and other former shell company 
limitations and to make certain safe harbors available to the combined 
company that are not available to former shell companies.\1083\ 
Generally, these commenters expressed the view that doing so would more 
closely align the rules that apply to target companies that enter the 
public markets through a de-SPAC transaction with the rules that apply 
to companies that conduct a traditional IPO.
---------------------------------------------------------------------------

    \1083\ See letters from ABA, American Securities Association, 
Cowen, Ernst & Young, Fenwick, Freshfields, Goodwin, Vinson & 
Elkins, White & Case, Winston & Strawn.
---------------------------------------------------------------------------

    We are not adopting changes to these limitations or to other rules 
and limitations related to former shell companies that may apply to the 
combined company at this time. In light of the comments we received and 
taking into account the rules being adopted herein and market practices 
that may develop as a result, we believe that further consideration of 
potential application of these rules and limitations to the combined 
company is warranted.

V. Enhanced Projections Disclosure

A. Proposed Items 10(b) and 1609 of Regulation S-K

1. Proposed Rules
    Current Item 10(b) of Regulation S-K provides Commission guidance 
with respect to factors to be considered in formulating and disclosing 
management's projections of future economic performance that applies to 
all filings made with the Commission. The Commission proposed to amend 
Item 10(b) of Regulation S-K to expand and update the Commission's 
views on the use of such projections. The proposed amendments to Item 
10(b) continued to state the Commission's view that projected financial 
information included in filings must have a reasonable basis. To 
address specific concerns with respect to the format of projections, 
namely that some companies may present projections more prominently 
than actual historical results (or the lack of historical results where 
they have no operations at all) or use non-GAAP financial measures in 
the projections without a clear explanation or definition of such 
measures, the Commission proposed amending 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,\1084\ and an explanation why the

[[Page 14254]]

non-GAAP financial measure was used instead of a GAAP measure.\1085\
---------------------------------------------------------------------------

    \1084\ The reference to the most closely related GAAP measure 
called for by the proposed amendments to 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.
    \1085\ 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)].
---------------------------------------------------------------------------

    Finally, the Commission proposed amending Item 10(b) to clarify 
that it would apply to a target company's projections when they are 
presented to investors through the registrant's Commission filings. 
Pursuant to the proposed amendments, the guidance in amended Item 10(b) 
would apply to any projections of future economic performance of both 
the registrant and persons other than the registrant (which would 
include a target company in a de-SPAC transaction), that are included 
in the registrant's Commission filings.
    The Commission proposed Item 1609 of Regulation S-K, which would 
apply only to de-SPAC transactions, to require a registrant to provide 
the following disclosures:
     With respect to any projections disclosed in the filing, 
the purpose for which the projections were prepared and the party that 
prepared the projections;
     All material bases of the disclosed projections, all 
material assumptions underlying the projections, and any factors that 
may impact such assumptions (including 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); 
and
     Whether the disclosed projections reflect the view of the 
board or management of the SPAC or target company, as applicable, as of 
the date of the filing; if not, then a statement regarding the purpose 
of disclosing the projections and the reasons for any continued 
reliance by management or the board on the projections.
2. Comments
    A number of commenters generally supported the proposed 
items.\1086\ In addition, some of these commenters, in response to 
issues raised in a request for comment in the Proposing Release,\1087\ 
indicated that the updated guidance in proposed Item 10(b) should apply 
to all filings.\1088\
---------------------------------------------------------------------------

    \1086\ Letters from ABA (except for proposed Items 1609(b) and 
(c)); Americans for Financial Reform Education Fund; Chris Barnard 
(May 27, 2022) (``Chris Barnard''); Goodwin (except for proposed 
Items 1609(b) and (c)); ICGN; Julianna Marandola (Apr. 30, 2002); 
Michael Dambra, Omri Even-Tov, and Kimberlyn George.
    \1087\ Proposing Release, supra note 7, at 29493 (request for 
comment number 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?'').
    \1088\ Letters from ABA; Chris Barnard; Goodwin; Michael Dambra, 
Omri Even-Tov, and Kimberlyn George.
---------------------------------------------------------------------------

    In a comment letter that addressed issues raised in a request for 
comment in the Proposing Release, one group of commenters expressed 
support for the proposals but stated that ``[w]e are opposed to 
mandating the disclosure of certain financial statement line items 
(e.g., revenue, EBITDA [earnings before interest, taxes, depreciation, 
and amortization], etc.)'' and said, ``Some of the proposals regarding 
Item 10(b) of Regulation S-K and Item 1609 . . . should also extend to 
the investor presentations disclosed as an attachment to the Form 8-
K.'' \1089\ These commenters said their analysis and that of others 
``suggests that the market response to a de-SPAC transaction and 
financial projections occur at the time of the merger announcement.'' 
\1090\
---------------------------------------------------------------------------

    \1089\ Letter from Michael Dambra, Omri Even-Tov, and Kimberlyn 
George (``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.); Proposing Release, supra note 7, at 29504 (request for 
comment number 150) (``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?'').
    \1090\ Letter from Michael Dambra, Omri Even-Tov, and Kimberlyn 
George.
---------------------------------------------------------------------------

    Several commenters addressed the reasonableness of projections made 
concerning companies with no operating history. One of the commenters 
who supported the proposed amendments recommended that we adopt an 
additional provision providing that ``if a registrant does not have a 
history of operations for the basis of the projections, then it is 
possible to acquire an outside review of the projections as support for 
the `reasonable' projections.'' \1091\ Another commenter said, ``As for 
the proposed amendments to Regulation S-K on the use of projections, we 
believe not only that non-GAAP metrics need to be conspicuously 
highlighted and marked for investor review, but also that disclosures 
should state succinctly that issuers with no historical operations or 
completed negotiations for company/asset acquisitions do not have a 
reasonable basis for projections.'' \1092\
---------------------------------------------------------------------------

    \1091\ Letter from ICGN.
    \1092\ Letter from NASAA.
---------------------------------------------------------------------------

    Another commenter recommended that Item 1609(b) include a 
requirement to disclose sensitivity testing of the key assumptions 
underlying the projections.\1093\
---------------------------------------------------------------------------

    \1093\ Letter from Chris Barnard.
---------------------------------------------------------------------------

    A few commenters also sought clarification that the staff guidance 
provided in Questions 101.01, 101.02 and 101.03 of the Compliance and 
Disclosure Interpretations relating to Non-GAAP Financial Measures 
(last updated December 13, 2022) \1094\ will continue to apply, 
notwithstanding adoption of proposed Item 10(b)(2)(iv).\1095\
---------------------------------------------------------------------------

    \1094\ The interpretations relate to whether certain forecasts 
are considered non-GAAP financial measures, as that term is used in 
Item 10(e) of Regulation S-K and Regulation G.
    \1095\ Letters from ABA, Goodwin.
---------------------------------------------------------------------------

    In response to a request for comment,\1096\ one commenter stated 
that we should not require projections to be presented in a separately 
captioned section of a Commission filing because doing so would 
``change the purpose'' for which the projections were prepared.\1097\ 
On the other hand, a few commenters stated that such a requirement 
would be consistent with current practice and unlikely to lead to 
significant changes in the information disclosed or create undue 
burdens on registrants.\1098\
---------------------------------------------------------------------------

    \1096\ Proposing Release, supra note 7, at 29496 (request for 
comment number 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?'').
    \1097\ Letter from Kirkland & Ellis.
    \1098\ Letters from ABA, Goodwin.
---------------------------------------------------------------------------

    In comment letters that addressed issues raised in a request for 
comment in the Proposing Release,\1099\ some commenters suggested that 
Item 1609 should apply to all filings,\1100\ while one commenter 
expressed support for limiting the applicability of Item 1609 to de-
SPAC transaction filings only.\1101\ Some commenters who supported Item 
1609 applying to all filings emphasized that Item 1609 should apply to 
all companies that disclose financial projections in Commission filings 
(and

[[Page 14255]]

not just to de-SPAC transactions as proposed) in connection with 
business combinations in which the target is at an early stage and has 
a limited financial track record and the transaction may involve more 
significant dilution.\1102\
---------------------------------------------------------------------------

    \1099\ Proposing Release, supra note 7, at 29496 (request for 
comment number 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?'').
    \1100\ Letters from ABA, Goodwin, Vinson & Elkins.
    \1101\ Letter from Chris Barnard.
    \1102\ Letters from ABA, Goodwin.
---------------------------------------------------------------------------

    A few commenters indicated that proposed Item 1609(b) is likely to 
reduce the disclosure of projections in Commission filings but 
acknowledged that the rules are unlikely to ``significantly impact the 
willingness of parties to De-SPAC Transactions to continue preparing 
and disclosing projections'' because the disclosure of projections is 
compelled by certain other Federal and State requirements.\1103\
---------------------------------------------------------------------------

    \1103\ Letters from ABA, Goodwin.
---------------------------------------------------------------------------

    A few commenters stated that the requirement in proposed Item 
1609(b) to discuss the material bases and assumptions underlying 
projections, despite the inclusion of a materiality qualifier, is 
unduly prescriptive, may result in the inclusion of ``inputs and 
assumptions that are not material to an investor's understanding of the 
projections'' and may lead registrants towards a conservative approach 
of disclosing growth rates or discount multiples in order to protect 
against future claims that such inputs were material.\1104\ Another 
commenter, however, said that ``asking for more clarity in assumptions 
and identifying where they came from strike us as very sensible.'' 
\1105\
---------------------------------------------------------------------------

    \1104\ Letters from ABA, Goodwin.
    \1105\ Letter from Loeb & Loeb.
---------------------------------------------------------------------------

    With respect to Item 1609(c), some commenters indicated that 
registrants should not have to affirm the validity of projections as of 
the date of the filing because it would be unduly burdensome and 
inconsistent with the purpose of the preparation of the 
projections.\1106\ The commenters also suggested that the disclosure 
requirement may result in the need to prepare an updated set of 
projections, which would be expensive and time-consuming.\1107\ Two 
commenters suggested an alternative approach to Item 1609(c) involving 
several elements.\1108\ First, they suggested requiring disclosure of 
``(i) the date as of which the projections were prepared and (ii) the 
views of the preparer of the projections as of such date of preparation 
and, if different, the date upon which the SPAC board approved the 
transaction.'' \1109\ Second, they suggested that registrants should be 
permitted to ``disclaim any duty to update the projections as of a 
later date except to the extent there is a material lapse in time and 
change in circumstances.'' \1110\ Third, they suggested ``the 
Commission may seek disclosure confirming whether the projections still 
reflect management's views on future performance and/or describing what 
consideration the board gave to obtaining updated projections or a lack 
of reliance upon the projections.'' \1111\
---------------------------------------------------------------------------

    \1106\ Letters from ABA, Freshfields, Goodwin, Kirkland & Ellis.
    \1107\ Letters from ABA, Goodwin, Kirkland & Ellis.
    \1108\ Letters from ABA, Goodwin.
    \1109\ Id.
    \1110\ Id.
    \1111\ Id.
---------------------------------------------------------------------------

    Also regarding Item 1609(c), one commenter expressed the view that 
projections are included in a de-SPAC transaction disclosure document 
to describe the basis upon which the directors of the SPAC approved the 
transaction, not to serve as a basis for investors to make an 
investment decision.\1112\ The commenter also indicated that 
``projections are routinely disclosed in proxy statements and 
registration statements as the basis for fairness opinions issued at 
the time of the execution of the merger agreement of the public merger, 
but the SEC has not historically required the parties to the merger to 
confirm the projections in connection with each filing.'' \1113\
---------------------------------------------------------------------------

    \1112\ Letter from Freshfields.
    \1113\ Id.
---------------------------------------------------------------------------

    Some commenters expressed the view that the proposed rule was not 
sufficiently specific in its use of the phrase ``as of the date of the 
filing'' and that the requirement could be interpreted to require 
compliance with this item in the original filing and all subsequent 
amendments.\1114\
---------------------------------------------------------------------------

    \1114\ Letters from Freshfields, Kirkland & Ellis.
---------------------------------------------------------------------------

    One commenter made a number of suggestions with respect to the 
disclosure of projections in IPOs of all types, including in de-SPAC 
transactions.\1115\ First, the commenter recommended requiring 
disclosure of management's assessment of the probability of achieving 
any forecasts provided and the major assumptions underlying all 
forecasts provided.\1116\ Second, the commenter suggested that when 
financial projections are disclosed, to qualify for the PSLRA safe 
harbor, the directors, management and other affiliates must agree to a 
lock-up on sales of shares until the combined company has released 
audited financial statements for its first full fiscal year following 
the transaction.\1117\ Third, the commenter suggested requiring 
disclosure of the track record of the company, the sponsor, or the 
chief executive officer or chief financial officer for meeting past 
projections disclosed.\1118\
---------------------------------------------------------------------------

    \1115\ Letter from Bullet Point Network.
    \1116\ Id.
    \1117\ Id.
    \1118\ Id.
---------------------------------------------------------------------------

3. Final Rules
    We are adopting the amendment of Item 10(b) as proposed and new 
Item 1609 substantially as proposed, except for clarifying revisions 
that we discuss below.
    With respect to the final amendment to Item 10(b), we note that the 
rule is Commission guidance that already applies to all filings made 
with the Commission and this aspect of Item 10(b) precedes the 
revisions to the rule adopted in this release.\1119\ We also note that 
Item 1609 applies only to de-SPAC transactions.
---------------------------------------------------------------------------

    \1119\ Some commenters indicated that the updated guidance in 
Item 10(b) should apply to all filings. See supra note 1088 and 
accompanying text.
---------------------------------------------------------------------------

    In response to one commenter's opposition to an obligation to 
present certain specific line items in all projections,\1120\ we note 
that the Commission guidance in Item 10(b) does not mandate the 
inclusion of any specific line item. Instead, the final amendment to 
Item 10(b) acknowledges that projections have traditionally included 
certain line items, but registrants are free to determine which line 
items are appropriate to include in projections.
---------------------------------------------------------------------------

    \1120\ Letter from Michael Dambra, Omri Even-Tov, and Kimberlyn 
George. See supra notes 1089-1090 and accompanying text.
---------------------------------------------------------------------------

    With respect to the recommendation to revise the rule to allow a 
company with no history of operations to obtain an outside review of 
projections,\1121\ we note that neither Item 10(b) nor Item 1609 
prevents companies from obtaining any such outside review.
---------------------------------------------------------------------------

    \1121\ Letter from ICGN. See supra note 1091 and accompanying 
text.
---------------------------------------------------------------------------

    With respect to the suggestion from a commenter that non-GAAP 
financial metrics should be highlighted for investor review,\1122\ we 
believe the provisions of Item 10(e) already address this concern. With 
respect to the same commenter's suggestion that we require a statement 
from the registrant when a target company has no history of operations 
or a negotiated acquisition that the projections disclosed do not have 
a reasonable basis, we believe the provisions of Items 10(b) and 1609 
and other rules adopted in this release will

[[Page 14256]]

provide sufficient information about the basis for any disclosed 
projections.\1123\
---------------------------------------------------------------------------

    \1122\ Letter from NASAA. See supra note 1092 and accompanying 
text.
    \1123\ See, e.g., Item 1605, Item 1606(b), and Item 1607.
---------------------------------------------------------------------------

    With respect to commenters' request for clarification that certain 
staff guidance will continue to apply notwithstanding adoption of 
proposed Item 10(b)(2)(iv),\1124\ we confirm that the final rules do 
not impact the staff's guidance in Questions 101.01, 101.02 and 101.03 
of the Compliance and Disclosure Interpretations related to Non-GAAP 
Financial Measures.
---------------------------------------------------------------------------

    \1124\ Letters from ABA, Goodwin. See supra note 1095 and 
accompanying text.
---------------------------------------------------------------------------

    With respect to commenters' responses to our request for comment 
that we should not require projections to be presented in a separately 
captioned section of a filing,\1125\ we note that we have not added 
such a requirement to the presentation of projections.
---------------------------------------------------------------------------

    \1125\ Letter from Kirkland & Ellis. See supra note 1097 and 
accompanying text.
---------------------------------------------------------------------------

    In the final rules, we made three technical revisions to Item 
10(b). First, in final Item 10(b)(2)(i), we replaced the term 
``foregoing measures of income'' with the term ``foregoing measures of 
income (loss).'' Second, in final Item 10(b)(2)(iii), we replaced the 
term ``historical financial measure'' with the term ``historical 
financial results.'' We believe these changes will enhance clarity and 
avoid potential ambiguity. Third, we made revisions in final Item 
10(b)(2)(iv) to require a description of the GAAP financial measure 
``most directly comparable'' to the non-GAAP measure, rather than 
``most closely related'' (as proposed). We made this change in final 
Item 10(b)(2)(iv) to create consistency with the terms used in existing 
Item 10(e)(1)(i)(A) of Regulation S-K, which requires the inclusion of 
the directly comparable financial measure or measures calculated and 
presented in accordance with GAAP whenever one or more non-GAAP 
financial measures are included in a filing with the Commission.
    With respect to commenters' views that Item 1609 should apply to 
all companies that publicly disclose financial projections in 
Commission filings,\1126\ we decline to expand the coverage of Item 
1609 beyond SPACs since the specialized disclosure requirements in new 
subpart 1600 of Regulation S-K are intended to only apply to SPAC IPOs 
and de-SPAC transactions. Item 10(b), as updated in this release, will 
continue to provide helpful guidance for all companies that publicly 
disclose projections in Commission filings.
---------------------------------------------------------------------------

    \1126\ Letters from ABA, Goodwin, Vinson & Elkins. See supra 
note 1100 and accompanying text.
---------------------------------------------------------------------------

    With respect to commenters who expressed concern there could be an 
uncertain impact on the use of projections under Item 1609,\1127\ we 
note that final Item 1609 does not restrict the registrant's ability to 
disclose projections and is not intended to alter the registrant's 
determination as to whether or not projections should be disclosed 
under other Federal or State law requirements. Rather, if a registrant 
determines to include projections in a filing in connection with a de-
SPAC transaction, Item 1609 creates a level of consistency for the 
presentation of projections that would make the information more useful 
to investors.
---------------------------------------------------------------------------

    \1127\ Letters from ABA, Goodwin. See supra notes 1103-1104 and 
accompanying text.
---------------------------------------------------------------------------

    With respect to the recommendation that Item 1609(b) include a 
requirement to disclose sensitivity testing of the key assumptions 
underlying the projections,\1128\ we believe that such a requirement 
would be inconsistent with the general approach of Item 1609, which 
does not prescribe a specific format for the projections and does not 
require specific line items to be included in the projections.
---------------------------------------------------------------------------

    \1128\ Letter from Chris Barnard. See supra note 1101 and 
accompanying text.
---------------------------------------------------------------------------

    With respect to the comment that the requirement in Item 1609(b) to 
discuss material growth rates or discount multiples used in preparing 
the projections is unduly prescriptive and may result in the over-
inclusion of certain immaterial information,\1129\ we note that this 
requirement includes a materiality qualifier, which makes clear that 
Item 1609(b) is not intended to capture immaterial information and does 
not require disclosure of growth rates or discount rates that are not 
material.
---------------------------------------------------------------------------

    \1129\ Letters from ABA, Goodwin. See supra note 1104 and 
accompanying text.
---------------------------------------------------------------------------

    In final Item 1609(b), we have added a materiality qualifier to the 
requirement to disclose any factors that may impact the material 
assumptions underlying the projections to clarify that only material 
factors are required to be disclosed. In final Item 1609(b), we have 
also made two technical revisions to the proposal in order to improve 
the clarity of this item and avoid potential ambiguity.\1130\ First, we 
have replaced the proposed terms ``material growth rates'' with the 
terms ``material growth or reduction rates'' throughout final Item 
1609(b), because projections may involve some line items in financial 
statements that are projected to increase and others that are projected 
to decrease. Second, we have replaced the proposed term ``discount 
multiples'' with the term ``discount rates'' throughout final Item 
1609(b) to reflect more closely the terminology for the relevant 
concept that is frequently used by valuation professionals.\1131\
---------------------------------------------------------------------------

    \1130\ In addition, in final Item 1609(b) we replaced the 
proposed term ``impact'' with the term ``affect'' for clarity.
    \1131\ Two examples of ``discount rates'' are: (1) the weighted 
average cost of capital used to discount to present value the future 
cash flows over the period of years projected in a discounted cash 
flow analysis and (2) the rate applied to the terminal value in a 
discounted cash flow analysis to calculate its present value.
---------------------------------------------------------------------------

    With respect to the proposed requirement in Item 1609(c)--to 
include a statement regarding whether or not projections disclosed in a 
filing reflect the current views of the SPAC or target company 
management or board of directors as of the date of filing--commenters 
expressed concerns that the requirement would be unduly burdensome, may 
involve an expensive and time-consuming effort to update the 
projections,\1132\ and would be inconsistent with the purpose of the 
preparation of the projections and current market practice.\1133\ We 
acknowledge that if the SPAC or the target company determines to affirm 
that the projections disclosed in a filing reflect the current views of 
the SPAC or target company management or board of directors, the SPAC 
or the target company, as applicable, would likely undertake additional 
analysis with respect to the projections, whether to provide updated 
projections or otherwise. If the SPAC or the target company determines 
to state that the disclosed projections do not reflect the current 
views of the SPAC or target company management or board of directors, 
we believe the additional burden created by final Item 1609(c) is 
likely to be considerably less because the level of analysis 
undertaken, if any, will be minimal as compared to the analysis 
undertaken to affirm that the disclosed projections reflect the current 
views of the SPAC or target company management or board of directors. 
For example, if the target company chooses not to affirm that its 
projections reflect the current view of management due to a significant 
lapse of time, we do not believe target company management will update 
the projections or rerun its analysis in order to make that choice. We 
believe the required disclosure reflects an appropriate balance between 
the benefits to investors of this

[[Page 14257]]

disclosure and the costs of compliance with the rule requirements. The 
required disclosure should help investors better assess the continued 
reliability of the projections through the current views of the SPAC or 
target company management or board of directors. We also note that Item 
1609(c) does not impose a duty to update the disclosed projections. 
Item 1609(c) only requires a statement as to whether or not the 
disclosed projections reflect the view of the SPAC or target company 
management or board of directors about its future performance as of the 
most recent practicable date prior to the date of the disclosure 
document required to be disseminated to shareholders. We revised Item 
1609(c) to replace the proposed terms ``state whether the projections'' 
and ``disclose whether the target company'' with the terms ``state 
whether or not the projections'' and ``disclose whether or not the 
target company'', respectively, for purposes of clarity.
---------------------------------------------------------------------------

    \1132\ Letters from ABA, Goodwin, Kirkland & Ellis. See supra 
note 1107 and accompanying text.
    \1133\ Letters from ABA, Goodwin, Freshfields, Kirkland & Ellis. 
See supra notes 1106-1107 and 1112-1113 and accompanying text.
---------------------------------------------------------------------------

    In response to commenters who said that the proposed terms ``as of 
the date of the filing'' were unclear and could be interpreted to 
require compliance with this item in the original filing and all 
subsequent amendments,\1134\ we are making one change to final Item 
1609(c) to improve the clarity of this item and avoid potential 
ambiguity. We replaced the proposed term ``as of the date of the 
filing'' with the term ``as of the most recent practicable date prior 
to the date of the disclosure document required to be disseminated to 
security holders'' throughout final Item 1609(c). This change is 
intended to clarify that the statement required by Item 1609(c) on 
whether or not the projections reflect the view of management or the 
board of directors (or similar governing body) about future performance 
must be made as of a recent date prior to, and as close as is feasible 
to, the date of the disclosure document disseminated to security 
holders.\1135\ Thus, the Item 1609(c) statement is not required to be 
made as of the filing date of the initial or preliminary filing and as 
of each amendment thereto.
---------------------------------------------------------------------------

    \1134\ Letters from Freshfields, Kirkland & Ellis. See supra 
note 1114 and accompanying text.
    \1135\ For example, a statement made in response to Item 1609(c) 
as of the date of the final Form S-4 amendment prior to the 
registrant's request for acceleration of effectiveness could be 
considered to be made as of the ``most recent practicable date prior 
to the date of the disclosure document required to be disseminated 
to security holders'' if the date of the final prospectus 
disseminated to shareholders is within five days following 
effectiveness of the subject registration statement on Form S-4. If 
additional disclosure is included in the Form S-4 amendment to 
support the statement required by Item 1609(c), the Commission staff 
will need adequate time to review the new disclosure before the 
registrant's request for acceleration of effectiveness of the Form 
S-4 is submitted as is the case currently when new disclosure is 
included in a Form S-4 amendment.
---------------------------------------------------------------------------

    For several reasons we discuss below, we are not adopting the 
alternative approach suggested by two commenters that involved several 
elements, including: (1) that disclosure should be required that 
provides the date the projections were prepared and the views of the 
preparer of the projections as of the date of preparation, (2) that, 
with certain exceptions, registrants should be permitted to disclaim 
any duty to update the projections, and (3) that the Commission may 
seek disclosure confirming whether the projections still reflect 
management's views on future performance.\1136\ First, there is nothing 
in final Item 1609 that prevents the disclosure of the date of the 
projections or the projection preparer's views. Depending on the facts 
and circumstances, this information could be material to investors. In 
addition, we note that, where an outside party is the preparer of a 
report, opinion, or appraisal that materially relates to any of certain 
criteria set out in final Item 1607(a), final Item 1607(b)(6) requires 
a summary of such report, opinion, or appraisal that includes, among 
other things, a summary of findings and recommendations. Second, as we 
discuss immediately above, Item 1609(c) does not impose a duty to 
update the projections disclosed in a filing. Also, as we discuss above 
in section III.E.3, to the extent a SPAC is concerned that security 
holders may rely on the projections disclosed in a filing in instances 
where the SPAC believes security holders should not rely on them, a 
SPAC could provide supplemental disclosure advising and alerting 
security holders of this fact, including by noting factors such as the 
date of the projections (and discussing any staleness issues) and the 
independence from the SPAC of the third-party that conducted the 
analysis.\1137\ Third, we do not agree with the suggestion that having 
the Commission seek disclosure confirming the ongoing reliability of 
the projections included in the filing would better ensure that 
investors have information about the ongoing reliability of those 
projections than a disclosure rule. On the contrary, registrants will 
be in a better position to know about the ongoing reliability of 
projections concerning the SPAC or the target company and to make the 
related disclosures under final Item 1609 than the Commission, which 
would need to determine when it may be necessary to request the 
confirmatory disclosure depending on the particular facts and 
circumstances of the SPAC or the target company.
---------------------------------------------------------------------------

    \1136\ Letters from ABA, Goodwin. See supra notes 1108-1111 and 
accompanying text.
    \1137\ Section III.E.3 discusses final definitions of ``blank 
check company'' and related availability of PSLRA safe harbors in 
connection with comments received providing comparative analysis of 
de-SPAC transactions to other types of transactions.
---------------------------------------------------------------------------

    For several reasons we discuss below, we are also not adopting the 
following suggestions of one commenter with respect to the disclosure 
of projections in IPOs of all types, including in de-SPAC transactions: 
(1) requiring disclosure of management's assessment of the probability 
of achieving any forecasts provided, (2) requiring as a condition to 
qualify for the PSLRA safe harbor when projections are disclosed that 
directors, management and other affiliates must agree to a lock-up on 
sales of shares until the company has released audited financial 
statements for its first full fiscal year following the transaction, 
and (3) requiring disclosure of the track record of the company, the 
sponsor, or the chief executive officer or chief financial officer for 
meeting past projections disclosed.\1138\ First, we believe that 
management's assessment of the probability of achieving any forecasts 
provided would require a high degree of subjectivity and such 
disclosure would likely not be useful to investors without significant 
additional disclosure regarding the assessment, including the bases and 
assumptions that underlie the assessment, which disclosure could be 
distracting or confusing to investors. We also believe that such 
disclosure may cause investors to place undue reliance on the 
probability or projections disclosed. Second, we believe requiring a 
long-term lock-up as a condition to qualify for the PSLRA safe harbor 
has potential far-reaching implications for the parties involved and 
the market that are uncertain. Third, we believe the track records for 
meeting projections disclosed in prior transactions would not 
necessarily be relevant to an investor's evaluation of the projections 
disclosed with respect to the de-SPAC transaction that is the subject 
of the filing and may not be useful without significant additional 
disclosure regarding the facts and circumstances of the prior 
transactions. Such additional disclosure, if added, could become 
distracting or confusing for investors trying to evaluate the 
projections disclosed with respect to the subject de-SPAC transaction.
---------------------------------------------------------------------------

    \1138\ Letter from Bullet Point Network.
---------------------------------------------------------------------------

    We are amending General Instruction B to Form 8-K to require the

[[Page 14258]]

information set forth in paragraphs (a) and (b) of Item 1609 in any 
Form 8-K report or exhibit to such report that relates to a de-SPAC 
transaction and includes projections that relate to the performance of 
the SPAC or the target company. One commenter indicated that the market 
response to a de-SPAC transaction and the disclosed financial 
projections occurs at the time of the merger announcement, and ``[s]ome 
of the proposals regarding Item 10(b) of Regulation S-K and Item 1609 
as discussed above should also extend to the investor presentations 
disclosed as an attachment to the Form 8-K.'' \1139\ The issue noted by 
this comment raises significant investor protection concerns, and we 
are amending the General Instructions to Form 8-K and revising proposed 
Item 1609(a) in response. Based on the Commission staff's experience, 
Form 8-K filings in connection with the announcement of a de-SPAC 
transaction may contain projections in the exhibits to the Form 8-K 
filings, including in investor presentation materials featuring 
projections that also have been provided by the SPAC to PIPE investors. 
These projections may begin to shape investors' decisions concerning 
the de-SPAC transaction even before a registration or proxy statement 
in connection with the de-SPAC transaction is filed. We believe 
investors would benefit from the background and context provided by the 
application of new Item 1609 to those projections.
---------------------------------------------------------------------------

    \1139\ Letter from Michael Dambra, Omri Even-Tov, and Kimberlyn 
George. See supra notes 1089-1090 and accompanying text.
---------------------------------------------------------------------------

    Finally, we revised Item 1609(c) to replace the proposed term 
``board'' with the terms ``board of directors (or similar governing 
body)'' for purposes of clarity and consistency with other final rules.

VI. The Status of Spacs Under the Investment Company Act

A. Background

    The Commission proposed Rule 3a-10 under the Investment Company 
Act, which would have provided a safe harbor from the definition of 
investment company under section 3(a)(1)(A) of the Investment Company 
Act \1140\ for certain SPACs.\1141\ As discussed in the Proposing 
Release, in recent years, the number of SPACs has grown 
dramatically,\1142\ and some SPACs and their sponsors have sought to 
operate SPACs in ways that suggest that SPACs and their sponsors should 
increase their focus on evaluating when a SPAC could be an investment 
company. Such developments sparked debate about the status of SPACs as 
investment companies under the Investment Company Act.\1143\ For the 
reasons discussed below, we are not adopting the proposed safe harbor.
---------------------------------------------------------------------------

    \1140\ 15 U.S.C. 80a-3(a)(1)(A). 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 be engaged primarily, in the 
business of investing, reinvesting, or trading in securities. See 
infra note 1146.
    \1141\ For purposes of this section, the terms ``SPAC,'' ``De-
SPAC transaction,'' and ``target company'' have the same meaning as 
set forth in Item 1601 of Regulation S-K. See supra section II.A 
(Definitions).
    \1142\ See, e.g., supra note 25 and accompanying text; see also 
Proposing Release, supra note 7, at nn.7-8 and accompanying text.
    \1143\ See Kristi Marvin, 49 Law Firms Unite and Push Back on 
Recent SPAC Litigation, SPAC Insider (Aug. 27, 2021), available at 
https://www.spacinsider.com/news/spacinsider/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).
---------------------------------------------------------------------------

    Instead, we are setting forth below our views on facts and 
circumstances that are relevant to whether a SPAC meets the definition 
of investment company under the Investment Company Act.\1144\ Like any 
other issuer, depending on the facts and circumstances, a SPAC may meet 
the definition of investment company under section 3(a)(1)(A) or 
3(a)(1)(C) \1145\ or both. The views below are intended to assist SPACs 
in analyzing their status under these sections, particularly with 
regard to how SPACs may apply the five-factor test that is 
traditionally used to determine whether an issuer is an investment 
company under section 3(a)(1)(A) (known as the Tonopah factors).\1146\
---------------------------------------------------------------------------

    \1144\ This guidance is intended to address the status of a SPAC 
from the time of the SPAC's initial offering until it completes its 
de-SPAC transaction. The remaining company (or companies) after the 
de-SPAC transaction may also raise separate questions of Investment 
Company Act status.
    \1145\ Section 3(a)(1)(C) 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 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. 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. If a SPAC owns or proposes 
to acquire 40% or more of its total assets in investment securities, 
it would likely need to register under the Investment Company Act 
unless an exclusion from the definition applies.
    \1146\ To assess an issuer's primary engagement under section 
3(a)(1)(A), and in other contexts under the Investment Company Act, 
we historically have looked at (1) the company's historical 
development; (2) its public representations of policy; (3) the 
activities of its officers and directors; (4) the nature of its 
present assets; and (5) the sources of its present income (known as 
the ``Tonopah factors''). See In the Matter of Tonopah Mining Co., 
26 SEC. 426 (July 21, 1947). 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).
---------------------------------------------------------------------------

    The Commission received comments that represented a range of views 
and positions on proposed Rule 3a-10. While some commenters expressed 
the view that SPACs are not investment companies,\1147\ others stated 
that SPACs are unregistered investment companies.\1148\ Similarly, 
while some commenters disagreed with the Commission's concern that 
investors might view SPACs as fund-like investments,\1149\ other 
commenters asserted that SPAC shareholders often treat SPACs like 
investment companies \1150\ and should be regulated under the 
Investment Company Act accordingly.\1151\
---------------------------------------------------------------------------

    \1147\ See, e.g., letters from ABA, Davis Polk, Goodwin.
    \1148\ See, e.g., letters from Consumer Federation; Robert J. 
Jackson, Jr. and Professor John Morley (June 13, 2022) (``Robert 
Jackson and John Morley'').
    \1149\ See, e.g., letters from Goodwin, Skadden, Vinson & 
Elkins, White & Case.
    \1150\ Letters from Consumer Federation (``From the time that a 
SPAC goes public until the time a business combination with a 
private company is completed, a SPAC functions like a mutual fund, 
investing in Treasuries, money market funds, or other cash-like 
securities, while providing initial investors a fixed income-
equivalent return. . . . `Nearly all' SPAC IPO investors treat SPACs 
like mutual funds.''), Robert Jackson and John Morley (``SPAC 
investors clearly understand SPACs to be substitutes for mutual 
funds and other types of investment companies'' and noting that 
``[i]n the median SPAC, nearly three quarters of investors choose to 
redeem rather than hold their shares through the completion of the 
SPAC's acquisition. When they redeem, they avoid any exposure to the 
SPAC's future operations, taking only the return on the SPAC's 
securities portfolio.'') (Emphasis in original). See also Alex 
Wittenberg and Jack Pitcher, Saba Capital's Boaz Weinstein 
Recommends SPACs, CDS as Fed Tightens, Bloomberg (January 28, 2022), 
available at https://www.bloomberg.com/news/articles/2022-01-28/saba-s-weinstein-recommends-spacs-cds-as-fed-tightens#xj4y7vzkg 
(SPACs are misunderstood because they're ``fixed-income products'' 
quoting Weinstein).
    \1151\ Letters from Consumer Federation; Robert Jackson and John 
Morley.
---------------------------------------------------------------------------

    Commenters also held varying views about the need for a Commission 
safe harbor. Some commenters believed that a safe harbor would provide 
clarity.\1152\

[[Page 14259]]

Other commenters, including some that believed SPACs are not investment 
companies, believed the proposed safe harbor was unnecessary.\1153\ In 
contrast, some commenters suggested that the proposed safe harbor was 
unnecessary because SPACs are investment companies that should be 
subject to the Investment Company Act.\1154\ Finally, one commenter 
stated that it welcomed the Commission's efforts to provide clarity but 
suggested that instead of adopting a safe harbor, the Commission should 
issue interpretive guidance on the activities that SPACs could 
undertake that would cause a SPAC to become an investment 
company.\1155\
---------------------------------------------------------------------------

    \1152\ Letters from Skadden (stating that a safe harbor would 
facilitate the ability to raise capital ``without the specter of 
strike lawsuits'' but that some conditions included in the proposed 
safe harbor were ``unnecessarily restrictive''), Robert Jackson and 
John Morley (arguing that a safe harbor is ``necessary to eliminate 
any doubt that the [Investment Company Act] applies to SPACs'' and, 
among other things, that we should shorten the permitted acquisition 
periods under the safe harbor). See also letter from Vinson & Elkins 
(``We are supportive of a safe harbor, but believe proposed Rule 3a-
10 should be revised substantially.'').
    \1153\ See, e.g., letters from ABA (``there is no apparent need 
or basis for this safe harbor''), Loeb & Loeb (``we are not inclined 
to consider the `safe harbor'. . . as either safe or necessary''). 
See also letter from Ropes & Gray.
    \1154\ Letter from Consumer Federation (``The proposed safe 
harbor allows SPACs to function as investment companies without 
having to comply with the investor protections afforded by the 
Investment Company Act''). See also letter from Lucas Schwartz (``no 
safe harbor should be carved out to create yet another privileged 
investment instrument'').
    \1155\ Letter from Davis Polk.
---------------------------------------------------------------------------

    Commenters also expressed differing opinions about the proposed 
safe harbor's duration limits. Some commenters stated that the duration 
limits were unnecessary and potentially harmful to SPACs and their 
investors.\1156\ Some of these commenters suggested that if duration 
limits are to be included in the safe harbor, the duration limits 
should be lengthened to require SPACs to complete the de-SPAC 
transaction within 36 months (with no interim target agreement duration 
limit) to match national securities exchanges' current listing 
standards.\1157\ In contrast, other commenters argued that the proposed 
duration limits were too long, and suggested that the Commission should 
require a SPAC to announce a de-SPAC transaction within 12 months and 
complete the transaction within 18 months.\1158\ In their view, any 
additional leeway would provide SPACs with special treatment not 
afforded to ``transient investment companies'' as permitted under 17 
CFR 270.3a-2 (``Rule 3a-2'' under the Investment Company Act), and thus 
would not be consistent with the Commission's approach in that 
rule.\1159\ One of these commenters also argued that shorter duration 
limits would benefit investors by reducing the number of ``low quality 
de-SPAC transactions to which investors are exposed.'' \1160\
---------------------------------------------------------------------------

    \1156\ See, e.g., letters from NYC Bar, Ropes & Gray. See also 
recommendation of the Small Business Capital Formation Advisory 
Committee, supra note 40.
    \1157\ See, e.g., letters from ABA, Kirkland & Ellis, Managed 
Funds Association.
    \1158\ See, e.g., letters from Consumer Federation; Robert 
Jackson and John Morley.
    \1159\ See, e.g., letters from Better Markets; Consumer 
Federation; Robert Jackson and John Morley.
    \1160\ Letter from Robert Jackson and John Morley.
---------------------------------------------------------------------------

    As discussed above, depending upon the facts and circumstances, a 
SPAC may meet the definition of ``investment company'' in section 
3(a)(1) of the Investment Company Act.\1161\ Given the fact-based, 
individualized nature of this determination and because, depending on 
the facts and circumstances, a SPAC could be an investment company at 
any stage of its operation such that a specific duration limitation may 
not be appropriate, we have decided not to adopt proposed Rule 3a-10. 
Rather, whether a SPAC is an investment company under section 3(a)(1) 
is based on the particular facts and circumstances, which a SPAC should 
evaluate both at its inception and throughout its existence. No one 
specific duration period is the sole determinant of a SPAC's status 
under the Investment Company Act. The duration of a SPAC, however, 
should be considered in its analysis of the long-standing factors that 
are considered in the determination of an issuer's status as an 
investment company under section 3(a)(1)(A) of the Act, including, for 
example, a SPAC's historical development and the activities of its 
officers, directors and employees.\1162\
---------------------------------------------------------------------------

    \1161\ In addition, SPACs may also need to be mindful that 
section 48(a) of the Investment Company Act generally makes it 
unlawful for any person to do indirectly through another person or 
entity what would be unlawful for the person to do directly.
    \1162\ See supra note 1146 (discussion of factors considered in 
determining an issuer's status as an investment company under 
section 3(a)(1)(A)). As discussed below, a SPAC's activities may 
become more difficult to distinguish from an investment company the 
longer the SPAC takes to achieve its business purpose.
---------------------------------------------------------------------------

B. SPAC Activities

    Typically, a SPAC is organized for the purpose of merging with or 
acquiring one or more operating companies.\1163\ The SPAC thereby 
provides its shareholders with the opportunity to own interests in a 
public entity that, in contrast to an investment company, will, as a 
result of the de-SPAC transaction, either be an operating company, or 
will, through a primarily controlled company, operate such operating 
company. Nevertheless, a SPAC might engage in certain activities that 
would raise serious questions about whether it is an investment company 
under the Investment Company Act, including activities that would 
affect a SPAC's analysis under the Tonopah factors. By way of 
illustration, some activities of a SPAC that would raise concerns about 
its status as an investment company under the Investment Company Act 
include:
---------------------------------------------------------------------------

    \1163\ See supra note 5 and accompanying text.
---------------------------------------------------------------------------

1. The Nature of SPAC Assets and Income
    A SPAC may hold, or propose to hold, assets \1164\ that would weigh 
heavily in favor of it being an investment company.\1165\ For example, 
if a SPAC were to invest in corporate bonds, or not engage in a de-SPAC 
transaction but instead acquire a minority interest in a company with 
the intention of being a passive investor, such activities would affect 
the analysis of the SPAC's status under section 3(a)(1)(C). In this 
regard, a SPAC that owns or proposes to acquire 40% or more of its 
total assets in investment securities would likely need to register 
under the Investment Company Act unless an exclusion from the 
definition applies. Such activities would also weigh in favor of a SPAC 
being considered to be primarily engaged in the business of investing, 
reinvesting, and trading in securities under section 3(a)(1)(A).\1166\ 
In addition, a SPAC whose income is substantially derived from such 
assets would further suggest that the SPAC is an investment company 
under section 3(a)(1)(A).\1167\
---------------------------------------------------------------------------

    \1164\ Any references to the SPAC's assets refer to both the 
assets held in a trust or escrow account and any assets held by the 
SPAC directly.
    \1165\ A SPAC that does not hold any securities would generally 
not implicate the Investment Company Act, unless it proposes to 
engage in the business of being an investment company as defined in 
section 3(a)(1) of the Investment Company Act. See Proposing 
Release, supra note 7, at n. 550.
    \1166\ As stated in the Proposing Release, a SPAC that purchases 
multiple companies as part of a single transaction would not be 
engaging in the types of activities that raise investor protection 
concerns addressed by the Investment Company Act as it would still 
be seeking to be primarily engaged in the business of an operating 
company or companies after the de-SPAC transaction and not be 
engaged in investment management activities. Proposing Release, 
supra note 7, at 29500.
    \1167\ See supra note 1146.
---------------------------------------------------------------------------

    A SPAC that holds only the sort of securities typically held by 
SPACs today, such as U.S. Government securities, money market funds 
\1168\ and cash items prior to the completion of the de-SPAC 
transaction, and that does not

[[Page 14260]]

propose to acquire investment securities, would be more likely not to 
be considered an investment company under section 3(a)(1)(C). While 
U.S. Government securities and money market funds are securities for 
purposes of section 3(a)(1)(A), asset composition is only one of the 
factors that should be considered in analyzing a SPAC's status under 
the Investment Company Act. For example, an issuer that holds these 
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).
---------------------------------------------------------------------------

    \1168\ The term ``money market fund'' refers to those money 
market funds registered under the Investment Company Act and 
regulated pursuant to 17 CFR 270.2a-7 (Rule 2a-7 under the 
Investment Company Act).
---------------------------------------------------------------------------

2. Management Activities
    Another significant factor in the analysis of whether a SPAC is an 
investment company under section 3(a)(1)(A) is the actions of its 
officers, directors, and employees.\1169\ For example, we would have 
serious concerns if a SPAC held its investors' money in securities, but 
the SPAC's officers, directors, and employees did not actively seek a 
de-SPAC transaction or spent a considerable amount of their time \1170\ 
actively managing the SPAC's portfolio for the primary purpose of 
achieving investment returns. Such activities would affect the analysis 
as to whether the SPAC was primarily engaged in seeking to complete a 
de-SPAC transaction and weigh more in favor of the SPAC being primarily 
engaged in the business of investing, reinvesting, or trading in 
securities such that it would be an investment company under the 
Investment Company Act.
---------------------------------------------------------------------------

    \1169\ See supra note 1146.
    \1170\ See In the Matter of Tonopah Mining Co., supra note 1146; 
Daxor Corp., Initial Dec. Rel. 428 (Aug. 31, 2011) (``The Commission 
next considers how and where the issuer's employees spend their time 
and effort. Where employees spend considerable time managing the 
investment securities, there is greater likelihood that the issuer 
is primarily engaged in the investment business.'' (Citation 
omitted)).
---------------------------------------------------------------------------

    Depending on the facts and circumstances, the management of a SPAC 
also could cause SPAC sponsors to come within the definition of 
``investment adviser'' in section 202(a)(11) of the Investment Advisers 
Act of 1940.\1171\ That section generally defines an investment adviser 
as any person who, for compensation, engages in the business of 
advising others, either directly or through publications or writings, 
as to the value of securities or as to the advisability of investing 
in, purchasing, or selling securities, or any person who, for 
compensation and as part of a regular business, issues or promulgates 
analyses or reports concerning securities. The definition generally 
includes three elements for determining whether a person is an 
investment adviser: (i) the person provides advice, or issues analyses 
or reports, concerning securities; (ii) the person is in the business 
of providing such services; and (iii) the person provides such services 
for compensation. Each element must be met in order for a person to be 
deemed an investment adviser.\1172\
---------------------------------------------------------------------------

    \1171\ 15 U.S.C. 80b-2(a)(11).
    \1172\ See Request for Comment on Certain Information Providers 
Acting as Investment Advisers, Release No. IA-6050 (June 15, 2022) 
[87 FR 37254 (June 22, 2022)].
---------------------------------------------------------------------------

3. Duration
    When evaluating whether it is an investment company under section 
3(a)(1)(A), a SPAC whose assets and income are substantially composed 
of, and derived from, securities should be mindful of the length of 
time that it has been operating prior to entering into an agreement 
with a target company and then completing the de-SPAC transaction with 
that company.\1173\ While the duration of a SPAC is not the sole 
determinant of its status under the Investment Company Act, a SPAC's 
activities may become more difficult to distinguish from those of an 
investment company the longer the SPAC takes to achieve its stated 
business purpose.\1174\ For example, when a SPAC operates without 
completing a de-SPAC transaction with a target company, particularly 
where its assets are substantially composed of and its income derived 
from securities, its duration may indicate that its historical 
development is that of an investment company even if its 
representations say otherwise. Similarly, the longer that a SPAC takes 
to achieve its stated business purpose, the more questions arise as to 
whether its officers, directors, and employees are more engaged in 
achieving investment returns from the securities the SPAC holds rather 
than in achieving the SPAC's stated business purpose. Accordingly, 
after a certain period of time, a SPAC's historical development and 
director, officer, and employee activities, together with its asset 
composition and sources of income may suggest that the SPAC is 
primarily engaged in the business of investing, reinvesting, and 
trading in securities.
---------------------------------------------------------------------------

    \1173\ See supra note 1146 (discussion of Tonopah factors). As 
discussed previously, given the other factors in the analysis, 
however, we note that a SPAC could be an investment company at any 
stage of its operation.
    \1174\ See Proposing Release, supra note 7, at 29501; cf. 
Goodwin (``We acknowledge that after some period of time without 
[c]losing [a de-SPAC transaction], a SPAC will appear not to be 
focused on consummating a De-SPAC transaction.'').
---------------------------------------------------------------------------

    In evaluating whether a SPAC has reached such a point in time, a 
SPAC should consider how its duration falls within the framework of the 
Investment Company Act, the rules thereunder, and past Commission 
positions, including Rule 3a-2 under the Investment Company Act and the 
Commission's position regarding Rule 419 under the Securities 
Act.\1175\ 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. In addition, the Commission took the 
position that accounts of certain blank check companies relying on Rule 
419 need not be required to be regulated under the Investment Company 
Act in part because, among other things, the rule limits the duration 
of such accounts to 18 months and restricts the nature of 
investments.\1176\ A SPAC that operates beyond these timelines raises 
concerns that the SPAC may be an investment company, and these concerns 
increase as the departure from these timelines lengthens. Thus, a SPAC 
needs to be cognizant that, depending on the facts and circumstances, 
it could be viewed as a fund-like investment if it operates beyond the 
duration limits contemplated in other similar contexts. Accordingly, we 
believe that a SPAC should reassess its status and analyze whether it 
has become an investment company if it has, for example, failed to 
enter into an agreement with a target company beyond such 
timelines.\1177\

[[Page 14261]]

When considering its status under the Investment Company Act, a SPAC 
should consider all relevant facts and circumstances, including, among 
other things the length of time that it has been operating prior to 
entering into an agreement with a target company and then completing 
the de-SPAC transaction with that company.
---------------------------------------------------------------------------

    \1175\ See Investment Company Act Rule 3a-2 and Securities Act 
Rule 419. We note that while exchange listing rules contemplate 
potentially longer SPAC lifespans, those rules were adopted for a 
different regulatory purpose and do not address investment company 
status concerns.
    \1176\ Specifically in adopting Rule 419, the Commission stated 
that ``although [an escrow or trust account established by blank 
check companies that comply with Rule 419 under the Securities Act] 
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 [i.e., 18 months], 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 3, 
at text accompanying n.32; see also 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.]''). As noted in the 
Proposing Release, SPACs are not subject to the requirements of Rule 
419. See Proposing Release, supra note 7, at nn.12-13 and 
accompanying text.
    \1177\ See Rules 3a-2 and 419.
---------------------------------------------------------------------------

4. Holding Out
    A SPAC that holds itself out in a manner that suggests that 
investors should invest in its securities primarily to gain exposure to 
its portfolio of securities prior to the de-SPAC transaction would 
likely be an investment company under the definition in section 
3(a)(1)(A). For example, if a SPAC were to market itself primarily as a 
fixed-income investment, as an alternative to an investment in a mutual 
fund, or as an opportunity to invest in Treasury securities or money 
market funds, it would likely be holding itself out as being primarily 
engaged in the business of investing, reinvesting, or trading in 
securities. Accordingly, such a SPAC would likely be an investment 
company under section 3(a)(1)(A).
5. Merging With an Investment Company
    If a SPAC were to engage or propose to engage in a de-SPAC 
transaction with a target company that meets the definition of 
investment company, such as a closed-end fund or a business development 
company, the SPAC is likely to be an investment company under section 
3(a)(1)(A) of the Investment Company Act because it would be proposing 
to be engaged in the business of investing, reinvesting and trading in 
securities as set out in section 3(a) of that Act. A SPAC that seeks to 
engage in a de-SPAC transaction with an investment company would, at 
some point prior to the de-SPAC transaction, be proposing to engage in 
the business of being an investment company.

C. Conclusion

    Depending upon the facts and circumstances, a SPAC may meet the 
definition of investment company in section 3(a)(1)(A) or 3(a)(1)(C) 
(or both) of the Investment Company Act. To the extent that a SPAC's 
activities--including any of those discussed above--may cause it to 
fall within one or more of these definitions, a SPAC should consider 
options that would bring it into compliance such as changing its 
operations, winding down its operations, or registering as an 
investment company under the Investment Company Act. The Investment 
Company Act imposes registration, reporting, governance and minimum 
capital requirements on investment companies. Issuers that meet the 
definition of investment company but fail to comply with the Investment 
Company Act's provisions, or otherwise qualify for an exclusion or 
exemption from the provisions of the Act, could, among other things, be 
subject to enforcement action by the Commission or to private 
litigation.

VII. Other Matters

    If any of the provisions of these rules, or the application thereof 
to any person or circumstance, is held to be invalid, such invalidity 
shall not affect other provisions or application of such provisions to 
other persons or circumstances that can be given effect without the 
invalid provision or application.
    Pursuant to the Congressional Review Act, the Office of Information 
and Regulatory Affairs has designated this rule as a ``major rule,'' as 
defined by 5 U.S.C. 804(2).

VIII. Economic Analysis

    We are mindful of the costs and benefits of these new rules and 
amendments. The discussion below addresses the potential economic 
effects of the new rules and amendments, including the likely benefits 
and costs, as well as the potential effects on efficiency, competition, 
and capital formation.\1178\ We have analyzed the expected economic 
effects of the 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 and their 
characteristics.
---------------------------------------------------------------------------

    \1178\ 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)) require the 
Commission, when engaging in rulemaking where it is required to 
consider or determine whether an action is necessary or appropriate 
in the public interest and 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.
---------------------------------------------------------------------------

    A SPAC is a shell company organized for the purpose of combining 
with one or more target companies.\1179\ Like traditional IPOs, SPACs 
provide target companies with a way to raise capital through public 
markets. To that end, as noted above, the SPAC process is unique in 
that the de-SPAC transaction is a hybrid transaction that contains 
elements of both an IPO and an M&A transaction.\1180\ Under the current 
regulatory framework, the SPAC process allows the target company to 
raise capital through public markets without requiring the same level 
of disclosure or incurring the same liability as with a traditional 
IPO.\1181\ As such, some commenters and academics have expressed the 
view that, compared to traditional IPOs, de-SPAC transactions raise 
additional ``adverse selection'' \1182\ concerns stemming from 
information asymmetry and conflicts of interest between SPAC investors 
and managers that are not fully resolved by market forces.\1183\
---------------------------------------------------------------------------

    \1179\ See discussion in section I. Like above, our discussion 
of de-SPAC transactions and target companies generally focuses on 
target companies that are private operating companies, but we also 
address situations where the target company of a de-SPAC transaction 
may comprise an operating company that is a public company, a 
business, or assets, or combinations of multiple thereof. See Item 
1601(d) of Regulation S-K.
    \1180\ The SPAC process begins when a SPAC conducts an IPO and 
ends when the SPAC combines with a target company in a de-SPAC 
transaction.
    \1181\ See, e.g., Sris Chatterjee, N.K. Chidambram & Gautam 
Goswani, Security Design for a Non-Standard IPO: The Case of SPACs, 
69 J. Int'l Money & Fin. 151 (2016).
    \1182\ A well-known example of adverse selection is the ``market 
for lemons,'' in which sellers of used cars know the quality of the 
car, but buyers do not. Because buyers have less information than 
sellers (information asymmetry) and cannot differentiate the 
``good'' cars from the ``lemons,'' 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 the market to fall apart or 
``unravel'' entirely, and no used cars to be purchased. See, e.g., 
George Akerlof, The Market for ``Lemons'': Quality Uncertainty and 
the Market Mechanism, 84 Qtr. J. Econ. 488 (1970). For examples of 
existing market solutions to this adverse selection, see Proposing 
Release, supra note 7, at 29506.
    \1183\ See, e.g., letters from Americans for Financial Reform 
Education Fund; Better Markets; Robert Jackson and John Morley. See 
also Lora Dimitrova, Perverse Incentives of Special Purpose 
Acquisition Companies, the ``Poor Man's Private Equity Funds,'' 63 
J. Acct. & Econ. 99 (2017); Klausner, Ohlrogge & Ruan, supra note 
18.
---------------------------------------------------------------------------

    The final rules include a number of additional disclosure 
requirements that help address information asymmetries between 
investors \1184\ and the SPAC,\1185\ which will enable investors

[[Page 14262]]

to make more informed investment and voting decisions. For example, at 
the SPAC IPO stage, as discussed in detail in the sections below, the 
rules require disclosures about dilution, compensation, and conflicts 
of interest, among other things. As another example, at the de-SPAC 
transaction stage, the rules require disclosures related to the 
information considered by the SPAC in its assessment of the 
transaction, such as projections or assessments by third parties, among 
other things.
---------------------------------------------------------------------------

    \1184\ Throughout this section, ``investor'' can refer to any 
current or a potential security holder of a company, though it is 
generally understood that costs and benefits may accrue to such 
investors heterogeneously based on size, sophistication, and 
affiliation.
    \1185\ We refer to SPACs throughout this analysis as shorthand 
but acknowledge that the various controlling parties of a SPAC that 
are involved in the decision making of the SPAC (including the SPAC 
sponsor, management, board, or other governing group) may have 
disparate incentives, each adding their own complexity to the 
principal-agent dynamic. However, the existence and general nature 
of the relationship between investors and the SPAC ``agent'' is not 
significantly different based on which specific agent is considered, 
thus the reference to the SPAC broadly. When this generalization 
does not hold, we provide more precise explanations.
---------------------------------------------------------------------------

    The final rules also include several provisions to help ensure that 
shareholders more consistently receive the full protections of 
Securities Act disclosure and liability provisions in connection with 
the de-SPAC transaction. For example, because the target company is 
effectively an ``issuer'' of the securities in any registered de-SPAC 
transaction, the rules require that the target company sign the 
registration statement filed in connection with the de-SPAC 
transaction.\1186\ Because signatories are subject to section 11 
liability for material omissions and misstatements, we expect this 
requirement to increase incentives for targets to ensure the accuracy 
of the disclosures in de-SPAC transaction registration statements. We 
are also adopting definitions of ``blank check company'' for PSLRA safe 
harbor purposes that would not contain a qualification that the company 
issues penny stock. As a result, the safe harbor for forward-looking 
statements under the PSLRA will be unavailable to SPACs and other blank 
check companies, regardless of whether they would have qualified as an 
issuer of penny stock. This approach will help incentivize such blank 
check companies taken to take greater care when making forward-looking 
statements.\1187\
---------------------------------------------------------------------------

    \1186\ See supra section III.C.
    \1187\ See supra section III.E.
---------------------------------------------------------------------------

    Certain rules we are adopting are intended to align disclosures in 
de-SPAC transactions more closely to those of traditional IPOs. For 
example, certain non-financial disclosures regarding a target company 
that are currently not filed by the company until a Form 8-K, within 
four business days after the completion of a de-SPAC transaction, will 
be required to be included in the disclosures that are filed in 
connection with a de-SPAC transaction (on Form S-4 or F-4, a proxy or 
information statement, or a Schedule TO).\1188\ Also, the combined 
company following a de-SPAC transaction will be required to re-
determine its eligibility for SRC status and reflect any change in 
status in its filings, beginning 45 days after consummation of the de-
SPAC transaction.\1189\
---------------------------------------------------------------------------

    \1188\ See supra section III.A.
    \1189\ See supra section III.D.
---------------------------------------------------------------------------

    We are also adopting final rules that apply to shell companies more 
broadly. Rule 145a deems any business combination involving a reporting 
shell company and another entity that is not a shell company to involve 
a sale of securities to the reporting shell company's shareholders. 
Currently, investors in reporting shell companies may not always 
receive the disclosures and other protections afforded by the 
Securities Act at the time when there is a fundamental change in the 
nature of their investment due to the business combination involving 
another entity that is not a shell company. In addition, the amendments 
to Regulation S-X more closely align the financial statement 
requirements in business combinations between a shell company and a 
non-shell company with those required in connection with traditional 
IPOs.
    As discussed in section I, market participants have raised concerns 
that disclosures that currently accompany SPAC IPOs and de-SPAC 
transactions do not provide investors with adequate information to 
assess the potential risks of investing in SPACs and the ways in which 
the SPAC sponsor and other affiliates stand to gain from these 
transactions. We expect the final rules to elicit information regarding 
SPAC transactions that is more consistent, useful, and readily 
comparable.\1190\ As a result, investors will be able to make more 
informed voting and investment decisions, resulting in more efficient 
pricing of securities.\1191\ Moreover, by reducing information 
asymmetry and agency costs, we expect the final rules to result in less 
adverse selection than might otherwise occur at the de-SPAC transaction 
stage, which should encourage greater investor participation. We 
further anticipate that, by addressing the liability of various parties 
in de-SPAC transactions and other shell company business combinations, 
the final rules will incentivize parties to exercise greater care in 
disclosing information in connection with relevant business 
combinations, increasing the protections afforded to investors. 
Overall, we expect the final rules will enhance the protection of 
investors and promote market efficiency.
---------------------------------------------------------------------------

    \1190\ See, e.g., infra sections VIII.B.1.iii.c, VIII.B.3.
    \1191\ 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 Acct. Rev. 1269 (2014), available at https://ssrn.com/abstract=2312812 (retrieved from SSRN Elsevier database) (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 (Research Paper No. 3126379, Mar. 1, 
2018, last revised June 12, 2018), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3126379 (retrieved from 
SSRN Elsevier database) (increased disclosure regimes lead to 
increased liquidity and lower crash risk).
---------------------------------------------------------------------------

    SPACs and their target companies may incur costs related to the 
public disclosure of the newly required information. The costs will be 
lower for parties that already provide such disclosures voluntarily in 
response to market demands.\1192\ We are also mindful that some aspects 
of this rulemaking may deter some forms of communications or some 
transactions that might otherwise be economically beneficial to issuers 
or investors (or both). We discuss these considerations in more detail 
below.
---------------------------------------------------------------------------

    \1192\ 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/.
---------------------------------------------------------------------------

    We received several comments specifically addressing the economic 
analysis of the Proposing Release.\1193\ A number of commenters shared 
the results of quantitative analyses that addressed SPAC-related issues 
considered by the proposed rules.\1194\

[[Page 14263]]

We discuss these comments below in our analysis of the costs and 
benefits of the final rules. We also discuss the anticipated impacts on 
efficiency, competition, and capital formation and assess several 
reasonable policy alternatives. Where possible, we have attempted to 
quantify the economic effects of the final rules.\1195\ In many cases, 
however, we are unable to do so because we lack access to data that 
would allow us to quantify the effects with a reasonable degree of 
accuracy. Further, even in cases where the Commission has some data, 
quantification is not practicable due to the number and type of 
assumptions necessary to quantify certain economic effects, which 
render any such quantification unreliable. Where we are unable to 
quantify the economic effects of the final rules, we provide a 
qualitative assessment of the potential effects.
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    \1193\ See letters from Virtu Financial Inc. (June 13, 2022) 
(``Virtu''), Skadden, Kirkland & Ellis, Committee on Capital Markets 
Regulation.
    \1194\ See letters from Danial Hemmings, Institute of European 
Finance, Bangor University and Aziz Jaafar, University of Sharjah 
(June 29, 2023); Tom Nohel, Department of Finance, Imperial College 
and Quinlan School of Business, Loyola University-Chicago, Felix 
Feng, Michael G. Foster School of Business, University of 
Washington, Xuan Tian, PBC School of Finance, Tsinghua University, 
Wenyu Wang, Kelley School of Business, Indiana University, and 
Yufeng Wu, Gies College of Business, University of Illinois Urbana-
Champaign (Feb. 7, 2023); Michael Goffman, Hebrew University of 
Jerusalem and Yuchi Yao, University of Rochester (July 19, 2022 and 
Dec. 31, 2022); Alexander Groh, Professor of Finance, EMLYON 
Business School, France (Sept. 2, 2022 and Dec. 5, 2022); Michael 
Klausner, Michael Ohlrogge, Amanda Rose and Emily Ruan (July 11, 
2022); Michael Klausner, Michael Ohlrogge, and Harald Halbhuber; 
Holger Spamann; Debarshi Nandy, Barbara and Richard M. Rosenberg 
Professor of Global Finance, Brandeis International Business School, 
Yaxuan Wen, Ph.D. Candidate in International Economics and Finance, 
Brandeis International Business School, and Mengnan Zhu, Assistant 
Professor of Finance, Dickinson College (June 7, 2022), citing 
Yaxuan Wen & Mengnan ``Cliff'' Zhu, Is Going Public via SPAC 
Regulatory Arbitrage? A Textual Analysis Approach (2022), https://ssrn.com/abstract=4066641 or https://dx.doi.org/10.2139/ssrn.4066641; Usha Rodrigues and Mike Stegemoller; Snehal Banerjee, 
Associate Professor of Finance and Accounting, UC San Diego, and 
Martin Szydlowski, Assistant Professor of Finance, University of 
Minnesota (Apr. 1, 2022).
    \1195\ For our estimates of the paperwork burdens associated 
with the rules and amendments for purposes of the Paperwork 
Reduction Act of 1995 (``PRA''), see infra section X. 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, as required by that Act. As a 
result, these PRA estimates do not reflect the full economic effects 
or full scope of economic costs of the rules and amendments that are 
discussed in this analysis.
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A. Baseline and Affected Parties

    The baseline against which the costs, benefits, and the effects on 
efficiency, competition, and capital formation of the final rules and 
amendments are measured consists of the current state of the SPAC 
market, current practice as it relates to SPAC IPOs and subsequent 
business combination transactions between SPACs and private operating 
companies, and the current regulatory framework.
    We begin by discussing current market practices related to SPAC 
IPOs in section VIII.A.1. We then discuss de-SPAC transactions in 
section VIII.A.2.
1. SPAC Initial Public Offerings
    The parties most likely to be directly affected by the final rules 
regarding specialized disclosure requirements for SPACs in IPOs and 
other registered offerings are: SPAC sponsors and their affiliates or 
potential SPAC sponsors intending to organize a new SPAC; current SPAC 
officers, SPAC directors, or promoters; SPAC investors; and any other 
market participants whose service or activities involve analysis of the 
information, data, and disclosures related to SPACs in these offerings.
    In addition, if the adoption of the final rules alters the 
incentives for other parties (e.g., SPAC sponsors or underwriters) to 
participate in or be involved with SPAC transactions, we would expect 
secondary impacts on the prospects or opportunities of private 
companies that would be potential target companies of such newly-
organized SPACs. The final rules also may affect parties who provide 
advisory or other services to SPACs or SPAC sponsors in connection with 
SPAC transactions through additional disclosures about the parties and 
provided services or potential liability.
    Table 2 shows the estimated number of SPAC IPOs since 1990. They 
peaked in 2021, following a similar trend in traditional IPOs.\1196\ In 
2023, there were an additional 31 SPAC IPOs.\1197\
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    \1196\ See, e.g., letter from Committee on Capital Markets, 
noting significant increases in the number of traditional IPOs in 
2020 and especially 2021. See also data collected, cleaned, and made 
available by Jay Ritter on SPAC IPOs and overall IPO activity 
available at https://site.warrington.ufl.edu/ritter/ipo-data/ (last 
accessed 10/24/2023).
    \1197\ Data from Dealogic, based on IPO listing date for 
offerings with a confirmed pricing date.
[GRAPHIC] [TIFF OMITTED] TR26FE24.003

    The vast majority of SPACs claim either SRC or EGC status, with the 
majority claiming both.\1198\ For example, all of the 86 SPAC IPOs in 
2022 claimed EGC status and 84 claimed SRC status.\1199\
---------------------------------------------------------------------------

    \1198\ See also supra note 665.
    \1199\ Based on status disclosed by SPACs in the financials 
filed after the IPO, if available, otherwise from Form S-1 or Form 
F-1.
---------------------------------------------------------------------------

i. SPAC Exchange Listings
    SPAC listings have migrated from the over-the-counter (OTC) market 
to three national securities exchanges: first, NYSE American (formerly, 
the American Stock Exchange (``AMEX'')); then, the Nasdaq Stock Market 
(``Nasdaq'') and the New York Stock Exchange (``NYSE'') (see Table 
2).\1200\
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    \1200\ 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 proposed rule change to adopt listing standards to 
permit the listing of SPACs on July 25, 2008. See Release No. 34-
57785 (May 6, 2008) [73 FR 27597 (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)] (SR-NYSEAmex-2010-103) (notice of 
filing and immediate effectiveness of proposed rule change to adopt 
additional criteria for the listing of SPACs).

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[[Page 14264]]

    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 business combination.\1201\ Among other things, the 
rules of 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.\1202\ The rules of these exchanges further require that, 
within three years 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 a 
business combination(s) having an aggregate fair market value of at 
least 80% of the value of the net assets in the trust account excluding 
certain costs.\1203\ The rules of NYSE, Nasdaq, and NYSE American 
require that a business combination meeting this 80% requirement be 
approved by a majority of the SPAC's independent directors.\1204\ The 
rules of all three exchanges also require, if a shareholder vote is 
held, that a majority of the shares voted at the shareholder meeting 
approve a de-SPAC transaction meeting this 80% requirement.\1205\ In 
addition, the rules of all three exchanges provide that, if a business 
combination transaction meeting this 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 of taxes 
and working capital disbursements.\1206\ Under the rules of all three 
exchanges, if a shareholder vote on a business combination 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.\1207\
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    \1201\ 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 described in 
this section. See CBOE BZX Rule 14.2(b).
    \1202\ NYSE Listed Company Manual Section 102.06; Nasdaq Listing 
Rule IM-5101-2(a); NYSE American Company Guide Section 119(a).
    \1203\ NYSE Listed Company Manual Section 102.06(e); Nasdaq 
Listing Rule IM-5101-2(b); NYSE American Company Guide Section 
119(b).
    \1204\ NYSE Listed Company Manual Section 102.06(d); Nasdaq 
Listing Rule IM-5101-2(c); NYSE American Company Guide Section 
119(c).
    \1205\ NYSE Listed Company Manual Section 102.06(a); Nasdaq 
Listing Rule IM-5101-2(d); NYSE American Company Guide Section 
119(d).
    \1206\ Id.
    \1207\ 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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ii. SPAC Sponsors
    SPACs are managed by SPAC sponsors, who spend time and effort 
managing the SPAC process and searching for a suitable target to 
complete a de-SPAC transaction. Sponsors also invest in the SPAC and 
are compensated with a portion of ownership in the combined company 
that results from the de-SPAC transaction, which means that such 
compensation will generally only be realized if a de-SPAC transaction 
occurs. Commentators have suggested that one reason a SPAC might 
provide a more attractive route to the public markets than a 
traditional IPO is because the target company may benefit from the 
leadership and professional advice from one or more individuals 
composing the SPAC sponsor, including in some cases beyond the 
consummation of the de-SPAC transaction and into the life of the 
resulting combined public company.\1208\ Although the majority of 
sponsors from 2019 through the first half of 2021 were financial 
institutions, a sizable fraction (47%) of companies classified as SPACs 
were self-reported as sponsored by individuals.\1209\ This percentage 
has been increasing, as 66% of SPACs with IPOs in the second half of 
2021 and 83% in 2022 were sponsored by individuals.\1210\
---------------------------------------------------------------------------

    \1208\ See Robert Berger, SPACs: An Alternative Way to Access 
the Public Markets, 20 J. Applied Corp. 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.'').
    \1209\ See SPACInsider, 1H-2021 Report, available at https://mcusercontent.com/764dc55fe6da1e37d427265ad/files/b90cf236-0845-f778-e35c-db7417200d35/1H_2021_SPAC_Report.pdf.
    \1210\ Based on staff analysis of data from SPACInsider. SPACs 
with sponsor type ``Sponsor'' were counted as individually 
sponsored.
---------------------------------------------------------------------------

iii. SPAC IPO Underwriters
    Underwriters of SPAC IPOs may be affected by the final rules, to 
the extent they are liable for IPO disclosures or any involvement in 
de-SPAC transactions. During the period 1990-2022, the average number 
of named underwriters participating in a SPAC IPO was 2.4.\1211\ In 
2022, the average was 2.1. Although we are not aware of any database 
listing investment banks that are willing to provide underwriting 
services for SPACs, there were six investment banks that participated 
in at least ten SPAC IPOs in 2021 that did not participate in any SPAC 
IPOs in 2022 or in the first two quarters of 2023.\1212\ All of these 
SPAC IPOs were done via a firm commitment underwriting.\1213\ The 
average fee charged by SPAC IPO underwriters from 1990-2022 was 
approximately 5.4% of IPO proceeds.\1214\ The average underwriting fee 
has declined from approximately 6.9% in the 1990s and 2000s to 
approximately 5.2% in the 2010s and 2020s.\1215\ The average 
underwriting fee for SPACs in 2022 was 5.1%.\1216\ SPAC IPO 
underwriters may provide services to a SPAC or its eventual target 
company both before and after the completion of an IPO. For example, a 
SPAC IPO underwriter may help a SPAC identify potential target 
companies, provide financial advisory services to the SPAC or the 
target company, or act as a PIPE placement agent. As discussed in the 
Proposing Release, current SPAC IPO underwriter practice is to defer a 
portion of the underwriting fee until, and conditioned upon, the 
completion of the de-SPAC transaction.\1217\ Prior to 2004, SPAC IPO

[[Page 14265]]

underwriters typically did not defer their fee until completion of the 
de-SPAC transaction.\1218\ During the period 2005-2022, we estimate 
that the average size of the deferred SPAC IPO underwriting fee was 
3.1% of IPO proceeds (3.4% if excluding the cases where there was no 
deferred fee), or approximately 56% of total SPAC IPO underwriting 
fees. We have not observed significant differences in the structure or 
level of SPAC IPO underwriting fees and deferred fees, as disclosed at 
the IPO stage, when comparing SPACs that have completed a de-SPAC 
transaction versus SPACs that did not do so.
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    \1211\ This estimate is based on staff analysis of Dealogic of 
SPAC IPOs registered with the SEC with a confirmed pricing date.
    \1212\ Id. Some commenters asserted that underwriters may have 
become more reluctant to participate in SPAC IPOs as a result of 
proposed Rule 140a, which would have deemed a SPAC IPO underwriter 
that 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 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. See Proposing Release, supra note 7, at 29486. See, 
e.g., letter from White and Case. A decrease in the supply of 
underwriters providing services to SPACs may have resulted in fewer 
SPAC IPOs because SPAC IPOs are typically structured as underwritten 
offerings. Conversely, it could also be the case that the decline in 
SPACs activity during this period, which may be due to other 
reasons, could naturally result in fewer underwriters.
    \1213\ 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 3.
    \1214\ This estimate is based on staff analysis of data as 
described in supra note 1211. See also letter from Sagiv Shiv, 
Managing Director, Head of MA and Advisory, ACP Capital Markets LLC 
(March 24, 2023), noting that the SPAC underwriting fee percentage 
is based on IPO proceeds, not the non-redeemed share of these 
proceeds at the de-SPAC stage.
    \1215\ See supra note 1214.
    \1216\ Id.
    \1217\ See Proposing Release, supra note 7, at 29486. This 
practice has not changed since the proposal. The average deferred 
fee in 2022 through the first two quarters of 2023 was 3.3% of IPO 
proceeds.
    \1218\ This conclusion is based on staff analysis. See supra 
note 1211. See also Yochanan Shachmurove & Milos Vulanovic, 
Specified Purpose Acquisition Company IPOs, in The Oxford Handbook 
of IPOs 301 (Douglas Cumming & Sofia Johan eds., 2018).
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iv. Public Warrants
    Most SPAC IPOs register the offering of a unit composed of a common 
share, warrants, or fractions thereof, and--in some cases--
rights.\1219\ Currently, SPAC units usually include one common share 
and one or more fractional out-of-the-money warrants.\1220\ Public 
warrants, i.e., those issued to non-affiliated shareholders, give the 
holder the right to purchase common stock, typically at an exercise 
price of $11.50, for up to five years after the completion of the de-
SPAC transaction.\1221\
---------------------------------------------------------------------------

    \1219\ See, e.g., G[uuml]l Okutan Nilsson, Incentive Structure 
of Special Purpose Acquisition Companies, 19 Eur. Bus. Org. L. Rev. 
253 (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.'').
    \1220\ Early practice for SPACs often involved the offered unit 
containing multiple in-the-money warrants. See, e.g., Lola Miranda 
Hale, SPAC: A Financing Tool with Something for Everyone, J. of 
Corp. Acct. & Fin. Jan./Feb. 2007, at 67 (``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, Summer 2008, at 8 (``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.''). Staff analysis of Dealogic data suggests 
unit offerings of 1 common stock and two warrants was typical 
between 2000 and 2005. Such structures reappear after 2020 but as a 
much smaller proportion of all unit structures.
    \1221\ See Gahng, Ritter & Zhang, supra note 30.
    [GRAPHIC] [TIFF OMITTED] TR26FE24.000
    
    As SPAC offerings have evolved, however, the dilutive potential of 
the warrant component of a SPAC offering unit appears to have somewhat 
diminished. As indicated in Figure 1, across all the years included in 
Table 1, many SPACs offer units with fractional warrant components. In 
more recent years (2019-2022, inclusive), the majority of SPACs that 
have conducted an IPO offered units with fractional warrants 
representing half a share or less. The result of this trend is that 
warrant features have in some respects become less dilutive in more 
recent years.\1222\ SPAC sponsors also often acquire warrants, with 
some studies estimating the amount of those acquisitions representing 
3-5% of the IPO proceeds.\1223\
---------------------------------------------------------------------------

    \1222\ Early SPACs typically offered one or two in-the-money 
warrants. See supra note 1220. More recent SPAC structures offer 
out-of-the-money fractional warrants. See supra note 1221.
    \1223\ See, e.g., G[uuml]l Okutan Nilsson, Incentive Structure 
of Special Purpose Acquisition Companies, 19 Eur. Bus. Org. L. Rev. 
(2018), supra note 1219.
---------------------------------------------------------------------------

2. De-SPAC Transactions
    At the de-SPAC transaction stage, the primary parties affected by 
the new disclosure requirements include SPACs, SPAC sponsors, investors 
(including PIPE investors if any), and target companies. Additionally, 
the final rules to amend or otherwise clarify the existing liability 
framework would affect those same parties (and certain individuals at 
those parties).
    As illustrated in Table 3, based on staff analysis of SPAC IPOs 
that registered a sale of securities between 1990 and 2023, 
approximately two-

[[Page 14266]]

thirds (65%) of all SPACs following their IPOs announced a de-SPAC 
transaction, and about one-half (49%) completed such 
transactions.\1224\ It is possible that SPACs currently searching for 
target companies may still identify target companies, complete de-SPAC 
transactions, and thereby increase the fractions of SPACs with 
announcements and completed transactions. This de-SPAC transaction 
completion rate of approximately one-half is generally consistent with 
previous research findings (which may have used different ranges or 
filters for their samples).\1225\
---------------------------------------------------------------------------

    \1224\ Staff analysis based on the sample of SPAC IPOs described 
in Table 2 note a that reflect all confirmed, completed activity as 
of Dec. 31, 2023.
    \1225\ Studies performed in 2016 or later reviewing the 2003-
2013 cohort of SPACs found that approximately 51.5% of SPACs that 
had an IPO during the decade successfully completed 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).
[GRAPHIC] [TIFF OMITTED] TR26FE24.004

    Currently, the typical SPAC discloses in its IPO prospectus that it 
is formed for the purpose of effecting a business combination with one 
or more businesses. Most SPACs pursue only one target company for a de-
SPAC transaction. Of the 583 business combination transactions with 
operating companies that occurred over the 1990-2022 period involving 
SPAC IPOs approximately 3% of transactions (17 of 583) involved two or 
more target companies (15 transactions involved two target companies 
and two transactions involved three target companies).\1226\
---------------------------------------------------------------------------

    \1226\ Target counts are from Dealogic's SPAC M&A data.
---------------------------------------------------------------------------

i. PIPEs in Connection With De-SPAC Transactions
    PIPEs have supported de-SPAC transactions since approximately 
2005.\1227\ However, in some recent de-SPAC transactions, 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 on 
SPAC shareholders and how well these dilutive effects might be 
understood by other investors.
---------------------------------------------------------------------------

    \1227\ 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 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, the 
median cash raised through third-party PIPE investors was approximately 
25% of the cash raised in the de-SPAC transactions.\1228\ The same 
study found that, following these transactions, the median portion of 
the post de-SPAC company owned by SPAC shareholders including the 
sponsor was 35% and the median portion owned by the sponsor alone was 
12%.\1229\ Because PIPE investors may receive confidential information 
with which to make an investment decision (including one-on-one 
conversations with the target company's management, which may convey 
soft information that enables PIPE investors to assess management 
abilities or determine their level of confidence in the management 
team) and may also engage in extended and detailed due diligence on the 
SPAC and target company,\1230\ their participation has at times been 
considered a benefit to SPAC IPO investors, providing a positive signal 
of the expected future financial performance of the post-de-SPAC 
transaction combined company.
---------------------------------------------------------------------------

    \1228\ See Klausner, Ohlrogge & Ruan, supra note 18. The authors 
analyzed data for the 47 public company SPACs that entered into a 
business combination with a target company, and thereby brought the 
operating company public, between Jan. 2019 and June 2020.
    \1229\ Id.
    \1230\ Id.
---------------------------------------------------------------------------

    As the SPAC market has evolved, so too has the role 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 ($316 million) and median 
($210 million) amounts raised in PIPE financings were similar to the 
average size of the SPAC trust account at the time of the IPO.\1231\ 
This may reflect that in more recent SPACs, in addition to enabling 
larger deals, some PIPEs may provide capital to ensure that a deal that 
otherwise may fail due to a high redemption rate can proceed to 
completion, although many PIPE offerings in connection with a de-SPAC 
transaction still appear to facilitate larger acquisitions rather than 
replace SPAC share redemptions.\1232\ In these cases, the ownership 
stake of the PIPE

[[Page 14267]]

investors in the combined company may exceed that of the non-redeeming 
SPAC investors.\1233\ PIPE investors may, therefore, come to have a 
larger stake in the combined company than SPAC IPO investors 
anticipated when making an initial investment. In 2022, this trend may 
have lessened slightly, with only 71% of de-SPAC transactions including 
PIPE financing, and the average ($128 million) and median ($92 million) 
amounts raised in PIPE financings were smaller than the average and 
median (both $269 million) sizes of the SPAC trust account at the time 
of the IPO.\1234\
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    \1231\ See Michael Levitt, Valerie Jacob, Sebastian Fain, Pamela 
Marcogliese, Paul Tiger, & Andrea Basham, 2021 De-SPAC Debrief, 
Freshfields.us (Jan. 24, 2022), available at https://blog.freshfields.us/post/102hgzy/2021-de-spac-debrief. The 
difference between average and median PIPEs in this sample reflects 
that the data is positively skewed, implying that, while some deals 
may involve little or no additional financing via PIPEs, other deals 
feature large investments outside the SPAC IPO process.
    \1232\ See supra note 1203 which discusses de-SPAC transaction 
80% minimum cash conditions. 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 billion) point to 
PIPE offerings facilitating larger acquisitions. See Michael Levitt, 
Valerie Jacob, Sebastian Fain, Pamela Marcogliese, Paul Tiger, & 
Andrea Basham, 2021 De-SPAC Debrief, Freshfields.us (Jan. 24, 2022), 
available at https://blog.freshfields.us/post/102hgzy/2021-de-spac-debrief.
    \1233\ Assuming the price of shares sold to PIPE investors is 
the same as or less than the IPO price, 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. 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 (raised from SPAC shareholders whose 
shares were not redeemed) at the consummation of the de-SPAC 
transaction. De-SPAC transactions were less reliant on funding 
through PIPEs in 2022 than in 2021, according to one study, finding 
PIPEs were less common in de-SPAC transactions (70% compared to 95% 
in 2021) and were smaller in both absolute size (averaging 
approximately $128 million in 2022, compared to $316 million for the 
2021) and size relative to the SPAC trust account (less than 50% in 
the 2022 deals, compared to nearly 100% in the 2021 deals). See 
Freshfields, 2022 De-SPAC Debrief: A Comprehensive Review of All 102 
De-SPAC Transactions that Closed in 2022, Freshfields.us (Jan. 
2023), available at https://www.freshfields.us/490963/globalassets/noindex/documents/2022-de-spac-debrief.pdf.
    \1234\ See Freshfields, 2022 De-SPAC Debrief: A Comprehensive 
Review of All 102 De-SPAC Transactions that Closed in 2022, 
Freshfields.us (Jan. 2023), available at https://www.freshfields.us/490963/globalassets/noindex/documents/2022-de-spac-debrief.pdf.
---------------------------------------------------------------------------

    PIPEs are typically priced at a discount relative to the market 
value of the publicly traded securities. For example, one study of PIPE 
transactions (including but not limited to de-SPAC transactions) 
indicates that the average discount for PIPE investors is 11.2% 
(compared to the market value of those securities), and for the 
subsample of PIPEs that do not include warrants, the average discount 
is 5.7%.\1235\ Another study that focused on PIPEs in de-SPAC 
transactions of SPACs that conducted an IPO in or after 2015 and that 
completed a de-SPAC by March 2021 estimates that the mean discount for 
PIPE investors was approximately 20%.\1236\
---------------------------------------------------------------------------

    \1235\ 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 3,001 PIPE transactions by U.S. 
firms listed on NYSE or Nasdaq between 2001 and 2015.
    \1236\ See Gahng, Ritter & Zhang, supra note 30. We note that 
discount calculations involve several methodological assumptions 
regarding the valuation of warrants and the treatment of transfers. 
For example, another study finds that between 2019 and June 2020, 
the median discount received by PIPE investors was 5.5% relative to 
the market value of the publicly traded SPAC shares and that, in 37% 
of SPACs with PIPE deals, PIPE investors received a 10% discount or 
more. See Klausner, Ohlrogge, & Ruan, supra note 18.
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ii. Use of Projections in Connection With De-SPAC Transactions
    Item 1609 of Regulation S-K will require certain enhanced 
disclosures about any projections disclosed in de-SPAC 
transactions.\1237\ Hence, Item 1609 will potentially affect preparers 
and users of financial projections related to de-SPAC transactions, 
including SPACs, SPAC boards of directors, SPAC sponsors, target 
companies, both sets of controlling shareholders and management, and 
current and prospective investors.
---------------------------------------------------------------------------

    \1237\ 17 CFR 229.1609.
---------------------------------------------------------------------------

    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 SPACs with IPO dates from 
2015 to 2020.\1238\ The authors found that 87% (249 out of 285) of 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. The authors restricted their 
sample to transactions with a single target and excluded SPACs that 
delisted before the merger effective date, traded on the OTC market, or 
focused on the biotechnology industry, yielding a sample of 142 
observations.\1239\ They identified 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.\1240\ The authors removed 
companies ``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 three studies suggest that the use of 
projections is common in de-SPAC transactions.
---------------------------------------------------------------------------

    \1238\ See Kimball Chapman, Richard M. Frankel & Xiumin Martin, 
SPACs and Forward-Looking Disclosure: Hype or Information? (Working 
Paper, Oct. 20, 2021), available at https://ssrn.com/abstract=3920714 (retrieved from SSRN Elsevier database).
    \1239\ See, e.g., Dambra, Even-Tov & George, supra note 36.
    \1240\ See Elizabeth Blankespoor, Bradley E. Hendricks, Gregory 
S. Miller & DJ Stockbridge, A Hard Look at SPAC Projections, 68 
Mgmt. Sci. 4742 (2022), available at https://doi.org/10.1287/mnsc.2022.4385.
---------------------------------------------------------------------------

iii. Use of Fairness Opinions
    Item 1607 of Regulation S-K will require disclosures related to any 
report, opinion (other than an opinion of counsel) or appraisal 
received by the SPAC or the SPAC sponsor from an outside party or 
unaffiliated representative materially relating to, among other things, 
the fairness of the de-SPAC transaction to the SPAC, its security 
holders or SPAC sponsor if the SPAC or SPAC sponsor receives such a 
report, opinion, or appraisal.\1241\ Third-party providers of fairness 
opinions may factor the requirement for these disclosures into how they 
price their services as well as the types of information included in 
their reports and opinions. As such, this disclosure requirement may 
affect SPACs' determination of whether to obtain fairness opinions.
---------------------------------------------------------------------------

    \1241\ 17 CFR 229.1607(a)(4).
---------------------------------------------------------------------------

    In 2021, only 15% of de-SPAC transactions disclosed that they were 
supported by fairness opinions, according to one study.\1242\ In 2022, 
that proportion increased to 32%.\1243\ In contrast, a broader study of 
M&A transactions (not limited to SPACs) found that 85% of bidders 
obtained fairness opinions.\1244\
---------------------------------------------------------------------------

    \1242\ Michael Levitt, Valerie Jacob, Sebastian Fain, Pamela 
Marcogliese, Paul Tiger, & Andrea Basham, supra note 1231.
    \1243\ See supra note 1234.
    \1244\ See Tingting Liu, The Wealth Effects of Fairness Opinions 
in Takeovers, 53 Fin Rev. 533 (2018) (finding that fairness opinions 
are positively related to bidders' shareholder value and post-merger 
operating performance after the adoption of FINRA Rule 2290 in Dec. 
2007 which regulates the identification and disclosure of conflicts 
of interest of FINRA members--e.g., broker-dealers with investment 
banking or valuation businesses--rendering fairness opinions.) The 
study's sample is of deals that occurred between 1995 and 2015, 
involving a publicly traded bidder that the study identified as 
seeking 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, according to the authors, the 
use of fairness opinions is required to be disclosed only if bidders 
are required to file proxy statements in connection with the 
solicitation of shareholder votes. They note that listing rules of 
the NYSE, NYSE American (named Amex in the study), 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, 
according to the authors, if the bidder issues less than 20% of its 
outstanding shares or uses cash as consideration to pay for the 
acquisition, the bidder would not be required to disclose the 
fairness opinion even if the firm had obtained one.
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iv. Changes in Jurisdiction of the Combined Company
    In considering the potential economic effects of the final rules, 
we have taken into consideration elements of both the

[[Page 14268]]

economic and the regulatory baseline, including consideration of 
variations between the applicable legal frameworks in the jurisdictions 
in which SPACs are organized. Table 4 presents information on the 
jurisdiction of organization for each SPAC that conducted its IPO after 
1990 and completed a de-SPAC transaction before 2022. The first two 
columns state the percentage of SPACs that later had de-SPAC 
transactions that were originally organized in each of six listed 
jurisdictions at the time of their IPO. The second two columns state--
for each originating jurisdiction--the percentage of combined companies 
that have their jurisdiction of organization in the listed 
jurisdictions following a de-SPAC transaction.
    While the majority of SPACs that subsequently consummated a de-SPAC 
transaction remain organized in the same location, Table 4 indicates 
that, for some SPACs, the jurisdiction of organization of the combined 
company may change (compared to the SPAC's jurisdiction) 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 
organization. To the extent that different jurisdictions have different 
disclosure requirements and provide differing levels of investor 
protections, the baseline regulatory framework will vary across SPACs 
and may change upon the de-SPAC transaction. For example, the 
incremental impact of the minimum dissemination period requirement may 
vary by jurisdiction.\1245\
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    \1245\ See infra note 1364.
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BILLING CODE 8011-01-P

[[Page 14269]]

[GRAPHIC] [TIFF OMITTED] TR26FE24.005

BILLING CODE 8011-01-C
3. Blank Check Companies
    We are adopting final rules that define ``blank check company'' for 
purposes of the PSLRA safe harbor provisions regarding forward-looking 
statements.\1246\ The final rules will affect SPACs and any other 
companies that would otherwise meet the Rule 419 definition of ``blank 
check company'' except that they are not issuers of penny

[[Page 14270]]

stock, which currently seek to rely on the PSLRA safe harbor. The final 
rules also may affect investors and other market participants' access 
to the informational content of forward-looking statements or potential 
remedies in the case of material omissions from, or material 
misstatements in, a prospectus or registration statement or in 
connection with the purchase or sale of a security.
---------------------------------------------------------------------------

    \1246\ See supra section III.E.
---------------------------------------------------------------------------

    We estimate that, in addition to potentially affected SPACs, as 
previously discussed,\1247\ the final rules also may affect 
approximately 32 non-SPAC entities that self-identified as blank check 
companies but would not meet the current definition of ``blank check 
company'' under Rule 419 given that they did not self-identify as penny 
stock issuers.\1248\
---------------------------------------------------------------------------

    \1247\ See supra sections VIII.A.3.
    \1248\ This estimate is based on staff review of all 
registrants, by unique CIK, that filed at least one registration 
statement, or quarterly or annual report in 2022 and for which the 
term ``penny stock'' did not appear in any of these filings 
according to a text search from Intelligize. This approach to 
identifying penny stock issuers may be subject to errors as studies 
have found that self-reported SIC codes may contain errors that 
could cause a higher number of issuers to be counted as affected 
parties than should be counted. See, e.g., Murat Aydogdu, Chander 
Shekhar & 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 for SIC code purposes versus when the 
registrant is mistaken in its belief that it is a blank check 
company for SIC code purposes. In the latter case, even if mistaken 
about its blank check company status for SIC code purposes, the 
party may still be affected by the final rules because they may 
currently make, or believe they are able to make, forward-looking 
statements that would fall under the PSLRA safe harbors.
---------------------------------------------------------------------------

4. Shell Company Business Combinations
    Securities Act Rule 145a and Article 15 of Regulation S-X may 
affect SPACs and other shell companies (other than business combination 
related shell companies) involved in business combination transactions. 
To the extent that Rule 145a transactions are registered, investors 
would receive disclosures in a registration statement, and registration 
would result in enhanced liabilities for the registrant and other 
parties who have liability under Securities Act section 11 with respect 
to the registration statement. Article 15 of Regulation S-X will affect 
the financial statements associated with business combinations 
involving shell companies and thereby affect parties that are typically 
associated with the preparation, review, and dissemination of financial 
statements.\1249\
---------------------------------------------------------------------------

    \1249\ If a previously non-public shell company files a 
registration statement, the financial statements included in the 
registration statement would be required to comply with Regulation 
S-X, including final Rule 15-01. We currently lack the data 
necessary to estimate the number of shell companies that are private 
that could be impacted by Article 15 if they file such a 
registration statement. As a result, this data is not included in 
the estimates discussed in our analysis.
---------------------------------------------------------------------------

    Table 5 below illustrates that the proportion of de-SPAC 
transactions to non-SPAC reporting shell company business combinations 
has increased due to the recent increase in the number of SPACs 
entering the market and subsequently merging with target 
companies.\1250\ In 2016, only 8% of all targets acquired by a 
reporting shell company merged with a SPAC. The proportion increased to 
76% in 2021 and 65% in 2022.
---------------------------------------------------------------------------

    \1250\ The portion of non-SPAC shell company mergers may be 
overstated if some of the filings reflect changes in shell company 
status that are not a result of a business combination, such as a 
change in business model.
[GRAPHIC] [TIFF OMITTED] TR26FE24.006

    We estimate that, in addition to existing SPACs that have yet to 
complete a de-SPAC transaction (as of the end 2022, there were 324 such 
SPACs according to the figures reported in Table 3), approximately 156 
additional existing non-SPAC reporting shell companies may be affected 
by the final rules.\1251\ Almost all of these non-SPAC reporting shell 
companies trade in the OTC market and are smaller than SPACs in terms 
of market capitalization and total assets.\1252\ We further estimate 
that approximately 7.7% (12) of these shells may also be affected by 
the definition of the term ``blank check company'' for purposes of the 
PSLRA in the final rules.\1253\
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    \1251\ 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 (Form 10-K, 20-F, or 40-F) or 
an amendment thereto filed in calendar year 2022 by unique CIKs of 
entities that are not already identified as SPACs.
    \1252\ As of year-end 2021, the average market capitalization of 
a non-SPAC shell company was $154,731,262 while the average market 
capitalization of a SPAC was $306,204,218. Based on the most recent 
periodic disclosure filed per registrant before Dec. 31, 2021, the 
average total assets of a non-SPAC shell was $33,666,553 while the 
average of total assets of a SPAC was $309,570,778.
    \1253\ This estimate is based on a cross-tabulation, by unique 
CIK, of potentially affected parties identified as blank check 
companies (supra note 1248) and as shell companies (supra note 
1251).
---------------------------------------------------------------------------

B. Benefits and Costs of the Adopted Rules

1. Disclosure-Related Rules
i. Definitions (Item 1601)
    New Item 1601 defines certain parties and transactions to which the 
requirements of subpart 1600 of Regulation S-K apply. Defining the 
terms ``special purpose acquisition company,'' ``de-SPAC transaction,'' 
``SPAC sponsor,'' and ``target company'' establishes the scope of the 
parties and transactions subject to the requirements of subpart 1600 
and any other rules, including other final rules, that rely on these 
definitions and thereby provides both registrants and investors notice 
of the associated obligations and expectations.\1254\
---------------------------------------------------------------------------

    \1254\ See, e.g., General Instruction I.2 of Form S-4 (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, certain additional information with respect to the 
target company must be provided).
---------------------------------------------------------------------------

    As discussed above, in response to commenters, the Commission is 
adopting Item 1601 with

[[Page 14271]]

modifications.\1255\ We have designed the rules with particular types 
of parties and transactions in mind and we have endeavored to define 
these parties and transactions in a way that is consistent with our 
understanding of current market usage. Overly narrow definitions will 
generally result in reduced costs and benefits. Conversely, overly 
broad definitions may introduce unintended costs to market participants 
without necessarily providing commensurate benefits, as they may be 
less applicable to settings we are not explicitly contemplating today.
---------------------------------------------------------------------------

    \1255\ See supra section II.A.
---------------------------------------------------------------------------

ii. SPAC IPOs and Other Registered Offerings
    At the SPAC IPO stage, there are information asymmetries between 
potential SPAC investors and the SPAC, making it challenging for 
investors to differentiate between SPACs and other investment options 
and to differentiate among SPACs. A SPAC sponsor looking to secure IPO 
investments may have incentives to obscure information that would be 
relevant to potential investors.\1256\ Information regarding the 
specifics of the SPAC that informs investors about the probability of 
completion of a de-SPAC transaction and the potential payoffs to the 
investor of such a transaction is important for investment decisions. 
For example, information about the SPAC sponsor or potential conflicts 
of interest of the SPAC sponsor may factor into investors' 
decisions.\1257\ This information should also benefit investors 
attempting to differentiate between investments in alternative SPACs.
---------------------------------------------------------------------------

    \1256\ We acknowledge there may exist heterogeneity in risk 
preferences among investors, but this does not substantially change 
the incentive misalignment with the SPAC's incentives.
    \1257\ See supra sections II.B and II.C.
---------------------------------------------------------------------------

a. Prospectus Cover Page, Summary, and Other Disclosures (Item 1602)
    Item 1602 requires a prospectus filed in connection with a SPAC's 
IPO to disclose information in plain English on certain features unique 
to SPAC offerings and the potential associated risks, in addition to 
the information currently required by Item 501 of Regulation S-K and 17 
CFR 229.503(a) (Item 503 of Regulation S-K), on the prospectus cover 
page and in the prospectus summary, as discussed above.\1258\ On the 
cover page, SPACs will be required to disclose, among other 
information: the proposed timeline of the SPAC to consummate a de-SPAC 
transaction; redemption terms; compensation (including securities 
issued to certain SPAC insiders); any actual or potential conflict of 
interest of the SPAC sponsor, its affiliates, or promoters; and a 
tabular disclosure of net tangible book value per share, as adjusted, 
for various redemption levels. In the prospectus summary, SPACs will be 
required to disclose, among other information, the manner in which the 
SPAC will identify and evaluate potential business combination 
candidates, period of time in which the SPAC intends to consummate a 
de-SPAC transaction and its plans in the event it does not consummate 
such a transaction within the time period including the timeline and 
potential extensions, the material terms of the trust or escrow 
account, plans to seek additional financing (and the impact on 
shareholders), and details on the impact of compensation and securities 
issuances on dilution. These additional disclosures are meant to reduce 
the information asymmetry between the SPAC and potential investors. 
These disclosures will provide enhanced information for investors to 
assess their investment and voting decisions and to differentiate 
between the SPAC and other investment options.
---------------------------------------------------------------------------

    \1258\ See supra section II.E for more information about current 
disclosure requirements.
---------------------------------------------------------------------------

    We expect Item 1602 will also reduce SPAC investors' information 
processing costs. Investors in SPACs vary in financial sophistication 
and ability to process the information provided in SPAC IPO 
prospectuses, and the potential benefits may accrue more to investors 
that are less financially sophisticated. Specifically, because 
investors are likely to allocate their attention selectively,\1259\ 
requiring disclosure regarding important features and associated risks 
of SPAC investments on the prospectus cover page and in the prospectus 
summary will increase the likelihood that investors focus on the 
salient information by making it more noticeable and easier to 
parse.\1260\ In addition, the new disclosures in the prospectus summary 
may further reduce information processing costs by providing 
information about important SPAC features in plain English and in a 
concise format.\1261\
---------------------------------------------------------------------------

    \1259\ See, e.g., George Loewenstein, Cass R. Sunstein & Russell 
Golman, Disclosure: Psychology Changes Everything, 6 Ann. Rev. Econ. 
391 (2014).
    \1260\ 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).
    \1261\ 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).
---------------------------------------------------------------------------

    Item 1602(b)(6) will require tabular disclosure in the prospectus 
summary regarding the nature and amount of the compensation received or 
to be received by, as well as the amount of securities issued or to be 
issued to, the SPAC sponsor, its affiliates, and promoters separately, 
and the extent to which this may result in a material dilution of the 
purchasers' equity interests. There is empirical evidence that 
visualization improves individuals' perception of information.\1262\ 
For example, one experimental study shows that tabular reports can lead 
to better decision-making.\1263\ Because information about compensation 
received by and securities issued to SPAC sponsors and others may be 
important to SPAC investor decision-making, the tabular format of these 
required disclosures may help those investors (especially those that 
are less financially sophisticated) more easily process the 
implications of such compensation or securities issuances thereby 
potentially improving their investment decisions.\1264\
---------------------------------------------------------------------------

    \1262\ See, e.g., John Hattie, Visible Learning: A Synthesis of 
Over 800 Meta-Analysis Related to Achievement (2008).
    \1263\ See Izak Benbasat & Albert Dexter, An Investigation of 
the Effectiveness of Color and Graphical Information Presentation 
Under Varying Time Constraints, 10 MIS Q. 59 (1986).
    \1264\ See infra section VIII.B.1.ii.b. for the discussion of 
Item 1602(a)(4), which would require that the prospectus cover page 
include a simplified dilution table depicting the estimated 
remaining net tangible book value, as adjusted, per share at 
quartile intervals up to the maximum redemption threshold.
---------------------------------------------------------------------------

    More broadly, Item 1602 will standardize these disclosures across 
all registration statements filed for SPAC IPOs, which may make it less 
costly for investors to compare terms across offerings and thereby 
promote better investment decisions to the extent these lower costs 
facilitate broader or more comprehensive analysis.
    Finally, to the extent the additional disclosures on the cover page 
and in the prospectus summary would increase investors' awareness of 
SPAC sponsors' incentives and potential conflicts of interest, they may 
have an incremental disciplining effect on SPAC sponsors' behavior. For 
example, if SPAC

[[Page 14272]]

sponsors face greater scrutiny from investors, they may take additional 
care in finding and negotiating terms with various parties or take 
steps to mitigate the extent of any conflict of interests they will 
have to disclose.
    The additional required disclosures on the prospectus cover page 
and in the prospectus summary may increase compliance costs for SPACs 
to the extent that they will need to provide more information in their 
IPO prospectuses than they currently provide. We believe that SPACs are 
likely to have this information readily available. In addition, based 
on the experience of the Commission staff reviewing current SPAC 
filings, SPACs often already disclose some of this information, such as 
the time frame for the SPAC to consummate a de-SPAC transaction. Thus, 
we expect that the additional compliance costs resulting from these new 
items will not be significant.
    Investors may also experience additional economic costs from these 
new disclosures. In particular, it is possible that, by requiring more 
items to be added to the cover page and the prospectus summary, the 
salience of the current required disclosures on the cover page and in 
the prospectus summary may be reduced because they will have to compete 
with the new required disclosures for investors' attention, a concern 
voiced by some commenters.\1265\ In addition, because Item 501(b) of 
Regulation S-K limits the information on the outside cover page to one 
page, it is possible that, under certain facts and circumstances, the 
amount of information required to be included could reduce the 
readability of the cover page. As a result, some investors may pay less 
attention to the cover page as a whole. Conversely, it is possible that 
investors may overweigh the salience of certain disclosures of 
potential outcomes, such as tentative plans to seek additional 
financing, potentially assuming them to be statements of greater 
certainty than intended.\1266\ However, this potential cost could be 
mitigated by firms providing clarity as to their assumptions and 
expectations regarding these disclosures.
---------------------------------------------------------------------------

    \1265\ Letters from ABA, Loeb & Loeb, Ropes & Gray, Vinson & 
Elkins. See supra note 325 and accompanying text.
    \1266\ A similar concern was raised by a letter from Vinson & 
Elkins.
---------------------------------------------------------------------------

b. Dilution (Item 1602(a)(4) and (c))
    SPAC investors may experience dilution from various transactions by 
a number of parties at various stages of a SPAC's lifecycle, and 
understanding these potential dilutive impacts is important for 
investment and other decisions.\1267\ As an example of such a source of 
dilution, in different transactions over the life cycle of the SPAC, 
there may be variations in the amount of consideration paid in exchange 
for shares of the SPAC that will cause dilutive or anti-dilutive 
effects. One specific example of such variations involves the SPAC 
sponsors' ``promote,'' which is typically obtained at a nominal value 
(e.g., $25,000, which depending on specific facts and circumstances 
could result in a per share purchase price of several cents) compared 
to the SPAC IPO purchase price (typically $10 per share). SPAC IPO 
shares are also commonly bundled with warrants and rights, resulting in 
the potential future impacts on net tangible book value per share, 
which may be dilutive or anti-dilutive of net tangible book value per 
share depending on whether the exercise price exceeds net tangible book 
value per share at the time.
---------------------------------------------------------------------------

    \1267\ In this section and throughout the Economic Analysis, 
references to dilution of SPAC investor interests refer to the 
dilutive effects on non-redeeming public shareholders, unless 
otherwise specified.
---------------------------------------------------------------------------

    The impact of dilution is further magnified by a common feature in 
many SPACs whereby public shareholders may redeem their shares before 
the de-SPAC transaction and have their original investment returned 
plus a pro-rata amount of earnings (typically interest) accrued on the 
original investment proceeds held in the trust account. Following these 
redemptions, the non-redeeming IPO investors will own a relatively 
smaller portion of the SPAC relative to the portion owned by the SPAC 
sponsor (SPAC sponsor shares are typically not redeemable). This change 
in the relative portion of shares generally has a dilutive effect 
because the IPO investors often contribute more per share to net 
tangible book value (typically $10/share) than do SPAC sponsors 
(typically several cents per share, as mentioned above).
    To put the effects of redemption in context, we present the 
historical redemption levels below in Figure 2. Figure 2 presents the 
average realized redemptions from de-SPAC transactions between 2010 and 
2022. As shown in Figure 2, typically just over half of the public 
shareholders opt to redeem their shares on average before the de-SPAC 
transaction (the average redemption level for de-SPACs from 2010 to 
2022 was 55% and the median was 65%), but that the level of redemptions 
is not consistent over time. For example, in 2022 the average 
redemption level was 85%, whereas the average in 2020 and 2021 was 38% 
and 45%, respectively. This time-series variation in average redemption 
rates is not a result of variation in the average maximum redemption 
rate, which has remained relatively steady at just above 90% since 
2015.\1268\
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    \1268\ Based on staff review, many SPACs set maximum redemption 
thresholds to maintain a minimum of $5,000,000 net tangible assets 
to avoid meeting the definition of a ``penny stock'' in 17 CFR 
240.3a51-1(g)(1).

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[[Page 14273]]

[GRAPHIC] [TIFF OMITTED] TR26FE24.001

    Understanding the sources and extent of dilution, including the 
impact of potential redemptions, is important for investors to make 
informed decisions and efficiently allocate capital. As discussed 
above, the final rules require new disclosures about the sources and 
extent of expected dilution, which we expect will reduce the 
information asymmetry between the various SPAC participants by 
providing information that investors can use to form their expectations 
about the investment value of a SPAC.\1269\ Further, we are requiring 
disclosures that demonstrate the changing effect on dilution that 
various levels of redemptions might have.\1270\
---------------------------------------------------------------------------

    \1269\ See supra section II.D.
    \1270\ Id.
---------------------------------------------------------------------------

    The dilution disclosures in Item 1602(a)(4) and (c) require 
measuring dilution using net tangible book value per share, adjusted as 
if the offering (and assumed redemption levels) have occurred and 
giving effect to material probable or consummated transactions (other 
than the de-SPAC transaction itself). Net tangible book value per 
share, as adjusted, captures effects from changes in net tangible book 
value, as adjusted, in the numerator (for example, returning cash to 
redeeming shareholders or other transactions that change the amount of 
assets held in the SPAC trust account), and/or the number of shares 
outstanding in the denominator (for example, redemptions of shares or 
other transactions that change the total shares outstanding).
    As a simple illustrative example of how net tangible book value per 
share, as adjusted, reflects various dilutive effects, a hypothetical 
SPAC might conduct an IPO at $10/share, and sell 80 shares, resulting 
in $800 in the trust account. The SPAC sponsor might receive promote 
shares equal to 25% of the IPO shares sold, or 20 shares, bringing the 
total shares outstanding to 100 (for simplicity, we omit the typical 
nominal amount SPAC sponsors often pay for their promote). Assuming no 
other expenses, the net tangible book value per share, as adjusted, in 
this simplified hypothetical would be $800/100 shares or $8/share. In 
this hypothetical example, if 75% of public shareholders, representing 
60 total shares, were to redeem their shares for $10/share, then $600 
would be removed from the trust account and paid to those redeeming 
shareholders, and the SPAC would be left with $200 in the trust 
account, 20 shares owned by the public shareholders, and 20 shares 
owned by the sponsor. In this case, the net tangible book value per 
share, as adjusted, would be $200/40 or $5/share. This $5/share value 
can be thought of as reflecting that, of the $10/share invested by 
public investors in the IPO, only half remains to be invested in the 
target. It can also be seen to reflect the fact that the SPAC sponsor 
and the non-redeeming public investors now have an equal ownership 
(where initially there was a 4:1 ownership ratio), and the SPAC sponsor 
owns half of the remaining shares.\1271\
---------------------------------------------------------------------------

    \1271\ We note that while this example suggests the redemptions 
resulted in dilution as measured by net tangible book value per 
share, as adjusted, the resultant concentration of ownership may be 
seen by the non-redeeming shareholders as beneficial.
---------------------------------------------------------------------------

    At the SPAC IPO stage, we expect that the tabular disclosure of net 
tangible book value per share, as adjusted, under Item 1602(a)(4) and 
(c) typically may include fewer sources of dilution that factor into 
such calculation as compared to the number of sources of dilution that 
factor into tabular disclosure of value.\1272\ While many SPACs adopt a 
standard structure and set of governing terms, and we expect the 
sources of dilution to be broadly similar across SPACs at the IPO 
stage, we expect the final rules will enable investors to better 
differentiate the SPAC from other investment opportunities and, where 
they exist, identify differences among individual SPACs.
---------------------------------------------------------------------------

    \1272\ See supra section II.D.
---------------------------------------------------------------------------

    Specifically, Item 1602(a)(4) requires registration statements on 
Form S-1 or Form F-1 filed by SPACs, including for an IPO, to include 
on the cover page a tabular disclosure of net tangible book value per 
share, as adjusted, as of the most recent balance sheet date at 
quartile intervals based on the percentages of the maximum redemption 
threshold, and the difference between this value and the offering 
price.\1273\ This net tangible book value measure must be adjusted ``as 
if'' the offering and assumed redemption levels, under Item 1602(a)(4), 
have occurred and to give effect to material probable or consummated 
transactions (other than the completion of the de-SPAC transaction 
itself).
---------------------------------------------------------------------------

    \1273\ Id.

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[[Page 14274]]

    Item 1602(a)(3) also requires a further cover page disclosure of 
whether the compensation or issuance of securities described in Item 
1602(a)(3) may result in material dilution of the purchasers' equity 
interests. Item 1602(b)(6) requires in the prospectus summary similar 
disclosure to that of Item 1602(a)(3) but specifies that the registrant 
should describe the extent (rather than ``whether,'' as required in 
Item 1602(a)(3)) to which the associated compensation or issuance of 
securities may result in material dilution of the purchasers' equity 
interests.
    Item 1602(c) requires that registered offerings by SPACs (other 
than de-SPAC transactions) provide a description of each material 
potential source of future dilution following the registered offering 
(e.g., a SPAC's IPO). The item also requires tabular disclosure for the 
same quartile intervals as in Item 1602(a)(4) of the net tangible book 
value per share, as adjusted, and the natures and amounts of dilution 
used to determine the values in the tabular disclosure, as well as 
other information necessary to understand the disclosure, among other 
things.\1274\ These new disclosures will provide investors with more 
detailed information on the potential sources of dilution which may 
better enable them to form expectations regarding the future value of 
their securities, including their shares should they opt not to redeem.
---------------------------------------------------------------------------

    \1274\ See supra section II.D for a more detailed description of 
the disclosure requirements.
---------------------------------------------------------------------------

    We expect these dilution disclosures at the SPAC IPO stage will 
facilitate investor differentiation between SPACs as an investment and 
other non-SPAC investments by highlighting the sources of potential 
dilution and demonstrating their effects for investors to incorporate 
into their investment decisions. While some of this information is 
available elsewhere as required by existing disclosures (e.g., 
outstanding share information),\1275\ these dilution disclosures 
centralize and standardize that information, making it more salient and 
readily available for investors to understand the material differences 
in a SPAC in contrast with other investments. Similarly, we expect the 
additional detail of potential sources of dilution and tabular 
disclosure of net tangible book value per share, as adjusted, to 
provide relevant comparison information to investors seeking to 
differentiate between SPACs. Together, we expect this information will 
help investors to better understand the effects of dilution on their 
investments and ultimately to make better-informed investment 
decisions.
---------------------------------------------------------------------------

    \1275\ Some commenters raised this issue. See, e.g., letter from 
Loeb & Loeb. See supra note 245 and accompanying text. With regard 
to outstanding share information, see, e.g., 17 CFR 210.5-02 (Rule 
5-02 of Regulation S-X) (requiring disclosure of the title of each 
class of stock, the number authorized, the number outstanding, and 
the dollar amount thereof) and Item 11(e) of Form S-1 (requiring 
financial statements that meet the requirements of Regulation S-X).
---------------------------------------------------------------------------

    We acknowledge that it is possible the dilution disclosures could 
be interpreted by investors as conveying more certainty about the 
sources or effects of dilution (or lack or omission thereof, where 
those sources are not deemed probable) than is intended by the 
SPAC.\1276\ However, the requirement in Item 1602(c) that the SPAC 
include a ``description of the model, methods, assumptions, estimates, 
and parameters necessary to understand the tabular disclosure'' should 
mitigate this possibility, and provide investors sufficient context to 
fully understand the disclosure's underlying assumptions and 
limitations they impose.
---------------------------------------------------------------------------

    \1276\ A similar concern was raised by a commenter. See letter 
from White & Case.
---------------------------------------------------------------------------

    We expect the dilution disclosures at the IPO stage to provide 
valuable information to investors, both to compare between SPAC IPOs, 
and as a baseline against which they can compare the de-SPAC dilution 
disclosures, if and when a de-SPAC transaction is proposed. We expect 
this dilution disclosure to be especially informative for SPAC 
investors who remain investors in the combined company, as historically 
they have been greatly impacted by the above-mentioned dilution 
effects.\1277\ Further, if investors do not understand the full extent 
of the dilution, it may not be fully reflected in market prices, and 
thus we expect that requiring clear and concise dilution disclosures 
will ameliorate this potential mispricing (especially so for potential 
warrants or other derivative securities) and improve overall allocative 
efficiency.\1278\
---------------------------------------------------------------------------

    \1277\ See Klausner, Ohlrogge, & Ruan, supra note 30 (finding 
that ``SPAC shareholders bear all costs'' associated with the 
dilution of cash associated with the SPAC structure and redemptions, 
based on empirical analysis of post-merger performance using the 
sample of de-SPAC transactions occurring between Jan. 2019 and June 
2020).
    \1278\ See Gahng, Ritter & Zhang, supra note 30; Klausner, 
Ohlrogge, & Ruan, supra note 30.
---------------------------------------------------------------------------

    Given the empirical evidence that visualization improves 
individuals' perception of information \1279\ and that any dilution 
caused by redemption may have an adverse effect on investors who choose 
not to redeem, we expect that the tabular format of these disclosures 
will help investors (especially those that are less financially 
sophisticated) more easily process the financial implications of 
dilution and consequently improve their investment decisions.
---------------------------------------------------------------------------

    \1279\ See Hattie, supra note 1262; Benbasat & Dexter, supra 
note 1263.
---------------------------------------------------------------------------

    Moreover, the required dilution disclosure should provide 
prospective SPAC investors with information (with the aforementioned 
benefits of the tabular format) that more accurately represents the 
dilution that they might experience if they invest in the SPAC, as 
compared to current Item 506 disclosures with regard to the effect of 
potential redemptions.\1280\ SPACs currently disclose the potential 
dilution pursuant to Item 506, and commonly focus solely on a single 
maximum redemption scenario.\1281\ This single threshold may be less 
useful to investors than the new tabular presentation of quartile 
intervals of redemption levels because the actual redemptions in 
connection with a de-SPAC transaction rarely reach the maximum 
allowable amount. Commenters largely agreed with this assessment,\1282\ 
with one commenter noting that ``more detailed information on the 
potential impact of dilution on the value of SPAC shares could help 
investors better understand the various sources of dilution and the 
extent to which their investments might drop in value'' and that this 
information could ``factor into their decision making.'' \1283\
---------------------------------------------------------------------------

    \1280\ See supra note 221.
    \1281\ Id. SPAC IPO registration filings currently include 
dilution disclosures, and these disclosures typically present 
dilution given 100% redemption.
    \1282\ See, e.g., letters from Bullet Point Network, CII, 
Consumer Federation.
    \1283\ Letter from Consumer Federation.
---------------------------------------------------------------------------

    The reasoning that a tabular disclosure at multiple levels of 
redemption will better inform expectations of the ultimate dilution is 
supported by the evidence in Figure 2, which demonstrates that while 
the maximum redemption level has been very stable over time, the actual 
redemption levels have been typically far below the maximum threshold. 
The final rules will provide investors with more granular information 
about potential dilution across multiple redemption levels than 
previously required, which should provide information more congruent 
with the observed variation in dilution--such as that shown by the 
variation from one year to another of average realized redemption 
percentages in Figure 2. This, in turn, should allow investors to 
better anticipate the effects of such dilution on future returns to 
these investors from their investment and better inform their 
investment decision-making.\1284\
---------------------------------------------------------------------------

    \1284\ See Klausner, Ohlrogge & Ruan, supra note 18.

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

[[Page 14275]]

    The disclosures may not include some dilution effects in some SPAC 
structures. For example, as one commenter explained, ``some de-SPAC 
transactions are structured such that certain funding mechanisms, such 
as backstop, forward purchase or PIPE arrangements, apply only in the 
event of certain redemption thresholds.'' \1285\ We agree that there 
are significant intricacies involved in SPAC structures that are not 
known at the time of the SPAC IPO, and that those intricacies can 
impact the extent and patterns of dilution faced by non-redeeming 
shareholders. However, we believe there is still significant benefit to 
investors in a tabular presentation of dilution at different redemption 
levels for those sources of dilution that qualify as ``material 
probable or consummated transactions'' as required under the final 
rule. Further, we note that the requirement for non-tabular disclosure 
of ``each material potential source of future dilution'' under Item 
1602(c) may discuss a broader set of items than those that are included 
for purposes of calculating the tabular dilution measure, which could 
capture some of the complex effects explained by the commenter. 
Further, the final rules regarding dilution disclosures should provide 
more clarity into these complex effects than the current, more 
simplified disclosures pursuant to Item 506.
---------------------------------------------------------------------------

    \1285\ Letter from White & Case.
---------------------------------------------------------------------------

    We expect the final rules to reduce the costs to investors of 
conducting a dilution analysis. Without the tabular disclosures we are 
requiring, each shareholder wishing to understand the net effects of 
all the financing arrangements would have to calculate the various 
conditions themselves--which would require a full understanding of the 
terms and extents to which they interact--before being able to 
calculate the ultimate impact on dilution. Under the final rules, this 
process will be completed by the registrant, which already has the full 
understanding of conditions and terms and is best suited to conduct 
said calculations.
    The tabular format of the disclosures required by Item 1602(a)(4) 
and (c) will standardize the presentation of dilution information, 
which we expect will allow investors to analyze and compare more easily 
across SPACs. This increase in comparability should allow investors to 
compare the structural differences in dilution across SPACs which, to 
the extent relevant, should improve investment and capital allocation 
decisions.
    We expect the incremental compliance costs of the final dilution 
disclosure requirements at the SPAC IPO stage to be low for two 
reasons. 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 (especially 
so since SPACs currently conduct a dilution calculation pursuant to 
Item 506).
    Second, while Item 1602(a)(4) and (c) require registrants to 
account in the tabular disclosure for material probable sources of 
dilution and analyze several levels of redemption, which may require 
the services or input of quantitative specialists, the material 
probable sources of dilution are generally common across SPAC offerings 
and are generally well known and quantifiable. For example, sources of 
dilution at the IPO stage may include shareholder redemptions, SPAC 
sponsor compensation or ``promote,'' general and administrative 
expenses, underwriting fees, warrants, and other convertible 
securities.\1286\ Because of the consistency that a tabular format 
should promote, it is likely that a standard approach based on best 
practices will emerge, reducing registrant costs over time.
---------------------------------------------------------------------------

    \1286\ For a detailed discussion of certain potential sources of 
dilution and the calculation of net tangible book value per share, 
as adjusted, see supra section II.D.3. We note that many of these 
sources of dilution captured by net tangible book value per share, 
as adjusted, follow treatment under GAAP, thus the cost of 
calculating them is expected to be low, and in many cases required 
otherwise as part of the SPAC financial disclosures.
---------------------------------------------------------------------------

    We are also amending Form S-1 to no longer require Item 506 
dilution disclosures for SPAC filings because the dilution disclosures 
required in Item 1602 will replace those generic dilution disclosures. 
We believe these Item 506 disclosures are less informative in the SPAC 
setting because, based on the Commission staff's experience reviewing 
recent SPAC filings, SPACs classify the redeemable shares as temporary 
equity and exclude the cash raised from sales of those shares from the 
net tangible book value. This classification results in a dilution 
measure that excludes the vast majority of the SPAC's cash 
holdings.\1287\ Thus, to the extent that current Item 506 dilution 
calculations are duplicative of or less relevant to investment 
decisions than the dilution disclosures at the SPAC IPO required by the 
final rules, we expect the exclusion of the Item 506 dilution 
disclosures will lessen information acquisition costs for investors 
without omitting important information.\1288\ Removing the Item 506 
disclosure requirement will also remove any disclosures costs that 
would have otherwise been incurred by registrants to produce those 
disclosures.
---------------------------------------------------------------------------

    \1287\ Several commenters similarly expressed the view that Item 
506 net tangible book value is less relevant to SPAC investors. See, 
e.g., letter from White & Case (stating that the current net 
tangible book value calculation according to U.S. GAAP ``produces a 
result that is not practically relevant to prospective investors in 
the public shares whatsoever.'').
    \1288\ The information acquisition costs mentioned would entail 
gathering, processing, and incorporating the information from the 
Item 506 dilution disclosure into investors' existing information 
and decisions.
---------------------------------------------------------------------------

c. Sponsors and Conflicts of Interest (Item 1603)
    At the SPAC IPO, new Item 1603(a) requires disclosure of certain 
information regarding a SPAC sponsor, its affiliates, and any 
promoters. This item requires, among other information, disclosures 
concerning the SPAC sponsor that include the following: name, form of 
organization, controlling persons, general character of business, and 
any arrangements or other agreements between the sponsor and the SPAC, 
its officers, directors, or affiliates with respect to determining 
whether to proceed with a de-SPAC transaction. This item also requires, 
among other information, disclosures about the SPAC sponsor, its 
affiliates, and promoters that include the following: their experience; 
material roles and responsibilities and the nature and amounts of their 
compensation and reimbursements and SPAC securities issued to them or 
to be issued to them.\1289\ To the extent that such disclosures are not 
already provided or are only partially provided, this new disclosure 
requirement will provide investors with additional information related 
to the experience and incentives (such as those due to characteristics 
of the compensation structure) for the SPAC sponsor and the other 
parties subject to these disclosures.\1290\
---------------------------------------------------------------------------

    \1289\ Additionally, Item 1602(a)(5) and (b)(7) will require 
similar conflict of interest disclosures to be displayed prominently 
on the prospectus cover page and summary, respectively. We expect 
this prominence will further heighten the benefits discussed in this 
section, while incurring limited additional compliance cost, as the 
information is largely already disclosed elsewhere in Item 1603.
    \1290\ See supra section II.B for more information about current 
disclosure requirements.
---------------------------------------------------------------------------

    These disclosures about the SPAC sponsor, affiliates, and promoters 
may benefit investors by enabling them to better evaluate the 
circumstances that may impact their investment decision regarding a 
specific SPAC.\1291\ Given

[[Page 14276]]

that investor expectations about the investment value of a SPAC 
incorporate expectations about the target search process and resulting 
de-SPAC transaction, investors assessments likely rely on specifics 
about the SPAC sponsor and SPAC compensation structure, which these 
disclosures should help ensure is available.
---------------------------------------------------------------------------

    \1291\ Academic literature provides some evidence that 
characteristics of a SPAC sponsor, such as experience or network, 
may be indicative of the SPAC's ability to select and execute 
quality transactions. See, e.g., Chen Lin, Proposing Release, supra 
note 7, at 29462, n.30. Additionally, the staff's general experience 
in observing the SPAC industry is that market participants often 
emphasize the skill or experience of the SPAC sponsor as important 
to the performance of the SPAC.
---------------------------------------------------------------------------

    Item 1603(a) may increase compliance costs at the SPAC IPO, mainly 
in the form of collecting, preparing, and filing the required 
information for disclosures about SPAC sponsors, their affiliates, and 
their promoters. While SPAC sponsors, their affiliates, and promoters 
may be external to the SPAC, we believe the close relationships 
typically between the SPAC and these parties will enable the SPAC to 
request the data required to be disclosed under the final rules with 
little additional difficulty compared to compiling the same information 
from persons internal to the SPAC, such as its officers and directors 
subject to the rules. Overall, we do not expect registrant compliance 
costs to be substantial because most of this information should be 
readily available; some of this information is currently being provided 
by SPACs, as suggested by commenters.\1292\ The extent to which this 
information is already being provided will affect both the additional 
compliance costs and marginal information benefits commensurately. The 
final rules will create a uniform and transparent framework across-the-
board, maintaining a minimum floor standard should market practice 
change.
---------------------------------------------------------------------------

    \1292\ See, e.g., supra notes 128 and 182.
---------------------------------------------------------------------------

    Item 1603(b) requires disclosure of conflicts of interest between: 
(1) a SPAC sponsor or its affiliates; the SPAC's officers, directors, 
or promoters; or the target company's officers and directors and (2) 
the unaffiliated security holders of the SPAC. We expect these 
disclosure requirements will enable investors to better assess any 
actual or potential material conflict of interest, including any 
material conflict of interest that may arise in determining whether to 
proceed with a de-SPAC transaction and any material conflict of 
interest arising from the manner in which the SPAC compensates SPAC 
sponsors, officers, and directors or the manner in which SPAC sponsors 
compensate its officers and directors. Such enhanced ability to 
evaluate conflicts should benefit investors by enabling them to more 
accurately assess potential adverse selection risks, thereby 
facilitating better investment decisions. Further, information about 
conflicts of interest at the SPAC IPO stage should improve investors' 
ability to differentiate investments in a SPAC from other investment 
opportunities and to differentiate one SPAC from another SPAC.
    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 conflict of 
interest; (ii) developing and maintaining methods for tracking any such 
conflict of interest; and (iii) seeking legal or other advice. While 
the additional direct costs associated with Item 1603(b) disclosure 
requirements will depend on the extent to which a SPAC already provides 
this disclosure under current practices, we expect these costs to 
generally be low.\1293\ SPACs may also incur additional indirect costs 
if, although not required under Commission rules, they choose to take 
actions to mitigate any identified conflict of interest as a result of 
the final rule. For example, there may be cases where the SPAC would 
not have otherwise reviewed the conflicts or in cases where the SPAC 
would not have taken actions to mitigate any identified conflict of 
interest but for the requirement to publicly disclose the conflicts. 
However, to the extent a SPAC takes such mitigating actions, there will 
also be an indirect benefit to investors who will face less adverse 
selection costs as a result.
---------------------------------------------------------------------------

    \1293\ 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. See Vijay M. Jog & 
Chengye Sun, Blank Check IPOs: A Home Run for Management (Working 
Paper, 2007), available at https://ssrn.com/abstract=1018242 
(retrieved from SSRN Elsevier Database). This evidence suggests that 
most SPACs are generally aware of these actual or potential 
conflicts and would therefore only bear costs insofar as our new 
requirements would involve providing greater detail or specificity 
in the disclosures of conflicts of interest.
---------------------------------------------------------------------------

    Item 1603(c) requires disclosure about the fiduciary duties that a 
SPAC's officers and directors owe to other companies. We expect that 
this disclosure will allow 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 competes with the SPAC. The extent that a SPAC's 
officers or directors owe fiduciary duties to other companies may also 
limit the attention that they are able to provide to the SPAC. We 
expect that these disclosures will benefit investors by allowing them 
to better assess the ability and incentives of the officers and 
directors managing the SPAC.
    We do not expect the disclosures of a SPAC officer's or director's 
fiduciary duties to other companies pursuant to Item 1603(c) will 
generally impose significant costs on SPACs. Officers and directors who 
manage the business of the SPAC should know their own roles in 
connection with other companies, so this information is likely known 
and easily accessible to the SPAC. Depending on specific facts and 
circumstances of a SPAC, however, the SPAC officers and directors may 
incur costs to comply with Item 1603(c) if they must research or seek 
the advice of counsel to determine whether a fiduciary relationship 
with another company exists. These costs may be minimal where little or 
no research or outside advice is required, such as in the absence of 
any other fiduciary relationships or when those relationships are 
already known. However, those costs are likely to increase as more 
research or outside advice is required.\1294\ These additional costs 
(and the corresponding benefits) will be mitigated to the extent a 
newly formed SPAC would have provided Item 1603(c)-type disclosure even 
in the absence of the final rule.
---------------------------------------------------------------------------

    \1294\ There may be circumstances in which analysis of the law 
and governing documents of another company may be required to 
determine if a role at that company carries fiduciary obligations 
(such as those that might be commonly owed by a director of a 
corporation to stockholders depending upon applicable law). Examples 
of this include situations in which: (1) the role at the other 
company is an officer role, (2) the relationship with the other 
company is as a controlling stockholder, or (3) the role is one 
where the person is involved in governance of another company that 
is an alternative entity (such as a limited liability company or 
limited partnership).
---------------------------------------------------------------------------

d. Structured Data Requirement (Item 1610)
    Item 1610 requires all disclosures in Items 1601 through 1609 of 
Regulation S-K to be tagged in Inline XBRL.\1295\ We expect that this 
requirement will augment the informational benefits of the new 
disclosure requirements at the SPAC IPO stage by making them easier to 
retrieve, aggregate, compare, filter, and analyze.
---------------------------------------------------------------------------

    \1295\ See supra section II.I.
---------------------------------------------------------------------------

    These final rules should be especially beneficial for investors 
differentiating between SPAC features, particularly due to the 
standardization of SPAC IPO disclosures, as specified in Items 1602 and 
1603. Together, we expect the adopted disclosure rules will facilitate 
investors' ability to process more

[[Page 14277]]

information across a wider sample of SPAC IPOs (due to Items 1602 and 
1603 requiring SPAC specific information in a standardized format) at a 
lower relative cost (due to the tagging requirements in Item 1610).
    Research evidence suggests that XBRL requirements for public 
operating company financial statement disclosures mitigate information 
asymmetry by reducing information processing costs, thereby making the 
disclosures easier to access and analyze.\1296\ Reductions in 
information processing costs may facilitate the monitoring of companies 
by external parties, and, as a result, influence companies' behavior, 
including their disclosure choices.\1297\
---------------------------------------------------------------------------

    \1296\ 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 (2012) (finding 
evidence that ``mandatory XBRL disclosure decreases information risk 
and information asymmetry in both general and uncertain information 
environments''); Yuyun Huang, Jerry Parwada, Yuan George Shan & Joey 
(Wenling) Yang, Insider Profitability and Public Information: 
Evidence from the XBRL Mandate (working paper, Sept. 17, 2019, last 
revised May 28, 2020), available at https://ssrn.com/abstract=3455105 (retrieved from SSRN Elsevier database) (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''). We do not expect these 
findings to materially differ with regards to Inline XBRL 
requirements.
    \1297\ See, e.g., Jeff Zeyun, 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, Jeon-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 (Am. Acct. Assoc. Annual Meeting 
conference paper, Aug. 6, 2014) available at https://www.business.kaist.edu/_prog/seminar/download.php?file=seminar_1_1478854039.pdf&ori_filename=paper.pdf&filedr=kr (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), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3463897 (retrieved from SSRN Elsevier 
database) (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 studies looked at operating company financial statement 
disclosures rather than SPAC disclosures specifically, given the 
general similarity in disclosure settings, the findings of these 
studies suggest that the Inline XBRL requirements in the final rules 
could directly or indirectly (i.e., through information 
intermediaries, such as financial media, data aggregators, and 
academic researchers) provide investors in SPACs with similar 
benefits.
---------------------------------------------------------------------------

    In addition, we expect Inline XBRL will facilitate increased 
insight into the specialized SPAC IPO disclosures, and will allow for 
easier, less costly comparisons with other SPACs by providing 
additional functionality such as detailed filtering by criteria such as 
offering size, dilutive impact, or SPAC sponsor name.\1298\ Also, as 
with Inline XBRL tagging of financial statements and notes, the 
specialized SPAC disclosures will include tagged narrative discussions 
in addition to tagged quantitative values.\1299\ Tagging narrative 
disclosures in the context of SPAC IPOs should facilitate beneficial 
analyses, such as automatic comparison or redlining of these 
disclosures against those provided by other SPACs or targeted 
assessments of specific SPAC specialized disclosures. For example, 
without Inline XBRL tagging, using the search term ``warrant'' to 
search through the text of all SPAC IPO registration statements to 
determine how many such offerings disclosed the inclusion of warrants 
as part of the SPAC sponsor ``promote'' could return many narrative 
disclosures outside of that discussion (e.g., disclosures related to 
warrants offered to investors as part of the IPO).
---------------------------------------------------------------------------

    \1298\ 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 (2018).
    \1299\ For example, Item 1603 consists largely of narrative 
disclosure regarding the SPAC sponsor but also includes quantitative 
disclosure regarding the compensation paid (or to be paid) to the 
SPAC sponsor, its affiliates, and any promoters.
---------------------------------------------------------------------------

    We expect the requirement to tag SPAC-specific disclosures in 
Inline XBRL will 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 notes) and cover 
page information in certain registration statements and periodic 
reports in Inline XBRL.\1300\ However, SPACs are currently 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.\1301\
---------------------------------------------------------------------------

    \1300\ See supra section II.I.
    \1301\ See 17 CFR 229.601(b)(101)(i)(A).
---------------------------------------------------------------------------

    Various preparation solutions have been developed and used by 
operating companies to fulfill XBRL tagging requirements, and some 
evidence suggests that XBRL compliance costs have decreased over time 
for smaller companies.\1302\ 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 are 
shell companies, which have no or nominal operations, it may be more 
likely that SPACs outsource their tagging obligations to a third-party 
service provider. In such cases, a SPAC would avoid the aforementioned 
software licensing and training costs but incur the costs of retaining 
such third-party services.
---------------------------------------------------------------------------

    \1302\ An AICPA survey of 1,032 reporting companies with $75 
million or less in market capitalization in 2018 found, for fully 
outsourced XBRL creation and filing, 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. This represented a 45% decline in average cost and 
a 69% decline in median cost since 2014. See AICPA, XBRL Costs for 
Small Companies Have Declined 45% Since 2014 (2018), available at 
https://us.aicpa.org/content/dam/aicpa/interestareas/frc/accountingfinancialreporting/xbrl/downloadabledocuments/xbrl-costs-for-small-companies.pdf; 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)] 
(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).
---------------------------------------------------------------------------

iii. De-SPAC Transactions
    Given the hybrid nature of the de-SPAC transaction (i.e., that it 
contains elements of both an IPO and an M&A transaction), the de-SPAC 
transaction involves information asymmetries and incentives that are 
different from those present at the SPAC IPO stage or in traditional 
IPOs. The de-SPAC transaction represents the introduction of the target 
company to the SPAC shareholders, who typically vote on approval of the 
de-SPAC transaction and decide whether to redeem their shares.\1303\ We 
expect both voting and redemption decisions will benefit from the 
informational improvements and liability protections arising from the 
final rules.
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    \1303\ See supra note 31 and accompanying text.
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a. Sponsors and Conflicts of Interest (Item 1603)
    As discussed above, Item 1603 includes, among other things, 
disclosure of details about the SPAC sponsor, its affiliates, and 
promotors, and conflicts of interest generally between those parties 
and SPAC shareholders. Similar to the final rule requirements that 
apply

[[Page 14278]]

at the SPAC IPO stage discussed above, at the de-SPAC transaction 
stage, Item 1604(a)(4) and (b)(3) require certain conflict of interest 
disclosures to be displayed prominently on the prospectus outside front 
cover page and in the summary.
    We expect the benefits of Item 1603 (and Item 1604(a)(4) and 
(b)(3)) in connection with disclosures at the de-SPAC transaction stage 
on a proxy, information, or registration statement or on a Schedule TO 
to be largely the same as the effects of the same Item 1603 disclosures 
made in connection with the SPAC IPO, as discussed above.\1304\ These 
benefits, however, may be incrementally greater insofar 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.\1305\ We similarly expect the costs of compliance with Item 1603 
(and Item 1604(a)(4) and (b)(3)) to be comparable at the de-SPAC 
transaction stage to the costs of compliance at the SPAC IPO stage, as 
discussed above. However, because application of Item 1603 (and Item 
1604(a)(4) and (b)(3)) at the SPAC IPO stage results in SPACs already 
having prepared and disclosed much of the required information, the 
costs of updating those disclosures for evolved circumstances at the 
de-SPAC transaction stage should be lower.
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    \1304\ See supra section VIII.B.1.ii.
    \1305\ Id.
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b. Prospectus Cover Page, Summary, and Other Disclosures (Item 1604)
    Currently, a de-SPAC transaction may be registered on a Form S-4 or 
Form F-4, and, to the extent that a de-SPAC registration statement must 
be filed due to the operation of Rule 145a, we expect that there will 
be additional registered de-SPAC transactions as a result of the final 
rules. Item 1604(a) and (b) require any prospectus at the de-SPAC 
transaction stage to include certain information about the de-SPAC 
transaction on the outside front cover page and in the prospectus 
summary, similar to the requirements of Item 1602 at the SPAC IPO 
stage.\1306\ This includes disclosure on the cover page of, among other 
information: the determination, if any, of the board of directors (or 
similar governing body) of the SPAC disclosed in response to Item 
1606(a) and, if applicable, that the SPAC or the SPAC sponsor received 
a report, opinion, or appraisal referred to in Item 1607(a); 
descriptions of certain material financing transactions; compensation 
received or to be received by the SPAC sponsor, its affiliates and 
promoters (including securities issued); and any actual or potential 
conflict of interest between specified parties of the SPAC and target 
on the one hand and unaffiliated security holders of the SPAC on the 
other hand. In the prospectus summary, SPACs will be required to 
include a brief description of, among other information: the background 
and material terms of the de-SPAC transaction; the determination, if 
any, of the board of directors (or similar governing body) of the SPAC 
disclosed in response to Item 1606(a) and any reports, opinions or 
appraisals referred to in Item 1607(a); any actual or potential 
material conflict of interest between specified parties of the SPAC and 
target on the one hand and unaffiliated security holders of the SPAC on 
the other hand; compensation received or to be received by the SPAC 
sponsor, its affiliates, and promoters (including securities issued) in 
tabular format and the impact of these compensation and securities 
issuances on dilution in narrative form; the material terms of certain 
financing transactions; and the redemption rights of security holders 
and the potential dilutive impact of redemptions on the value of the 
securities owned by non-redeeming shareholders.
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    \1306\ See supra section II.E for more information about the 
regulatory baseline. The prospectus is a part of the registration 
statement.
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    We expect that final Item 1604(a) and (b) will have similar 
potential direct benefits for investors as those we discussed for Item 
1602 above--that is, the additional disclosures on the de-SPAC 
transaction prospectus cover page and in the prospectus summary may 
increase the likelihood that investors pay attention to and process 
this information by making it more salient.\1307\ Additionally, the new 
disclosures in the de-SPAC transaction prospectus summary may reduce 
information-processing costs for investors, particularly less 
financially sophisticated investors, by providing certain SPAC-specific 
disclosures in a concise format. Moreover, as with Item 1602(b)(6) at 
the IPO stage, Item 1604(b)(4) requires tabular disclosure in the 
prospectus summary regarding the terms and amount of the compensation 
received or to be received by the SPAC sponsor, its affiliates, and 
promoters and the amount of securities issued or to be issued by the 
SPAC to the SPAC sponsor, its affiliates, and promoters and the price 
paid or to be paid for such securities in connection with the de-SPAC 
transaction or any related financing transaction, and, outside of the 
table, the extent to which that compensation and securities issuance 
has resulted or may result in a material dilution of the equity 
interests of non-redeeming shareholders of the SPAC. Presenting this 
information in tabular format may further help reduce information-
processing costs for some investors.\1308\ Additionally, Item 1604(a) 
and (b) 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 de-SPAC 
transactions by different SPACs. Overall, because of the aforementioned 
beneficial effects of increasing investors' attention and reducing 
their information processing costs, we expect the additional 
disclosures on the prospectus cover page and in the prospectus summary 
will help improve the compounding of important information into 
investors' investment decisions at a relatively lower cost.
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    \1307\ See discussion in supra section VIII.B.1.ii.b. Also note 
that Item 1604(c) is discussed separately in the following section.
    \1308\ See supra notes 1262 and 1263 and accompanying text.
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    In addition to the direct benefits discussed above, certain 
information that Item 1604 requires registrants to disclose may 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, allowing them to identify and focus in on those conflicts they 
deem potentially adverse to their own interests.\1309\ In turn, the 
disclosures may have an ex ante disciplining effect on SPAC sponsors 
and others whose conflicts must be disclosed that could mitigate the 
potential costs to investors of those conflicts of interests.
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    \1309\ See supra section II.C for more detail on the specifics 
of the required conflict of interest disclosures.
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    The additional information that Item 1604(a) and (b) require in the 
de-SPAC transaction prospectus may increase compliance costs for SPACs 
if it would result in SPACs needing to gather and disclose information 
they would not otherwise have provided in a de-SPAC transaction. 
Additionally, as with Item 1602, it is possible that the disclosures 
required under Item 1604 could result in additional processing costs 
for investors.\1310\ However, to the extent that a SPAC may have 
otherwise intended to disclose information similar to that required 
under Item 1604, which based on staff review of existing filings is 
often the case, or where the SPAC has

[[Page 14279]]

this information readily available, these additional costs and benefits 
would be mitigated.\1311\
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    \1310\ See supra note 1265 and accompanying text.
    \1311\ We note that even when SPACs would have otherwise 
intended to disclose similar information, the final rules should 
still provide value to the extent they result in more consistent 
standardization than has, or would have, arisen organically.
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c. Dilution (Item 1604(a)(3), (b)(4), (5), and (6), (c))
    By the time a SPAC finds a target company and prepares its de-SPAC 
transaction, many facts and circumstances that affect dilution and the 
financial position of the SPAC have changed, both when compared to the 
SPAC at its IPO stage as well as when compared to other SPACs. The 
result of this evolution is that, unlike at the SPAC IPO stage when 
most SPACs exhibit similar features, de-SPAC transactions are often 
more complex and idiosyncratic. By the time of the de-SPAC transaction, 
many new sources of dilution are likely to have arisen. For example, a 
SPAC may determine a potential PIPE investment or potential change to a 
SPAC sponsor's compensation or securities issued to a SPAC sponsor is a 
``material probable transaction.'' Pursuant to Item 1604(c), in 
calculating dilution, a SPAC will be required to make adjustments to 
net tangible book value per share, as adjusted, to reflect such events.
    Item 1604(a)(3) requires the outside cover page of the prospectus 
at the de-SPAC transaction stage to contain a statement as to whether 
certain compensation and securities issuances disclosed pursuant to 
this item 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. Item 1604(b)(4) requires 
disclosure in the prospectus summary of the extent to which certain 
compensation and securities issuances have resulted or may result in a 
material dilution of the equity interests of non-redeeming shareholders 
of the SPAC. Item 1604(b)(5) requires disclosure of the dilutive impact 
on non-redeeming shareholders that any financing transactions 
associated with the de-SPAC transaction may have. Item 1604(b)(6) 
requires disclosure of the potential dilutive impact on non-redeeming 
shareholders of the rights of security holders to redeem their 
outstanding securities.
    Item 1604(c) requires tabular disclosure of the impact from 
dilutive sources on net tangible book value per share, as adjusted, at 
intervals representing selected potential redemption levels that may 
occur across a reasonably likely range of outcomes. Specifically, Item 
1604(c) requires disclosure of the net tangible book value per share, 
as adjusted, as if the selected redemption levels have occurred and to 
give effect to, while excluding the de-SPAC transaction itself, 
material probable or consummated transactions and other material 
effects on the SPAC's net tangible book value per share, as adjusted, 
from the de-SPAC transaction. The requirement in Item 1604(c) to 
provide these disclosures across ``a reasonably likely range of 
outcomes'' instead of the fixed quartiles required in Item 1602(c) will 
allow registrants to account for facts and circumstances that are 
unique to each SPAC and allow for more customized disclosures that 
still conform to a consistent and comparable format.\1312\
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    \1312\ At this later stage, the SPAC likely has more information 
with which to estimate the number of shareholders it expects to 
redeem their shares, potentially allowing for more informative 
outcome choices in the tabular disclosure.
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    The tabular disclosure in Item 1604(c) is also required to include 
separate quantification of the dilutive impact from each source of 
dilution, which will provide detailed disaggregated information on the 
various sources of dilution.\1313\ Lastly, Item 1604(c)(1) requires 
disclosure at each redemption level of 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.
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    \1313\ In this respect, Item 1604(c) tabular dilution disclosure 
should be similar to Item 1602(c) tabular dilution disclosure as, in 
order to quantify the source of dilution for purposes of the table, 
registrants should present it as an individual line-item in the 
calculations in the table.
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    Generally, we expect Item 1604(c) to result in similar benefits and 
costs as those discussed above with regard to dilution disclosures at 
the SPAC IPO stage.\1314\ As the disclosure calculations in Item 
1604(c) will likely include additional factors--such as ``material 
probable transactions''--that were not included in the SPAC IPO stage 
disclosures, we expect these disclosures at the de-SPAC transaction 
stage will be more informative for investor expectations about 
dilution. Consequently, our discussion below focuses on the novel 
aspects of dilution disclosures at the de-SPAC transaction stage (as 
compared to dilution disclosure at the IPO stage) and should be 
considered in addition to our discussion above of the costs and 
benefits of dilution information at the SPAC IPO stage.
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    \1314\ See supra section VIII.B.ii.b.
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    The dilution disclosure at redemption levels across a ``reasonably 
likely range of outcomes'' required in Item 1604(c) will provide 
investors with information that should more accurately represent the 
dilution that they might experience if they choose not to redeem their 
shares, as compared to current disclosures.\1315\ Further, the specific 
redemption levels registrants choose to include in the table should 
convey information about registrant expectations of redemption 
scenarios that should allow investors to better anticipate the effects 
of the dilution on their investment value.\1316\ In addition, as 
discussed above, 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.\1317\
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    \1315\ See supra note 221.
    \1316\ The specific levels selected would be informative to the 
extent registrants choose redemption levels specific to their 
circumstances, rather than adopting fixed or industry standard 
ranges.
    \1317\ See Hattie, supra note 1262; Benbasat & Dexter, supra 
note 1263.
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    Allowing registrants discretion to select ``reasonably likely'' 
redemption levels may impact the comparability of these disclosures 
across SPACs to the extent that the final rule results in tables with 
different numbers of chosen redemption scenarios or at different values 
or with differences in both respects. On the other hand, such allowance 
should result in registrants selecting redemption levels based on 
registrant-specific information (for example, if a PIPE investment has 
a firm commitment to buy if redemption thresholds are reached), which 
could result in disclosures that are more informative to investors. We 
expect the informational value of de-SPAC-transaction-specific 
redemption sensitivity will offset the reduced direct comparability 
across SPACs.\1318\ Also, to the extent there is reduced direct 
comparability, we expect this will be mitigated by some investors using 
analytic techniques to infer dilution at redemption levels other than 
those selected by registrants.
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    \1318\ If, as mentioned above (supra note 1316), registrants 
adopt industry standard redemption levels for the purposes of this 
disclosure, then the decrease in registrant-specific information 
will be concomitant with an increase in comparability due to the 
industry standard.
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    We expect some incremental compliance costs from Item 1604(c) for 
registrants in future de-SPAC transactions that did not already intend 
to provide disclosures similar in nature

[[Page 14280]]

to what is required by this item. Many of these incremental costs to 
registrants are similar to those at the SPAC IPO stage discussed above, 
such as the costs of aggregating data and employing quantitative 
expertise. Factors that mitigate those costs are also similar to those 
at the IPO stage discussed above, such as data availability and 
adoption of standard practices.\1319\ To the extent the multiple 
dilution disclosures at the de-SPAC transaction stage capture more 
transactions and complexity than those at the IPO stage, we expect the 
associated costs to registrants to be relatively higher than those 
incurred by the SPAC at the IPO stage. However, we also expect these 
Item 1604 dilution disclosures will have greater informational value to 
investors at this later, more heterogeneous stage.
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    \1319\ See supra section VIII.B.1.ii.b.
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d. Background, Material Terms, and Effects of the De-SPAC Transaction 
(Item 1605)
    Item 1605(a) through (c) of Regulation S-K require disclosure of 
the background of the de-SPAC transaction (e.g., description of any 
contacts, negotiations, transactions that have occurred), material 
terms of the de-SPAC transaction, and effects of the de-SPAC 
transaction and any related financing transactions. Item 1605(d) 
requires disclosure of any material interests in the de-SPAC 
transaction or any related financing transaction: (i) held by the SPAC 
sponsor or the SPAC's officers or directors, including fiduciary or 
contractual obligations to other entities as well as any interest in, 
or affiliation with, the target company; or (ii) held by the target 
company's officers or directors that consist of any interest in, or 
affiliation with, the SPAC sponsor or the SPAC.\1320\ These disclosures 
under Item 1605(a) through (d) should benefit investors by providing 
them with detailed information about the de-SPAC transaction, thereby 
enabling them to make more informed investment decisions (including 
voting and redemption decisions, if allowed). For example, the required 
disclosure could allow investors to assess whether the de-SPAC 
transaction or any related financing transaction has been structured in 
a manner that would benefit the SPAC sponsor to the detriment of the 
other security holders of the SPAC.
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    \1320\ See supra section II.F.1 for information about the 
regulatory baseline.
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    Item 1605(e) requires disclosure as to whether security holders are 
entitled to any redemption or appraisal rights, and if so, a summary of 
the redemption or appraisal rights. These disclosures should help 
investors to better understand their rights and 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.\1321\
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    \1321\ Redemption decisions by investors can have significant 
impacts on the dilution faced by non-redeeming shareholders. See 
supra sections VIII.B.1.ii.b and VIII.B.1.iii.c.
---------------------------------------------------------------------------

    Item 1605 could increase registrants' compliance costs related to 
de-SPAC transactions. The magnitude of the incremental increase in 
these costs will depend on the amount of information that SPACs and 
target companies would have intended to disclose in connection with 
future de-SPAC transactions in the absence of the final rule. Based on 
staff experience of market practice and current disclosure 
requirements, we expect registrants to have already planned to disclose 
much of what is required by Item 1605(a), (b), (d), and (e).\1322\ The 
disclosures required by Item 1605(c) are not common practice in the 
staff's experience; thus, they may result in additional costs to 
registrants (for example, this disclosure may require additional legal 
advice and management time to gather and analyze information to assess 
the effects of the de-SPAC transaction). To the extent that registrants 
already intended to disclose information required by Item 1605 or have 
the information readily available, the incremental increase in these 
costs and benefits would be mitigated.\1323\
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    \1322\ This is also consistent with comments received. See supra 
note 352.
    \1323\ Again, we note that even when SPACs would have otherwise 
intended to disclose similar information, the final rules should 
still provide value to the extent they result in more consistent 
standardization than has, or would have, arisen organically.
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e. Board Determination About the De-SPAC Transaction (Item 1606)
    If the law of the jurisdiction in which the SPAC is organized 
requires its board of directors (or similar governing body) to 
determine whether the de-SPAC transaction is advisable and in the best 
interests of the SPAC and its shareholders, or otherwise make any 
comparable determination, Item 1606(a) requires disclosure of that 
determination. Item 1606(b) requires a discussion of the material 
factors considered in making the determination, including but not 
limited to, to the extent considered, the target company valuation, 
financial projections relied upon by the board of directors (or similar 
governing body) of the SPAC, and the terms of financing materially 
related to the de-SPAC transaction. Item 1606(c) through (e) require 
disclosure about the de-SPAC transaction, including whether a majority 
of unaffiliated security holders is required to approve the de-SPAC 
transaction, the involvement of any unaffiliated representative acting 
on behalf of unaffiliated security holders, whether the de-SPAC 
transaction was approved by a majority of the directors (or members of 
similar governing body) of the SPAC who are not employees of the SPAC, 
and if known after making reasonably inquiry, the reason behind any 
abstentions or votes against the transaction.
    Investors should benefit from the requirements of Item 1606(a) and 
(b) as disclosure thereunder will reduce information asymmetry between 
the SPAC investors and the SPAC by providing information about the 
board's determination and decision making regarding the de-SPAC 
transaction. Information disclosed under Item 1606(c) through (e) will 
benefit investors by providing further details about the de-SPAC 
transaction bargaining and voting process, including important 
information regarding potential dissenting director votes, which could 
potentially mitigate conflicts of interest. These disclosures provide 
information that collectively should allow investors to understand the 
multiple factors undergirding the decisions of the board, thereby 
improving investment decision-making by investors in connection with 
the de-SPAC transaction.
    We expect Item 1606(a) and (b) will result in limited increases in 
compliance costs for registrants because this information should be 
readily available to the SPAC as the directors are likely to have 
already assembled the information necessary to provide these 
disclosures in carrying out their fiduciary duties to the SPAC, and the 
disclosure is only required if the law of the jurisdiction in which the 
SPAC is organized requires such board determination.\1324\ Similarly, 
we expect the compliance costs of Item 1606(c) through (e) to be 
minimal as, again, the information is likely readily available, for 
example because it is recorded in board meeting minutes or found in 
governance documents. To the extent that registrants already intended 
to disclose some of the information required by Item 1606 or have this 
information readily available, the

[[Page 14281]]

incremental increase in the registrant's costs would be mitigated.
---------------------------------------------------------------------------

    \1324\ Given the data in Table 4, this would apply to most 
SPACs.
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    One commenter raised the possibility that requiring the 
identification of members of the governing body that do not vote for 
the transaction (and the reasoning for their abstention or vote 
against) might disincentivize them to vote accordingly and ``could also 
have the effect of inhibiting discussion among directors at board 
meetings.'' \1325\ Directors are generally subject to fiduciary duties 
imposed by State or foreign law. As a result, we expect that directors 
will generally seek to make voting decisions consistent with those 
fiduciary duties to shareholders or the company irrespective of whether 
they will be identified as voting against the transaction or 
abstaining. Further, while it is possible that directors could believe 
they face increased cost to dissenting publicly (via their official 
recorded vote) because of this requirement, we do not expect the final 
rules will detrimentally limit any private conversations among the 
board of directors, contrary to the assertion of the commenter.\1326\ 
Consequently, we do not believe this requirement will result in 
significant instances of de-SPAC transactions being approved even when 
the majority of directors would have voted against approval but for the 
final rule, because in those cases, we expect the privately dissenting 
majority to communicate their dissent and successfully vote to not 
approve the transaction, in which case no disclosures would be required 
for such failing votes.
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    \1325\ Letter from Freshfields.
    \1326\ Id. The commenter did not provide reasoning nor evidence 
for the conclusion that the final rule would inhibit private 
discussion among board members, and we are not aware of any economic 
cost imposed by the final rule that would affect such private 
conversations.
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f. Reports, Opinions, Appraisals, and Negotiations (Items 1607)
    Item 1607(a) requires disclosure of the information required by 
Item 1607(b) if the SPAC or the SPAC sponsor received any report, 
opinion (other than an opinion of counsel), or appraisal from an 
outside party or an unaffiliated representative referred to in Item 
1606(d) that materially relates to any determination disclosed in 
response to Item 1606(a), the approval of the de-SPAC transaction, the 
consideration or fairness of the consideration to be offered to 
security holders of the target company in the de-SPAC transaction, or 
the fairness of the de-SPAC transaction to the SPAC, its security 
holders, or SPAC sponsor. Item 1607(b) requires, among other things, 
disclosure about the preparer of the reports, opinions or appraisals 
referred to in Item 1607(a) or negotiations or reports described in 
response to Item 1606(d), and a summary of those negotiations, reports, 
opinions or appraisals.\1327\ Item 1607(c) requires all reports, 
opinions, or appraisals referred to in Item 1607(a) and (b) to be filed 
as exhibits to the registration statement (e.g., Form S-4, Form F-4) or 
schedule or included in the schedule if the schedule does not have 
exhibit filing requirements.\1328\
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    \1327\ See supra section II.G.12.
    \1328\ The Item 1607(c) requirements to file reports, opinions, 
or appraisals as exhibits to the schedule or to include them in the 
schedule if the schedule does not have filing requirements are 
relevant to Schedules TO, 14A and 14C.
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    The Item 1607 disclosures will help ensure that SPAC shareholders 
have access to information that the SPAC or a SPAC sponsor received 
from an outside party or unaffiliated representative (referred to in 
Item 1606(d)) when determining whether to proceed with a de-SPAC 
transaction. We expect this additional information will improve 
investors' ability to make informed investment decisions and thus will 
contribute to price efficiency of the combined company. Moreover, we 
expect the reduction in asymmetric information will contribute to 
improved liquidity of the combined company.
    As discussed above, Item 1607 requires, among other things, with 
respect to certain reports, opinions, or appraisals: a summary of 
findings and recommendations; filing of the report, opinion, or 
appraisal; and a summary of the bases for and methods of arriving at 
the findings and recommendations. We expect the requirements of Item 
1607 will improve investor investment decision-making. For example, the 
summary of findings and recommendations should help investors 
understand the report contents. Even where a report is brief, it may be 
written in a particular standardized format that the outside party 
requires in connection with all such reports they provide, which some 
investors may have difficulty understanding. The summary version 
disclosed in the filing may present the information in a narrative 
fashion that enhances investor understanding. If investors prefer 
additional details, they can consult the actual report filed with the 
filing that contains the summary. Additionally, the requirement to 
disclose the bases and methods underlying the findings should provide 
important information to the investor that may not be part of the 
report itself but may be necessary to understand the basis for the 
report's conclusions.
    The Item 1607 disclosures should also help investors assess the 
reliability and relevance of the report. In particular, we expect 
disclosure related to compensation, method of selection, and material 
relationships will help investors understand the incentives, potential 
conflicts of interest, or potential biases that could influence the 
outside party in preparing the report, opinion, or appraisal. 
Similarly, we expect the disclosure requirements related to identity, 
qualifications, instructions, limitations on scope of the 
investigation, will help investors assess the relevance of the report 
to their assessment of the proposed combination.
    We expect the cost of gathering the information necessary to make 
the required Item 1607 disclosures related to identity, qualifications, 
compensation, selection process, instructions and limitations on the 
scope of the investigation will not be significant because we expect 
that the information required will generally be readily available to 
the registrant or the outside party that prepared the report or both.
    Regarding material relationships, we expect the limited two-year 
look-back period will limit the burden on the SPAC to research relevant 
past relationships. We expect the SPAC and SPAC sponsor (or advisor or 
other unaffiliated representative) will have this information readily 
available in internal records, such as agreements between the relevant 
persons or records of financial transactions. We expect, however, the 
SPAC or its advisors will incur some costs to perform additional 
research in order to ensure it has identified the affiliates of the 
outside party.\1329\
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    \1329\ With respect to affiliates of the SPAC sponsor, we do not 
expect there will be information-gathering costs in addition to 
those already incurred in connection with Item 1603(a)(7) (regarding 
indirect material interests in the SPAC sponsor). We discuss those 
costs above in connection with the discussion of Item 1603, supra 
section VIII.B.1.ii.c.
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    The incremental costs and benefits of the final rules will be 
somewhat mitigated to the extent that some of these disclosures would 
otherwise be required to comply with other rules, such as Regulation M-
A or FINRA Rule 5150.
    Item 1607(c) requires the filing of the relevant report, opinion, 
or appraisal. As a result of this requirement, registrants will need to 
ensure the report, opinion, or appraisal is formatted so it can be 
filed in EDGAR. Based on the Commission staff's experience, we do not 
expect registrants

[[Page 14282]]

to incur substantial costs in formatting or paying a vendor to format 
the relevant material for filing in EDGAR.
    The final rules may also impact the cost of obtaining third-party 
reports.\1330\ For example, some parties may be concerned about 
liability related to reliance on their report, which may prompt them to 
increase the cost of providing the report.\1331\ Additionally, 
disclosure requirements about the bases and methods underlying the 
findings may prompt registrants to ask third parties to include fully 
comprehensive descriptions of their methods and bases, which would 
potentially increase the fees charged by those third parties. Finally, 
the compensation disclosures could result in the revelation of 
competitive business information, which may influence fees for these 
services.
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    \1330\ In 2021, the average costs for fairness opinions obtained 
by SPAC acquirers where such information was presented in an SEC 
filing was approximately $270,000. See supra section VIII.A.2.
    \1331\ See, e.g., letter from Goodwin (``Most professionals 
preparing these materials are not trained to prepare these documents 
in a manner that would be appropriate for public disclosure.'').
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    Finally, while Item 1607 does not mandate registrants to obtain any 
report, opinion, or appraisal, we acknowledge that it is possible that 
the requirement could prompt some registrants to obtain reports, 
opinions or appraisals to avoid the appearance of failing to adequately 
assess the target companies' prospects and financial condition. As 
discussed in the baseline, approximately 68% of de-SPAC transactions in 
2022 did not disclose that a fairness opinion was obtained in 
connection with the transaction. Conversely, the requirement may also 
deter some SPACs from relying on third-party reports, choosing instead 
to rely on internal assessments (as Item 1607 does not apply to 
internal work product). As a result, some SPACs may fail to identify 
low-quality targets during the due-diligence process, to the extent 
that such internal assessments do not include the depth of analysis or 
expertise that would ordinarily be reflected in a fairness opinion. 
Finally, any impact of the rule on decisions to obtain third-party 
opinions or valuations could depend on the prospects of the target 
company. That is, sponsors may be more likely to seek third-party 
opinions for deals that they view as being more likely to result in 
favorable opinions.
g. Tender Offer Filing Obligations (Item 1608)
    We are adopting Item 1608 of Regulation S-K to codify the staff 
position that a Schedule TO filed in connection with a de-SPAC 
transaction should contain substantially the same information about a 
target 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 any transaction for which a Schedule TO is filed, 
which includes extensions as well as de-SPAC transactions.\1332\ For 
example, Item 1608 clarifies 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 requirements to keep the redemption 
period open for at least 20 business days and to include a fixed 
expiration date.\1333\
---------------------------------------------------------------------------

    \1332\ See supra section II.H.
    \1333\ Id.
---------------------------------------------------------------------------

    There were 23 Schedule TOs filed by 21 SPACs from 2020 to 
2022.\1334\ A minority of these Schedule TO filings (approximately 35% 
or 8 Schedule TOs) occurred alone i.e., without the concurrent filing 
of a proxy statement (Schedule 14A), information statement (Schedule 
14C), or registration statement (Form S-4 or F-4) that would provide 
additional disclosures regarding the de-SPAC transaction. These 
findings are consistent with our review of Schedule TO filings from 
2000-2021 in the Proposing Release.\1335\
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    \1334\ A study of 462 de-SPAC transactions that were completed 
in 2020 and 2021 found that approximately 99% of such transactions 
were accompanied by proxy disclosures and 81% involved a related 
filing of a registration statement on either Form S-4 or Form F-4. 
Of the 81% 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. See Michael Levitt, Valerie Jacob, Sebastian Fain, 
Pamela Marcogliese, Paul Tiger, & Andrea Basham, supra note 1231. In 
a corresponding report covering transactions that were completed in 
2022, approximately 87% of de-SPAC transactions involved a 
registration statement filing on either Form S-4 or F-4, of which 
approximately 91% were accompanied by a proxy statement and 9% by an 
information statement as a result of a consent solicitation. See 
Freshfields, 2022 De-SPAC Debrief: A Comprehensive Review of All 102 
De-SPAC Transactions that Closed in 2022, Freshfields.us (Jan. 
2023), available at https://www.freshfields.us/490963/globalassets/noindex/documents/2022-de-spac-debrief.pdf.
    \1335\ See Proposing Release, supra note 7, at 29529, n.501. 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 
1227 (``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, Yochanan Shachmurove & 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); Vulanovic, supra note 1225 (20% to 81.52% 
from 2003-2013).
---------------------------------------------------------------------------

    Given that the staff has historically expressed the view that a 
Schedule TO \1336\ 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, Item 1608 is unlikely to result in a meaningful difference in 
the nature or amount of information provided by registrants. Further, 
Rule 145a may reduce the number of SPACs filing a standalone Schedule 
TO in connection with a de-SPAC transaction thereby also reducing the 
number of potential parties affected by Item 1608 going forward. While 
we recognize that, for other redemption events where only a Schedule TO 
is filed--for instance, when a SPAC intends to extend or is otherwise 
not engaging in a concurrent de-SPAC transaction--an individual SPAC 
may incur incremental additional transaction and logistic costs,\1337\ 
we nevertheless expect the aggregate costs associated with these 
requirements to remain small because such events are rare.
---------------------------------------------------------------------------

    \1336\ Additionally, relatively few de-SPAC transactions have 
historically involved the filing of a Schedule TO alone. See supra 
note 1335 and accompanying text.
    \1337\ See letter from ABA.
---------------------------------------------------------------------------

h. Enhanced Projections Disclosure Requirements (Item 1609)
    Item 1609 complements the amendments to Item 10(b) of Regulation S-
K \1338\ and applies to projections made in a filing (or any exhibit 
thereto) in connection with a de-SPAC transaction.\1339\ Item 1609 
requires registrants to disclose the purpose for

[[Page 14283]]

which the projections were prepared and the party that prepared the 
projections. It also requires a discussion of all material bases of the 
disclosed projections and all material assumptions underlying the 
projections, and any material factors that may affect such assumptions.
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    \1338\ See supra section V; infra section VIII.B.4.
    \1339\ See supra section III. For additional information about 
the regulatory baseline for Item 1609, see supra section V.A.
---------------------------------------------------------------------------

    If the projections relate to the performance of the SPAC, the rule 
requires a statement of whether or not the projections reflect the view 
of the SPAC's management or board about its future performance as of 
the most recent practicable date prior to the date of the disclosure 
document required to be disseminated to security holders. If the 
projections relate to the target company, the rule requires disclosure 
of whether the target company has affirmed to the SPAC that its 
projections reflect the view of the target company's management or 
board about its future performance as of the most recent practicable 
date prior to the date of the disclosure document required to be 
disseminated to security holders. If the projections no longer reflect 
the views of the SPAC's or the target company's management or board 
regarding the future performance of their respective companies as of 
the most recent practicable date prior to the date of the disclosure 
document required to be disseminated to security holders, the rule 
requires a statement of the purpose of disclosing the projections and 
the reasons for any continued reliance by the management or board on 
the projections.
    We expect Item 1609, along with the amendments to Item 10(b), will 
result in improved disclosure about forward-looking information 
provided to investors, allowing them to better understand and consider 
the disclosed projections when making their investment decisions. We 
also expect that the final rules will result in increased 
standardization of the presentation of projections, which will further 
reduce information acquisition costs and facilitate comparisons across 
SPACs.
    The required disclosure of preparers' identities and purposes for 
which the projections were prepared should mitigate information 
asymmetry between the SPAC and investors as those disclosures may 
reveal preparers' potential conflicts of interest or allow assessment 
of their qualifications or abilities to perform projections. This is 
expected to be beneficial as the existing academic literature provides 
evidence that SPAC projections are common but often overly 
optimistic.\1340\ Another study found that optimistic forecasts are 
correlated with retail investor trading behavior but not so for 
institutional investor trading, indicating that retail investors may 
benefit more from the disclosures.\1341\
---------------------------------------------------------------------------

    \1340\ Blankespoor, Hendricks, Miller & Stockbridge, supra note 
1240, empirically found that: revenue forecasts occur among 80% of 
SPACs, only 35% of firms meet or beat those forecasts, and SPACs 
have growth targets that are approximately three times larger than 
expected (compared to a matched samples of IPO and established 
firms).
    \1341\ Michael Dambra, Omri Even-Tov & Kimberlyn Munevar, Are 
SPAC Revenue Forecasts Informative? 98 Acct. Rev. 1 (2023), 
empirically found that revenue forecasts are positively associated 
with abnormal returns in a short window around the merger 
announcement--and further, that this response is driven by retail 
investors, with no such response from institutional investors (based 
on 13F holding filings)--but negatively correlated over longer 
horizons. The paper caveats that structural differences between 
firms could also explain the retail investor trading trends, which 
would dampen the extent to which protections accrue to retail 
investors.
---------------------------------------------------------------------------

    We also expect the final rule will benefit investors by providing 
them with the information necessary to better determine the degree to 
which they may wish to rely on projections. Specifically, the 
requirement to discuss material bases and assumptions and their 
underlying rationales should enable investors to understand how the 
projections were derived, and subsequently how investors may choose to 
incorporate these projections into their expectations and decision-
making. The requirement to disclose whether any projections disclosed 
in a filing still reflect the views of management or the board of the 
SPAC or target company (as the case may be) may also help investors 
evaluate the reliability of the projections. Because we expect the 
company that is the subject of the projections to have more information 
about itself than outsiders, this information also could reduce 
information asymmetry between the SPAC and/or target company and 
investors regarding the reliability of those projections. Overall, the 
adopted disclosure under Item 1609 should benefit investors by helping 
them assess whether and to what extent to rely on projections used in a 
de-SPAC transaction in making voting, redemption, and investment 
decisions.\1342\
---------------------------------------------------------------------------

    \1342\ D. Eric Hirst, Lisa Koonce & Shankar Venkataraman, How 
Disaggregation Enhances the Credibility of Management Earnings 
Forecasts, 45 J. Acct. Res. 811 (July 17, 2007), available at 
https://doi.org/10.1111/j.1475-679X.2007.00252.x (experimentally 
shows 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). See also, Zahn Bozanic, 
Darren T. Roulstone, & Andrew Van Buskirk, Management Earnings 
Forecasts and Other Forward-looking Statements, 65 J. Acct. & Econ. 
1 (2018), available at https://doi.org/10.1016/j.jacceco.2017.11.008 
(demonstrating that non-earnings-forecast of items other than 
earnings forward-looking statements can generate significant 
responses from both investors and analysts and finding that the 
forward-looking statements, even statements unrelated to earnings, 
can provide value-relevant information to the capital market 
participants).
---------------------------------------------------------------------------

    As discussed above, Item 1609 requires registrants to identify 
providers of projections. Studies of the behavior of auditors of 
financial statements found that similar identification was associated 
with audit quality increases and misreporting decreases.\1343\ We 
expect Item 1609 will have analogous effects and will increase 
preparers' sense of accountability and potentially increase preparers' 
incentives to make reliable projections. We expect this benefit will 
apply regardless of whether the projections are provided by the 
management or board of the SPAC or the target company or a third-party 
provider.
---------------------------------------------------------------------------

    \1343\ Auditing literature provides evidence that audit quality 
increases and misreporting decreases when engagement 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) (documenting evidence that 
audit quality and audit fees increase in the first year when 
engagement 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 demonstrates that PCAOB's 
requirement of disclosing engagement partners' identity can reduce 
misreporting).
---------------------------------------------------------------------------

    We do not expect the direct compliance costs of Item 1609(a) and 
(b) to be substantial because companies should have the required 
information readily available given that the information required to be 
disclosed largely is what is necessary to perform the projections in 
the first place.
    However, there may be indirect costs to these amendments, such as 
registrants incurring increased liability costs \1344\ or increased 
proprietary or other disclosure costs,\1345\ especially in

[[Page 14284]]

combination with the co-registration requirement and the definitions of 
blank-check company for the purposes of the PSLRA we are also adopting. 
If SPACs believe these indirect costs are sufficiently high, these 
amendments could dampen their willingness to disclose projections, 
which could lead to a decrease in the amount of forward-looking 
information made available to investors. If this leads SPACs to omit 
projections that are informative to investors, their absence could 
result in increased valuation uncertainty. This effect could impact 
some SPACs more than others, depending on the disclosure requirements 
of their local jurisdictions, or on other factors.\1346\ In these 
cases, if SPACs view these additional indirect costs to be too high, 
this dampening effect could result in not only a decrease in disclosure 
of projections, but a reduction in the utilization of projections by 
the SPAC entirely. However, as the potential dampening is likely to 
affect projections without reasonable bases more than those with 
reasonable bases (because the former are likely to be more difficult 
and costly to justify quantitatively and thus be seen as a larger 
litigation risk), we expect the potential for this dampening to be 
heightened in cases where the projections are more uncertain.
---------------------------------------------------------------------------

    \1344\ Increased liability costs could occur due to the adoption 
of the PSLRA amendments resulting in projection disclosures no 
longer being afforded protection under the PSLRA, thereby increasing 
the expected costs to registrants of forward-looking disclosures. 
See infra section VIII.B.2.ii.
    \1345\ For example, if a target has a new product line it has 
yet to announce, but factors the product line into its disclosed 
projections, it may be required to disclose the product line as one 
of the ``material bases'' for the projections. Consequently, 
disclosure of this new product line could inform the target's 
competitors about the new product line earlier than the target would 
find otherwise optimal and result in the target choosing not to 
undertake the action (i.e., go public) that would require such 
disclosure. See, e.g., Michael Dambra, Laura Casares Field & Matthew 
T. Gustafson, The JOBS Act and IPO Volume: Evidence That Disclosure 
Costs Affect the IPO Decision, 116 J. Fin. Econ 121 (2015) 
(presenting evidence that firms make decisions not to IPO because of 
such proprietary costs). Such costs were discussed by commenters, 
see letter from Michael Dambra, Omri Even-Tov, and Kimberlyn George, 
citing Dambra, Even-Tov & Munevar, supra note 1341.
    \1346\ See supra note 363 and accompanying text.
---------------------------------------------------------------------------

    We also acknowledge that the requirements of Item 1609(c) may 
impose additional costs on SPACs due to the timing mismatch between the 
original preparation of projections and their inclusion in subsequent 
filings, as echoed by some commenters.\1347\ Further, given the co-
registrant rules and new definitions of blank check company,\1348\ 
disclosures made in response to Item 1609(c) will not benefit from the 
PSLRA safe harbor and could be subject to greater litigation risk than 
under the baseline, and thus could create further liability costs for 
the SPAC and target. Therefore, the provisions of Item 1609(c) might 
result in one or more of: (a) increased compliance costs due to 
additional pre-filing verification of circumstances, data, assumptions, 
etc., that underlie the projections (and updating if so \1349\); (b) 
disclosure that the board continues to rely on the projections because 
they have no expectation that circumstances have changed; or (c) 
disclosure acknowledging that the projections were based on past facts 
and circumstances, which may have changed and thus are no longer relied 
upon by the SPAC, but are still being included to provide insight into 
historical decision-making or for some other reason. These outcomes 
might result in increased information in the projections (in the case 
of (a) above), increased information about the projections (in the case 
of (b) or (c) above), and/or increased liability costs for the 
registrants (in the case of (b) or (c) above).\1350\
---------------------------------------------------------------------------

    \1347\ Letters from ABA, Freshfields, Goodwin Procter, Kirkland 
& Ellis.
    \1348\ See supra sections III.E, VIII.B.2.
    \1349\ If SPACs determine that it is necessary to update their 
projections, further costs might be incurred if they also believe 
any fairness or best interest determination based on those 
projections also requires updating, a concern voiced by one 
commenter. See letter from Kirkland & Ellis.
    \1350\ We differentiate between information in the projections, 
such as the projections being updated to reflect new facts or 
circumstances, and information about the projections, such as 
investors being able to assess whether or how they should factor 
those projections into their expectations (for example, knowing to 
discount outdated projections).
---------------------------------------------------------------------------

    To the extent that Item 1609 elicits additional contextual 
information disclosures related to SPAC projections, investors could 
incur incremental costs in processing the added information.\1351\
---------------------------------------------------------------------------

    \1351\ 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 
(2020). The authors 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.
---------------------------------------------------------------------------

i. Structured Data Requirement (Item 1610)
    As with the specialized disclosure requirements applicable to SPACs 
at the IPO stage as discussed above, Item 1610 also requires that the 
disclosures prepared in compliance with respective sections of subpart 
1600 of Regulation S-K applicable to de-SPAC transactions be tagged in 
Inline XBRL.\1352\ For the same reasons discussed above, we expect that 
the tagging requirement for de-SPAC transaction disclosures will 
augment the informational benefits to investors resulting from the new 
disclosure requirements.\1353\ For example, tagging the disclosure of 
terms and amounts of the compensation received or to be received by a 
SPAC 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. 
Additionally, the tagging requirement will make it easier to compare 
both numeric values and narrative discussion to those presented at the 
SPAC's IPO stage.
---------------------------------------------------------------------------

    \1352\ See supra sections II.I and VIII.B.1.ii.d.
    \1353\ See supra section VIII.B.1.ii.d.
---------------------------------------------------------------------------

    Unlike the Inline XBRL tagging requirement being adopted for SPAC 
specialized disclosures, which applies to registration statements for 
IPOs, the tagging requirement being adopted for de-SPAC transaction 
disclosures typically will not impose a tagging obligation on a SPAC to 
which the SPAC was not previously subject because a SPAC would be 
subject to Inline XBRL tagging obligations as of their first periodic 
report on Form 10-Q, Form 20-F, or Form 40-F.\1354\ As such, the Inline 
XBRL tagging requirement for de-SPAC transaction disclosures for the 
SPAC will 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. The tagging requirement being adopted will impose compliance 
costs on SPACs at an earlier stage of the SPAC life cycle than under 
the baseline. As noted above, there is some indication that data-
tagging costs in general have trended downward in the years since the 
initial adoption of XBRL requirements for SEC filings, and due to their 
similarities we expect this trend to hold for Inline XBRL tagging costs 
as well.\1355\
---------------------------------------------------------------------------

    \1354\ See supra note 476 and accompanying text.
    \1355\ See supra note 1302 and accompanying text.
---------------------------------------------------------------------------

j. Re-Determination of SRC Status
    The final rules provide that, upon the consummation of a de-SPAC 
transaction, an issuer must re-determine its status as an SRC 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 filings, beginning 45 days after 
consummation of the de-SPAC transaction. As an example of the effect of 
the final rules, consider a SPAC that qualifies as an SRC that conducts 
a de-SPAC transaction with a target company that results in a post-
combination company that does not qualify as an SRC. Under current 
rules, the company would retain the SRC status throughout the fiscal 
year that includes its next re-determination date (at second fiscal 
quarter-end of that fiscal year), which could be up to 18 months if the 
de-SPAC transaction occurs at the beginning of the third quarter. In 
contrast, that same target

[[Page 14285]]

company going public via a traditional IPO might not qualify for SRC 
status at all. Under the final rules, the post-combination company will 
have 45 days following the de-SPAC transaction before the loss of SRC 
status will have to be reflected.
    The final rules should result in a level of disclosure appropriate 
to the post-combination entity's facts and circumstances and be similar 
to those applicable in the traditional IPO setting. We expect this will 
reduce any regulatory arbitrage by requiring a target company going 
public through a de-SPAC transaction to provide an appropriate level of 
information to investors as it would were it to conduct a traditional 
IPO.\1356\ For larger target companies, this will require more 
comprehensive and detailed disclosure to investors soon after the de-
SPAC transaction is consummated. Overall, we expect these final rules 
will increase investor protection by allowing investors to assess the 
combined company more thoroughly through access to information 
appropriate to the post-combination company's float and revenues. Large 
target companies may also reap the benefit of reduced cost of capital 
insofar as providing additional historical periods of financial 
statement data improves price efficiency.\1357\
---------------------------------------------------------------------------

    \1356\ See infra section III.D for more information on the 
regulatory baseline.
    \1357\ See supra note 1191.
---------------------------------------------------------------------------

    The re-determination of SRC status is based on annual revenues and 
the public float on the measuring day, with such public float being 
measured within the four-business day window following the de-SPAC 
transaction. The calculation of public float depends on the market 
price at which the common equity was last sold on that selected date, 
or the average of the bid and asked prices of the common equity. The 
public float calculation allows for secondary market trading to 
determine the public float of the SPAC used for SRC re-determination. 
To the extent that the secondary market might not reflect all the 
information about the post-combination business within four business 
days, this could result in an inappropriate determination of SRC status 
or lack thereof. However, this reflection of market price in SRC status 
determination exists at every second quarter-end \1358\ for public 
companies, and thus does not reflect a cost relative to the baseline, 
timing differences notwithstanding. Further, because the final rule 
allows for up to four business days to re-determine this public float, 
there is some flexibility for firms to avoid volatility they deem 
temporary, although this discretion also implies potential information 
asymmetry costs to the extent firm discretion would bias towards SRC 
status.\1359\
---------------------------------------------------------------------------

    \1358\ See supra 633 and accompanying text.
    \1359\ Because SRC status entails lower disclosure and 
regulatory compliance costs, it is likely that firms would prefer to 
have SRC status than not.
---------------------------------------------------------------------------

    The final rules will increase compliance costs compared to the 
baseline for combined companies that do not meet the SRC definition as 
of the accelerated re-determination date. Those companies may need to 
provide more detailed disclosure to investors sooner after the de-SPAC 
transaction than they would under current disclosure requirements. To 
the extent that the amendment to the public float calculation timing 
creates an effective difference between the IPO and de-SPAC transaction 
settings, whereby the latter is affected by secondary market trading 
where the former is not, the effect of this difference is not expected 
to systematically generate inefficiencies with regards to the de-SPAC 
transaction setting. This is because the effect of market trading on 
the public float calculation could result in both increases and 
decreases in post-de-SPAC transaction public float (based on 
observations of historical de-SPAC outcomes).\1360\
---------------------------------------------------------------------------

    \1360\ Florian Kiesel, Nico Klingelh[ouml]fer, Dirk Schiereck & 
Silvio Vismara, SPAC Merger Announcement Returns and Subsequent 
Performance, 29 Eur. Fin. Mgmt. 399, 399-420 (2023).
---------------------------------------------------------------------------

    A potential cost of the re-determination is that, under certain 
circumstances, a SPAC that qualifies as an SRC could file two years of 
audited financial statements in conjunction with the de-SPAC 
transaction, but then upon re-determination lose its SRC qualification, 
and potentially be required to include an additional year of audited 
financial statements in subsequent registration statements. This 
scenario would result in additional costs, such as engaging audit 
services for the additional historical year, that would not be incurred 
without the re-determination.\1361\ These costs, however, are partially 
mitigated by the provision in the final rules of the 45-day window 
before SRC status is required to be reflected following a de-SPAC 
transaction. For combined companies that, based on public float 
calculations as within four business days following the de-SPAC 
transaction, no longer qualify for SRC status under the final re-
determination rules, this window allows them to continue to reflect SRC 
status on registration statements filed within this 45-day window after 
the de-SPAC transaction, thereby avoiding those extra costs associated 
with the loss of SRC status.
---------------------------------------------------------------------------

    \1361\ Because SPACs would have an existing history of audits, 
including for the filings required as part of the de-SPAC 
transaction, we expect the cost of auditing the additional 
historical year would be mitigated. We note that the opposite 
scenario, namely a non-SRC SPAC resulting in a post-combination firm 
that is re-determined to be an SRC would file fewer years of 
financials in subsequent registration statements. However, this 
scenario does not represent a concomitant reduction of cost, because 
those auditing or other costs would already be incurred.
---------------------------------------------------------------------------

    Some of the companies that lose SRC status but meet the EGC 
definition could avail themselves of the accommodations associated with 
EGC reporting requirements, which could mitigate some of the disclosure 
costs required by the adopted amendment.
k. Minimum Dissemination Period
    We are adopting final rules that require a minimum dissemination 
period for registration statements, proxy statements, and information 
statements filed in connection with de-SPAC transactions.\1362\ We 
expect these rules will benefit SPAC shareholders by providing a 
minimum amount of time to review the information disclosed in these 
documents before making voting, redemption, and investment 
decisions.\1363\ To the extent that this results in investors having 
more time to review the information than they would otherwise have, the 
minimum distribution period will allow them to more thoroughly consider 
their choices. This amendment will likely provide its greatest 
potential benefits to SPAC shareholders in de-SPAC transactions where 
there are no required advance dissemination periods, such as in the 
cases of SPACs that are not organized in a jurisdiction with equivalent 
delivery requirements for notices of stockholder meetings,\1364\ do not 
file a Schedule

[[Page 14286]]

TO,\1365\ or do not incorporate information by reference in their Form 
S-4/F-4 filings.\1366\
---------------------------------------------------------------------------

    \1362\ Specifically, the final rules require dissemination no 
later than the lesser of 20 calendar days prior to the date on which 
the meeting of security holders is to be held or action is to be 
taken in connection with the de-SPAC transaction or the maximum 
number of days permitted for disseminating the prospectus under the 
applicable laws of the jurisdiction of incorporation or 
organization.
    \1363\ The final minimum dissemination rules do not apply with 
respect to Schedule TO. The combined effect of certain tender offer 
rules currently effectively provides for a comparable, slightly 
longer minimum 20-business-day period for investors to make 
decisions. See 17 CFR 240.14e-1 under the Exchange Act (prohibiting 
tender offers that are held open for less than 20 business days from 
the date the tender offer is first published or sent to security 
holders).
    \1364\ For example, while Delaware General Corporation Law only 
requires that due notice of an upcoming meeting be provided 20 days 
prior to the event (in connection with certain transactions such as 
mergers) and does not mandate a minimum period for dissemination of 
proxy statements or joint prospectus/proxy statements required by 
the Federal securities laws. As noted in the Proposing Release 
(supra, note 7, at 29531), Commission staff, in reviewing filings, 
has observed that the notices of the meeting mandated by Delaware 
General Corporation 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 General Corporation Law notice 
requirement. See also letter from Vinson & Elkins (``Under the 
existing regulatory framework, which is dictated by the laws of the 
SPAC's jurisdiction of formation and the proxy rules, SPACs are 
typically required to deliver notice of the special meeting not less 
than 10 days before the meeting and, if the SPAC is a Delaware 
entity and will be directly merging with another entity, such notice 
is typically required at least 20 days before the meeting. This 
notice is included at the beginning of the SPAC's proxy statement 
and effectively requires that final versions of all proxy materials 
be delivered to the SPAC's shareholders at least 10 days (or 20 
days, as applicable) before the SPAC's special meeting.'' (Footnotes 
omitted)). See also Table 4 in section VIII.A.2.iv.
    \1365\ 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 20-calendar-day minimum 
dissemination period will not have an incremental effect.
    \1366\ There will be no incremental effect on the dissemination 
of Form S-4 or F-4 in connection with a de-SPAC transaction if the 
form incorporates information by reference because a 20-business-day 
minimum dissemination requirement already applies, a period 
lengthier than 20 calendar days. See supra note 501.
---------------------------------------------------------------------------

    The costs of this amendment, including printing and mailing costs, 
management time, and or consulting fees, may be limited by the fact 
that, under the baseline, SPACs may have incentives to provide the 
required disclosure materials in advance of a minimum deadline. 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. In these cases, we do not expect the final rules will 
cause a change in behavior for firms already submitting these 
statements 20 calendar days or greater in advance.
    The additional time required by the amendment could, in effect, 
shorten a SPAC's time to otherwise complete a business combination 
within its limited lifespan, and this amendment will remove the option 
value inherent in the existing flexibility in dissemination timing. 
Costs associated with adopting this proposal could also increase in 
proximity to the SPAC's dissolution date, because, under such 
conditions, logistical costs like expedited reviewing and printing 
would accrue.\1367\ It is also possible that the minimum dissemination 
period 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, or, in the extreme, a de-SPAC transaction would not be able to 
proceed due to these new timing requirements. However, as discussed 
above, we believe such costs would rarely be incurred given the 
significance of a de-SPAC transaction to SPACs and targets and the 
amount of time that SPACs have to find a target and engage in a de-SPAC 
transaction relative to the length of the dissemination period. Rather, 
we believe it is more likely that SPACs and targets will account for 
the amended dissemination period in establishing a timeline for their 
business combination in the event that it would not have already been 
met or otherwise required.
---------------------------------------------------------------------------

    \1367\ We note discussion in section III.B clarifying that the 
deadline is met when the materials are mailed; thus, the delivery 
timing is not a consideration. See supra note 512.
---------------------------------------------------------------------------

    Furthermore, because we are also adopting Rule 145a, which will 
require the filing of a registration statement or reliance on an 
exemption for a de-SPAC transaction, and because de-SPAC transactions 
can incorporate information by reference, we expect there may be few 
future de-SPAC transactions to which the minimum dissemination period 
requirement would impose an otherwise additional binding time 
constraint.
l. Aligning Non-Financial Disclosures in De-SPAC Disclosure Documents
    We are adopting amendments such that target companies in a de-SPAC 
transaction not subject to the reporting requirements of section 13(a) 
or 15(d) of the Exchange Act must include in their registration 
statement or schedule filed in connection with the de-SPAC, disclosures 
relating to the target company that would be provided in a Form S-1 or 
F-1 for an IPO. These final amendments would require disclosure with 
respect to the target comprising: (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; and (6) Item 701 (recent sales of unregistered 
securities).\1368\ The final amendments also require, where a Form S-1 
or Form F-1 is used to register securities in connection with a de-SPAC 
transaction, that these registration statements include the information 
required in Form S-4 and Form F-4, respectively, and that any Schedule 
TO or Schedule 14A filed for a de-SPAC transaction incorporate the 
disclosure provisions of Items 1603 through 1609 and the structured 
data provision of Item 1610.
---------------------------------------------------------------------------

    \1368\ Where the target is an FPI, the amendment includes the 
option for accordant disclosures. See supra section III.A.1.
---------------------------------------------------------------------------

    The costs and benefits of these final amendments 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.\1369\ 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.\1370\ 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.\1371\
---------------------------------------------------------------------------

    \1369\ The Form 8-K with Form 10 information (often referred to 
as the ``Super 8-K'') is due four business days after consummation 
of the de-SPAC transaction. See Item 2.01(f), Form 8-K.
    \1370\ 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.
    \1371\ 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 14287]]

[GRAPHIC] [TIFF OMITTED] TR26FE24.002

    Figure 3 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 Item 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.\1372\ 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 the final amendments may be 
mitigated.
---------------------------------------------------------------------------

    \1372\ 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 or 
disagreements with accountants on accounting and financial 
disclosures 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%.
---------------------------------------------------------------------------

    These final amendments will ensure information about the target 
company is provided before shareholders potentially make voting, 
redemption, or investment decisions in connection with the de-SPAC 
transaction (whereas under the baseline 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). 
This timing change 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, 
relative to the baseline. 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.
    As a result of the final amendments, 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. The final amendments therefore 
should provide increased investor protections and generally improve the 
information environment for investors making a voting, redemption, or 
investment decision in connection with the de-SPAC transaction.
    The final amendments require disclosure of information that must 
already be included in the ``Super 8-K'' filed after closing of the de-
SPAC transaction. Thus, we expect the compliance costs of these 
amendments to be low to the extent they will primarily stem from the 
accelerated filing timeline for these disclosures (with the exception 
of cases involving failed de-SPAC transaction votes), although we 
recognize that some items may be more costly to disclose earlier than 
others. Further, these additional compliance costs should be limited to 
the extent they are consistent with

[[Page 14288]]

existing practice, as suggested by commenters.\1373\
---------------------------------------------------------------------------

    \1373\ Letters from ABA, PwC.
---------------------------------------------------------------------------

2. Liability-Related Rules
    In addition to the rules discussed above pertaining to disclosures, 
we are adopting rules and amendments to clarify and amend the existing 
liability framework to resolve certain ambiguities and protect 
investors. In this section, we discuss the potential costs and benefits 
of requiring that the target company be treated as a co-registrant on a 
Form S-4, Form F-4, Form S-1, or Form S-4 filed in connection with a 
de-SPAC transaction. In addition, we discuss the amendment to the 
definitions of ``blank check company'' for purposes of the PSLRA to 
remove the ``penny stock'' condition.
i. Target Company as Co-Registrant
    Currently, a SPAC, the target company, or a holding company may 
file the registration statement for a de-SPAC transaction depending on 
the structure of the transaction. When the SPAC or holding company 
files the registration statement for a de-SPAC transaction, section 11 
liability may not apply to the target company. Given that the target 
company effectively is an ``issuer'' of securities in a de-SPAC 
transaction regardless of transaction structure, the final rules will 
require that the target company and its related section 6(a) 
signatories sign these registration statements when filed by a SPAC or 
another shell company.\1374\ In addition, in a de-SPAC transaction 
where the target company consists of a business or assets, the seller 
of the business or asset is deemed to be a registrant instead of the 
business or assets.
---------------------------------------------------------------------------

    \1374\ See supra section III.C.
---------------------------------------------------------------------------

    The primary benefit of this rule will be to align potential section 
11 liability applicable to the target company in a de-SPAC transaction 
with such liability that may apply in a traditional IPO because, given 
that the transaction is essentially its IPO, it is the target company 
that, in substance, issues or proposes to issue its securities or, 
pursuant to new Rule 145a, the securities of the combined 
company.\1375\ Under current rules, when the target company does not 
file this registration statement, it would not have section 11 
liability for any information about its business and operations in the 
registration statement even though, like a traditional IPO, investors 
look to the business and prospects of the target company in evaluating 
an investment in the combined company. Significant information 
asymmetries also arise because the filer likely must rely on the target 
company providing this information for inclusion in the registration 
statement.\1376\ While exposing the target company to section 11 
liability may increase costs (such as compliance costs or the target 
company obtaining directors and officers insurance where it does not 
already have coverage and perceives a need to have coverage), ensuring 
that the target company is subject to such liability for a de-SPAC 
registration statement should give the target company stronger 
incentives to provide higher quality information about its financial 
condition and future prospects. Thus, we expect that the final rule 
will lead to better informed voting and investment decisions and reduce 
adverse selection with regard to de-SPAC transactions.\1377\
---------------------------------------------------------------------------

    \1375\ See supra section III.C.
    \1376\ See supra note 22 and accompanying text.
    \1377\ Adverse selection describes a situation in which 
investors have incomplete information about potential de-SPAC 
targets and thus have difficulty distinguishing good investments 
from bad investments. As a result, investors may be less willing to 
participate in the SPAC market out of fear of choosing a bad 
investment. Higher quality information about targets mitigates this 
problem and encourages investor participation and the health of the 
SPAC market overall.
---------------------------------------------------------------------------

    A few commenters compared de-SPAC transactions and M&A transactions 
generally, in which targets typically do not sign a registration 
statement filed by the acquiror and do not share liability as a signing 
party. They argued that, if market forces ensure sufficient information 
about the target reaches investors in traditional M&A transactions, 
market forces should serve the same function in de-SPAC 
transactions.\1378\ However, as noted elsewhere in this release, while 
the de-SPAC transaction is a type of M&A transaction, we believe de-
SPAC transactions can be distinguished from other M&A transactions due 
to their hybrid nature. Specifically, the de-SPAC transaction 
simultaneously: (i) functions as a form of public capital raising for 
the target company, (ii) transforms a shell company, that is not a 
business combination related shell company, into an operating company, 
and (iii) commonly represents the introduction of a formerly private 
company to the public markets for the first time. Moreover, SPACs 
sponsors--who often have significant influence over the de-SPAC--may 
have weaker incentives than acquiring firm managers in traditional M&A 
transactions to perform detailed due diligence on information supplied 
by the target company, because SPAC sponsors benefit from a completed 
de-SPAC transaction at nearly any price.\1379\ In addition, this 
information may be more important to investors because unlike a 
traditional M&A transaction, the SPAC has no business operations of its 
own, and the business and operations of the target company will 
typically be the sole business and operations of the combined company 
after the business combination. The final rules would address these 
misaligned market incentives by assigning strict liability under 
section 11 to the target company, which is in the best position to 
ensure the accuracy of the disclosures.
---------------------------------------------------------------------------

    \1378\ See letters from ABA, Skadden.
    \1379\ See supra section VIII.A for discussion of SPAC sponsors' 
interests in completing the de-SPAC transaction.
---------------------------------------------------------------------------

    Another reason we expect the final rules will produce a more 
optimal solution than reliance on existing market incentives is that we 
do not expect ``inherited liability'' of target company officials to 
effectively address the information asymmetry and incentive 
misalignment issues, as suggested by a few commenters.\1380\ To the 
extent the target company survives and/or the officers and directors of 
the target company are officers and directors of the surviving company, 
they would potentially have liability for statements in the de-SPAC 
registration statement. However, that future assumption of liability 
does not change the fact that, under current regulations, depending on 
the transaction structure, the target company and its officers and 
directors may not have liability at the time of sale for the statements 
made in any registration statement filed in connection with the de-SPAC 
transaction. The final rules ensure that target company directors and 
signing officers have liability for statements made in the de-SPAC 
registration statement, regardless of whether they remain with the 
surviving company following the de-SPAC transaction.
---------------------------------------------------------------------------

    \1380\ See letters from ABA, NYC Bar. See discussion of these 
comments in section III.C (regarding whether current requirements 
provide sufficient incentives in connection with discussion of the 
final rules).
---------------------------------------------------------------------------

    The final rules regarding ``co-registration'' may be associated 
with additional administrative or other costs. First, in connection 
with the filing of the registration statement, the co-registrant 
requirements could increase compliance costs of target companies and 
introduce the prospect of new potential costs if the target company 
incurs section 11 liability. Compliance costs compared to the baseline 
may increase in cases where the target would not otherwise have been a 
registrant of

[[Page 14289]]

a registration statement for the de-SPAC transaction. For example, the 
target company may elect to employ service providers (such as legal, 
accounting, or financial advisers) to a greater degree or may elect to 
have its management spend more time preparing and reviewing the 
registration statement disclosure, since under the final rules, the 
target company, its directors, and its section 6(a) signatories will 
potentially be liable for material misstatements in or material 
omissions from any effective de-SPAC transaction registration statement 
pursuant to section 11. Potential target companies may also be deterred 
from engaging in a de-SPAC transaction due to this potential liability, 
which could result in fewer public companies.
    Second, target companies may elect to spend more money than under 
the baseline for directors and officers insurance coverage, although 
this would not be a direct compliance cost of the final rules. A number 
of commenters raised such concerns.\1381\ Based on staff experience 
reviewing filings involving SPACs, most target companies already have 
directors and officers insurance.\1382\ Where a target company expects 
to enter a de-SPAC transaction, following the adoption of the final 
rules, we expect that some of these target companies may seek to expand 
their existing coverage due to the potential added liability from the 
above filings, resulting in a higher premium. We note costs for 
additional insurance may help offset or substitute for the potential 
increase in liability-related costs discussed earlier.
---------------------------------------------------------------------------

    \1381\ Letters from ABA (``Targets will be forced to 
substantially enhance their D&O liability insurance coverage to 
cover potential federal securities law liability substantially 
earlier in the De-SPAC Transaction process than is currently the 
case. Moreover, if the De-SPAC Transaction is never completed for 
some reason, Targets would likely not be able to `ratchet down' 
their coverage to more typical private company levels until the next 
policy renewal date.''); Anonymous (Apr. 7, 2022); Skadden (``Given 
the potential for increased risk of liability to boards, we also 
expect D&O liability insurance premiums to increase significantly, 
further diluting the value of the transaction to stockholders.''). 
See also letters from ABA, Goodwin, White & Case (each discussing 
directors and officers insurance premium costs in connection 
proposed Item 1606(a)) and Job Creators Network (noting that costs 
generally will increase, as ``SPACs and target companies should 
expect extensive diligence requests from financial institutions, 
advisors, and their counsel in connection with a de-SPAC 
transaction'' (citations omitted)).
    \1382\ These target companies may have directors and officers 
coverage for several reasons: (a) to cover the target company in 
connection with any liability to investors in connection with 
material misstatements or omissions in the registration statement, 
(b) to cover the target company in connection with government 
enforcement actions and investigations, (c) to cover the expense of 
the company in indemnifying directors and officers for their 
liability, and (d) to cover the liability of directors and officers 
where they are not indemnified by the target company.
---------------------------------------------------------------------------

    Third, depending on when the business combination closes, the 
target company may incur compliance costs in connection with periodic 
and current reporting, because, as a registrant of a de-SPAC 
transaction registration statement, once this registration statement is 
effective, the target company will become an Exchange Act reporting 
company.\1383\ This would, among other things, require the filing of 
Exchange Act periodic reports on Forms 10-K, 10-Q, and 20-F where 
applicable, and current reports on Forms 8-K and 6-K after the 
effectiveness of any registration statement for the de-SPAC transaction 
and until the target company is able to terminate/suspend its Exchange 
Act reporting obligations.\1384\ This additional cost to target 
companies may be mitigated to some degree by the fact that much of the 
information they will have to disclose under the final rules is 
information that, under the baseline, either was already compiled and 
disclosed as part of the de-SPAC transaction or would be required in 
disclosures of the combined company after the de-SPAC transaction. 
However, in cases of de-SPAC transactions for which a registration 
statement becomes effective but the business combination does not 
close, which based on staff experience is very rare, the final rules 
will impose a cost upon those target companies that would not be 
incurred under the baseline, which could affect the cost and benefit 
calculations of target companies when choosing whether to go public 
through a de-SPAC transaction.
---------------------------------------------------------------------------

    \1383\ See supra note 558 and accompanying text.
    \1384\ See supra section III.C.3 for discussion of reporting 
obligations. We also note that although these filings will create 
costs, investors should also benefit from these ongoing disclosures.
---------------------------------------------------------------------------

    Finally, we expect audit costs may increase for a minority of 
target companies as a result of the co-registration requirement. Under 
the current regulatory regime, filings of U.S. public companies must be 
audited by PCAOB-registered auditors, including financials of 
predecessor target companies.\1385\ As co-registrants to a de-SPAC 
transaction, non-predecessor target companies will also need to obtain 
audits from PCAOB-registered auditors. We expect relatively few targets 
would need to change auditors as a result of the co-registration 
requirement for several reasons. First, many target companies may have 
already decided to work with PCAOB auditors in advance of seeking an 
acquisition with a public company. Second, we expect there to be 
relatively few de-SPAC transactions involving non-predecessor target 
companies. For example, approximately 97% of de-SPAC transactions from 
1990-2022 involved a single predecessor target.\1386\ Finally, any cost 
related to this requirement would be limited because audits of the 
target company's operations and financials for filings subsequent to 
the de-SPAC transaction closing would need be conducted by PCAOB-
registered auditors under the current regulatory regime. With respect 
to cost of conducting the audits in accordance with PCAOB standards, 
for predecessor target companies, and PCAOB or GAAS standards for non-
predecessor target companies, we do not anticipate meaningful 
additional costs.
---------------------------------------------------------------------------

    \1385\ See supra note 624 and accompanying text.
    \1386\ Target counts are from Dealogic's SPAC M&A data.
---------------------------------------------------------------------------

    These costs may be factors that a target company that seeks to 
become public considers when evaluating the route of a traditional IPO 
versus a de-SPAC transaction. As such, under the final rules, the 
additional costs for target companies, balanced against reduced adverse 
selection faced by investors, potentially drawing more investors to the 
SPAC market, may tilt the relative attractiveness of seeking a public 
listing away from a de-SPAC transaction towards a traditional IPO or 
away from public listing entirely. The extent to which these factors 
influence such a decision would depend on a variety of factors, such as 
target company preferences toward the de-SPAC transaction method of 
going public--based on views of the process such as its level of 
transaction costs, its timing, and its certainty of closing.
ii. PSLRA Safe Harbor
    As discussed in section III.E, we are adopting new Securities Act 
and Exchange Act rule definitions of ``blank check company'' under the 
PSLRA. The effect of the final rules will be that the PSLRA statutory 
safe harbors will be unavailable for forward-looking statements made in 
connection with a de-SPAC transaction involving an offering of 
securities by a SPAC or other issuer meeting the final definitions of 
``blank check company.'' \1387\
---------------------------------------------------------------------------

    \1387\ See supra section VIII.A.3. See also supra section III.E 
for more information about the regulatory baseline.
---------------------------------------------------------------------------

    These provisions of the final rules have two related benefits: (1) 
an increase in the likelihood that such issuers will take more care in 
avoiding the use of unreasonable forward-looking statements, and (2) an 
increase in the likelihood that investors will have

[[Page 14290]]

confidence in the forward-looking statements made by such issuers.
    First, the final rules will benefit investors by incentivizing 
SPACs and other blank check companies \1388\ to take greater care to 
avoid making forward-looking statements that are unreasonable. There is 
broad acknowledgement that forward-looking statements can be important 
for investors to aid their valuation of securities.\1389\ As noted 
above, however, several commenters have raised concerns that forward-
looking statements used in de-SPAC transactions are overly optimistic 
and thus less useful for investors.\1390\ Some academic research has 
found SPAC forward-looking statements to be overly optimistic \1391\ 
and suggests, with caveats, that less sophisticated investors are more 
likely to be swayed by such projections.\1392\ One study finds, 
however, little evidence of ``hype'' in SPAC forecasts.\1393\ As a 
result of the final definitions of ``blank check company'' for purposes 
of the PSLRA, we expect SPACs and other affected blank check companies 
will take greater care to avoid unreasonable forward-looking statements 
because these issuers will be concerned there may be a higher risk of 
incurring potential costs or liability in such cases as compared to the 
baseline.\1394\ The reduced likelihood of unreasonable statements 
should allow investors to make better investment and voting decisions. 
The potential for improvement in decision-making may be particularly 
pronounced in de-SPAC transactions as there is typically no prior 
public history of filings or financial information for investors to 
draw upon to help determine the reasonableness of projections.
---------------------------------------------------------------------------

    \1388\ In this subsection VIII.B.2.ii, where we refer to ``blank 
check companies'' in connection with our discussion of the final 
rules, unless otherwise indicated, we are referring to blank check 
companies that are not limited by any qualification that the company 
is an issuer of penny stock.
    \1389\ See, e.g., letter from CFA Institute (``FLS are regularly 
used in connection with de-SPAC merger transactions and are 
considered key information for assessing prospects for the newly 
merged entity.''); Anne Beyer, Daniel A. Cohen, Thomas Z. Lys & 
Beverly R. Walther, The Financial Reporting Environment: Review of 
the Recent Literature, 50 J. Acct. & Econ. 296-343 (2010) (Using a 
sample from 1994 to 2007, this article shows management earnings 
forecasts contributed over half (55%) of the accounting-based 
information to the market that explained quarterly stock return 
variance.); Moonchool Kim & Jay R. Ritter, Valuing IPOs, 53 J. Fin. 
Econ. (1999) (finding that valuing IPOs with comparable firm 
multiples using analyst forecasts of future accounting performance 
rather than historical numbers improves accuracy substantially).
    \1390\ Letters from Americans for Financial Reform Education 
Fund (``Post-merger investors in SPACs, who are predominantly retail 
investors, are often lured by ambitious projections of growth--made 
with the protection of the safe harbor--and unfortunately have 
already lost significant amounts of money as a result. . . . In some 
cases, SPACs have lost up to 75% of their value since 2021. Retail 
investors are estimated to have lost about $4.8 billion, or 23% of 
the $21.3 billion of their total $21.3 billion in SPACs.''), Better 
Markets, CFA Institute, CII, Senator Elizabeth Warren (``In 2021, 
nearly half of all companies with less than $10 million of annual 
revenue that went public through a SPAC `have failed or are expected 
to fail to meet the 2021 revenue or earnings targets they provided 
to investors.' These companies fell short on revenue projections by 
an average of 53%.'' (Referencing a WSJ analysis)).
    \1391\ Blankespoor, Hendricks, Miller & Stockbridge, supra note 
1240, finds that combined companies meet or beat 35% of revenue 
projections. This percentage declined as the forecast period 
increased; SPACs meet or beat 42% of 1-year forecasts but 0% of 
four-year forecasts. Note that unbiased forecasts should 
approximately overshoot as often as undershoot the eventual true 
value, and thus forecasts should be expected to meet or beat true 
values approximately 50% of the time.
    \1392\ See supra notes 1240 and 1341.
    \1393\ See letter from Cato Institute, which cites Kimball 
Chapman, Richard Frankel, & Xiumin Martin, SPACs and Forward-Looking 
Disclosure: Hype or Information (Research Paper No. 3920714, last 
revised Oct. 21, 2021), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3920714 (retrieved from SSRN Elsevier 
database). Using a sample of 420 SPACs with IPOs between 2015 and 
2020, the authors find ``a negative association between the 
redemption rate and Forecast Intensity [the number of performance 
metrics forecasted times the number of years forecasted] and the 
forecasted revenue growth rate, which is the opposite of what the 
opportunistic disclosure hypothesis would predict. In other words, 
we fail to find evidence of `hyping' when analyzing the association 
between the redemption rate and SPAC disclosures.'' The authors 
caveat that this inference ``is based on the assumption that the 
perceived deal quality as measured by redemption rate is an unbiased 
estimate of deal quality.'' Put another way, the authors argue that 
since other studies have observed a positive correlation between 
lower investor redemption levels and higher de-SPAC-period stock 
performance, the fact that they find an association between lower 
investor redemption levels and forecast intensity and growth rates 
suggests high forecasts are associated with better de-SPAC 
performance in the year following the de-SPAC. Thus, they assert 
SPAC forecasts do not display ``hype.'' We find this conclusion 
problematic. Finding that more intense or higher raw forecasts are 
associated with better SPAC performance does not mean there is no 
hype, because both low and high growth rates can be exaggerated. The 
study also finds ``no evidence of a subsequent return reversal in 
the de-SPAC period'' that is more prevalent for the SPACs with the 
highest raw forecast growth rates, which the authors argue would 
have been evidence of overly optimistic ``hype.'' However, the 
paper's regressions include four sets of returns as dependent 
variables in a single specification: the returns before merger 
announcement, right around announcement, after announcement to the 
day before closing, and trading day 0 to 1 year after closing. This 
approach hinders statistical inference since standard errors are not 
appropriately corrected for heteroskedasticity and the design 
decision to include multiple return windows simultaneously in a 
single regression results in biased estimations of the control 
variables included as regressors, making it difficult to draw firm 
conclusions from the results.
    \1394\ While the Commission has brought enforcement actions 
alleging the use of baseless or unsupported projections about future 
revenues and the use of materially misleading underlying financial 
projections involving both SPACs and other reporting companies (see 
supra note 848), removal of the PSLRA safe harbors for SPACs will 
add liability for forward-looking statements in any private right of 
action under the Securities Act or Exchange Act.
---------------------------------------------------------------------------

    It is possible the market already discounts to some extent overly 
optimistic claims in forward-looking statements by SPACs who were 
operating under the assumption that their disclosures were subject to 
PSLRA safe harbor protections, reducing the potential harm from such 
forward-looking statements that this rule is intended to 
ameliorate.\1395\ In this regard, we note that sophisticated investors 
are more likely to discount overly optimistic forward-looking 
statements, and thus the final rules may benefit less sophisticated 
investors more.
---------------------------------------------------------------------------

    \1395\ Several commenters expressed this view. See, e.g., 
letters from Cato Institute, Kirkland & Ellis, Paul Swegle.
---------------------------------------------------------------------------

    By incentivizing SPACs and other blank check companies to avoid 
unreasonable forward-looking statements, the final rules will also 
benefit investors and issuers by increasing the likelihood that those 
investors will have confidence that the forward-looking statements are 
reliable. If investors are aware that SPACs are taking greater care to 
avoid unreasonable forward-looking statements, investors may be able to 
analyze SPAC opportunities with greater precision, resulting in less 
adverse selection and encouraging investment and capital formation. 
Similar benefits will accrue to investors in registered securities 
offerings of non-SPAC registrants that meet the final definitions of 
``blank check company,'' although this is less likely to have a 
significant impact on the overall market due to the limited number of 
business combinations involving these issuers, as observed in recent 
years.\1396\
---------------------------------------------------------------------------

    \1396\ See supra section VIII.A.
---------------------------------------------------------------------------

    Considering the final rules holistically, we note that Item 1609 of 
Regulation S-K, amended Item 10(b) of Regulation S-K, and other 
provisions of the final rules intended to increase investor awareness 
of potential conflicts of interest \1397\ may prompt SPACs to improve 
their projections because of the reasons discussed above \1398\ and/or 
allow investors to better understand and evaluate projections,\1399\ 
which could

[[Page 14291]]

reduce the incremental benefit of the removal of the PSLRA safe harbor 
in isolation.
---------------------------------------------------------------------------

    \1397\ See supra section II.C (discussing rules requiring 
disclosure of conflicts of interest between public investors and 
SPAC sponsors).
    \1398\ See supra note 1394.
    \1399\ For example, Item 1609(b) of Regulation S-K requires 
disclosure of material assumptions that underlie projections. This 
additional detail may allow investors to better assess the validity 
of projections and detect over-optimism.
---------------------------------------------------------------------------

    This provision of the final rules may entail additional costs. 
First, SPACs and other blank check companies may experience greater 
legal and related costs in connection with defending actions brought 
against them under the Federal securities laws, particularly if the 
combined company that results from a business combination transaction 
underperforms relative to any forward-looking statements.\1400\ The 
clarity the rule provides about the absence of the PSLRA safe harbor 
may increase the risk of such legal action. This cost would be 
mitigated by the extent that directors and officers of the SPAC and the 
target company have relevant directors and officers liability 
insurance, though the cost of that insurance to cover potentially 
increased legal risk may also likely be higher relative to the 
baseline.\1401\
---------------------------------------------------------------------------

    \1400\ Increased legal costs could also concern other 
transaction participants such as third-parties hired to prepare 
projections if they determine the disclosure of the projections 
would subject them to liability. They may seek compensation for 
bearing this additional liability. See letter from ABA.
    \1401\ See letter from Amanda Rose.
---------------------------------------------------------------------------

    Second, SPACs and other blank check companies may incur additional 
costs related to efforts by these companies to ensure projections they 
provide investors are not unreasonable.\1402\ For example, SPACs and 
other blank check companies may employ service professionals (such as 
lawyers, accountants, and financial advisers) to a greater extent, by 
having them spend more time reviewing projections. Also, SPACs and 
other blank check companies may decide to devote more management time 
to prepare and validate projections.
---------------------------------------------------------------------------

    \1402\ See, e.g., letter from Winston & Strawn.
---------------------------------------------------------------------------

    Third, given the potential legal and preparation costs, a SPAC or 
other blank check company may decide not to provide forward-looking 
statements it otherwise would have provided in connection with a 
business combination absent the final rules. In this case, investors 
may have less information, potentially negatively impacting their 
ability to accurately value these companies and allocate their 
investments accordingly to the extent such forward-looking statements 
would have been informative.\1403\ A number of commenters expressed 
this concern.\1404\ This could result in information only being 
revealed to market participants in de-SPAC transactions to the extent 
SPACs are able, like IPOs, to provide investors forward-looking 
information indirectly through securities analysts.\1405\ Potential 
loss of information in SPACs may be mitigated in situations where a 
SPAC or other blank check company may be required to provide forward-
looking statements under State law or think investors need such 
information to fully assess the proposed business combination 
transaction.\1406\
---------------------------------------------------------------------------

    \1403\ We note that the absence of forward-looking statements 
regarding a de-SPAC transaction will not preclude investors from 
valuing the business combination, as financial projections supplied 
by an entity to be valued are not a requirement for deriving its 
valuation.
    \1404\ See, e.g., letters from Cato Institute, CFA Institute, 
Managed Funds Association, NYC Bar, SPAC Association, Winston & 
Strawn.
    \1405\ See, e.g., letters from Bullet Point Network, 
SPACInsider, Ropes & Gray, SPAC Association, Vinson & Elkins, White 
& Case.
    \1406\ See, e.g., letters from ABA, Andrew Tuch, Cato Institute, 
CFA Institute, Goodwin Procter, NYC Bar, Paul Swegle, Vinson & 
Elkins, Winston & Strawn. See also supra note 829.
---------------------------------------------------------------------------

    Fourth, if potential SPACs (or other blank check companies) or 
target companies determine forward-looking statement disclosures are 
necessary but are not willing to provide such statements without PSLRA 
protections, fewer SPACs could form and/or impacted blank check 
companies such as SPACs may decide not to enter into a business 
combination transaction, such as a de-SPAC transaction. In addition, 
potential target companies may decide not to go public by way of a de-
SPAC transaction. In particular, as stated by a commenter, the 
combination of the increased liability associated with forward-looking 
statements and any State law fiduciary requirements to provide such 
disclosure could result in de-SPAC transactions, on net, facing more 
liability than IPOs, which have the ability to avoid such liability by 
not providing forward-looking projections.\1407\ This could lead to 
fewer public investment opportunities for investors to the extent 
potential SPAC target companies do not go public another way, i.e., via 
the IPO market. One commenter provided data showing that the firms 
SPACs have taken public are smaller in average market capitalization 
and are not distributed in precisely the same industries as firms taken 
public through IPOs. This might suggest SPAC and IPO markets do not 
fully overlap.\1408\ Relatedly, a target company's ability to raise 
capital may also be reduced, although these companies may be able to 
ameliorate any reduction in capital formation if they receive funding 
from other capital sources, such as unregistered equity investments.
---------------------------------------------------------------------------

    \1407\ See letter from Cato Institute.
    \1408\ See letter from Committee on Capital Markets Regulation. 
We note that no tests for statistical significance of these 
differences in size and industry distribution were conducted and 
thus we cannot confirm that SPAC and IPO markets are different. See 
also letter from Yuchi Yao (Dec. 15, 2023), which provides a 
theoretical analysis suggesting SPACs and IPOs could serve different 
types of firms that wish to go public.
---------------------------------------------------------------------------

3. Shell Company-Related Rules
    In addition to the rules discussed above, we are also adopting 
rules and amendments to address further areas of incongruity in 
requirements that guide the disclosures and liabilities in the context 
of shell-companies more broadly, excluding those that are business 
combination related shell companies.
i. Rule 145a
    Rule 145a deems 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. To the extent that an exemption is unavailable for a de-
SPAC transaction, the transaction must be registered. Rule 145a is 
intended to address concerns regarding the use of reporting shell 
companies generally as a means by which private 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 final rule, 
these deemed sales will need to be registered under the Securities Act 
unless there is an applicable exemption.\1409\
---------------------------------------------------------------------------

    \1409\ See supra section IV.A.2 for more information about the 
regulatory baseline.
---------------------------------------------------------------------------

    Currently, if a reporting shell company buys a target company by 
issuing its shares as consideration for the interests of the target 
shareholders, reporting shell company investors are unlikely to receive 
a Securities Act 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.
    Rule 145a should provide shareholders in a reporting shell company 
that is not a business combination related shell company,

[[Page 14292]]

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. Because of this consistency, we 
expect the rule will bolster investor protection for reporting shell 
company shareholders and reduce the information asymmetry between such 
investors in the reporting shell company and the target company. 
Specifically, we expect this rule to be of particular benefit to 
shareholders in reporting shell companies that may not otherwise 
receive timely information about the intended target company, or 
potentially even notification that the reporting shell company is 
entering into a business combination until after the transaction has 
occurred. Additionally, receipt of registration materials may highlight 
salient information (e.g., as required by subpart 1600 of Regulation S-
K for transactions involving SPACs) for reporting shell company 
shareholders who might otherwise not receive or overlook it (or those 
who are vulnerable to inertia \1410\) and call attention to the nature 
in which their investment will be transformed should they continue to 
hold their securities. For these reasons, we expect Rule 145a will 
result in more consistent information (i.e., timing, disclosure, and 
format) for investors and thereby improve price discovery and capital 
formation. Even if an exemption were available for the transaction 
(and, as a result, shareholders do not receive a registration statement 
in connection with the deemed sale), Rule 145a would still confer 
informational benefits to affected reporting shell company shareholders 
as such shareholders would receive whatever information the shell 
company concludes must be provided to satisfy section 10(b).\1411\ 
Because it is unclear the extent to which reporting shell company 
shareholders may be able to anticipate whether such an exemption would 
be available, the full extent to which Rule 145a will result in these 
expected price or capital formation benefits is unclear.\1412\
---------------------------------------------------------------------------

    \1410\ 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'').
    \1411\ In registered public offerings, the extent to which 
disclosure is required is set forth in detail in Commission 
registration statement forms, Regulation S-K and Regulation S-X. The 
disclosure that may be required in an exempt offering, on the other 
hand, is primarily driven by section 10(b) of, and Rule 10b-5 under, 
the Exchange Act, which enable a buyer to recover against a seller 
that, among other things, makes an untrue statement of a material 
fact or omits to state a material fact necessary in order to make 
the statements made, in the light of the circumstances under which 
they were made, not misleading in connection with a sale of a 
security.
    \1412\ Id.
---------------------------------------------------------------------------

    Under Rule 145a in certain business combination transactions where 
reporting shell companies, including SPACs, are parties, the combined 
company will be required to register the deemed sale of its securities 
to the pre-transaction reporting shell company shareholders at the time 
of the business combination, unless there is an available exemption. We 
expect this will increase costs in those cases where the business 
combination is not structured in a manner that otherwise would need to 
be registered. These costs could include, in the extreme case, all 
costs associated with conducting a registered offering of securities, 
such as preparing a Securities Act registration statement, if no 
exemption is available. The 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 entirely, if, for 
example, any securities issued to the target company's shareholders in 
exchange for their interests in the target can be issued under an 
exemption. Because Rule 145a deems such a transaction to involve a sale 
to reporting shell company shareholders that will need to be registered 
(unless there is an applicable exemption), affected parties may opt not 
to pursue such a transaction to avoid the new transaction costs 
involved.
    To the extent that the final rule requires the filing of a 
Securities Act registration statement, we expect extra costs associated 
with greater care in preparation and review of the disclosures therein 
due to the applicability of section 11.\1413\ Also, there could be some 
costs associated with timing issues generated by any Commission staff 
review of any registration statement. Some of these costs may be 
mitigated to the extent that the reporting shell company or target 
company is already preparing disclosure documents, particularly 
Securities Act registration statements, in connection with a business 
combination that would be covered by 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, F-4, S-1, or F-1. 
Reporting shell companies and SPACs also typically prepare Forms 8-K 
containing Form 10 disclosures that are filed shortly after the 
business combination.
---------------------------------------------------------------------------

    \1413\ See generally supra section VIII.B.2 for a discussion of 
the costs of increased liability.
---------------------------------------------------------------------------

ii. Financial Statement Requirements in Business Combination 
Transactions Involving Shell Companies
    Article 15 of Regulation S-X and related amendments aim 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 IPOs. These amendments should ensure 
the appropriate level of investor protections by reducing the potential 
for regulatory arbitrage by private companies that go public through a 
business combination with a shell company rather than a traditional 
IPO. Furthermore, the disclosure and audit requirements (e.g., Rule 15-
01(a)) should reduce information asymmetry between financial statement 
disclosures in business combination transactions involving shell 
companies, including de-SPAC transactions, and traditional IPOs, which 
may in turn benefit private operating companies going public by 
reducing the cost of capital.\1414\ The rules and amendments that 
clarify applicable definitions and requirements (e.g., Rule 15-01(b), 
(c), (d), and (e)), are expected to reduce potential ambiguity faced by 
registrants by codifying certain existing interpretive positions, as 
discussed above in section IV.B and improve comparability.
---------------------------------------------------------------------------

    \1414\ 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: A Journal of 
Practice & Theory 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 final rules and amendments should allow investors to more 
readily locate and process relevant information and reduce processing 
costs, and should increase investor confidence in the reporting 
provided by entities involved in these business combinations.\1415\ In 
turn, these improvements should lead to more efficient voting, 
redemption, and investment decisions. Many of the final rules and 
amendments codify existing staff guidance or financial reporting 
practices. Thus, to the extent that registrants are already preparing 
statements and reports in a manner

[[Page 14293]]

consistent with the rules and amendments, the incremental benefits and 
costs will be limited. Below, we discuss the benefits and costs of each 
individual item under Rule 15-01 of Regulation S-X and the other 
amendments.\1416\
---------------------------------------------------------------------------

    \1415\ See supra note 1351.
    \1416\ See supra section IV.B for additional regulatory baseline 
information.
---------------------------------------------------------------------------

a. Rule 15-01(a) Audit Requirements of a Predecessor
    Rule 15-01(a), in connection with the amendments to Rule 1-02(d) 
and related new instructions to Forms S-4 and F-4 aligns the level of 
audit assurance required in business combination transactions involving 
a shell company with that for an IPO. The rule requires the financial 
statements of a business that is or will be a predecessor to a shell 
company to be audited in accordance with the standards of the PCAOB, 
which are the same auditing standards required in an IPO registration 
statement. This amendment will codify existing staff guidance. Rule 15-
01(a) permits non-predecessor businesses to be audited under PCAOB 
standards or U.S. GAAS, aligning with the audit standards that would be 
applied in an IPO registration statement.
    Rule 15-01(a) should benefit investors by clarifying that the 
financial statements of a business that is or will be a predecessor to 
a shell company are to be audited in accordance with PCAOB standards 
consistent with a traditional IPO.\1417\ To the extent that investors 
use the audited financial statements to project future cash flows, the 
new rule also may benefit shell companies and target companies by 
lowering their cost of capital.\1418\ The final rules may, however, 
increase the compliance costs (e.g., audit costs) of the business 
combination. To the extent that registrants are, in practice, already 
including financial statements of target companies audited under PCAOB 
standards, the above incremental benefits and costs likely would be 
limited.
---------------------------------------------------------------------------

    \1417\ 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) (documenting 
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).
    \1418\ 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).
---------------------------------------------------------------------------

b. Rule 15-01(b) Number of Years of Financial Statements
    Under Rule 15-01(b), a shell company registrant will be permitted 
to include in its Form S-4/F-4/proxy or information statement balance 
sheets as of the end of the two most recent fiscal years and two years 
of statements of comprehensive income, changes in stockholders' equity, 
and cash flows for the target company where both the shell company and 
a target company 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. Rule 15-01(b) will align the number 
of years required to be disclosed in the financial statement between 
de-SPAC transactions and traditional IPOs.
    For those transactions affected by the rule, registrants that 
qualify for EGC status and are not SRCs should benefit from reduced 
cost of producing audited financial statements because this rule will 
reduce the number of years of financial statements required from three 
years to two years. In those cases, this rule could cause some 
information loss for investors. However, investors would still have 
access to two years of financial statements for the target company, the 
same amount that would be required had the target company gone public 
via a traditional IPO. In addition, the omitted ``third year'' of 
financial statements would be the oldest information and thus may 
provide less incremental value to investors than the two most recent 
fiscal years.
c. Rule 15-01(c) Age of Financial Statements of the Predecessor
    Rule 15-01(c) provides that the age of financial statements for a 
business that will be acquired by a shell company in a registration 
statement or proxy statement will be based on the age requirements in 
Rule 3-12 or 8-08 of Regulation S-X, rather than the target company 
provisions in Item 17 of Form S-4. Because this amendment is generally 
consistent with existing market practice, we do not expect it to have 
significant economic effects for registrants or investors. This rule 
will align disclosure requirements across the different routes of going 
public, which may reduce compliance uncertainty for registrants and 
their predecessors and increase investor confidence.
d. Rule 15-01(d) Acquisition of a Business or Real Estate Operation by 
a Predecessor
    Rule 15-01(d) requires application of Rule 3-05 or 8-04 (or Rule 3-
14 or 8-06, respectively, as relates to a real estate operation), the 
Regulation S-X provisions related to financial statements of an 
acquired business or real estate operation, to an acquisition by a 
predecessor of a shell company registrant. This amendment is consistent 
with the current market practice of applying Rule 3-05 (or Rule 8-04) 
to acquisitions by the business that will be the predecessor, therefore 
we believe that the incremental benefits and costs should be limited.
    Rule 15-01(d)(1) pertains to the calculation of significance tests 
and refers to Rule 1-02(w) of Regulation S-X, which we are amending as 
well, to require that the significance of the acquired business be 
calculated using the predecessor's financial information as the 
denominator instead of that of the shell company registrant. The use of 
the shell company registrant, which has nominal activity, for the 
denominator in materiality tests under current rules results in limited 
to no sliding scale for business acquisitions, including those made by 
the target company that will be the predecessor to the shell company 
because every acquisition would be significant and thus require 
financial statements. The adopted amendment may alleviate compliance 
burdens to the extent that it would no longer require inclusion of 
financial statements of acquired businesses or real estate operations 
that formerly would have been in excess of a significance test in Rule 
1-02(w).
    Rule 15-01(d)(2) requires a shell company that omits from a 
registration statement or proxy statement the financial statements of a 
recently acquired business or real estate operation that is not or will 
not be its predecessor pursuant to Rule 3-05(b)(4)(i) or 17 CFR 210.3-
14(b)(3)(i) of Regulation S-X to file those financial statements in a 
Form 8-K by the later of the filing of the Item 2.01(f) Form 8-K or 75 
days after consummation of the acquisition.\1419\ This amendment will 
both harmonize the timing with that in the IPO setting and alleviate 
ambiguity regarding the timing in which these financial statements are 
required to be filed, which we expect will facilitate compliance for 
the registrant. Additionally, this amendment should help ensure that 
investors receive predictable and timely disclosure about the acquired 
business, facilitating better informed capital market decision-making.
---------------------------------------------------------------------------

    \1419\ This is a modification from the Proposing Release 
(Proposing Release, supra note 7, at 29492) in response to comments, 
allowing for the same 75-day grace period as in the IPO setting. See 
supra section IV.B.12.

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[[Page 14294]]

    As a result of these final amendments, we expect registrants' 
compliance burden will likely be reduced. Although, the final 
amendments to the significance test may reduce the information 
available to investors about business acquisitions by the target 
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 
those of all acquired businesses. 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.\1420\ Therefore, we believe that investors will still 
be presented with all the salient information required to make informed 
investment decisions.
---------------------------------------------------------------------------

    \1420\ See Securities Act Rule 408(a); Exchange Act Rule 12b-20.
---------------------------------------------------------------------------

e. Rule 15-01(e) Financial Statements of a Shell Company Registrant 
After the Combination With Predecessor
    Rule 15-01(e) allows a registrant post combination to exclude the 
pre-acquisition financial statements of a shell company (including a 
SPAC) for periods prior to the business combination that results in the 
combined entity no longer being a shell company once the following 
conditions have been met: (1) the financial statements of the 
predecessor, as that term is used in financial reporting, have been 
filed for all required periods through the acquisition date, and (2) 
the financial statements of the combined entity registrant include the 
period in which the acquisition was consummated, which would also 
include the accounting for the business combination. In the vast 
majority of cases, the target is a predecessor business, and therefore, 
in effect, this rule requires historical financial information for the 
shell and target companies up to and including the acquisition, after 
which the financial statements of the shell can be omitted, because at 
that point they are not expected to continue providing investor 
relevant information (at least not beyond the extent to which they are 
reflected in the registrant's financials). Rule 15-01(e) has been 
revised from the proposal to clarify that similar requirements apply in 
cases where the target acquires the shell company. This will, in 
effect, apply the same requirement for reporting SPAC financials post-
combination regardless of the structure of the de-SPAC transaction.
    It is possible that Exchange Act Rule 12b-20 or Securities Act Rule 
408(a), which both require disclosure of additional information 
``necessary to make the required statements, in the light of the 
circumstances under which they are made, not misleading,'' could prompt 
firms to include these financials notwithstanding the newly final Rule 
15-01(e), as mentioned by several commenters.\1421\ However, under the 
baseline, the decision to disclose these financials comes from the SPAC 
management and could result in fewer disclosures than desired by 
investors. Thus, requiring the disclosure of SPAC financials as adopted 
will provide a consistent set of information for investors to use in 
their decision-making. Further, it will harmonize such disclosures 
across SPACs, allowing for more meaningful comparison. To the extent 
that SPAC financials are already known, and relatively less complex 
than those for the target operating company, we expect the additional 
cost of providing such financials to be limited (compared to relying on 
existing materiality discretion on behalf of the SPAC).
---------------------------------------------------------------------------

    \1421\ Letters from Freshfields, Vinson & Elkins.
---------------------------------------------------------------------------

    Rule 15-01(e) should reduce disclosure requirements for, and 
associated costs of disclosing, information 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. To the 
extent that this rule is consistent with existing practice, whereby 
after a reverse recapitalization a registrant may omit historical SPAC 
financial statements once the financial statements of the combined 
company were reflected in a periodic filing, we do not expect this rule 
to result in a significant change in disclosure behavior. In addition, 
to the extent that the final rule extends the practice to forward 
acquisitions, we expect the final rule will reduce compliance costs 
related to continued filing of previous year financial statements of a 
shell company. Investors may also benefit from the increased efficiency 
in processing post-business combination filings that exclude 
uninformative historical SPAC financials.
f. Other Amendments
    We are adopting an amendment to Item 2.01(f) of Form 8-K, which 
will apply to all shell companies, that clarifies that the information 
required by Item 2.01(f) of Form 8-K should relate to the ``acquired 
business that is its predecessor'' and not the ``registrant,'' as 
currently stated in the Form 8-K. This 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 an ``acquired business that is the 
predecessor'' due to registrants' more consistent application of Item 
2.01(f). We are also adopting revisions to Item 2.01(f) to Form 8-K 
stipulating that when the predecessor meets the conditions of an EGC, 
the registrant does not need to present audited financial statements of 
the predecessor for periods prior to the earliest of those presented in 
the de-SPAC registration, proxy, or information statement of the 
registrant. This amendment will harmonize the required disclosures of 
Form 10 information with the requirements of Rule 15-01(b) and should 
reduce registrants' compliance costs to the extent they were required 
to produce a greater number of years of audited financial statements 
under the baseline.
    We are also adopting amendments to Rules 3-01, 8-02, and 10-
01(a)(1) of Regulation S-X to clarify that the requirement of ``balance 
sheets'' would apply to both the registrant and its predecessors. 
Because these amendments codify existing financial reporting practices 
necessary for a complete set of financial statements, they should not 
impact registrants' compliance costs, and should reduce uncertainty 
regarding regulatory requirements.
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 filings with the Commission. The final amendments update 
this guidance, broadening the scope of covered projections and adding 
detail on the formatting of disclosed projections. More specifically, 
the final amendments state that the guidelines also apply to 
projections of future economic

[[Page 14295]]

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 amendments to Item 10(b) also state that 
projections that are not based on historical financial results or 
operational history should be clearly distinguished from those that 
are. In addition, the final amendments 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 results or operational history with equal or 
greater prominence. Finally, for projections that include non-GAAP 
financial measures, the amendments to Item 10(b) state that the 
presentation should include a clear definition or explanation of the 
non-GAAP financial measures, a description of the most closely related 
GAAP financial measure, and an explanation why the non-GAAP measure was 
selected instead of a GAAP measure.
    Due to these final amendments, investors should gain additional 
information and context to help them evaluate the reasonableness of the 
projections and make more informed investment decisions. For example, 
the final amendments related to historical financial results or 
operational history could inform investors about potential biases in 
the financial projections and help them more efficiently process the 
underlying assumptions, thereby potentially improving their investment 
decisions.\1422\ Also, the greater consistency in the contextual and 
supporting historical information for projections should aid 
comparability across registrants, further benefiting investors. These 
benefits could be mitigated, however, to the extent that registrants 
are already providing this information or including projections of 
future economic performance that do not follow some or all of the 
revised guidance. A study of management earnings forecasts by public 
companies from 2000 to 2018 found that management provided earnings 
forecasts in approximately 31% of the firm-year observations comprising 
the sample.\1423\
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    \1422\ 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) 
(employing a sample from 1994 to 2007 to show how management 
forecasts provide over half of accounting-based information to the 
market).
    \1423\ See Claude Francoeur, Yuntian Li, Zvi Singer, & Jing 
Zhang. Earnings Forecasts of Female CEOs: Quality and Consequences, 
Rev. Acct. Stud. (2022). The authors of the study obtained the 
management earnings forecast data from IBES. 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 also Zahn Bozanic, Darren T. 
Roulstone & 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).
---------------------------------------------------------------------------

    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 final amendments, investors may benefit from improved 
presentation with respect to any third-party projections in a 
registrant's filing.
    To the extent that registrants follow the guidance in the 
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.

C. Effects on Efficiency, Competition, and Capital Formation

1. Efficiency
    The final rules and amendments should enhance and standardize 
disclosure about specific aspects inherent to the SPAC structure at 
both the SPAC IPO stage and the de-SPAC transaction stage. Requiring 
the SPAC and the target company to provide such disclosure will provide 
market participants more information that is likely relevant to voting, 
redemption, and investment decisions. The final rules will also improve 
the standardization and comparability of disclosures through changes to 
the disclosure formatting and presentation, which should make it easier 
for investors to efficiently process information about SPACs and for 
market prices to reflect such information. Together we expect these 
changes to result in more efficient prices and deployment of invested 
capital.
    The final rules, by adopting new definitions of ``blank check 
company'' under the PSLRA, should incentivize blank check companies 
that are not penny stock issuers and underwriters to exercise greater 
care to ensure any forward-looking disclosures are reasonable, 
increasing efficiency. The final rules regarding shell company business 
combination transactions (e.g., Rule 145a) would increase the 
likelihood that the protections of the Securities Act consistent with 
those applicable to traditional IPOs are made available to investors, 
such as liability under the Securities Act and receipt of a Securities 
Act registration statement. Overall, we expect that the effects of the 
new definitions of ``blank check company'' and the requirements 
regarding shell company business transactions will provide investors 
with more consistent access to more reliable information when making 
their investing decisions, which should lead to an increase in price 
discovery and market efficiency. It is possible a SPAC or other blank 
check company that is not a penny stock issuer may be dissuaded from 
providing forward-looking disclosures due to increased costs and 
heightened liability concerns, leaving investors with less information, 
offsetting some efficiency gains.\1424\
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    \1424\ While, in the extreme case, the interaction between the 
adopted definitions of ``blank check company'' under the PSLRA and 
jurisdictional requirements for certain forward-looking disclosures 
may disincentivize companies from engaging in de-SPAC transactions 
which, as discussed below, could affect capital formation, it is not 
expected to affect the efficiency of those transactions that do 
occur.
---------------------------------------------------------------------------

2. Competition
    By improving the informational environment at the SPAC IPO and the 
de-SPAC transaction stages through changes in disclosure requirements, 
we expect the final rules will allow investors to make better informed 
investment decisions which should encourage greater competition among 
SPAC sponsors, which would further benefit SPAC investors. For example, 
by increasing comparability through standardization of the disclosures 
provided regarding SPAC IPOs and de-SPAC transactions, the final rules 
should lead to improved investor awareness, greater transparency, and 
lower search costs. These improvements to the information available to 
investors should allow them to better differentiate between SPACs based 
on factors the investors deem important (such as costs or fees), and in 
response SPAC sponsors may be forced to compete for those better 
informed investors by offering better terms such as lower costs.\1425\

[[Page 14296]]

These improvements to the informational environment could also improve 
competition between SPACs and other investment avenues generally, 
further improving overall capital formation. For example, to the extent 
that the final rules lead to shell company mergers (including de-SPAC 
transactions) being more attractive to investors, other capital raising 
avenues that target companies may consider (e.g., traditional IPOs) may 
experience greater competitive pressure.
---------------------------------------------------------------------------

    \1425\ For example, SPAC sponsors could set up structures that 
are more or less dilutive to investors or adjust any forfeiture of 
their promote used to induce investors not to redeem.
---------------------------------------------------------------------------

    A reduction in shell company business combinations or activity in 
the SPAC market could reduce competition between SPAC sponsors or for 
investment opportunities in target companies.\1426\ Such a reduction 
could result in higher costs for SPAC investors, depending on the 
elasticity of those costs. For example, SPAC promoters may offer less 
attractive terms to SPAC investors. Fewer SPACs might also lower 
competitiveness in the traditional IPO market, as companies that wish 
to go public may see diminished alternatives to IPOs.
---------------------------------------------------------------------------

    \1426\ Reductions in SPAC formation and de-SPAC mergers could 
result from increased costs to de-SPAC transactions due to 
differential liability and disclosure requirements compared to non-
SPAC acquirers or other methods of accessing public markets. For 
example, the new definitions of ``blank check company'' under the 
PSLRA may interact with existing jurisdictional requirements (such 
as any requirements to provide projections) which could impose 
significant additional liability costs on de-SPAC transactions.
---------------------------------------------------------------------------

3. Capital Formation
    Enhanced disclosure at both the SPAC IPO and the de-SPAC stages, 
combined with a stronger incentive to perform better due diligence at 
the de-SPAC transaction stage, should improve investor protection at 
both stages, as should the rules and amendments for shell company 
mergers. For example, Rule 145a will help shareholders of reporting 
shell companies more consistently receive the protections of the 
Securities Act in business combinations involving reporting shell 
companies, regardless of the transaction structure, which should reduce 
adverse selection and improve the availability and reliability of 
information for investors, incentivizing more investors to invest in 
reporting shell companies, including SPACs, thus enhancing capital 
formation.
    If the final rules and amendments create significant costs for 
shell companies, including SPACs, this may reduce the number of private 
companies that go public through shell companies, including through de-
SPAC transactions, and may reduce the overall number of companies that 
choose to go public. For example, one commenter asserted that the 
proposed rules would ``overregulate SPACs to such a degree that they 
will no longer be viable vehicles for companies to access the public 
markets.'' \1427\ Other commenters, expressing similar concerns, noted 
that SPACs have been an important way for younger and more 
``innovative'' companies to access public capital markets.\1428\ 
Further, the new definitions of ``blank check company'' under the PSLRA 
may interact with existing jurisdictional requirements (such as any 
requirements to provide projections) which could impose significant 
additional costs on de-SPAC transactions. As a result, SPACs may adopt 
practices they believe will minimize their liability or other costs, 
which could result in them providing less information to investors, or, 
in the extreme, forgoing de-SPAC transactions they otherwise believe 
would be beneficial, which could harm capital formation.
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    \1427\ See letter from Virtu.
    \1428\ See, e.g., letters from National Venture Capital 
Association (June 13, 2022); Managed Funds Association; I-Bankers 
Securities, Inc. (June 24, 2022).
---------------------------------------------------------------------------

    In response to these comments and concerns, and as previously 
discussed, the final rules include provisions that reduce expected 
compliance costs relative to the proposal. However, 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 using the 
traditional IPO channel or a merger with a non-shell company as a more 
cost-effective alternative. We are not able to estimate how many 
companies would consider these alternatives 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 public offering activity and capital 
formation.\1429\ Any reduction in public offering activity, however, 
could be offset by an increase in investor trust in capital markets.
---------------------------------------------------------------------------

    \1429\ To provide a sense of magnitude, see letter from 
Committee on Capital Markets Regulation which presents data 
suggesting that from 2017 to 2021, there were roughly 3 de-SPAC 
transactions for every 10 traditional IPOs. See also letter from 
Committee on Capital Markets Regulation, suggesting differences 
between SPACs and traditional IPOs on dimensions of size and 
industry of firms taken public. To the extent that the SPAC and IPO 
markets appeal to different firms, it is possible some firms 
deterred from going public via de-SPAC transaction will not 
substitute to an alternative form of accessing the public market.
---------------------------------------------------------------------------

D. Reasonable Alternatives

1. Disclosure-Related Rules
i. Require Disclosure of Policies and Procedures That Address Conflicts 
of Interest
    As an alternative to Item 1603, we considered whether to adopt a 
complementary requirement to describe or to file as an exhibit any 
policies and procedures used or to be used by a SPAC or by a target 
company to minimize potential or actual conflicts of interest related 
to disclosures provided in response to Items 1603(b) or to describe any 
SPAC policies and procedures related to duties of SPAC officers or 
directors owed to other companies in connection with disclosure 
required under Item 1603(c). We considered that 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. We also considered, on the other hand, 
that requiring this information would increase compliance costs for 
SPACs and target companies and could cause some of these companies to 
adopt policies and procedures that would not be efficient or cost-
effective given their particular organizational structure and 
determined not to require this information in part for those reasons. 
Further, our determination not to adopt such a requirement was also 
based on our view that there are incentives to provide such disclosure 
voluntarily, as these disclosures would indicate to investors the 
degree to which conflicts of interest may be ameliorated.
ii. Certain Reports, Opinions, or Appraisals
    We are requiring, in connection with de-SPAC transactions, the 
filing of certain reports, opinions (other than an opinion of counsel), 
or appraisals provided to the SPAC or a SPAC sponsor materially 
relating to any determination described in Item 1606(a), the approval 
of the de-SPAC transaction, the consideration or the fairness of the 
consideration to be offered to security holders of the target company 
in the de-SPAC transaction, or the fairness of the de-SPAC transaction 
to the SPAC, its security holders or SPAC sponsor (Item 1607) as 
exhibits to registration statements and schedules (or as part of the 
schedule if the

[[Page 14297]]

schedule does not have exhibit filing requirements) filed in connection 
with a de-SPAC transaction. We are also requiring disclosures 
summarizing such report, opinion, or appraisal or any negotiation or 
report by an unaffiliated representative on behalf of unaffiliated 
security holders. We are also requiring 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 considered requiring disclosure of only a 
summary of the reports, opinions, appraisals, and negotiations (without 
the requirement that the reports, opinions, and appraisals be filed). 
We considered that this could avoid costs of additional compensation 
third parties may require for providing reports that are suitable for 
public disclosure. 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.
iii. Re-Determine Smaller Reporting Company (SRC) Status of a Post-
Business Combination Company Without a Public Float Test
    As another alternative, we considered whether the re-determination 
for SRC status of the combined company following a de-SPAC transaction 
should require only a re-measurement of the revenue component of the 
SRC test and not its public float component. Generally, SRC status is 
re-determined on an annual basis at the end of the second fiscal 
quarter based on the issuer's public float on the last day of the 
second fiscal quarter, and, if there is no public float or there is a 
public float of between $250 million or more and $700 million, based as 
well on a determination of whether the annual revenues as of the most 
recently completed fiscal year for which audited financial statements 
are available are less than $100 million (where greater annual revenues 
than $100 million causes loss of SRC status). Revenues of the combined 
company may be more relevant to SRC status than public float because, 
generally, the target company has generated revenue while the SPAC has 
not done so.\1430\
---------------------------------------------------------------------------

    \1430\ See supra note 665 (income statement items such as 
``Interest earned on marketable securities held in trust account'' 
and ``Unrealized gain on marketable securities held in trust 
account'' are generally not revenue for SPACs).
---------------------------------------------------------------------------

    Accordingly, the revenue test may be the more determinative factor 
than the public float test in determining whether the combined company 
following a de-SPAC transaction remains an SRC because, based on staff 
experience, the public float of most SPACs and subsequent combined 
companies typically is between $250 and $700 million, which exceeds the 
public float threshold for SRC status, unless the company's revenue is 
under $100 million. 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, under the 
final rule 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 as compared to an alternative of 
using only revenue as the basis for determining SRC status following 
the de-SPAC, in which case public float would only need to be measured 
once during the annual re-determination period.
    We considered, however, that compared to joint determination with 
the public float, revenue, if used as a sole basis of the significance 
test, may be subject to a greater degree of managerial discretion or 
manipulation.\1431\ Further, it could result in, for example, firms 
with revenue below the threshold but public float above the maximum 
threshold qualifying for SRC status and the resultant lower disclosure 
requirements. Because companies with greater public float have greater 
potential impacts on markets, such an allowance for large public float 
companies to qualify for SRC status due solely to their revenues being 
below the threshold value could have commensurately large economic 
costs. Thus, we determined it is appropriate that these companies 
should take both the public float and total revenue into account in re-
determining SRC status following the consummation of a de-SPAC 
transaction and determined not to adopt this alternative.
---------------------------------------------------------------------------

    \1431\ See Jenny Zha Giedt, Modelling Receivables and Deferred 
Revenues to Detect Revenue Management, 54 Abacus 181 (2018) 
(focusing on the SEC Accounting and Auditing Enforcement Releases, 
i.e., AAER, from 1982 to 2016, and documenting that 47% of all 
financial misstatements are related to revenue).
---------------------------------------------------------------------------

iv. Structured Data Requirement
    As another alternative, we considered whether to change the scope 
of the Inline XBRL tagging requirements for the SPAC disclosures, such 
as by excluding certain subsets of registrants or disclosures. For 
example, the tagging requirements could have excluded the SPAC IPO 
disclosures. Under such an alternative, SPACs would have submitted IPO 
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.\1432\ This would have made it incrementally easier for 
SPACs to consummate an IPO. However, narrowing the scope of the tagging 
requirements, whether based on filing, offering size, or other 
criteria, would have diminished the extent of any informational 
benefits that would accrue as a result of the adopted disclosure 
requirements by making the excluded disclosures comparatively costlier 
to process and analyze. Thus, we believe it is appropriate to require 
Inline XBRL for all SPAC disclosures, rather than exclude particular 
subsets of registrants or disclosures.
---------------------------------------------------------------------------

    \1432\ 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 67 (Sept. 2023), 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).
---------------------------------------------------------------------------

    We also considered requiring only the quantitative SPAC-related 
disclosures to be tagged in Inline XBRL. Excluding qualitative 
disclosures from the tagging requirements could have provided some 
incremental cost savings for registrants compared to the rule as 
adopted, because incrementally less time would have been required to 
select and review the particular tags to apply to quantitative 
disclosures. However, we expect these incremental cost savings would 
have been low because SPACs are subject to similar Inline XBRL 
requirements, including requirements to tag quantitative and 
qualitative disclosures, in other Commission filings.\1433\ The 
alternative would not impact the fixed startup costs associated with 
Inline XBRL tagging and would instead only remove the modest variable 
cost associated with applying additional tags to text blocks within an 
already tagged filing.
---------------------------------------------------------------------------

    \1433\ See supra section VIII.B.1.ii.d.
---------------------------------------------------------------------------

    Moreover, narrowing the scope of tagging requirements to exclude 
qualitative information would have diminished 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

[[Page 14298]]

projections), thus creating the need to manually review search results 
drawn from entire documents to find these disclosures.\1434\ Such an 
alternative would have also inhibited the automatic comparison of 
narrative disclosures against prior periods. It also may have been 
harder for investors to perform a targeted assessment of a filing for 
particular types of narrative SPAC-related disclosures because they 
would have needed to assess the entire filing for relevant information. 
Thus, we believe it is appropriate to include qualitative disclosures 
within the scope of the tagging requirement.
---------------------------------------------------------------------------

    \1434\ 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 required by Item 
1606(b) of Regulation S-K, such as disclosures in the risk factors 
section or in the description of stock incentive plans. However, 
when Inline XBRL is used, it enables a user to search for the term 
``dilution'' exclusively within the fairness determination 
disclosure, thereby likely reducing the number of irrelevant 
results.
---------------------------------------------------------------------------

    With respect to the compliance date for tagging requirements, we 
could have added a separate phase-in period for SRCs and FPIs, as one 
commenter suggested.\1435\ However, both SRCs and FPIs are subject to 
Inline XBRL tagging requirements for other disclosures, so we believe 
any burden reduction for SRCs and FPIs arising from a separate phased-
in compliance date would therefore likely be minimal. Thus, we do not 
believe it is necessary to provide a separate phased-in compliance date 
for SRCs and FPIs to comply with the tagging requirements. We note, 
however, that both SRCs and FPIs (along with other filers) will be 
subject to a one year phased-in compliance date under the final rules.
---------------------------------------------------------------------------

    \1435\ See letter from XBRL US.
---------------------------------------------------------------------------

v. Dilution Disclosure Measurement Alternatives
    As an alternative to disclosure of net tangible book value, as 
adjusted, to capture dilution incurred by non-redeeming shareholders, 
various commenters suggested a measure based on the net cash per share 
held by the SPAC prior to the de-SPAC transaction.\1436\ These comments 
generally reflect the desire for dilution disclosures to capture a 
measure of how much liquidity financing (in the form of cash) is 
transferred to the target at the de-SPAC transaction.\1437\ To this 
end, the net cash measure suggested by commenters would be calculated 
as: \1438\ total cash (from SPAC public shareholders, forward purchase 
agreements (FPA), and PIPE investments) less cash expenses, less the 
fair value of outstanding warrants and other equity derivatives. This 
measure would be scaled to be a per share value by dividing the former 
quantity by the sum of public shares, founder shares, PIPE and FPA 
shares, shares issuable under rights according to terms and agreements, 
and any other shares issued up to the point of the merger. Notably, 
this measure does not include shares issued to target shareholders as 
part of the merger agreement.
---------------------------------------------------------------------------

    \1436\ See letters from NASAA; Vinson & Elkins; CII; Michael 
Klasuner, Michael Ohlrogge, and Harald Halbhuber.
    \1437\ See Klausner, Ohlrogge & Ruan, supra note 18.
    \1438\ See Michael Klausner, Michael Ohlrogge & Harald 
Halbhuber, Net Cash Per Share: The Key to Disclosing SPAC Dilution, 
40 Yale J. on Reg. 18, 28 (2022).
---------------------------------------------------------------------------

    We believe that the net tangible book value as adjusted measure 
that we are adopting and the net cash per share alternative both 
generally capture expectations of the remaining amount of financing to 
be provided by the SPAC in the merger transaction, or, according to one 
commenter, ``of the $10 that I am paying per share, how much will 
actually be invested in the post-merger company?'' \1439\ The material 
difference between the two measures is in their treatment of equity-
classified awards and shares issuable by rights. While some comment 
letters highlighted that prior dilution disclosures (e.g., those 
required by Item 506) omitted certain components (such as warrants and 
other derivative securities), we note that the dilution measure as 
adopted accounts for them when classified as liabilities, and generally 
to the same extent as the suggested alternative measure, although we 
acknowledge that excluding from net tangible book value the value of 
warrants classified as equity may result in net tangible book value 
showing less cash dilution than a net cash per share measure. Further, 
the net tangible book value as adjusted measure that we are adopting 
relies on the specified adjustments in Item 1602(c) or 1604(c) to 
derive the value of the firm as if the redemptions had occurred, which 
avoids the issue of temporary equity being excluded.\1440\ Therefore, 
we believe that the approach we are adopting using the net tangible 
book value as adjusted measure instead of the alternative net cash 
measure sufficiently captures the desired idea of cash dilution 
intended by the comments.
---------------------------------------------------------------------------

    \1439\ Letter from Michael Klausner, Michael Ohlrogge, and 
Harald Halbhuber.
    \1440\ See letter from White & Case (``the calculation of pro 
forma net tangible book value per share in accordance with U.S. GAAP 
inevitably produces a deficit and remains the same constant figure 
across any assumed redemption thresholds because the metric solely 
takes into account the non-redeemable [``founder shares''], which 
are classified as permanent equity, and none of the public shares, 
which are classified as temporary equity.'').
---------------------------------------------------------------------------

    Another alternative to the dilution table columns would be to 
require a fixed range of redemption levels, rather than the fixed range 
of feasible redemption levels as adopted. Some commenters supported 
such an alternative, suggesting the maximum redemption column be 
100%.\1441\ The advantage of a fixed range, as those commenters argued, 
would be to remove the effects of differences in SPAC governing 
documents and agreements, because those are liable to change. For 
example, many SPACs put in place a maximum redemption limit to maintain 
a minimum net tangible asset reserve, but shareholders could vote to 
waive those limits which would change the maximum redemption threshold 
in the table as adopted. However, because a fixed range would not take 
into account the governing documents and agreements specific to that 
particular SPAC, it may omit information that could be informative to 
prospective investors from those documents or agreements, such as the 
waiver in this example. Further, a fixed range requires additional 
assumptions about future outcomes, for example a successful proxy vote 
or breaking non-redemption contracts. The threshold in the final rule 
of maximum redemptions rather than 100% redemptions does not require 
these additional assumptions and does include the SPAC specific 
redemption details; thus, it is likely more descriptive of possible and 
expected outcomes. To the extent SPAC specific features are important 
to compare across SPACs, we expect the tables as adopted will provide 
information that will benefit investors more than the alternative.
---------------------------------------------------------------------------

    \1441\ Letters from Vinson & Elkins, White & Case.
---------------------------------------------------------------------------

2. PSLRA Safe Harbor Guidance
    As an alternative to addressing the use of forward-looking 
statements in de-SPAC transactions and other business combinations 
involving blank check companies that are not penny stock issuers by 
adopting a ``blank check company'' definitions under the PSLRA, 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

[[Page 14299]]

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 rule as adopted.
3. Expanding Disclosure in Reporting Shell Company Business 
Combinations
    Rule 145a specifies that a sale occurs between the shareholders of 
a reporting shell company and the post-transaction company in 
situations where a reporting shell company that is not a business 
combination related shell company enters into a business combination 
transaction involving another entity that is not a shell company. As an 
alternative, instead of deeming all such transactions to be a sale that 
would need 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 comparable to that which 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 comparable to that which they would receive had a registration 
statement been filed for the transaction. This would ensure that the 
reporting shell company's shareholders receive largely 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 than the costs of liability associated with the purchase and sale 
of securities and potential Securities Act registration of shell 
company business combinations under final 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, if any, that is required. Only by specifying 
that a sale occurs would investors necessarily receive all of the 
protections that apply in connection with all purchases and sales 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 Disclosure
    The amendments to Item 10(b) of Regulation S-K present the 
Commission's 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 have adopted 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.

IX. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules and forms that will be affected by 
the final rules contain ``collection of information'' requirements 
within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\1442\ The Commission published a notice requesting comment 
on changes to these collections of information in the Proposing Release 
and submitted these requirements to the Office of Management and Budget 
(``OMB'') for review in accordance with the PRA.\1443\
---------------------------------------------------------------------------

    \1442\ See 44 U.S.C. 3501 et seq.
    \1443\ See 44 U.S.C. 3507(d), 5 CFR 1320.11.
---------------------------------------------------------------------------

    The hours and costs associated with preparing, filing, and sending 
the forms constitute reporting and cost burdens imposed by each 
collection of information.\1444\ An agency may not conduct or sponsor, 
and a person is not required to comply with, a collection of 
information unless it displays a currently valid OMB control number. 
Responses to the information collections are not kept confidential and 
there is no mandatory retention period for the information disclosed. 
The titles for the affected collections of information are:
---------------------------------------------------------------------------

    \1444\ The paperwork burdens for Regulation S-X, Regulation S-K, 
17 CFR 230.400 through 230.494 (Regulation C), 17 CFR 240.12b-1 
through 240.12b-37 (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.
---------------------------------------------------------------------------

 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 8-K (OMB Control No. 3235-0060);
 Form 10-K (OMB Control No. 3235-0063); and
 Form 10-Q (OMB Control No. 3235-0070).

    The forms, schedules, and regulations listed above were adopted 
under the Securities Act or the Exchange Act. These regulations, 
schedules, and forms set forth the disclosure requirements for 
registration statements, annual and quarterly reports, proxy and 
information statements, and tender offer statements filed by 
registrants to provide investors with information to make informed 
investment and voting decisions. Compliance with these information 
collections is mandatory to the extent applicable to each registrant. A 
description of the final rules, including the need for the information 
and its use, as well as a description of the likely respondents, may be 
found in sections II through V above, and a discussion of the economic 
effects of the final rules may be found in section VIII above.

B. Estimates of the Effects of the Final Rules on the Collections of 
Information

    The following PRA Table 1 summarizes the estimated effects of the 
final rules on the paperwork burdens associated with the affected forms 
and schedules.
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BILLING CODE 8011-01-C
    In addition, we are adopting requirements that a post-business 
combination company re-determine whether it is an SRC following a de-
SPAC transaction. Under the final rules, a post-business combination 
company is required to reflect this re-determination in its filings 
beginning 45 days after consummation of the de-SPAC transaction. We 
estimate that the re-determination of SRC status will 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 will lose SRC status, which takes into account the 
increased incremental burden in providing disclosures pursuant to non-
SRC disclosure requirements. The following PRA Table 2 sets forth our 
estimates regarding the increase in compliance burden per filing when a 
post-business combination company loses SRC status:

[[Page 14305]]

[GRAPHIC] [TIFF OMITTED] TR26FE24.012

C. Incremental and Aggregate Burden and Cost Estimates
---------------------------------------------------------------------------

    \1445\ See discussion preceding PRA Table 4 below for a brief 
discussion on the allocation of compliance burdens between internal 
burden hours and outside professional costs.
---------------------------------------------------------------------------

1. Current Inventory Update To Reflect $600 per Hour Rather Than $400 
per Hour Outside Professional Costs Rate
    At the outset, we note that the current OMB inventory for the 
above-referenced collections of information reflects an average rate of 
$400 per burden hour borne by outside professionals. Similarly, in the 
Proposing Release, the Commission used an estimated cost of $400 per 
hour, recognizing that the costs of retaining outside professionals may 
vary depending on the nature of the professional services.\1446\ The 
Commission recently determined to increase the estimated hourly rate to 
$600 per hour \1447\ to adjust the estimate for inflation from August 
2006.\1448\ In order to more accurately present the burden changes as a 
result of the final amendments in the context of the current burden 
inventory, in this section IX.C.1 we present updated numbers for the 
current inventory for professional cost burden for each of the affected 
collections of information to reflect the updated $600 per hour rate 
where it has not yet been reflected in the current burden inventory. 
This update is solely derived from the change in the hourly rate; it is 
not a new burden imposed by the final amendments. The updated cost 
estimates using the $600 per hour rate are set out in PRA Table 3 
below.
---------------------------------------------------------------------------

    \1446\ See Proposing Release, section X.C.
    \1447\ 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 $600 per hour. This is the rate we 
typically estimate for outside legal services used in connection 
with public company reporting.
    \1448\ See Listing Standards for Recovery of Erroneously Awarded 
Compensation, Rel. No. 33-11126 (Oct. 26, 2022) [87 FR 73076 (Nov. 
28, 2022)].

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[[Page 14306]]

[GRAPHIC] [TIFF OMITTED] TR26FE24.013

2. PRA Burden and Cost Estimates Resulting From the Final Rules
    Next, we estimate the incremental and aggregate increase in 
paperwork burden as a result of the final 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 and 
filing documents. We believe that some registrants will experience 
costs in excess of this average and some registrants will experience 
lower 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.\1449\ Additionally, our estimates take 
into account an expected increase in the number of Securities Act 
registration statements as a result of final Rule 145a. Based on a 
review of Commission filings during the period 2012-2022 and an 
analysis of the effects of the final new rules and amendments,\1450\ 
the staff estimates that:
---------------------------------------------------------------------------

    \1449\ 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.''
    \1450\ 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 eight registration 
statements on Form F-1, other than for de-SPAC transactions;
     Regarding filings made per year in connection with de-SPAC 
transactions, we estimate there will be an average of: 50 registration 
statements on Form S-4 and eight registration statements on Form F-4; 
\1451\ four definitive proxy statements on Schedule 14A; two definitive 
information statements on Schedule 14C; \1452\ two tender offer 
statements on Schedule TO; and 58 Current Reports on Form 8-K; \1453\ 
and
---------------------------------------------------------------------------

    \1451\ Of the estimated 50 Form S-4 filings, we expect 30 
filings would have been made irrespective of Rule 145a and an 
additional 20 filings will be made as a result of Rule 145a (whereas 
in the absence of Rule 145a, these latter 20 filings potentially may 
have been made on other forms, such as Schedule 14A, Schedule 14C, 
or Schedule TO). Similarly, our estimate of eight Form F-4 filings 
is based on four Form F-4 filings that we expect would have been 
made irrespective of Rule 145a and four additional filings as a 
result of Rule 145a.
    \1452\ Our estimates of proxy statements (4) and information 
statements (2) do not include any combined registration/proxy 
statements or combined registration/information statements, which 
are included in the estimates of registration statements on Forms S-
4 (50) and F-4 (8). Additionally, we have changed our estimate of 
the number of proxy statement filings on Schedule 14A from the 30 
estimated in the Proposing Release to four because we expect fewer 
proxy statements as a result of Rule 145a. We have also changed our 
estimate of the number of information statement filings on Schedule 
14C from four to two because we expect fewer information statements 
as a result of Rule 145a. Our estimates of proxy statements and 
information statements are greater than zero because, as we discuss 
in section IV.A, notwithstanding Rule 145a, depending on the facts 
and circumstances, an exemption from registration could potentially 
apply, and, because, even where a registration statement has been 
filed, we expect some SPACs may still file a stand-alone proxy or 
information statement that is not combined with the registration 
statement.
    \1453\ While the final rules apply Item 1609 to projections in a 
Form 8-K filed pursuant to Item 1.01, we are unable to estimate the 
number of such filings that may include projections. We are 
estimating as an upward bound that every domestic registrant that 
engages in a de-SPAC transaction may include such disclosure. 
Accordingly, our estimate of 58 Forms 8-K is the sum of the number 
of estimated Form S-4, Schedule 14A, Schedule 14C, and Schedule TO 
filings in connection with a de-SPAC. We note that, to the extent 
that a registrant prepares responsive disclosure that is included in 
a Form 8-K and is later included in one of these filings, the total 
burden assumed by the registrant would be mitigated, which our 
estimates do not reflect.

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

[[Page 14307]]

     An average of 20 registration statements on Form S-4 and 
two registration statements on Form F-4 will be filed each year for 
business combination transactions involving a reporting shell company 
that is not a business combination related shell company and a non-
shell company, other than de-SPAC transactions.\1454\
---------------------------------------------------------------------------

    \1454\ This estimate represents the upper bound of the estimated 
number of Forms S-4 and F-4 filed for these transactions as a result 
of Rule 145a. See supra note 78 (discussing data on non-SPAC reverse 
mergers, including limitations on data for more recent years).
---------------------------------------------------------------------------

    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 PRA Table 4 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 
$600 per hour.
[GRAPHIC] [TIFF OMITTED] TR26FE24.014

    The following PRA Table 5 summarizes the estimated effects of the 
final new rules and amendments on the paperwork burdens associated with 
the affected forms, schedules, and records, including those effects 
related to Rule 145a, which have been broken out to demonstrate the 
impact of that rule on certain forms:

[[Page 14308]]

[GRAPHIC] [TIFF OMITTED] TR26FE24.015

    In addition, we estimate that an average of 50 fewer post-business 
combination companies following a de-SPAC transaction will qualify as 
SRCs than under the current rules until the next annual re-
determination date.\1455\ 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.\1456\ We estimate that these registrants would file, on average, 
one Form 10-K, 1.5 Forms 10-Q, one Schedule 14A, 0.1 Schedule 14C, and 
one registration statement on Form S-1 prior to the next re-
determination of SRC status.
---------------------------------------------------------------------------

    \1455\ This estimate is based, in part, on our estimate of the 
number of de-SPAC transactions in which the SPAC is the legal 
acquirer.
    \1456\ 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.
---------------------------------------------------------------------------

    The following PRA Table 6 summarizes the estimated effects of the 
re-determination of SRC status on the paperwork burdens associated with 
the affected forms and schedules:

[[Page 14309]]

[GRAPHIC] [TIFF OMITTED] TR26FE24.016

    The following PRA Table 7 summarizes the requested paperwork burden 
changes to existing information collections, including the estimated 
total reporting burdens and costs, under the final rules.
BILLING CODE 8011-01-P

[[Page 14310]]

[GRAPHIC] [TIFF OMITTED] TR26FE24.017

BILLING CODE 8011-01-C

[[Page 14311]]

X. Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (``RFA'') \1457\ requires the 
Commission, in promulgating rules under section 553 of the 
Administrative Procedure Act of 1946, to consider the impact of those 
rules on small entities. We have prepared this Final Regulatory 
Flexibility Analysis (``FRFA'') in accordance with section 604 of the 
RFA. An Initial Regulatory Flexibility Analysis (``IRFA'') was prepared 
in accordance with the RFA and was included in the Proposing 
Release.\1458\
---------------------------------------------------------------------------

    \1457\ 5 U.S.C. 601 et seq.
    \1458\ Proposing Release, supra note 7, at 29558-29560.
---------------------------------------------------------------------------

A. Need for, and Objectives of, the Final Rules

    We are adopting new subpart 1600 of Regulation S-K and amendments 
to existing forms and schedules to require certain disclosures in 
registered offerings by SPACs, including IPOs, and in disclosure 
documents for de-SPAC transactions with respect to, among other things, 
compensation paid to SPAC sponsors, conflicts of interest, and 
dilution. For de-SPAC transactions, we are also adopting final rules 
that require disclosure of a determination of the board of directors 
(or similar governing body) of the SPAC whether the de-SPAC transaction 
is advisable and in the best interests of the SPAC and its security 
holders if such a determination is required by the law of the 
jurisdiction in which the SPAC is organized or disclosure of any 
comparable determination that is required under such law, additional 
disclosures about the target company, a re-determination of SRC status 
following the completion of a de-SPAC transaction, and a minimum 
dissemination period for certain disclosure documents in these 
transactions. The final rules apply 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. 
In addition, the first filing in which re-determination of SRC status 
following a de-SPAC transaction is reflected may be in a Form 10-K or 
Form 10-Q filing under the Exchange Act. The final rules also provide 
that if securities to be registered on Form S-4 or F-4 will be issued 
by a SPAC or another shell company in connection with a de-SPAC 
transaction, the registrants must also include the target company, 
except that in a de-SPAC transaction where the target company consists 
of a business or assets, the seller of the business or assets is deemed 
to be a registrant instead of the business or assets. Further, we are 
adopting: new definitions of ``blank check company'' under 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; updated and expanded guidance in Item 10(b) of 
Regulation S-K regarding the use of projections in Commission filings; 
\1459\ and requirements to provide additional disclosure when 
projections are disclosed in connection with de-SPAC transactions.
---------------------------------------------------------------------------

    \1459\ 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,\1460\ we are adopting Securities Act Rule 145a 
that provides, with respect to a reporting shell company's 
shareholders, any direct or indirect business combination of a 
reporting shell company involving another entity that is not a shell 
company, is deemed to involve an offer, offer to sell, offer for sale, 
or sale within the meaning of Securities Act section 2(a)(3). In 
addition, we are adopting amendments to the financial statement 
reporting requirements in Regulation S-X for transactions involving 
shell companies.
---------------------------------------------------------------------------

    \1460\ 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 final rules are discussed in 
more detail in sections II through V above. We discuss the economic 
impact, including the estimated costs and burdens, of the final rules 
on all registrants, including small entities, in sections VIII and IX 
above.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on all aspects of 
the IRFA, including the number of small entities that would be affected 
by the proposed rules, the existence or nature of the potential impact 
of the proposals on small entities discussed in the analysis, how the 
proposed rules could further lower the burden on small entities, and 
how to quantify the impact of the proposed rules. While we did not 
receive any comments specifically addressing the IRFA, as discussed 
above, one commenter suggested that the Commission consider a phased-in 
compliance period for smaller reporting companies for the tagging 
requirements.\1461\ We also received a number of comments on the 
proposed rules generally \1462\ and have considered these comments in 
developing the FRFA.
---------------------------------------------------------------------------

    \1461\ See supra section II.I.
    \1462\ See supra sections II through VI.
---------------------------------------------------------------------------

C. Small Entities Subject to the Final Rules

    The final rules will affect registrants that are small entities. 
The RFA defines ``small entity'' to mean ``small business,'' ``small 
organization,'' or ``small governmental jurisdiction.'' \1463\ The 
regulation at 17 CFR 230.157 defines an issuer, other than an 
investment company, to be a ``small business'' or ``small 
organization'' for purposes of the RFA 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. The regulation at 17 CFR 240.0-10(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.
---------------------------------------------------------------------------

    \1463\ 5 U.S.C. 601(6).
---------------------------------------------------------------------------

    The final disclosure and other requirements applicable to SPACs 
would not apply to issuers that raise less than $5 million at the time 
of their IPOs.\1464\ However, we acknowledge that there may be 
instances where a small entity may be affected by the final rules, 
including at the time of a subsequent registered offering or at the 
time of a de-SPAC transaction.\1465\ While the Commission solicited 
comment on the number of SPACs that were small entities in such 
instances, we did not receive any feedback on this point. We remain 
unaware of any such instances to date. The Commission also solicited 
comment on the number of target private operating companies in de-SPAC 
transactions that may be small entities, and likewise did not receive 
feedback on this point. As noted in the Proposing Release, 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,

[[Page 14312]]

however, we expect this number to be relatively low.\1466\
---------------------------------------------------------------------------

    \1464\ See discussion of the definition of ``special purpose 
acquisition company'' in section II.A.
    \1465\ According to data from Dealogic, the vast majority of 
IPOs by SPACs in 2020 and 2021 raised more than $50 million and in 
2022 all SPAC IPOs raised $50 million or more. In 2020, the smallest 
amount raised in a SPAC IPO was $40 million. In 2021, the smallest 
amount raised in a SPAC IPO was $44 million. In 2022, the smallest 
amount raised in a SPAC IPO was $50 million.
    \1466\ 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 note 1203 (regarding exchange 
requirements that the SPAC complete a business combination(s) having 
an aggregate fair market value of at least 80% of the value of the 
net assets in the trust account excluding certain costs).
---------------------------------------------------------------------------

    In regard to final Rule 145a and the final amendments to Regulation 
S-X, we estimate that there are 136 non-SPAC reporting shell companies 
that are small entities.\1467\ The Commission requested comment in the 
Proposing Release regarding the number of private operating companies 
and private shell companies that are small entities and may engage in a 
business combination transaction but did not receive any information on 
this point. Due to data limitations, we remain unable to estimate this 
number.
---------------------------------------------------------------------------

    \1467\ This estimate does not include business combination 
related shell companies.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    We expect that the final disclosure and other requirements 
applicable to registrants, including target companies, will have an 
incremental effect on reporting, recordkeeping, and other compliance 
burdens for registrants (including target companies), including small 
entities. These requirements will increase compliance costs for 
registrants (including target companies), and compliance with these 
requirements will 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 final rules 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. The final rules are discussed in detail 
in sections II through V above. We discuss the economic effects, 
including the estimated costs and burdens, of the final rules on all 
registrants (including target companies), including small entities, in 
sections VIII and IX above.
    Final Rule 145a may impose reporting or compliance requirements and 
related costs on a small entity to the extent it would require such a 
small entity to register the transaction under the Securities Act or 
comply with an exemption from registration.

E. Duplicative, Overlapping or Conflicting Federal Rules

    The final disclosure requirements in subpart 1600 of Regulation S-K 
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.\1468\ To the extent 
that the disclosure requirements in final subpart 1600 overlap with 
these existing disclosure requirements, a registrant would not be 
required to duplicate the resulting disclosure, and as such there 
should not be a duplicative or increased burden. As discussed in 
section II.C, if there are facts and circumstances that may result in 
required disclosure under a current rule being the same as under any of 
the rules we are adopting, then registrants could cross-reference 
rather than repeat disclosures.
---------------------------------------------------------------------------

    \1468\ See supra sections II through V.
---------------------------------------------------------------------------

    Other than these disclosure requirements, we believe that the final 
rules and amendments would not duplicate, overlap, or conflict with 
other Federal rules.

F. Agency Action To Minimize Effect on Small Entities

    The RFA 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 final rules will enhance and clarify information provided to 
investors, including by enabling investors to make better informed 
decisions as to whether to purchase securities in SPAC registered 
offerings or to purchase or sell SPAC securities in secondary trading 
markets and as to voting, investment, redemption, and tender decisions 
in connection with de-SPAC transactions. Further, with respect to Rule 
145a and co-registration requirements, as discussed above in sections 
III.C and IV.A, the final rules will help ensure that a private 
operating company's method of becoming a public company does not 
negatively impact the protection of investors. Due to the nature of 
SPAC transactions and the investor protection concerns discussed above, 
we believe that the final rules are equally appropriate for SPACs of 
all sizes that are engaged in a registered offering and for SPACs and 
target companies of all sizes that are engaged in a de-SPAC transaction 
because we believe investors should receive the enhanced protections of 
the final rules regardless of the size of the entity engaged in the 
SPAC transaction. For the same reason, we believe that the final rules 
that apply to shell companies and/or blank check companies, including 
SPACs, are equally appropriate for such shell companies and/or blank 
check companies of all sizes.\1469\ As a result, we do not believe that 
it is appropriate: to adopt different compliance or reporting 
requirements for small entities; to clarify, consolidate or simplify 
small entity compliance and reporting requirements; \1470\ or to 
provide for small entity exemptions. As noted above, in our view, a 
private operating company's method of becoming a public company should 
not negatively impact investor protection. We believe that exempting 
certain entities based on size from the requirements of the final rules 
would mean the benefits discussed above would be inappropriately 
unavailable to investors in those registrants. With respect to using 
performance rather than design standards, the final rules use primarily 
design standards in order to promote uniform compliance requirements 
for all registrants. Further, we believe that the 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.
---------------------------------------------------------------------------

    \1469\ The final definitions, for purposes of the PSLRA, of 
``blank check company,'' final Rule 145a, and the final amendments 
to Regulation S-X are not limited to SPACs. See discussion in 
sections III.E, IV.A, and IV.B.
    \1470\ Certain rules we are adopting may provide benefits of 
clarity and simplicity for entities of all sizes, as we discuss in 
sections II through V.
---------------------------------------------------------------------------

    As discussed in section IV.A above, Rule 145a is designed to ensure 
that shareholders more consistently receive the full protections of 
Securities Act disclosure and liability provisions, as applicable, and 
that such investor protections will apply more consistently regardless 
of transaction structure. As a result, with respect to Rule 145a, we do 
not believe that it is appropriate to adopt different compliance or 
reporting requirements for small entities, to

[[Page 14313]]

clarify, consolidate, or simplify small entity compliance and reporting 
requirements, or to provide for small entity exemptions.
    The amendments to Regulation S-X that we are adopting 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, including small entities, 
already report consistently with this staff guidance. The amendments 
are not expected to have any significant adverse effect on small 
entities (and are expected to reduce compliance burdens as discussed in 
sections VIII and IX). Accordingly, we do not believe that it is 
necessary: to exempt small entities from all or part of the amendments 
to Regulation S-X; to establish different compliance or reporting 
requirements for such entities; or to clarify, consolidate, or simplify 
compliance and reporting requirements for small entities. Furthermore, 
the final amendments to Regulation S-X regarding financial statement 
requirements use design standards to a greater degree than performance 
standards in order to promote consistency in financial reporting which 
benefits investors who use financial data in making investment 
decisions, including by comparing financial data across companies.

Statutory Authority

    We are adopting 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; and sections 3, 12, 13, 14, 15, 23(a), and 36 
of the Exchange Act.

List of Subjects

17 CFR Part 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.

Text of Rule and Form Amendments

    For the reasons set out in the preamble, to the Commission is 
adopting amendments to 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 paragraphs (d) and (w)(1) 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 an entity that will combine with an entity 
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, other than in transactions where Sec.  210.15-01(a) 
applies, 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 this part 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 an acquisition by a predecessor to a shell company, use the 
predecessor's consolidated financial statements instead of those of the 
shell company registrant in applying the significance tests in 
paragraphs (w)(1)(i), (ii), and (iii) of this section. A registrant 
that files its financial statements in accordance with or provides a 
reconciliation to U.S. Generally Accepted Accounting Principles (U.S. 
GAAP) must use amounts determined under U.S. GAAP. A foreign private 
issuer that files its financial statements in accordance with 
International Financial Reporting Standards as issued by the 
International Accounting Standards Board (IFRS-IASB) must use amounts 
determined under IFRS-IASB.
* * * * *

0
3. Amend Sec.  210.3-01 by revising paragraph (a) to read as follows:


Sec.  210.3-01  Consolidated balance sheets.

    (a) There must 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 must 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. When a 
predecessor to a shell company (other than a business combination 
related

[[Page 14314]]

shell company) acquires a business and the financial statements of that 
recently consummated business are omitted from a registration statement 
or proxy statement pursuant to paragraph (b)(4)(i) of this section, 
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. When a predecessor to a shell company (other than a 
business combination related shell company) acquires a real estate 
operation and the financial statements of that recently consummated 
acquisition of a real estate operation are omitted from a registration 
statement or proxy statement pursuant to paragraph (b)(3)(i) of this 
section, refer to Sec.  210.15-01(d)(2).
* * * * *

0
6. Revise Sec.  210.8-02 to read as follows:


Sec.  210.8-02  Annual financial statements.

    Smaller reporting companies must file an audited balance sheet for 
the registrant and its subsidiaries consolidated 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 section 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 part may be omitted.
* * * * *

0
8. 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. The term audit (or examination), when used 
in regard to financial statements of an entity 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 Public Company Accounting Oversight Board (``PCAOB'') 
for the purpose of expressing an opinion thereon. When used in regard 
to financial statements of an entity that is not a predecessor that are 
included in a registration statement or proxy statement filed for a 
combination with an issuer that is a shell company (other than a 
business combination related shell company), 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 this part and forms applicable to those entities for the purpose of 
expressing an opinion thereon. In transactions involving a shell 
company that is not a SPAC (as defined in Sec.  229.1601(b) of this 
chapter), the predecessor must be audited by an independent accountant 
registered with the PCAOB.
    (b) Financial statements. When a registrant is a shell company 
(other than a business combination related shell company) and the 
financial statements of a business that will be combining with such 
registrant are required in a registration statement or proxy statement, 
such 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 for which audited financial statements are available, if it 
were filing a registration statement alone.
    (c) Age of financial statements. The financial statements of a 
business that will be acquired by a shell company (other than a 
business combination related shell company) must 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 for which audited 
financial statements are available, if it were filing a registration 
statement alone) as if the financial statements were included in an 
initial registration statement in determining the age of financial 
statements of the business in the registration statement or proxy 
statement of the registrant.
    (d) Acquisition of a business or real estate operation by a 
predecessor. Registrants must apply Sec.  210.3-05 (Sec.  210.8-04 when 
the predecessor would qualify to be a smaller reporting company based 
on its annual revenues as of the most recently completed fiscal year 
for which audited financial statements are available if it were filing 
a registration statement alone) or Sec.  210.3-14 (Sec.  210.8-06 when 
the predecessor would qualify to be a smaller reporting company based 
on its annual revenues as of the most recently completed fiscal year 
for which audited financial statements are available if it were filing 
a registration statement alone) to acquisitions of a business or real 
estate operation, respectively, by a predecessor.
    (1) See Sec.  210.1-02(w)(1) for rules on applying the significance 
tests to acquisitions of a business or real estate operation that is 
not or will not be the predecessor.
    (2) When the financial statements of a recently acquired business 
or real estate operation that is not or will not be the predecessor are 
omitted from a registration statement or proxy statement pursuant to 
Sec.  210.3-05(b)(4)(i) (Rule 3-05(b)(4)(i) of Regulation S-X) or Sec.  
210.3-14(b)(3)(i) (Rule 3-14(b)(3)(i) of Regulation S-X), those 
financial statements must be filed in a Form 8-K by the later of the 
filing of the Form 8-K filed pursuant to Item 2.01(f) of Form 8-K or 75 
days after consummation of the acquisition.
    (e) Financial statements of shell company. After a shell company

[[Page 14315]]

registrant (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 any 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. If a registrant is to acquire or has 
acquired a shell company (other than a business combination related 
shell company), the financial statements of the shell company are 
required to be included in any filing that requires the registrant's 
financial statements, as if the shell company were the registrant for 
the filing, unless the financial statements of the registrant include 
the period in which the acquisition of the shell company 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
9. 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
10. Amend Sec.  229.10 by:
0
a. Revising paragraph (b); and
0
b. Adding paragraph (f)(2)(iv).
    The revision and addition read as follows:


Sec.  229.10  (Item 10) General.

* * * * *
    (b) Commission policy on projections. The Commission encourages the 
use in documents specified in Sec. Sec.  230.175 (Rule 175 under the 
Securities Act) and 240.3b-6 (Rule 3b-6 under the Exchange Act) 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 in this paragraph (b) 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 (loss). 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 results or operational 
history with equal or greater prominence.
    (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 
directly comparable, 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 
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 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

[[Page 14316]]

filings, beginning 45 days after consummation of the de-SPAC 
transaction.
    (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
11. Amend Sec.  229.601 by:
0
a. In the exhibit table in paragraph (a), adding entry 98 and footnote 
8;
0
b. Adding paragraph (b)(98);
0
c. Removing the word ``and'' at the end of paragraph (b)(101)(i)(B);
0
d. Removing the period at the end of paragraph (b)(101)(i)(C)(2) and 
adding ``; and'' in its place; and
0
e. Adding paragraph (b)(101)(i)(D).
    The additions read as follows:


Sec.  229.601  (Item 601) Exhibits.

    (a) * * *

                                                                                          Exhibit Table
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Securities act forms                                                   Exchange act forms
                                                     -------------------------------------------------------------------------------------------------------------------------------------------
                                                        S-1     S-3     SF-1     SF-3    S-4 \1\    S-8     S-11     F-1     F-3   F-4 \1\    10    8-K \2\    10-D     10-Q     10-K    ABS- EE
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 
                                                                                          * * * * * * *
(98) Reports, opinions, or appraisals in de-SPAC          X   ......  .......  .......        X   ......  .......      X   ......       X   ......  .......  .......  .......  .......  ........
 transactions \8\...................................
 
                                                                                          * * * * * * *
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ An exhibit need not be provided about a company if: (1) With respect to such company an election has been made under Form S-4 or F-4 to provide information about such company at a level
  prescribed by Form S-3 or F-3; and (2) the form, the level of which has been elected under Form S-4 or F-4, would not require such company to provide such exhibit if it were registering a
  primary offering.
\2\ A Form 8-K exhibit is required only if relevant to the subject matter reported on the Form 8-K report. For example, if the Form 8-K pertains to the departure of a director, only the
  exhibit described in paragraph (b)(17) of this section need be filed. A required exhibit may be incorporated by reference from a previous filing.
* * * * * * *
\8\ If required pursuant to Sec.   229.1607(c) (Item 1607(c) of Regulation S-K).

    (b) * * *
    (98) Reports, opinions, or appraisals in de-SPAC transactions. If 
the securities to be registered on the form will be issued in a de-SPAC 
transaction, as defined in Sec.  229.1601(a) (Item 1601(a) of 
Regulation S-K), all reports, opinions, or appraisals required to be 
filed or included by Sec.  229.1607(c) (Item 1607(c) of Regulation S-
K).
* * * * *
    (101) * * *
    (i) * * *
    (D) Is required in any filing that is excluded by paragraphs 
(b)(101)(i)(A), (B), or (C) of this section, that contains any 
disclosure required by subpart 229.1600 of this part but only as to 
such disclosure.
* * * * *

0
12. Add 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) Board determination about the de-SPAC 
transaction.
229.1607 (Item 1607) Reports, opinions, appraisals, and 
negotiations.
229.1608 (Item 1608) Tender offer filing obligations.
229.1609 (Item 1609) 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:
    (a) De-SPAC transaction. The term de-SPAC transaction means a 
business combination, such as a merger, consolidation, exchange of 
securities, acquisition of assets, reorganization, 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 (SPAC) means a company that has:
    (1) Indicated that its business plan is to:
    (i) Conduct a primary offering of securities that is not subject to 
the requirements of Sec.  230.419 of this chapter (Rule 419 under the 
Securities Act);
    (ii) Complete a business combination, such as a merger, 
consolidation, exchange of securities, acquisition of assets, 
reorganization, or similar transaction, with one or more target 
companies within a specified time frame; and
    (iii) Return proceeds from the offering and any concurrent offering 
(if such offering or concurrent offering intends to raise proceeds) to 
its security holders if the company does not complete a business 
combination, such as a merger, consolidation, exchange of securities, 
acquisition of assets, reorganization, or similar transaction, with one 
or more target companies within the specified time frame; or
    (2) Represented that it pursues or will pursue a special purpose 
acquisition company strategy.
    (c) SPAC sponsor. The term SPAC sponsor means any entity and/or 
person primarily responsible for organizing, directing, or managing the 
business and affairs of a special purpose acquisition company, 
excluding, if an entity is a SPAC sponsor, officers and directors of 
the special purpose acquisition company who are not affiliates of any 
such entity that is a SPAC sponsor.
    (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

[[Page 14317]]

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, its affiliates, and promoters, the amount of 
securities issued or to be issued by the SPAC to the SPAC sponsor, its 
affiliates, and promoters and the price paid or to be paid for such 
securities, and whether this compensation and securities issuance 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 at quartile 
intervals based on percentages of the maximum redemption threshold: the 
offering price; as of the most recent balance sheet date filed, the net 
tangible book value per share, as adjusted, as if the offering and 
assumed redemption levels have occurred and to give effect to material 
probable or consummated transactions (other than the completion of a 
de-SPAC transaction); and the difference between the offering price and 
such net tangible book value per share, as adjusted. Provide a cross-
reference, highlighted by prominent type or in another manner, to the 
locations of related disclosures in the prospectus:

                                           Table 1 to Paragraph (a)(4)
                                 Net Tangible Book Value Per Share, as Adjusted
----------------------------------------------------------------------------------------------------------------
                                    25% of Maximum      50% of Maximum      75% of Maximum
      Offering Price of __            redemption          redemption          redemption      Maximum redemption
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------

    Instruction 1 to paragraph (a)(4). If the offering includes an 
over-allotment option, include separate rows in the tabular disclosure 
showing the information required by this paragraph (a)(4) with and 
without the exercise of the over-allotment option.
    (5) State whether there may be actual or potential material 
conflicts of interest between the SPAC sponsor, 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) must include 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, the amount of securities issued or to be issued by the SPAC 
to the SPAC sponsor, its affiliates, and promoters and the price paid 
or to be paid for such securities, and, outside of the table, the 
extent to which this compensation and securities issuance may result in 
a material dilution of the purchasers' equity interests; and
    (7) Any actual or potential material conflict of interest between 
the SPAC sponsor, 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. Disclose in a tabular format for the same quartile 
intervals as in paragraph (a)(4) of this section: the offering price; 
net tangible book value per share, as adjusted, determined in the same 
manner as in paragraph (a)(4); and the difference between the offering 
price and such net tangible book value per share, as adjusted. The 
tabular disclosure must show: the nature and amounts of each source of 
dilution used to determine net tangible book value per share, as 
adjusted; the number of shares used to determine net tangible book 
value per share, as adjusted; and any adjustments to the number of 
shares used to determine the per share component of net tangible book 
value per share, as adjusted. Outside of the table, describe each 
material potential source of future dilution following the registered 
offering by the special purpose acquisition company, including sources 
not included in the table with respect to the determination of net 
tangible book value per share, as adjusted. Provide a description of 
the model, methods, assumptions, estimates, and parameters necessary to 
understand the tabular disclosure.


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,

[[Page 14318]]

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 
officers, directors, or affiliates with respect to 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 been or will be 
awarded to, earned by, or paid to the SPAC sponsor, its affiliates, and 
any promoters for all services rendered or to be rendered in all 
capacities to the special purpose acquisition company and its 
affiliates and the amount of securities issued or to be issued by the 
SPAC to the SPAC sponsor, its affiliates, and any promoters and the 
price paid or to be paid for such securities. Disclose any 
circumstances or arrangements under which the SPAC sponsor, its 
affiliates, and promoters, directly or indirectly, have transferred or 
could transfer ownership of securities of the SPAC, or that have 
resulted or could result in the surrender or cancellation of such 
securities. 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.
    (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.
    (b) Conflicts of interest. Describe any actual or potential 
material conflict of interest, including any material conflict of 
interest that may arise 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 a 
SPAC sponsor, officers, or directors or the manner in which a SPAC 
sponsor compensates its officers and directors, between:
    (1) The SPAC sponsor or its affiliates; the special purpose 
acquisition company's officers, directors, or promoters; or the target 
company's officers or directors; and
    (2) Unaffiliated security holders of the SPAC.
    (c) SPAC officer and director fiduciary duties. 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 the determination, if any, of the board of directors (or 
similar governing body) of the special purpose acquisition company 
disclosed in response to Sec.  229.1606(a) (Item 1606(a) of Regulation 
S-K) and, if applicable, that the special purpose acquisition company 
or the SPAC sponsor has received a report, opinion, or appraisal 
referred to in Sec.  229.1607(a) (Item 1607(a) of Regulation S-K).
    (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; the 
amount of securities issued or to be issued by the SPAC to the SPAC 
sponsor, its affiliates, and promoters and the price paid or to be paid 
for such securities in connection with the de-SPAC transaction or any 
related financing transaction; and whether this compensation and 
securities issuance 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, in connection with the de-SPAC transaction, 
there may be any actual or potential material conflict of interest, 
including any material conflict of interest that may arise 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 a SPAC sponsor, 
officers, and directors or the manner in which a SPAC sponsor 
compensates its officers and directors, between: on one hand, the SPAC 
sponsors, their affiliates, SPAC officers, SPAC directors, or 
promoters, target company officers or target company directors; and, on 
the other hand, unaffiliated security holders of the SPAC. 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) must include 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) The determination, if any, of the board of directors (or 
similar governing body) of the special purpose acquisition company 
disclosed in response to Sec.  229.1606(a) (Item 1606(a) of Regulation 
S-K), the material factors that the board of directors (or similar 
governing body) of the special purpose acquisition company considered 
in making such determination, and any report, opinion, or appraisal 
referred to in Sec.  229.1607(a) (Item 1607(a) of Regulation S-K);
    (3) In connection with the de-SPAC transaction, any actual or 
potential material conflict of interest between:
    (i) The SPAC sponsor, SPAC officers, SPAC directors, SPAC 
affiliates or promoters, target company officers, or target company 
directors; and
    (ii) Unaffiliated security holders of the SPAC;
    (4) In a tabular format, the terms and amount of the compensation 
received or

[[Page 14319]]

to be received by the SPAC sponsor, its affiliates, and promoters in 
connection with the de-SPAC transaction or any related financing 
transaction, the amount of securities issued or to be issued by the 
SPAC to the SPAC sponsor, its affiliates, and promoters and the price 
paid or to be paid for such securities in connection with the de-SPAC 
transaction or any related financing transaction; and, outside of the 
table, the extent to which that compensation and securities issuance 
has resulted or may result in a material dilution of the equity 
interests of non-redeeming shareholders of the special purpose 
acquisition company;
    (5) The material terms of any material 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 non-redeeming shareholders; and
    (6) The rights of security holders to redeem the outstanding 
securities of the special purpose acquisition company and the potential 
dilutive impact of redemptions on non-redeeming shareholders.
    (c) Dilution. Disclose in a tabular format that includes intervals 
representing selected potential redemption levels that may occur across 
a reasonably likely range of outcomes: the offering price disclosed 
pursuant to Sec.  229.1602(a)(4) (Item 1602(a)(4)) in the initial 
registered offering by the SPAC; as of the most recent balance sheet 
date filed, the net tangible book value per share, as adjusted, as if 
the selected redemption levels have occurred, and to give effect to, 
while excluding the de-SPAC transaction itself, material probable or 
consummated transactions and other material effects on the SPAC's net 
tangible book value per share from the de-SPAC transaction; and the 
difference between such offering price and such net tangible book value 
per share, as adjusted. The tabular disclosure must show: the nature 
and amounts of each source of dilution used to determine net tangible 
book value per share, as adjusted; the number of shares used to 
determine net tangible book value per share, as adjusted; and any 
adjustments to the number of shares used to determine the per share 
component of net tangible book value per share, as adjusted. Outside of 
the table, 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, 
including sources not included in the table with respect to the 
determination of net tangible book value per share, as adjusted.
    (1) With respect to each redemption level, 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 tabular 
disclosure.


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

    (a) Provide a summary of the background of the de-SPAC transaction. 
Such summary must include 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 of the SPAC and 
the target company for engaging in the de-SPAC transaction and reasons 
of the SPAC 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 
SPAC and target company security holders as compared with security 
holders of the combined company as a result of the de-SPAC transaction;
    (5) A brief statement as to the accounting treatment of the de-SPAC 
transaction; and
    (6) The Federal income tax consequences of the de-SPAC transaction 
to the SPAC, the target company, and their respective security holders.
    (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 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 of the special purpose acquisition company. 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 or the 
special purpose acquisition company's officers or directors, including 
fiduciary or contractual obligations to other entities as well as any 
interest in, or affiliation with, the target company; or held by the 
target company's officers or directors that consist of any interest in, 
or affiliation with, the SPAC sponsor or the special purpose 
acquisition 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) Board determination about the de-SPAC 
transaction.

    (a) Board determination. If the law of the jurisdiction in which 
the special purpose acquisition company is organized requires its board 
of directors (or similar governing body) to determine whether the de-
SPAC transaction is advisable and in the best interests of the special 
purpose acquisition company and its security holders, or otherwise make 
any comparable determination, disclose that determination.
    (b) Factors considered in board determination. Discuss the material 
factors the board of directors (or similar governing body) of the 
special purpose acquisition company considered in making any 
determination disclosed in response to paragraph (a) of this section. 
To the extent considered, such factors must include, but need not be 
limited to, the valuation of the target company, financial projections 
relied upon by the board of directors (or similar governing body), the 
terms of financing materially related to the de-SPAC transaction, any 
report, opinion, or appraisal referred to in Sec.  229.1607(a) (Item 
1607(a) of Regulation S-K), and the dilution 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

[[Page 14320]]

is structured so that approval of at least a majority of unaffiliated 
security holders of the special purpose acquisition company is 
required.
    (d) Unaffiliated representative. State whether or not a majority of 
the directors (or members of similar governing body) 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 and/or preparing a report concerning the approval of the 
de-SPAC transaction.
    (e) Approval of directors. State whether or not the de-SPAC 
transaction was approved by a majority of the directors (or members of 
similar governing body) of the special purpose acquisition company who 
are not employees of the special purpose acquisition company. If any 
director (or member of a similar governing body) of the special purpose 
acquisition company voted against, or abstained from voting on, 
approval of the de-SPAC transaction, identify such persons, and 
indicate, if known after making reasonable inquiry, the reasons for the 
vote against the transaction or abstention.


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

    (a) Report, opinion, or appraisal. Disclose the information 
required by paragraph (b) of this section if the special purpose 
acquisition company or SPAC sponsor has received any report, opinion 
(other than an opinion of counsel) or appraisal from an outside party 
or an unaffiliated representative referred to in Sec.  229.1606(d) 
(Item 1606(d) of Regulation S-K) materially relating to:
    (1) Any determination disclosed in response to Sec.  229.1606(a) 
(Item 1606(a) of Regulation S-K);
    (2) The approval of the de-SPAC transaction;
    (3) The consideration or the fairness of the consideration to be 
offered to security holders of the target company in the de-SPAC 
transaction; or
    (4) The fairness of the de-SPAC transaction to the special purpose 
acquisition company, its security holders, or SPAC sponsor.
    (b) Preparer and summary of the report, opinion, appraisal, or 
negotiation. For each report, opinion, or appraisal referred to in 
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) If the report, opinion, or appraisal relates to the fairness of 
the consideration to be offered to security holders of the target 
company in the de-SPAC transaction, 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 
and/or unaffiliated representative 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 paragraph (b): The information called for by 
paragraphs (b)(1) through (3) of this section must be given with 
respect to the firm that provides the report, opinion, or appraisal or 
participates in the negotiation rather than the employees of the firm 
that prepared the report, opinion, or appraisal or participated in the 
negotiation.
    (c) Exhibits. All reports, opinions, or appraisals referred to in 
paragraphs (a) and (b) of this section must 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.

    If the special purpose acquisition company files a Schedule TO 
(Sec.  240.14d-100 of this chapter) pursuant to Sec.  240.13e-4(c)(2) 
of this chapter (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)(2) of Schedule 14A (Sec.  
240.14a-101 of this chapter), as applicable, in addition to the 
information otherwise required by Schedule TO. Such redemption must be 
conducted in compliance with all other provisions of Sec. Sec.  
240.13e-4 (Rule 13e-4) and 240.14e-1 through 240.14e-8 (Regulation 14E) 
of this chapter.


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

    (a) With respect to any projections disclosed in the filing (or any 
exhibit thereto), disclose the purpose for which the projections were 
prepared and the party that prepared the projections.
    (b) Disclose all material bases of the disclosed projections and 
all material assumptions underlying the projections, and any material 
factors that may affect such assumptions. The disclosure referred to in 
this section should include a discussion of any material growth or 
reduction rates or discount rates used in preparing the projections, 
and the reasons for selecting such growth or reduction rates or 
discount rates.
    (c) If the projections relate to the performance of the special 
purpose acquisition company, state whether or not the projections 
reflect the view of the special purpose acquisition company's 
management or board of directors (or similar governing body) about its 
future performance as of the most recent practicable date prior to the 
date of the disclosure document required to be disseminated to security 
holders. If the projections relate to the target company, disclose 
whether or not 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 of directors (or similar governing body) 
about its future performance as of the most recent practicable date 
prior to the date of the disclosure document required to be 
disseminated to security holders. If the projections no longer reflect 
the views of the special purpose acquisition company's or the target 
company's management or board of directors (or similar governing body) 
regarding the future performance of

[[Page 14321]]

their respective companies as of the most recent practicable date prior 
to the date of the disclosure document required to be disseminated to 
security holders, state the purpose of disclosing the projections and 
the reasons for any continued reliance by the management or board of 
directors (or similar governing body) on the projections.


Sec.  229.1610  (Item 1610) Structured data requirement.

    Provide the disclosure required by this subpart in an Interactive 
Data File in accordance with Sec. Sec.  232.405 (Rule 405 of Regulation 
S-T) and 232.301 (the EDGAR Filer Manual) of this chapter.

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

0
13. 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 Pub. L. 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *

0
14. 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 section, a reporting shell company is a company other 
than an asset-backed issuer as defined in Sec.  229.1101(b) of this 
chapter (Item 1101(b) of Regulation AB), that has:
    (a) No or nominal operations;
    (b) Either:
    (1) No or nominal assets;
    (2) Assets consisting solely of cash and cash equivalents; or
    (3) Assets consisting of any amount of cash and cash equivalents 
and nominal other assets; and
    (c) 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
15. Amend Sec.  230.405 by:
0
a. Adding in alphabetical order the definition for ``Blank check 
company''; and
0
b. Adding paragraph (3)(iv) to the definition for ``Smaller reporting 
company''.
    The additions read as follows:


Sec.  230.405  Definitions of terms.

* * * * *
    Blank check company. For purposes of section 27A of the Securities 
Act of 1933 (15 U.S.C. 77z-2), 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.
* * * * *
    Smaller reporting company. * * *
    (3) * * *
    (iv) Upon the consummation of a de-SPAC transaction, as defined in 
Sec.  229.1601(a) of this chapter (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 filings beginning 
45 days after consummation of the de-SPAC transaction.
    (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) of this chapter (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.
* * * * *

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

0
16. The general authority citation for part 232 continues to read 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, 80b-4, 80b-6a, 80b-10, 80b-11, 7201 
et seq.; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *

0
17. 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)(4)(i) and 
adding a period in its place;
0
c. Adding paragraph (b)(4)(vi); and
0
d. Revising note 1 to the section.
    The revisions and addition 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), General Instruction F of Sec.  249.311 of this 
chapter (Form 11-K), 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), Sec.  240.13a-21 of this chapter (Rule 13a-21 
under the Exchange Act), paragraph 101 of the Instructions as to 
Exhibits of Sec.  249.220f of this chapter (Form 20-F), paragraph 
B.(15) of the General Instructions to Sec.  249.240f of this chapter 
(Form 40-F), paragraph C.(6) of the General Instructions to Sec.  
249.306 of this chapter (Form 6-K), Sec.  240.17Ad-27(d) of this 
chapter (Rule 17Ad-27(d) under the Exchange Act), Note D.5 of Sec.  
240.14a-101 of this chapter (Rule 14a-101 under the Exchange Act), Item 
1 of Sec.  240.14c-101 of this chapter (Rule 14c-101 under the Exchange 
Act), General Instruction L of Sec.  240.14d-100 of this chapter (Rule 
14d-100 under the Exchange Act), General Instruction I of Sec.  249.333 
of this chapter (Form F-SR), General Instruction C.3.(g) of Sec. Sec.  
239.15A and 274.11A of this chapter (Form N-1A), General Instruction I 
of Sec. Sec.  239.14 and 274.11a-1 of this chapter (Form N-2), General 
Instruction C.3.(h) of Sec. Sec.  239.17a and 274.11b of this chapter 
(Form N-3), General Instruction C.3.(h) of Sec. Sec.  239.17b and 
274.11c of this chapter (Form N-4), General Instruction C.3.(h) of 
Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6), General 
Instruction 2.(l) of Sec.  274.12 of this chapter (Form N-8B-2), 
General Instruction 5 of Sec.  239.16 of this chapter (Form S-6), and 
General Instruction C.4 of Sec. Sec.  249.331 and 274.128 of this 
chapter (Form N-CSR) 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

[[Page 14322]]

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), 
General Instruction F of Sec.  249.311 (Form 11-K), 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), Sec.  240.13a-
21 of this chapter (Rule 13a-21 under the Exchange Act), paragraph 101 
of the Instructions as to Exhibits of Sec.  249.220f of this chapter 
(Form 20-F), paragraph B.(15) of the General Instructions to Sec.  
249.240f of this chapter (Form 40-F), paragraph C.(6) of the General 
Instructions to Sec.  249.306 of this chapter (Form 6-K), Rule 17Ad-
27(d) under the Exchange Act, Note D.5 of Rule 14a-101 under the 
Exchange Act, Item 1 of Rule 14c-101 under the Exchange Act, General 
Instruction L of Sec.  240.14d-100 of this chapter (Rule 14d-100 under 
the Exchange Act), General Instruction I to Sec.  249.333 of this 
chapter (Form F-SR), General Instruction C.3.(g) of Sec. Sec.  239.15A 
and 274.11A of this chapter (Form N-1A), General Instruction I of 
Sec. Sec.  239.14 and 274.11a-1 of this chapter (Form N-2), General 
Instruction C.3.(h) of Sec. Sec.  239.17a and 274.11b of this chapter 
(Form N-3), General Instruction C.3.(h) of Sec. Sec.  239.17b and 
274.11c of this chapter (Form N-4), General Instruction C.3.(h) of 
Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6), General 
Instruction 2.(l) of Sec.  274.12 of this chapter (Form N-8B-2), 
General Instruction 5 of Sec.  239.16 of this chapter (Form S-6), or 
General Instruction C.4 of Sec. Sec.  249.331 and 274.128 of this 
chapter (Form N-CSR), as applicable;
* * * * *
    (4) Be submitted in accordance with the EDGAR Filer Manual and, as 
applicable, 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 Sec.  239.40 of this 
chapter (Form F-10), Sec.  240.13a-21 of this chapter (Rule 13a-21 
under the Exchange Act), paragraph 101 of the Instructions as to 
Exhibits of Sec.  249.220f of this chapter (Form 20-F), paragraph 
B.(15) of the General Instructions to Sec.  249.240f of this chapter 
(Form 40-F), paragraph C.(6) of the General Instructions to Sec.  
249.306 of this chapter (Form 6-K), Sec.  240.17Ad-27(d) of this 
chapter (Rule 17Ad-27(d) under the Exchange Act), Note D.5 of Sec.  
240.14a-101 of this chapter (Rule 14a-101 under the Exchange Act), Item 
1 of Sec.  240.14c-101 of this chapter (Rule 14c-101 under the Exchange 
Act), General Instruction L of Sec.  240.14d-100 of this chapter (Rule 
14d-100 under the Exchange Act), General Instruction I to Sec.  249.333 
of this chapter (Form F-SR), General Instruction C.3.(g) of Sec. Sec.  
239.15A and 274.11A of this chapter (Form N-1A), General Instruction I 
of Sec. Sec.  239.14 and 274.11a-1 of this chapter (Form N-2), General 
Instruction C.3.(h) of Sec. Sec.  239.17a and 274.11b of this chapter 
(Form N-3), General Instruction C.3.(h) of Sec. Sec.  239.17b and 
274.11c of this chapter (Form N-4), General Instruction C.3.(h) of 
Sec. Sec.  239.17c and 274.11d of this chapter (Form N-6); General 
Instruction 2.(l) of Sec.  274.12 of this chapter (Form N-8B-2); 
General Instruction 5 of Sec.  239.16 of this chapter (Form S-6); or 
General Instruction C.4 of Sec. Sec.  249.331 and 274.128 of this 
chapter (Form N-CSR).
* * * * *
    (b) * * *
    (4) * * *
    (vi) The information required by Sec. Sec.  229.1601 through 
229.1610 of this chapter (subpart 1600 of Regulation S-K).
* * * * *

    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. Sec.  239.11 (Form S-1), 239.13 (Form S-3), 
239.25 (Form S-4), 239.18 (Form S-11), 239.31 (Form F-1), 239.33 
(Form F-3), 239.34 (Form F-4), 249.310 (Form 10-K), 249.308a (Form 
10-Q), and 249.308 (Form 8-K) of this chapter. General Instruction F 
of Sec.  249.311 of this chapter (Form 11-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 Form 11-K. 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. Sec.  
249.240f (Form 40-F) and 249.306 (Form 6-K) of this chapter. Section 
240.17Ad-27(d) of this chapter (Rule 17Ad-27(d) under the Exchange 
Act) specifies the circumstances under which an Interactive Data 
File must be submitted with respect the reports required under Rule 
17Ad-27. Note D.5 of Sec.  240.14a-101 of this chapter (Schedule 
14A) and Item 1 of Sec.  240.14c-101 of this chapter (Schedule 14C) 
specify the circumstances under which an Interactive Data File must 
be submitted with respect to Schedules 14A and 14C. General 
Instruction L of Sec.  240.14d-100 of this chapter (Schedule TO) 
specifies the circumstances under which an Interactive Data File 
must be submitted with respect to Schedule TO. Section 240.13a-21 of 
this chapter (Rule 13a-21 under the Exchange Act) and General 
Instruction I to Sec.  249.333 of this chapter (Form F-SR) specify 
the circumstances under which an Interactive Data File must be 
submitted, with respect to Form F-SR. Sec. Sec.  242.829 and 242.831 
of this chapter (Rules 829 and 831 of Regulation SE) and the 
Registration Instructions to Sec.  249.1701 of this chapter (Form 
SBSEF), as applicable, specify the circumstances under which an 
Interactive Data File must be submitted with respect to filings made 
under Regulation SE. 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 Sec. Sec.  210.6-01 through 210.6-10 
of this chapter (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), General Instruction 2.(l) of 
Sec.  274.12 of this chapter (Form N-8B-2), General Instruction 5 of 
Sec.  239.16 of this chapter (Form S-6), and General Instruction C.4 
of Sec. Sec. &thnsp249.331 and 274.128 of this chapter (Form N-CSR) 
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 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
18. The authority citation for part 239 continues to read, in part, as 
follows:


[[Page 14323]]


    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, 80a-37, and sec. 71003 and sec. 84001, Pub. L. 114-
94, 129 Stat. 1321, unless otherwise noted.
    Sections 239.31, 239.32 and 239.33 are also issued under 15 
U.S.C. 78l, 78m, 78o, 78w, 80a-8, 80a-29, 80a-30, 80a-37 and 12 
U.S.C. 241.
* * * * *

0
19. Amend Form S-1 (referenced in Sec.  239.11) by:
0
a. Adding General Instruction VIII; and
0
b. Revising Item 6. Dilution.

    Note: Form S-1 is attached as appendix A to this document. Form 
S-1 will not appear in the Code of Federal Regulations.


0
20. 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.

    Note: Form S-4 is attached as appendix B to this document. Form 
S-4 will not appear in the Code of Federal Regulations.


0
21. Amend Form F-1 (referenced in Sec.  239.31) by adding General 
Instruction VII.

    Note: Form F-1 is attached as appendix C to this document. Form 
F-1 will not appear in the Code of Federal Regulations.


0
22. 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;
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.

    Note: Form F-4 is attached as appendix D to this document. Form 
F-4 will not appear in the Code of Federal Regulations.

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

0
23. The authority citation for part 240 continues to read, in part, 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, 78j-4, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 
78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 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; and Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 
112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise 
noted.
* * * * *
    Sections 240.12b-1 to 240.12b-36 also issued under secs. 3, 12, 
13, 15, 48 Stat. 892, as amended, 894, 895, as amended; 15 U.S.C. 
78c, 78l, 78m, 78o;
* * * * *
    Sections 240.14c-1 to 240.14c-101 also issued under sec. 14, 48 
Stat. 895; 15 U.S.C. 78n;
* * * * *

0
24. Amend Sec.  240.12b-2 by:
0
a. Adding in alphabetical order the definition for ``Blank check 
company''; and
0
b. Adding paragraph (3)(iv) to the definition of ``Smaller reporting 
company''.
    The additions read as follows:


Sec.  240.12b-2  Definitions.

* * * * *
    Blank check company. For purposes of section 21E of the Securities 
and Exchange Act of 1934 (15 U.S.C. 78u-5), 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.
* * * * *
    Smaller reporting company. * * *
    (3) * * *
    (iv) Upon the consummation of a de-SPAC transaction, as defined in 
Sec.  229.1601(a) of this chapter (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 filings, beginning 
45 days after consummation of the de-SPAC transaction.
    (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) of this chapter (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
25. 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 to be held or action is to 
be taken in connection with the de-SPAC transaction or the maximum 
number of days permitted for disseminating the proxy statement under 
the applicable laws of the jurisdiction of incorporation or 
organization.

0
26. Amend Sec.  240.14a-101 by:
0
a. Adding paragraph (f) to Item 14; and
0
b. In Item 25:
0
i. Removing ``and'' from the end of paragraph (a);
0
ii. Redesignating paragraph (b) as paragraph (c); and
0
iii. Adding new paragraph (b).
    The additions read as follows:


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

* * * * *
    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, 
229.1604(b)(1) through (6) and (c), 229.1605 through 229.1607, and 
229.1609 (Items 1603, 1604(b)(1) through (6) and (c), 1605 through 
1607, and 1609 of Regulation S-K) apply in addition to the provisions 
of this schedule and disclosure thereunder must be provided in the 
proxy statement, and the structured data provisions of Sec.  229.1610 
(Item 1610 of Regulation S-K) apply to those disclosures. The 
information required by Sec.  229.1604(b)(1) through (6) must be 
briefly described in the front of the disclosure document. To the 
extent that the applicable disclosure requirements of subpart 229.1600 
of Regulation S-K

[[Page 14324]]

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 (Item 101 of Regulation 
S-K, description of business);
    (ii) Information required by Sec.  229.102 (Item 102 of Regulation 
S-K, description of property);
    (iii) Information required by Sec.  229.103 (Item 103 of Regulation 
S-K, legal proceedings);
    (iv) Information required by Sec.  229.304 (Item 304 of Regulation 
S-K, changes in and disagreements with accountants on accounting and 
financial disclosure);
    (v) Information required by Sec.  229.403 (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; and
    (vi) Information required by Sec.  229.701 (Item 701 of Regulation 
S-K, recent sales of unregistered securities).
* * * * *
    Item 25. * * *
* * * * *
    (b) If the transaction is a de-SPAC transaction, as defined in 
Sec.  229.1601(a) (Item 1601(a) of Regulation S-K), all reports, 
opinions, or appraisals required to be filed or included by Sec.  
229.1607(c) (Item 1607(c) of Regulation S-K); and
* * * * *

0
27. 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 to 
be held or action is to be taken in connection with the de-SPAC 
transaction or the maximum number of days permitted for disseminating 
the information statement under the applicable laws of the jurisdiction 
of incorporation or organization.

0
28. Amend Sec.  240.14d-100 by:
0
a. Redesignating General Instruction K as General Instruction M;
0
b. Adding new General Instructions K and L; and
0
c. In Item 12:
0
i. Removing ``and'' from the end of paragraph (a);
0
ii. Redesignating paragraph (b) as paragraph (c); and
0
iii. Adding new paragraph (b).
    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. If the filing relates to a de-SPAC transaction, as defined in 
Sec.  229.1601(a) (Item 1601(a) of Regulation S-K), then the provisions 
of Sec. Sec.  229.1603, 229.1604(b)(1) through (6) and (c) and 229.1605 
through 229.1609 (Items 1603, 1604(b)(1) through (6) and (c) and 1605 
through 1609 of Regulation S-K) apply in addition to the provisions of 
this schedule and disclosure thereunder must be provided in this 
schedule, and the structured data provisions of Sec.  229.1610 (Item 
1610 of Regulation S-K) apply to those disclosures. The information 
required by Sec.  229.1604(b)(1) through (6) must be briefly described 
in the front of the disclosure document. If the filing by a special 
purpose acquisition company, as defined in Sec.  229.1601(b) (Item 
1601(b) of Regulation S-K), relates to any other redemption of 
securities offered to security holders, then the provisions of Sec.  
229.1608 (Item 1608 of Regulation S-K) apply in addition to the 
provisions of this schedule and disclosure thereunder, if applicable, 
must be provided in this schedule and the structured data provisions of 
Sec.  229.1610 (Item 1610 of Regulation S-K) apply to those 
disclosures. To the extent that the applicable disclosure requirements 
of subpart 229.1600 of Regulation S-K are inconsistent with the 
disclosure requirements of this filing, the requirements of subpart 
229.1600 of this chapter are controlling.
    L. An Interactive Data File must be included in accordance with 
Sec.  232.405 (Rule 405 of Regulation S-T) and the EDGAR Filer Manual 
where applicable pursuant to General Instruction K and Sec.  
232.405(b).
* * * * *
    Item 12. * * *
* * * * *
    (b) If the filing relates to a de-SPAC transaction, as defined in 
Sec.  229.1601(a) (Item 1601(a) of Regulation S-K), all reports, 
opinions, or appraisals required to be filed or included by Sec.  
229.1607(c) (Item 1607(c) of Regulation S-K); and
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
29. 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), Sec. 72001 Pub. L. 114-94, 
129 Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat. 
1063 (2020), 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
30. Amend Form 20-F (referenced in Sec.  249.220f) by adding 
Instruction 4 to Item 8.

    Note: Form 20-F is attached as appendix E to this document. Form 
20-F will not appear in the Code of Federal Regulations.


0
31. Amend Form 8-K (referenced in Sec.  249.308) by:
0
a. Adding General Instruction B.7; and
0
b. Revising paragraph (f) of Item 2.01.

    Note: Form 8-K is attached as appendix F to this document. Form 
8-K will not appear in the Code of Federal Regulations.


    By the Commission.

    Dated: January 24, 2024.
J. Matthew DeLesDernier,
Deputy Secretary.


    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendix A--Form S-1

Form S-1

* * * * *

General Instructions

* * * * *

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

[[Page 14325]]

de-SPAC transaction, the requirements of Form S-4 applicable to de-
SPAC transactions apply to this Form, including, but not limited to, 
Item 17 and General Instruction L.
* * * * *

Item 6. Dilution

    Provide the information required by Item 506 of Regulation S-K 
(Sec.  229.506 of this chapter), unless the registrant is a special 
purpose acquisition company (as defined in Item 1601 of Regulation 
S-K).
* * * * *

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 a special purpose 
acquisition company, as such term is defined in Item 1601 of 
Regulation S-K, or another shell company in connection with a de-
SPAC transaction, as such term is defined in Item 1601 of Regulation 
S-K, the term ``registrant'' for purposes of this instruction and 
the Signatures section of this form also includes the target 
company, as such term is defined in Item 1601 of Regulation S-K, 
except that in connection with any de-SPAC transaction involving the 
purchase of assets or a business, with respect to the purchase of 
assets or a business, the term ``registrant'' also includes the 
seller of the business or assets.
* * * * *

Appendix B--Form S-4

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) apply in addition to the provisions of this 
Form and disclosure thereunder must be provided in the prospectus, 
and the structured data provisions of Item 1610 of Regulation S-K 
(17 CFR 229.1610) apply to those disclosures. 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 such term is defined in Item 1601 of 
Regulation S-K) or another shell company in connection with a de-
SPAC transaction, the registrants also include the target company 
(as such term is defined in Item 1601 of Regulation S-K), and it 
must be so designated on the cover page of this Form. In such a de-
SPAC transaction, where the target company consists of a business or 
assets, the seller of the business or assets is deemed to be a 
registrant instead of the business or assets and must be so 
designated on the cover page of this Form. Further, in such a de-
SPAC transaction, the term ``registrant'' for purposes of the 
disclosure requirements of this Form means the special purpose 
acquisition company, and the term ``company being acquired'' for the 
purposes of the disclosure requirements of this Form means the 
target 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, as 
defined in Item 1601 of Regulation S-K (17 CFR 229.1601), 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 4, 
6.E, 7.A, 8.A.7, and 16F 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 the meeting of security holders is to be held or 
action is to be taken in connection with the de-SPAC transaction 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, see 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 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. 
For a company combining with a registrant that is a shell company, 
see Sec.  210.15-01(a).
* * * * *

Signatures

* * * * *

Instructions

    1. The registration statement must 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 must also be signed by its authorized 
representative in the United States. Where the registrant is a 
limited partnership, the registration statement must 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 a special purpose 
acquisition company, as such term is defined in Item 1601 of 
Regulation S-K, or another shell company in connection with a de-
SPAC transaction, as such term is defined in Item 1601 of Regulation 
S-K, the term ``registrant'' for purposes of this instruction and 
the Signatures section of this form also includes the target 
company, as such term is defined in Item 1601 of Regulation S-K, 
except that in connection with any de-SPAC transaction involving the 
purchase of assets or a business, with respect to the purchase of 
assets or a business, the term ``registrant'' also includes the 
seller of the business or assets.
* * * * *

Appendix C--Form F-1

Form F-1

* * * * *

General Instructions

* * * * *

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

[[Page 14326]]

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 the requirements of Form F-4 
applicable to de-SPAC transactions apply to this Form, including, 
but not limited to, Item 17 and General Instruction I.
* * * * *

Item 9. The Offer and Listing

* * * * *
    E. Dilution. The following information shall be provided:
* * * * *
    4. Where the registrant is a special purpose acquisition company 
(as defined in Item 1601 of Regulation S-K), in lieu of providing 
the information required under Item 9.E.1 and Item 9.E.2, provide 
the disclosure required pursuant to Items 1602(a)(4) and 1602(c) of 
Regulation S-K in an offering other than a de-SPAC transaction (as 
defined in Item 1601 of Regulation S-K) and provide the disclosure 
required under Item 1604(c) of Regulation S-K in connection with a 
de-SPAC transaction.
* * * * *

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 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 a 
special purpose acquisition company, as such term is defined in Item 
1601 of Regulation S-K, or another shell company in connection with 
a de-SPAC transaction, as such term is defined in Item 1601 of 
Regulation S-K, the term ``registrant'' for purposes of this 
instruction and the Signatures section of this form also includes 
the target company, as such term is defined in Item 1601 of 
Regulation S-K, except that in connection with any de-SPAC 
transaction involving the purchase of assets or a business, with 
respect to the purchase of assets or a business, the term 
``registrant'' also includes the seller of the business or assets.
* * * * *

Appendix D--Form F-4

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) apply in addition to the provisions of this Form 
and disclosure thereunder must be provided in the prospectus, and 
the structured data provisions of Item 1610 of Regulation S-K (17 
CFR 229.1610) apply to those disclosures. 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 such term is defined in Item 1601 of 
Regulation S-K), or another shell company in connection with a de-
SPAC transaction, the registrants also include the target company 
(as such term is defined in Item 1601 of Regulation S-K), and it 
must be so designated on the cover page of this Form. In such a de-
SPAC transaction, where the target company consists of a business or 
assets, the seller of the business or assets is deemed to be a 
registrant instead of the business or assets and must be so 
designated on the cover page of this Form. Further, in such a de-
SPAC transaction, the term ``registrant'' for purposes of the 
disclosure requirements of this Form means the special purpose 
acquisition company, and the term ``company being acquired'' for the 
purposes of the disclosure requirements of this Form means the 
target 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, as 
such term is defined in Item 1601 of Regulation S-K, 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 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 4, 
6.E, 7.A, 8.A.7, and 16F 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 the meeting of security holders is to be held or 
action is to be taken in connection with the de-SPAC transaction 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. 
For a company combining with 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 must 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 the registrant is a limited partnership, the

[[Page 14327]]

registration statement must 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 a special purpose acquisition company (as such term is 
defined in Item 1601 of Regulation S-K) or another shell company in 
connection with a de-SPAC transaction, as such term is defined in 
Items 1601 of Regulation S-K, the term ``registrant'' for purposes 
of this instruction and the Signatures section of this form also 
includes the target company (as such term is defined in Item 1601 of 
Regulation S-K), except that in connection with any de-SPAC 
transaction involving the purchase of assets or a business, with 
respect to the purchase of assets or a business, the term 
``registrant'' also includes the seller of the business or assets.
* * * * *

Appendix E--Form 20-F

Form 20-F

* * * * *

Item 8. Financial Information

* * * * *

Instructions to Item 8

* * * * *
    4. For filings on Form 20-F filed pursuant to General 
Instruction A.(d) of this form and for registration statements, when 
the issuer is a shell company that is combining with a business, see 
Sec.  240.15-01 (Rule 15-01 of Regulation S-X).
* * * * *

Appendix F--Form 8-K

Form 8-K

* * * * *

B. Events To Be Reported and Time for Filing of Reports

* * * * *
    7. If a registrant's report or exhibit to such report relates to 
a de-SPAC transaction (as defined in Item 1601(a) of Regulation S-K 
(17 CFR 229.1601(a)) and includes projections that relate to the 
performance of the special purpose acquisition company or the target 
company, the report or exhibit, as applicable, must include the 
information required by paragraphs (a) and (b) of Item 1609 of 
Regulation S-K (17 CFR 229.1609(a), (b)).
* * * * *

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 
that is its predecessor, disclose the information that would be 
required if the acquired business or real estate operation that is 
its predecessor 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. However, when, at the 
time of filing, the predecessor meets the conditions of an emerging 
growth company, as defined in Sec.  230.405 of this chapter (Rule 
405 of the Securities Act) or Sec.  240.12b-2 of this chapter (Rule 
12b-2 of the Exchange Act), the registrant need not present audited 
financial statements for the predecessor for any period prior to the 
earliest audited period presented in its financial statements 
included in a previously filed registration or proxy statement for 
the transaction resulting in the loss of shell company status. 
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.
* * * * *
[FR Doc. 2024-01853 Filed 2-23-24; 8:45 am]
 BILLING CODE 8011-01-P