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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.

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) 5513440; 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:

CFR Citation (17 CFR)

Commission Reference

Securities Act of 1933

Rule 405

§ 230.405

Form S-1

§ 239.11

Form F-1

§ 239.31

Form S-4

§ 239.25

Form F-4

§ 239.34

Rule 12b-2

§ 240.12b-2

Rule 14a-6

§ 240.14a-6

Rule 14c-2

§ 240.14c-2

Schedule 14A

§ 240.14a-101

Schedule TO

§ 240.14d-100

Form 20-F

§ 249.220f

Form 8-K

§ 249.308

Securities Exchange Act of 1934

Regulation S-K

§§ 229.10 through 229.1406

Item 10

§ 229.10

Item 601

§ 229.601

Regulation S-T

§§ 232.10 through 232.903

Rule 405

§ 232.405

§§ 210.1-01 through 210.1302

Regulation S-X

Rule 1-02

§ 210.1-02

Rule 3-01

§ 210.3-01

Rule 3-05

§ 210.3-05

Rule 3-14

§ 210.3-14

Rule 8-02

§ 210.8-02

Rule 10-01

§ 210.10-01

TABLE OF CONTENTS

I. INTRODUCTION ................................................................................................................... 8

II. NEW SUBPART 1600 OF REGULATION S-K .................................................................. 23

A. Definitions......................................................................................................................... 24

1. Proposed Definition: “De-SPAC Transaction” .............................................................. 24

2. Comments: Definition of “De-SPAC Transaction” ....................................................... 24

3. Final Definition: “De-SPAC Transaction” ..................................................................... 25

4. Proposed Definition: “Special Purpose Acquisition Company (SPAC)” ...................... 26

5. Comments: Definition of “Special Purpose Acquisition Company (SPAC)”................ 27

6. Final Definition: “Special Purpose Acquisition Company (SPAC)” ............................. 28

7. Proposed Definition: “SPAC Sponsor” .......................................................................... 35

8. Comments: Definition of “SPAC Sponsor” ................................................................... 35

9. Final Definition: “SPAC Sponsor” ................................................................................ 36

10. Proposed Definition: “Target Company” ....................................................................... 39

11. Comments: Definition of “Target Company” ................................................................ 39

12. Final Definition: “Target Company”.............................................................................. 40

B. Sponsors ............................................................................................................................ 40

1. Proposed Rules ............................................................................................................... 40

2. Comments....................................................................................................................... 42

3. Final Rules...................................................................................................................... 47

C. Conflicts of Interest........................................................................................................... 59

1. Proposed Rules ............................................................................................................... 59

2. Comments....................................................................................................................... 61

3. Final Rules...................................................................................................................... 64

D. Dilution ............................................................................................................................. 72

1. Proposed Rules ............................................................................................................... 72

2. Comments....................................................................................................................... 76

3. Final Rules...................................................................................................................... 85

E. Prospectus Cover Page and Prospectus Summary Disclosure ........................................ 117

1. Proposed Rules ............................................................................................................. 117

2. Comments..................................................................................................................... 120

3. Final Rules.................................................................................................................... 121

F. De-SPAC Transactions: Background, Reasons, Terms, and Effects .............................. 126

1. Proposed Item 1605 ...................................................................................................... 126

2. Comments: Item 1605 .................................................................................................. 127

3. Final Item 1605 ............................................................................................................ 128

G. Board Determination about the De-SPAC Transaction; Reports, Opinions, Appraisals,

and Negotiations .................................................................................................................. 132

1. Proposed Item 1606(a) ................................................................................................. 132

2. Comments: Item 1606(a) .............................................................................................. 132

3. Final Item 1606(a) ........................................................................................................ 135

4. Proposed Item 1606(b) ................................................................................................. 140

5. Comments: Item 1606(b) ............................................................................................. 141

6. Final Item 1606(b) ........................................................................................................ 142

7. Proposed Item 1606(c) through (e) .............................................................................. 145

8. Comments: Item 1606(c) through (e) ........................................................................... 145

9. Final Item 1606(c) through (e) ..................................................................................... 147

10. Proposed Item 1607 ...................................................................................................... 149

11. Comments: Item 1607 .................................................................................................. 150

12. Final Item 1607 ............................................................................................................ 152

H. Tender Offer Filing Obligations ..................................................................................... 156

1. Proposed Item 1608 ...................................................................................................... 156

2. Comments: Item 1608 .................................................................................................. 157

3. Final Item 1608 ............................................................................................................ 158

I. Structured Data Requirement .......................................................................................... 161

1. Proposed Item 1610 ...................................................................................................... 161

2. Comments..................................................................................................................... 161

3. Final Item 1610 and Tagging Compliance Date .......................................................... 163

III. DISCLOSURES AND LIABILITY IN DE-SPAC TRANSACTIONS.............................. 166

A. Non-Financial Disclosures in De-SPAC Disclosure Documents ................................... 167

1. Proposed Rules ............................................................................................................. 167

2. Comments..................................................................................................................... 168

3. Final Rules.................................................................................................................... 169

B. Minimum Dissemination Period ..................................................................................... 172

1. Proposed Rules ............................................................................................................. 172

2. Comments..................................................................................................................... 173

3. Final Rules.................................................................................................................... 175

C. Private Operating Company as Co-Registrant ................................................................ 179

1. Proposed Rules ............................................................................................................. 179

2. Comments..................................................................................................................... 180

3. Final Rules.................................................................................................................... 190

D. Re-Determination of Smaller Reporting Company (SRC) Status .................................. 211

1. Proposed Rules ............................................................................................................. 211

2. Comments..................................................................................................................... 212

3. Final Rules and Guidance ............................................................................................ 219

E. PSLRA Safe Harbor ........................................................................................................ 231

1. Proposed Rules ............................................................................................................. 231

2. Comments..................................................................................................................... 234

3. Final Rules.................................................................................................................... 255

F. Underwriter Status and Liability in Securities Transactions .......................................... 278

1. Proposed Rule .............................................................................................................. 278

2. Comments..................................................................................................................... 279

3. Declining to Adopt Proposed Rule 140a; Commission Guidance on Underwriter Status

in De-SPAC Transactions ............................................................................................ 282

IV. BUSINESS COMBINATIONS INVOLVING SHELL COMPANIES .............................. 289

A. Shell Company Business Combinations and the Securities Act of 1933 ........................ 290

1. Proposed Rule .............................................................................................................. 290

2. Comments..................................................................................................................... 290

3. Final Rule ..................................................................................................................... 293

B. Financial Statement Requirements in Business Combination Transactions Involving Shell

Companies ........................................................................................................................... 308

1. Proposed Rule 15-01(a), Rule 1-02(d), and Form Instructions: Audit Requirements . 309

Comments: Rule 15-01(a), Rule 1-02(d), and Form Instructions: Audit Requirements

...................................................................................................................................... 310

3. Final Rule 15-01(a), Rule 1-02(d), and Form Instructions: Audit Requirements ........ 311

4. Proposed Rule 15-01(b): Number of Years of Financial Statements ........................... 314

5. Comments: Rule 15-01(b): Number of Years of Financial Statements ....................... 315

6. Final Rule 15-01(b): Number of Years of Financial Statements ................................. 315

7. Proposed Rule 15-01(c): Age of Financial Statements ................................................ 316

8. Comments: Rule 15-01(c): Age of Financial Statements............................................. 317

9. Final Rule 15-01(c): Age of Financial Statements ....................................................... 317

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 ................................................... 319

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 ................................................... 323

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 ................................................... 324

13. Proposed Rule 15-01(e): Financial Statements of a Shell Company Registrant after the

Combination with Predecessor..................................................................................... 328

14. Comments: Rule 15-01(e): Financial Statements of a Shell Company Registrant after

the Combination with Predecessor ............................................................................... 329

15. Final Rule 15-01(e): Financial Statements of a Shell Company Registrant after the

Combination with Predecessor..................................................................................... 330

16. Proposed Rule 11-01(d) ............................................................................................... 332

17. Comments: Rule 11-01(d) ............................................................................................ 334

18. Decline to Adopt Rule 11-01(d) ................................................................................... 336

19. Proposed Item 2.01(f) of Form 8-K ............................................................................. 338

20. Comments: Item 2.01(f) of Form 8-K .......................................................................... 338

21. Final Item 2.01(f) of Form 8-K .................................................................................... 339

22. Proposed Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of Predecessors .................. 340

23. Comments: Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of Predecessors ............... 340

24. Final Rules 3-01, 8-02, 10-01(a)(1): Balance Sheets of Predecessors ......................... 340

25. Other Shell Company Matters ...................................................................................... 341

V. ENHANCED PROJECTIONS DISCLOSURE .................................................................. 343

A. Proposed Items 10(b) and 1609 of Regulation S-K ........................................................ 343

1. Proposed Rules ............................................................................................................. 343

2. Comments..................................................................................................................... 345

3. Final Rules.................................................................................................................... 350

VI. THE STATUS OF SPACS UNDER THE INVESTMENT COMPANY ACT .................. 359

A. Background ..................................................................................................................... 359

B. SPAC Activities .............................................................................................................. 364

1. The Nature of SPAC Assets and Income ..................................................................... 364

2. Management Activities ................................................................................................ 365

3. Duration ........................................................................................................................ 367

4. Holding Out .................................................................................................................. 369

5. Merging with an Investment Company ........................................................................ 369

C. Conclusion ...................................................................................................................... 370

VII. OTHER MATTERS ............................................................................................................ 370

VIII.

ECONOMIC ANALYSIS............................................................................................ 370

A. Baseline and Affected Parties ......................................................................................... 376

1. SPAC Initial Public Offerings ...................................................................................... 376

2. De-SPAC Transactions ................................................................................................ 384

3. Blank Check Companies .............................................................................................. 393

4. Shell Company Business Combinations ...................................................................... 394

B. Benefits and Costs of the Adopted Rules ....................................................................... 395

1. Disclosure-Related Rules ............................................................................................. 395

2. Liability-Related Rules ................................................................................................ 453

3. Shell Company-Related Rules ..................................................................................... 466

4. Enhanced Projections Disclosure (Amendments to Item 10(b) of Regulation S-K).... 478

C. Effects on Efficiency, Competition, and Capital Formation........................................... 480

1. Efficiency ..................................................................................................................... 480

2. Competition .................................................................................................................. 481

3. Capital Formation ......................................................................................................... 482

D. Reasonable Alternatives.................................................................................................. 484

1. Disclosure-Related Rules ............................................................................................. 484

2. PSLRA Safe Harbor Guidance ..................................................................................... 492

3. Expanding Disclosure in Reporting Shell Company Business Combinations ............. 492

4. Enhanced Projections Disclosure ................................................................................. 494

IX. PAPERWORK REDUCTION ACT ................................................................................... 494

A. Summary of the Collections of Information ................................................................... 494

B. Estimates of the Effects of the Final Rules on the Collections of Information .............. 496

C. Incremental and Aggregate Burden and Cost Estimates................................................. 501

1. Current Inventory Update to Reflect $600 Per Hour Rather than $400 Per Hour Outside

Professional Costs Rate ................................................................................................ 501

2. PRA Burden and Cost Estimates Resulting from the Final Rules ............................... 503

X. FINAL REGULATORY FLEXIBILITY ANALYSIS ....................................................... 511

A. Need for, and Objectives of, the Final Rules .................................................................. 511

B. Significant Issues Raised by Public Comments .............................................................. 513

C. Small Entities Subject to the Final Rules ........................................................................ 513

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements ................. 515

E. Duplicative, Overlapping or Conflicting Federal Rules ................................................. 515

F. Agency Action to Minimize Effect on Small Entities .................................................... 516

STATUTORY AUTHORITY .................................................................................................... 519

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

companies4 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

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).

15 U.S.C. 77a et seq.

Pub. L. 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.

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.

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-andacquisitions/re-spacs-gain-steam-as-arrival-shares-sink-new-sponsor-steps-up.

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.

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.

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

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.

See infra section VIII.A.1.iii.

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

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

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

The sponsor’s compensation usually amounts to around 20% of the total shares of a SPAC after its IPO.

15 U.S.C. 78a et seq.

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.

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.

SPAC shareholders typically also have a redemption right in connection with any votes to extend the duration

of the SPAC.

See definition of “foreign private issuer,” infra note 442.

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 opportunity to either: (1) require the SPAC to redeem their shares prior to the

de-SPAC transaction17 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

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

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.

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.

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.

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).

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.

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 company21 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

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.”

In certain de-SPAC structures, a holding company is formed to acquire both the private operating company and

the SPAC.

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.

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 240.14d103, 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 240.14c1 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 deSPAC 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

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

In recent years, the U.S. securities market experienced a significant increase in the

number of SPAC IPOs, as shown in Table 125 below.

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.

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.

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

Number of

Offerings

SPAC IPOs

IPOs

(including

SPAC IPOs)

Percentage

from SPACs

Total

Proceeds (in

billions of

dollars)

SPAC IPOs

IPOs

(including

SPAC IPOs)

Percentage

from SPACs

Number of

Completed

De-SPAC

Transactions

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

248

613

147

220

258

173

111

189

225

213

450

968

118

12%

18%

20%

28%

55%

63%

73%

43%

0.5

1.4

1.8

3.9

3.5

10.0

10.8

13.6

83.4

162.5

13.4

3.8

50.1

70.8

93.0

39.2

25.8

50.3

63.9

72.2

179.4

334.7

22.9

25.1

10%

14%

20%

17%

19%

46%

49%

59%

15%

199

101

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 deSPAC transactions has also been significant relative to the number of non-SPAC U.S. IPOs.

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

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

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 deSPAC 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.

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).

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-parka20210524.pdf.

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

Some commentators have expressed concerns regarding the adequacy of the disclosures

provided to investors in SPAC IPOs and de-SPAC transactions32 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

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-listingstandards-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-ofthe-investor-advocate-nyse-spac-listing-standards-042122.pdf.

Throughout this release, when we discuss “SPAC transactions,” we are referencing both SPAC IPOs and deSPAC transactions.

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-08101 (S.D.N.Y. filed Sept. 30, 2020); SEC v. Hurgin, et al., Case No. 1:19-cv05705 (S.D.N.Y. filed June 18, 2019).

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

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 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

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.

Pub. L. 104-67, 109 Stat. 737 (1995).

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.

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

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).

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.

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

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 deSPAC transaction. The final rules also will provide investors with information about, and

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 deSPAC 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 deSPAC 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.

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:

•

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 deSPAC 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 deSPAC 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

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.

reporting requirements in business combinations involving a shell company and a target

company with those in traditional IPOs.

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.

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.

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).

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

The requirements in new subpart 1600 will codify and standardize some of the disclosures already commonly

provided by SPACs.

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 S4 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 F4. 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).

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.

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

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

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

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

Proposed Item 1601(a).

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”).

Letter from ABA.

Letter from Kirkland & Ellis LLP (June 15, 2022) (“Kirkland & Ellis”).

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?”).

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).

We agree with one commenter’s recommendation54 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.

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

Item 1601(a) of Regulation S-K.

Letter from ABA.

Letters from ABA, Kirkland & Ellis.

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

We agree with the commenter who said there was no need to tie the definition of deSPAC 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-thecounter-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

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

Letter from ABA.

See also infra note 94 and accompanying text concerning SPAC status after a de-SPAC transaction.

Letter from Vinson & Elkins.

Proposing Release, supra note 7, at 29466.

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.

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.

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

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

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 based solely on retaining such cash.”66 Another commenter

Proposed Item 1601(b).

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.”).

Letters from ABA, Vinson & Elkins.

Letter from Vinson & Elkins.

Id.

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

One commenter recommended we narrow the definition of SPAC to only “a blank check

company as defined in § 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

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

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

Letter from ABA.

Letter from Vinson & Elkins.

Id.

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?”).

Letter from Vinson & Elkins.

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 § 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.

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

Item 1601(b) of Regulation S-K.

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

Letter from Vinson & Elkins.

See Rule 145a and definitions of “blank check company” in Securities Act Rule 405 and Exchange Act Rule

12b-2.

company transactions, such as reverse mergers with public shell companies, would be

appropriate or necessary in the future.78

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.”

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

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.

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

Letters from ABA, Vinson & Elkins. See supra notes 64, 65, and 66 and accompanying text.

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.”).

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.

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

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 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

One commenter recommended we narrow the definition of SPAC to only “a blank check

company as defined in § 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

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).

Proposing Release, supra note 7, at 29466.

Letter from ABA.

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.

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 § 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.

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

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

Proposing Release, supra note 7, at 29465.

Letter from Vinson & Elkins.

See, e.g., Table 2 in section VIII (Economic Analysis) (statistics on over-the-counter SPACs for over a threedecade period).

Prior to exchange rule changes permitting listing, shells commonly referred to as SPACs were not exchangelisted. 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-NYSE2008-17). 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).

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.

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.

Proposing Release, supra note 7, at 29466 (request for comment number 1).

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.”

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.

Proposing Release, supra note 7, at 29465.

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

7. Proposed Definition: “SPAC Sponsor”

The Commission proposed to define the term “SPAC sponsor” as the entity and/or

person(s) primarily responsible for organizing, directing or managing the business and affairs of

a SPAC, other than in their capacities as directors or officers of the SPAC as applicable.96

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.”

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

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).

Proposed Item 1601(c).

Letter from Vinson & Elkins.

Letter from ABA.

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

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.

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.

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

Letter from ABA.

100

Item 1601(c) of Regulation S-K.

101

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

“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.

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

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.”).

104

Letter from ABA. See supra note 98 and accompanying text.

105

Id.

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.

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 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

106

Letter from ABA. See supra note 98 and accompanying text.

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.

10. Proposed Definition: “Target Company”

The Commission proposed to define the term “target company” as an operating company,

business, or assets.108

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

107

Item 1601(c).

108

Proposed Item 1601(d).

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.”).

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.

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.

B. Sponsors

1. Proposed Rules

The Commission proposed Item 1603(a) to require additional disclosure about the SPAC

sponsor, its affiliates, and promoters114 in registration statements and schedules filed in

111

Item 1601(d) of Regulation S-K.

112

Letters from Freshfields, Vinson & Elkins. See supra notes 65 and 66 and accompanying text.

113

See infra section III.C.

114

The term “promoter” is defined in Securities Act Rule 405 and Exchange Act Rule 12b-2.

connection with SPAC registered offerings and de-SPAC transactions,115 including disclosure of

the following:

•

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

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.

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 sponsor ownership interest information that may affect investor ability to

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.

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

Also, several commenters suggested that proposed Item 1603(a) would codify, to an

extent, existing disclosure practices.123

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

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

121

Letter from ICGN.

122

Letters from ICGN, NASAA.

123

Letters from ABA, NASAA, Vinson & Elkins.

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.

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

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

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

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.

131

Letter from Vinson & Elkins.

132

Letter from Loeb & Loeb LLP (June 13, 2022) (“Loeb & Loeb”).

existing compensation disclosure framework in Item 402 of Regulation S-K [17 CFR

229.402].”133

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,

133

Letter from ABA.

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.

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

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

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 filing prior to the redemption deadline to inform SPAC shareholders of the new

agreement.”141

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

138

Letter from NASAA.

139

Letter from ABA.

140

Letter from Vinson & Elkins.

141

Letter from Michael Klausner and Michael Ohlrogge.

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

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

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.

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

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.

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.

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

Checks: The Roles of Reputation and Disclosure in the Face of Limited Information (SSRN Working Paper,

2021).

147

Letters from ABA, NASAA, Vinson & Elkins.

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).

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”).

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

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

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.

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)).

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 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.

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.”

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.

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.

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).

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

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-purposeacquisition-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.

158

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

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.”

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

159

Letter from ABA. See supra note 133 and accompanying text.

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.

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

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

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 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

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.

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.

164

Letter from ABA.

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.

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

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.).

166

Letter from Vinson & Elkins.

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.

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

167

Letter from Michael Klausner and Michael Ohlrogge.

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

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

168

See 17 CFR 240.14a-9 (“Rule 14a-9”). See also 17 CFR 240.14a-6(h).

169

Letter from Vinson & Elkins. See supra note 142 and accompanying text.

agreements in IPOs. For example, SPAC lock-up agreements often include provisions that

depend on certain levels of stock price appreciation.170

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 lockup 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

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

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-regularipos-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-companiesshift-as-direct-listings-and-spacs-gain-traction (out of 80 traditional IPO-companies surveyed, four (i.e., 5%)

used Price-based lock-up releases).

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.

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.

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

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).

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.

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

176

Letter from Freshfields. See supra note 144 and accompanying text.

177

See also proposed General Instruction VIII to Form S-1, proposed General Instruction VII to Form F-1.

summary conflict of interest disclosure requirements in connection with de-SPAC transactions in

proposed Item 1604(a)(4) and (b)(3).178

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.

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 as well as any interest in, or affiliation with,

the target company.180

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.

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.

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

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

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

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

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”).

182

Letters from ABA, NASAA, Vinson & Elkins.

183

Letters from Better Markets, CFA Institute, CII, Committee on Capital Markets Regulation, Consumer

Federation, ICGN, NASAA.

184

Letter from ABA.

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

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 deSPAC transaction opportunities.”188

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

185

Letter from ICGN.

186

Letters from ABA, CII.

187

Letter from CII.

188

Letter from ABA.

189

Letters from ABA, Vinson & Elkins.

190

Letter from ABA.

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 deSPAC 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

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 nonredeeming 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 postmerger share value at which proceeding with the SPAC merger will yield a higher return to the

SPAC sponsor than liquidating the SPAC.”196

191

Letter from ABA.

192

Letter from Vinson & Elkins.

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

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

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 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

197

Proposing Release, supra note 7, at 29468 (request for comment number 17).

198

Letter from Vinson & Elkins.

199

Letter from ABA.

200

Proposing Release, supra note 7, at 29468 (request for comment number 18).

201

Letter from Vinson & Elkins.

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 deSPAC 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

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

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).

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.

Another commenter recommended the conflicts of interest disclosures should include:

names

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