Special Purpose Acquisition Companies, Shell Companies, and Projections

Federal RegisterFeb 26, 2024

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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) 551-3440; and with respect to guidance under the Investment Company Act of 1940, Rochelle Kauffman Plesset, Seth Davis, or Taylor Evenson, Senior Counsels; or Lisa Reid Ragen, Branch Chief, Chief Counsel's Office, Division of Investment Management, at (202) 551-6825; U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

The Commission is adopting new 17 CFR 210.15-01, new 17 CFR 229.1601 through 229.1610 (Item 1600 series of Regulation S-K), and new 17 CFR 230.145a. We are also adopting amendments to:

Commission reference

CFR citation

(17 CFR)

Securities Act of 1933

Rule 405

§ 230.405.

Form S-1

§ 239.11.

Form F-1

§ 239.31.

Form S-4

§ 239.25.

Form F-4

§ 239.34.

Securities Exchange Act of 1934

Rule 12b-2

§ 240.12b-2.

Rule 14a-6

§ 240.14a-6.

Rule 14c-2

§ 240.14c-2.

Schedule 14A

§ 240.14a-101.

Schedule TO

§ 240.14d-100.

Form 20-F

§ 249.220f.

Form 8-K

§ 249.308.

Regulation S-K

§§ 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.

Regulation S-X

§§ 210.1-01 through 210.13-02.

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

II. New Subpart 1600 of Regulation S-K

A. Definitions

1. Proposed Definition: “De-SPAC Transaction”

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

3. Final Definition: “De-SPAC Transaction”

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

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

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

7. Proposed Definition: “SPAC Sponsor”

8. Comments: Definition of “SPAC Sponsor”

9. Final Definition: “SPAC Sponsor”

10. Proposed Definition: “Target Company”

11. Comments: Definition of “Target Company”

12. Final Definition: “Target Company”

B. Sponsors

1. Proposed Rules

2. Comments

3. Final Rules

C. Conflicts of Interest

1. Proposed Rules

2. Comments

3. Final Rules

D. Dilution

1. Proposed Rules

2. Comments

3. Final Rules

E. Prospectus Cover Page and Prospectus Summary Disclosure

1. Proposed Rules

2. Comments

3. Final Rules

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

1. Proposed Item 1605

2. Comments: Item 1605

3. Final Item 1605

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

1. Proposed Item 1606(a)

2. Comments: Item 1606(a)

3. Final Item 1606(a)

4. Proposed Item 1606(b)

5. Comments: Item 1606(b)

6. Final Item 1606(b)

7. Proposed Items 1606(c) Through (e)

8. Comments: Items 1606(c) Through (e)

9. Final Items 1606(c) Through (e)

10. Proposed Item 1607

11. Comments: Item 1607

12. Final Item 1607

H. Tender Offer Filing Obligations

1. Proposed Item 1608

2. Comments: Item 1608

3. Final Item 1608

I. Structured Data Requirement

1. Proposed Item 1610

2. Comments

3. Final Item 1610 and Tagging Compliance Date

III. Disclosures and Liability in De-SPAC Transactions

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

1. Proposed Rules

2. Comments

3. Final Rules

B. Minimum Dissemination Period

1. Proposed Rules

2. Comments

3. Final Rules

C. Private Operating Company as Co-Registrant

1. Proposed Rules

2. Comments

3. Final Rules

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

1. Proposed Rules

2. Comments

3. Final Rules and Guidance

E. PSLRA Safe Harbor

1. Proposed Rules

2. Comments

3. Final Rules

F. Underwriter Status and Liability in Securities Transactions

1. Proposed Rule

2. Comments

3. Declining To Adopt Proposed Rule 140a; Commission Guidance on Underwriter Status in De-SPAC Transactions

IV. Business Combinations Involving Shell Companies

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

1. Proposed Rule

2. Comments

3. Final Rule

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

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

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

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

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

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

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

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

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

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

10. Proposed Rules: 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-14(b)(3)(ii): Acquisition of a Business or Real Estate Operation by a Predecessor

11. Comments: Rules 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-14(b)(3)(ii): Acquisition of a Business or Real Estate Operation by a Predecessor

12. Final Rules 15-01(d), 1-02(w)(1), 3-05(b)(4)(ii), 3-14(b)(3)(ii): Acquisition of a Business or Real Estate Operation by a Predecessor

13. Proposed Rule 15-01(e): Financial Statements of a Shell Company Registrant After the Combination With Predecessor

14. Comments: Rule 15-01(e): Financial Statements of a Shell Company Registrant After the Combination With Predecessor

15. Final Rule 15-01(e): Financial Statements of a Shell Company Registrant After the Combination With Predecessor

16. Proposed Rule 11-01(d)

17. Comments: Rule 11-01(d)

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

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

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

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

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

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

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

25. Other Shell Company Matters

V. Enhanced Projections Disclosure

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

1. Proposed Rules

2. Comments

3. Final Rules

VI. The Status of SPACs Under the Investment Company Act

A. Background

B. SPAC Activities

1. The Nature of SPAC Assets and Income

2. Management Activities

3. Duration

4. Holding Out

5. Merging With an Investment Company

C. Conclusion

VII. Other Matters

VIII. Economic Analysis

A. Baseline and Affected Parties

1. SPAC Initial Public Offerings

2. De-SPAC Transactions

3. Blank Check Companies

4. Shell Company Business Combinations

B. Benefits and Costs of the Adopted Rules

1. Disclosure-Related Rules

2. Liability-Related Rules

3. Shell Company-Related Rules

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

C. Effects on Efficiency, Competition, and Capital Formation

1. Efficiency

2. Competition

3. Capital Formation

D. Reasonable Alternatives

1. Disclosure-Related Rules

2. PSLRA Safe Harbor Guidance

3. Expanding Disclosure in Reporting Shell Company Business Combinations

4. Enhanced Projections Disclosure

IX. Paperwork Reduction Act

A. Summary of the Collections of Information

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

C. Incremental and Aggregate Burden and Cost Estimates

1. Current Inventory Update To Reflect $600 Per Hour Rather Than $400 Per Hour Outside Professional Costs Rate

2. PRA Burden and Cost Estimates Resulting From the Final Rules

X. Final Regulatory Flexibility Analysis

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

B. Significant Issues Raised by Public Comments

C. Small Entities Subject to the Final Rules

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements

E. Duplicative, Overlapping or Conflicting Federal Rules

F. Agency Action To Minimize Effect on Small Entities

Statutory Authority

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”

under the Securities Act of 1933 (“Securities Act”)),

a rule the Commission adopted following the enactment of the Securities Enforcement Remedies and Penny Stock Reform Act of 1990 (“Penny Stock Reform Act”).

SPACs are shell companies

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.

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.

While structured as an M&A transaction, the de-SPAC transaction also is the functional equivalent of the private target company's IPO, because it results in the target company becoming part of a combined company that is a reporting company and provides the private target company with access to cash proceeds that the SPAC had previously raised from the public. As part of this process, the shareholders of the SPAC go from owning shares in a shell company to owning shares in a combined company that conducts the business of the private target. As a result, the de-SPAC transaction implicates disclosure and liability concerns associated with both IPOs and M&A transactions. Additionally, parties involved in the SPAC process, such as the SPAC sponsor, may have incentives to consummate a de-SPAC transaction that are not present in a traditional IPO or M&A transaction. Further, as discussed in the Proposing Release,

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.

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.

Public Law 101-429, 104 Stat. 931 (Oct. 15, 1990).

See Blank Check Offerings,

Release No. 33-6932 (Apr. 13, 1992) [57 FR 18037 (Apr. 28, 1992)]. A SPAC is not a “blank check company” because, given that it raises more than $5 million in a firm commitment underwritten initial public offering, it is not selling “penny stock.”

See Penny Stock Definition for Purposes of Blank Check Rule,

Release No. 33-7024 (Oct. 25, 1993) [58 FR 58099 (Oct. 29, 1993)]. To that end, SPACs often have provisions in their governing instruments that prohibit them from being “penny stock” issuers.

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-and-acquisitions/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.

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.

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.

The SPAC sponsor is usually compensated through a “promote” or “founder's shares”—

i.e.,

discounted SPAC shares received prior to the SPAC's IPO that generally only have value if a de-SPAC transaction occurs.

See infra

section VIII.A.1.iii.

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

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”)

and lists the units (typically consisting of a common share and a fraction of a warrant) for trading on a national securities exchange.

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.

Next, the SPAC seeks to identify a target company for a de-SPAC transaction within the time frame specified in its governing documents.

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.

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)

announcing the transaction that includes certain information on the material terms of the business combination agreement.

The parties structure the de-SPAC transaction in different forms that may have tax or other regulatory advantages.

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 transaction

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.

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.

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.

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.

Regardless of its form, a de-SPAC transaction often is accompanied by the need to attain shareholder approval for certain items (

e.g.,

amendments to the governing documents of the SPAC, or authorization of additional securities for issuance), and, in such cases, a SPAC provides its shareholders with a proxy statement on Schedule 14A or an information statement on Schedule 14C.

If the SPAC, the target company, or a holding company

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.

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.

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 240.14d-103, 17 CFR 240.14e-1 through 240.14e-8 (“Regulation 14E” under the Exchange Act), and 17 CFR 240.13e-4 (“Rule 13e-4” under the Exchange Act). When an issuer conducts a tender offer, the issuer may be required to file and disseminate a Schedule TO pursuant to Rule 13e-4. Because the redemption rights in a SPAC context generally have indicia of a tender offer, such as a limited period of time for the SPAC security holders to request redemption of their securities, SPACs will generally file a Schedule TO in circumstances where, in connection with a de-SPAC transaction, the parties are neither soliciting votes or consents nor registering the offer or sale of securities. The Commission staff has not objected if a SPAC does not comply with the tender offer rules when the SPAC files a required Schedule 14A or 14C in connection with the approval of a de-SPAC transaction or an extension of the timeframe to complete a de-SPAC transaction and conducts the solicitation in accordance with 17 CFR 240.14a-1 through 240.14b-2 (“Regulation 14A” under the Exchange Act) or 240.14c-1 through 240.14c-101 (“Regulation 14C” under the Exchange Act), as the Federal proxy rules mandate substantially similar disclosures and applicable procedural protections as required by the tender offer rules. However, this staff position does not apply to a SPAC that does not file a required Schedule 14A or 14C in connection with the de-SPAC transaction or an extension. In these circumstances, SPACs have generally filed and disseminated Schedules TO, and the staff has taken the position that the Schedule TO should include the same financial and other information as is required in Schedule 14A or 14C for a de-SPAC transaction.

See infra

section II.H for a discussion of 17 CFR 229.1608 (“Item 1608” of Regulation S-K) that we are adopting in this release and section IV.A for a discussion of Rule 145a under the Securities Act that we are adopting in this release, which will affect when a SPAC may be required to file a registration statement in connection with a de-SPAC transaction. For exchange-listed SPACs, exchange rules may require a SPAC to file tender offer documents with the Commission in some circumstances.

See, e.g.,

Nasdaq Listing Rule IM-5101-2; NYSE Listed Company Manual Section 102.06. The staff position discussed in this footnote and any other staff guidance or statements referenced in this release, including staff legal bulletins, staff compliance and disclosure interpretations, and the Division of Corporation Finance's Financial Reporting Manual (“FRM”), represent the views of Commission staff and are not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved the views reflected in these staff positions or the content of these staff statements and, like all staff positions or statements, they have no legal force or effect, do not alter or amend applicable law, and create no new or additional obligations for any person.

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

Form 10 is the long-form registration statement to register a class of securities under section 12(b) or 12(g) of the Exchange Act.

See

Items 2.01(f), 5.01(a)(8), and 9.01(c) of Form 8-K. If the shell company is an FPI then a Form 20-F should be filed no later than four business days after the consummation of the acquisition that includes all of the information for the target company that Form 20-F requires for registration of securities. By the time the Form 8-K with Form 10 information is filed, the securities of the combined company have often already begun trading on a national securities exchange with a new ticker symbol because the securities of the SPAC generally trade on an exchange until the consummation of the de-SPAC transaction and the securities of the combined company generally commence trading on the following business day.

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

below.

Estimates of SPAC IPO and IPO data in Table 1 are based on SPAC Analytics,

SPAC and US IPO Activity, available at https://www.spacanalytics.com

. Estimates of de-SPAC transactions in Table 1 are based on data from Dealogic for SPACs registered with the Commission and where year is based on M&A Completion Date.

Table 1—Number of SPAC IPOs in the U.S. Securities Market From 2012-2023

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Number of Offerings

SPAC IPOs

248

613

IPOs (including SPAC IPOs)

147

220

258

173

111

189

225

213

450

968

118

Percentage from SPACs

12%

18%

20%

28%

55%

63%

73%

43%

Total Proceeds (in billions of dollars)

SPAC IPOs

0.5

1.4

1.8

3.9

3.5

10.0

10.8

13.6

83.4

162.5

13.4

3.8

IPOs (including SPAC IPOs)

50.1

70.8

93.0

39.2

25.8

50.3

63.9

72.2

179.4

334.7

22.9

25.1

Percentage from SPACs

10%

14%

20%

17%

19%

46%

49%

59%

15%

Number of Completed De-SPAC Transactions

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.

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

Id.

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

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.

Among other things, commentators expressed concerns about SPAC sponsor compensation and other costs that can have a dilutive effect on a SPAC's shareholders,

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),

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.

For example, in May 2021, the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets of the House Financial Services Committee held a hearing on “Going Public: SPACs, Direct Listings, Public Offerings, and the Need for Investor Protections,” which included testimony on, among other things, misaligned incentives in the SPAC structure, disclosure issues with respect to SPACs, and the use of projections in de-SPAC transactions. A webcast of the hearing is available at

https://financialservices.house.gov/events/eventsingle.aspx?EventID=407753

. In addition, as discussed in the Proposing Release, the Commission's Investor Advisory Committee issued recommendations and expressed certain concerns regarding SPACs.

See

Proposing Release,

supra

note 7, at 29462, nn.36-38 and accompanying text.

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 infra

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

We agree with the commenter who said there was no need to tie the definition of de-SPAC transaction to transactions that are permitted under exchange listing standards, particularly if the definition of SPAC includes non-listed shell companies.

A narrower definition may inappropriately exclude transactions that should be included, such as those involving over-the-counter-traded SPACs. We continue to believe, as indicated in the Proposing Release,

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.

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.

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;

(2) complete a de-SPAC transaction within a specified time frame; and (3) return all remaining proceeds from the registered offering and any concurrent offerings to its shareholders if the company does not complete a de-SPAC transaction within the specified time frame.

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.

Proposed Item 1601(b).

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

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

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

A few commenters did not support including the requirement that a SPAC “return all remaining proceeds from the registered offering and any concurrent offerings to its shareholders” in the proposed SPAC definition.

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.”

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.”

Another commenter recommended that we change this aspect of the definition to use the phrase “redeem the equity securities issued in the registered offering if the company does not complete a de-SPAC transaction within the specified time frame.”

Letters from ABA, Vinson & Elkins.

Letter from Vinson & Elkins.

Id.

Letter from ABA.

One commenter recommended we narrow the definition of SPAC to only “a blank check company as defined in § 230.419(a)(2).”

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.' ”

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.”

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.”

Letter from ABA.

Letter from Vinson & Elkins.

Id.

In response to requests for comment,

one commenter said that “it is clear what entities are SPACs, without the need for additional boxes to check.”

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.

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

After considering the comments received, we are adopting the definition of special purpose acquisition company (or SPAC) as proposed, with certain modifications discussed below.

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.

Item 1601(b) of Regulation S-K.

One commenter did not see a need for a new defined term “SPAC,”

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.

Several of the rules being adopted in this release will enhance disclosures for investors in non-SPAC shell companies.

However, the proposed individual disclosure items in the Item 1600 series of Regulation S-K were largely tailored to SPAC transactions. For the reasons we discuss in this release below in connection with the specific rules we are adopting, we believe it is appropriate at this time to apply enhanced disclosure in connection with companies meeting the definition of SPAC. However, we will continue to consider whether enhanced disclosure in other shell company transactions, such as reverse mergers with public shell companies, would be appropriate or necessary in the future.

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.

According to data provided by The Deal during the years when it tracked this data, the number of reverse mergers not involving SPACs was as follows by year: (a) 48 in 2017, (b) 48 in 2018, (c) 28 in 2019, and (d) 17 in 2020. The Deal staff indicated to the Commission staff they stopped tracking the data after 2020 because of the small number of reverse mergers.

This commenter further observed there was circularity in the proposed definitions of “SPAC” and “de-SPAC transaction.”

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.”

Letter from Vinson & Elkins.

See supra

note 63 and accompanying text.

Several comments focused on the aspect of the proposed SPAC definition regarding the return of proceeds and suggested that special purpose acquisition companies may not return “all remaining proceeds.”

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.

To avoid excluding such companies, we have revised the definition to use the term “return proceeds” instead of “return all remaining proceeds.” We have also added a parenthetical reference “(if such offering or concurrent offering intends to raise proceeds)” that qualifies the term “offering and any concurrent offering” to account for the fact there may be some SPAC offerings that do not raise proceeds.

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.”).

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.

See

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

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

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.

Proposing Release,

supra

note 7, at 29466.

One commenter recommended we narrow the definition of SPAC to only “a blank check company as defined in § 230.419(a)(2).”

The Rule 419 definition of “blank check company” includes a requirement that the company is issuing penny stock.

The proposed definition of SPAC reflects the fact that special purpose acquisition company structures often are designed to avoid issuing penny stock but continue to pose disclosure and other investor protection concerns.

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.

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.

Proposing Release,

supra

note 7, at 29465.

Another commenter indicated the SPAC definition should draw a distinction based on exchange listing, which would exclude shell companies traded in over-the-counter markets. In the commenter's view, shell companies traded in over-the-counter markets are not generally considered to be SPACs.

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,

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.

Letter from Vinson & Elkins.

See, e.g.,

Table 2 in section VIII (Economic Analysis) (statistics on over-the-counter SPACs for over a three-decade period).

Prior to exchange rule changes permitting listing, shells commonly referred to as SPACs were not exchange-listed.

See

Securities Exchange Act Release Nos. 58228 (July 25, 2008) [73 FR 44794 (July 31, 2008)] (Order Granting Approval to Proposed Rule Change, as modified by Amendment No. 1, to Adopt Additional Initial Listing Standards to list Securities of Special Purpose Acquisition Companies) (NASDAQ-2008-013); 57785 (May 6, 2008) [73 FR 27597 (May 13, 2008)] (Order Approving Proposed Rule Change to Adopt New Initial and Continued Listing Standards to List Securities of Special Purpose Acquisition Companies) (SR-NYSE-2008-17). According to data from SPACInsider, in the years 2020 through 2022, there were zero SPAC IPOs in the over-the-counter market (

i.e.,

that were not listed on an exchange in connection with the IPO).

Furthermore, we are adding a new clause to the definition that provides that the term special purpose acquisition company also includes a company that has represented it pursues or will pursue a special purpose acquisition company strategy.

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.

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.

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,

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.”

Proposing Release,

supra

note 7, at 29465.

One commenter recommended we clarify that a company ceases to be a SPAC upon consummation of a de-SPAC transaction.

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.

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.

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

7. Proposed Definition: “SPAC Sponsor”

The Commission proposed to define the term “SPAC sponsor” as the entity and/or person(s) primarily responsible

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.

Proposed Item 1601(c).

8. Comments: Definition of “SPAC Sponsor”

One commenter said the proposal “should be revised to eliminate the need for a defined term `SPAC sponsor' ” and, “[i]nstead, the rules should require disclosure regarding the SPAC's directors, officers and affiliates.”

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.”

Letter from Vinson & Elkins.

Another commenter recommended an alternative definition of “SPAC sponsor”: “the entity and/or person(s) that (1) own all or a portion of the privately placed common equity securities of the special purpose acquisition company and (2) are primarily responsible for directing and managing the business and affairs of a special purpose acquisition company other than in their capacities as (i) directors or officers of the special purpose acquisition company or (ii) third-party service providers to the special purpose acquisition company, as applicable.”

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.”

Letter from ABA.

9. Final Definition: “SPAC Sponsor”

After considering the comments received, we are adopting the definition of SPAC sponsor as proposed with certain modifications discussed below.

100

Under the final rules, the term SPAC sponsor means any entity and/or person primarily responsible for organizing, directing, or managing the business and affairs of a special purpose acquisition company, excluding, if an entity is a SPAC sponsor, officers and directors of the special purpose acquisition company who are not affiliates of any such entity that is a SPAC sponsor.

100

Item 1601(c) of Regulation S-K.

The definition is designed to be sufficiently broad that appropriate entities or persons will be subject to the enhanced disclosure requirements applicable to SPAC sponsors.

101

Although a sponsor of a SPAC may perform a variety of functions within the SPAC's structure, we intend for the SPAC sponsor definition to encompass activities that, based on the staff's experience reviewing SPAC filings and public commentary, are commonly understood to be sponsors of SPACs or with persons referred to as sponsors in current registration statements.

101

See, e.g.,

Item 1603 (regarding SPAC sponsors).

We do not believe it would provide investors with adequate information to tie the SPAC sponsor definition to persons with particular titles, because the definition and corresponding disclosure requirements are intended to capture all parties who perform certain activities that result in such parties having key substantive influence over the SPAC. The suggestion to replace “SPAC sponsor” with “directors, officers, and affiliates of the SPAC” would require disclosure from directors and officers not commonly considered to be sponsors today and, as indicated by the Commission in the Proposing Release, would overlap unnecessarily with current required disclosure concerning directors and officers.

102

Also, “directors, officers, and affiliates of the SPAC” may not include external management companies and their principals that should be included in the definition on the basis of their activities. While State law may provide that directors manage the business and affairs of a corporation and may not provide that any one director has any more authority than any other director,

103

the phrase “primarily responsible” in the definition of SPAC sponsor is not limited to solely directors or solely directors and officers. Other persons, such as third-party management companies and their affiliates, frequently are primarily responsible for the organization, direction, or management of the business and affairs of SPACs today and would be SPAC sponsors under the definition we are adopting.

102

See

Proposing Release,

supra

note 7, at 29466, n.58 (“In regard to natural persons, we are proposing to exclude from the scope of the definition of `SPAC sponsor' the activities performed by natural persons in their capacities as directors and/or officers of the SPAC to avoid overlap with existing disclosure requirements relating to directors and officers.”).

103

See, e.g.,

DGCL Section 141(a) (“The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation.”).

One commenter recommended an alternative definition of SPAC sponsor that featured, among other things, carve-outs from that alternative definition for directors and officers of the SPAC and for third-party service providers.

104

This commenter also suggested that the proposed definition's exclusion of directors and officers in their capacities as such would result in a null set of SPAC sponsors.

105

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

104

Letter from ABA.

See supra

note 98 and accompanying text.

105

Id.

We are not adopting the suggestion to exclude “third-party service providers” from the definition of SPAC sponsor.

106

As discussed above, some third-party service providers will be “SPAC sponsors” under the definition where they are “primarily responsible for organizing, directing, or managing the business and affairs” of the SPAC. Other

third-party service providers, however, will not fall within the definition of SPAC sponsor where they are not “primarily responsible” for organizing, directing, or managing the business and affairs of a SPAC. For example, external legal counsel that only assists in the formation of a SPAC by drafting its certificate of incorporation and bylaws on behalf of a client would not be “primarily responsible” for “organizing . . . the business and affairs of a SPAC.”

107

Other third-party service providers may perform similar administrative or ministerial activities for a SPAC or provide outside legal or accounting advice neither of which would cause them to be “primarily responsible” for organizing, directing, or managing the business and affairs of the SPAC and thus they would not be SPAC sponsors.

106

Letter from ABA.

See supra

note 98 and accompanying text.

107

Item 1601(c).

10. Proposed Definition: “Target Company”

The Commission proposed to define the term “target company” as an operating company, business, or assets.

108

Proposed Item 1601(d).

11. Comments: Definition of “Target Company”

One commenter asserted that “the concept of `assets' being a `target company' yields anomalous results under certain proposed rules (such as requiring assets to sign a registration statement) and the concept of a `business' may be vague (as a business may be a product line, rather than an entity that could sign a registration statement).”

109

Another commenter suggested “deleting the term `assets' from the definition or clarifying that a target company includes assets where the acquisition of such assets is intended to constitute the SPAC's initial business combination.”

110

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.

111

Item 1601(d) of Regulation S-K.

To address commenters' concerns about the use of the terms “assets” and “business” in the definition of target company,

112

we have revised certain registration statement form instructions, as discussed in more detail below.

113

We believe these changes address the commenters' concerns. Therefore, we do not believe it is necessary to make changes to the proposed definition of “target company.” In addition, although an asset purchase transaction may be a different form of transaction for the purposes of other legal requirements, including State law, we do not believe a SPAC combination with a target company taking the form of an asset purchase should be excluded from the definition of de-SPAC transaction merely for this reason.

112

Letters from Freshfields, Vinson & Elkins.

See supra

notes 65 and 66 and accompanying text.

113

See infra

section III.C.

B. Sponsors

1. Proposed Rules

The Commission proposed Item 1603(a) to require additional disclosure about the SPAC sponsor, its affiliates, and promoters

114

in registration statements and schedules filed in connection with SPAC registered offerings and de-SPAC transactions,

115

including disclosure of the following:

114

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

115

See

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

• The experience, material roles, and responsibilities of these parties, as well as any agreement, arrangement, or understanding (1) between the SPAC sponsor and the SPAC, its executive officers, directors, or affiliates, with respect to determining whether to proceed with a de-SPAC transaction and (2) between the SPAC sponsor and unaffiliated security holders of the SPAC regarding the redemption of outstanding securities;

• The controlling persons of the SPAC sponsor and any persons who have direct and indirect material interests in the SPAC sponsor and the nature and amount of their interests, as well as an organizational chart that shows the relationship between the SPAC, the SPAC sponsor, and the SPAC sponsor's affiliates;

• Tabular disclosure of the material terms of any lock-up agreements with the SPAC sponsor and its affiliates; and

• The nature and amounts of all compensation that has or will be awarded to, earned by, or paid to the SPAC sponsor, its affiliates, and any promoters for all services rendered in all capacities to the SPAC and its affiliates, as well as the nature and amounts of any reimbursements to be paid to the SPAC sponsor, its affiliates, and any promoters upon the completion of a de-SPAC transaction.

116

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

120

(d) providing SPAC

sponsor ownership interest information that may affect investor ability to vote on de-SPAC transactions,

121

and (e) providing information about SPAC sponsor experience that may help investors assess the SPAC sponsor's ability to find a target company.

122

117

Letters from ABA; Stephen W. Hall, Legal Director and Securities Specialist, and Scott Farnin, Legal Counsel, Better Markets (June 13, 2022) (“Better Markets); Michael Ryan, Chief Executive Officer, Bullet Point Network, LP (June 13, 2022) (“Bullet Point Network”); Charles Pieper (May 13, 2022) (“Charles Pieper”); John L. Thornton, Co-Chair, Hal S. Scott, President, and R. Glenn Hubbard, Committee on Capital Markets Regulation (June 13, 2022) (“Committee on Capital Markets Regulation”); Paul Andrews, Managing Director, Research, Advocacy and Standards, CFA Institute (May 31, 2022) (“CFA Institute”); Glenn Davis, Deputy Director, Council of Institutional Investors (June 9, 2022) (“CII”); Dylan Bruce, Financial Services Counsel, Consumer Federation of America (June 13, 2022) (“Consumer Federation”); Elizabeth Warren, United States Senator (July 8, 2022) (“Senator Elizabeth Warren”); Kerrie Waring, Chief Executive Officer, International Corporate Governance Network (June 13, 2022) (“ICGN”); Melanie Senter Lubin, President, North American Securities Administrators Association, Inc. (June 13, 2022) (“NASAA”); Paul A. Swegle, Kinsel Law Offices (Apr. 9, 2022) (“Paul Swegle”).

118

Letter from Committee on Capital Markets Regulation.

119

Letter from CII.

120

Letter from Consumer Federation.

121

Letter from ICGN.

122

Letters from ICGN, NASAA.

Also, several commenters suggested that proposed Item 1603(a) would codify, to an extent, existing disclosure practices.

123

Letters from ABA, NASAA, Vinson & Elkins.

ii. Promoters

Some commenters said Item 1603 should not apply to “promoters.”

124

One commenter asserted that application to the SPAC sponsor and its affiliates would include all significant participants in the SPAC and thus the “promoter” provision would not significantly benefit investors.

125

Another commenter said that “disclosure regarding a promoter of the SPAC's initial public offering that will have no involvement with the de-SPAC transaction would be immaterial to investors.”

126

124

Letters from Freshfields, Vinson & Elkins.

125

Letter from Freshfields (stating that “the proposed rules also already require disclosure of all persons who have direct and indirect material interests in the SPAC sponsor and the amount and nature of their interests” and that “this should encompass the most relevant entities and persons”).

126

Letter from Vinson & Elkins.

iii. Compensation

A number of commenters suggested that the proposed disclosure requirements regarding sponsor compensation would provide useful information to investors.

127

A few commenters expressed the view that sponsor compensation is already sufficiently disclosed.

128

127

Letters from Better Markets, Charles Pieper, Committee on Capital Markets Regulation, CFA Institute, Consumer Federation, Senator Elizabeth Warren, ICGN, NASAA.

128

Letters from Samir Kapadia, Director, and Bobby Cunningham, Director, SPAC Association (June 13, 2022) (“SPAC Association”); Vinson & Elkins (expressing the view that sponsor compensation and reimbursement is already disclosed under existing disclosure requirements and the material terms of lock-up agreements are already sufficiently disclosed as a matter of industry practice).

One commenter said the SPAC sponsor “20 percent promote is fully and fairly disclosed and has been for decades.”

129

Another commenter said they “believe the sponsor's compensation and reimbursement are already sufficiently disclosed in response to existing disclosure requirements and that incremental disclosure requirements are thus not merited.”

130

129

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

130

Letter from Vinson & Elkins.

One commenter that did not support the additional proposed disclosure requirements stated that, if the Commission were nonetheless to impose new requirements, “the reference to `compensation' should be revised to refer instead to all equity and rights to cash held by the SPAC directors and officers and their affiliates, as certain equity interests may be purchased for value (

i.e.,

not be `compensation') and reimbursement of advances or repayment of loans would not be compensation.”

131

Another commenter said “sponsor compensation comes almost entirely in the form of capital gains associated with securities issued in the `promote' resulting from stock price increases after the de-SPAC transaction, and quantifying such compensation may involve speculation or be subject to criticism as incomplete.”

132

131

Letter from Vinson & Elkins.

132

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

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

133

Letter from ABA.

iv. Transfer of SPAC Ownership

Several commenters recommended we adopt requirements to disclose transfers of SPAC securities by the SPAC sponsor and others. One commenter recommended, in response to request for comment,

134

adding a sentence at the end of Item 1603(a)(6) that states: “Disclose any arrangements under which the SPAC sponsor, its affiliates and any promoters have transferred ownership of any securities in the SPAC to other parties in exchange for compensation or other benefit to the sponsor, its affiliates, any promoters, or to the SPAC.”

135

The commenter said that “SPAC sponsors at times sell off a portion of their promote or other securities to a `risk-capital syndicate' as a way of cashing out early on a portion of the compensation they receive for their work on the SPAC” and that “the amount of interest that a sponsor retains in securities of the SPAC is material for investors seeking to evaluate the incentive of the sponsor in pursuing a SPAC merger.”

136

Another commenter suggested expanding current Forms 3 and 4 director and officer reporting requirements to cover SPAC sponsors and their transactions in SPAC securities after the de-SPAC transaction.

137

Similarly, another commenter recommended disclosure of post-de-SPAC transaction transfers, noting “this reporting could be time limited, for example to two years” following the de-SPAC transaction.

138

134

Proposing Release,

supra

note 7, at 29467 (request for comment number 9) (“Should we require more or less information about the sponsor's compensation and reimbursements?”).

135

Letter from Michael Klausner, Stanford Law School, and Michael Ohlrogge, NYU School of Law (June 13, 2022) (“Michael Klausner and Michael Ohlrogge”), included as an attachment to a letter from Michael Ohlrogge, NYU School of Law (June 13, 2022).

136

Id.

137

Letter from Paul Swegle.

138

Letter from NASAA.

v. Interest in SPAC Sponsor and Organizational Chart

One commenter said that the proposed approach departs from the traditional approach to beneficial ownership reporting and recommended that this item should clarify that “an indirect economic interest in less than 10% of a SPAC's founder shares or warrants through ownership of equity interests in a [SPAC] [s]ponsor should not, in and of itself and absent other factors, be considered a direct or indirect material interest in the [SPAC] [s]ponsor.”

139

Another commenter said the identity of natural persons controlling the sponsor is already disclosed in response to existing 17 CFR 229.403 (“Item 403” of Regulation S-K).

140

139

Letter from ABA.

140

Letter from Vinson & Elkins.

vi. Agreements

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

filing prior to the redemption deadline to inform SPAC shareholders of the new agreement.”

141

Letter from Michael Klausner and Michael Ohlrogge.

Another commenter said the material terms of lock-up agreements are already disclosed as a matter of industry practice and that requiring additional disclosure would “go beyond the disclosure requirements applicable to lock-up agreements that are entered into in connection with a traditional IPO.”

142

Regarding proposed requirements to disclose any exceptions to relevant lock-up agreements, one commenter recommended excluding exceptions that are not material or are customary.

143

This commenter noted that frequently these exceptions provide that the transferee agree to the lock-up agreement as a condition of the transfer.

144

142

Letter from Vinson & Elkins.

143

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

144

Letter from Freshfields.

3. Final Rules

After considering the comments received, we are adopting Item 1603(a) as proposed with certain modifications we discuss below. Additionally, for clarity and consistency throughout Item 1603, we have replaced the term “executive officers” with the term “officers.”

i. General Discussion

Item 1603(a)'s disclosure requirements will provide a SPAC's prospective investors and existing shareholders with detailed information relating to the SPAC sponsor that could be important in understanding and analyzing a SPAC, including how the rights and interests of the SPAC sponsor, its affiliates, and any promoters may differ from, or may conflict with, those of public shareholders.

145

Given that a SPAC does not conduct an operating business, information about the background and experience of the SPAC sponsor is important in assessing a SPAC's prospects for success and may be a relevant factor in the market value of a SPAC's securities.

146

Corresponding disclosure with respect to SPAC sponsor affiliates and promoters will also provide investors with important information, because the SPAC sponsor's affiliates and any promoters of the SPAC may also carry out activities similar to those of a SPAC sponsor. Furthermore, the enhanced disclosure regarding the SPAC sponsor's compensation and the SPAC sponsor's agreements, arrangements, or understandings may be helpful to a SPAC's prospective investors and existing shareholders in considering whether to acquire or redeem the SPAC's securities and in evaluating the potential risks and merits of a proposed de-SPAC transaction, because it could highlight additional motivations for completing a de-SPAC transaction.

145

Item 1603(a) will operate in addition to existing disclosure requirements that may be applicable to a SPAC's arrangements with SPAC sponsors such as 17 CFR 229.701 (“Item 701” of Regulation S-K), which requires disclosure about, among other things, the terms of any private securities transactions between a SPAC and SPAC sponsors within the past three years, and 17 CFR 229.404 (“Item 404” of Regulation S-K), which requires disclosure about certain related party transactions.

146

See, e.g.,

Chen Lin, Fangzhou Lu, Roni Michaely & Shihua Qin,

SPAC IPOs and Sponsor Network Centrality

(SSRN Working Paper, 2021); Andrea Pawliczek, A. Nicole Skinner, and Sarah L.C. Zechman,

Signing Blank Checks: The Roles of Reputation and Disclosure in the Face of Limited Information

(SSRN Working Paper, 2021).

Several commenters suggested that proposed Item 1603(a) would codify, to an extent, existing disclosure practices.

147

We agree that the requirements in Item 1603 to provide detailed disclosure about the SPAC sponsor, the SPAC sponsor's experience, and its rights and interests will codify existing disclosure practices. This will help ensure that issuers provide consistent and comprehensive information across transactions, so that investors can make more informed investment and voting decisions.

147

Letters from ABA, NASAA, Vinson & Elkins.

i. Promoters

We are retaining the applicability of Item 1603 to promoters.

148

We disagree with the commenters who asserted that Item 1603 should not apply to “promoters” and that the disclosure regarding a promoter would not significantly benefit investors or would be immaterial to investors.

149

Certain persons are explicitly included as a “promoter” under Securities Act Rule 405 and Exchange Act Rule 12b-2.

150

There may be facts and circumstances involving a SPAC where a person may be considered either a “promoter,” “SPAC sponsor,” “officer,” or “director” or may be more than one of these. As with a SPAC sponsor, the promoter's background and experience, compensation, and conflicts of interest are material information for investors in the SPAC IPO (particularly given the absence of an operating business) and any de-SPAC transaction. Such information will enable investors to better understand promoter incentives and activities.

151

A registrant is not required to repeat the same disclosure twice merely because a person fits in two categories (for example, both a “promoter” and a “SPAC sponsor”).

148

The proposal's disclosure requirements related to “promoters” included the following proposed items: (1) Item 1603(a)(3) (promoter's experience), (2) Item 1603(a)(4) (promoter's role), (3) 17 CFR 229.1602(b)(6) (“Item 1602(b)(6)”) and Items 1603(a)(6), and 1604(a)(3) (promoter's compensation), and (4) Items 1602(a)(5), 1602(b)(7), 1603(b)(1), 1604(a)(4), and 1604(b)(3) (promoter conflicts of interest).

149

Letters from Freshfields, Vinson & Elkins.

See supra

notes 124, 125, and 126 and accompanying text.

150

Securities Act Rule 405 provides: The term promoter includes: (i) Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer; or (ii) Any person who, in connection with the founding and organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, 10 percent or more of any class of securities of the issuer or 10 percent or more of the proceeds from the sale of any class of such securities. However, a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organizing the enterprise. Exchange Act Rule 12b-2 contains similar provisions.

151

Item 1603 also applies to disclosure in de-SPAC transactions.

See, e.g.,

instructions to Form S-4 and F-4.

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

152

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

ii. Compensation

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

adopted.

153

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

153

Letter from Vinson & Elkins.

See also

letter from SPAC Association (asserting that “the SPAC 20% promote is fully and fairly disclosed and has been for decades”).

See supra

notes 128, 129, and 130 and accompanying text.

We agree with comments that returns based on the price appreciation from the “promote” stake owned by the SPAC sponsor may be a significant source of potential remuneration to the SPAC sponsor that investors would want to know about in making their investment and voting decisions.

154

As a result, we have added terms explicitly requiring disclosure of the amount of securities issued or to be issued by the SPAC to the SPAC sponsor, its affiliates, and promoters and the price paid or to be paid for such securities.

155

For example, where a SPAC sponsor purchased a 20 percent ownership interest in the SPAC, this interest and the purchase price would be required to be disclosed under the revised provision and would not be excluded on the basis of not being “compensation.”

154

Letters from Loeb & Loeb, Vinson & Elkins.

See supra

notes 131 and 132 and accompanying text.

155

See

Items 1602(a)(3) and (b)(6), 1603(a)(6), and 1604(a)(3), (b)(4), and (c)(1). For the avoidance of doubt, in Items 1602(a)(3) and (b)(6), 1603(a)(6), and 1604(a)(3), disclosure should be provided with respect to each person who is one of the types of named persons in those items; registrants may provide totals of those individual disclosures but the disclosure of a single lump sum covering all types of persons named in those items would be insufficient by itself.

Pursuant to these changes, any mechanisms, such as an anti-dilution provision,

156

to keep the SPAC sponsor ownership at a certain level (or similar mechanisms for affiliates or promoters) and any potential cancellation of shares issued or to be issued to the SPAC sponsor (or its affiliates or promoters) or increase in shares issued to the SPAC sponsor (or its affiliates or promoters) will be required to be disclosed since these features would affect shares issued or to be issued to those parties. The approach taken in the final rules will address the concerns over speculation related to quantifying compensation expressed by one commenter,

157

because these contractual terms are known at the time of the IPO and therefore do not require any speculation about possible stock price changes after the de-SPAC transaction.

156

See, e.g.,

Clifford Chance,

Guide to Special Purpose Acquisition Companies

5 (Sept. 2021),

available at

https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2021/09/guide-to-special-purpose-acquisition-companies.pdf

(“However, if additional public shares or equity-linked securities are issued in connection with the de-SPAC transaction, the exchange ratio for the founder shares will typically be adjusted to maintain the 20% promote for the sponsors.”); Michael Klausner, Michael Ohlrogge & Harald Halbhuber,

Net Cash Per Share: The Key to Disclosing SPAC Dilution,

40 Yale J. on Reg. 18, 28 (2022) (stating that “[s]ome SPACs also provide `anti-dilution' protection to sponsors by giving them the right to an additional 20% of newly raised PIPE equity at the time of a merger” and stating that typically “sponsors waive their right to some or all these additional shares, though in some cases they do so in exchange for additional shares.”).

157

Letter from Loeb & Loeb.

See supra

note 132 and accompanying text.

Regarding the comments concerning reimbursement of advances and repayment of loans,

158

we do not believe it is necessary to modify the proposed term “reimbursement.” The term is not limited to specific types of reimbursements. Any funds outlaid by the SPAC sponsor that are later returned to the SPAC sponsor would constitute a “reimbursement” under the rule, notwithstanding that the return of the funds to the SPAC sponsor may also include other amounts (such as accrued interest).

158

Letter from Vinson & Elkins.

See supra

note 131 and accompanying text.

We are not adopting another commenter's recommendation that required disclosure be qualitative rather than quantitative unless the amounts are above a specified de minimis threshold.

159

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

159

Letter from ABA.

See supra

note 133 and accompanying text.

iii. Transfer of SPAC Ownership

In response to several commenters' recommendation to disclose transfers of SPAC securities by the SPAC sponsor and others, we are modifying Item 1603(a)(6) to require such disclosure.

160

We agree that disclosure of share transfers by a SPAC sponsor, its affiliates, and promoters would provide important information to investors seeking to evaluate the incentives of these parties. We believe it would also be important for investors to know if the SPAC ownership level of these parties has changed because of cancellation of the securities.

161

Accordingly, in the final rule, we have revised proposed Item 1603(a)(6) to add the requirement: “Disclose any circumstances or arrangements under which the SPAC sponsor, its affiliates, and promoters, directly or indirectly, have transferred or could transfer ownership of securities of the SPAC, or that have resulted or could result in the surrender or cancellation of such securities.” With respect to indirect transfers, for example, if there was a transfer of ownership interests in the SPAC sponsor or ownership interests in a holding company that owns interests in the SPAC sponsor, then disclosure would be required under this item.

162

160

Letters from Michael Klausner and Michael Ohlrogge, NASAA, Paul Swegle.

See supra

notes 135, 136, 137, and 138 and accompanying text.

161

Certain earn-out provisions entered into in connection with a de-SPAC transaction may involve cancellation of securities if certain targets are not met.

162

In addition, in final Item 1603(a)(6) we replaced “has or will be” with “has been or will be,” and replaced “rendered” with “rendered or to be rendered,” for clarity.

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

163

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

iv. Interest in SPAC Sponsor and Organizational Chart

We are adopting Item 1603(a)(7) as proposed except that we are not adopting the proposal to provide an organizational chart.

One commenter said that “proposed Item 1603(a)(7) should clarify that . . . an indirect economic interest in less than 10% of a SPAC's founder shares or warrants through ownership of equity interests in a Sponsor should not, in and of itself and absent other factors, be considered a direct or indirect material

interest in the Sponsor.”

164

We do not believe that the disclosures of material interests in the SPAC sponsor should be based on a bright-line absolute percentage of ownership, whether based on percentage ownership of shares of the SPAC or based on percentage ownership of shares of the SPAC sponsor. As a general matter, we note that registrants regularly apply materiality standards that are not tied to absolute percentages in connection with their disclosure under the Federal securities laws. We believe a bright-line standard would not be appropriate here because the percentage of ownership of a SPAC sponsor that is material could differ from SPAC sponsor to SPAC sponsor. Also, we note that percentage ownership is not the only way in which a material interest in the SPAC sponsor may be present.

165

For example, where a person has a voting interest but no economic interest in the SPAC sponsor, the required disclosure would need to be provided with respect to such voting interest.

164

Letter from ABA.

165

See, e.g.,

definition of “control” in Rule 405 (The term control . . . means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.).

Related to our consideration of this comment, however, we have determined not to adopt the proposed organizational chart requirement in Item 1603(a)(7). The proposed organizational chart requirement would have required graphical display of levels of ownership that are above the level of direct ownership of the SPAC sponsor (

i.e.,

tracing “upstream” through layers of interest-holders to the ultimate interest-holder). It also would have required graphical display of levels of ownership of companies other than the SPAC sponsor (but that would be under common control with the SPAC sponsor) that are below these interest-holders (

i.e.,

tracing “downstream” through layers of affiliated controlled persons). We believe, in this context at this time, particularly with respect to institutions with an interest in the SPAC sponsor that may have complex company organizational structures, the complexity of the upstream and downstream tiers of ownership discussed above may be difficult to prepare graphically. As a result, we are not adopting the organizational chart requirement.

Another commenter said the identity of natural persons controlling the sponsor is already disclosed in response to existing Item 403 of Regulation S-K.

166

Item 403 requires security ownership information concerning certain beneficial owners and management, but new Item 1603(a) will elicit additional information because of its requirements concerning background, experience, and roles, among other things. Also, while current Item 403(a) requires identifying any person who is known to be the beneficial owner of more than five percent of any class of the SPAC's voting securities, new Item 1603(a)(7) adds a requirement to name controlling persons of the SPAC sponsor. Furthermore, to the extent portions of Item 1603(a) may overlap with Item 403 as they may pertain to specific registrant facts and circumstances, registrants are not required to provide duplicative disclosure. Therefore, we do not expect that any partial overlap—depending on specific registrant facts and circumstances—in disclosure that could be required under the final rule with disclosure required under Item 403 would impose significant additional burdens on registrants.

166

Letter from Vinson & Elkins.

v. Agreements

We are adopting Item 1603(a)(8) and (9), concerning agreements, as proposed. Final Item 1603(a)(8) provides that the registrant must describe any agreement, arrangement, or understanding, including any payments, between the SPAC sponsor and unaffiliated security holders of the special purpose acquisition company regarding the redemption of outstanding securities of the special purpose acquisition company. One commenter recommended that the Commission should revise proposed Item 1603(a)(8) to “specify that if a SPAC, the SPAC sponsor, or any affiliated party enters into an agreement regarding the redemption of outstanding securities of the SPAC after the date of the merger registration statement or proxy, that the SPAC be required to issue a proxy amendment or similar filing prior to the redemption deadline to inform SPAC shareholders of the new agreement.”

167

We do not believe it is necessary to revise the item in the manner suggested to capture events that follow the filing of a proxy statement in connection with a de-SPAC transaction, as we believe registrant obligations to amend such filings under current law, including to ensure disclosure are not misleading, are sufficient.

168

167

Letter from Michael Klausner and Michael Ohlrogge.

168

See

17 CFR 240.14a-9 (“Rule 14a-9”).

See also

17 CFR 240.14a-6(h).

Final Item 1603(a)(9) provides that the registrant must disclose, in a tabular format to the extent practicable, the material terms of any agreement, arrangement, or understanding regarding restrictions on whether and when the SPAC sponsor and its affiliates may sell securities of the special purpose acquisition company, including: the date(s) on which the agreement, arrangement, or understanding may expire; the natural persons and entities subject to such an agreement, arrangement, or understanding; any exceptions under such an agreement, arrangement, or understanding; and any terms that would result in an earlier expiration of such an agreement, arrangement, or understanding.

In response to the commenter who stated that the required additional disclosure would go beyond the disclosure requirements applicable to lock-up agreements entered into in connection with a traditional IPO,

169

we believe that, based on Commission staff experience reviewing filings, registrants in IPOs currently provide information that is analogous to the Item 1603(a)(9) required information. To the extent Item 1603(a)(9) may incrementally require more disclosure compared to IPOs, we believe this is appropriate because investors in SPACs often focus heavily on the nature of the SPAC sponsor's interest in the SPAC and because agreements, arrangements, or understandings regarding restrictions on whether and when the SPAC sponsor and its affiliates may sell securities of the SPAC often can be more complex than lock-up agreements in IPOs. For example, SPAC lock-up agreements often include provisions that depend on certain levels of stock price appreciation.

170

169

Letter from Vinson & Elkins.

See supra

note 142 and accompanying text.

170

See, e.g.,

Connie Loizos,

The Year of the Disappearing Lock-up,

TechCrunch (Jan. 4, 2022) (“many related deals contain language that restricts sponsors from selling shares for a year from the day the deal is completed, but there are much faster ways out. According to one popular provision, if a SPAC's shares trade slightly above their initial pricing for more than 20 days in a 30-day period, the lockup provision vanishes.”),

available at

https://techcrunch.com/2022/01/04/the-year-of-the-disappearing-lock-up/

;

Lock-Up Periods: Regular IPOS V/S SPACS IPOS,

Legal Scale (Sept. 21, 2022),

available at

https://www.legalscale.com/lock-up-periods-regular-ipos-v-s-spacs-ipos/

; Ran Ben-Tzur, Itka Safir,

Terms of IPO Lock-Up Agreements for Technology Companies Shift as Direct Listings and SPACs Gain Traction

(2020),

available at

https://www.fenwick.com/insights/publications/terms-of-ipo-lock-up-agreements-for-technology-companies-shift-as-direct-listings-and-spacs-gain-traction

(out of 80 traditional IPO-companies surveyed, four (

i.e.,

5%) used Price-based lock-up releases).

With respect to the suggestion to exclude from this disclosure customary exceptions to lock-up agreements,

171

we are concerned that almost all, if not all, exceptions found in any lock-up agreement could be determined to be customary by a registrant, which would mean they would not be disclosed to investors under the suggested approach. Further, even where lock-up agreements are filed as an exhibit,

172

exceptions to SPAC lock-up agreements considered “customary” by industry participants may be difficult for a reasonable investor to understand, and therefore narrative disclosure in the body of the filing may help investors understand these terms.

173

171

Letter from Freshfields.

See supra

notes 143 and 144 and accompanying text.

172

See

17 CFR 229.601(a) and (b)(10)(ii)(A) (requiring the filing of any contract to which directors, officers, promoters, voting trustees, security holders named in the registration statement or report are parties, with certain exceptions).

See also

requirements for registrant to furnish exhibits required by Item 601 of Regulation S-K in: Form S-1, Item 16; Form F-1, Item 8; Form S-4, Item 21(a); Form F-4, Item 21.

173

When we use the term “narrative” disclosure here, we do not mean that solely qualitative information should be provided. Depending on the facts and circumstances, quantitative information may be required in connection with these lock-up disclosures. Depending on the facts and circumstances, one example of such quantitative disclosure could be where the exception to the lock-up depends on application of a formula involving a financial measure.

In addition, we believe each such exception to a lock-up agreement is important to investors because exceptions to restrictions on transfer in lock-up agreements can result in the sale of a significant amount of shares that could affect the trading price of the SPAC or of the post-de-SPAC transaction combined company.

174

In addition, in connection with disclosure in a SPAC IPO, to the extent that an investor may have invested in the SPAC based in part on the experience and expertise of the SPAC sponsor and its affiliates, we believe the disclosure about exceptions to lock-up agreements could be important to these investors in understanding the extent to which the interests of the SPAC sponsor and investor are aligned.

175

Similarly, this information is important in connection with disclosure in a de-SPAC transaction. For example, this information remains important in connection with a de-SPAC transaction where the SPAC sponsor will have a continuing management role at the post-de-SPAC transaction combined company. Also, for example, even where the SPAC sponsor may not have a continuing management role, this information is important where the SPAC sponsor may have the ability to express views that influence the current management of the post-de-SPAC transaction combined company—potentially due to the size of the SPAC sponsor's ownership stake in the combined company or the value of the SPAC sponsor's ongoing counsel based on the SPAC sponsor's expertise. In each of these examples, we believe the disclosure about exceptions to lock-up agreements will be important because it will help the investor understand the extent to which the interests of the SPAC sponsor and investor are aligned.

174

See, e.g.,

Cooley LLP,

Blog: 10 Key Considerations for Going Public with a SPAC

(Aug. 3, 2020),

available at

https://www.jdsupra.com/legalnews/blog-10-key-considerations-for-going-80315/

(“Most SPAC sponsors will be subject to a 1-year lock-up, which can create staggered releases of shares into the market after the combination and may at times try to push the target company holders to also have a 1-year lockup to align interests. Companies should be thoughtful, in discussions with their financial advisors, on how additional shares will come into the market and implications for the public company's trading volatility.”).

175

With respect to lock-up agreements generally,

see

Alon Brav & Paul Gompers,

The Role of Lockups in Initial Public Offerings,

16 The Rev. of Fin. Stud. 1 (2003),

available at

https://doi.org/10.1093/rfs/16.1.0001

(finding lockup agreements serve as a commitment device to address moral hazard concerns).

While one commenter suggested that current market practice is for transferees who receive shares pursuant to an exception from a lock-up to agree to the lock-up as a condition of the transfer,

176

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

176

Letter from Freshfields.

See supra

note 144 and accompanying text.

C. Conflicts of Interest

1. Proposed Rules

SPAC sponsors and others may have material potential or actual conflicts with the interests of investors that could have adverse effects on those investors. The Commission proposed conflicts of interest disclosure requirements in certain items in proposed Item 1602, 1603, 1604, and 1605 in connection with SPAC registered offerings other than de-SPAC transactions, such as IPO transactions, and in connection with de-SPAC transactions, described in more detail below.

The Commission proposed Item 1602(a)(5) and (b)(7), which apply to registered offerings other than de-SPAC transactions, to require that some of these conflicts of interest disclosure requirements appear on the prospectus front cover page and in the prospectus summary, respectively.

177

The Commission also proposed prospectus cover page and prospectus summary conflict of interest disclosure requirements in connection with de-SPAC transactions in proposed Item 1604(a)(4) and (b)(3).

178

177

See also

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

178

See also

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

The Commission proposed that Item 1603 (including 1603(b) regarding conflicts of interest) apply to de-SPAC transactions, as well as other registered offerings, including SPAC IPOs.

179

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

179

See

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

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

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

Several commenters suggested that the proposed disclosure requirements would codify, to an extent, existing disclosure practices.

182

Some commenters suggested that proposed disclosure requirements about conflicts of interest and fiduciary duties would provide useful information to investors.

183

182

Letters from ABA, NASAA, Vinson & Elkins.

183

Letters from Better Markets, CFA Institute, CII, Committee on Capital Markets Regulation, Consumer Federation, ICGN, NASAA.

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

184

Letter from ABA.

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

185

Letter from ICGN.

A few commenters discussed issues related to potential SPAC and target company officer and director conflicts of interest.

186

One of these commenters recommended that “there should be mandatory disclosures of conflicts of interest among SPAC directors, SPAC officers, target company directors and target company officers.”

187

Another of these commenters recommended that “proposed Item 1603(c) should be limited to those situations where the fiduciary duties of an officer or director owed to other companies might reasonably be expected to present a potential conflict with respect to a potential de-SPAC transaction or the SPAC's ability to pursue de-SPAC transaction opportunities.”

188

186

Letters from ABA, CII.

187

Letter from CII.

188

Letter from ABA.

Some commenters viewed proposed Item 1605, including proposed Item 1605(d) concerning conflicts of interest in connection with de-SPAC transactions, as redundant with current rules.

189

One of these commenters said these disclosures are “duplicative of those already prescribed in the existing regulatory schemes for proxy materials and registration statements filed in connection with de-SPAC transactions.”

190

In lieu of adopting proposed Item 1605, the commenter recommended a “uniform methodology to address conflicts of interest arising from business combinations in general by revising Items 1004(a)(2) and 1013(b) of Regulation M-A [17 CFR 229.1004(a)(2) and 229.1013(b)] and Item 403 of Regulation S-K to incorporate the provisions of proposed Item 1605.”

191

The other commenter opposed the adoption of new disclosure requirements with “respect to material interests in a prospective de-SPAC transaction or any related financing transaction held by the sponsor and the SPAC's officers and directors,” because this “would be redundant with the existing requirements of Schedule 14A Item 5.”

192

189

Letters from ABA, Vinson & Elkins.

190

Letter from ABA.

191

Letter from ABA.

192

Letter from Vinson & Elkins.

Some commenters recommended that certain additional disclosures should be required. One commenter on the proposal said that registrants “should also provide, in an easily understandable, tabular format. . .the break-even points for non-redeeming investors under different scenarios, the break-even point for the sponsor, the ownership distribution for non-redeeming investors, the effects of outstanding warrants and sponsor shares, and the resulting ownership of the target company for non-redeeming shareholders and alternative investors.”

193

Another commenter said that registrants should provide a break-even average share price for the sponsor, which would inform investors and, in the commenter's opinion, the target company.

194

The commenter said “this will be a simple numerical representation of the effective cost basis of the sponsor and can be used to ascertain the extent to which a sponsor's position differs from that of other investors.”

195

One commenter stated that “SPACs should disclose the minimum post-merger share value at which proceeding with the SPAC merger will yield a higher return to the SPAC sponsor than liquidating the SPAC.”

196

193

Letter from NASAA.

194

Letter from Jonathan Kornblatt, CMT, Fintech Institutional Advisory (June 12, 2022) (“Jonathan Kornblatt”).

195

Letter from Jonathan Kornblatt.

196

Letter from Michael Klausner and Michael Ohlrogge.

A few commenters responded to requests for comment in the proposal related to whether we should also require a description of any policies and procedures used to minimize potential or actual conflicts of interest.

197

One commenter said that “a requirement for disclosure of policies and procedures or assessment and management of conflicts of interest would result in incremental boilerplate disclosures.”

198

Another commenter said it would be “superfluous to require a description of any policies and procedures used or to be used to minimize potential or actual conflicts of interest in addition to what proposed Item 1603 has already prescribed.”

199

197

Proposing Release,

supra

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

198

Letter from Vinson & Elkins.

199

Letter from ABA.

One commenter responded to requests for comment related to whether SPACs should be required to provide additional disclosure regarding material conflicts of interest in Exchange Act reports following their IPOs.

200

The commenter said that, “regarding disclosure in Exchange Act reports following the SPAC IPO and the Form 8-K announcing the signing of the de-SPAC transaction, additional disclosure should be required only where the conflict of interest is material and has not been previously disclosed.”

201

200

Proposing Release,

supra

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

201

Letter from Vinson & Elkins.

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 detriment of its unaffiliated security holders. The potential conflicts of interest of SPAC sponsors and others may be particularly relevant for investors to the extent that they arise when a SPAC and its management are deciding whether to engage in a de-SPAC transaction. The SPAC sponsor's compensation structure creates incentives to complete a de-SPAC transaction. These incentives may induce a SPAC sponsor and others to compel the SPAC to complete the de-SPAC transaction on unfavorable terms to avoid liquidation of the SPAC at the expiry of this period.

There are numerous situations that could give rise to these potential conflicts. For example, SPAC sponsors or their affiliates may have a potential conflict of interest stemming from the nature of the SPAC sponsor's compensation or security ownership (particularly where the security owned is purchased at disparate prices, often substantially lower than the price paid by public security holders). This type of potential conflict of interest may present significant financial incentives to pursue a de-SPAC transaction even in the absence of attractive target company transaction opportunities.

202

See, e.g.,

Usha Rodrigues & Mike Stegemoller,

Exit, Voice, and Reputation: The Evolution of SPACs,

37 Del. J. Corp. L. 849, 896 (2013) (stating that “sponsors were expected to put more and more of their own money at risk (in the form of private placements), setting themselves up for substantial losses if no acquisition occurred” as the SPAC form evolved).

SPAC sponsors and their affiliates may also sponsor multiple SPACs, which may result in decisions regarding the allocation of these persons' time and target company acquisition opportunities that may adversely affect SPAC security holders. Alternatively (or in addition), SPAC sponsors and their affiliates may owe employment, contractual, or fiduciary duties to other companies than the SPAC, which, among other things, may affect the ability of the SPAC to execute a de-SPAC transaction or may affect the terms to which a SPAC agrees in any ultimate de-SPAC transaction. In these situations, the SPAC sponsor and others covered by the final rules may not only be incentivized to take actions that benefit other entities, but they may be compelled by these other duties to do so, potentially at the expense of the SPAC and its security holders. In addition, SPAC sponsors and their affiliates may seek to enter a de-SPAC transaction with a target company they are affiliated with when superior target company transaction opportunities may be available.

The final rules will provide investors with a more complete understanding of the conflicts of interest related to an investment in a SPAC, including in situations like the examples above. Investors will have improved information concerning interests of the SPAC sponsor and others covered by the final rule that could reduce the value of their investment or that could result in opportunities potentially available to the SPAC not being realized. In this way, the final rules will allow investors to analyze risks associated with potential conflicts of interest regarding a SPAC more accurately.

We are not including a knowledge qualifier in conflicts of interest disclosure, as suggested by one commenter,

203

because we expect the SPAC and its officers and directors will be in a position to know their own conflicts and that the SPAC may obtain similar information from the SPAC sponsor, its affiliates, and promoters (who will be in a position to know their own conflicts) by virtue of the relationship between the SPAC and the SPAC sponsor and between the SPAC and any promoters.

204

In addition, we note that registrants can rely on 17 CFR 230.409 and 240.12b-21 with respect to information unknown or not reasonably available.

203

Letter from ABA.

See supra

note 184 and accompanying text.

204

Similarly, current Item 404 regarding conflicts of interest does not contain such knowledge qualifier.

Another commenter recommended the conflicts of interest disclosures should include: names of all sponsors and their financial arrangements with SPACs; claims investors have on the SPAC if no de-SPAC transaction takes place; and claims investors have on the SPAC if investors exit before the de-SPAC transaction.

205

We note that all of those items were included in the proposal, and we are adopting them as proposed.

206

205

Letter from ICGN.

See supra

note 185 and accompanying text.

206

See, e.g.,

proposed Items: 1603(a)(1) (names of sponsors) and (a)(5) through (6) (agreements and compensation) and 1602(b)(3) and (4) (redemption rights and plans in the event no de-SPAC transaction is consummated).

A few commenters discussed issues related to potential SPAC and target company officer and director conflicts of interest.

207

One of these commenters recommended the conflicts of interest disclosures cover SPAC officers, SPAC directors, target company officers, and target company directors.

208

In considering the comment, we observed that proposed Item 1604 was inconsistent with proposed Items 1603(b) and 1605(d) by not covering SPAC officers and directors. We do not believe there are any special factors warranting such a difference. As a result, we have modified the language in Item 1604 to require disclosure regarding SPAC officers and directors as in the other adopted items. This change to Item 1604(a)(4) (cover page) and (b)(3) (prospectus summary) will ensure the benefits of the rule that we discuss generally above will apply to these rules as well.

209

With respect to target company officers and directors, we believe that disclosure of their conflicts of interest is consistent with co-registration requirements in connection with the final amendments to registration forms and with final Rule 145a.

210

As discussed in connection with those requirements, since the de-SPAC transaction is in substance an offering by the target company, the conflicts of interest of target company officers and directors may be important to investor investment, redemption, and voting decisions. Thus, we have amended Items 1603(b), 1604(a)(4) (prospectus cover page) and (b)(3) (prospectus summary), and 1605(d) to require this disclosure.

211

We would not expect registrants to provide duplicative disclosure merely because a person falls into more than one of the categories of persons covered by the final rules.

212

207

Letters from ABA, CII.

208

Letter from CII.

See supra

note 187 and accompanying text.

209

We are also making related minor changes for clarity in Item 1604(a)(4) and (b) to change the term “or its affiliates” to “, SPAC affiliates.” In Item 1604(b) and in a number of other places in the final rules, we also eliminated the term “shall” (

e.g.,

by replacing it with the word “must”) consistent with relevant plain English guidance.

210

See infra

sections III.C and IV.A.

211

In addition, in final Item 1603(b) we replaced “with respect to” with “that may arise” (in the phrase “any material conflict of interest that may arise in determining whether to proceed with a de-SPAC transaction”) for clarity and consistency with Item 1602(b)(7). In final Item 1603(b) we also revised the phrase “the manner in which the special purpose acquisition company compensates a SPAC sponsor, officers, or directors” by replacing the term “and” with “or,” because the requirements of Item 1603(b) should apply disjunctively where any of the named persons has a relevant material conflict of interest.

212

For example, if the SPAC hypothetically happened to share officers or directors with the target company, the same disclosure (that was relevant for both the SPAC and target company) for the same individual person would not need to be provided once for the person as a SPAC official and a second time for the person as a target company official. The SPAC and target should be mindful, though, that different disclosures about conflicts arising under each role may be required.

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

those situations where officer or director fiduciary duties owed to other companies might reasonably be expected to present a potential conflict with a SPAC's de-SPAC transaction opportunities.

213

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

213

Letter from ABA.

See supra

note 188 and accompanying text.

Some commenters expressed the view that proposed Item 1605, including proposed Item 1605(d) concerning conflicts of interest in connection with de-SPAC transactions, would be redundant with current rules.

214

The Commission is not making changes in the final rules we are adopting in response to these comments. Given the unique qualities of de-SPAC transactions, we believe registrants will benefit from the centralization of the SPAC-related requirements in the Item 1600 series of Regulation S-K rather than in a different location as suggested.

215

Regarding any potential for redundancy with other Commission rules, if there are facts and circumstances that may result in required disclosure under a current rule being the same as under any of the rules we are adopting, registrants will not be required to repeat disclosures (except where the applicable rule may require, such as by calling for the disclosure in a specific location such as the prospectus cover page or prospectus summary).

214

Letters from ABA, Vinson & Elkins.

See supra

notes 189, 190, 191, and 192 and accompanying text.

215

The Commission adopted a similar approach in rules regarding limited partnership roll-up transactions.

See

17 CFR 229.900 through 229.915.

Some commenters recommended we adopt certain requirements (in addition to those proposed) involving “break-even” disclosure.

216

With respect to disclosure of a SPAC sponsor's “break-even” price per share, one commenter said this would help investors “ascertain the extent to which a sponsor's position differs from that of other investors.”

217

We believe that the other conflicts of interest disclosures required by the final rules will provide sufficient information to allow investors to understand the potential differences in incentives between them and a SPAC sponsor, and as a result we are not adopting the suggested “break-even” disclosure.

216

Letters from Jonathan Kornblatt, Michael Klausner and Michael Ohlrogge, NASAA.

See supra

notes 193, 194, 195, and 196 and accompanying text.

217

Letter from Jonathan Kornblatt.

We are not requiring registrants to provide “break-even” price per share disclosure regarding non-redeeming investors as suggested by commenters because each investor would already know the basis at which they acquired the shares of the SPAC and the SPAC may not know this information for many of its investors, who could have acquired the shares at a variety of prices through the public market. We are likewise not requiring disclosure suggested by commenters that would provide a price at which the SPAC sponsor would recoup their investments in the SPAC. We believe such disclosure could be confusing for investors, as many SPAC sponsors may consider such amounts as sunk costs, which they do not consider when deciding whether to proceed with a de-SPAC transaction. As a commenter notes,

218

SPAC sponsors may be incentivized to proceed with de-SPAC transactions below the initial SPAC share price; however, that is largely because SPAC sponsors lack redemption rights. Generally, SPAC shareholders would seek de-SPAC transactions that result in share prices that exceed their redemption value. SPAC sponsor decisions to proceed with a transaction may be driven by the SPAC sponsor's expectation of their future deal flow and potential legal or reputational concerns among other factors. The “break-even” disclosure suggested by commenters would not take into account these factors. Moreover, none of these factors can be easily quantified, and the ones that can be quantified would be burdensome to produce and potentially difficult for investors to analyze and assess (given the difficulty in reliably quantifying those factors) and also would not be easily comparable across different SPACs (given the SPAC-specific and SPAC sponsor-specific nature of those factors). The rules as adopted will improve investors' ability to understand the SPAC sponsor's conflicts of interest, and we are concerned that adding a disclosure that takes into account difficult-to-quantify factors like the ones discussed above would detract from the disclosures that we are adopting.

218

See

letter from Michael Klausner and Michael Oh

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