DealLawyers.com Blog

As Dave shared yesterday on TheCorporateCounsel.net, on Wednesday, the SEC, by a 3-to-2 vote, adopted final rules to address its concerns with SPACs. As with the proposed rules, Chair Gensler’s statement emphasized the goal of aligning “the protections investors receive when investing in SPACs with those provided to them when investing in traditional IPOs.” At a high level, this fact sheet indicates that the final rules, among other things:

1. Require additional disclosures about SPAC sponsor compensation, conflicts of interest, dilution, the target company, and other information that is important to investors in SPAC IPOs and de-SPAC transactions;
2. Require, in certain situations, the target company in a de-SPAC transaction to be a co-registrant with the SPAC (or another shell company) and thus assume responsibility for the disclosures in the registration statement filed in connection with the de-SPAC transaction;
3. 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
4. Better align the regulatory treatment of projections in de-SPAC transactions with that in traditional IPOs under the Private Securities Litigation Reform Act of 1995 (PSLRA).

To highlight some specific key aspects, in no particular order, the rules also:

– require a minimum 20-calendar-day dissemination period for prospectuses and proxy and information statements filed for de-SPAC transactions (where consistent with local law)
– require a re-determination of SRC status following consummation of a de-SPAC, which must be reflected in filings beginning 45 days after closing
– require additional disclosures in de-SPACs regarding the board’s determination whether the de-SPAC is advisable and in the best interests of the SPAC and its shareholders and any outside report, opinion, or appraisal materially relating to the de-SPAC
– include new Article 15 of Regulation S-X to better align the financial statements provided in de-SPACs with financial statements provided in an IPO
– make the safe harbor for forward-looking statements under the PSLRA unavailable for SPACs (most importantly de-SPACs) by adopting a new definition of “blank check company” for purposes of the PSLRA
– require additional disclosures for projections, including disclosure of material bases and material assumptions

Instead of adopting controversial proposed Rule 140a — which, as proposed, would have “deemed anyone who has acted as an underwriter of the securities of a SPAC and takes steps to facilitate a de-SPAC transaction, or any related financing transaction or otherwise participates (directly or indirectly) in the de-SPAC transaction to be engaged in a distribution and to be an underwriter in the de-SPAC transaction” — and proposed Rule 3a-10 under the Investment Company Act, the Commission provided guidance regarding statutory underwriter status in connection with de-SPAC transactions and for assessing when SPACs may meet the definition of an investment company under the Investment Company Act of 1940. In their dissents, Commissioners Uyeda and Peirce state that this change is not the positive development for SPACs that it may appear to be and “instead is arguably worse” and may “function like a backdoor rule.”

The final rules will become effective 125 days after publication in the Federal Register, and compliance with the Inline XBRL tagging requirements will be required 490 days after publication of the final rules in the Federal Register. We’re posting resources in the “SPACs” Practice Area here on DealLawyers.com.

– Meredith Ervine