29458 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

1 15 U.S.C. 77a et seq. 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 210, 229, 230, 232, 239, 

240, 249, and 270 

[Release Nos. 33–11048; 34–94546; IC– 

34549; File No. S7–13–22] 

RIN 3235–AM90 

Special Purpose Acquisition 

Companies, Shell Companies, and 

Projections 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rules. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) is 

proposing rules intended to enhance 

investor protections in initial public 

offerings by special purpose acquisition 

companies (‘‘SPACs’’) and in 

subsequent business combination 

transactions between SPACs and private 

operating companies. Specifically, we 

are proposing specialized disclosure 

requirements with respect to, among 

other things, compensation paid to 

sponsors, conflicts of interest, dilution, 

and the fairness of these business 

combination transactions. The proposed 

new rules and amendments to certain 

rules and forms under the Securities Act 

of 1933 and the Securities Exchange Act 

of 1934 would address the application 

of disclosure, underwriter liability, and 

other provisions in the context of, and 

specifically address concerns associated 

with, business combination transactions 

involving SPACs as well as the scope of 

the Private Securities Litigation Reform 

Act of 1995. Further, we are proposing 

a rule that would deem any business 

combination transaction involving a 

reporting shell company, including a 

SPAC, to involve a sale of securities to 

the reporting shell company’s 

shareholders and are proposing to 

amend a number of financial statement 

requirements applicable to transactions 

involving shell companies. In addition, 

we are proposing to update our 

guidance regarding the use of 

projections in Commission filings as 

well as to require additional disclosure 

regarding projections when used in 

connection with business combination 

transactions involving SPACs. Finally, 

we are proposing a new safe harbor 

under the Investment Company Act of 

1940 that would provide that a SPAC 

that satisfies the conditions of the 

proposed rule would not be an 

investment company and therefore 

would not be subject to regulation under 

that Act. 

DATES: Comments should be received on 

or before June 13, 2022. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/submitcomments.htm); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

13–22 on the subject line; or. 

Paper Comments 

• Send paper comments to Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–13–22. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

website (http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549 on official 

business days between the hours of 10 

a.m. and 3 p.m. Operating conditions 

may limit access to the Commission’s 

Public Reference Room. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on our website. To ensure direct 

electronic receipt of such notifications, 

sign up through the ‘‘Stay Connected’’ 

option at www.sec.gov to receive 

notifications by email. 

FOR FURTHER INFORMATION CONTACT: 

Charles Kwon, Office of Rulemaking, 

Division of Corporation Finance, at 

(202) 551–3430; or with respect to 

proposed Rules 140a and 145a under 

the Securities Act, Adam Turk, Office of 

Chief Counsel, Division of Corporation 

Finance, at (202) 551–3500; with respect 

to proposed Rule 15–01 of Regulation 

S–X, Ryan Milne, Office of Chief 

Accountant, Division of Corporation 

Finance, at (202) 551–3400; with respect 

to the proposed amendments relating to 

projections disclosure and tender offer 

rules, Daniel Duchovny, Office of 

Mergers & Acquisitions, Division of 

Corporation Finance, at (202) 551–3440; 

and with respect to proposed Rule 3a– 

10 under the Investment Company Act, 

Rochelle Kauffman Plesset, Seth Davis, 

or Taylor Evenson, Senior Counsels; 

Lisa Reid Ragen, Branch Chief; or 

Thoreau Bartmann, Assistant Director, 

Chief Counsel’s Office, Division of 

Investment Management, at (202) 551– 

6825; U.S. Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: The 

Commission is proposing for public 

comment new 17 CFR 210.15–01 (Rule 

15–01 of Regulation S–X), new 17 CFR 

229.1601 through 229.1610 (subpart 

1600 of Regulation S–K), new 17 CFR 

230.140a (Securities Act Rule 140a), 

new 17 CFR 230.145a (Securities Act 

Rule 145a), and new 17 CFR 270.3a–10 

(Investment Company Act Rule 3a–10). 

We are also proposing for public 

comment amendments to: 

Commission reference CFR citation 

(17 CFR) 

Securities Act of 1933 (‘‘Securities Act’’): 1

Rule 137 ................................................................................................................................................................................. 230.137 

Rule 138 ................................................................................................................................................................................. 230.138 

Rule 139 ................................................................................................................................................................................. 230.139 

Rule 163A ............................................................................................................................................................................... 230.163A 

Rule 164 ................................................................................................................................................................................. 230.164 

Rule 174 ................................................................................................................................................................................. 230.174 

Rule 405 ................................................................................................................................................................................. 230.405 

Rule 419 ................................................................................................................................................................................. 230.419 


lotter on DSK11XQN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29459 

2 15 U.S.C. 78a et seq. 

Commission reference CFR citation 

(17 CFR) 

Rule 430B ............................................................................................................................................................................... 230.430B 

Rule 437a ............................................................................................................................................................................... 230.437a 

Form S–1 ................................................................................................................................................................................ 239.11 

Form F–1 ................................................................................................................................................................................ 239.31 

Form S–4 ................................................................................................................................................................................ 239.25 

Form F–4 ................................................................................................................................................................................ 239.34 

Securities Exchange Act of 1934 (‘‘Exchange Act’’): 2

Rule 12b–2 ............................................................................................................................................................................. 240.12b–2 

Rule 14a–6 ............................................................................................................................................................................. 240.14a–6 

Rule 14c–2 ............................................................................................................................................................................. 240.14c–2 

Schedule 14A ......................................................................................................................................................................... 240.14a–101 

Schedule TO ........................................................................................................................................................................... 240.14d–100 

Form 20–F .............................................................................................................................................................................. 249.220f 

Form 8–K ................................................................................................................................................................................ 249.308 

Regulation S–K (17 CFR 229.10 through 229.1406): 

Item 10 .................................................................................................................................................................................... 229.10 

Item 601 .................................................................................................................................................................................. 229.601 

Regulation S–T (17 CFR 232.10 through 232.903): 

Rule 405 ................................................................................................................................................................................. 232.405 

Regulation S–X (17 CFR 210.1–01 through 210.13–02): 

Rule 1–02 ............................................................................................................................................................................... 210.1–02 

Rule 3–01 ............................................................................................................................................................................... 210.3–01 

Rule 3–02 ............................................................................................................................................................................... 210.3–02 

Rule 3–05 ............................................................................................................................................................................... 210.3–05 

Rule 3–14 ............................................................................................................................................................................... 210.3–14 

Rule 8–02 ............................................................................................................................................................................... 210.8–02 

Rule 10–01 ............................................................................................................................................................................. 210.10–01 

Rule 11–01 ............................................................................................................................................................................. 210.11–01 

Table of Contents 

I. Introduction 

II. Proposed New Subpart 1600 of Regulation 

S–K 

A. Definitions 

B. Sponsors 

C. Conflicts of Interest 

D. Dilution 

E. Prospectus Cover Page and Prospectus 

Summary Disclosure 

1. Prospectus Cover Page 

2. Prospectus Summary 

F. Disclosure and Procedural Requirements 

in De-SPAC Transactions 

1. Background of and Reasons for the DeSPAC Transaction; Terms and Effects 

2. Fairness of the De-SPAC Transaction 

3. Reports, Opinions, and Appraisals 

4. Proposed Item 1608 of Regulation S–K 

G. Structured Data Requirement 

III. Aligning De-SPAC Transactions With 

Initial Public Offerings 

A. Aligning Non-Financial Disclosures in 

De-SPAC Disclosure Documents 

B. Minimum Dissemination Period 

C. Private Operating Company as CoRegistrant to Form S–4 and Form F–4 

D. Re-Determination of Smaller Reporting 

Company Status 

E. PSLRA Safe Harbor 

F. Underwriter Status and Liability in 

Securities Transactions 

1. Participants in a Distribution as 

‘‘Underwriters’’ 

2. The De-SPAC Transaction as a 

‘‘Distribution’’ of the Combined 

Company’s Securities 

3. Proposed Rule: SPAC IPO Underwriters 

are Underwriters in Registered De-SPAC 

Transactions 

IV. Business Combinations Involving Shell 

Companies 

A. Shell Company Business Combinations 

and the Securities Act of 1933 

1. Shell Company Business Combinations 

2. Proposed Rule 145a 

3. Excluded Transactions 

B. Financial Statement Requirements in 

Business Combination Transactions 

Involving Shell Companies 

1. Number of Years of Financial Statements 

2. Audit Requirements of Predecessor 

3. Age of Financial Statements of the 

Predecessor 

4. Acquisitions of Businesses by a Shell 

Company Registrant or Its Predecessor 

That Are Not or Will Not Be the 

Predecessor 

5. Financial Statements of a Shell 

Company Registrant After the 

Combination With Predecessor 

6. Other Amendments 

V. Enhanced Projections Disclosure 

A. Background 

B. Rule Proposals 

1. Item 10(b) of Regulation S–K 

2. Item 1609 of Regulation S–K 

VI. Proposed Safe Harbor Under the 

Investment Company Act 

A. Background 

1. Potential Status as an Investment 

Company 

2. Rationale for the Safe Harbor 

3. Boundaries of the Safe Harbor 

B. Conditions 

1. Nature and Management of SPAC Assets 

2. SPAC Activities 

3. Duration Limitations 

VII. Additional Requests for Comment 

VIII. General Request for Comments 

IX. Economic Analysis 

A. Broad Economic Considerations 

B. Baseline and Affected Parties 

1. SPAC Initial Public Offerings 

2. De-SPAC Transactions 

3. Blank Check Companies 

4. Shell-Company Business Combinations 

5. Projections Under Item 10(b) of 

Regulation S–K 

6. Investment Company Act Safe Harbor 

C. Benefits and Costs of the Proposed Rules 

1. Disclosure-Related Proposals 

2. Liability-Related Proposals 

3. Shell-Company Related Proposals 

4. Enhanced Projections Disclosure 

(Amendments to Item 10(b) of Regulation 

S–K) 

5. Investment Company Act Safe Harbor 

D. Effects on Efficiency, Competition, and 

Capital Formation 

1. Efficiency 

2. Competition 

3. Capital Formation 

E. Reasonable Alternatives 

1. Disclosure-Related Proposals 

2. Liability-Related Proposals 

3. Expanding Disclosure in Reporting Shell 

Company Business Combinations 

4. Enhanced Projections Disclosures 

5. Investment Company Act Safe Harbor 

F. Requests for Comment 

X. Paperwork Reduction Act 

A. Summary of the Collections of 

Information 

B. Estimates of the Effects of the Proposed 

New Rules and Amendments on the 

Collections of Information 

C. Incremental and Aggregate Burden and 

Cost Estimates 

D. Request for Comment 

XI. Small Business Regulatory Enforcement 

Fairness Act 

XII. Initial Regulatory Flexibility Analysis 

and Certification 

A. Reasons for, and Objectives of, the 

Proposed Action 


lotter on DSK11XQN23PROD with PROPOSALS2
29460 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

3The term ‘‘blank check company’’ is defined in 

17 CFR 230.419(a)(2) as a development stage 

company that has no specific business plan or 

purpose or that has indicated that its business plan 

is to engage in a merger or acquisition with an 

unidentified company or companies, and that is 

issuing ‘‘penny stock,’’ as defined in 17 CFR 

240.3a51–1 (Exchange Act Rule 3a51–1). 

4Public Law 101–429, 104 Stat. 931 (Oct. 15, 

1990). 

5 Id. at sec. 508; Section 7(b) of the Securities Act. 

6Blank Check Offerings, Release No. 33–6932 

(Apr. 13, 1992) [57 FR 18037 (Apr. 28, 1992)]. Rule 

419 requires a blank check company to meet certain 

disclosure and investor protection requirements in 

registered offerings of securities. 

7Between 2011 and 2021, the average number of 

initial public offerings by SPACs registered under 

the Securities Act per year was 98, with the highest 

number of such offerings (613) in 2021 and the 

lowest number of such offerings (9) in 2012. In 

2008, both the New York Stock Exchange and 

Nasdaq adopted rules to permit the listing of SPACs 

on these exchanges for the first time. See, e.g., 

Release No. 34–57785 (May 6, 2008) [73 FR 27597 

(May 13, 2008)] and Release No. 34–58228 (July 25, 

2008) [73 FR 44794 (July 31, 2008)]. 

8By comparison, SPACs raised a total of $13.6 

billion in initial public offerings in 2019 and a total 

of $10.8 billion in initial public offerings in 2018. 

As used in this release, ‘‘initial public offering’’ 

refers to a securities offering registered under the 

Securities Act by an issuer that was not subject to 

the reporting requirements of Section 13 or 15(d) of 

the Exchange Act immediately prior to the 

registration. 

9The 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. 

10The descriptions included in this release of 

common features currently seen in SPACs and 

SPAC transaction structures are based, in part, on 

reviews by the Commission staff of SPAC filings 

with the Commission. The terms ‘‘private operating 

company’’ and ‘‘target company’’ are used 

interchangeably in this release, unless otherwise 

indicated. We are proposing to define the term 

‘‘target company’’ for purposes of the requirements 

applicable to SPACs. See infra Section II.A. 

11This sponsor compensation is often referred to 

as the sponsor’s ‘‘promote’’ or ‘‘founder shares,’’ 

which usually amounts to around 20% of the total 

shares of a SPAC after its initial public offering. The 

underwriting fees in a SPAC’s initial public offering 

are typically between 5% and 5.5% of the offering 

proceeds, of which 3.5% is also usually 

conditioned on the completion of the de-SPAC 

transaction. 

12 Issuers that raise more than $5 million in a firm 

commitment underwritten initial public offering are 

excluded from the definition of ‘‘blank check 

company’’ in Rule 419, and thus are not subject to 

the requirements of the rule, because they are not 

selling ‘‘penny stock,’’ as defined in Exchange Act 

Rule 3a51–1. The definition of ‘‘penny stock’’ in 

Exchange Act Section 3(a)(51) and Rule 3a51–1 

encompasses any equity security except those 

excluded under the rule, such as an NMS stock, as 

defined in 17 CFR 242.600(b)(55), that meets certain 

criteria; securities issued by a registered investment 

company; and securities of an issuer that has net 

tangible assets in excess of $2 million, or $5 million 

if the issuer has been in continuous operation for 

less than three years, or average revenue of at least 

$6 million for the last three years. In 1993, the 

Commission issued guidance stating that issuers 

may aggregate the proceeds of a firm commitment 

underwritten initial public offering in order to 

exceed the $5 million net tangible assets test in 

Rule 3a51–1(g)(1). See Penny Stock Definition for 

Purposes of Blank Check Rule, Release No. 33–7024 

(Oct. 25, 1993) [58 FR 58099 (Oct. 29, 1993)]. 

SPACs often have provisions in their governing 

instruments that prohibit them from being ‘‘penny 

stock’’ issuers. As used in this release, the term 

‘‘SPAC’’ excludes those issuers that are subject to 

Rule 419. In Dec. 2020, the Commission received 

a rulemaking petition (‘‘Rulemaking Petition’’) 

requesting that the Commission adopt rule 

amendments to permit SPACs to conduct initial 

public offerings on a best-efforts basis without being 

subject to Rule 419. See Rulemaking Petition from 

Loeb & Loeb LLP, File No. 4–768 (Dec. 21, 2020), 

available at: https://www.sec.gov/rules/petitions/ 

2020/petn4-768.pdf. As of the date of this release, 

we have not received any comment letters in 

response to the Rulemaking Petition. 

13These conditions are generally market driven, 

and are typically set forth in their governing 

instruments and/or contractual arrangements, or are 

pursuant to the laws of the state or country of 

organization or the listing standards of national 

securities exchanges. See, e.g., NYSE Listed 

Company Manual Section 102.06 and Nasdaq 

Listing Rule IM–5101–2. For example, Section 

102.06 of the NYSE Listed Company Manual 

requires, among other things, that at least 90% of 

the initial public offering proceeds, together with 

the proceeds of any other concurrent sales of equity 

securities, be held in a trust account controlled by 

an independent custodian until the consummation 

of a business combination with a fair market value 

equal to at least 80% of the net assets held in the 

trust, with the time period to consummate the deSPAC transaction not to exceed three years. In 

contrast, under Rule 419, a blank check company 

must, among other things, complete a merger or 

acquisition within 18 months after the effective date 

of its registration statement and must place the 

offering proceeds and the securities sold in the 

offering in an escrow or trust account until the 

completion of the merger or acquisition, which 

precludes trading in the blank check company’s 

securities until after the merger or acquisition is 

completed. 

14The assets in the trust or escrow account are 

typically invested in U.S. government securities 

and money market funds that invest in U.S. 

government securities. See infra Section VI. 

15The shares and warrants usually begin trading 

as a unit, with a unit frequently consisting of a 

common share and a fraction of a warrant, and are 

traded separately after a certain period. The 

warrants often become exercisable one year after the 

SPAC’s initial public offering or upon the 

completion of a de-SPAC transaction. 

16Exchange rules require a listed SPAC to 

complete a de-SPAC transaction within a specified 

B. Legal Basis 

C. Regulatory Flexibility Act Certification 

D. Small Entities Subject to the Proposed 

Rules and Amendments 

E. Reporting, Recordkeeping, and Other 

Compliance Requirements 

F. Duplicative, Overlapping or Conflicting 

Federal Rules 

G. Significant Alternatives 

Statutory Authority and Text of Proposed 

Rule and Form Amendments 

I. Introduction 

Special purpose acquisition 

companies first began to emerge in the 

1990s as an alternative to blank check 

companies regulated pursuant to Rule 

419 under the Securities Act.3 In 

response to widespread fraud and abuse 

in blank check offerings, Congress 

passed the Securities Enforcement 

Remedies and Penny Stock Reform Act 

of 1990,4 which required the 

Commission to adopt rules governing 

registration statements filed by blank 

check companies offering penny stock.5

In response, the Commission adopted 

comprehensive disclosure and other 

requirements for blank check offerings 

in Rule 419.6 Following the adoption of 

Rule 419, securities offerings by SPACs, 

which are not subject to the rule’s 

requirements but have many similar 

features, began to appear, with the 

number of these offerings fluctuating 

over the years.7 In the past two years, 

however, the U.S. securities markets 

have experienced an unprecedented 

surge in the number of initial public 

offerings by SPACs, with SPACs raising 

more than $83 billion in such offerings 

in 2020 and more than $160 billion in 

such offerings in 2021.8 In 2020 and 

2021, more than half of all initial public 

offerings were conducted by SPACs. 

A SPAC is typically a shell company 9

that is organized for the purpose of 

merging with or acquiring one or more 

unidentified private operating 

companies (a ‘‘de-SPAC transaction’’) 

within a certain time frame (often two 

years) and that conducts a firm 

commitment underwritten initial public 

offering of $5 million or more in units 

consisting of redeemable shares and 

warrants.10 A SPAC is organized and 

managed by its sponsor, which is 

usually compensated through an 

amount equal to a percentage (often 25 

percent) of the SPAC’s initial public 

offering proceeds (in the form of 

discounted shares and warrants) to be 

received upon the completion of a deSPAC transaction.11 Although SPACs 

are not subject to the requirements of 

Rule 419,12 they are typically structured 

to operate under similar, though usually 

less stringent, conditions in order to 

attract investors and to comply with 

exchange listing requirements.13

Following its initial public offering, a 

SPAC generally places all or 

substantially all of the offering proceeds 

into a trust or escrow account,14 and the 

SPAC’s shares and warrants are 

typically registered under Section 12(b) 

of the Exchange Act and then begin 

trading on a national securities 

exchange.15 If a SPAC does not 

complete a de-SPAC transaction within 

the time frame specified in its governing 

instruments, the SPAC may seek an 

extension of the time frame from its 

shareholders or may dissolve and 

liquidate, with the sponsor not earning 

the ‘‘promote’’ and the assets held in the 

trust or escrow account returned on a 

pro rata basis to its shareholders.16


lotter on DSK11XQN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29461 

timeframe not to exceed 36 months after its initial 

public offering. See, e.g., NYSE Listed Company 

Manual Section 102.06.and Nasdaq Listing Rule 

IM–5101–2. 

17According to a study of SPAC initial public 

offerings between 2010 and 2018, an average of 

54.4% and a median of 57.1% of shares issued in 

an initial public offering by a SPAC during this 

period were redeemed prior to the completion of a 

de-SPAC transaction. Usha R. Rodrigues and 

Michael Stegemoller, SPACs: Insider IPOs (SSRN 

Working Paper, 2021). Another analysis found that, 

between July 1, 2021 and Dec. 1, 2021, mean and 

median SPAC redemption rates were 55% and 66%, 

respectively. Michael Klausner, Michael Ohlrogge, 

and Emily Ruan, A Sober Look at SPACs, 39 Yale 

J. on Regul. 228 (2022). See infra Section IX.C.1.a.4. 

for a discussion of shareholder redemptions based 

on analysis by the Division of Economic and Risk 

Analysis (DERA) of available data. 

18The 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. 

19According to one study, of the 47 SPAC 

mergers that occurred between Jan. 2019 and June 

2020, SPAC shareholders, including the sponsor, 

held a median of 35% of the merged company after 

a de-SPAC transaction (of which the sponsor held 

a median of 12% of the merged company), with the 

remaining 65% of the merged company held by 

other parties including the target company’s 

shareholders and PIPE investors. Klausner, 

Ohlrogge, and Ruan, supra note 17. 

20 17 CFR 240.14a–2 (Exchange Act Rule 14a–2) 

and 17 CFR 240.14c–2 (Exchange Act Rule 14c–2). 

21The Commission has promulgated rules under 

the Exchange Act setting forth filing, disclosure, 

and dissemination requirements in connection with 

tender offers. See, e.g., Regulations 14D and 14E 

and Exchange Act Rule 13e–4. When an issuer 

conducts a tender offer, the issuer may be required 

to file and disseminate a Schedule TO pursuant to 

Rule 13e–4. The redemption rights in a SPAC 

context generally have indicia of being a tender 

offer, such as a limited period of time for the SPAC 

security holders to request redemption of their 

securities. The Commission staff, however, has not 

insisted that SPACs comply with the tender offer 

rules when a SPAC files a Schedule 14A or 14C in 

connection with the approval of a de-SPAC 

transaction or an extension of the timeframe to 

complete a de-SPAC transaction and conducts the 

solicitation in accordance with Regulation 14A or 

14C, as the federal proxy rules mandate 

substantially similar disclosures and applicable 

procedural protections as required by the tender 

offer rules. However, this staff position does not 

apply when a SPAC does not file a Schedule 14A 

or 14C in connection with the de-SPAC transaction 

or an extension. SPACs that do not file a Schedule 

14A or 14C, such as SPACs that are foreign private 

issuers, have generally filed and disseminated 

Schedules TO for the redemptions of their 

securities and complied with the procedural 

requirements of the tender offer rules. In these 

circumstances, the staff has taken the position that 

the Schedule TO should include the same financial 

and other information as is required in Schedule 

14A or 14C for a de-SPAC transaction. See infra 

Section II.F.4 for a discussion of proposed Item 

1608 of Regulation S–K and Section IV.A. for a 

discussion of proposed Rule 145a under the 

Securities Act, which would affect when a SPAC 

may be required to file a Form S–4 or F–4 in 

connection with a de-SPAC transaction. 

22See infra note 119. 

23See, e.g., Klausner, Ohlrogge, and Ruan, supra 

note 17; Rodrigues and Stegemoller, supra note 17; 

Minmo Gahng, Jay R. Ritter, and Donghang Zhang, 

SPACs (SSRN Working Paper, 2021). 

24Typically, much of this cash comes from PIPE 

investors around the time of the de-SPAC 

transaction and not from investors in the SPAC’s 

initial public offering. See, e.g., Klausner, Ohlrogge, 

and Ruan, supra note 17. 

25However, one study found evidence of 

illiquidity in SPAC shares, with relatively thin 

trading volume particularly during the period 

before the announcement of a proposed de-SPAC 

transaction. Rodrigues and Stegemoller, supra note 

17. 

26For 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. 

27See 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-deanes20210524.pdf. See also Amrith Ramkumar, SPAC 

Insiders Can Make Millions Even When the 

Company They Take Public Struggles, The Wall 

Street Journal, Apr. 25, 2021. 

If, on the other hand, a SPAC 

identifies a candidate for a business 

combination transaction, the 

shareholders of the SPAC have the 

opportunity to either: (1) Redeem their 

shares prior to the business combination 

and receive a pro rata amount of the 

initial public offering proceeds held in 

the trust or escrow account, or (2) 

remain a shareholder of the company 

after the business combination.17 To 

offset shareholder redemptions and to 

fund larger de-SPAC transactions, 

SPACs often conduct additional private 

capital-raising transactions, typically in 

the form of private investment in public 

equity (PIPE) transactions.18 De-SPAC 

transactions often result in the former 

SPAC’s shareholders owning a minority 

interest in the post-business 

combination company, with the former 

private operating company’s 

shareholders and PIPE investors owning 

a majority interest in the post-business 

combination company following these 

transactions.19

Shareholder approval is often 

required in de-SPAC transactions, and, 

in such cases, a SPAC provides its 

shareholders with a proxy statement on 

Schedule 14A, or an information 

statement on Schedule 14C if it is not 

soliciting proxies from its 

shareholders.20 If a SPAC or the target 

company is registering an offering of its 

securities (or the securities of a new 

holding company) to be issued in the 

de-SPAC transaction, then a registration 

statement on Form S–4 or F–4 would be 

filed for the securities offering. If no 

registration statement or proxy or 

information statement is required, then 

the SPAC disseminates a tender offer 

statement (Schedule TO) for the 

redemption offer to its security holders 

with information about the target 

company.21 Regardless of how the deSPAC transaction is structured, the 

operations of the private company are 

conducted by the post-business 

combination company following the 

consummation of a de-SPAC 

transaction, with the shareholders of the 

private company now owning shares in 

a publicly listed company. 

De-SPAC transactions can be viewed 

as a way for private operating 

companies to become public reporting 

companies under the Exchange Act and 

obtain a listing on a national securities 

exchange while avoiding certain of the 

safeguards for investors and 

conventions of the typical initial public 

offering process.22 From the perspective 

of the shareholders and management of 

a private operating company, some of 

the purported advantages of combining 

with a SPAC compared to conducting an 

underwritten initial public offering 

could include: Greater pricing certainty 

in merger negotiations; a relatively 

shorter time frame in becoming a public 

company; and the perceived freedom to 

use projections in connection with deSPAC transactions, with reduced 

liability exposure.23 De-SPAC 

transactions also offer private operating 

companies an infusion of capital from 

the SPAC,24 as well as potentially 

greater share liquidity for the postbusiness combination company based 

on the existing trading market for the 

SPAC’s securities.25

Although the basic structure of SPACs 

has existed since the 1990s, the recent 

surge in SPAC offerings and the 

increasing use of de-SPAC transactions 

as a mechanism for private operating 

companies to access the U.S. public 

securities markets have caused some 

market observers to express concerns 

about various aspects of the SPAC 

structure.26 For example, some 

commentators have raised concerns 

regarding the amount of sponsor 

compensation and other costs and their 

dilutive effects on a SPAC’s 

shareholders.27 A number of 

commentators have also pointed to the 

nature of the sponsor compensation 

(i.e., dependent on the completion of a 

de-SPAC transaction) as a potential 

conflict of interest in the SPAC structure 


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29462 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

28See, e.g., Klausner, Ohlrogge, and Ruan, supra 

note 17; Rodrigues and Stegemoller, supra note 17; 

Gahng, Ritter, and Zhang, supra note 23; letter 

dated Feb. 16, 2021 from Americans for Financial 

Reform and Consumer Federation of America to the 

House Financial Services Committee (‘‘AFR 

Letter’’); Deane Testimony; Testimony of Andrew 

Park, Americans for Financial Reform, before the 

Investor Protection, Entrepreneurship, and Capital 

Markets Subcommittee of the U.S. House 

Committee on Financial Services, May 24, 2021 

(‘‘Park Testimony’’), https://financialservices.

house.gov/uploadedfiles/hhrg-117-ba16-wstateparka-20210524.pdf. 

29See Mira Ganor, The Case for Non-Binary, 

Contingent, Shareholder Action, 23 U. Pa. J. Bus. L. 

390 (2021); Rodrigues and Stegemoller, supra note 

17. We note that exchange listing rules only 

explicitly require that, when a shareholder vote on 

a business combination is held, the public 

shareholders voting against a business combination 

have a right to redeem shares. See, e.g., Nasdaq 

Listing Rule IM–5101–2 (stating, in part, that 

‘‘public Shareholders voting against a business 

combination must have the right to convert their 

shares of common stock into a pro rata share of the 

aggregate amount then in the deposit account (net 

of taxes payable and amounts distributed to 

management for working capital purposes) if the 

business combination is approved and 

consummated’’). 

30See, e.g., Lora Dimitrova, Perverse Incentives of 

Special Purpose Acquisition Companies, the ‘‘Poor 

Man’s Private Equity Funds,’’ Journal of Accounting 

and Economics (2017); Johannes Kolb and Tereza 

Tykvova ́, Going Public via Special Purpose 

Acquisition Companies: Frogs Do Not Turn Into 

Princes, Journal of Corporate Finance (2016); 

Klausner, Ohlrogge, and Ruan, supra note 17; 

Gahng, Ritter, and Zhang, supra note 23; Chen Lin, 

Fangzhou Lu, Roni Michaely, and Shihua Qin, 

SPAC IPOs and Sponsor Network Centrality (SSRN 

Working Paper, 2021). See also Testimony of Scott 

Kupor, Andreessen Horowitz, before the Investor 

Protection, Entrepreneurship, and Capital Markets 

Subcommittee of the U.S. House Committee on 

Financial Services, May 24, 2021, https://

financialservices.house.gov/uploadedfiles/hhrg117-ba16-wstate-kupors-20210524.pdf; Alexander 

Osipovich and Dave Michaels, Investors Flock to 

SPACs, Where Risks Lurk and Track Records Are 

Poor, The Wall Street Journal, Nov. 13, 2020. 

31See, e.g., AFR Letter; Testimony of Professor 

Usha R. Rodrigues, University of Georgia School of 

Law, before the Investor Protection, 

Entrepreneurship, and Capital Markets 

Subcommittee of the U.S. House Committee on 

Financial Services, May 24, 2021 (‘‘Rodrigues 

Testimony’’), https://financialservices.house.gov/ 

uploadedfiles/hhrg-117-ba16-wstate-rodriguesu20210524.pdf. A number of recent SEC actions have 

highlighted disclosures about the private operating 

company that are allegedly incomplete, inaccurate, 

and materially misleading. See, e.g., In the Matter 

of Momentus, Inc., Stable Road Acquisition Corp., 

SRC–NI Holdings, LLC, and Brian Kabot, Release 

No. 33–10955, 34–92391 (July 13, 2021); In the 

Matter of Nikola Corp., Release No. 33–11018, 34– 

93838 (Dec. 21, 2021); SEC v. Akazoo S.A., Case No. 

1:20–cv–08101 (S.D.N.Y. filed Sept. 30, 2020); SEC 

v. Hurgin, et al., Case No. 1:19–cv–05705 (S.D.N.Y. 

filed June 18, 2019). 

32See AFR Letter. 

33See, e.g., Michael Dambra, Omri Even-Tov, and 

Kimberlyn George, Should SPAC Forecasts be 

Sacked? (SSRN Working Paper, 2022); AFR Letter; 

Park Testimony; Rodrigues and Stegemoller, supra 

note 17. See also Heather Somerville and Eliot 

Brown, SPAC Startups Made Lofty Promises. They 

Aren’t Working Out., The Wall Street Journal, Feb. 

25, 2022. 

34See AFR Letter; Deane Testimony; Rodrigues 

Testimony. See also John C. Coffee Jr., Gatekeeper 

Failure and Reform: The Challenge of Fashioning 

Relevant Reforms, 84 B. U. L. Rev. 301 (2004) and 

John C. Coffee, Jr., Gatekeepers: The Professions 

and Corporate Governance (2006). 

35See CF Disclosure Guidance: Topic No. 11— 

Special Purpose Acquisition Companies (Division 

of Corporation Finance, Dec. 22, 2020); Staff 

Statement on Select Issues Pertaining to Special 

Purpose Acquisition Companies (Division of 

Corporation Finance, Mar. 31, 2021); Public 

Statement on Financial Reporting and Auditing 

Considerations of Companies Merging with SPACs 

(Office of Chief Accountant, Mar. 31, 2021); Public 

Statement on SPACs, IPOs and Liability Risk under 

the Securities Laws (Division of Corporation 

Finance, Apr. 8, 2021); and Staff Statement on 

Accounting and Reporting Considerations for 

Warrants Issued by Special Purpose Acquisition 

Companies (‘‘SPACs’’) (Division of Corporation 

Finance and Office of Chief Accountant, Apr. 12, 

2021). This guidance and other staff statements 

(including those cited herein) represent the views 

of Commission staff and are not a rule, regulation, 

or statement of the Commission. The Commission 

has neither approved nor disapproved the content 

of these documents and, like all staff statements, 

they have no legal force or effect, do not alter or 

amend applicable law, and create no new or 

additional obligations for any person. 

36The Investor Advisory Committee was 

established by Section 911 of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’), Public Law 111–203, 124 Stat. 

1376 (2010), to advise and consult with the 

Commission on regulatory priorities, issues, and 

initiatives. 

37See Recommendations of the Investor Advisory 

Committee Regarding Special Purpose Acquisition 

Companies (Sept. 9, 2021) (‘‘IAC 

Recommendations’’), available at: https://

www.sec.gov/spotlight/investor-advisorycommittee-2012/20210909-spac-recommendation.

pdf. The Dodd-Frank Act authorizes the Investor 

Advisory Committee to submit findings and 

recommendations for review and consideration by 

the Commission. The Commission then issues a 

public statement assessing the finding or 

recommendation and disclosing the Commission’s 

intended action, if any, in regard to the finding or 

recommendation. See Section 911(g) of the DoddFrank Act. 

38 17 CFR 230.421(d) (Securities Act Rule 421(d)) 

requires registrants to write the prospectus cover 

page, prospectus summary, and risk factors sections 

of prospectuses using plain English principles, 

including the use of short sentences; definite, 

concrete, everyday language; active voice; tabular 

presentation of complex information whenever 

possible; no legal or business jargon; and no 

multiple negatives. Plain English Disclosure, 

Release No. 33–7497 (Jan. 28, 1998) [63 FR 6370 

(Feb. 6, 1998)]. 

that could lead sponsors to enter into 

de-SPAC transactions that are 

unfavorable to unaffiliated shareholders 

of the SPACs without performing robust 

due diligence in connection with these 

transactions, when the alternative is to 

liquidate the SPACs and return the 

initial public offering proceeds to the 

shareholders.28 Other commentators 

have criticized stock exchange listing 

rules under which SPAC shareholders 

have voted in favor of proposed deSPAC transactions while still redeeming 

their shares prior to the closing of the 

transactions.29 A number of studies 

have found that returns are relatively 

poor for investors in companies 

following a de-SPAC transaction.30

In addition, some commentators have 

expressed concerns regarding the 

adequacy of the disclosures provided to 

investors in these transactions in terms 

of explaining the potential benefits, 

risks and effects for investors, as well as 

the potential benefits for the sponsor 

and other affiliates of the SPAC.31 One 

of these commentators also expressed 

the view that the disclosure about the 

private operating company provided 

through the de-SPAC transaction 

process may be less complete and less 

reliable than that provided by an issuer 

in a traditional initial public offering.32

Other commentators have criticized the 

use of projections in de-SPAC 

transactions that, in their view, have 

appeared to be unreasonable, 

unfounded or potentially misleading, 

particularly where the target company is 

an early stage company with no or 

limited sales, products, and/or 

operations,33 as well as the lack of a 

named underwriter in these transactions 

that would typically perform traditional 

gatekeeping functions, such as due 

diligence, and would be subject to 

liability under Section 11 of the 

Securities Act for untrue statements of 

material facts or omissions of material 

facts.34 In response to a number of these 

and other issues, the Commission staff 

has provided guidance relating to 

SPACs on five occasions since 

December 2020.35

In September 2021, the Commission’s 

Investor Advisory Committee 36 issued 

preliminary recommendations regarding 

SPACs and expressed concerns about 

whether sponsors and target companies 

have engaged in regulatory arbitrage by 

using de-SPAC transactions as a path to 

the public markets. In addition, the 

Investor Advisory Committee expressed 

concerns about potential conflicts of 

interest between sponsors and retail 

investors, and the effectiveness of the 

disclosures provided in these 

transactions.37 Among other things, the 

Investor Advisory Committee 

recommended that the Commission 

‘‘regulate SPACs more intensely’’ 

through an enhanced focus on and 

stricter enforcement of existing 

disclosure rules in areas such the 

sponsor’s role in a SPAC, the process 

and risks in identifying and assessing 

target companies, PIPE financing terms, 

and de-SPAC transaction due diligence, 

as well as application of the Plain 

English disclosure rules.38 The Investor 

Advisory Committee also recommended 

that the Commission prepare and 

publish a report analyzing the parties 

involved in SPAC transactions at 


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Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29463 

39The Small Business Capital Formation 

Advisory Committee was established by Section 2 

of the SEC Small Business Advocate Act of 2016, 

Public Law 114–284, 130 Stat. 1447 (2016), to 

provide advice to the Commission on the 

Commission’s rules, regulations, and policies 

relating to (1) capital raising by emerging, privately 

held small businesses and public companies with 

less than $250 million in public market 

capitalization; (2) trading in their securities; and (3) 

public reporting and corporate governance 

requirements applicable to these companies. 

40The panelists were Isabelle Freidheim, Michael 

Klausner, David Ni, and Phyllis Newhouse. 

41See Transcript of SEC Small Business Capital 

Formation Advisory Committee (Sept. 27, 2021), 

available at: https://www.sec.gov/info/smallbus/ 

acsec/sbcfac-transcript-092721.pdf. 42Public Law 104–67, 109 Stat. 737 (1995). 

various stages and the compensation 

and incentives of these parties. 

Also in September 2021, the 

Commission’s Small Business Capital 

Formation Advisory Committee 39 held 

a panel discussion on initial public 

offerings, direct listings, and SPACs.40

The panelists expressed their views on 

a range of topics related to SPACs, 

including the factors behind the 

significant growth of the SPAC market 

over the past two years, the potential 

benefits of SPACs to the public markets, 

the potential benefits of enhanced 

disclosure requirements applicable to 

SPACs, and perceived issues 

surrounding the use of projections in 

de-SPAC transactions. The panel 

discussion also addressed the costs 

embedded in the SPAC structure and 

the dilutive effects of these costs on 

non-redeeming shareholders, as well as 

the poor market-adjusted returns of 

companies, on average, following deSPAC transactions.41

Having considered these and other 

perspectives on the SPAC market, we 

are of the view that greater transparency 

and more robust investor protections 

could assist investors in evaluating and 

making investment, voting, and 

redemption decisions with respect to 

these transactions. Accordingly, we are 

proposing new rules and rule 

amendments to enhance existing 

disclosure requirements and investor 

protections in initial public offerings by 

SPACs and in de-SPAC transactions. A 

number of the rules and amendments 

we are proposing are intended to 

improve the usefulness and clarity of 

the information provided to investors so 

that they can make better informed 

decisions as to whether to purchase 

securities in SPAC initial public 

offerings, to purchase or sell SPAC 

securities in secondary trading markets, 

and in voting, investment and 

redemption decisions in connection 

with de-SPAC transactions. 

The proposed rules and amendments, 

if adopted, could help the SPAC market 

function more efficiently by improving 

the relevance, completeness, clarity, and 

comparability of the disclosures 

provided by SPACs at the initial public 

offering and de-SPAC transaction stages, 

and by providing important investor 

protections to strengthen investor 

confidence in this market. In developing 

these proposals, we have considered the 

recommendations and views discussed 

above, as well as the Commission staff’s 

experience in reviewing disclosures in 

SPAC initial public offerings and deSPAC transactions. 

Specifically, we are proposing to add 

new Subpart 1600 of Regulation S–K 

that would set forth specialized 

disclosure requirements in connection 

with initial public offerings by SPACs 

and in connection with de-SPAC 

transactions. In new Subpart 1600, we 

are proposing to, among other things: 

• Require additional disclosures 

about the sponsor of the SPAC, potential 

conflicts of interest, and dilution; 

• Require additional disclosures on 

de-SPAC transactions, including a 

requirement that the SPAC state (1) 

whether it reasonably believes that the 

de-SPAC transaction and any related 

financing transaction are fair or unfair to 

investors, and (2) whether it has 

received any outside report, opinion, or 

appraisal relating to the fairness of the 

transaction; and 

• Require certain disclosures on the 

prospectus cover page and in the 

prospectus summary of registration 

statements filed in connection with 

SPAC initial public offerings and deSPAC transactions. 

In addition, in view of the increasing 

number of private companies using deSPAC transactions to become publiclytraded reporting companies, we are 

proposing amendments to provide 

procedural protections and to align the 

disclosures provided, as well as the 

legal obligations of companies, in deSPAC transactions more closely with 

those in traditional initial public 

offerings. Specifically, we are proposing 

to: 

• Amend the registration statement 

forms and schedules filed in connection 

with de-SPAC transactions to require 

additional disclosures about the private 

operating company; 

• Require that disclosure documents 

in de-SPAC transactions be 

disseminated to investors at least 20 

calendar days in advance of a 

shareholder meeting or the earliest date 

of action by consent, or the maximum 

period for disseminating such 

disclosure documents permitted under 

the laws of the jurisdiction of 

incorporation or organization if such 

period is less than 20 calendar days; 

• Deem a private operating company 

in a de-SPAC transaction to be a coregistrant of a registration statement on 

Form S–4 or Form F–4 when a SPAC 

files such a registration statement for a 

de-SPAC transaction, such that the 

private operating company and its 

signing persons would be subject to 

liability under Section 11 of the 

Securities Act as signatories to the 

registration statement; 

• Amend the definition of smaller 

reporting company to require a redetermination of smaller reporting 

company status following the 

consummation of a de-SPAC 

transaction; and 

• Define ‘‘blank check company’’ to 

encompass SPACs and certain other 

blank check companies for purposes of 

the Private Securities Litigation Reform 

Act of 1995 (PSLRA) 42 such that the 

safe harbor for forward-looking 

statements under the PSLRA would not 

be available to SPACs, including with 

respect to projections of target 

companies seeking to access the public 

markets through a de-SPAC transaction. 

Underwriters play a critical role in the 

securities offering process as 

gatekeepers to the public markets. In 

light of this important role, we are 

proposing a new rule, Securities Act 

Rule 140a, that would deem anyone 

who has acted as an underwriter of the 

securities of a SPAC and takes steps to 

facilitate a de-SPAC transaction, or any 

related financing transaction or 

otherwise participates (directly or 

indirectly) in the de-SPAC transaction 

to be engaged in a distribution and to be 

an underwriter in the de-SPAC 

transaction. By affirming the 

underwriter status of SPAC IPO 

underwriters in connection with deSPAC transactions, the proposed rule 

should better motivate SPAC 

underwriters to exercise the care 

necessary to ensure the accuracy of the 

disclosure in these transactions by 

affirming that they are subject to Section 

11 liability for that information. 

In addition, private companies have 

historically used shell companies with 

Exchange Act reporting obligations in 

various forms of transactions, including 

SPACs, to become a public company 

without undergoing a traditional initial 

public offering. In many cases, such 

shell company shareholders may not 

receive a Securities Act registration 

statement containing disclosures about 

the private company that is entering the 

public market for the first time. Due to 

the significant increase in the use of 

reporting shell company business 

combination transactions as a means to 


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29464 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

43Throughout this release, we use ‘‘shell 

company’’ in lieu of the phrase ‘‘shell company, 

other than a business combination related shell 

company.’’ The term ‘‘business combination related 

shell company’’ is defined in Securities Act Rule 

405 and Exchange Act Rule 12b–2 as a shell 

company that is: ‘‘(1) Formed by an entity that is 

not a shell company solely for the purpose of 

changing the corporate domicile of that entity solely 

within the United States; or (2) Formed by an entity 

that is not a shell company solely for the purpose 

of completing a business combination transaction 

(as defined in 17 CFR 230.165(f)) among one or 

more entities other than the shell company, none 

of which is a shell company.’’ For purposes of 

proposed Rule 145a (see infra Section IV.A.), the 

term ‘‘reporting shell company’’ is defined as a 

company, other than an asset-backed issuer as 

defined in Item 1101(b) of Regulation AB, that has: 

(1) No or nominal operations; (2) either: (i) No or 

nominal assets; (ii) assets consisting solely of cash 

and cash equivalents; or (iii) assets consisting of 

any amount of cash and cash equivalents and 

nominal other assets; and (3) an obligation to file 

reports under Section 13 or Section 15(d) of the 

Exchange Act. We similarly use ‘‘reporting shell 

company’’ in lieu of the phrase ‘‘reporting shell 

company, other than a business combination related 

shell company’’ throughout this release. 

44 15 U.S.C. 80a–1 et seq. 

45See infra Section VI for a discussion of 

proposed Rule 3a–10. 

46The proposed requirements in new Subpart 

1600 would, to an extent, codify and standardize 

some of the disclosures already commonly provided 

by SPACs. 

47See the proposed amendments to Forms S–1, 

F–1, S–4, and F–4, and Schedules 14A and TO. 

While we are not proposing amendments to 

Schedule 14C, the disclosure contemplated by 

proposed Subpart 1600 would be required in 

Schedule 14C pursuant to Item 1 of Schedule 14C, 

which states that a Schedule 14C must include the 

information called for by all of the items of 

Schedule 14A, with limited exceptions, to the 

extent each item would be applicable to any matter 

to be acted upon at a shareholder meeting if proxies 

were to be solicited in connection with the meeting. 

If the securities to be issued in a de-SPAC 

transaction are registered on a form other than Form 

S–4 or F–4, such as Form S–1 or F–1, but would 

be authorized to be registered on Form S–4 or F– 

4, the proposed requirements of Form S–4 or F–4, 

as applicable, in regard to de-SPAC transactions 

would apply in that context. 

48Proposed General Instruction L.1. to Form S– 

4; Proposed General Instruction I.1. to Form F–4; 

Proposed Item 14(f)(1) to Schedule 14A; Proposed 

General Instruction K to Schedule TO. We are also 

proposing to re-designate existing General 

Instruction K to Schedule TO as General Instruction 

L to the schedule. 

49The information in this table is not 

comprehensive and is intended only to summarize 

the proposed items of Subpart 1600. This table 

should be read together with the complete text of 

this release. 

enter the U.S. capital markets, and in an 

effort to provide reporting shell 

company shareholders with more 

consistent Securities Act protections 

regardless of transaction structure, we 

are proposing to add new Rule 145a that 

would deem any business combination 

of a reporting shell company, involving 

another entity that is not a shell 

company, to involve a sale of securities 

to the reporting shell company’s 

shareholders.43

Further, we are proposing new Article 

15 of Regulation S–X, as well as related 

amendments, to more closely align the 

financial statement reporting 

requirements in business combinations 

involving a shell company and a private 

operating company with those in 

traditional initial public offerings. This 

is consistent with our view that the 

manner in which a company goes public 

should not generally result in 

substantially different financial 

statement disclosures being provided to 

investors. 

We are also proposing amendments 

intended to enhance the reliability of 

projections disclosure in Commission 

filings, as well as additional 

requirements when projections are 

disclosed in connection with de-SPAC 

transactions. The proposed amendments 

to Item 10(b) of Regulation S–K would 

address broader concerns regarding the 

use of projections generally, while 

proposed Item 1609 of Regulation S–K 

would address concerns specific to deSPAC transactions. 

Finally, as the SPAC market has 

grown dramatically in recent years, 

some SPACs have sought to operate in 

novel ways that suggest a need for 

SPACs and their sponsors to increase 

their focus on evaluating when a SPAC 

could be an investment company and 

thus subject to the requirements under 

the Investment Company Act of 1940 

(‘‘Investment Company Act’’).44 We are 

concerned that SPACs may fail to 

recognize when their activities raise the 

investor protection concerns addressed 

by the Investment Company Act. To 

assist SPACs in focusing on, and 

appreciating, when they may be subject 

to investment company regulation, we 

are proposing a new safe harbor under 

the Investment Company Act. The 

proposed rule would provide a safe 

harbor from the definition of 

‘‘investment company’’ under Section 

3(a)(1)(A) of the Investment Company 

Act for SPACs that satisfy certain 

conditions that limit a SPAC’s duration, 

asset composition, business purpose 

and activities.45

We welcome feedback and encourage 

interested parties to submit comments 

on any or all aspects of the proposed 

new rules and amendments. When 

commenting, it would be most helpful 

if you include the reasoning behind 

your position or recommendation. 

II. Proposed New Subpart 1600 of 

Regulation S–K 

We are proposing to add new Subpart 

1600 to Regulation S–K to set forth 

specialized disclosure requirements 

applicable to SPACs regarding the 

sponsor, potential conflicts of interest, 

and dilution, and to require certain 

disclosures on the prospectus cover 

page and in the prospectus summary.46

Proposed Subpart 1600 would also 

require enhanced disclosure for deSPAC transactions, including a fairness 

determination requirement. We are 

proposing to amend a number of forms 

and schedules used by SPACs for initial 

public offerings and de-SPAC 

transactions to require the information 

set forth in proposed Subpart 1600.47 To 

the extent that the disclosure 

requirements in proposed Subpart 1600 

address the same subject matter as the 

existing disclosure requirements of the 

forms or schedules, the requirements of 

proposed Subpart 1600 would be 

controlling.48 The following table 

summarizes the proposed items in 

Subpart 1600, as described more fully 

below: 49

Item Summary description Principal objective(s) Applicable forms and schedules 

Item 1601, Definitions .................... Definitions for the terms ‘‘special 

purpose acquisition company,’’ 

‘‘de-SPAC transaction,’’ ‘‘target 

company,’’ and ‘‘SPAC sponsor’’.

Establish the scope of the issuers 

and transactions subject to the 

requirements of Subpart 1600.

Forms S–1, F–1, S–4, and F–4; 

Schedules 14A, 14C, and TO. 

Item 1602, Registered offerings by 

special purpose acquisition companies.

Require certain information on the 

prospectus cover page and in 

the prospectus summary of registration statements for offerings 

by SPACs other than de-SPAC 

transactions. Require enhanced 

dilution disclosure in these registration statements.

Enhance the clarity and readability of prospectuses in SPAC 

initial public offerings and the 

disclosures relating to dilution in 

these prospectuses.

Forms S–1 and F–1. 


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50Blank check companies subject to Rule 419 

must comply with a comprehensive set of 

disclosure and investor protection requirements 

under the rule and would not be subject to the 

requirements applicable to SPACs under the 

proposed rules. See supra notes 6 and 13. 

51Proposed Item 1601(b). 

52 In this regard, we note that the securities of 

SPACs were not listed on national securities 

exchanges until the 2000s. 

Item Summary description Principal objective(s) Applicable forms and schedules 

Item 1603, SPAC sponsor; conflicts of interest.Require certain disclosure regarding the sponsor and its affiliates 

and any promoters of SPACs 

and disclosure regarding conflicts of interest between the 

sponsor or its affiliates or promoters and unaffiliated security 

holders.

Provide investors with a more 

complete understanding of the 

role of sponsors and their conflicts of interest.

Forms S–1, F–1, S–4, and F–4; 

Schedules 14A, 14C and TO. 

Item 1604, De-SPAC transactions Require certain information on the 

prospectus cover page and in 

the prospectus summary of registration statements for deSPAC transactions. Require enhanced dilution disclosure in 

these registration statements.

Enhance the clarity and readability of prospectuses in deSPAC transactions and disclosures relating to dilution in 

these prospectuses.

Forms S–4 and F–4; Schedules 

14A, 14C, and TO. 

Item 1605, Background of and reasons for the de-SPAC transaction; terms of the de-SPAC 

transaction; effects.

Require disclosure on the background, material terms and effects of a proposed de-SPAC 

transaction.

Provide investors with a more 

complete understanding of the 

background of and motivations 

behind a proposed de-SPAC 

transaction.

Forms S–4 and F–4; Schedules 

14A, 14C, and TO. 

Item 1606, Fairness of the deSPAC transaction and any related financing transaction.Require disclosure on whether a 

SPAC reasonably believes that 

a de-SPAC transaction and any 

related financing transactions 

are fair or unfair to investors, as 

well as a discussion of the 

bases for this reasonable belief.

Provide investors with additional 

information regarding a proposed de-SPAC transaction 

and address concerns regarding potential conflicts of interest 

and misaligned incentives.

Forms S–4 and F–4; Schedules 

14A, 14C, and TO. 

Item 1607, Reports, opinions, appraisals and negotiations.Require disclosure on whether a 

SPAC or its sponsor has received a report, opinion or appraisal from an outside party regarding the fairness of a deSPAC transaction or any related financing transaction.

Provide investors with additional 

information underlying a fairness determination by a SPAC.

Forms S–4 and F–4; Schedules 

14A, 14C, and TO. 

Item 1608, Tender offer filing obligations in de-SPAC transactions *.Require additional disclosures in 

a Schedule TO filed in connection with a de-SPAC transaction.

Align the information provided in 

such a Schedule TO with the 

information provided in other filings in connection with a deSPAC transaction.

Schedule TO. 

Item 1609, Financial projections in 

de-SPAC transactions **.

Require additional disclosures regarding financial projections 

disclosed in a disclosure document for a de-SPAC transaction.

Provide investors with additional 

information regarding the use of 

projections in connection with a 

de-SPAC transaction.

Forms S–4 and F–4; Schedules 

14A, 14C, and TO. 

Item 1610, Structured data requirement***.Require information disclosed pursuant to Subpart 1600 to be 

tagged in a structured, machine-readable data language.

Provide investors and other market participants with information 

that is more readily available 

and more easily accessible for 

aggregation, comparison, filtering, and other analysis.

Forms S–1, F–1, S–4, and F–4; 

Schedules 14A, 14C, and TO. 

Notes: 

* Proposed Item 1608 is discussed in Section II.F.4. 

** Proposed Item 1609 is discussed in Section V.B.2. 

*** Proposed Item 1610 is discussed in Section II.G. 

A. Definitions 

For purposes of proposed new 

Subpart 1600, we are proposing Item 

1601 to define the term ‘‘special 

purpose acquisition company’’ to mean 

a company that has indicated that its 

business plan is to (1) register a primary 

offering of securities that is not subject 

to the requirements of Rule 419; 50 (2) 

complete a de-SPAC transaction within 

a specified time frame; and (3) return all 

remaining proceeds from the registered 

offering and any concurrent offerings to 

its shareholders if the company does not 

complete a de-SPAC transaction within 

the specified time frame.51 While the 

proposed definition does not include 

certain features common to SPACs, such 

as the listing of the SPAC’s securities on 

a national securities exchange 52 or the 

issuance of redeemable securities, the 

proposed definition incorporates the 

key defining features of the issuers that 

in our view should be subject to the 

disclosure and procedural requirements 

of Subpart 1600, while remaining 

sufficiently broad to take into account 

potential variations in the SPAC 

structure and the possibility that SPACs 

may continue to evolve. In particular, 

the proposed definition would 

encompass issuers that would otherwise 

be subject to Rule 419’s investor 

protection requirements but for the fact 

that the issuer is not issuing ‘‘penny 


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53See supra note 12. 

54See infra note 57. 

55Proposed Item 1601(a). 

56Proposed Item 1601(d). 

57The proposed definitions would apply to both 

exchange-traded SPACs and SPACs traded in the 

over-the-counter market. Some transactions 

encompassed by the proposed definitions may not 

be permitted under exchange listing rules for 

SPACs, and nothing in this release is intended to 

indicate that such transactions are or should be 

permitted under the exchanges’ SPACs listing rules 

or that exchange listing requirements should not, at 

a minimum, apply to SPACs seeking an exchange 

listing. The Commission has consistently 

recognized the importance of national securities 

exchange listing standards. Among other things, 

such listing standards help ensure that exchangelisted companies will have sufficient public float, 

investor base, and trading interest to provide the 

depth and liquidity necessary to promote fair and 

orderly markets. Furthermore, Section 6(b)(5) of the 

Exchange Act requires exchange listing rules be 

designed to prevent fraudulent and manipulative 

acts and practices, promote just and equitable 

principles of trade, and protect investors and the 

public interest. The Commission has also stated that 

listing standards are of significant importance to 

investors that may rely on the status an exchange 

listing ascribes to a security. See, e.g., Release No. 

34–57785 (May 6, 2008) [73 FR 27597, 27599 (May 

13, 2008)] (SR–NYSE–2008–17) (order approving 

initial and continued listing standards for NYSE 

exchange-listed SPACs). 

58Proposed Item 1601(c). In regard to natural 

persons, we are proposing to exclude from the 

scope of the definition of ‘‘SPAC sponsor’’ the 

activities performed by natural persons in their 

capacities as directors and/or officers of the SPAC 

to avoid overlap with existing disclosure 

requirements relating to directors and officers. See 

infra Section II.B. for a discussion of the activities 

of a sponsor. 

59Proposed Item 1603. 

60See supra notes 13 and 16. 

61See proposed Item 1601(c) for the proposed 

definition for ‘‘SPAC sponsor.’’ There is often an 

identity of interest between the sponsor and the 

SPAC’s officers and directors, in that the same 

persons may work for both the sponsor and the 

SPAC in different capacities. In many instances, 

SPACs will not hold a public election for directors 

until the de-SPAC transaction or thereafter. Some 

SPACs provide that only the founder shares may 

vote in director elections until the de-SPAC 

transaction. 

stock.’’ 53 At the same time, the 

proposed definition does not include 

criteria such as listing on a national 

securities exchange, certain 

requirements that are applicable to 

exchange-traded SPACs,54 or the 

issuance of redeemable securities, as 

these criteria would result in an overly 

narrow definition by including 

transactional terms that have not 

applied to every SPAC offering in the 

past or that could change as the SPAC 

market continues to evolve. 

The term ‘‘de-SPAC transaction’’ 

would be defined as a business 

combination such as a merger, 

consolidation, exchange of securities, 

acquisition of assets, or similar 

transaction involving a SPAC and one or 

more target companies 

(contemporaneously, in the case of more 

than one target company).55 The term 

‘‘target company’’ would be defined as 

an operating company, business, or 

assets.56 As proposed, these definitions 

are intentionally broad and, taken 

together, would encompass more typical 

transactions such as the acquisition of 

one or more private operating 

companies by a SPAC, as well as less 

common transactions that may or may 

not be permitted under exchange listing 

rules but for which the proposed 

enhanced disclosure and procedural 

requirements described below may be 

appropriate because they raise the same 

investor protection concerns.57

The term ‘‘SPAC sponsor’’ would be 

defined as the entity and/or person(s) 

primarily responsible for organizing, 

directing or managing the business and 

affairs of a SPAC, other than in their 

capacities as directors or officers of the 

SPAC as applicable.58 Although a 

sponsor of a SPAC may perform a 

variety of functions within the SPAC’s 

structure, the proposed definition 

encompasses activities that, based on 

the staff’s experience reviewing SPAC 

filings and public commentary, are 

commonly associated with sponsors of 

SPACs. We are proposing to define this 

term broadly so that the appropriate 

entities or persons are subject to the 

proposed enhanced disclosure 

requirements applicable to the sponsors 

of a SPAC.59

Request for Comment 

1. Should we define the term ‘‘special 

purpose acquisition company’’ as 

proposed? Does the proposed definition 

provide a workable approach to 

determining which issuers would be 

subject to the requirements of proposed 

Subpart 1600? Should we define this 

term differently? If so, how? For 

example, are there certain other 

common characteristics of SPACs that 

should be included in the definition, 

such as redemption rights, exchange 

listing, the placing of initial public 

offering proceeds in a trust or escrow 

account, and/or that the de-SPAC 

transaction must meet a minimum fair 

market value (e.g., at least 80%) of the 

value of the proceeds in the trust or 

escrow account? Should we include a 

reference to ‘‘shell company’’ in the 

definition? 

2. Should we define ‘‘de-SPAC 

transaction’’ as proposed? Should the 

scope of the proposed definition instead 

be tied to de-SPAC transactions that are 

permitted under exchange listing 

standards? 60

3. Should we define the term ‘‘SPAC 

sponsor’’ as proposed? Does the 

proposed definition reflect those 

activities commonly associated with a 

SPAC’s sponsor? Would the proposed 

definition encompass persons or entities 

that are not commonly considered to be 

sponsors of a SPAC? If so, how should 

we revise the definition to avoid 

scoping in such persons or entities? In 

regard to natural persons, should we 

exclude from the scope of the definition 

the activities performed by natural 

persons in their capacities as directors 

and/or officers of the SPAC, as 

proposed? 

4. Should we define the term ‘‘target 

company’’ as proposed? Is this 

definition sufficiently clear? Would this 

definition, in combination with the 

other proposed definitions, be overly 

broad and encompass transactions that 

should not be treated as de-SPAC 

transactions? 

5. Are there other terms that we 

should define in proposed Subpart 

1600? If so, which terms and how 

should we define them? 

6. With respect to the proposed 

definition of ‘‘special purpose 

acquisition company,’’ is it clear what 

‘‘has indicated that its business plan’’ is 

intended to convey? Should we require 

registrants to affirmatively state in 

filings whether they are a special 

purpose acquisition company? For 

example, should we amend Form S–1, 

Form F–1, Form S–4, and/or Form F–4 

to add to the registration statement 

cover page of these forms a check box 

for issuers to indicate whether they are 

special purpose acquisition companies? 

Should we also amend Schedule 14A, 

Schedule 14C and Schedule TO to 

include this check box on the cover 

pages of these schedules? 

B. Sponsors 

The sponsor’s role is critical to the 

success of a SPAC. At the earliest stage, 

the sponsor typically organizes and 

manages the SPAC, including 

appointing the initial directors and 

officers of the SPAC, and provides the 

initial capital for the SPAC’s operations 

prior to its initial public offering.61 In 

subsequent stages, among other things, 

the sponsor may work with one or more 

investment banks in preparing for the 

SPAC’s initial public offering and may 

place the proceeds from the offering into 

a trust or escrow account. Following the 

initial public offering, the sponsor 

typically identifies potential candidates 

for a business combination transaction, 

negotiates the transaction to acquire the 

target private operating company and 

promotes the transaction to the SPAC’s 

shareholders. As discussed above, the 

value of the sponsor’s compensation is 


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62See text accompanying supra notes 14–16. 

63The term ‘‘promoter’’ is defined in Securities 

Act Rule 405 and Exchange Act Rule 12b–2. 

64This 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. 

65Proposed Item 1603(a) would operate in 

addition to existing disclosure requirements that 

may be applicable to a SPAC’s arrangements with 

its sponsor such as Item 701 of Regulation S–K, 

which requires disclosure about, among other 

things, the terms of any private securities 

transactions between a SPAC and its sponsor within 

the past three years, and Item 404 of Regulation S– 

K, which requires disclosure about certain related 

party transactions. 

66See, e.g., Lin, Lu, Michaely, and Qin, supra 

note 30; Andrea Pawliczek, A. Nicole Skinner, and 

Sarah L.C. Zechman, Signing Blank Checks: The 

Roles of Reputation and Disclosure in the Face of 

Limited Information (SSRN Working Paper, 2021). 

67See, e.g., Usha Rodrigues and Mike 

Stegemoller, Exit, Voice, and Reputation: The 

Evolution of SPACs, 37 Del. J. Corp. L. 849 (2013). 

usually contingent on the completion of 

a de-SPAC transaction.62

In view of the central role of the 

sponsor in a SPAC’s activities, we are 

proposing Item 1603(a) to require 

additional disclosure about the sponsor, 

its affiliates and any promoters 63 of the 

SPAC in registration statements and 

schedules filed in connection with 

SPAC registered offerings and de-SPAC 

transactions, including disclosure on 

the following: 

• The experience, material roles, and 

responsibilities of these parties, as well 

as any agreement, arrangement or 

understanding (1) between the sponsor 

and the SPAC, its executive officers, 

directors or affiliates, in determining 

whether to proceed with a de-SPAC 

transaction and (2) regarding the 

redemption of outstanding securities; 

• The controlling persons of the 

sponsor and any persons who have 

direct and indirect material interests in 

the sponsor, as well as an organizational 

chart that shows the relationship 

between the SPAC, the sponsor, and the 

sponsor’s affiliates; 

• Tabular disclosure of the material 

terms of any lock-up agreements with 

the sponsor and its affiliates; and 

• The nature and amounts of all 

compensation that has or will be 

awarded to, earned by, or paid to the 

sponsor, its affiliates and any promoters 

for all services rendered in all capacities 

to the SPAC and its affiliates, as well as 

the nature and amounts of any 

reimbursements to be paid to the 

sponsor, its affiliates and any promoters 

upon the completion of a de-SPAC 

transaction.64

Proposed Item 1603(a)’s disclosure 

requirements are intended to provide a 

SPAC’s prospective investors and 

existing shareholders with detailed 

information relating to the sponsor that 

could be important in understanding 

and analyzing a SPAC, including how 

the rights and interests of the sponsor, 

its affiliates, and any promoters may 

differ from, and may conflict with, those 

of public shareholders.65 Given that a 

SPAC does not conduct an operating 

business, information about the 

background and experience of the 

sponsor is often important in assessing 

a SPAC’s prospects for success and may 

be a relevant factor in the market value 

of a SPAC’s securities.66 To the extent 

that a sponsor’s activities and 

arrangements with a SPAC are carried 

out through, or in conjunction with, the 

sponsor’s affiliates and any promoters of 

the SPAC, we are proposing to require 

corresponding disclosure with respect 

to these affiliates and promoters. In 

addition, enhanced disclosure on the 

sponsor’s compensation and the 

sponsor’s agreements, arrangements, or 

understandings may be helpful to a 

SPAC’s prospective investors and 

existing shareholders in considering 

whether to acquire or redeem the 

SPAC’s securities, and in evaluating the 

potential risks and merits of a proposed 

de-SPAC transaction because it could 

highlight additional motivations for 

completing a de-SPAC transaction. 

While proposed Item 1603 calls for 

detailed disclosure about the sponsor, 

its experience and its rights and 

interests, we note that some of this 

information is already being provided, 

to an extent, by SPACs. Codifying and 

amplifying these existing disclosure 

practices would help ensure that issuers 

provide consistent and comprehensive 

information across transactions, so that 

investors can make more informed 

investment, voting and redemption 

decisions. 

Request for Comment 

7. Should we require additional 

information regarding sponsors of 

SPACs pursuant to Item 1603(a), as 

proposed? If so, should we also require 

disclosure regarding the sponsor’s 

affiliates and any promoters of the 

SPAC, as proposed? 

8. Should we require disclosure about 

the experience and material roles and 

responsibilities of the sponsor, its 

affiliates and any promoters of the SPAC 

in directing and managing the SPAC’s 

activities, as proposed? How would 

investors use this information? 

9. Should we require more or less 

information about the sponsor’s 

compensation and reimbursements? 

Should we require this disclosure only 

when the amounts exceed a de minimis 

threshold? If so, what should the de 

minimis threshold be? 

10. Should we require additional 

disclosure about the sponsor’s 

agreements, arrangements, or 

understandings in determining whether 

to proceed with a de-SPAC transaction 

and regarding the redemption of 

outstanding securities of the SPAC, as 

proposed? 

11. Should we require disclosure 

about the controlling persons of the 

sponsor and any persons who have 

direct and indirect material interests in 

the sponsor, as proposed? Should we 

take a different approach than requiring 

disclosure on persons with ‘‘material 

interests’’ in the sponsor? Should we 

consider requiring additional disclosure 

on the controlling persons of entities 

that own or control the sponsor? Should 

we require an organizational chart that 

shows the relationship among the 

SPAC, the sponsor, and the sponsor’s 

affiliates, as proposed? Would both 

narrative disclosure and an 

organizational chart be helpful to 

investors? 

12. Should we require disclosure of 

the material terms of any lock-up 

agreements with the sponsor and its 

affiliates as proposed? Would the 

proposed requirement to provide this 

disclosure in a tabular format be helpful 

to investors? Should we instead require 

this disclosure in a non-tabular format? 

13. Is there additional information 

regarding sponsors that should be 

disclosed? Should we require more or 

less information about the sponsor 

depending on the size or other 

characteristics of a SPAC? 

14. Should additional disclosure be 

required regarding affiliated entities 

involved in the SPAC’s operations? 

C. Conflicts of Interest 

Within a SPAC’s structure, there may 

be a number of potential or actual 

conflicts of interest between the sponsor 

and public investors that could 

influence the actions of the SPAC. A 

notable example is the potential conflict 

of interest stemming from the 

contingent nature of the sponsor’s 

compensation, whereby the sponsor and 

its affiliates have significant financial 

incentives to pursue a business 

combination transaction even though 

the transaction could result in lower 

returns for public shareholders than 

liquidation of the SPAC or an 

alternative transaction.67 Other conflicts 

of interest may arise when a sponsor is 

a sponsor of multiple SPACs and 


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68See infra Section VI. 

69For example, the dilutive impact of 

underwriting fees deferred until the completion of 

a de-SPAC transaction and the number of shares 

received by the sponsor is not required to be 

disclosed in a manner that takes into account the 

additional dilution caused by redemptions. 

70 Klausner, Ohlrogge, and Ruan, supra note 17. 

manages several different SPACs at the 

same time; when a sponsor and/or its 

affiliates hold financial interests in, or 

have contractual obligations to, other 

entities; or when a SPAC enters into a 

business combination with a private 

operating company affiliated with the 

sponsor, the SPAC, or the SPAC’s 

founders, officers, or directors. Further, 

a SPAC’s officers often do not work fulltime at the SPAC, may work for both the 

sponsor and the SPAC, and/or may have 

responsibilities at other companies, 

which may impact such officers’ ability 

to devote adequate time and attention to 

the activities of the SPAC and may 

influence their decision to proceed with 

a particular de-SPAC transaction. These 

potential conflicts of interest could be 

particularly relevant for investors to the 

extent that they arise when a SPAC and 

its sponsor are evaluating and deciding 

whether to recommend a business 

combination transaction to 

shareholders, especially as the SPAC 

nears the end of the period to complete 

such a transaction under, e.g., its 

governing instruments or the proposed 

safe harbor under the Investment 

Company Act,68 if adopted, and the 

sponsor may be under pressure to find 

a target and complete the de-SPAC 

transaction on less favorable terms or 

face losing the value of its securities in 

the SPAC. 

We are proposing Item 1603(b) to 

require disclosure of any actual or 

potential material conflict of interest 

between (1) the sponsor or its affiliates 

or the SPAC’s officers, directors, or 

promoters, and (2) unaffiliated security 

holders. This would include any 

conflict of interest in determining 

whether to proceed with a de-SPAC 

transaction and any conflict of interest 

arising from the manner in which a 

SPAC compensates the sponsor or the 

SPAC’s executive officers and directors, 

or the manner in which the sponsor 

compensates its own executive officers 

and directors. In addition, we are 

proposing Item 1603(c) to require 

disclosure regarding the fiduciary duties 

each officer and director of a SPAC 

owes to other companies. Such 

disclosure could allow investors to 

assess whether and to what extent 

officers or directors may have to 

navigate a conflict of interest consistent 

with their obligations under the laws of 

the jurisdiction of incorporation or 

organization, may be compelled to act in 

the interest of another company or 

companies that compete with the SPAC 

for business combination opportunities, 

or may have their attention divided 

such that it may affect their decisionmaking with respect to the SPAC. 

The proposed disclosure requirements 

would provide a SPAC’s shareholders 

and prospective investors with a more 

complete understanding of any actual or 

potential material conflicts of interest 

associated with the SPAC and the 

benefits that may be realized by the 

sponsor and its affiliates and any 

promoters arising from these conflicts of 

interest. Such disclosure could allow 

investors to more accurately assess the 

potential risk associated with the 

conflicts of interest in a SPAC. Further, 

disclosure about the fiduciary duties a 

SPAC’s officers and directors owe to 

other companies could allow the 

SPAC’s shareholders and prospective 

investors to better assess the actions of 

these officers and directors in managing 

the SPAC’s activities and in determining 

to proceed with a proposed de-SPAC 

transaction. 

Request for Comment 

15. Should we require disclosure with 

respect to material conflicts of interest 

that may arise in connection with deSPAC transactions, as proposed? Should 

we include a materiality threshold, as 

proposed? Is it clear what would 

constitute an actual or potential material 

conflict of interest, or is further 

guidance or specification needed? For 

example, are there other specific 

conflicts of interest that we should 

identify in the rule? 

16. Would the proposed disclosure 

requirements adequately inform 

investors as to potential material 

conflicts of interest? Are there 

approaches that could minimize 

potential boilerplate or duplicative 

disclosure? Should we require that this 

disclosure be presented in a tabular 

format? 

17. Is there any additional 

information that we should require 

regarding conflicts of interest? For 

example, should we also require a 

description of any policies and 

procedures used or to be used to 

minimize potential or actual conflicts of 

interest? Should we require disclosure 

of how the board of directors assesses 

and manages such conflicts, in 

particular where directors themselves 

have conflicts of interest? 

18. Should SPACs be required to 

provide additional disclosure regarding 

material conflicts of interest in 

Exchange Act reports following their 

initial public offerings? For example, 

should periodic reports require that any 

changes in previously disclosed 

conflicts of interest be reported? Should 

we require disclosure about material 

conflicts of interest relating to both the 

SPAC and the identified target company 

in the Form 8–K that is required to be 

filed in connection with the 

announcement of a de-SPAC 

transaction? 

19. Should we require disclosure 

about any fiduciary duties each officer 

and director of a SPAC owes to other 

companies, as proposed? How would 

investors use this information? Should 

we require additional or different 

disclosure regarding these fiduciary 

duties? Would this requirement 

potentially result in the disclosure of 

information that is not relevant to SPAC 

investors? Should this disclosure 

requirement be focused instead on 

material conflicts of interests arising 

from these fiduciary duties to other 

companies? Should we require that this 

disclosure be provided in a tabular 

format? Should we consider other 

approaches to this disclosure? 

D. Dilution 

We are proposing Items 1602(a)(4), 

1602(c) and 1604(c) to require 

additional disclosure about the potential 

for dilution in (1) registration statements 

filed by SPACs, including those for 

initial public offerings, and (2) de-SPAC 

transactions. Proposed Item 1602(c) 

would be applicable to all registered 

offerings by a SPAC other than a deSPAC transaction, while proposed Item 

1604(c) would be applicable to all deSPAC transactions. We are also 

proposing Item 1602(a)(4) to require 

simplified tabular dilution disclosure on 

the prospectus cover page in registered 

offerings by a SPAC on Form S–1 or F– 

1 other than for de-SPAC transactions. 

There are a number of potential 

sources of dilution in a SPAC’s 

structure, including dilution resulting 

from shareholder redemptions, sponsor 

compensation, underwriting fees, 

outstanding warrants and convertible 

securities, and PIPE financings. This 

dilution may be particularly 

pronounced for the shareholders of a 

SPAC who do not redeem their shares 

prior to the consummation of the deSPAC transaction and who may not 

realize or appreciate that these costs are 

disproportionately borne by the nonredeeming shareholders.69 According to 

one study, the median dilutive impact 

of sponsor compensation, underwriting 

fees, warrants, and rights equaled 50.4% 

of the cash raised in a SPAC initial 

public offering.70 Further, several 


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71See, e.g., AFR Letter; Klausner, Ohlrogge, and 

Ruan, supra note 17; Michael Klausner, Michael 

Ohlrogge, and Harald Halbhuber, SPAC Disclosure 

of Net Cash Per Share (SSRN Working Paper, 2022). 

72 In this regard, we note that the initial 

purchasers in SPAC initial public offerings often 

resell or redeem their shares prior to the completion 

of the de-SPAC transaction. See, e.g., Benjamin 

Mullin and Amrith Ramkumar, BuzzFeed Suffers 

Wave of SPAC Investor Withdrawals Before Going 

Public, The Wall Street Journal, Dec. 2, 2021. See 

also supra note 17. 

73Proposed Item 1602(c). 

74Under Item 506, a company is required to 

provide disclosure regarding dilution when (1) the 

company is not subject to the reporting 

requirements of the Exchange Act and is registering 

an offering of common equity securities where there 

is substantial disparity between the public offering 

price and the effective cash cost to officers, 

directors, promoters, and affiliated persons of 

common equity acquired by them in transactions 

during the past five years, or which they have the 

right to acquire; or (2) the company is registering 

an offering of common equity securities and the 

company has had losses in each of its last three 

fiscal years and there is a material dilution of the 

purchasers’ equity interest. In the first instance, a 

company must provide a comparison of the public 

contribution under the proposed public offering 

and the effective cash contribution of such persons. 

In both instances, Item 506 requires disclosure of 

the net tangible book value per share before and 

after the distribution; the amount of the increase in 

such net tangible book value per share attributable 

to the cash payments made by purchasers of the 

shares being offered; and the amount of the 

immediate dilution from the public offering price 

which will be absorbed by such purchasers. 

75Proposed Item 1602(a)(4). 

76 In practice, redemption rates rarely reach this 

level. 

77 Depending on the circumstances, material 

potential sources of additional disclosure may 

include dilution from sponsor compensation, 

underwriting fees, outstanding warrants and 

convertible securities, and financing transactions 

(including PIPE transactions). 

commentators have asserted that the 

complexity of the disclosures in these 

transactions makes it difficult for 

investors to understand the dilutive 

impact of sponsor compensation on the 

SPAC’s non-redeeming shareholders.71

In light of the potential for significant 

dilution embedded within the typical 

SPAC structure, enhanced disclosure 

regarding dilution could enable 

investors in a SPAC initial public 

offering and subsequent purchasers of 

SPAC shares to better understand the 

potential impact upon them of the 

various dilutive events that may occur 

over the lifespan of the SPAC.72 We are 

therefore proposing to require dilution 

disclosure in registration statements 

filed by SPACs other than for de-SPAC 

transactions that would require a 

description of material potential sources 

of future dilution following a SPAC’s 

initial public offering, as well as tabular 

disclosure of the amount of potential 

future dilution from the public offering 

price that will be absorbed by nonredeeming SPAC shareholders, to the 

extent quantifiable.73 This proposed 

disclosure would be in addition to the 

disclosure already required under Item 

506 of Regulation S–K.74

In addition, we are proposing to 

require simplified tabular dilution 

disclosure incorporating a range of 

potential redemption levels on the 

prospectus cover page of SPAC 

registration statements on Forms S–1 

and F–1.75 In providing disclosure 

pursuant to Item 506, SPACs currently 

provide prospective investors with 

estimates of dilution as a function of the 

difference between the initial public 

offering price and the pro forma net 

tangible book value per share after the 

offering. These estimates often include 

an assumption that the maximum 

allowable number of shares eligible will 

be redeemed prior to the de-SPAC 

transaction.76 While this information 

can be useful, investors may benefit 

from a more detailed and prominent 

tabular presentation of this dilution 

disclosure that shows various potential 

levels of redemption, not just the upper 

bound on dilution attributable to 

redemptions. We are therefore 

proposing to require that registration 

statements on Form S–1 or Form F–1 

filed by SPACs, including for an initial 

public offering, include on the 

prospectus cover page a simplified 

dilution table, in the following format, 

which would present the reader with an 

estimate of the remaining pro forma net 

tangible book value per share at quartile 

intervals up to the maximum 

redemption threshold: 

REMAINING PRO FORMA NET TANGIBLE BOOK VALUE PER SHARE

Offering price of ll 25% of maximum 

redemption 

50% of maximum 

redemption 

75% of maximum 

redemption Maximum redemption 

The proposed Item 1602(a)(4) dilution 

disclosure would be calculated in a 

manner consistent with the 

methodologies and assumptions more 

fully articulated in the disclosures 

provided pursuant to Item 506 

elsewhere in the prospectus. If the 

initial public offering includes an 

overallotment option, the table would 

need to include separate rows showing 

remaining pro forma net tangible book 

value per share with the exercise and 

without the exercise of the overallotment option. We are also proposing 

to require that SPACs provide a crossreference to the more detailed dilution 

disclosure later in the prospectus when 

providing this tabular disclosure on the 

prospectus cover page. 

In regard to de-SPAC transactions, 

investors could benefit from clearer 

dilution disclosure that takes into 

account the unique characteristics of the 

SPAC structure, including any terms 

negotiated with the target private 

operating company, as well as the 

potential for additional financing from 

PIPE investors. At the time of a de-SPAC 

transaction, investors are making a 

decision as to whether to remain a 

shareholder of the post-business 

combination company going forward. 

Apart from the operating success of the 

post-business combination company, 

dilution is likely to have a significant 

impact on the value of a shareholder’s 

continued investment in the company. 

We are therefore proposing Item 1604(c) 

to require disclosure of each material 

potential source of additional dilution 

that non-redeeming shareholders may 

experience at different phases of the 

SPAC lifecycle by electing not to 

redeem their shares in connection with 

the de-SPAC transaction.77

For example, to the extent material, 

this disclosure would need to explain 

that, when a SPAC’s shareholders retain 

their warrants after redeeming their 

shares prior to the de-SPAC transaction, 

the non-redeeming shareholders and the 

post-business combination company 

may face potential additional dilution. 

Proposed Item 1604(c)(1) would also 

require a sensitivity analysis in a tabular 

format that shows the amount of 

potential dilution under a range of 

reasonably likely redemption levels and 

quantifies the increasing impact of 

dilution on non-redeeming shareholders 

as redemptions increase. We are also 

proposing to require disclosure of a 

description of the model, methods, 

assumptions, estimates, and parameters 


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78See, e.g., IAC Recommendations, supra note 37 

(expressing concerns ‘‘relating to the effectiveness 

of disclosure about the risks, economics and 

mechanics of SPACs as a result of the complexity 

of these transactions and the staggered nature of the 

disclosure process’’); Rodrigues Testimony; 

Klausner, Ohlrogge, and Ruan, supra note 17. 

79See Securities Act Rule 421(d). See supra note 

38. 

80 Id. 81See Instruction to Item 503(a) and 17 CFR 

230.421(b) (Securities Act Rule 421(b)). 82 In the context of asset-backed offerings, the 

Commission previously specified that certain 

information be included on the prospectus cover 

page and in the prospectus summary. See Items 

1102 and 1103 of Regulation S–K. Asset-Backed 

Securities, Release No. 33–8518 (Dec. 22, 2004) [70 

FR 1506 (Jan. 7, 2005)]. See also Item 3 of Form S– 

4 and Item 3 of Form F–4 (specifying that certain 

information be included in the prospectus 

summary). 

necessary to understand the sensitivity 

analysis disclosure. 

Request for Comment 

20. Should we require disclosure of 

material potential sources of future 

dilution in registration statements filed 

by SPACs for initial public offerings and 

in disclosure documents for de-SPAC 

transactions, as proposed? How would 

investors benefit from this additional 

disclosure? Should we require other 

information either in addition to, or in 

lieu of, the proposed dilution 

disclosure, such as disclosure of the 

cumulative amount of dilution that nonredeeming shareholders may experience 

or the amount of net cash underlying 

each share at the time of a de-SPAC 

transaction? If so, should we require 

that this disclosure be presented in a 

tabular format? Should we provide 

additional explanation on how to 

calculate the amount of dilution for 

purposes of these disclosure 

requirements? Should we provide 

further guidance about disclosures that 

SPACs should consider making to help 

non-affiliated shareholders understand 

the potential for dilution and the 

consequences of dilution for nonaffiliated shareholders? 

21. Should we also consider requiring 

enhanced dilution disclosure in other 

Commission filings? If so, what 

additional information should we 

require in this context? How would 

investors use this additional dilution 

disclosure? 

22. Should we require simplified 

tabular disclosure regarding dilution on 

the prospectus cover page of a Form S– 

1 or Form F–1, as proposed? Should we 

require additional or less information, 

or alternative information, in the tabular 

disclosure? For example, would a 

tabular presentation of cash remaining 

per non-redeemed share in lieu of a 

tabular presentation of remaining pro 

forma net tangible book value per share 

be useful to investors? Should we 

consider adding a similar requirement 

to provide simplified tabular disclosure 

(1) in the prospectus summary of a Form 

S–1 or F–1 or (2) on the prospectus 

cover page and/or in the prospectus 

summary of a Form S–4 or Form F–4 for 

a de-SPAC transaction? If so, what 

information should be included in such 

tabular disclosure? Are there other ways 

to present the potential for dilution to 

investors in a more accessible format? 

23. Should we require, in disclosure 

documents for de-SPAC transactions, a 

sensitivity analysis in a tabular format, 

as proposed? Should we consider 

additional or alternative approaches to 

this disclosure requirement? 

24. Are there any significant 

challenges in providing the proposed 

enhanced dilution disclosure at the 

initial public offering stage or at the deSPAC transaction stage? 

25. Should we consider additional 

amendments that would highlight or 

simplify dilution disclosure so that it is 

more clear and accessible for investors? 

E. Prospectus Cover Page and 

Prospectus Summary Disclosure 

In response to concerns raised about 

the complexity of disclosures in 

Securities Act registration statements 

filed by SPACs for initial public 

offerings and for de-SPAC 

transactions,78 we are proposing Item 

1602 to require that certain information 

be included on the prospectus cover 

page and in the prospectus summary 

using plain English principles.79 Given 

the unique nature of SPAC offerings and 

the potential risks they present to 

investors, investors could benefit from 

requiring the issuer to highlight certain 

disclosures on the cover page and in the 

prospectus summary, in a form that can 

be more easily read and understood. 

1. Prospectus Cover Page 

Item 501(b) of Regulation S–K sets 

forth disclosure requirements for the 

outside front cover page of 

prospectuses, such as the name of the 

registrant, title and amount of securities 

being offered, and the offering price of 

the securities. In regard to registered 

offerings (including initial public 

offerings) by SPACs other than de-SPAC 

transactions, we are proposing Item 

1602(a) to require information on the 

prospectus cover page in plain English 

about, among other things, the time 

frame for the SPAC to consummate a deSPAC transaction, redemptions, sponsor 

compensation, dilution (including 

simplified tabular disclosure), and 

conflicts of interest. In regard to deSPAC transactions, we are proposing 

Item 1604(a) to require that SPACs 

include information on the prospectus 

cover page in plain English about, 

among other things, the fairness of the 

de-SPAC transaction, material financing 

transactions, sponsor compensation and 

dilution, and conflicts of interest. 

Investors should benefit from having 

these significant aspects of SPAC 

offerings and de-SPAC transactions 

disclosed prominently on the 

prospectus cover page in plain 

English,80 in addition to the information 

otherwise required under Item 501 of 

Regulation S–K. Although most SPACs 

already provide much of the proposed 

information on prospectus cover pages, 

the proposed rules would standardize 

this information across all registration 

statements filed by SPACs for initial 

public offerings and for de-SPAC 

transactions. 

2. Prospectus Summary 

Item 503 of Regulation S–K requires a 

brief summary of the information in the 

prospectus where the length or 

complexity of the prospectus makes a 

summary useful. While the information 

that should be included in a prospectus 

summary will depend on the particular 

offering and issuer, a prospectus 

summary should provide disclosure in 

clear language of the most significant 

aspects of the transaction being 

registered.81 In light of the often 

complex disclosure in registration 

statements filed by SPACs, a 

requirement that SPACs present certain 

information in the prospectus summary 

in plain English should help investors 

more easily to identify and assess those 

aspects of the transaction that are likely 

to be important in their investment, 

voting, and redemption decisions.82

In regard to registered offerings other 

than de-SPAC transactions, we are 

proposing Item 1602(b) to require that 

SPACs include the following 

information in the prospectus summary 

in plain English: 

• The process by which a potential 

business combination candidate will be 

identified and evaluated; 

• Whether shareholder approval is 

required for the de-SPAC transaction; 

• The material terms of the trust or 

escrow account, including the amount 

of gross offering proceeds that will be 

placed in the trust; 

• The material terms of the securities 

being offered, including redemption 

rights; 

• Whether the securities being offered 

are the same class as those held by the 

sponsor and its affiliates; 

• The length of the time period 

during which the SPAC intends to 


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83As discussed above, a SPAC is required to 

provide its shareholders with a proxy statement on 

Schedule 14A if shareholder approval is required in 

a de-SPAC transaction. If a SPAC is registering an 

offering of its shares to be issued in the de-SPAC 

transaction, the SPAC generally files a registration 

statement on Form S–4 or F–4. Alternatively, if 

shareholder approval is required but the SPAC is 

not soliciting proxies from its shareholders, the 

SPAC is required to provide an information 

statement on Schedule 14C. Otherwise, if no 

registration statement, proxy statement or 

information statement is required, the SPAC must 

disseminate a Schedule TO (tender offer statement) 

to its shareholders. See Section IV.A. for a 

discussion of proposed Rule 145a, which would 

affect when a SPAC may be required to file a Form 

S–4 or F–4 in connection with a de-SPAC 

transaction. 

84 In addition, we are proposing new rules 

applicable to business combinations involving shell 

companies more generally, which would include 

de-SPAC transactions. See infra Section IV. 

85For example, this disclosure could encompass 

whether any portion of the underwriting fees in 

connection with a SPAC’s initial public offering is 

contingent upon the SPAC’s completion of a deSPAC transaction and whether the underwriter in 

the SPAC’s initial public offering has provided 

additional services to the SPAC following the initial 

public offering, such as locating potential target 

companies, providing financial advisory services, 

acting as a placement agent for PIPE transactions, 

and/or arranging debt financing. For a discussion of 

the role of the underwriter in connection with a deSPAC transaction, see infra Section III.F. 

86This proposed disclosure requirement is 

intended to address situations where the shares of 

a SPAC are being exchanged for shares of a new 

holding company or the target company in a deSPAC transaction. 

87Proposed Items 1605(a) and (b). This disclosure 

would be required in any Form S–4 or F–4 or 

Schedule 14A, 14C, or TO filed in connection with 

a de-SPAC transaction. We note that registrants are 

Continued 

consummate a de-SPAC transaction, and 

its plans if it does not do so, including, 

whether and how the time period may 

be extended, the consequences to the 

sponsor of not completing an extension 

of this time period, and whether 

shareholders will have voting or 

redemption rights with respect to an 

extension of time to consummate a deSPAC transaction; 

• Any plans to seek additional 

financing and how such additional 

financing might impact shareholders; 

• Tabular disclosure of sponsor 

compensation and the extent to which 

material dilution may result from such 

compensation; and 

• Material conflicts of interest. 

Based on the Commission staff’s 

experience in reviewing registration 

statements filed by SPACs, we believe 

these topics are among those that 

investors are likely to find most 

important when considering an 

investment in the SPAC prior to the 

identification of a potential business 

combination candidate. 

In regard to registered de-SPAC 

transactions, we are proposing Item 

1604(b) to require that registrants 

include the following information in the 

prospectus summary in plain English: 

• The background and material terms 

of the de-SPAC transaction; 

• The fairness of the de-SPAC 

transaction; 

• Material conflicts of interest; 

• Tabular disclosure on sponsor 

compensation and dilution; 

• Financing transactions in 

connection with de-SPAC transactions; 

and 

• Redemption rights. 

Based on the Commission staff’s 

experience in reviewing registration 

statements for de-SPAC transactions, we 

believe investors would find this 

information, in particular those topics 

that illuminate potential conflicts of 

interest and the overall fairness of the 

proposed transaction, important when 

making an investment decision at the 

de-SPAC transaction stage. 

Request for Comment 

26. Would requiring certain 

information in regard to SPAC offerings 

on the prospectus cover page and in the 

prospectus summary make it easier for 

investors to review and understand the 

disclosures in these registration 

statements? Are there other ways we 

could make these registration statements 

easier for investors to understand? 

27. Should we require the proposed 

cover page disclosures for SPAC initial 

public offerings and de-SPAC 

transactions? Is there other information 

that we should require to be included 

on the cover page, either in addition to, 

or in lieu of, the information proposed 

to be required? Conversely, are there 

any proposed additional cover page 

disclosures that we should not adopt? 

28. Should we require the inclusion of 

the proposed specified information in 

the prospectus summary? Is there other 

information that we should require to be 

included in the prospectus summary? 

29. Is the subset of the disclosure 

under proposed Item 1605 that we are 

proposing to require to be more 

prominently presented on the 

prospectus cover page and in the 

prospectus summary via proposed Items 

1604(a) and (b) the most informative or 

otherwise important information for 

purposes of the prospectus cover page 

and the prospectus summary? Should 

any additional disclosure provided 

pursuant to proposed Item 1605 be 

added to or replace an existing element 

of the information proposed to be 

required on the prospectus cover page 

or in the prospectus summary? 

30. Are there other changes we should 

consider in regard to the prospectus 

cover page and prospectus summary? 

For example, should we impose any 

additional formatting requirements, 

such as the use of tables or bullet points, 

for certain information in the prospectus 

summary? Would such formatting 

requirements improve the clarity of this 

disclosure? 

F. Disclosure and Procedural 

Requirements in De-SPAC Transactions 

We are proposing specialized 

disclosure and procedural requirements 

in de-SPAC transactions so that 

investors can better understand and 

evaluate the merits of a prospective deSPAC transaction.83 The proposed rules 

would require: (1) Additional 

disclosures on the background of and 

reasons for the transaction; (2) a 

statement from the SPAC as to whether 

it reasonably believes that the de-SPAC 

transaction and any related financing 

transaction are fair or unfair to 

unaffiliated security holders; (3) 

disclosure on any outside report, 

opinion, or appraisal relating to the 

fairness of the transaction; and (4) 

additional information in a Schedule 

TO filed in connection with a de-SPAC 

transaction, as well as clarify the need 

to comply with the procedural 

requirements of the tender offer rules 

when filing such a Schedule TO.84

1. Background of and Reasons for the 

De-SPAC Transaction; Terms and 

Effects 

In order to provide investors with a 

more complete understanding of the deSPAC transaction, we are proposing 

Item 1605 of Regulation S–K which 

would require disclosure of the 

background, material terms, and effects 

of the de-SPAC transaction, including: 

• A summary of the background of 

the de-SPAC transaction, including, but 

not limited to, a description of any 

contacts, negotiations, or transactions 

that have occurred concerning the deSPAC transaction; 85

• A brief description of any related 

financing transaction, including any 

payments from the sponsor to investors 

in connection with the financing 

transaction; 

• The reasons for engaging in the 

particular de-SPAC transaction and for 

the structure and timing of the de-SPAC 

transaction and any related financing 

transaction; 

• An explanation of any material 

differences in the rights of security 

holders of the post-business 

combination company as a result of the 

de-SPAC transaction; 86 and 

• Disclosure regarding the accounting 

treatment and the federal income tax 

consequences of the de-SPAC 

transaction, if material.87


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already subject to similar disclosure requirements 

in Schedules 14A and 14C and in Forms S–4 and 

F–4. These proposed disclosure requirements are 

intended to complement these existing 

requirements by setting forth specialized disclosure 

requirements that are specific to de-SPAC 

transactions. 

88 17 CFR 229.1000 through 229.1016. Regulation 

M–A is a subpart (the 1000 series) of Regulation S– 

K. Item 1004(a)(2) sets forth disclosure 

requirements regarding the material terms of 

mergers or similar transactions, and Item 1013(b) 

requires disclosure of alternative means considered 

by the subject company or affiliate in the context 

of a going-private transaction. In our view, these 

rules are appropriate models for the proposed 

specialized disclosure requirements for de-SPAC 

transactions, in that Item 1004(a)(2) sets forth 

disclosure requirements for mergers generally and 

the same potential for self-interested transactions 

exists in de-SPAC transactions as in going-private 

transactions. 

89Proposed Item 1605(c). 

90See, e.g., IAC Recommendations, supra note 37 

(stating that ‘‘there may be financial arrangements 

that constitute conflicts of interest that are not fully 

disclosed or understood by investors’’); Rodrigues 

and Stegemoller, supra note 17; Klausner, Ohlrogge, 

and Ruan, supra note 17; Deane Testimony. 

91Under Item 403, beneficial ownership is 

determined in accordance with 17 CFR 240.13d– 

3(d)(1) (Exchange Act Rule 13d–3(d)(1)), pursuant 

to which a person is generally deemed to be the 

beneficial owner of securities that the person has 

the right to acquire within 60 days. 

92This proposed disclosure requirement would 

build upon, and be in addition to, the existing 

disclosure requirement in Item 202 of Regulation S– 

K (Description of registrant’s securities). Under Item 

202, SPACs are currently required to disclose the 

redemption provisions of their capital stock being 

registered, such as whether redemptions would be 

required under certain circumstances at the SPAC’s 

option, e.g., whether a SPAC may require the 

redemption of warrants held by public shareholders 

for nominal consideration if the underlying shares 

trade above a certain threshold price. 

93One commentator has observed that SPAC 

shareholders may vote in favor of a proposed deSPAC transaction while redeeming their shares 

prior to the closing of the transaction, such that the 

vote is decoupled from any economic interest in the 

post-business combination company. Rodrigues and 

Stegemoller, supra note 17. See also supra note 29. 

These disclosure requirements are 

modeled, in part, on Item 1004(a)(2) and 

Item 1013(b) of Regulation M–A 88 and 

are intended to provide investors with, 

among other things, an enhanced basis 

upon which to evaluate a SPAC’s 

reasons for proposing a de-SPAC 

transaction and for choosing a particular 

structure and financing for the 

transaction, through a specialized 

disclosure rule tailored to SPACs that 

would address disclosure issues more 

specific to de-SPAC transactions. These 

proposed requirements would also help 

promote consistent disclosure, which 

would allow for greater comparability of 

these disclosures across de-SPAC 

transactions. As proposed, Item 1605(b) 

would require a reasonably detailed 

discussion of the reasons for, and the 

structure and timing of, a proposed deSPAC transaction, which could include 

a discussion of the key events and 

activities in identifying the target 

private operating company and in 

negotiating the terms of the merger or 

acquisition, as well as the material 

factors considered by a SPAC’s board of 

directors in approving the terms of the 

proposed de-SPAC transaction and in 

recommending shareholder approval of 

the transaction. 

In addition, we are proposing Item 

1605(c) to require disclosure of the 

effects of the de-SPAC transaction and 

any related financing transaction on the 

SPAC and its affiliates, the sponsor and 

its affiliates, the private operating 

company and its affiliates, and 

unaffiliated security holders of the 

SPAC. Such disclosure could allow 

investors to better assess whether the 

transactions have been structured in a 

manner that would benefit one of these 

parties in particular or that would be to 

the detriment of other parties. As 

proposed, the disclosure must provide a 

reasonably detailed discussion of both 

the benefits and detriments to nonredeeming shareholders of the de-SPAC 

transaction and any related financing 

transaction, with such benefits and 

detriments quantified to the extent 

practicable.89 For example, if the 

sponsor’s interests and returns may 

differ from those of public investors in 

regard to a prospective de-SPAC 

transaction, the disclosure should 

describe and quantify, to the extent 

practicable, dollar amounts or 

prospective returns the sponsor and its 

affiliates stand to gain or lose that are 

dependent on the completion of the 

transaction. 

We are also proposing Item 1605(d) to 

require disclosure of the SPAC’s 

sponsors’, officers’ and directors’ 

material interests in the de-SPAC 

transaction or any related financing 

transaction, including any fiduciary or 

contractual obligations to other entities 

and any interest in, or affiliation with, 

the private operating company that is 

the target of the de-SPAC transaction. 

This proposed disclosure requirement is 

intended to address, among other 

things, the concern that a sponsor may 

be proposing a de-SPAC transaction that 

will produce benefits or detriments that 

are not fully disclosed to investors.90

Under Item 403 of Regulation S–K, 

SPACs currently provide tabular 

disclosure regarding the beneficial 

ownership of its equity or voting 

securities, as applicable, by 

management and beneficial owners of 

more than 5% of a class of voting 

securities.91 The proposed disclosure 

requirement in Item 1605(d) would be 

broader than Item 403, and would 

require disclosure of any material 

interests that the sponsor and the 

SPAC’s officers and directors have in a 

de-SPAC transaction or any related 

financing transaction, including 

fiduciary or contractual obligations to 

other entities as well as any interest in, 

or affiliation with, the target company. 

The proposed disclosure requirement 

would also encompass material interests 

that are non-pecuniary in nature that 

may nevertheless affect the decision to 

proceed with a prospective de-SPAC 

transaction or related financing 

transaction. In the context of a de-SPAC 

transaction, this disclosure could help 

investors, when making an investment, 

voting or redemption decision with 

respect to the de-SPAC transaction, to 

assess whether, on balance, the benefits 

of the de-SPAC transaction justify the 

detriments, and particularly whether the 

sponsor is motivated to complete a deSPAC transaction by interests not held 

by all investors. 

Proposed Item 1605(e) would require 

disclosure of whether or not security 

holders are entitled to any redemption 

or appraisal rights, and if so, a summary 

of the redemption or appraisal rights.92

Under the proposed rules, SPACs would 

be required to disclose, among other 

things, whether shareholders may 

redeem their shares regardless of 

whether they vote in favor of or against 

a proposed de-SPAC transaction, or 

abstain from voting, and whether 

shareholders have the right to redeem 

their securities at the time of any 

extension of the time period to complete 

a de-SPAC transaction. If there are no 

redemption or appraisal rights available 

for security holders who object to the 

de-SPAC transaction, the proposed rules 

would require disclosure of any other 

rights that may be available to security 

holders under the law of the jurisdiction 

of organization. These disclosures 

would help investors better assess the 

impact of any redemption or appraisal 

rights on a proposed de-SPAC 

transaction, including whether the 

existence of such rights might lead some 

investors to redeem their securities after 

voting in favor of a de-SPAC 

transaction.93

Request for Comment 

31. Would the proposed disclosure 

requirements provide investors with 

important information regarding the 

background of and reasons for a deSPAC transaction? Is there any 

additional information about the 

background of and reasons for the deSPAC transaction that we should 

require to be disclosed? Are there any 

additional or alternative requirements 

that we should consider to further 


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94See supra note 28. See also Michael Klausner 

and Michael Ohlrogge, SPAC Governance: In Need 

of Judicial Review (SSRN Working Paper, 2021). 

95 In this regard, we are proposing an instruction 

to Item 1606 that a ‘‘statement that the special 

purpose acquisition company has no reasonable 

belief as to the fairness or unfairness of the deSPAC transaction or any related financing 

transaction to unaffiliated security holders will not 

be considered sufficient disclosure in response to 

[Item 1606(a)].’’ As proposed, a SPAC would not be 

required to disclose that a de-SPAC transaction and 

any related financing transaction are fair but rather 

would be required to state its reasonable belief as 

to the fairness or unfairness of the transaction as 

well as the bases for this statement. 

96We have modeled certain of the proposed 

requirements in Item 1606 and Item 1607 (see infra 

Section II.F.3.), on the disclosures required in 

going-private transactions subject to 17 CFR 

240.13e–3 (Exchange Act Rule 13e–3). See Items 

1014 and 1015 of Regulation M–A. In our view, the 

disclosure requirements in Rule 13e–3 provide an 

appropriate model for the proposed requirements 

with respect to de-SPAC transactions, in that the 

conflicts of interests and misaligned incentives 

inherent in going-private transactions are similar to 

those often present in de-SPAC transactions. 

improve the disclosures about de-SPAC 

transactions? 

32. Should we adopt the proposed 

disclosure requirements with respect to 

the effects of the de-SPAC transaction 

and any related financing transaction, as 

proposed? Should we require additional 

or alternative disclosure regarding the 

effects of the de-SPAC transaction and 

any related financing transaction? 

33. Should we require disclosure with 

respect to material interests in a 

prospective de-SPAC transaction or any 

related financing transaction held by the 

sponsor and the SPAC’s officers and 

directors, as proposed? Should we 

require additional or alternative 

disclosure regarding the interests of 

these parties in the de-SPAC 

transaction? 

34. Should we require disclosure 

regarding whether or not security 

holders are entitled to any redemption 

or appraisal rights and a summary of 

any such rights, as proposed? Is there 

additional or alternative disclosure 

about redemption or appraisal rights 

that we should require? 

35. Would the disclosure 

requirements in proposed Item 1605 

result in duplicative disclosures? If so, 

are there alternative approaches that we 

should consider to avoid this result? 

2. Fairness of the De-SPAC Transaction 

To address concerns regarding 

potential conflicts of interest and 

misaligned incentives in connection 

with the decision to proceed with a deSPAC transaction and to assist investors 

in assessing the fairness of a particular 

de-SPAC transaction to unaffiliated 

investors,94 we are proposing Item 

1606(a) to require a statement from a 

SPAC as to whether it reasonably 

believes that the de-SPAC transaction 

and any related financing transaction 

are fair or unfair to the SPAC’s 

unaffiliated security holders, as well as 

a discussion of the bases for this 

statement.95 We are proposing to require 

that this statement encompass both the 

de-SPAC transaction and any related 

financing transaction so that the fairness 

determination would require 

consideration of the combined effects of 

both transactions, which are often 

dependent on each other, on 

unaffiliated security holders. As 

proposed, a SPAC would be required to 

include this statement in any Forms S– 

4 and F–4 or Schedules 14A, 14C, and 

TO filed in connection with a de-SPAC 

transaction.96 Proposed Item 1606(a) 

would also require disclosure on 

whether any director voted against, or 

abstained from voting on, approval of 

the de-SPAC transaction or any related 

financing transaction, and if so, 

identification of the director and, if 

known after making a reasonable 

inquiry, the reasons for the vote against 

the transaction or abstention. 

Under proposed Item 1606(b), a SPAC 

would be required to discuss in 

reasonable detail the material factors 

upon which a reasonable belief 

regarding the fairness of a de-SPAC 

transaction and any related financing 

transaction is based and, to the extent 

practicable, the weight assigned to each 

factor. These factors would include but 

not be limited to: The valuation of the 

private operating company; the 

consideration of any financial 

projections; any report, opinion, or 

appraisal obtained from a third party; 

and the dilutive effects of the de-SPAC 

transaction and any related financing 

transaction on non-redeeming 

shareholders. Together, these proposed 

disclosures are intended to help 

investors assess the reasonableness of 

the SPAC’s stated belief about the 

fairness of the transaction. 

To provide additional context for 

understanding the process by which a 

SPAC determined to proceed with a deSPAC transaction, we are proposing 

Items 1606(c), (d), and (e), which would 

require disclosure on whether: 

• The de-SPAC transaction or any 

related financing transaction is 

structured so that approval of at least a 

majority of unaffiliated security holders 

is required; 

• A majority of directors who are not 

employees of the SPAC has retained an 

unaffiliated representative to act solely 

on behalf of unaffiliated security 

holders for purposes of negotiating the 

terms of the de-SPAC transaction or any 

related financing transaction and/or 

preparing a report concerning the 

fairness of the de-SPAC transaction or 

any related financing transaction; and 

• The de-SPAC transaction or any 

related financing transaction was 

approved by a majority of the directors 

of the SPAC who are not employees of 

the SPAC. 

Request for Comment 

36. Should we adopt Item 1606 as 

proposed? 

37. Should we require a statement 

from the SPAC as to whether it 

reasonably believes that the de-SPAC 

transaction and any related financing 

transaction are fair or unfair to 

unaffiliated security holders, as 

proposed? Should the scope of the 

fairness determination include both the 

de-SPAC transaction and any related 

financing transaction, as proposed? 

Should the fairness determination be as 

to the SPAC’s security holders as a 

whole, rather than to the SPAC’s 

unaffiliated security holders? The 

factors enumerated in proposed Item 

1606(b) in determining fairness include, 

but are not limited to, the valuation of 

the target company, the consideration of 

any financial projections, any report, 

opinion, or appraisal described in Item 

1607 of Regulation S–K, and the dilutive 

effects described in Item 1604(c) of 

Regulation S–K. Is there any additional 

or alternative information that should be 

disclosed in connection with the 

SPAC’s fairness determination? 

38. Should we include an instruction 

to Item 1606 that a statement that the 

SPAC has no reasonable belief as to the 

fairness or unfairness of the de-SPAC 

transaction or any related financing 

transaction to unaffiliated security 

holders will not be considered sufficient 

disclosure in response to Item 1606(a), 

as proposed? 

39. What are the potential benefits 

and costs of the statement that would be 

required by proposed Item 1606(a)? 

Would the costs of complying with this 

disclosure requirement discourage 

SPAC initial public offerings or 

discourage private operating companies 

from pursuing business combinations 

with SPACs? 

40. Should we require registrants to 

disclose whether any director voted 

against, or abstained from voting on, the 

approval of a de-SPAC transaction or 

any related financing transaction, as 

well as the reasons for such vote or 

abstention, as proposed? Are there 

additional or alternative disclosures that 

we should require in this regard? 

41. Should we require registrants to 

discuss in reasonable detail the material 

factors and, to the extent practicable, the 

weight assigned to each factor 


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97As noted above, we have modeled the proposed 

requirements in Item 1607 on the disclosures 

required in going-private transactions subject to 

Exchange Act Rule 13e–3. See Item 1015 of 

Regulation M–A. 

98Though currently not a routine practice in deSPAC transactions, SPACs often obtain fairness 

opinions in connection with de-SPAC transactions 

involving an affiliated private operating company. 

99For example, the proposed rule would require 

a SPAC to disclose whether or not the SPAC or its 

sponsor has received a fairness opinion or valuation 

report from a financial advisor. 

100For example, this disclosure could include 

whether the compensation for a financial advisor’s 

fairness opinion is conditioned on the completion 

of the de-SPAC transaction or whether the amount 

of compensation due the financial advisor may 

include a bonus or may be increased depending on 

the ultimate financial terms of the de-SPAC 

transaction. 

101See supra note 21. 

102 ‘‘Foreign private issuer’’ is defined in 

Securities Act Rule 405 and Exchange Act Rule 3b– 

4(c). A foreign private issuer is any foreign issuer 

other than a foreign government, except for an 

issuer that (1) has more than 50% of its outstanding 

voting securities held of record by U.S. residents 

and (2) any of the following: (i) A majority of its 

officers and directors are citizens or residents of the 

United States, (ii) more than 50 percent of its assets 

are located in the United States, or (iii) its business 

is principally administered in the United States. 

underlying the fairness determination, 

as proposed? Are there additional or 

alternative factors that should be 

specified in the proposed rule to 

enhance an investor’s understanding of 

the fairness determination? 

42. How would investors use 

disclosure about whether the approval 

of at least a majority of unaffiliated 

security holders is required and whether 

the de-SPAC transaction or any related 

financing transaction was approved by a 

majority of non-employee directors of 

the SPAC? How would investors use 

disclosure about whether a 

representative has been retained to 

represent the investors in the 

negotiations of the de-SPAC 

transaction? 

3. Reports, Opinions, and Appraisals 

In addition, we are proposing Item 

1607 to require disclosure about certain 

reports, opinions, or appraisals from 

outside parties.97 Proposed Item 1607(a) 

would require disclosure about whether 

or not the SPAC or its sponsor has 

received any report, opinion, or 

appraisal obtained from an outside party 

relating to the consideration or the 

fairness of the consideration to be 

offered to security holders or the 

fairness of the de-SPAC transaction or 

any related financing transaction to the 

SPAC, the sponsor or security holders 

who are not affiliates.98 This 

requirement would provide additional 

transparency about whether a SPAC’s 

board of directors and/or its sponsor 

have access to information underlying a 

fairness determination that shareholders 

could find useful in making voting, 

investment, and redemption decisions 

in connection with the de-SPAC 

transaction.99

To assist investors in considering the 

usefulness and reliability of any outside 

party report, opinion or appraisal 

described in response to proposed Item 

1607(a), as well as any negotiation or 

report by an unaffiliated representative 

acting solely on behalf of unaffiliated 

security holders described in response 

to proposed Item 1606(d), proposed 

Item 1607(b) would require disclosure 

of: 

• The identity, qualifications, and 

method of selection of the outside party 

and/or unaffiliated representative; 

• Any material relationship between 

(1) the outside party, its affiliates, and/ 

or unaffiliated representative, and (2) 

the SPAC, its sponsor and/or their 

affiliates, that existed during the past 

two years or is mutually understood to 

be contemplated and any compensation 

received or to be received as a result of 

the relationship; 100

• Whether the SPAC or the sponsor 

determined the amount of consideration 

to be paid to the private operating 

company or its security holders, or the 

valuation of the private operating 

company, or whether the outside party 

recommended the amount of 

consideration to be paid or the valuation 

of the private operating company; and 

• A summary concerning the 

negotiation, report, opinion or appraisal, 

which would be required to include a 

description of the procedures followed; 

the findings and recommendations; the 

bases for and methods of arriving at 

such findings and recommendations; 

instructions received from the SPAC or 

its sponsor; and any limitation imposed 

by the SPAC or its sponsor on the scope 

of the investigation. 

Finally, proposed Item 1607(c) would 

require all such reports, opinions or 

appraisals to be filed as exhibits to the 

Form S–4, Form F–4, and Schedule TO 

for the de-SPAC transaction or included 

in the Schedule 14A or 14C for the 

transaction, as applicable. 

Request for Comment 

43. Should we require disclosure 

regarding reports, opinions, or 

appraisals from an outside party, as 

proposed? Is there any additional or 

alternative information that we should 

require with respect to these reports, 

opinions, or appraisals? Is there any 

proposed information that should not be 

required? 

44. Should we require that the 

reports, opinions or appraisals be filed 

as exhibits to the Form S–4, Form F–4, 

or Schedule TO for the de-SPAC 

transaction or included in the Schedule 

14A or Schedule 14C for the transaction, 

as proposed? Should we require instead 

that such reports, opinions, or 

appraisals be made available for 

inspection and copying upon written 

request? Should we require the filing of 

board books and other written materials 

presented to the board in connection 

with the reports, opinions, or appraisals, 

as is the case with going-private 

transactions? Are there other means by 

which investors should be able to access 

such report, opinion, or appraisal, such 

as posting on a website? 

45. As proposed, filers would be 

required to include a summary of the 

report, opinion, or appraisal and file 

such report, opinion, or appraisal as an 

exhibit to the filing. Would investors 

benefit from having both the summary 

and the actual report, opinion, or 

appraisal disclosed, or would one or the 

other item of disclosure be sufficient? 

4. Proposed Item 1608 of Regulation S– 

K 

We are proposing Item 1608 of 

Regulation S–K to codify a staff position 

that a Schedule TO filed in connection 

with a de-SPAC transaction should 

contain substantially the same 

information about a target private 

operating company that is required 

under the proxy rules and that a SPAC 

must comply with the procedural 

requirements of the tender offer rules 

when conducting the transaction for 

which the Schedule TO is filed, such as 

a redemption of the SPAC securities. 

Redemption rights offered by a SPAC to 

its security holders in connection with 

the de-SPAC transaction or an extension 

of the timeframe to complete a de-SPAC 

transaction generally have indicia of 

being a tender offer, but the Commission 

staff has not objected if a SPAC does not 

comply with the tender offer rules when 

the SPAC files a Schedule 14A or 14C 

in connection with a de-SPAC 

transaction or an extension and 

complies with Regulation 14A or 14C, 

because the federal proxy rules would 

generally mandate substantially similar 

disclosures and applicable procedural 

protections as required by the tender 

offer rules.101 Proposed Item 1608, if 

adopted, would not affect the 

availability of this staff position for 

those SPACs that file Schedule 14A or 

14C for their de-SPAC transactions or 

extensions. SPACs that are unable to 

avail themselves of this position and file 

a Schedule TO (such as foreign private 

issuers 102), however, would be subject 


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103The staff has historically expressed the view 

that the same information about the target company 

that would be required in a Schedule 14A should 

be included in such a Schedule TO, in view of the 

requirements of Item 11 of Schedule TO and Item 

1011(c) of Regulation M–A and the importance of 

this information in making a redemption decision. 

Item 11 of Schedule TO states ‘‘Furnish the 

information required by Item 1011(a) and (c) of 

Regulation M–A.’’ Item 1011(c) of Regulation M–A 

states ‘‘Furnish such additional material 

information, if any, as may be necessary to make the 

required statements, in light of the circumstances 

under which they are made, not materially 

misleading.’’ 

104Proposed Item 1608 would also be consistent 

with exchange listing rules regarding the use of 

Schedule TO in de-SPAC transactions. See, e.g., 

Nasdaq Listing Rule IM–5101–2(e) and NYSE Listed 

Company Manual Section 102.06(c). 

105This staff interpretation is available at: https:// 

www.sec.gov/divisions/corpfin/guidance/cditender-offers-and-schedules.htm. 

106This tagging requirement would be 

implemented by including a cross-reference to Rule 

405 of Regulation S–T in Subpart 1600 of 

Regulation S–K, and by revising 17 CFR 232.405(b) 

of Regulation S–T to include the proposed SPACrelated disclosures. A corresponding Note and 

Instruction would also be added to Schedules 14A 

and TO, respectively. Pursuant to Rule 301 of 

Regulation S–T, the EDGAR Filer Manual is 

incorporated by reference into the Commission’s 

rules. In conjunction with the EDGAR Filer Manual, 

Regulation S–T governs the electronic submission 

of documents filed with the Commission. Rule 405 

of Regulation S–T specifically governs the scope 

and manner of disclosure tagging requirements for 

operating companies and investment companies, 

including the requirement in 17 CFR 232.405(a)(3) 

to use Inline XBRL as the specific structured data 

language to use for tagging the disclosures. 

107 Interactive Data to Improve Financial 

Reporting, Release No. 33–9002 (Jan. 30, 2009) [74 

FR 6776 (Feb. 10, 2009)] (‘‘2009 Financial 

Statement Information Adopting Release’’) 

(requiring submission of an Interactive Data File to 

the Commission in exhibits to such reports). See 

also Interactive Data to Improve Financial 

Reporting, Release No. 33–9002A (Apr. 1, 2009) [74 

FR 15666 (Apr. 7, 2009)]. 

108 Inline XBRL Filing of Tagged Data, Release 

No. 33–10514 (June 28, 2018) [83 FR 40846, 40847 

(Aug. 16, 2018)]. Inline XBRL allows filers to embed 

XBRL data directly into an HTML document, 

eliminating the need to tag a copy of the 

information in a separate XBRL exhibit. Id. at 

40851. 

to the requirements of proposed Item 

1608 of Regulation S–K, which would 

codify the staff’s view regarding the 

information required to be included in 

a Schedule TO filed for a SPAC 

redemption and clarify the need to 

comply with the procedural 

requirements of the tender offer rules.103

Proposed Item 1608 would require a 

SPAC that files a Schedule TO pursuant 

to Exchange Act Rule 13e–4(c)(2) for 

any redemption of securities offered in 

connection with a de-SPAC transaction 

to include disclosures required by 

specified provisions of Forms S–4 and 

F–4, and Schedule 14A, as applicable. 

Proposed Item 1608 would specify and 

standardize the information required in 

a Schedule TO that is filed in 

connection with a de-SPAC transaction 

so that it is consistent with the 

information required by the proposed 

amendments to Forms S–4 and F–4 and 

Schedule 14A. As a result, SPAC 

shareholders who are not solicited for 

their votes to approve a de-SPAC 

transaction (in a solicitation subject to 

Regulation 14A) would nevertheless 

receive the same information about the 

target private operating company that 

could be material to their redemption 

decisions.104 Proposed Item 1608 would 

clarify that SPACs that file a Schedule 

TO for a redemption also must comply 

with the procedural requirements of 

Rule 13e–4 and Regulation 14E (such as 

the requirement to keep the redemption 

period open for at least 20 business 

days). This proposed codification would 

eliminate any potential ambiguity as to 

the SPAC’s obligation to provide the 

tender offer rules’ procedural 

protections to the SPAC security holders 

who are considering whether to redeem 

their securities. 

Request for Comment 

46. Should we adopt Item 1608 as 

proposed? 

47. Is there any additional or 

alternative information that we should 

require in proposed Item 1608 when a 

Schedule TO is filed in connection with 

a de-SPAC transaction? 

48. Are there any requirements of 

Rule 13e–4 and Regulation 14E that 

should not apply to SPACs that file a 

Schedule TO for the redemption of the 

SPAC securities? 

49. Are there any other provisions of 

Rule 13e–4 or Regulation 14E that 

should be amended to ensure that SPAC 

security holders are provided with the 

information material to their decision 

on whether to redeem their SPAC 

securities or to address other issues 

arising from the SPAC redemption 

process? For example, should we amend 

Exchange Act Rule 14e–5, which 

generally prohibits a bidder or its 

affiliates from making purchases outside 

of a tender offer, to permit a sponsor’s 

purchases of SPAC securities outside of 

the redemption offer as long as certain 

conditions are satisfied (such as 

requiring disclosures of the sponsor’s 

purchases and limiting the purchase 

price to no more than the price offered 

through the redemption offer), e.g., in a 

manner consistent with the Division of 

Corporation Finance’s Tender Offers 

and Schedules Compliance and 

Disclosure Interpretation 166.01 (Mar. 

22, 2022)? 105

50. As noted above, the staff has taken 

the position that a SPAC filing a 

Schedule 14A or 14C in connection 

with a de-SPAC transaction or an 

extension of the time frame to complete 

a de-SPAC transaction would not need 

to file a Schedule TO or otherwise 

comply with the tender offer rules, 

including the procedural requirements 

of the tender offer rules, such as the allholders requirement. Should we codify 

this position? Should we reconsider this 

position? 

G. Structured Data Requirement 

We are proposing to require SPACs to 

tag all information disclosed pursuant to 

Subpart 1600 of Regulation S–K in a 

structured, machine-readable data 

language. Specifically, we are proposing 

to require SPACs to tag the disclosures 

required under Subpart 1600 in Inline 

XBRL in accordance with Rule 405 of 

Regulation S–T and the EDGAR Filer 

Manual.106 The proposed requirements 

would include detail tagging of the 

quantitative disclosures and block text 

tagging of the narrative disclosures that 

would be required under Subpart 1600. 

In 2009, the Commission adopted 

rules requiring operating companies to 

submit the information from the 

financial statements (including 

footnotes and schedules thereto) 

included in certain registration 

statements and periodic and current 

reports in a structured, machinereadable data language using eXtensible 

Business Reporting Language 

(‘‘XBRL’’).107 In 2018, the Commission 

adopted modifications to these 

requirements by requiring issuers to use 

Inline XBRL, which is both machinereadable and human-readable, to reduce 

the time and effort associated with 

preparing XBRL filings and improve the 

quality and usability of XBRL data for 

investors.108

Requiring Inline XBRL tagging of the 

Subpart 1600 disclosures would benefit 

investors by making SPAC disclosures 

more readily available and easily 

accessible to investors and other market 

participants for aggregation, 

comparison, filtering, and other 

analysis, as compared to requiring a 

non-machine readable data language 

such as ASCII or HTML. This would 

enable automated extraction and 

analysis of granular SPAC disclosures, 

allowing investors and other market 

participants to more efficiently perform 

large-scale analysis and comparison of 

SPAC disclosures across SPAC 

transactions and time periods, including 

information on sponsor compensation 

and material conflicts of interest. At the 

same time, we do not expect the 

incremental compliance burden 

associated with tagging the additional 

information to be unduly burdensome, 

because SPACs subject to the proposed 


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109 Id. 

110See 17 CFR 229.601(b)(101)(i)(A). 

111See infra Section III.D. 

112Section 101(a) of the JOBS Act amended 

Section 2(a) of the Securities Act [15 U.S.C. 77b(a)] 

and Section 3(a) of the Exchange Act [15 U.S.C. 

78c(a)] to define an ‘‘emerging growth company’’ as 

an issuer with less than $1 billion in total annual 

gross revenues during its most recently completed 

fiscal year, as such amount is indexed for inflation 

every five years by the Commission. If an issuer 

qualifies as an EGC on the first day of its fiscal year, 

it maintains that status until the earliest of (1) the 

last day of the fiscal year of the issuer during which 

it has total annual gross revenues of $1.07 billion 

or more; (2) the last day of its fiscal year following 

the fifth anniversary of the first sale of its common 

equity securities pursuant to an effective 

registration statement; (3) the date on which the 

issuer has, during the previous three-year period, 

issued more than $1 billion in nonconvertible debt; 

or (4) the date on which the issuer is deemed to be 

a ‘‘large accelerated filer’’ (as defined in Exchange 

Act Rule 12b–2). See Section 2(a)(19) of the 

Securities Act [15 U.S.C. 77b(a)(19)]; Section 

3(a)(80) of the Exchange Act [15 U.S.C. 78c(a)(80)]; 

and Inflation Adjustments and Other Technical 

Amendments under Titles I and II of the JOBS Act, 

Release No. 33–10332 (Mar. 31, 2017) [82 FR 17545 

(Apr. 12, 2017)]. 

113A 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. 

114The disclosure document may be a Form S– 

4 or F–4, Schedule 14A or Schedule TO, depending 

on, among other things, whether shareholder 

approval is required and whether the SPAC is 

registering an offering of shares to be issued in the 

transaction. 

115SPACs may use cash, securities, or a 

combination of both to acquire a target company in 

a de-SPAC transaction, and the form of 

consideration is a factor in determining whether a 

registration statement, proxy or information 

statement, or tender offer statement is required to 

be filed in connection with a de-SPAC transaction. 

Additionally, the SPAC, the target company or a 

new holding company may issue securities in a deSPAC transaction, which may necessitate the filing 

of a registration statement on Form S–4 or F–4 for 

the transaction. 

116For example, when a holding company is 

formed to acquire both the private operating 

company and the SPAC, and the holding company 

files a registration statement for the de-SPAC 

transaction, generally the holding company would 

continue as the registrant with the Exchange Act 

reporting obligation following the transaction. In 

these situations, the private operating company 

would be the holding company’s predecessor, as the 

term is used in Regulation S–X, with respect to the 

financial statements and possibly the accounting 

acquirer under generally accepted accounting 

principles as used in the United States (‘‘U.S. 

GAAP’’), with the equity ownership percentage in 

the combined company held by the former owners 

of the private operating company and the degree to 

which former management of the private operating 

company continues with the combined company 

among the factors that could impact the accounting 

acquirer determination under U.S. GAAP. Under 

the proposed amendments to Regulation S–X, the 

SPAC would be an acquired business. See infra 

Section IV.B. 

117The disclosures required in connection with a 

de-SPAC transaction are determined by the 

applicable disclosure form (Form S–4 or F–4, 

Schedule 14A or 14C, or Schedule TO) and which 

entity is filing the form. Under the proposed 

amendments, companies would not be subject to 

the same disclosure requirements in every de-SPAC 

transaction structure. For example, if the SPAC is 

a domestic registrant and a new holding company 

is a foreign issuer, and the private operating 

company meets the criteria to be a foreign private 

issuer, the holding company (the company filing 

the de-SPAC transaction filing) would also qualify 

as a foreign private issuer. Foreign private issuer 

status would permit the foreign holding company 

to file a Form F–4 for the de-SPAC transaction and 

apply the foreign private issuer disclosure regime. 

In contrast, if a de-SPAC transaction is structured 

so that (1) a domestic SPAC is the company issuing 

securities as the acquiring entity of the foreign 

private operating company, (2) there is no foreign 

holding company, and (3) the SPAC makes the deSPAC transaction filing, the registrant would 

continue to be a domestic issuer and follow 

domestic reporting rules until the next 

determination date for foreign private issuer status. 

tagging requirements would be subject 

to similar Inline XBRL requirements in 

other Commission filings.109 However, 

because issuers (including SPACs) are 

not required to tag any filings until after 

they have filed a periodic report on 

Form 10–Q, 20–F, or 40–F, the proposed 

tagging requirement for disclosures in 

SPAC IPO registration statements would 

accelerate the tagging obligations (and 

related compliance burdens) of SPACs 

compared to those of other filers.110

Enhancing the usability of the SPAC 

initial public offering disclosures 

through a tagging requirement is of 

particular importance given the unique 

nature of SPAC offerings and the 

potential risks they present to investors. 

Request for Comment 

51. Should we require SPACs to tag 

the disclosures required by Subpart 

1600 of Regulation S–K, as proposed? 

Are there any changes we should make 

to ensure accurate and consistent 

tagging? If so, what changes should we 

make? 

52. Should we modify the scope of the 

Subpart 1600 disclosures required to be 

tagged? For example, should we require 

tagging of quantitative disclosures only? 

Should we limit the tagging requirement 

to only those disclosures required in deSPAC transactions? 

53. Where an item in Subpart 1600 

requests that a registrant provide a 

tabular presentation without specifying 

a particular format for the table, or data 

points to include in the table, such as 

the proposed disclosure related to SPAC 

sponsor compensation, dilution of 

unaffiliated shareholders, and the 

related sensitivity analysis, should we 

instead require specific elements in the 

tabular presentation? If we do not 

propose a specific tabular presentation 

or required elements, would detail 

tagging provide useful data for investors 

and other market participants? 

54. Should we require SPACs to use 

a different structured data language to 

tag the Subpart 1600 disclosures? If so, 

what structured data language should 

we require, and why? 

55. We have not proposed exemptions 

or different requirements from the 

proposed structured data requirement 

for foreign private issuers, smaller 

reporting companies,111 or emerging 

growth companies.112 Should we 

exempt or provide different 

requirements from some or all of the 

proposed structured data requirements 

for these or other classes of registrants? 

III. Aligning De-SPAC Transactions 

With Initial Public Offerings 

As discussed above, private operating 

companies have increasingly turned to 

de-SPAC transactions as a means of 

accessing public securities markets and 

becoming public reporting companies. 

As the SPACs that were part of the 

unprecedented growth in the SPAC 

market in 2020 and 2021 continue to 

identify target private operating 

companies and consummate de-SPAC 

transactions, it is likely that a significant 

proportion of companies in the coming 

years that enter the U.S. public 

securities markets will do so through 

de-SPAC transactions. 

A private operating company’s path to 

the public markets through a de-SPAC 

transaction usually commences when a 

SPAC begins considering it as a 

potential business combination 

candidate. After agreeing to the terms of 

the business combination, the SPAC 

typically files a Form 8–K announcing 

the transaction that includes limited 

information on the material terms of the 

business combination agreement.113

This announcement is usually followed 

by a disclosure document (a Securities 

Act registration statement, proxy 

statement, or information statement) 

filed by the SPAC that includes more 

extensive information about the private 

operating company.114 SPACs use a 

variety of legal structures to effect deSPAC transactions, and the particular 

transaction structure and the 

consideration used can affect (1) the 

Commission filings required for the 

transaction,115 (2) which entity will 

have a continuing Exchange Act 

reporting obligation following the 

transaction,116 and (3) the disclosures 

provided in connection with the 

transaction.117

After the completion of the de-SPAC 

transaction, the post-business 

combination company is required to file 

a Form 8–K within four business days 

that includes even more information 

about the private operating company 

that is equivalent to the information that 

a new reporting company would be 

required to provide when filing a Form 


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118Form 10 is the long-form registration 

statement to register a class of securities under 

Section 12(b) or 12(g) of the Exchange Act. See 

Items 2.01(f), 5.01(a)(8), and 9.01(c) of Form 8–K. 

By the time the Form 8–K with Form 10 

information is filed, the securities of the postbusiness combination company have often already 

begun trading on a national securities exchange 

with a new ticker symbol, in that the securities of 

the SPAC generally trade on an exchange until the 

consummation of the de-SPAC transaction, after 

which the securities of the post-business 

combination company generally commence trading 

on the following business day. 

119For example, a private company engaged in a 

traditional initial public offering is generally more 

limited in its ability to make communications about 

its offering prior to the filing of a Securities Act 

registrations statement on Form S–1 than 

companies engaged in a business combination 

transaction that will be registered on Form S–4 or 

F–4. De-SPAC transactions also often lack named 

underwriters that perform due diligence and other 

traditional gatekeeping functions, and it may be 

more difficult for investors to trace their purchases 

to the registered de-SPAC transaction for purposes 

of establishing a Section 11 claim for material 

misstatements or omissions in de-SPAC disclosure 

documents. 

120We are also proposing to more closely align 

the financial statement disclosure requirements 

with respect to the private operating company in 

any business combination involving a shell 

company with the disclosure required in a Form S– 

1 for an initial public offering, which would 

encompass de-SPAC transactions. See infra Section 

IV.B. 

121We note that Item 18(a)(5) of Form S–4 

currently requires disclosure pursuant to Item 403 

regarding the target company and a SPAC’s 

principal shareholders, through Item 6 of Schedule 

14A, in a Form S–4 that includes a proxy seeking 

shareholder approval of the de-SPAC transaction. 

122Proposed General Instruction L.2. to Form S– 

4; Proposed General Instruction I.2. to Form F–4; 

Proposed Item 14(f) of Schedule 14A; Proposed 

General Instruction K to Schedule TO. We note that 

disclosure pursuant to Item 303 (management’s 

discussion and analysis of financial condition and 

results of operations) of Regulation S–K is already 

required with respect to a non-reporting target 

company in Forms S–4 and F–4 and in Schedules 

14A and 14C for a de-SPAC transaction. As 

proposed, disclosure pursuant to Item 701 of 

Regulation S–K would be required in Part I 

(information required in the prospectus) of Form S– 

4 and Form F–4, whereas in Form S–1, the Item 701 

disclosure requirement appears under Part II 

(information not required in prospectus) of the 

form. 

123See supra note 102. 

124 Disclosure requirements for foreign private 

issuers differ from domestic registrants, including 

the absence of quarterly reporting requirements, the 

use of different forms with different disclosure 

provisions, and an ability to present financial 

statements in accordance with IFRS instead of U.S. 

GAAP. In addition, foreign private issuers are not 

required to file current reports on Form 8–K using 

the Form 8–K disclosure criteria; rather, they can 

furnish current reports on Form 6–K applying the 

disclosure requirements of that Form. See Foreign 

Issuer Reporting Enhancements, Release 33–8959 

(Sep. 23, 2008) [73 FR 58300 (Oct. 6, 2008)]. 

125This Form 8–K is required to include the same 

information that would be required for a newly 

reporting company when filing a Form 10 under the 

Exchange Act. See Items 2.01(f), 5.01(a)(8), and 

9.01(c) of Form 8–K. In this regard, we note that 

these items of Form 8–K each provide that if any 

disclosure required by these items has been 

previously reported, the registrant may identify the 

filing in which that disclosure is included instead 

of including that disclosure in the Form 8–K. 

126 In this regard, we note that many, but not all, 

Forms S–4 and F–4 and Schedules 14A and 14C 

that are filed in connection with de-SPAC 

transactions contain information about the target 

company as proposed. The proposed amendments, 

if adopted, would require that this information be 

provided in all de-SPAC transactions subject to the 

specialized disclosure requirements in Subpart 

1600. 

10 under the Exchange Act.118 The 

result is that investors may receive 

disclosures about the future public 

company that differ from, or are not 

provided in the same manner as, the 

information disclosed in a Form S–1 or 

F–1 filed in connection with a 

traditional initial public offering. 

Additionally, some of the investor 

protections afforded in a traditional 

initial public offering are not available 

or are more attenuated when a private 

operating company becomes a public 

company through a de-SPAC 

transaction.119

In light of the increasingly common 

reliance on de-SPAC transactions as a 

vehicle for private operating companies 

to access the U.S. public securities 

markets, we are proposing a number of 

new rules and amendments to existing 

rules to align more closely the treatment 

of private operating companies entering 

the public markets through de-SPAC 

transactions with that of companies 

conducting traditional initial public 

offerings. In our view, a private 

operating company’s method of 

becoming a public company should not 

negatively impact investor protection. 

Accordingly, the proposed new rules 

and amendments are intended to 

provide investors with disclosures and 

liability protections comparable to those 

that would be present if the private 

operating company were to conduct a 

traditional firm commitment initial 

public offering. 

These proposed new rules and 

amendments would (1) more closely 

align the non-financial statement 

disclosure requirements with respect to 

the private operating company in 

disclosure documents for a de-SPAC 

transaction with the disclosure required 

in a Form S–1 or F–1 for an initial 

public offering; 120 (2) require a 

minimum dissemination period for 

disclosure documents in de-SPAC 

transactions; (3) treat the private 

operating company as a co-registrant of 

the Form S–4 or Form F–4 for a deSPAC transaction when a SPAC is filing 

the registration statement; (4) require a 

re-determination of smaller reporting 

company status following the 

consummation of a de-SPAC 

transaction; (5) amend the definition of 

‘‘blank check company’’ for PSLRA 

purposes such that the safe harbor for 

forward-looking information would not 

apply to projections in filings by SPACs 

and certain other blank check 

companies that are not penny stock 

issuers; and (6) provide, in a 

Commission rule, that underwriters in a 

SPAC initial public offering are deemed 

to be underwriters in a subsequent deSPAC transaction under certain 

circumstances. 

A. Aligning Non-Financial Disclosures 

in De-SPAC Disclosure Documents 

In regard to non-financial statement 

disclosures, we are proposing that, if the 

target company in a de-SPAC 

transaction is not subject to the 

reporting requirements of Section 13(a) 

or 15(d) of the Exchange Act, disclosure 

with respect to such company pursuant 

to the following items in Regulation S– 

K would be required in the registration 

statement or schedule filed in 

connection with the de-SPAC 

transaction: (1) Item 101 (description of 

business); (2) Item 102 (description of 

property); (3) Item 103 (legal 

proceedings); (4) Item 304 (changes in 

and disagreements with accountants on 

accounting and financial disclosure); (5) 

Item 403 (security ownership of certain 

beneficial owners and management, 

assuming the completion of the deSPAC transaction and any related 

financing transaction); 121 and (6) Item 

701 (recent sales of unregistered 

securities).122 If the private operating 

company is a foreign private issuer,123

the proposed rules would include the 

option of providing disclosure relating 

to the private operating company in 

accordance with Items 3.C, 4, 6.E, 7.A, 

8.A.7, and 9.E of Form 20–F, consistent 

with disclosure that could be provided 

by these entities in an initial public 

offering.124

The proposed additional information 

is already required to be included in a 

Form 8–K due within four business days 

of the completion of the de-SPAC 

transaction, such that registrants 

currently should already be preparing 

this information in anticipation of this 

Form 8–K filing in connection with a 

de-SPAC transaction.125 Aligning the 

disclosure requirements in de-SPAC 

transactions in this manner with those 

in initial public offerings would 

mandate that this additional 

information about the private operating 

company be provided to shareholders 

before they make voting, investment, or 

redemption decisions in connection 

with the proposed transactions.126 As 

proposed, this information would also 

be available to investors prior to the 

inception of trading of the post-business 


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127 In Form S–4 and Form F–4, however, there is 

a minimum 20-business day period requirement in 

sending a prospectus to security holders prior to a 

security holder meeting that is applicable when a 

registrant incorporates by reference information 

about the registrant or the company being acquired 

into the form. General Instruction A.2 of Form S– 

4 and General Instruction A.2 of Form F–4. 

128Proposed General Instruction L.3. to Form S– 

4; Proposed General Instruction I.3. to Form F–4. 

129The proposed amendments would be 

applicable to Forms S–4 and F–4 and Schedules 

14A and 14C. We are not proposing to amend the 

20 business day period when a Schedule TO is filed 

in connection with a de-SPAC transaction. See 

supra Section II.F.4. 

130See, e.g., DEL. CODE ANN. tit. 8, sec. 251(c) 

(2022) (stating, in part, that ‘‘[d]ue notice of the 

time, place and purpose of the meeting shall be 

given to each holder of stock, whether voting or 

nonvoting, of the corporation at the stockholder’s 

address as it appears on the records of the 

corporation, at least 20 days prior to the date of the 

meeting [to vote on an agreement of merger or 

consolidation]’’). 

131See R. Franklin Balotti, et al., Delaware Law 

of Corporations and Business Organizations, § 9.16 

(4th ed. 2022 & Supp. 2022) (‘‘[t]he only statutory 

requirements for the notice of the meeting are that 

it state the time, place and purpose of the meeting 

and that the notice contain a copy of the merger 

agreement or a summary of the agreement . . . [i]n 

practice, of course, many such meetings will be 

governed by the federal proxy rules, which require 

that a full proxy statement be submitted to the 

stockholders.’’). 

132Although both the NYSE and Nasdaq generally 

require that listed companies solicit proxies and 

provide proxy statements for all shareholder 

meetings, neither requires a minimum number of 

days between when proxy materials are provided to 

shareholders and when the meeting is held. Instead, 

for example, NYSE Listed Company Manual Section 

402.03 simply ‘‘recommends that a minimum of 30 

days be allowed between the record and meeting 

dates so as to give ample time for the solicitation 

of proxies.’’ 

133The proposed 20-calendar day period is the 

same length of time as the 20-day advance 

disclosure period in 17 CFR 13e–3(f)(1) (Exchange 

Act Rule 13e–3(f)(1)). In adopting a 20-day advance 

disclosure requirement for dissemination of 

documents in connection with going private 

transactions, the Commission stated this 

requirement was intended to provide reasonable 

assurance that the information required to be 

disclosed to security holders would be 

disseminated sufficiently far in advance of the 

transactions to permit security holders to make ‘‘an 

unhurried and informed’’ decision. Going Private 

Transactions by Public Companies or Their 

Affiliates, Release No. 33–6100 (Aug. 2, 1979) [44 

FR 46736 (Aug. 8, 1979)]. 

combination company’s securities on a 

national securities exchange, rather than 

being required in a Form 8–K due 

within four business days of the 

completion of the de-SPAC transaction. 

Further, if this disclosure is included in 

a Form S–4 or Form F–4, any material 

misstatements or omissions contained 

therein would subject the issuers and 

other parties to liability under Sections 

11 and 12 of the Securities Act, which 

would align with the protections 

afforded to investors under the 

Securities Act for disclosures provided 

in a Form S–1 or F–1 for an initial 

public offering. 

Request for Comment 

56. Should we require additional 

information regarding the private 

operating company in disclosure 

documents filed in connection with a 

de-SPAC transaction, as proposed? 

Would these additional disclosures 

provide investors with a better 

understanding of the private operating 

company’s operations and related risks? 

Should we require more or less 

disclosure regarding the private 

operating company in the registration 

statements or schedules filed in 

connection with de-SPAC transactions? 

57. What are the benefits of providing 

this information earlier to investors 

when they are making voting, 

investment, and redemption decisions 

in connection with a de-SPAC 

transaction or at or before the 

commencement of trading in the postbusiness combination company’s 

securities on a securities exchange? 

Would it be unduly burdensome to 

provide this additional information 

regarding the private operating company 

at this earlier point in time? 

58. Should a private operating 

company that would qualify as a foreign 

private issuer have the option of 

providing disclosure in accordance with 

certain items of Form 20–F, as 

proposed? 

59. Should we require additional or 

less information in proposed Item 1608 

and Schedule TO when a SPAC files a 

Schedule TO in connection with a deSPAC transaction? For example, should 

we require disclosure regarding 

management’s discussion and analysis 

of financial condition and results of 

operations (Item 303 of Regulation S–K) 

pursuant to Item 1608 or Schedule TO? 

60. Should the proposed disclosure 

requirements with respect to the private 

operating company be scaled to take 

into account the size, nature, or certain 

characteristics of the company? 

B. Minimum Dissemination Period 

In addition to the need for enhanced 

disclosure in de-SPAC transactions, we 

recognize the importance of ensuring 

that SPAC shareholders have adequate 

time to analyze the information 

presented in these transactions. There is 

currently no federally mandated period 

in business combination transactions to 

provide security holders with a 

minimum amount of time to consider 

proxy statement or other disclosures.127

In view of the unique circumstances 

surrounding de-SPAC transactions, we 

are proposing to amend Exchange Act 

Rules 14a–6 and 14c–2, as well as to 

add instructions to Forms S–4 and F– 

4,128 to require that prospectuses and 

proxy and information statements filed 

in connection with de-SPAC 

transactions be distributed to 

shareholders at least 20 calendar days in 

advance of a shareholder meeting or the 

earliest date of action by consent, or the 

maximum period for disseminating such 

disclosure documents permitted under 

the applicable laws of the SPAC’s 

jurisdiction of incorporation or 

organization if such period is less than 

20 calendar days.129 As stated above, 

SPACs are organized for the purpose of 

completing a de-SPAC transaction 

within a certain time frame, and as a 

SPAC approaches the end of this period, 

there is less time available for a SPAC 

to find a candidate for a business 

combination transaction, prepare and 

file the appropriate de-SPAC disclosure 

documents with the Commission, 

disseminate such documents to its 

shareholders, receive the requisite 

shareholder approval when applicable, 

and consummate the de-SPAC 

transaction. Although the laws of a 

SPAC’s jurisdiction of incorporation or 

organization may require the SPAC to 

send a notice to its shareholders at least 

a specified number of days before the 

shareholder meeting to approve a 

proposed business combination 

transaction, such notices are generally 

limited to information regarding the 

time, place, and purpose of the meeting, 

along with a copy or summary of the 

business combination agreement.130

They do not generally require a 

minimum period of time for 

dissemination of any other information 

about the transaction (including any 

proxy statements or other materials 

required by the federal securities laws) 

to shareholders.131 Similarly, such 

requirements do not exist in exchange 

listing standards.132 Without a 

minimum period for dissemination of 

prospectuses, proxy statements, and 

other materials before a shareholder 

meeting (or action by consent), a SPAC 

and its sponsor may have incentives to 

provide prospectuses or proxy or 

information statements for a de-SPAC 

transaction to the SPAC’s security 

holders within an abbreviated time 

frame, leaving the security holders with 

relatively little time to review what are 

often complex disclosure documents for 

these transactions. 

We are proposing a minimum 20- 

calendar day dissemination period for 

prospectuses and proxy and information 

statements that, in our view, would 

provide an important investor 

protection.133 We recognize that SPACs 

are often required under their governing 


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134See infra Section VI.B.3. 

135When a registrant incorporates by reference 

information about the registrant or the company 

being acquired in the Form S–4 or F–4 for a deSPAC transaction, the 20-business day period in 

Form S–4 and Form F–4, which we are not 

proposing to amend, would continue to be 

applicable. General Instruction A.2 of Form S–4 and 

General Instruction A.2 of Form F–4. 

136The proposed minimum dissemination period 

is intended to apply to the dissemination of certain 

Commission filings in connection with de-SPAC 

transactions and is not intended to impact any 

requirements of the jurisdiction of incorporation or 

organization regarding the notice of an annual or 

special meeting, such as Section 251(c) of the 

Delaware General Corporation Law. 

137For example, if the jurisdiction has no 

minimum dissemination period and does not have 

a maximum dissemination period, the minimum 

20-day period, as proposed, would apply. If the 

jurisdiction has a minimum dissemination period of 

less than 20 days (e.g., 10 days) and does not have 

a maximum dissemination period, the minimum 

20-day period, as proposed, would apply. If the 

jurisdiction has a minimum dissemination period of 

less than 20 days (e.g., 10 days) and a maximum 

dissemination period of less than 20 days (e.g., 15 

days), the maximum dissemination period under 

the jurisdiction would apply. If the jurisdiction has 

no minimum dissemination period and a maximum 

dissemination period of less than 20 days (e.g., 15 

days), the maximum dissemination period under 

the jurisdiction would apply. 

138 In addition, Section 6(a) requires the issuer’s 

principal executive officer or officers, principal 

financial officer, comptroller or principal 

accounting officer, and the majority of its board of 

directors or persons performing similar functions 

(or, if there is no board of directors or persons 

performing similar functions, by the majority of the 

persons or board having the power of management 

of the issuer) to sign a registration statement. When 

the issuer is a foreign entity, the registration 

statement must also be signed by the issuer’s duly 

authorized representative in the United States. 

139Section 2(a)(4) of the Securities Act. 

140Even when not liable under Section 11, the 

private operating company and its affiliates, 

however, may be subject to enforcement actions by 

the Commission, including those under Securities 

Act Section 17(a) and Exchange Act Section 10(b) 

and Rule 10b–5, as well as potential liability under 

17 CFR 240.10b–5 (Exchange Act Rule 10b–5) in 

private rights of action. See, e.g., In the Matter of 

Momentus, Inc., et al., Release No. 34–92391 (July 

13, 2021) (settled proceeding charging privately 

held company with violations of Section 17(a) of 

the Securities Act and Section 10(b) of the 

Exchange Act and Rule 10b–5 for, among other 

things, allegedly materially false statements and 

omissions in the registration statement/proxy 

statement filed in connection with a business 

combination with a publicly traded SPAC). 

141Proposed General Instruction L.4. to Form S– 

4; Proposed General Instruction I.4. to Form F–4. 

Section 6(a) of the Securities Act uses the term 

‘‘issuer,’’ but Securities Act registration statement 

forms use the term ‘‘registrant.’’ The term 

‘‘registrant’’ is defined in Rule 405 as ‘‘the issuer 

of the securities for which the registration statement 

is filed.’’ As a co-registrant of the Form S–4 or Form 

F–4, the private operating company would have an 

Exchange Act reporting obligation pursuant to 

Section 15(d) of the Exchange Act following the 

effectiveness of the registration statement. 

142That is, the operations of the private company 

constitute the business and the basis for the 

financial and other disclosures of the newly 

combined public company following a de-SPAC 

transaction. 

143The legislative history of the broad definition 

of the term ‘‘issuer’’ in the Securities Act suggests 

that the identification of the ‘‘issuer’’ of a security 

should be based on the economic reality of a 

transaction to ensure that, in service of the 

Continued 

instruments and applicable exchange 

listing rules to complete de-SPAC 

transactions within a certain time frame 

and that relying on the safe harbor we 

are proposing under the Investment 

Company Act would also limit the time 

frame in which to announce and 

complete a de-SPAC transaction.134

Nevertheless, given the complexity of 

the SPAC structure, the conflicts of 

interest that are often present in this 

structure and the effects of dilution on 

non-redeeming shareholders, the 

proposed 20-calendar day period would 

establish a minimum time period for 

shareholders to review prospectuses and 

proxy and information statements in deSPAC transactions (subject to the carveout discussed below),135 so that they 

have sufficient time to consider the 

disclosures and to make more informed 

voting, investment and redemption 

decisions.136 In the event that the laws 

of a SPAC’s jurisdiction of incorporation 

or organization have a provision 

applicable to the dissemination of 

prospectuses and proxy and information 

statements required under the federal 

securities laws, we are proposing to 

include a provision that would require 

a registrant to satisfy the maximum 

dissemination period permitted under 

the applicable law of such jurisdiction 

when this period is less than 20 

calendar days to avoid conflicting with 

such a requirement.137

Request for Comment 

61. Should we require a minimum 

dissemination period for prospectuses 

and proxy or information statements in 

de-SPAC transactions as proposed? Is a 

20–day period necessary or appropriate 

to enable shareholders to review and 

consider these disclosure documents 

relating to a de-SPAC transaction? 

Should this 20 calendar day period be 

longer or shorter? Should the minimum 

dissemination period be based on 

business days (e.g., 20 business days) 

instead of calendar days as proposed? 

62. Would there be timing concerns 

on the part of SPACs in meeting the 

proposed minimum 20-day 

dissemination period? Should we 

include an exception for the applicable 

laws of the SPAC’s jurisdiction of 

incorporation or organization, as 

proposed? Should we include other 

exceptions to the proposed minimum 

20-day dissemination period? 

63. Would additional guidance be 

helpful in determining how to apply 

this proposed requirement? 

64. Are there additional or alternative 

requirements we should adopt in 

connection with the dissemination of 

disclosure documents in a de-SPAC 

transaction? 

C. Private Operating Company as CoRegistrant to Form S–4 and Form F–4 

Under Section 6(a) of the Securities 

Act, each ‘‘issuer’’ must sign a 

Securities Act registration statement.138

The Securities Act broadly defines the 

term ‘‘issuer’’ to include every person 

who issues or proposes to issue any 

securities.139 Currently, when a SPAC 

offers and sells its securities in a 

registered de-SPAC transaction, only the 

SPAC, its principal executive officer or 

officers, its principal financial officer, 

its controller or principal accounting 

officer, and at least a majority of its 

board of directors (or persons 

performing similar functions) are 

required to sign the registration 

statement for the transaction. In these 

situations, the private operating 

company, for which the de-SPAC 

transaction effectively serves as its 

initial public offering, and its officers 

and directors do not sign the registration 

statement that contains disclosure about 

the private operating company’s 

business and financial results and 

thereby may avoid liability as 

signatories to the registration statement 

under Section 11 of the Securities Act, 

unlike if the private operating company 

had conducted a traditional initial 

public offering registered on Form S–1 

or Form F–1.140

We are proposing to amend Form S– 

4 and Form F–4 to require that the 

SPAC and the target company be treated 

as co-registrants when these registration 

statements are filed by the SPAC in 

connection with a de-SPAC 

transaction.141 In view of the 

protections that the Securities Act 

provides to investors in a traditional 

initial public offering, it is appropriate 

in our view to interpret Section 6(a) to 

encompass the target company, in 

addition to the SPAC, as an issuer for 

purposes of Section 6(a) and the 

signature requirements of Form S–4 or 

Form F–4. 

A de-SPAC transaction marks the 

introduction of the private operating 

company to the U.S. public securities 

markets, and investors look to the 

business and prospects of the private 

operating company in evaluating an 

investment in the combined 

company.142 Accordingly, it is the 

private operating company that, in 

substance, issues or proposes to issue its 

securities, as securities of the newly 

combined public company.143 While 


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disclosure purpose of the Act, the person(s) that 

have access to the information relevant to investors 

are responsible as an ‘‘issuer’’ for providing such 

information. See, e.g., H.R. REP. 73–85, 12 (‘‘Special 

provisions govern the definition of ‘issuer’ in 

connection with security issues of an unusual 

character. . . . [For example, in the case of an 

investment trust], although the actual issuer is the 

trustee, the depositor is the person responsible for 

the flotation of the issue. Consequently, information 

relative to the depositor and to the basic securities 

is what chiefly concerns the investor—information 

respecting the assets and liabilities of the trust 

rather than of the trustee.’’). 

144The Commission has previously specified who 

constitutes the ‘‘registrant’’ for purposes of signing 

a Securities Act registration statement in certain 

contexts. For example, an instruction in Forms S– 

4 and F–4 requires two or more existing 

corporations to be deemed co-registrants when they 

will be parties to a consolidation and the securities 

to be offered are those of a corporation not yet in 

existence at the time of filing. See Instruction 3 to 

the signature page for Form S–4 and Form F–4 (‘‘If 

the securities to be offered are those of a 

corporation not yet in existence at the time the 

registration statement is filed which will be a party 

to a consolidation involving two or more existing 

corporations, then each such existing corporation 

shall be deemed a registrant and shall be so 

designated on the cover page of this Form, and the 

registration statement shall be signed by each such 

existing corporation and by the officers and 

directors of each such existing corporation as if 

each such existing corporation were the 

registrant.’’). 

145 In this regard, we note that the target 

company’s directors and executive officers are the 

parties most similarly situated to the directors and 

officers of a private company conducting a 

traditional initial public offering, in terms of their 

knowledge of, and background in, the company 

going public through a de-SPAC transaction. 

146See, e.g., 17 CFR 229.10(f) (Item 10(f) of 

Regulation S–K); Rules 8–01, 8–02, 8–03, 8–07, and 

8–08 of Regulation S–X; Item 1A of Form 10 and 

Form 10–K; Item 3.02 of Form 8–K. A foreign 

private issuer is not eligible to use the scaled 

disclosure requirements for smaller reporting 

companies unless it uses the forms and rules 

designated for domestic issuers and provides 

financial statements prepared in accordance with 

U.S. GAAP. Instruction 2 to Item 10(f); Instruction 

2 to definition of ‘‘smaller reporting company’’ in 

Securities Act Rule 405 and Exchange Act Rule 

12b–2. 

147 Item 305(e) of Regulation S–K. 

148The definition of ‘‘smaller reporting company’’ 

is set forth in Securities Act Rule 405, Exchange Act 

Rule 12b–2 and Item 10(f) of Regulation S–K. 

149See Item 10(f)(2)(iii) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. 

150See infra Section IX.B.2.f. 

151See Item 10(f)(2) of Regulation S–K; Securities 

Act Rule 405; Exchange Act Rule 12b–2. 

similar policy considerations can arise 

in other business combination contexts, 

given the substantial increase in the 

number of SPAC transactions in recent 

years, the number of shareholders 

typically impacted by such transactions, 

and concerns that are unique to the 

SPAC structure, we are concerned that 

a narrow approach to registrant status in 

de-SPAC transactions could undermine 

the statutory liability scheme that 

Congress applied to initial public 

offerings of securities. 

We are proposing to amend the 

signature instructions to Form S–4 and 

F–4 to state that, if a SPAC is offering 

its securities in a de-SPAC transaction 

that is registered on the form, the term 

‘‘registrant’’ for purposes of the 

signature requirements of the form 

would mean the SPAC and the target 

company.144 This requirement would 

make the additional signatories to the 

form, including the principal executive 

officer, principal financial officer, 

controller/principal accounting officer, 

and a majority of the board of directors 

or persons performing similar functions 

of the target company, liable (subject to 

a due diligence defense for all parties 

other than the SPAC and the target 

company), for any material 

misstatements or omissions in the Form 

S–4 or Form F–4 and would thereby 

mitigate the risk that the target 

company’s directors and management 

would not be held accountable to 

investors for the accuracy of the 

disclosures in the registration statement 

due to the absence of the deterrent 

threat of liability under Section 11.145

Moreover, this proposed requirement 

could improve the reliability of the 

disclosure provided to investors in 

connection with de-SPAC transactions 

by creating strong incentives for such 

additional signing persons to review 

more closely the disclosure about the 

target company in these registration 

statements and to conduct more 

searching due diligence in connection 

with de-SPAC transactions and related 

registration statements. 

Request for Comment 

65. Should we amend Form S–4 and 

Form F–4, as proposed, to require that 

the SPAC and the private operating 

company be treated as co-registrants 

when the registration statement is filed 

by the SPAC in connection with a deSPAC transaction? 

66. Would amending Form S–4 and 

Form F–4 in this manner improve the 

disclosure provided in connection with 

de-SPAC transactions that are registered 

on these forms? 

67. Should the proposed amendment 

to Form S–4 and Form F–4 be extended 

to apply to all business combination 

transactions where a shell company, 

other than a business combination 

related shell company, is the acquirer? 

68. Should the sponsor of a SPAC also 

be required to sign a Form S–4 or Form 

F–4 filed in connection with a de-SPAC 

transaction, as well as a Form S–1 or 

Form F–1 filed for a SPAC’s initial 

public offering, in view of, among other 

things, the sponsor’s control over the 

SPAC and the sponsor’s role in 

preparing these registration statements? 

Would such a requirement be consistent 

with the Commission’s approach in 

requiring a majority of the board of 

directors of any corporate general 

partner to sign a registration statement 

when the registrant is a limited 

partnership? 

69. Should we also adopt 

corresponding amendments to Form S– 

1 and Form F–1 in the event that these 

forms are used by a SPAC for a de-SPAC 

transaction? 

D. Re-Determination of Smaller 

Reporting Company Status 

Smaller reporting companies are a 

category of registrants that are eligible 

for scaled disclosure requirements in 

Regulation S–K and Regulation S–X and 

in various forms under the Securities 

Act and the Exchange Act.146 For 

example, smaller reporting companies 

are not required to provide quantitative 

and qualitative information about 

market risk pursuant to Item 305 of 

Regulation S–K.147 In general, a smaller 

reporting company is a company that is 

not an investment company, an assetbacked issuer or a majority-owned 

subsidiary of a parent that is not a 

smaller reporting company, and had (1) 

a public float of less than $250 million, 

or (2) had annual revenues of less than 

$100 million during the most recently 

completed fiscal year for which audited 

financial statements are available and 

either had no public float or a public 

float of less than $700 million.148

Smaller reporting company status is 

determined at the time of filing an 

initial registration statement under the 

Securities Act or Exchange Act for 

shares of common equity and is redetermined on an annual basis. Once a 

company determines that it is not a 

smaller reporting company, it will retain 

this status unless it determines, when 

making its annual determination, that 

its public float was less than $200 

million or, alternatively, that its public 

float and annual revenues fell under 

certain thresholds.149

Currently, most SPACs qualify as 

smaller reporting companies,150 and a 

post-business combination company 

after a de-SPAC transaction is permitted 

by rule 151 to retain this status until the 

next annual determination date when a 

SPAC is the legal acquirer of the private 

operating company in a de-SPAC 

transaction. The absence of a redetermination of smaller reporting 

company status upon the completion of 

these de-SPAC transactions permits 

certain post-business combination 

companies to avail themselves of scaled 

disclosure and other accommodations 

when they otherwise would not have 


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152A Form 8–K with Form 10 information is filed 

pursuant to Items 2.01(f), 5.01(a)(8), and/or 9.01(c) 

of the form. 

153Proposed Item 10(f)(2)(iv) and the proposed 

amendments to the definition of ‘‘smaller reporting 

company’’ in Securities Act Rule 405 and Exchange 

Act Rule 12b–2. The float determination would be 

required to precede the first Commission filing after 

the Form 8–K with Form 10 information. 

154 In re-determining smaller reporting company 

status annually, a registrant is required to measure 

its public float as of the last business day of its most 

recently completed second fiscal quarter. 

155For example, as proposed, a post-business 

combination company would be required to redetermine whether it qualifies as a smaller 

reporting company, using the initial qualification 

thresholds in the definition, prior to the time the 

company makes its first Commission filing (e.g., a 

Form 8–K, registration statement or periodic report) 

after the filing of a Form 8–K with Form 10 

information, with its public float measured as of a 

date within four business days after the completion 

of the de-SPAC transaction. The company would 

not be required to reflect this re-determination of 

smaller reporting company status in any 

Commission filing until it files its first periodic 

report (Form 10–K or Form 10–Q) following the deSPAC transaction. Thus, if a SPAC qualified as a 

smaller reporting company before a de-SPAC 

transaction and was the legal acquirer in the deSPAC transaction, the post-business combination 

company would continue to be able to rely on the 

scaled disclosure accommodations for smaller 

reporting companies when filing a registration 

statement between the re-determination date and 

the post-business combination company’s first 

periodic report. 

156Section 27A of the Securities Act and Section 

21E of the Exchange Act. The PSLRA does not 

impact the Commission’s ability to bring 

enforcement actions relating to forward-looking 

statements. 

157Section 27A(b) of the Securities Act and 

Section 21E(b) of the Exchange Act. In addition, the 

safe harbor is not available for an offering by a 

Continued 

qualified as a smaller reporting 

company had they become public 

companies through a traditional initial 

public offering. 

In view of the informational 

asymmetries that result when a private 

operating company chooses to go public 

through such a de-SPAC transaction and 

the increasing prevalence of these 

transactions as a vehicle for private 

operating companies to become 

reporting companies under the 

Exchange Act, we are proposing to 

require a re-determination of smaller 

reporting company status following the 

consummation of a de-SPAC 

transaction. As proposed, this redetermination of smaller reporting 

company status would occur prior to the 

time the post-business combination 

company makes its first Commission 

filing, other than the Form 8–K with 

Form 10 information,152 with the public 

float threshold measured as of a date 

within four business days after the 

consummation of the de-SPAC 

transaction and the revenue threshold 

determined by using the annual 

revenues of the private operating 

company as of the most recently 

completed fiscal year for which audited 

financial statements are available.153

The applicable thresholds in the current 

definition would remain unchanged. 

The proposed four-business day 

window to calculate the public float 

threshold following a de-SPAC 

transaction would end on the due date 

for the Form 8–K with Form 10 

information that a post-business 

combination company is required to file 

after the completion of a de-SPAC 

transaction. The proposed four-business 

day period would provide some 

flexibility for issuers to measure public 

float, compared to the annual redetermination of smaller reporting 

company status,154 and would allow for 

a more accurate reflection of a postbusiness combination company’s public 

float, in view of the limited trading 

history of the common equity securities 

of the post-business combination 

company following a de-SPAC 

transaction. 

We are proposing to require a postbusiness combination company to 

reflect this re-determination of smaller 

reporting company status in its first 

periodic report (Form 10–K or Form 10– 

Q) following a de-SPAC transaction, 

which would provide the post-business 

combination company with time to 

prepare for any loss of the scaled 

disclosure and other accommodations 

available to smaller reporting 

companies.155 As proposed, a postbusiness combination company that 

fails to qualify for smaller reporting 

company status after a de-SPAC 

transaction would remain unqualified 

until its next annual re-determination of 

this status. 

Request for Comment 

70. As proposed, the re-determination 

of smaller reporting company status 

must be based on public float measured 

as of a date within four business days 

after the consummation of the de-SPAC 

transaction and the annual revenues of 

the private operating company as of the 

most recently completed fiscal year for 

which audited financial statements are 

available. Should we require the redetermination of smaller reporting 

company status upon the completion of 

a de-SPAC transaction, as proposed? 

Should public float be determined 

within a different time frame (e.g., 30 

days) or through a different method 

(e.g., as the average over a certain 

period)? Should the annual revenues of 

the private operating company be used 

in determining whether the revenue 

threshold has been met, as proposed? 

71. Should we require a post-business 

combination company following a deSPAC transaction to reflect the redetermination of smaller reporting 

company status in its next periodic 

report, as proposed? Alternatively, 

should we require a post-business 

combination company to reflect the redetermination of smaller reporting 

company status at an earlier or later 

point in time after the completion of a 

de-SPAC transaction, such as in the first 

periodic report that covers the period in 

which the de-SPAC transaction 

occurred (e.g., when a de-SPAC 

transaction is completed after the end of 

a fiscal year but prior to the due date of 

the Form 10–K for that fiscal year)? 

Should we provide an accommodation 

if a de-SPAC transaction is completed 

close in time to the due date for the 

registrant’s first periodic report? 

72. To the extent that a post-business 

combination company no longer 

qualifies for smaller reporting company 

status as a result of the proposed redetermination of this status following a 

de-SPAC transaction, would the 

proposed re-determination make it more 

difficult for such a company to file a 

registration statement after the filing of 

its first periodic report that complies 

with the disclosure requirements 

applicable to non-smaller reporting 

companies? If so, should we provide 

any accommodations for this scenario? 

73. Should we make any additional 

changes with respect to re-determining 

smaller reporting company status after 

the completion of a de-SPAC 

transaction? For example, should we 

replace the public float test with a 

revenue test for this purpose? Should 

we provide any guidance with respect to 

how to apply this proposal? 

74. Should we similarly require a redetermination of emerging growth 

company status, accelerated filer status, 

large accelerated filer status and/or 

foreign private issuer status upon the 

completion of a de-SPAC transaction? 

E. PSLRA Safe Harbor 

The PSLRA provides a safe harbor for 

forward-looking statements under the 

Securities Act and the Exchange Act, 

under which a company is protected 

from liability for forward-looking 

statements in any private right of action 

under the Securities Act or Exchange 

Act when, among other things, the 

forward-looking statement is identified 

as such and is accompanied by 

meaningful cautionary statements.156

The safe harbor is not available, 

however, when a forward-looking 

statement is made in connection with an 

offering by a blank check company or an 

initial public offering.157


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penny stock issuer, a roll-up transaction, a going 

private transaction, an offering by a partnership or 

a limited liability company, a tender offer, or an 

offering by an issuer convicted of specified 

securities law violations or subject to certain 

injunctive or cease and desist actions. 

158These other terms are ‘‘rollup transaction,’’ 

‘‘partnership,’’ ‘‘limited liability company,’’ 

‘‘executive officer of an entity,’’ and ‘‘direct 

participation investment program.’’ 

159Section 27A(i)(7) of the Securities Act and 

Section 21E(i)(5) of the Exchange Act. 

160See supra notes 3 and 13. The statutory 

definition of ‘‘blank check company’’ appears in 

Section 7(b)(3) of the Securities Act. 

161See supra note 12. 

162See, e.g., Matt Levine, Money Stuff: Maybe 

SPACs Are Really IPOs, Bloomberg, Apr. 12, 2021; 

Eliot Brown, Electric-Vehicle Startups Promise 

Record-Setting Revenue Growth, The Wall Street 

Journal, Mar. 15, 2021; Public Statement on SPACs, 

IPOs and Liability Risk under the Securities Laws 

(Division of Corporation Finance, Apr. 8, 2021). 

163See supra note 33. 

164We are also proposing to amend the definition 

to remove the reference to ‘‘development stage 

company’’ because the reference would be 

unnecessary for purposes of the proposed 

definition. 

165Forward-looking statements made by target 

private operating companies do not fall under the 

safe harbor, because the safe harbor is not available 

to companies that are not subject to the reporting 

requirements of Section 13(a) or 15(d) of the 

Exchange Act at the time that the statement is 

made. Further, the safe harbor would not be 

available to the subset of shell companies that meet 

the amended definition of ‘‘blank check company’’ 

(i.e., that has no specific business plan or purpose 

or has indicated that its business plan is to engage 

in a merger or acquisition with an unidentified 

company or companies, or other entity or person). 

166The exclusion in the safe harbor for offerings 

by ‘‘blank check companies’’ is subsumed by the 

exclusion for penny stock issuers, in that the term 

‘‘blank check company,’’ as currently defined in 

Rule 419, is ‘‘a development stage company that 

. . . is issuing ‘penny stock.’ ’’ 

167See proposed amendments to Rules 137, 138, 

139, 163A, 164, 174, 430B, and 437a. As proposed, 

the term ‘‘blank check company issuing penny 

stock’’ would be defined as a company that is 

subject to Rule 419. Due to current Federal Register 

formatting requirements, we are also proposing 

technical changes to Rule 163A and Rule 164 to 

move the Preliminary Note(s) in these rules to 

introductory paragraphs of the respective rules. 

For purposes of the safe harbor, the 

term ‘‘blank check company’’ and 

certain other terms 158 ‘‘have the 

meanings given those terms by rule or 

regulation of the Commission.’’ 159 The 

Commission has defined the term 

‘‘blank check company’’ for purposes of 

and in Rule 419 as a development stage 

company that is issuing ‘‘penny stock,’’ 

as defined in Exchange Act Rule 3a51– 

1, and that has no specific business plan 

or purpose, or has indicated that its 

business plan is to merge with or 

acquire an unidentified company or 

companies, or other entity or person.160

This definition, which has not been 

amended since it was adopted by the 

Commission in 1992, predates the 

enactment of the PSLRA in 1995. SPACs 

that raise more than $5 million in a firm 

commitment underwritten initial public 

offering are excluded from this 

definition of ‘‘blank check company’’ 

because they are not selling ‘‘penny 

stock.’’ 161

Projections of the private operating 

company’s performance are typically 

prepared and disclosed in connection 

with a de-SPAC transaction. Some 

market participants are of the view that 

the PSLRA safe harbor for forwardlooking statements is available in deSPAC transactions when a SPAC is not 

a blank check company under Rule 419 

and thus may not exercise the same 

level of care in preparing forwardlooking statements, such as projections, 

as in a traditional initial public 

offering.162 As noted above, a number of 

commentators have raised concerns 

about the use of projections that they 

believe to be unreasonable in de-SPAC 

transactions.163

To address concerns about the use of 

forward-looking statements, such as 

projections, in connection with deSPAC transactions, and pursuant to the 

statutory authority under the PSLRA to 

define ‘‘blank check company’’ by 

Commission rule or regulation, we are 

proposing to amend the definition of 

‘‘blank check company’’ for purposes of 

the PSLRA to remove the ‘‘penny stock’’ 

condition and to define the term as ‘‘a 

company that has no specific business 

plan or purpose or has indicated that its 

business plan is to engage in a merger 

or acquisition with an unidentified 

company or companies, or other entity 

or person.’’ 164 As discussed above, 

private companies are increasingly 

using de-SPAC transactions as a 

mechanism to become public 

companies. For purposes of the PSLRA, 

we see no reason to treat forwardlooking statements made in connection 

with de-SPAC transactions differently 

than forward-looking statements made 

in traditional initial public offerings, in 

that both instances involve private 

issuers entering the public U.S. 

securities markets for the first time and 

similar informational asymmetries that 

exist between these issuers (and their 

insiders and early investors) and public 

investors. Moreover, we see no reason to 

treat blank check companies differently 

for purposes of the PSLRA safe harbor 

depending on whether they raise more 

than $5 million in a firm commitment 

underwritten initial public offering and 

thus are not selling penny stock. 

Amending the definition of ‘‘blank 

check company’’ in this manner would 

clarify that the statutory safe harbor in 

the PSLRA is not available for forwardlooking statements, such as projections, 

made in connection with de-SPAC 

transactions involving an offering of 

securities by a SPAC or other issuer that 

meets the definition of ‘‘blank check 

company’’ as amended, such that 

forward-looking statements by SPACs, 

such as statements regarding the 

projections of target private operating 

companies in these transactions, would 

not fall under the safe harbor.165 The 

proposed amendment would also 

eliminate the current overlap in the safe 

harbor in regard to the exclusion for 

offerings by blank check companies and 

the exclusion for penny stock issuers.166

To avoid multiple definitions for the 

term ‘‘blank check company,’’ we are 

proposing to amend Rule 419 in a 

manner that would otherwise retain the 

current scope of the rule. We are also 

proposing to amend the references to 

‘‘blank check company’’ in various 

Securities Act rules to ‘‘blank check 

company issuing penny stock,’’ as such 

term would be defined in Securities Act 

Rule 405, to maintain the current scope 

of these rules.167

Request for Comment 

75. Should we define ‘‘blank check 

company’’ in Rule 405, as proposed? 

Should we include a reference in the 

definition to ‘‘development stage 

company’’ or the issuance of ‘‘penny 

stock’’? Should we consider other 

changes to the proposed definition? 

76. Would the proposed amendments 

improve the quality of projections in 

connection with de-SPAC transactions 

by clarifying that the safe harbor under 

the PSLRA is unavailable? Would the 

proposed amendment discourage some 

SPACs from disclosing projections in 

connection with these transactions or 

affect the ability of SPACs or target 

companies to comply with their 

obligations under the laws of their 

jurisdiction of incorporation or 

organization to disclose projections 

used by the board of directors or the 

companies’ fairness opinion advisers? 

77. As an alternative approach, 

should we issue an interpretation 

addressing whether a de-SPAC 

transaction is an ‘‘initial public 

offering’’ for purposes of the PSLRA? 

78. Would including the proposed 

Rule 405 definition of ‘‘blank check 

company’’ in Rule 419 create confusion 

for registrants and investors? Should we 

consider retaining a separate definition 

of ‘‘blank check company’’ for purposes 

of Rule 419? If so, why? 

79. Should we amend the references 

to ‘‘blank check company’’ in Securities 

Act Rules 137, 138, 139, 163A, 164, 174, 

430B and 437a to refer to ‘‘blank check 

company issuing penny stock,’’ as 

proposed? 


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168 15 U.S.C. 77b(a)(11). Section 2(a)(11) states 

that the term ‘‘issuer’’ shall include, in addition to 

an issuer, any person directly or indirectly 

controlling or controlled by the issuer, or any 

person under direct or indirect common control 

with the issuer. Therefore, any person who 

purchased securities from an affiliate of an issuer 

is an underwriter under Section 2(a)(11) if that 

person purchased with a view to the distribution of 

the securities. 

169See 2 Louis Loss (late), Joel Seligman, and 

Troy Paredes, Securities Regulation 3.A.3 (6th ed. 

2019) (‘‘The term underwriter is defined not with 

reference to the particular person’s general business 

but on the basis of his or her relationship to the 

particular offering. . . . Any person who performs 

one of the specified functions in relation to the 

offering is a statutory underwriter even though he 

or she is not a broker or dealer.’’). 

170Thomas Lee Hazen, The Law of Securities 

Regulation, section 4:98. 

171 17 CFR 230.144, Preliminary Note; Notice of 

Adoption of Rule 144 Relating to the Definition of 

the Terms ‘‘Underwriter’’ in Sections 4(1) and 2(11) 

and ‘‘Brokers Transactions’’ in Section 4(4) of the 

Securities Act of 1933, Adoption of Form 144, and 

Rescission of Rules 154 and 155 Under That Act, 

Release No. 33–5223 (Jan. 11, 1972) [37 FR 591 (Jan. 

13, 1972)]. 

172See, e.g., Ronald J. Gilson & Reinier Kraakman, 

The Mechanisms of Market Efficiency, 70 Va. L. 

Rev. 549, 620 (1984); Coffee, supra note 34, at 302 

n. 1, 308 nn.13–14; John C. Coffee, Jr., Brave New 

World?: The Impact(s) of the internet on Modern 

Securities Regulation, 52 Bus. Law. 1195, 1210–13, 

1232–33 (1999) (each discussing the role of 

underwriters as ‘‘gatekeepers’’ or ‘‘reputational 

intermediaries’’). See also Securities Act Concepts 

and Their Effects of Capital Formation, Release No. 

33–7314 (July 25, 1996) [61 FR 40044 (July 31, 

1996)] (discussing the role of gatekeepers in 

maintaining the quality of disclosure); Michael P. 

Dooley, The Effects of Civil Liability on Investment 

Banking and the New Issues Market, 58 Va. L. Rev. 

776 (1972) (‘‘The most important function 

performed during origination is the selection of 

candidates for public investment. The decision to 

underwrite a particular issue is normally made only 

after careful investigation of the issuer and 

evaluation of its prospects. Not all corporations are 

able to win sponsorship of proposed flotations, and 

prestigious underwriters reject many more 

candidates than they accept. After initially deciding 

to sponsor a flotation, the managing underwriter 

must conduct another, more intensive investigation 

into the issuer’s affairs in order to satisfy the duty 

to conduct a ‘reasonable investigation’ imposed on 

underwriters by section 11 of the 1933 Act . . . 

[t]he screening and investigative processes 

employed in origination should weed out those 

prospective issuers least likely to make productive 

use of publicly invested funds and should identify 

elements of risk in those issues which are selected 

and presented to the public. The successful 

performance of these functions is important to the 

protection of investors and to the optimum 

allocation of economic resources.’’). 

173See, e.g., Harold S. Bloomenthal & Samuel 

Wolff, Due diligence defenses—Underwriter’s 

responsibilities and liabilities, 3B Sec. & Fed. Corp. 

Law § 12:42 (2d ed.) (‘‘The managing or initiating 

underwriter plays a critical role in determining 

access to capital markets. The decision of a 

particular investment banking firm to put together 

an underwriting syndicate in order to float an issue 

of securities or to refrain from doing so for a 

particular issuer obviously has significance beyond 

investors since it determines to a degree the shape 

of our economy. However, it has specific and 

immediate significance to members of the investing 

public in that in large part reliance is being placed 

on such underwriters to screen the multitude of 

issuers seeking access to the capital markets.’’). 

174SPACs initially engage in firm commitment 

underwritten offerings in order to first sell their 

securities to the public. See supra Section I. 

However, as we further discuss below, the 

compensation structure for SPAC initial public 

offerings is generally different than that in 

traditional firm commitment offerings because a 

significant portion of the compensation is deferred. 

175 15 U.S.C. 77k. 

176 15 U.S.C. 77l(a)(2). 

80. Should we amend Rule 419 so that 

some or all of its conditions are 

applicable to SPACs that raise more 

than $5 million in a firm commitment 

underwritten initial public offering? If 

so, which conditions? What would be 

the advantages and drawbacks of such 

an approach? Should we amend the 

definition of ‘‘penny stock’’ to bring 

more SPACs within the scope of Rule 

419? 

81. Are there other rule amendments 

we should consider in connection with 

the PSLRA? 

F. Underwriter Status and Liability in 

Securities Transactions 

Underwriters form an essential link in 

the distribution of securities from an 

issuer to investors. The term 

‘‘underwriter’’ is broadly defined in 

Section 2(a)(11) of the Securities Act to 

mean ‘‘any person who has purchased 

from an issuer with a view to, or offers 

or sells for an issuer in connection with, 

the distribution of any security, or 

participates or has a direct or indirect 

participation in any such undertaking, 

or participates or has a participation in 

the direct or indirect underwriting of 

any such undertaking.’’ 168 The 

determination of whether a particular 

person is an ‘‘underwriter’’ does not 

depend on the person’s business but 

rather on that person’s relationship to a 

particular securities offering. Any 

person whose activities with respect to 

any given offering fall within one of the 

prongs of the Section 2(a)(11) definition 

is deemed to meet the statutory 

definition of underwriter—commonly 

known as a ‘‘statutory underwriter.’’ 169

Congress enacted a broad definition of 

‘‘underwriter’’ in order to ‘‘include as 

underwriters all persons who might 

operate as conduits for securities being 

placed into the hands of the investing 

public.’’ 170 Correspondingly, the 

Commission’s longstanding view is that, 

depending on facts and circumstances, 

any person, including an individual 

investor who is not a professional in the 

securities business, can be an 

‘‘underwriter’’ within the meaning of 

the Securities Act if that person acts as 

a link in a chain of transactions through 

which securities are distributed from an 

issuer or its control persons to the 

public.171

As intermediaries between an issuer 

and the investing public, underwriters 

play a critical role as ‘‘gatekeepers’’ to 

the public markets.172 Historically, in 

initial public offerings, where the 

investing public might be unfamiliar 

with a particular issuer, financial firms 

that act as underwriters would lend 

their well-known name to support that 

issuer’s offering. Where public investors 

may not have been inclined to invest 

with the company seeking to conduct a 

public offering, they could take comfort 

in the fact that a large, well-known 

financial institution, acting as 

underwriter, was including its name on 

the first page of the issuer’s 

prospectus.173 In exchange, in a firm 

commitment underwritten offering, the 

underwriters earn the ‘‘gross spread’’ 

between the price stated on the cover of 

the prospectus (the price at which the 

underwriters will sell the issuer’s shares 

to the public for the first time) and the 

price at which the underwriters are able 

to negotiate with the issuer for the 

initial purchase of the issuer’s shares.174

An underwriter’s participation in an 

issuer’s offering also exposes the 

underwriter to potential liability under 

the Securities Act. The civil liability 

provisions of the Securities Act reflect 

the unique position underwriters 

occupy in the chain of distribution of 

securities and provide strong incentives 

for underwriters to take steps to help 

ensure the accuracy of disclosure in a 

registration statement. Section 11 of the 

Securities Act imposes on underwriters, 

among other parties identified in 

Section 11(a), civil liability for any part 

of the registration statement, at 

effectiveness, which contained an 

untrue statement of a material fact or 

omitted to state a material fact required 

to be stated therein or necessary to make 

the statements therein not misleading, 

to any person acquiring such 

security.175 Similarly, Section 12(a)(2) 

imposes liability upon anyone, 

including underwriters, who offers or 

sells a security, by means of a 

prospectus or oral communication, 

which includes an untrue statement of 

a material fact or omits to state a 

material fact necessary in order to make 

the statements, in the light of the 

circumstances under which they were 

made, not misleading, to any person 

purchasing such security from them.176

These provisions provide significant 

investor protections to those who 

acquire securities sold pursuant to a 

registration statement by providing tools 

to hold companies, underwriters, and 

other parties accountable for 

misstatements and omissions in 

connection with public offerings of 


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177See William O. Douglas & George E. Bates, The 

Federal Securities Act of 1933, 43 Yale L.J. 171 

(1933) (‘‘The civil liabilities imposed by the Act are 

not only compensatory in nature but also in 

terrorem. They have been set high to guarantee that 

the risk of their invocation will be effective in 

assuring that the ‘truth about securities’ will be 

told.’’). 178See Section 11(b)(3) of the Securities Act. [15 

U.S.C. 77k(b)(3).]. 179Similarly, Section 12(a)(2) of the Securities 

Act provides a defense for defendants who, in the 

exercise of ‘‘reasonable care,’’ could not have 

known of the alleged misstatement or omission (15 

U.S.C. 77l(a)(2)). Courts generally have construed 

these two defenses similarly. See, e.g., In re 

WorldCom Inc. Sec. Litig., 346 F. Supp. 2d 628, 

663–64 (S.D.N.Y. 2004). 

180H.R. No. 85, 73d Cong., 1st Sess. (1933) (From 

the Introductory Statement to the Report submitted 

by Mr. Rayburn, Committee on Interstate and 

Foreign Commerce: ‘‘Honesty, care, and 

competence are the demands of trusteeship. These 

demands are made by the bill on the directors of 

the issues, its experts, and the underwriters who 

sponsor the issue. If it be said that the imposition 

of such responsibilities upon these persons will be 

to alter corporate organization and corporate 

practice in this country, such a result is only what 

your committee expects.’’). 

181 Id. (‘‘The duty of care to discover varies in its 

demands upon participants in security distribution 

with the importance of their place in the scheme 

of distribution and with the degree of protection 

that the public has a right to expect.’’). See also New 

High Risk Ventures, Release No. 33–5275 (July 27, 

1972) [37 FR 16011 (Aug. 9, 1972)] (discussing the 

Commission’s views that Section 11 was designed 

by Congress to incentivize persons associated with 

the distribution of securities to ‘‘exercise the 

‘honesty, care and competence’ necessary to assure 

the accuracy of the [s]tatements in the registration 

statement’’). 

182See, e.g., Circumstances Affecting the 

Determination of What Constitutes Reasonable 

Investigation & Reasonable Grounds for Belief 

Under Section 11 of the Sec. Act Treatment of Info. 

Inc. by Reference into Registration Statements, 

Release No. 33–6335 (Aug. 6, 1981) [46 FR 42015 

(Aug. 18, 1981)] (‘‘In sum, the Commission strongly 

affirms the need for due diligence and its attendant 

vigilance and verification.’’). 

183See Bloomenthal, supra note 173. See also 

Release No. 33–5275, supra note 181. 

184See, e.g., In re Charles E. Bailey & Co., 35 

S.E.C. 33, at 41 (Mar. 25, 1953) (‘‘[An underwriter] 

owe[s] a duty to the investing public to exercise a 

degree of care reasonable under the circumstances 

of th[e] offering to assure the substantial accuracy 

of representations made in the prospectus and other 

sales literature.’’); In re Brown, Barton & Engel, 41 

SEC 59, at 64 (June 8, 1962) (‘‘[I]n undertaking a 

distribution . . . [the underwriter] had a 

responsibility to make a reasonable investigation to 

assure [itself] that there was a basis for the 

representations they made and that a fair picture, 

including adverse as well as favorable factors, was 

presented to investors.’’); In the Matter of the 

Richmond Corp., infra note 185 (‘‘It is a well 

established practice, and a standard of the business, 

for underwriters to exercise diligence and care in 

examining into an issuer’s business and the 

accuracy and adequacy of the information 

contained in the registration statement. . . . The 

underwriter who does not make a reasonable 

investigation is derelict in his responsibilities to 

deal fairly with the investing public.’’). 

185 In the Matter of the Richmond Corp., Release 

No. 33–4584 (Feb. 27, 1963). See also In re 

WorldCom, Inc. Sec. Litig., 346 F. Supp. 2d 628, 684 

(S.D.N.Y. 2004) (‘‘Underwriters . . . have special 

access to information about an issuer at a critical 

time in the issuer’s corporate life, at a time it is 

seeking to raise capital. The public relies on the 

underwriter to obtain and verify relevant 

information and then make sure that essential facts 

are disclosed.’’); Sanders v. John Nuveen & Co., 

Inc., 524 F.2d 1064, 1069–70 (7th Cir. 1975) (‘‘An 

underwriter’s relationship with the issuer gives the 

underwriter access to facts that are not equally 

available to members of the public who must rely 

on published information. And the relationship 

between the underwriter and its customers 

implicitly involves a favorable recommendation of 

the issued security. Because the public relies on the 

integrity, independence and expertise of the 

underwriter, the underwriter’s participation 

significantly enhances the marketability of the 

security. And since the underwriter is 

unquestionably aware of the public’s reliance on his 

participation in the sale of the issue, the mere fact 

that he has underwritten it is an implied 

representation that he has met the standards of his 

profession in his investigation of the issuer.’’); 

Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 

480 F.2d 341, 370 (2d Cir. 1973) (‘‘No greater 

reliance in our self-regulatory system is placed on 

any single participant in the issuance of securities 

than upon the underwriter. He is most heavily 

relied upon to verify published materials because 

of his expertise in appraising the securities issue 

and the issuer, and because of his incentive to do 

so. He is familiar with the process of investigating 

the business condition of a company and possesses 

extensive resources for doing so. . . . Prospective 

investors look to the underwriter . . . to pass on the 

soundness of the security and the correctness of the 

registration statement and prospectus.’’); Escott v. 

BarChris Const. Corp., 283 F. Supp. 643, 697 

(S.D.N.Y. 1968) (‘‘The purpose of Section 11 is to 

protect investors. To that end the underwriters are 

made responsible for the truth of the prospectus.’’). 

186See SEC v. Chinese Consolidated Benevolent 

Association, 120 F.2d 738 (2d Cir. 1941) (charitable 

association deemed a statutory underwriter in 

promoting the sale of war bonds, collecting funds 

and distributing the securities to its members 

notwithstanding the charitable association’s lack of 

a relationship with the issuer of the bonds); SEC v. 

Kern, 425 F.3d 143 (2d Cir. 2005). See also Release 

No. 33–5223, supra note 171 (stating that any 

persons may be underwriters within the meaning of 

Section 2(a)(11) ‘‘if they act as links in a chain of 

transactions through which securities move from an 

issuer to the public . . . . the Commission hereby 

emphasizes and draws attention to the fact that the 

statutory language of Section 2[(a)](11) is in the 

disjunctive. Thus, it is insufficient to conclude that 

a person is not an underwriter solely because he did 

securities.177 As a result, anyone who 

might be named as a potential defendant 

in these suits has strong incentives to 

take the necessary steps to avoid such 

liability. 

One defense available to an 

underwriter in a distribution is the ‘‘due 

diligence’’ defense, which shields an 

underwriter from liability if it can 

establish that, after reasonable 

investigation, the underwriter had 

reasonable ground to believe and did 

believe, at the time the registration 

statement became effective, that the 

statements therein were true and that 

there was no omission to state a material 

fact required to be stated therein or 

necessary to make the statements 

therein not misleading.178 To establish 

its ‘‘due diligence’’ defense, an 

underwriter must establish that it 

exercised reasonable care in verifying 

the statements in the registration 

statement. Underwriters in a traditional 

initial public offering are therefore 

motivated to take the investigative steps 

necessary to establish the ‘‘due 

diligence’’ defense.179 The statutory 

provision of a due diligence defense 

appears to reflect an intent to improve 

the standards of conduct to which 

persons associated with the distribution 

of securities are to be held by imposing 

upon them standards of ‘‘honesty, care, 

and competence.’’ 180 It was believed 

that the imposition of civil liability 

under the Securities Act upon 

participants in a distribution would 

cause them to exercise the care 

necessary to assure the accuracy of the 

statements in the registration 

statement.181

Consistent with this intent, the 

Commission has stated that the due 

diligence efforts performed by 

underwriters are central to the integrity 

of our disclosure system.182 The 

investing public relies on underwriters 

to ‘‘screen the multitude of issuers 

seeking access to the capital markets’’ 

and expects them to verify the accuracy 

of the information in the registration 

statement.183 Moreover, although the 

Securities Act does not expressly 

require an underwriter to conduct a due 

diligence investigation, the Commission 

has long expressed the view that 

underwriters nonetheless have an 

affirmative obligation to conduct 

reasonable due diligence.184 The 

Commission has stated that ‘‘an 

underwriter [in a securities offering] 

impliedly represents that he has made 

such an investigation [of the accuracy of 

the information in the registration 

statement] in accordance with 

professional standards’’ and ‘‘[i]nvestors 

properly rely on this added protection 

which has a direct bearing on their 

appraisal of the reliability of the 

representations in the prospectus.’’ 185

1. Participants in a Distribution as 

‘‘Underwriters’’ 

Common interpretations of the 

underwriter definition in Section 

2(a)(11) traditionally have focused on 

the words ‘‘with a view to’’ in the 

phrase ‘‘purchased from an issuer with 

a view to . . . distribution.’’ Thus, an 

investment banking firm that arranges 

with an issuer for the public sale of its 

securities is clearly an ‘‘underwriter.’’ 

However, as noted above, the statutory 

definition of underwriter is much 

broader. Both federal courts and the 

Commission previously have found that 

other parties involved in securities 

offerings can be deemed ‘‘statutory 

underwriters’’ under the underwriter 

definition, such as by selling ‘‘for an 

issuer;’’ 186 and/or directly or indirectly 


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not purchase securities from an issuer with a view 

to their distribution. It must also be established that 

the person is not offering or selling for an issuer in 

connection with the distribution of the securities 

and that the person does not participate or have a 

participation in any such undertaking, and does not 

participate or have a participation in the 

underwriting of any such undertaking.’’). 

187See, e.g., Harden v. Raffensperger, Hughes & 

Co., 65 F.3d 1392 (7th Cir. 1995) (third party 

retained as a ‘‘qualified independent underwriter’’ 

to perform due diligence and recommend a 

minimum yield for a bond offering deemed a 

statutory underwriter). The defendant argued that it 

was not an underwriter because it had neither 

purchased nor sold any of the distributed securities. 

The court held that the defendant’s activities fell 

within the ‘‘participates’’ and ‘‘has a participation’’ 

language of Section 2(a)(11), reasoning that Section 

2(a)(11) is broad enough to encompass all persons 

who engage in the steps necessary to the 

distribution of securities. 

188See, e.g., Geiger v. SEC, 363 F.3d 481, 487 

(D.C. Cir. 2004) (defendant ‘‘participated’’ in a 

distribution as a statutory underwriter through its 

actions in finding a buyer, negotiating the terms of 

the transaction, and facilitating the resale of 

securities). 

189See, e.g., Chinese Consolidated Benevolent 

Association, supra note 186, at 740 (‘‘The 

solicitation of offers to buy the unregistered bonds, 

either with or without compensation, brought 

defendant’s activities literally within the 

prohibition of the statute.’’); see also J. William 

Hicks, 7A Exempted Trans. Under Securities Act 

1933 § 9:39 (citing the Brief for the Securities and 

Exchange Commission in Chinese Consolidated 

Benevolent Association: ‘‘The legislative history of 

Section 2[(a)](11) makes it apparent that Congress 

did not intend to require the elements of 

compensation or a contract with the issuer in order 

to make a distributor of securities an underwriter. 

In an earlier draft of the Securities Act, which was 

considered by the House Committee on Interstate 

and Foreign Commerce, the definition of 

underwriter . . . would have made the 

underwriting relationship depend upon the receipt 

of compensation. In abandoning that definition and 

adopting the definition which is included in the bill 

as enacted, Congress showed a clear intention of 

extending the term to include all persons who sell 

for an issuer, whether or not they do so for profit.’’). 

190See, e.g., Raffensperger, supra note 187. 

191See, e.g., Chinese Consolidated Benevolent 

Association, supra note 186, at 740 (Hand, J. 

explaining, ‘‘Whether the Chinese government as 

issuer authorized the solicitation, or merely availed 

itself of gratuitous and even unknown acts on the 

part of the defendant whereby written offers to buy, 

and the funds collected for payment, were 

transmitted to the Chinese banks does not affect the 

meaning of the statutory provisions which are quite 

explicit. In either case, the solicitation was equally 

for the benefit of the Chinese government and 

broadly speaking was for the issuer in connection 

with the distribution of the bonds.’’). 

192See, e.g., SEC v. Allison, No. C–81–19 RPA, 

1982 WL 1322 (N.D. Cal. 1982). 

193Release No. 33–5223, supra note 171, at 4. See 

also Gilligan, Will & Co. v. SEC, 267 F.2d 461 (2d 

Cir. 1959) (holding that a distribution exists if there 

are sales to those who cannot ‘‘fend for themselves’’ 

and citing Ralston Purina Co., 346 U.S. 119 (1953)). 

194See Opinion of General Counsel relating to 

Rule 142, Release No. 33–1862 (Dec. 14, 1938). 

195See J. William Hicks, 7A Exempted Trans. 

Under Securities Act 1933 § 9:18. Courts have 

equated the term ‘‘distribution’’ with a public 

offering of securities. See, e.g., Berckeley Inv. 

Group, Ltd. v. Colkitt, 455 F.3d 195, 215 (3d Cir. 

2006) (‘‘We agree with the rationale of those courts 

and similarly hold that the term ‘‘distribution’’ in 

§ 2(a)(11) is synonymous with ‘public offering.’’’); 

see also Gilligan, Will & Co., supra note 193, at 466 

(‘‘a ‘distribution’ requires a ‘public offering’’’ 

(citation omitted)). 

196 J. William Hicks, 7A Exempted Trans. Under 

Securities Act 1933 § 9:18 (citing Geiger v. SEC, 363 

F.3d 481, 484, 487 (D.C. Cir. 2004), where the court 

agreed with the SEC that the petitioners, Charles F. 

Kirby and Gene Geiger (head trader and salesman, 

respectively, at a securities brokerage firm), who 

made resales in broker transactions over a two-week 

period of 133,333 shares of the roughly 25 million 

shares then outstanding, were engaged in a 

distribution within the meaning of Section 2(a)(11) 

of the Securities Act and that one ‘‘did not have to 

be involved in the final step of [a] distribution to 

have participated in it’’). See also R.A Holman v. 

SEC, 366 F.2d 446, 449 (2d Cir. 1966) (finding that 

an ongoing distribution and related manipulation 

had occurred where a broker-dealer sold securities 

on a ‘‘delayed delivery’’ basis and there was a real 

possibility at the time of purchase that the 

purchaser would cancel the order and quoting 

Lewisohn Copper Corp., 38 SEC. 226, 234 (1958)); 

accord In the Matter of Oklahoma-Texas Tr., 2 SEC. 

764, 769, 1937 WL 32951 (Sept. 23, 1937), aff’d, 100 

F.2d 888 (10th Cir. 1939) (finding an ongoing 

distribution where portions of a registered offering 

continued to be held by securities dealers). 

197Such a transaction may take a variety of forms 

and involve a multitude of issuers. However, the 

rule we are proposing would apply to all de-SPAC 

transactions involving a registered offer of 

securities. 

198A court has addressed in dicta whether a 

somewhat analogous situation involving the 

introduction of private companies to the public 

markets through an existing shareholder base was 

a distribution. See SEC v. Datronics Engineers, Inc., 

490 F.2d 250, 254 (4th Cir. 1973), cert denied, 416 

U.S. 937 (1974) wherein Datronics, a public 

corporation, acquired a number of privately-held, 

target companies in merger transactions. A 

subsidiary of the defendant would merge with the 

target company, with the subsidiary surviving the 

merger. Both the shareholder-principals of the 

target and Datronics received stock in the surviving 

subsidiary. After the merger, Datronics distributed 

some of its shares to its shareholders as a dividend. 

In this way, formerly privately-held companies 

became publicly owned without going through a 

registered public offering. The court stated in dicta, 

‘‘we think that Datronics was an underwriter within 

the meaning of the 1933 Act. Hence its transactions 

were covered by the prohibitions, and were not 

within the exemptions, of the Act. §§ 3(a)(1) and 

Continued 

‘‘participating’’ in a distribution by 

engaging in activities ‘‘necessary to the 

distribution’’ 187 or in ‘‘distributionrelated activities.’’ 188 Such parties can 

attain underwriter status even if they do 

not receive compensation for their 

services,189 do not sell securities 

directly to the public,190 and do not 

have privity of contract with the 

issuer.191 Similarly, courts have 

interpreted the underwriter definition 

broadly to include promoters, officers, 

and control persons who have arranged 

for public trading of an unregistered 

security or have stimulated investor 

interest in such security through 

advertisements, research reports, or 

other promotional efforts.192 Moreover, 

the Commission has stated that ‘‘there is 

nothing in Section 2[(a)](11) which 

places a time limit on a person’s status 

as an underwriter’’ because the ‘‘public 

has the same need for protection 

afforded by registration whether the 

securities are distributed shortly after 

their purchase or after a considerable 

length of time.’’ 193

2. The De-SPAC Transaction as a 

‘‘Distribution’’ of the Combined 

Company’s Securities 

Underwriter status depends upon a 

person’s activities occurring ‘‘in 

connection with’’ a ‘‘distribution’’ of 

any security. The Commission has 

explained that underwriter status under 

the ‘‘participation’’ prong of the 

underwriter definition depends on the 

putative underwriter ‘‘enjoying 

substantial relationships with the issuer 

or underwriter, or engaging in the 

performance of any substantial 

functions in the organization or 

management of the distribution.’’ 194

The Securities Act does not define the 

term ‘‘distribution;’’ however, the 

federal courts and the Commission have 

interpreted the term as synonymous 

with a ‘‘public offering’’ within the 

meaning of Section 4(a)(2) of the Act.195

Moreover, a distribution has been said 

to comprise ‘‘the entire process by 

which in the course of a public offer [a] 

block of securities is dispersed and 

ultimately comes to rest in the hands of 

the investing public.’’ 196

The purpose of a SPAC initial public 

offering is to raise a pool of cash in 

order to subsequently merge with a 

private operating company in a deSPAC transaction that will convert the 

private operating company into a public 

company. Although the timing of a 

SPAC initial public offering and a deSPAC transaction is bifurcated because 

a private operating company is not 

identified at the SPAC initial public 

offering stage, the result of a de-SPAC 

transaction, however structured, is 

consistent with that of a traditional 

initial public offering. The substance of 

a de-SPAC transaction is, in many ways, 

analogous to the distribution that occurs 

in a traditional IPO—i.e., a SPAC’s 

assets consist primarily of highly liquid 

assets, such as cash and government 

securities, and the combined company 

effectively distributes its securities to 

public holders of SPAC shares in 

exchange for the contribution of the 

SPAC’s assets to the combined 

company. The de-SPAC transaction 

marks the introduction of the private 

operating company to the public capital 

markets 197 and is effectively how the 

private operating company’s securities 

‘‘come to rest’’—in other words, are 

distributed—to public investors as 

shareholders of the combined 

company.198 Accordingly, as in a 


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4(1) of the 1933 Act, 15 U.S.C. 77c, 77d. By 

definition, the term underwriter ‘means any person 

who has purchased from an issuer with a view to, 

or offers or sells for an issuer in connection with, 

the distribution of any security, or participates or 

has a direct or indirect participation in any such 

undertaking. . . .’ § 2(11) of the 1933 Act, 15 

U.S.C. 77b(11). . . . By this underwriter 

distribution Datronics violated [Section] 5 of the 

1933 Act—sale of unregistered securities.’’ 

199See Gilligan, Will & Co., supra note 193. 

200Most SPAC deals contain an available cash 

condition that represents a minimum amount of 

proceeds below which the target will not be 

obligated to consummate the transaction. The cash 

condition represents a number the sponsor group 

believes it can reasonably achieve given their 

banking syndicate, network, access to capital, and 

the target company itself. Since cash in trust is 

subject to redemption, one mechanism to ensure the 

cash condition will be satisfied is to secure 

commitments for a PIPE investment. See SPAC 

Research Weekly Newsletter (Oct. 19, 2020), 

available at https://www.spacresearch.com/ 

newsletter?date=2020-10-19. In addition the staff 

has observed that for the vast majority of PIPEs 

associated with de-SPAC transactions, the closing 

of the PIPE financing is cross-conditioned on the 

closing of the de-SPAC transaction. 

201Under Section 11, ‘‘any person acquiring such 

security’’ has a right of recovery. The Commission’s 

longstanding view for traditional firm commitment 

registered offerings is that standing to sue under 

this provision extends to all purchasers of 

securities, whether the purchase occurred in the 

offering or subsequently in the secondary market. 

See Brief of the SEC in DeMaria v. Andersen, 318 

F.3d 170 (2d Cir. 2003). 

202See generally Chinese Consolidated 

Benevolent Association, supra note 186 and 

accompanying text. 

203See Klausner, Ohlrogge, and Ruan, supra note 

17. It is not necessary, however, for a SPAC IPO 

underwriter to derive a pecuniary benefit from the 

distribution in order for Section 2(a)(11) to apply. 

See Brief for the SEC at 19, Chinese Consolidated 

Benevolent Association, supra note 186 (‘‘The 

legislative history of Section 2[(a)](11) makes it 

apparent that Congress did not intend to require the 

elements of compensation or a contract with the 

issuer in order to make a distributor of securities 

an underwriter.’’) 

204See Robert J. Haft, Peter M. Fass, Michele Haft 

Hudson, and Arthur F. Haft, Tax-Advantaged 

Securities, Overview of SPACs § 6:134.60. 

traditional underwritten initial public 

offering, public investors—who were 

unfamiliar with the formerly private 

company—would benefit from the 

additional care and diligence exercised 

by SPAC underwriters in connection 

with the de-SPAC transaction.199

3. Proposed Rule: SPAC IPO 

Underwriters Are Underwriters in 

Registered De-SPAC Transactions 

Proposed Rule 140a would clarify that 

a person who has acted as an 

underwriter in a SPAC initial public 

offering (‘‘SPAC IPO underwriter’’) and 

participates in the distribution by taking 

steps to facilitate the de-SPAC 

transaction, or any related financing 

transaction,200 or otherwise participates 

(directly or indirectly) in the de-SPAC 

transaction will be deemed to be 

engaged in the distribution of the 

securities of the surviving public entity 

in a de-SPAC transaction within the 

meaning of Section 2(a)(11) of the 

Securities Act. Clarifying the 

underwriter status of SPAC IPO 

underwriters in connection with deSPAC transactions should motivate 

them to exercise the care necessary to 

help ensure the accuracy of the 

disclosures in these transactions by 

affirming that they are subject to Section 

11 liability for registered de-SPAC 

transactions.201 In this way, proposed 

Rule 140a underscores and reinforces 

that the liability protections in de-SPAC 

transactions involving registered 

offerings have the same effect as those 

in underwritten initial public offerings. 

As described above, the purpose of a 

SPAC’s initial public offering is to 

facilitate a subsequent de-SPAC 

transaction, and for target companies 

merging with a SPAC, the de-SPAC 

transaction is the means chosen, out of 

the several avenues available under the 

securities laws, for a private operating 

company to go public. It is the method 

by which the target company’s 

securities, as securities of the combined 

company, are distributed into the hands 

of public investors. Although SPAC IPO 

underwriters typically are not retained 

to act as firm commitment underwriters 

in the de-SPAC transaction, they 

nevertheless typically participate in 

activities that are necessary to that 

distribution.202 For instance, it is 

common for a SPAC IPO underwriter (or 

its affiliates) to participate in the deSPAC transaction as a financial advisor 

to the SPAC, and engage in activities 

necessary to the completion of the deSPAC distribution such as assisting in 

identifying potential target companies, 

negotiating merger terms, or finding 

investors for and negotiating PIPE 

investments. Furthermore, receipt of 

compensation in connection with the 

de-SPAC transaction could constitute 

direct or indirect participation in the deSPAC transaction. While SPAC IPO 

underwriting fees—those fees the SPAC 

IPO underwriters earn for their efforts in 

connection with the initial offering of 

SPAC shares to the public—generally 

range between 5% and 5.5% of IPO 

proceeds, a significant portion (typically 

3.5% of IPO proceeds) is deferred until, 

and conditioned upon, the completion 

of the de-SPAC transaction.203 A SPAC 

IPO underwriter therefore typically has 

a strong financial interest in taking steps 

to ensure the consummation of the deSPAC transaction.204 For these reasons, 

proposed Rule 140a would clarify that 

the SPAC IPO underwriter is an 

underwriter with respect to the 

distribution that occurs in the de-SPAC 

transaction, when it takes steps to 

facilitate the de-SPAC transaction, or 

any related financing transaction, or 

otherwise participates (directly or 

indirectly) in the de-SPAC transaction. 

We note that proposed Rule 140a 

addresses the underwriter status of only 

the SPAC IPO underwriter in the 

context of a de-SPAC transaction. In 

addition, we have discussed above some 

of the activities that are sufficient to 

establish that the SPAC IPO underwriter 

is participating in the distribution of 

target company securities. This 

discussion, however, is not intended to 

provide an exhaustive assessment of 

underwriter status in the SPAC context, 

and neither is it intended to limit the 

definition of underwriter for purposes of 

Section 2(a)(11) of the Securities Act. 

Federal courts and the Commission may 

find that other parties involved in 

securities distributions, including other 

parties that perform activities necessary 

to the successful completion of de-SPAC 

transactions, are ‘‘statutory 

underwriters’’ within the definition of 

underwriter in Section 2(a)(11). For 

example, financial advisors, PIPE 

investors, or other advisors, depending 

on the circumstances, may be deemed 

statutory underwriters in connection 

with a de-SPAC transaction if they are 

purchasing from an issuer ‘‘with a view 

to’’ distribution, are selling ‘‘for an 

issuer,’’ and/or are ‘‘participating’’ in a 

distribution. 

Request for Comment 

82. Should we adopt a definition of 

distribution in Rule 140a, as proposed? 

83. Does the current regulatory regime 

provide sufficient incentives for 

participants in a de-SPAC transaction to 

conduct appropriate due diligence on 

the target private operating company 

and the disclosures provided to public 

investors in connection with the deSPAC transaction? Would proposed 

Rule 140a likely result in improved 

diligence of private company targets in 

de-SPAC transactions and related 

disclosure? Would the other measures 

we are proposing in this release mitigate 

the need for proposed Rule 140a? 

84. Does the SPAC IPO underwriter 

have the means and access necessary 

(via contract or otherwise) to perform 

due diligence at the de-SPAC 

transaction stage, particularly where the 

SPAC IPO underwriter is not retained as 

an advisor in the de-SPAC transaction 

or the target is the registrant for the deSPAC transaction? Could such access be 

reasonably obtained in the course of the 

negotiation of the underwriting 

agreement for the SPAC initial public 

offering or otherwise? 

85. Will shareholders after the deSPAC transaction have difficulty 


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205As stated above, throughout this release, we 

use ‘‘shell company’’ and ‘‘reporting shell 

company’’ in lieu of the phrases ‘‘shell company, 

other than a business combination related shell 

company’’ and ‘‘reporting shell company, other 

than a business combination related shell 

company.’’ See supra note 43 for the definition of 

‘‘reporting shell company.’’ 

206The requirements in Form S–4, Form F–4, and 

Schedule 14A for an acquisition of a business were 

developed at a time when acquirers were generally 

operating companies, and these requirements do 

not specifically address transactions involving shell 

companies. For example, Form S–4 was adopted by 

the Commission in 1985, which predates the origins 

of SPACs in the 1990s. See Business Combination 

Transactions-Adoption of Registration Form, 

Release No. 33–6578 (Apr. 23, 1985) [50 FR 19001 

(May 6, 1985)]. 

207See supra notes 7 and 8 regarding the 2020– 

2021 increase in popularity of SPACs as a means 

for private companies to access the public markets. 

208See supra note 9. 

209See generally, Ronald M. Shapiro and 

Laurence M. Katz, The ‘‘Going Public through the 

Back Door’’ Phenomenon—An Assessment, 29 Md. 

L. Rev. 320 (1969); Leib Orlanski, Going Public 

through the Backdoor and the Shell Game, 58 Va. 

L. Rev. 1451 (1972) (both describing various ways 

of combining with a public shell company as a 

method to bring private corporations public). 

210Shell company business combinations can 

take many forms. They can be as simple in structure 

as a statutory merger, with a private operating 

company merging with and into a shell company 

that has previously filed a Form 10 with the 

Commission, or as complex as a de-SPAC 

transaction involving multiple merging entities, tax 

blockers, and/or a new holding company. Among 

de-SPAC transactions, the Commission staff has 

observed a number of variations, only some of 

which are consistently registered transactions. For 

example, in de-SPAC transactions structured as 

share exchanges, securities can be offered and sold 

to the public holders of SPAC securities from the 

target, a new holding company, or they can retain 

their interests in the reporting SPAC. 

211These transactions generally can take the form 

of either a ‘‘reverse merger’’ in which the private 

business merges into the shell company, with the 

shell company surviving and the former 

shareholders of the private business controlling the 

surviving entity or, in another common type of 

transaction, a ‘‘back door registration,’’ the shell 

company merges into the formerly private 

company, with the formerly private company 

surviving and the shareholders of the shell 

company becoming shareholders of the surviving 

entity. See Use of Form S–8, Form 8–K, and Form 

20–F by Shell Companies, Release No. 33–8587 

(July 15, 2005) [70 FR 42234 (July 21, 2005)] (‘‘Shell 

Company Adopting Release’’). Both alternatives 

transform a private company into a public company 

by combining directly or indirectly with a public 

company (whether through a merger, exchange 

offer, or otherwise). 

212For example, unregistered transactions can 

involve a direct or indirect offer and sale of the 

public shell’s securities to holders of the target 

entity’s securities in consideration for their interests 

in the target entity. The public shell is then the 

entity that survives the business combination. In 

the context of SPACs, where there is no registration 

statement, transactions are typically disclosed to 

the SPAC’s public shareholders in a proxy or 

information statement if there is a vote or consents 

being solicited, or otherwise in a Schedule TO. In 

shell company mergers where there is no vote, the 

shell company’s shareholders may only learn about 

the transaction when the shell company files an 

Item 5.06 Form 8–K to report a change in shell 

company status. With respect to de-SPAC 

transactions, the Commission staff has observed 

that in 2020 (Sept. 30, 2019 to Oct. 1, 2020), 21 deSPAC transactions were registered on Form S–4 or 

F–4 and 16 were disclosed on proxy or information 

statements soliciting shareholder votes or consents, 

respectively. Over the same months in 2021, 212 

de-SPAC transactions were registered on Form S– 

4 or F–4 and 48 were disclosed on proxy or 

information statements. 

recovering against SPAC IPO 

underwriters liable under Securities Act 

Section 11 due to potential challenges 

in tracing the shares they hold to an 

effective registration statement for the 

de-SPAC transaction? Are there steps 

we should take to address the 

challenges shareholders might face in 

tracing their shares to such a registration 

statement? For example, should we 

consider rulemaking to define ‘‘any 

person acquiring such security’’ under 

Securities Act Section 11 in the context 

of de-SPAC transactions and, if so, how 

should it be defined? 

86. Should we limit the application of 

proposed Rule 140a to situations in 

which the SPAC IPO underwriter takes 

steps to facilitate the de-SPAC 

transaction, or any related financing 

transaction, or otherwise participates 

(directly or indirectly) in the de-SPAC 

transaction, as proposed? 

87. Would a determination that SPAC 

IPO underwriters are engaged in a 

distribution of the private operating 

company’s securities, as proposed, raise 

additional issues we should address? 

For example, does it raise questions 

about when the SPAC IPO underwriters’ 

participation in the SPAC initial public 

offering distribution is completed for 

purposes of calculating the restricted 

period under Regulation M? 

88. As noted above, there may be 

additional parties that are involved in a 

de-SPAC transaction that may fall 

within the statutory definition of 

underwriter because they are 

‘‘participating in the distribution’’ of the 

target private operating company’s 

securities to the public. Should 

proposed Rule 140a be expanded to 

expressly include such other parties? If 

so, which parties? Should the rule 

instead deem any party playing a 

significant role at the de-SPAC 

transaction stage to be an underwriter? 

Should the Commission provide 

additional guidance as to which 

additional parties may be underwriters 

and what activities or other 

considerations would be relevant to 

determining whether a party falls within 

the statutory definition of underwriter 

in a de-SPAC transaction? 

89. Is it clear what parties would be 

considered a SPAC IPO underwriter for 

purposes of proposed Rule 140a? 

Should we limit underwriter status as 

clarified by Rule 140a to the entities 

acting as traditional underwriter in a 

SPAC IPO? Are there other parties that 

should be specifically excluded from 

the application of the rule? 

90. Are there alternative approaches 

we should consider that would enhance 

the incentives of participants in a deSPAC transaction to assure the accuracy 

of the disclosures provided to public 

investors in connection with the deSPAC transaction and/or align liability 

protections for investors across the 

various avenues for private operating 

companies to go public? 

IV. Business Combinations Involving 

Shell Companies 

In response to concerns regarding the 

use of shell companies 205 as a means of 

accessing the U.S. capital markets, and 

as discussed more fully below, we are 

proposing new rules that would apply 

to business combination transactions 

involving shell companies, which 

include de-SPAC transactions. First, we 

are proposing new Rule 145a under the 

Securities Act that would deem such 

business combination transactions to 

involve a sale of securities to a reporting 

shell company’s shareholders. Second, 

we are proposing new Article 15 of 

Regulation S–X and related 

amendments to more closely align the 

required financial statements of private 

operating companies in connection with 

these transactions with those required 

in registration statements on Form S–1 

or F–1 for an initial public offering.206

The issues we are addressing with these 

rule proposals are common to these 

shell company transactions, regardless 

of whether the shell company is a 

SPAC. 

A. Shell Company Business 

Combinations and the Securities Act of 

1933 

1. Shell Company Business 

Combinations 

SPAC initial public offerings and 

business combinations occurred with 

increased frequency in 2020 and 

2021,207 but a business combination 

with a reporting shell company 208 is not 

a new means for a private company to 

become a U.S. public company with an 

Exchange Act reporting obligation.209

Historically, private companies have 

utilized shell companies in various 

forms of transactions,210 such as spinoffs, reverse mergers, and de-SPAC 

transactions to become U.S. public 

companies,211 in many cases without 

filing a Securities Act registration 

statement.212 Due to abuses involving 

shell company transactions, over the 

years the Commission has adopted 

various rules and limitations intended 


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213We note that these rules and limitations 

generally do not apply to shell companies that 

qualify as ‘‘business combination related shell 

companies’’ as defined in Rule 405. See infra 

Section IV.A.3. 

214See 17 CFR 230.144(i), 17 CFR 230.145(c) and 

(d), and Revisions to Rules 144 and 145, Release No. 

33–8869 (Dec. 6, 2007) [72 FR 71546 (Dec. 17, 

2007)]. 

215See Form S–8 [17 CFR 239.16b], General 

Instruction A.1, Rule as to Use of Form S–8; Shell 

Company Adopting Release, supra note 211. 

216See 17 CFR 230.165(e)(2)(ii) and Securities 

Offering Reform, Release No. 33–8591 (July 19, 

2005) [70 FR 44722 (Aug. 3, 2005)]. 

217See 17 CFR 240.15c2–11(f)(3)(i)(B)(2) and 

Publication or Submission of Quotations Without 

Specified Information, Release No. 33–10842 (Sept. 

16, 2020) [85 FR 68124 (Oct. 27, 2020)]. 

218See generally Spin Offs and Shell 

Corporations, Release No. 33–4982 (July 2, 1969) 

[34 FR 11581 (July 15, 1969)] (stating the 

Commission’s concern over the use of shell 

companies to effect unregistered distributions of 

securities in spin-offs and in other contexts). 

219 Id. See also Notice of Adoption of Rules 145 

and 153A, Prospective Rescission of Rule 133, 

Amendment of Form S–14 Under the Securities Act 

of 1933, and Amendment of Rule 14a–2, 14a–6 and 

14c–5 Under the Securities Exchange Act of 1934, 

Release No. 33–5316 (Oct. 6, 1972) [37 FR 23631 

(Nov. 7, 1972)] (‘‘Rule 145 Adopting Release’’). 

220For example, in SEC v. M & A W., Inc., 538 

F.3d 1043, 1053 (9th Cir. 2008), the court 

considered a civil enforcement action against an 

individual engaged in the business of assisting 

private corporations to become publicly-traded 

companies through reverse merger transactions 

with reporting shell companies, alleging the sale of 

unregistered securities. The court noted: ‘‘[W]e are 

informed by the purpose of registration, which is 

‘to protect investors by promoting full disclosure of 

information thought necessary to informed 

investment decisions.’ The express purpose of the 

reverse mergers at issue in this case was to 

transform a private corporation into a corporation 

selling stock shares to the public, without making 

the extensive public disclosures required in an 

initial offering. Thus, the investing public had 

relatively little information about the former private 

corporation. In such transactions, the investor 

protections provided by registration requirements 

are especially important.’’). 

221See supra note 43 for a definition of this term. 

222 15 U.S.C. 77e. 

223 15 U.S.C. 77b(3). 

224 In this regard, the Supreme Court has stated 

that securities legislation, enacted for the purpose 

of avoiding frauds, is to be construed ‘‘not 

technically and restrictively, but flexibly to 

effectuate its remedial purposes.’’ SEC v. Cap. 

Gains Rsch. Bureau, Inc., 375 U.S. 180, 195, 84 S. 

Ct. 275, 284–85 (1963). See also SEC v. Harwyn 

Indus. Corp., 326 F. Supp. 943, 954 (S.D.N.Y. 1971) 

(construing ‘‘value’’ in Section 2(a)(3) to include the 

creation of a public market in the shares with its 

resulting benefits to the defendants, the court 

stated, ‘‘. . . [W]e must look to its overall purpose, 

which is to provide adequate disclosure to members 

of the investing public, rather than engage in 

strangulating literalism.’’); SEC v. Datronics 

Engineers, Inc., 490 F.2d 250, 254 (4th Cir. 1973), 

cert denied, 416 U.S. 937 (1974); In the Matter of 

UniversalScience.com, Inc., Release No. 33–7879 

(Aug. 8, 2000) (distribution of securities as 

purported ‘‘free stock’’ constituted a sale because it 

was a disposition for value, the ‘‘value’’ arising ‘‘by 

virtue of the creation of a public market for the 

issuer’s securities.’’); and Thomas Lee Hazen, The 

Law of Securities Regulation § 12:22 (‘‘Concepts of 

purchase and sale are to be construed flexibly in 

order to accomplish the purpose of the securities 

laws. The courts will consider the economic reality 

of the transaction and whether it lends itself to 

fraud in the making of an investment decision.’’). 

225See 17 CFR 230.145(a) and (b) (Securities Act 

Rules 145(a) and (b)) and Rule 145 Adopting 

Release, supra note 219 (Rule 145 deems the 

submission to a vote of stockholders of a proposal 

for certain mergers, consolidations, or 

reclassifications of securities or transfers of assets 

to involve a ‘‘sale,’’ ‘‘offer,’’ ‘‘offer to sell,’’ or ‘‘offer 

for sale’’ of the securities of the new or surviving 

corporation to the security holders of the 

disappearing corporation). 

226See proposed 17 CFR 230.145a. 

227See supra note 43 for a definition of this term. 

228This expresses our views as to the substance 

of these transactions for the purposes of the 

Securities Act. Neither proposed Rule 145a nor the 

description in this section is intended to express a 

view with respect to the treatment of these 

transactions under other laws including, but not 

limited to, state corporate law and the Internal 

Revenue Code. 

229Although no securities may actually be 

changing hands, in substance, shareholders in a 

reporting shell company merger are effectively 

exchanging their interests in the shell company for 

interests in a non-shell company; these 

shareholders can be viewed as having surrendered 

‘‘value’’ for the purposes of Section 2(a)(3). 

230We note that this rule does not change the 

conclusion that a merger with a reporting shell 

company may constitute the offer and sale of 

to address the misuse of shell 

companies.213 For example: 

• Rule 144 is not available for the 

resale of securities initially issued by 

either reporting or non-reporting shell 

companies; 214

• Shell companies are not permitted 

to use Form S–8; 215

• Shell companies are considered 

ineligible issuers that cannot use free 

writing prospectuses for 

communications during a registered 

offering; 216 and 

• Broker-dealers are able to rely on 

the ‘‘piggyback’’ exception to publish 

quotations for shell companies for only 

18 months following the initial priced 

quotation on OTC Markets.217

Although many of these rules address 

concerns related to market manipulation 

and penny stock fraud, the Commission 

also has previously expressed concerns 

about the use of a shell company to 

distribute securities to the public 

without the protections afforded by the 

Securities Act including, where 

required, a registration statement.218

The lack of a registration statement 

could deprive investors of the critical 

disclosures and protections that come 

with Securities Act registration.219 The 

use of shell companies to complete 

business combinations can thus also 

provide companies with opportunities 

to avoid the disclosure, liability, and 

other provisions applicable in 

traditional registered offerings.220 These 

concerns are still present when shell 

companies are used in business 

combinations to provide private 

companies with access to the public 

markets. 

2. Proposed Rule 145a 

The substantive reality of a reporting 

shell company 221 business combination 

with a company that is not a shell 

company is that reporting shell 

company investors have effectively 

exchanged their security representing an 

interest in the reporting shell company 

for a new security representing an 

interest in the combined operating 

company. As noted above, however, 

unlike investors in transaction 

structures in which the Securities Act 

applies and a registration statement 

would be filed (absent an exemption), 

investors in reporting shell companies 

may not always receive the disclosures 

and other protections afforded by the 

Securities Act at the time the change in 

the nature of their investment occurs 

due to the business combination 

involving another entity that is not a 

shell company. 

Under the Securities Act, all offers 

and sales of securities must either be 

registered or be exempt from 

registration, and any offer or sale that is 

not registered or exempt violates 

Section 5.222 Section 2(a)(3) of the 

Securities Act defines a ‘‘sale’’ as, 

among other things, ‘‘every contract of 

sale or disposition of a security or 

interest in a security, for value.’’ 223 In 

view of the remedial purpose of the 

Securities Act, courts and the 

Commission have broadly interpreted 

this term, particularly with respect to 

the creation of a public market in shares 

of a private company.224 Moreover, the 

Commission has concluded that certain 

business combination and other 

transactions involve a sale of securities 

within the meaning of Section 2(a)(3).225

Due to the significant increase in 

reporting shell company business 

combination transactions as a means to 

enter the U.S. capital markets, including 

through the use of a SPAC, and in an 

effort to provide reporting shell 

company shareholders with more 

consistent Securities Act protections 

regardless of transaction structure, we 

are proposing new Rule 145a 226 that 

would deem any business combination 

of a reporting shell company 227

involving another entity that is not a 

shell company to involve a sale of 

securities to the reporting shell 

company’s shareholders.228 It is our 

preliminary view that such a transaction 

would be ‘‘a disposition of a security or 

interest in a security . . . for value,’’ 229

regardless of the form or structure 

deployed, and regardless of whether a 

shareholder vote or consent is 

solicited.230 By deeming such 


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securities to other parties for which registration 

under the Securities Act or an exemption would be 

required. For example, where a SPAC survives the 

de-SPAC transaction, the SPAC will frequently 

issue its securities to shareholders of the private 

company in exchange for their interests in the 

private company. Such a transaction would still 

require registration or an exemption from 

registration. 

231We note that even if an exemption applies, if 

Rule 145a is adopted, investors would have the 

protections of the anti-fraud provisions in Section 

17(a) of the Securities Act and Section 10(b) and 

Rule 10b–5 thereunder of the Exchange Act. [15 

U.S.C. 77q; 15 U.S.C. 78j; and 17 CFR 240.10b–5, 

respectively]. 

232 15 U.S.C. 77c(a)(9). 

233We note that none of the non-exclusive safe 

harbors in 17 CFR 230.152(b) would be likely to 

apply. In particular, the closing of the business 

combination with the reporting shell company 

would be simultaneous with the deemed exchange 

of reporting shell company securities with its own 

holders and would therefore not meet the 30-day 

safe harbor in 17 CFR 230.152(b)(1). 

234See supra Sections III.C and III.F, respectively. 

235See 15 U.S.C. 77k(a)(4). This would include 

auditors who opine on the financial statements 

associated with the business combination. 

Depending on the transaction and whether services 

are provided by other parties, this could also 

include, for example, valuation consultants, outside 

reviewers of management projections, or anyone 

who provides a fairness opinion about the 

transaction. 

236Some public shell company business 

combinations are not disclosed to investors until 

after the transaction has closed. See supra note 212. 

237See Rule 145 Adopting Release, supra note 

219. 

238See infra Sections III.F for a discussion of the 

sources of liability in registered de-SPAC 

transactions. 

239We reiterate the Commission’s previous 

position on structuring transactions to avoid shell 

company status in adopting the 2005 shell company 

limitations. See Shell Company Adopting Release, 

supra note 211, at n.32. 

240See the Supplementary Information to the 

Shell Company Adopting Release, supra note 211 

(‘‘We recognize that companies and their 

professional advisors often use shell companies for 

many legitimate corporate structuring purposes. 

Similarly, our definition and use of the term ’shell 

company’ is not intended to imply that shell 

companies are inherently fraudulent. Rather, these 

rules target regulatory problems that we have 

identified where shell companies have been used as 

vehicles to commit fraud and abuse our regulatory 

processes.’’). 

241See supra note 43 for the definition of 

‘‘business combination related shell company.’’ 

242See Shell Company Adopting Release, supra 

note 211. 

243Neither a SPAC nor any such entity formed to 

facilitate a merger with a SPAC meets the definition 

of a business combination related shell company 

because neither of these entities is a shell company 

formed solely for the purpose of changing the 

corporate domicile solely within the United States 

or formed solely for the purpose of completing a 

business combination transaction among one or 

more entities other than the shell company, none 

of which is a shell company. 

244However, such a business combination may 

continue to fall within Securities Act Rule 145 

because there is a shareholder vote and the 

transaction is one to which Rule 145 would apply 

(e.g., a statutory merger or consolidation or similar 

plan or acquisition where the sole purpose of the 

transaction is not to change an issuer’s domicile 

solely within the United States). 

transactions to be a ‘‘sale’’ for the 

purposes of the Securities Act, the 

proposed rule is intended to address 

potential disparities in the disclosure 

and liability protections available to 

reporting shell company shareholders 

depending on the transaction structure 

deployed in a reporting shell company 

business combination. 

Nothing in proposed Rule 145a would 

prevent or prohibit the use of a valid 

exemption, if available, for the deemed 

sale of securities to the reporting shell 

company’s shareholders in the business 

combination.231 However, our current 

view is that Section 3(a)(9) of the 

Securities Act,232 which exempts any 

securities exchange by an issuer with its 

existing security holders exclusively 

where no commission or other 

remuneration is paid or given directly or 

indirectly for soliciting such exchange, 

generally would not be available for the 

sales covered by proposed Rule 145a. In 

these circumstances, we believe that the 

deemed exchange by the reporting shell 

company’s existing shareholders for the 

combined company’s securities should 

be viewed as part of the same offering 

as the exchange of the private 

company’s securities for their interests 

in the combined company.233 As a 

result, because the exchange would not 

be exclusively with the reporting shell 

company’s existing security holders, 

Section 3(a)(9) would not be available to 

exempt the deemed sale to reporting 

shell company shareholders in proposed 

Rule 145a, if adopted. In addition, we 

note that Section 3(a)(9) would not be 

available where a commission or other 

remuneration is paid or given directly or 

indirectly for soliciting of participation 

in the deemed exchange. This would 

occur, for example, if a proxy solicitor 

is compensated to solicit the approval of 

the reporting shell company’s 

shareholders for the business 

combination. 

Given the substance of the 

transactions that would be covered by 

new Rule 145a, we are proposing the 

rule so that shareholders more 

consistently receive the full protections 

of the Securities Act disclosure and 

liability provisions in business 

combinations involving reporting shell 

companies, regardless of the transaction 

structure. Not only would registration in 

this context result in enhanced 

liabilities for signatories to any 

registration statement and potential 

underwriter liability as described 

elsewhere in this release,234 it would 

also include liability under Securities 

Act Section 11(a)(4) for experts, which 

include every accountant, engineer, or 

appraiser, or any person whose 

profession gives authority to a statement 

made by him, who has with his consent 

been named as having prepared or 

certified any part of the registration 

statement or as having prepared or 

certified any report or valuation which 

is used in connection with the 

registration statement.235 In addition, if 

the transaction is registered, Rule 145a 

would, in some cases, provide reporting 

shell company investors with additional 

pre-sale disclosure about a transaction 

that would significantly alter the nature 

of their investment.236 In this way, 

proposed Rule 145a is consistent with 

the intent of other rules intended to 

‘‘inhibit the creation of public markets 

in securities of issuers about which 

adequate current information is not 

available to the public.’’ 237 The 

proposed rule should also eliminate 

potential regulatory arbitrage 

opportunities to avoid disclosure 

requirements or liability through the use 

of alternative transaction structures 

when combining with a reporting shell 

company.238

3. Excluded Transactions 

We wish to emphasize that proposed 

Rule 145a would have no impact on 

business combinations between two 

bona fide non-shell entities. However, 

we note that any reporting shell 

company that is made to appear to have, 

or has cloaked itself as having, more 

than ‘‘nominal’’ assets or operations 

would still be subject to Rule 145a in a 

business combination transaction.239

The Commission has historically 

recognized the usefulness of shell 

companies formed solely to change an 

entity’s domicile or to effect a business 

combination transaction.240 As a result, 

the Commission has excluded such socalled business combination related 

shell companies 241 from many of the 

shell company requirements and 

prohibitions that have been put in place 

to ensure the protection of investors in 

such companies.242 Consistent with 

this, the proposed rule would not apply 

to reporting shell companies that are 

business combination related shell 

companies as this term is defined in 

Securities Act Rule 405.243

In addition, we are proposing to 

exclude the business combination of 

one shell company into another shell 

company from the scope of Rule 145a. 

Such a business combination would not 

amount to a fundamental change in the 

nature of the reporting shell company 

shareholder’s investment unlike a 

business combination with an entity 

that is not a shell company.244


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245The term ‘‘predecessor’’ when used in this 

section has the same meaning as applied in its use 

under Regulation S–X and determination of 

financial statement requirements. 

246Commission staff has provided informal 

guidance to address practical questions related to 

financial reporting issues for shell company 

mergers in the Division of Corporation Finance’s 

Financial Reporting Manual (‘‘FRM’’). The FRM is 

not a rule, regulation or statement of the 

Commission, and the Commission has neither 

approved nor disapproved its content. 

247See Items 17(b)(7) and 17(b)(8) of Form S–4; 

Items 17(b)(5) and 17(b)(6) of Form F–4; Item 14 of 

Schedule 14A; and Instruction 1 of Schedule 14C. 

248See supra Section III.D. 

249See supra note 112. 

Request for Comment 

91. Should we adopt Rule 145a as 

proposed? 

92. Should we be seeking to align the 

required disclosures and liabilities 

associated with shell company business 

combinations among the various 

available transaction structures in order 

to provide reporting shell company 

investors consistent disclosures and 

protections across transaction 

structures? Are there alternative 

approaches that would accomplish this 

goal? 

93. How would the proposed rule 

affect business combinations involving 

both SPACs and non-SPAC reporting 

shell companies? Would these entities 

be more likely to register such 

transactions? 

94. If the deemed sale to reporting 

shell company shareholders is required 

to be registered under the Securities Act 

pursuant to the proposed amendments, 

should we provide guidance with 

respect to the timing of the effectiveness 

of such registration statement in relation 

to the business combination? 

95. Are there other transactions that 

have purposes or results similar to 

reporting shell company business 

combinations that we should deem to 

constitute sales? Conversely, does the 

proposed rule deem too broad of a set 

of reporting shell company business 

combinations to be sales? For example, 

should the rule be limited to SPACs? 

96. Should proposed Rule 145a be 

limited to deeming shell company 

business combinations ‘‘sales’’ with 

respect to only reporting shell company 

shareholders? Are there other parties 

whose interest in a shell company 

would be such that a shell company 

business combination should be deemed 

a sale? For example, holders of 

securities other than common shares? 

97. Should reporting shell companies 

be prohibited from relying on the 

exemption in Securities Act Section 

3(a)(9) in a transaction deemed a sale 

under proposed Rule 145a? Should we 

provide additional guidance on the 

potential availability or lack of 

availability of other exemptions from 

registration for the proposed Rule 145a 

sale? If so, what exemptions should we 

address? 

98. Should we exclude business 

combination related shell companies 

from the scope of proposed Rule 145a, 

as proposed? 

99. Should Rule 145a exclude the 

business combination of one shell 

company into another shell company, as 

proposed? How frequently do such 

mergers occur in absence of the 

proposed Rule 145a? In such a situation, 

would either or both companies’ 

shareholders benefit from registration 

under the Securities Act? 

100. Securities Act Rule 145(a) deems 

sales within the meaning of Section 

2(a)(3) of the Securities Act for certain 

transactions submitted for the vote or 

consent of security holders. Securities 

Act Rules 145(c) and (d) include 

provisions that have the effect of 

limiting resales with respect to parties 

to transactions described in Rule 145(a) 

and their affiliates that involve shell 

companies. Although proposed Rule 

145a would apply to all reporting shell 

company business combinations, not all 

of these business combinations would 

also fall within Rule 145(a). Should we 

consider resale limitations for Rule 

145a? Should any such resale 

limitations be similar to those in 

existing Rule 145? 

101. Should we consider guidance or 

additional rule amendments for 

transactions where the provisions of 

existing Rule 145 and Rule 145a could 

overlap? For example, are there any 

rules that currently reference Rule 145 

that should be amended to apply (or not 

apply) to transactions covered by 

proposed Rule 145a (e.g., Rule 500 of 

Regulation D, which states the 

availability of the exemptions for Rule 

145(a) transactions; Securities Act Rule 

135, which allows notice of a registered 

offering, including for a Rule 145(a) 

transaction; or Rule 172, which 

prohibits the use of access equals 

delivery in Rule 145(a) transactions)? 

What, if any, issues should the 

Commission address through guidance? 

102. Are there other potential 

opportunities for regulatory arbitrage in 

shell company or SPAC transactions 

that the Commission should consider 

addressing? 

B. Financial Statement Requirements in 

Business Combination Transactions 

Involving Shell Companies 

After a business combination 

involving a shell company, the financial 

statements of the private operating 

company become those of the registrant 

for financial reporting purposes. In 

other words, the private operating 

company becomes the predecessor.245

How the private operating company 

chooses to become a public company 

could affect its financial statement 

disclosures due to differences in the 

requirements of registration statements 

on Form S–1/F–1 and the requirements 

of Form S–4/F–4. In our view, a 

company’s choice of the manner in 

which it goes public should not 

generally result in substantially 

different financial statement disclosures 

being provided to investors. 

We are proposing amendments to our 

forms, schedules, and rules to more 

closely align the financial statement 

reporting requirements in business 

combinations involving a shell company 

and a private operating company with 

those in traditional initial public 

offerings. The financial statements that 

would be required under the proposed 

amendments are based, in part, on 

current staff guidance for transactions 

involving shell companies.246 Codifying 

this guidance should reduce any 

asymmetries between financial 

statement disclosures in business 

combination transactions involving 

shell companies and traditional initial 

public offerings. Accordingly, we are 

proposing new Article 15 of Regulation 

S–X and related amendments to address 

certain inconsistencies in the reporting 

of financial information that can arise 

when applying existing requirements to 

business combination transactions 

involving shell companies compared to 

the financial statement requirements for 

a Securities Act registration statement. 

1. Number of Years of Financial 

Statements 

A registration statement on Form S– 

4 and F–4 and a proxy or information 

statement require financial statements of 

the target company for the same number 

of years of financial statements as would 

be required by the target in an annual 

report and any subsequent interim 

periods.247 Three years of statements of 

comprehensive income, changes in 

stockholders’ equity, and cash flows are 

required, except in the following 

scenarios when two years are permitted: 

• The target company would qualify 

as a smaller reporting company; 248

• The target company would be an 

emerging growth company (‘‘EGC’’) 249 if 

it were conducting an initial public 

offering of common equity securities 

and the registrant is an EGC that has not 

yet filed or been required to file its first 

annual report, even if the target would 


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250An EGC is permitted to include two years of 

statements of comprehensive income in its 

Securities Act registration statement for an initial 

public offering of its common equity securities. 

EGCs that are not smaller reporting companies are 

still required to include three years of statements 

of comprehensive income in their annual reports. 

See Rule 3–02 of Regulation S–X. 

251 Item 17(b)(5) of Form F–4; General Instruction 

G of Form 20–F; and Instruction 3 to Item 8.A.2 of 

Form 20–F. 

252See Items 17(b)(7) and 17(b)(8) of Form S–4; 

Items 17(b)(5) and 17(b)(6) of Form F–4; Item 14 of 

Schedule 14A; and Instruction 1 of Schedule 14C. 

In addition to providing three years of financial 

statements due to the private operating company 

not qualifying as an EGC, the private operating 

company would not be able to take advantage of the 

delayed adoption dates for new or revised 

accounting standards permitted by EGCs in its 

financial statements. In the staff’s view, the private 

operating company’s revenue, as predecessor, 

should be used to determine whether the registrant 

qualifies as an EGC after the transaction. See FAQ 

47 of the Division of Corporation Finance’s 

Jumpstart Our Business Startups Act Frequently 

Asked Questions, available at https://www.sec.gov/ 

divisions/corpfin/guidance/cfjjobsactfaq-title-igeneral.htm (last revised Dec. 21, 2015). The FAQ 

does not represent a rule, regulation or statement 

of the Commission, and the Commission has neither 

approved nor disapproved its content. 

253We use the term ‘‘business’’ in this context, 

rather than ‘‘private operating company,’’ in order 

to be consistent with the provisions in Regulation 

S–X that define and use business, such as Rule 11– 

01(d) of Regulation S–X. In a business combination 

transaction involving a shell company, the private 

operating company would meet the definition of a 

business. 

254The private operating company would also not 

be able to take advantage of the delayed adoption 

dates for new or revised accounting standards as 

that transition is only available to EGC companies. 

As described in FAQ 47 of the Division of 

Corporation Finance’s Jumpstart Our Business 

Startups Act Frequently Asked Questions, the staff 

takes the view that the private operating company’s 

revenue, as predecessor, will determine the posttransaction EGC status. See Securities Act Section 

7(a)(2)(B). 

255See proposed Rule 15–01(a) of Regulation S– 

X and Instruction 1 to Item 17(b) of Form S–4. 

256See Instruction 1 to Item 17(b)(5) of Form F– 

4 and General Instruction E(c)(2) of Form 20–F. 

257See 17 CFR 210.1–02(d) (Rule 1–02(d) of 

Regulation S–X). 

258See Instruction 1 to Item 17(b)(7) of Form S– 

4. 

259 Id. 

260See FRM at Section 4110.5 for a chart that 

outlines the staff’s application of certain PCAOB 

Continued 

not be a smaller reporting company; 250

or 

• The transaction is registered on a

Form F–4 and either (1) the target 

company is a first time adopter of 

International Financial Reporting 

Standards (‘‘IFRS’’) as issued by the 

International Accounting Standards 

Board (‘‘IASB’’), or (2) the Form F–4 is 

the initial registration statement of the 

private company and it provides U.S. 

GAAP financial statements.251

Our proposed amendments would 

expand the circumstances in which 

target companies may report two years 

of financial statements under the second 

bullet above by removing whether or not 

the shell company has filed its first 

annual report as a factor in determining 

the number of years required. Because 

the scenarios described in the first and 

third bullets above are already aligned 

with the financial statements required 

in a traditional initial public offering, 

we have not proposed any changes 

related to them. In addition, the 

proposed amendments would not affect 

the number of years of statements of 

comprehensive income that are required 

for the private operating company when 

it exceeds both the smaller reporting 

company and EGC revenue thresholds 

(that is, three years would continue to 

be required).252 However, to align the 

reporting with a traditional initial 

public offering, the proposed 

amendments would potentially reduce 

the number of years required when the 

target company would be an EGC if it 

were conducting an initial public 

offering of common equity securities 

and the registrant is an EGC that has 

filed or been required to file its first 

annual report. 

In a traditional initial public offering 

under the Securities Act, the registrant 

may provide two years of statements of 

comprehensive income, changes in 

stockholders’ equity, and cash flows 

when its most recently completed fiscal 

year revenue is below the smaller 

reporting company or EGC revenue 

thresholds (and all the other EGC 

qualifications are met), or as noted in 

the third scenario above for a foreign 

private issuer. We are proposing to align 

the number of fiscal years required to be 

included in the financial statements for 

a private company that will be the 

predecessor(s) in a shell company 

combination with the financial 

statements required to be included in a 

Securities Act registration statement for 

an initial public offering of equity 

securities in proposed Rule 15–01(b) of 

Regulation S–X. 

Proposed Rule 15–01(b) would 

provide that when the registrant is a 

shell company, and the financial 

statements of a business 253 that will be 

a predecessor to the registrant are 

required in a registration statement or 

proxy statement, the registrant must file 

financial statements of the business that 

will be a predecessor to the registrant in 

accordance with § 210.3–01 to 3–12 and 

§ 210.10–01 (Articles 3 and 10 of

Regulation S–X) or § 210.8–01 to 8–08

(Article 8), if applicable, as if the filing

were a Securities Act registration

statement for the initial public offering

of that business’s equity securities. As a

result, a shell company registrant would

be permitted to include in its Form S–

4/F–4/proxy or information statement

two years of statements of

comprehensive income, changes in

stockholders’ equity, and cash flows for

the private operating company for all

transactions involving an EGC shell

company and a private operating

company that would qualify as an EGC,

and this determination would not be

dependent on whether the shell

company has filed or was already

required to file its annual report or not.

The proposed amendments would not

affect the number of years of statements

of comprehensive income that are

required for the private operating

company when it exceeds both the

smaller reporting company and EGC

revenue thresholds (that is, three years 

would continue to be required).254

2. Audit Requirements of Predecessor

Proposed Rule 15–01(a) would align

the level of audit assurance required for 

the target private operating company in 

business combination transactions 

involving a shell company with the 

audit requirements for an initial public 

offering.255 Specifically, we are 

proposing that the term audit (or 

examination), when used in regard to 

financial statements of a business that is 

or will be a predecessor to a shell 

company, means an examination of the 

financial statements by an independent 

accountant in accordance with the 

standards of the PCAOB for the purpose 

of expressing an opinion thereon. As a 

result, a target private operating 

company would be required to comply 

with Article 2 of Regulation S–X as if it 

were filing an initial public offering for 

its audited financial statements. Forms 

S–4 and F–4 256 currently provide that, 

for an acquisition by a registrant that is 

not a shell company, (i) the target 

operating company financial statements 

may be audited in accordance with U.S. 

Generally Accepted Auditing 

Standards,257 (ii) the financial 

statements of the most recent fiscal year 

are required to be audited only to the 

extent practicable,258 and (iii) financial 

statements before the latest fiscal year 

need not be audited if they were not 

previously audited.259 The staff, 

however, has advised registrants that it 

expects the financial statements of the 

business, i.e., target private operating 

company, in a transaction involving a 

shell company to be audited to the same 

extent as a registrant in an initial public 

offering, because at consummation the 

financial statements of the target private 

operating company become that of the 

registrant.260 The proposed amendments 


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requirements in various filings with the SEC, which 

includes transactions involving a shell company. 

261For example, in an annual report, a domestic 

company with net losses in its recently completed 

fiscal year would have up to 90 days after its most 

recently completed fiscal year-end to update its 

third quarter financial statements. In contrast, in an 

initial registration statement, it would have up to 

only 45 days. See General Instruction A. to Form 

10–K and 17 CFR 210.3–12 (Rule 3–12 of 

Regulation S–X). 

262See 17 CFR 210.8–08 (Rule 8–08 of Regulation 

S–X), which states financial statements may be as 

current as of the end of the third fiscal quarter when 

the anticipated effective or mailing date falls within 

45 days after the end of the fiscal year, OR if the 

date falls within 90 days of the end of the fiscal year 

and (1) if a reporting company, all reports due were 

filed; (2) in good faith the company expects to 

report income in the fiscal year just completed; and 

(3) it reported income in at least one of the two 

previous fiscal years. 

263See Rule 3–01(c) of Regulation S–X (Rule 8– 

08 for smaller reporting companies), which applies 

to reporting companies required to file under 

Exchange Act Section 13(a) or 15(d). 

264See Item 17 of Form S–4 or Form F–4, 

§ 240.14A–3(b), and Items 13 and 14 of Schedule 

14A. 

265See 17 CFR 230.408(a) (Securities Act Rule 

408(a)) and 17 CFR 240.12b–20 (Exchange Act Rule 

12b–20). 

266 Id. 

267 17 CFR 210.8–04 (Rule 8–04) applies when the 

registrant or, depending on the context, its 

predecessor would qualify to be a smaller reporting 

company based on its annual revenues as of the 

most recently completed fiscal year if it were filing 

a registration statement itself. 

268 Instructions for the Presentation and 

Preparation of Pro Forma Financial Information 

and Requirements for Financial Statements of 

Businesses Acquired or To Be Acquired, Release 

No. 33–6413 (June 24, 1982) [47 FR 29832 (July 9, 

1982)] (‘‘Rule 3–05 Adopting Release’’). The 

requirements are based on the significant subsidiary 

tests using a sliding scale so that the requirements 

for filing such financial statements, as well as the 

periods covered by such financial statements, will 

vary with the percentage impact of the acquisition 

on the registrant. In adopting the sliding scale 

approach, the Commission stated its belief that the 

selected percentages ‘‘meet the objectives of 

providing adequate financial information to 

investors, shareholders and other users while at the 

same time reducing the reporting burdens of 

registrants involved in acquisitions.’’ 

269For example, financial statements of a 

business that the private operating company has 

acquired and represents less than 5% of its total 

assets, revenue and net income could be required 

in the Form S–4 because the acquired business 

would be compared to the shell company’s 

financial statements. 

would codify this existing staff 

guidance. 

3. Age of Financial Statements of the 

Predecessor 

Proposed Rule 15–01(c) would 

provide that the age of financial 

statements for a private operating 

company that would be the predecessor 

to a shell company in a registration 

statement or proxy statement would be 

based on whether the private operating 

company would qualify as smaller 

reporting company if filing its own 

initial registration statement. Absent 

this amendment, our rules require filing 

financial statements of the private 

operating company that would be 

required in an annual report, which do 

not have the same age requirements as 

those in the context of an initial 

registration statement.261 Similar to the 

other proposed amendments to 

Regulation S–X, this amendment would 

further align the financial statement 

requirements for a private operating 

company involved in a business 

combination with a shell company with 

those required in a Securities Act 

registration statement for an initial 

public offering. If the private operating 

company would qualify to be a smaller 

reporting company, it would apply Rule 

8–08 of Regulation S–X for the age of 

financial statements.262 Otherwise, the 

private operating company would apply 

the age of financial statement 

requirements in Rules 3–01(c) and 3–12 

of Regulation S–X. Based on the staff’s 

experience reviewing these transactions, 

we believe this proposed amendment to 

be consistent with existing practice. 

We are not proposing amendments to 

the age requirements for the financial 

statements of the shell company 

registrant because we continue to 

believe that the age requirements in 

Articles 3 and 8 of Regulation S–X that 

apply to existing registrants are 

appropriate. Thus, the existing 

provisions in Articles 3 and 8 of 

Regulation S–X for reporting companies 

required to file under Exchange Act 

Section 13(a) or 15(d) would continue to 

apply to shell companies.263

4. Acquisitions of Businesses by a Shell 

Company Registrant or Its Predecessor 

That Are Not or Will Not Be the 

Predecessor 

The financial statements of a target 

private operating company that is or 

will be the predecessor to a shell 

company registrant are required in 

registration statements or proxy 

statements related to the business 

combination.264 The financial 

statements of any other businesses, 

besides the predecessor, that have been, 

or are probable to be, acquired may also 

be required.265 For example, ‘‘Shell 

Company A’’ and ‘‘Target Private 

Operating Company B’’ are part of a 

business combination and a Form S–4 

registration statement is filed. Target 

Private Operating Company B acquired 

‘‘Company C’’ before the Form S–4 was 

filed. The proposed amendments in this 

section would address the reporting 

required for Company C in this nonexclusive example. 

Under existing rules,266 financial 

statements of a business acquired or 

probable of being acquired by the target 

private operating company (e.g., 

‘‘Company C’’ in the above example) are 

required to be filed in a registration 

statement or proxy/information 

statement only when omission of those 

financial statements would render the 

target company’s financial statements 

substantially incomplete or misleading. 

In order to specify when such financial 

statements are required, we are 

proposing new Rule 15–01(d) of 

Regulation S–X to require application of 

Rules 3–05 or 8–04 (or Rule 3–14 as it 

relates to a real estate operation), the 

Regulation S–X provisions related to 

financial statements of an acquired 

business, to acquisitions of businesses 

by a shell company registrant, or its 

predecessor, that are not or will not be 

the predecessor to the registrant.267 This 

proposal would further align the 

financial reporting for a shell company 

business combination contained in 

Forms S–4 or F–4 and a proxy or 

information statement with what would 

be required to be included in a 

Securities Act registration statement for 

an initial public offering of the target 

private operating company. Based on 

staff’s experience reviewing these 

transactions, we understand this 

proposed amendment to be consistent 

with the current market practice of 

applying Rule 3–05 (or Rule 8–04) to 

acquisitions by the target private 

operating company in the context of a 

business combination involving a shell 

company. 

In connection with this proposed 

amendment in Rule 15–01(d), we also 

considered and are proposing 

amendments related to the significance 

tests in Rule 1–02(w) of Regulation S– 

X that determine when acquired 

business financial statements are 

required. The existing tests as applied to 

acquisitions involving shell companies 

appear inconsistent with the reasons 

underlying the sliding scale approach 

adopted in Rule 3–05.268 Rule 1–02(w) 

requires the financial information of the 

registrant, which may be a shell 

company, to be used as the denominator 

for the significant subsidiary tests and 

does not address the scenario when 

there is both a shell company registrant 

and target private operating company 

that is or will be its predecessor. 

Because a shell company has nominal 

activity, the application of such tests 

results in limited to no sliding scale for 

business acquisitions, including those 

made by the private operating company 

that will be the predecessor to the shell 

company, because every acquisition 

would be significant and thus require 

financial statements.269 Such 

application may limit the ability to 


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270The 2020 amendments to Rules 1–02(w) and 

3–05 did not affect the financial statements related 

to the acquisition of a business that is the subject 

of a proxy statement or registration statement on 

Form S–4 or Form F–4. See Amendments to 

Financial Disclosures about Acquired and Disposed 

Businesses, Release 33–10786, (May 21, 2020) [85 

FR 54002 (Aug. 31, 2020)], n.20. 

271 Ibid. 

272Such pro forma use is permitted if the 

registrant has filed audited financial statements for 

any such acquired business for the periods required 

by Rule 3–05 or Rule 3–14 and the pro forma 

information required by Rule 11–01 through 11–02 

of Regulation S–X. 

273Pursuant to the proposed amendment to Rule 

11–01d) that would stipulate that the SPAC is a 

business, an acquisition of the SPAC is considered 

to be an acquisition of a business, and the 

conditions to use pro forma financial statements 

depicting the acquisition as the denominator in the 

significance tests may be met. 

274Rule 3–05 generally requires financial 

statements of an acquired business when the 

conditions in Rule 1–02(w) related to significant 

subsidiary exceed 20%. 

275Once the financial statements of the registrant 

include the period in which the de-SPAC 

transaction was consummated, the financial 

statements required would be those of the 

predecessor for all historical periods presented. 

276See Exchange Act Rule 12b–20, Securities Act 

Rule 408(a). 

recognize which acquisitions have a 

greater impact on the predecessor than 

others.270

We are proposing to amend Rule 1– 

02(w) of Regulation S–X to require that 

significance of the acquired business be 

calculated using the private operating 

company’s financial information as the 

denominator instead of that of the shell 

company registrant. Using the private 

operating company’s financial 

statements for the denominator should 

produce results more consistent with 

the sliding scale approach in Rule 3–05 

and recognizes that certain acquisitions 

have a greater impact than others.271

Related to the application of the 

significance tests, we considered the 

impact of the application of 17 CFR 

210.11–01(b)(3)(i)(B) (‘‘Rule 11– 

01(b)(3)(i)(B) of Regulation S–X’’). This 

rule permits, in certain circumstances, 

the use of pro forma amounts that depict 

significant business acquisitions and 

dispositions consummated after the 

latest fiscal year-end, for which the 

registrant’s financial statements are 

required to be filed, for the registrant’s 

financial information in the significance 

tests.272 While we are not proposing 

amendments to this paragraph in Rule 

11–01, based on the proposed 

amendment to 17 CFR 210.11–01(d) 

(‘‘Rule 11–01(d)’’) described below, we 

highlight that application of this rule 

may change and result in a future 

acquired business being compared to 

the pro forma amounts related to the 

shell company and target private 

operating company business 

combination transaction in filings made 

after the consummation of the business 

combination transaction.273 The impact 

of such application would be that the 

SPAC’s financial statements, including 

its cash, would be part of the pro forma 

financial information and will likely 

increase the denominator in the 

significance tests compared to 

measuring an acquisition solely on the 

target private operating company. 

We are proposing new 17 CFR 

210.15–01(d)(2) (‘‘Rule 15–01(d)(2)’’) to 

specify when the financial statements of 

a recently acquired business (or real 

estate operation) that is not the private 

operating company that will be the 

predecessor, which are omitted from a 

shell company registration, proxy, or 

information statement under Regulation 

S–X, would be required to be filed. Rule 

3–05(b)(4)(ii) of Regulation S–X 

provides that financial statements of a 

probable of being acquired or recently 

acquired business may be omitted from 

a registration, proxy, or information 

statement when their significance is 

measured at 50% or less (or Rule 3– 

14(b)(3)(ii) as it relates to a real estate 

operation). The rule further provides 

that financial statements of a recently 

acquired business, when omitted from 

the registration statement or proxy or 

information statement, must be filed 

under cover of Form 8–K within 75 days 

after consummation of the acquisition. 

Because the significance of the 

acquisition is greater than 20% but less 

than 50%, the recently acquired 

business’s financial statements, which 

are omitted from the registration, proxy, 

or information statement, must be 

filed.274 However, it is unclear how 

those financial statements are to be filed 

when the private operating company is 

not yet subject to Exchange Act 

reporting requirements and thus may 

not be able to file a Form 8–K. Rather 

than requiring a post-effective 

amendment, we are proposing in Rule 

15–01(d)(2) that the financial statements 

of the acquired business omitted from 

the previously-filed registration, proxy, 

or information statement would be 

required in an Item 2.01(f) Form 8–K 

filed with Form 10 information. 

5. Financial Statements of a Shell 

Company Registrant After the 

Combination With Predecessor 

In recent years, the staff has received 

questions on whether the historical 

financial statements of the shell 

company are required in filings made 

after the business combination. Due to 

the lack of clarity regarding the 

application of the financial statement 

requirements in Articles 3 and 8 of 

Regulation S–X, we are proposing new 

Rule 15–01(e), which would allow a 

registrant to exclude the financial 

statements of a shell company, 

including a SPAC, for periods prior to 

the acquisition once the following 

conditions have been met: (1) The 

financial statements of the shell 

company have been filed for all required 

periods through the acquisition date, 

and (2) the financial statements of the 

registrant include the period in which 

the acquisition was consummated. 

In the example of a de-SPAC 

transaction, the financial statements of 

the SPAC, as a shell company, would 

generally no longer be relevant or 

meaningful to an investor after a deSPAC transaction once the financial 

statements of the registrant include the 

period in which the de-SPAC 

transaction was consummated for any 

filing.275 The proposed rule would 

apply regardless of whether the deSPAC transaction is accounted for as a 

forward acquisition of the target private 

operating company by the SPAC or a 

reverse recapitalization of the target 

private operating company. The 

financial statements of the SPAC would 

be required in all filings (including 

registration statements and the Form 8– 

K with Form 10 information filed 

following the de-SPAC transaction) 

prior to the filing of the first periodic 

report that includes those post-business 

combination financial statements. The 

proposed amendments should not result 

in a significant change from current 

practice as it relates to periodic reports 

because the staff in the last several years 

has not objected to the registrant 

excluding the historical financial 

statements of the SPAC from periodic 

reports once the financial statements for 

the registrant include the period in 

which the acquisition or recapitalization 

was consummated. 

Further, the proposed amendments 

would not change the requirement that 

a registrant must provide all material 

information as may be necessary to 

make required statements, in light of the 

circumstances under which they were 

made, not misleading,276 so if there is 

information included in or about the 

historical SPAC financial statements 

that would be material to an investor, a 

registrant would still be required to 

provide such information. 

6. Other Amendments 

In addition, we are proposing a 

number of other related amendments as 

follows: 

• We are proposing to amend Rule 

11–01(d) of Regulation S–X to state that 


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277See, e.g., In re Netsmart Techs., Inc., 924 A.2d 

171 (Del. Ch. 2007), and the disclosure of the 

substantive work performed by the financial 

advisor, see, e.g., In re Pure Res., Inc., 808 A.2d 421 

(Del. Ch. 2002). 

278See Exchange Act Rules 10b–5, 12b–20, 13e– 

3(b)(1)(ii), and 17 CFR 240.14a–9 (Exchange Act 

Rule 14a–9), Securities Act Rule 408(a), and 

Exchange Act Section 14(e). See also Item 

1004(b)(2)(iii) and 1011(c) of Regulation M–A. 

Omission of projections used by the board or the 

fairness opinion advisers, in particular, have been 

the subject of various lawsuits filed in federal 

courts alleging violation of Rule 14a–9. See, e.g., 

Smith v. Robbins & Myers, Inc., 969 F.Supp.2d 850 

(2013), Azar v. Blount Intern., Inc., No. 3:16–cv– 

483–SI, 2017 WL 1055966, 2017 U.S. Dist. LEXIS 

39493 (D. Or. Mar. 20, 2017), and NECA–IBEW 

Pension Trust Fund v. Precision Castparts Corp., 

No. 3:16–cv–01756–YY, 2017 WL 4453561, 2017 

U.S. Dist. LEXIS 165139 (D. Or. Oct. 3, 2017), 

adopted by 2018 WL 533912, 2018 U.S. Dist. LEXIS 

11463 (D. Or. Jan. 24, 2018) (relating to disclosed 

a SPAC is a business for purposes of the 

rule. While Rule 11–01(d) states that an 

entity is presumed to be a business, 

consideration of the continuity of the 

SPAC’s operations prior to and after the 

de-SPAC transaction may lead some 

parties to conclude that the SPAC is not 

a business under the rule. Nonetheless, 

given the significant equity transactions 

generally undertaken by a SPAC, we 

believe the financial statements of the 

SPAC could be material to an investor, 

particularly when they underpin 

adjustments to pro forma financial 

information in a transaction when an 

operating company is the legal acquirer 

of a SPAC. As a result of the proposed 

rule, an issuer that is not a SPAC may 

be required to file financial statements 

of the SPAC in a resale registration 

statement on Form S–1. 

• Item 2.01(f) of Form 8–K currently 

requires a shell company registrant to 

file, after an acquisition, the information 

that would be required if the registrant 

were filing a general form for the 

registration of securities on Form 10. We 

are proposing to revise this Item to refer 

to ‘‘acquired business,’’ rather than 

‘‘registrant,’’ in an effort to clarify that 

the information provided relates to the 

acquired business and for periods prior 

to consummation of the acquisition and 

not the shell company registrant. 

• Rule 3–02 of Regulation S–X 

requires that statements of 

comprehensive income be filed for the 

registrant and its predecessors. 

However, as it relates to balance sheets, 

certain provisions in Regulation S–X 

specify that they be filed for the 

registrant and do not specifically refer to 

balance sheets of predecessors. We do 

not believe the intent of these rules is 

to provide the predecessor’s statements 

of comprehensive income without the 

balance sheets as that would not be 

considered a complete set of financial 

statements and would be inconsistent 

with Article 3 of Regulation S–X that 

requires both. We are proposing 

amendments to Rules 3–01, 8–02, and 

10–01(a)(1) of Regulation S–X to 

specifically refer to financial statements 

of predecessors consistent with the 

provision regarding income statements. 

These amendments codify existing 

financial reporting practices, and we do 

not expect them to result in any changes 

in disclosures. 

Request for Comment 

103. Should we adopt the 

amendments and new rules related to 

aligning financial statement disclosures, 

including Rule 15–01 of Regulation S– 

X, as proposed? 

104. Should Rule 15–01 provide that 

the term audit (or examination), when 

used in regard to financial statements of 

a business that is or will be a 

predecessor to a shell company, means 

an examination of the financial 

statements by an independent 

accountant in accordance with the 

standards of the PCAOB for the purpose 

of expressing an opinion thereon, as 

proposed? 

105. Should Article 15 of Regulation 

S–X address financial statement 

requirements for the acquisition by a 

shell company of a business that will be 

its predecessor, as proposed, or should 

we limit the requirements to apply only 

to a de-SPAC transaction, and if so, 

why? 

106. Should the significance tests that 

determine whether the financial 

statements of businesses that are not or 

will not be the predecessor are required 

to be filed employ the denominator of 

the private operating company in lieu of 

that of the shell company registrant, as 

proposed? Should the pro forma 

financial information that gives effect to 

the shell company transaction be 

allowed to be used as the denominator 

in measuring the significance of other 

acquisitions not involving a 

predecessor? Should there be 

restrictions on when such pro forma 

financial information is used to measure 

significance, such as only for 

acquisitions that occur subsequent to 

consummation of the transaction and 

not for acquisitions that are done in 

tandem with the shell company 

transaction? 

107. Should the financial statements 

of a shell company not be required in 

filings once the financial statements of 

the registrant include the period in 

which the acquisition was 

consummated, as proposed? Are there 

situations in which investors would 

continue to rely upon the information in 

the shell company financial statements 

after the acquisition was consummated 

and reflected in the financial statements 

of the registrant, or other factors we 

should consider in determining when 

the shell company financial statements 

should not be required in filings after 

the acquisition is complete? Should the 

accounting for the transaction as a 

forward acquisition or reverse 

recapitalization determine whether the 

financial statements are required in 

filings made after the acquisition was 

consummated? 

108. Should Rule 11–01(d) of 

Regulation S–X be amended to state that 

a SPAC is a business for purposes of the 

rule, as proposed? Would it change the 

existing application of Rule 11– 

01(b)(3)(i)(B) of Regulation S–X as it 

relates to de-SPAC transactions? Should 

eliciting the financial statements of the 

SPAC in a resale registration statement 

of an issuer that is not a SPAC be 

accomplished through a rule that 

specifically requires the SPAC financial 

statements to be filed (subject to the 

provisions of proposed Rule 15–01(e))? 

109. The Form 8–K filed pursuant to 

Item 2.01(f) may require a third fiscal 

year of certain financial statements for 

an acquired business that is the 

predecessor to a shell company and an 

emerging growth company, while Rule 

15–01(b), as proposed, would only 

require two. Should we amend the Form 

8–K requirement to provide an 

exception to the required Form 10-type 

information so the financial statements 

of the acquired business need not be 

presented for any period prior to the 

earliest audited period previously 

presented in connection with a 

registration, proxy, or information 

statement of the registrant? 

V. Enhanced Projections Disclosure 

A. Background 

Disclosure of financial projections is 

not expressly required by the federal 

securities laws; however, there are 

various reasons why registrants produce 

and disclose such information. For 

example, projections may be disclosed 

to comply with state or foreign 

corporate law regarding the board’s 

decision to approve a business 

combination transaction or the basis 

underlying a fairness opinion issued by 

a financial advisor.277 Companies 

engaged in business combination 

transactions may use projections to 

negotiate the offered consideration, 

terms, and conditions and to allocate 

risks in those transactions. Companies 

may also disclose projections to avoid 

claims that the omission of such 

information violates federal anti-fraud 

provisions or to satisfy certain 

requirements under Regulation M–A.278


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projections that management knew were not 

reflective of management’s plans for the registrant). 

279The Commission recently has brought 

enforcement actions alleging the use of baseless or 

unsupported projections about future revenues and 

the use of materially misleading underlying 

financial projections. These cases involve both 

SPACs and other reporting companies. See the 

following matters related to SPACs: In the Matter 

of Momentus, Inc., et. al., Exch. Act Rel. No. 34– 

92391 (July 13, 2021); SEC vs. Hurgin, et al., Case 

No. 1:19–cv–05705 (S.D.N.Y., filed June 18, 2019); 

In the Matter of Benjamin H. Gordon, Exch. Act Rel. 

No. 34–86164 (June 20, 2019); and, SEC vs. Milton, 

Case No. 1:21–cv–6445 (S.D.N.Y., filed July 29, 

2021). See the following non-SPAC cases: SEC vs. 

CanaFarma Hemp Products Corp, et al., Case No. 

1:21–cv–08211 (S.D.N.Y., filed Oct. 5, 2021); SEC v. 

Thomas, et al., Civil Action No. 19–cv–1132 (D. 

Nev., filed June 28, 2019); In the Matter of Ribbon 

Communications Inc., et. al., Exch. Act Rel. No. 34– 

83791 (Aug. 7, 2018); SEC v. Enviro Board 

Corporation, et al., [Civil Action No. 2:16–cv–06427 

(C.D. Cal., filed Aug. 26, 2016)]; and SEC v. Roberts, 

et. al., Civil Action No. 8:15–cv–2093–T–17–MAP 

(M.D. Fla., filed Sept. 9, 2015). See also Dave 

Michaels, Regulators Hit Space SPAC Over 

Disclosures, The Wall Street Journal, July 26, 2021. 

280Some news reports have also suggested that 

many post-business combination companies, 

particularly those with less revenue or that are early 

stage companies, do not meet revenue or earnings 

targets that they provided to investors at the time 

of the de-SPAC transaction. An analysis performed 

by The Wall Street Journal indicates that, of the 63 

companies that became public companies through 

a de-SPAC transaction in 2021 and had less than 

$10 million in sales at the time of the transaction, 

at least 30 did not meet their projections. The 

article reported that the companies in the analysis 

expected to miss their 2021 revenue projections fell 

short by an average of 53% and that companies 

falling short of their earnings projections have 

estimated losses that are approximately 40% 

greater, on average, than they projected at the time 

of the de-SPAC transaction. See Heather Somerville, 

SPACs Fall Short of Lofty Goals, The Wall Street 

Journal, Feb. 26, 2022. 

281See supra note 275. 

282 Id. 

283 Disclosure of Projections of Future Economic 

Performance, Release No. 33–5362 (Feb. 2, 1973) 

[38 FR 7220 (Mar. 19, 1973)] and Guides for 

Disclosure of Projections of Future Economic 

Performance, Release No. 33–5992 (Nov. 7, 1978) 

[43 FR 53246 (Nov. 15, 1978)]. 

284See Release No. 33–5362, supra note 283. 

285See Adoption of Integrated Disclosure System, 

Release 33–6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 

16, 1982)]. In connection with the adoption of the 

integrated reporting system, the Commission 

rescinded several staff guides relating to the 

preparation of registration statements and reports 

and relocated the substance of some of them into 

Item 10(b) of Regulation S–K. See Rescission of 

Guides and Redesignation of Industry Guides, 

Release No. 33–6384 (Mar. 16, 1982) [47 FR 11476 

(Mar. 16, 1982)]. 

286The reference to the nearest GAAP measure 

called for by amended Item 10(b) would not require 

a reconciliation to that GAAP measure. The need 

to provide a GAAP reconciliation would continue 

to be governed by Regulation G and Item 10(e) of 

Regulation S–K. 

287The Commission stated a similar view in 2003. 

See Conditions for Use of Non-GAAP Financial 

Measures, Release No. 33–8176 (Jan. 22, 2003), 

section II.B.2 [68 FR 4820 (Jan. 30, 2003)]. 

Recent events have raised renewed 

concerns about the use of projections, 

particularly with respect to de-SPAC 

transactions in which private operating 

companies disclose projections that may 

lack a reasonable basis.279 For example, 

some companies have presented 

projections of significant increases in 

revenue or market share even though 

they do not have any operations at the 

time such projections were prepared.280

Other companies have allegedly used 

materially misleading assumptions, 

failed to take into account foreseeable 

future events in developing projections, 

or used projections unsupported by a 

target’s experience.281 Similar 

potentially misleading projections have 

been used in non-SPAC filings, 

including with respect to future 

revenues, prospects and profitability.282

Although the Commission has 

previously acknowledged that 

projections and other forward-looking 

information can provide useful 

information for investors when making 

voting and investment decisions,283 it 

has also recognized that the use of such 

forward-looking information could raise 

investor protection concerns.284

Accordingly, the Commission adopted 

Item 10(b) of Regulation S–K to set forth 

its views on important factors to be 

considered in formulating and 

disclosing such projections in certain 

Commission filings.285 Item 10(b) states 

that management has the option to 

present in Commission filings its good 

faith assessment of a registrant’s future 

performance, but it also states that 

management must have a reasonable 

basis for such an assessment. Item 10(b) 

further expresses the Commission’s 

views on the need for disclosure of the 

assumptions underlying the projections, 

the limitations of such projections, and 

the format of the projections. 

B. Rule Proposals 

We are proposing to amend Item 10(b) 

of Regulation S–K to expand and update 

the Commission’s views on the use of 

projections. Among other things, the 

proposed amendments would address 

the presentation of projections by 

companies with no history of operations 

and provide that the guidance in the 

item also applies to projections of future 

economic performance of persons other 

than the registrant, such as the target 

company in a business combination. 

Further, given the widespread use of 

projections in de-SPAC transactions and 

the resulting heightened concerns, we 

are also proposing new Item 1609 of 

Regulation S–K that would be 

applicable to financial projections used 

in de-SPAC transactions and would set 

forth additional disclosure requirements 

relating to financial projections. 

The proposed revisions to Item 10(b) 

of Regulation S–K and proposed Item 

1609 of Regulation S–K are intended to 

help address concerns about the use of 

projections in de-SPAC transactions and 

similar circumstances. By providing 

additional guidance for registrants and 

mandating specific disclosures in deSPAC transactions, these proposed rules 

could enhance the attention and level of 

care companies bring to the preparation 

of financial projections, both in deSPAC transaction filings and in other 

filings made with the Commission. 

1. Item 10(b) of Regulation S–K 

We are proposing to amend Item 10(b) 

to present the Commission’s updated 

views on projected financial 

information. The proposed amendments 

to Item 10(b) would continue to state the 

Commission’s view that projected 

financial information included in filings 

subject to Item 10(b) must have a 

reasonable basis. To address specific 

concerns that some companies may 

present projections more prominently 

than actual historical results (or the fact 

that they have no operations at all) or 

use non-GAAP financial measures in the 

projections without a clear explanation 

or definition of such a measure, we 

propose to amend Item 10(b) to state 

that: 

• Any projected measures that are not 

based on historical financial results or 

operational history should be clearly 

distinguished from projected measures 

that are based on historical financial 

results or operational history; 

• It generally would be misleading to 

present projections that are based on 

historical financial results or 

operational history without presenting 

such historical measure or operational 

history with equal or greater 

prominence; and 

• The presentation of projections that 

include a non-GAAP financial measure 

should include a clear definition or 

explanation of the measure, a 

description of the GAAP financial 

measure to which it is most closely 

related,286 and an explanation why the 

non-GAAP financial measure was used 

instead of a GAAP measure.287

These proposed changes, if adopted, 

should assist registrants in presenting 

their projections in an appropriate 

format and with the appropriate context, 

which in turn should facilitate 

investors’ evaluation of the projections, 

assessment of the reasonableness of the 

bases for these projections (particularly 

when compared to historical 

performance and results), and 

determinations about the appropriate 

reliance to place on the projections 


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288The disclosure would be required in the forms 

or schedules filed for de-SPAC transactions. 

289There is evidence that, in a majority of deSPAC transactions announced in the twelve months 

ending in the first quarter of 2021, the private 

operating companies were pre-revenue, thus 

making financial projections an important basis for 

SPACs and private operating companies to find 

additional investments and to receive support for 

de-SPAC transactions. See ‘‘Why Have SPAC 

Valuations Skyrocketed?,’’ Stuart Gleichenhaus and 

Bill Stotzer, FTI Consulting, Aug. 6, 2021. 

290 In this regard, we note that there also is 

evidence of the different uses of, and greater 

reliance on, financial projections by retail investors 

than by institutional investors. See Dambra, EvenTov, and George, supra note 33. 

291See Kimball Chapman, Richard M. Frankel, 

and Xiumin Martin, SPACs and Forward-Looking 

Disclosure: Hype or Information? (SSRN Working 

Paper, 2021). 

292See, e.g., NYSE Listed Company Manual 

Section 102.06 and Nasdaq Listing Rule IM– 

5101–2. 

when making an investment or voting 

decision. 

Finally, Item 10(b) currently refers to 

projections regarding the future 

performance of a ‘‘registrant.’’ In 

business combination transactions, it is 

common for projections of the target 

company to be included in the 

Securities Act registration statement or 

proxy statement filed by the acquiring 

company. In such a case, it may be 

unclear if the guidance in Item 10(b) 

applies to the target company’s 

projections because the target company 

is not the registrant for that filing. In our 

view, Item 10(b) should apply to such 

projections because they are 

nevertheless being presented to 

investors through the registration 

statement or proxy statement filed by 

the acquiring company. Accordingly, we 

are proposing to amend Item 10(b) to 

state that the guidance therein applies to 

any projections of future economic 

performance of persons other than the 

registrant, such as the target company in 

a business combination transaction, that 

are included in the registrant’s 

Commission filings. 

Request for Comment 

110. Should we amend Item 10(b) of 

Regulation S–K, as proposed? Is there 

additional or different guidance we 

should provide? 

111. Instead of applying to all filings 

covered by Item 10(b), as proposed, 

should the proposed updated guidance 

apply solely to filings relating to 

business combination transactions 

(including de-SPAC transactions), while 

retaining the existing Item 10(b) 

guidance for other filings? 

112. Are the proposed amendments to 

Item 10(b) necessary in light of 

proposed Item 1609 of Regulation S–K, 

which is limited to de-SPAC 

transactions? 

113. Are there different ways of 

presenting financial projections that 

would be beneficial to investors? For 

example, should we require registrants 

to present some or all financial 

projections in a separately captioned 

section of a Commission filing? 

2. Item 1609 of Regulation S–K 

We are also proposing new Item 1609 

of Regulation S–K that would apply 

only to de-SPAC transactions.288 The 

nature of the SPAC structure and deSPAC transactions raise heightened 

concerns about the use of projections in 

such transactions. As noted above, a 

sponsor’s compensation may depend to 

a large extent on the completion of the 

de-SPAC transaction, and thus the 

SPAC and its sponsor may have an 

incentive to use a private operating 

company’s financial projections in 

seeking support for the de-SPAC 

transaction.289 In particular, such 

projections could be used to value the 

private operating company and may 

influence how investors evaluate a 

proposed de-SPAC transaction.290

Similarly, as a consequence of the 

SPAC’s expected valuation of the 

private operating company on the basis 

of this type of financial projections, 

controlling shareholders and 

management of the private operating 

company may have an incentive to be 

overly aggressive in their development 

of projections as a means of justifying a 

higher price for their company.291

Aggressive projections may also be used 

by the SPAC or the private operating 

company to justify the target’s valuation 

in order to help meet any exchange 

listing requirement that the target has a 

fair market value equal to at least 80% 

of the balance of funds in the SPAC’s 

trust account.292

For these reasons, we are proposing 

additional disclosures intended to assist 

investors in assessing the bases of 

projections used in de-SPAC 

transactions and determining to what 

extent they should rely on such 

projections. Proposed Item 1609 would 

require a registrant to provide the 

following disclosures: 

• With respect to any projections 

disclosed by the registrant, the purpose 

for which the projections were prepared 

and the party that prepared the 

projections; 

• All material bases of the disclosed 

projections and all material assumptions 

underlying the projections, and any 

factors that may materially impact such 

assumptions (including a discussion of 

any factors that may cause the 

assumptions to be no longer reasonable, 

material growth rates or discount 

multiples used in preparing the 

projections, and the reasons for 

selecting such growth rates or discount 

multiples); and 

• Whether the disclosed projections 

still reflect view of the board or 

management of the SPAC or target 

company, as applicable, as of the date 

of the filing; if not, then discussion of 

the purpose of disclosing the projections 

and the reasons for any continued 

reliance by the management or board on 

the projections. 

These proposed disclosures would 

inform investors about why the 

projections were prepared, and by 

whom, which could allow them to 

better understand the motivations 

underlying such projections. In 

addition, the proposed disclosures 

could help investors assess the 

continued reliability of the projections 

both independently and through the 

views of the board or management. 

Request for Comment 

114. Should we adopt Item 1609 as 

proposed? Are there additional 

disclosures that we should require in 

de-SPAC transaction filings related to 

financial projections? 

115. As proposed, Item 1609 of 

Regulation S–K would apply only to deSPAC transactions. Should we expand 

the scope of the item to apply to all 

companies that publicly disclose 

financial projections in Commission 

filings? 

116. Should we prohibit the 

disclosure of any specific financial 

measures or metrics? If so, which 

measures or metrics? 

117. Will proposed Item 1609 

discourage the use of financial 

projections in de-SPAC transactions? 

What impact would this have on 

investors? Would our proposal have any 

impact on the ability to comply with 

state or foreign law obligations 

regarding disclosures of projections 

used in business combination 

transactions? 

118. Both the proposed amendments 

relating to the PSLRA safe harbor and 

proposed Item 1609 may result in 

market participants using financial 

projections in de-SPAC transactions in a 

different manner than they do currently. 

Would adoption of only one of the 

proposals strike a better balance in 

terms of the costs and benefits with 

respect to the use of projections? If so, 

which proposal? 


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293See supra notes 7–8 and accompanying text. 

294The growth of the SPAC industry, among other 

things, has also sparked debate about the status of 

SPACs as investment companies. See, e.g., Kristi 

Marvin, 49 Law Firms Unite and Push Back on 

Recent SPAC Litigation, SPAC Insider (Aug. 27, 

2021), available at https://spacinsider.com/2021/ 

08/27/49-law-firms-unite-push-back-on-spaclitigation/; Alison Frankel, Law Profs Defend 

Theory that SPAC is Illegal under the Investment 

Company Act, Reuters (Nov. 1, 2021). 

295The Investment Company Act regulates the 

organization of investment companies that engage 

primarily in investing, reinvesting, and trading in 

securities, and whose own securities are offered to 

the investing public. The Act is designed to 

minimize conflicts of interest that arise in these 

complex operations protecting investors by 

preventing insiders from managing the companies 

to their benefit and to the detriment of public 

investors; preventing the issuance of securities 

having inequitable or discriminatory provisions; 

preventing the management of investment 

companies by irresponsible persons; preventing the 

use of unsound or misleading methods of 

computing earnings and asset value; preventing 

changes in the character of investment companies 

without the consent of investors; preventing 

investment companies from engaging in excessive 

leveraging; and ensuring the disclosure of full and 

accurate information about the companies and their 

sponsors. See Section 1(b) of the Investment 

Company Act [15 U.S.C. 80a–1(b)]. 

296 15 U.S.C. 80a–3(a)(1)(A). 

297Proposed 17 CFR 270.3a–10. SPACs that meet 

the proposed rule’s conditions would not need to 

register under the Investment Company Act. 

298See In the Matter of Tonopah Mining Co., 26 

S.E.C. 426 (July 21, 1947). See generally SEC v. 

National Presto Industries, Inc., 486 F.3d 305 (7th 

Cir. May 15, 2007), rev’g. SEC v. National Presto 

Industries Inc., Case No. 02 C 5057 (N.D. Ill, Oct. 

31, 2005). The Tonopah factors were first used by 

the Commission to determine an issuer’s primary 

engagement under Section 3(b)(2), but have been 

applied in part or in totality to determine an 

issuer’s primary engagement in other contexts 

under the Investment Company Act, including 

Section 3(a)(1)(A) of the Act. Certain Prima Facie 

Investment Companies, Release No. IC–10937 (Nov. 

13, 1979) [44 FR 66608 (Nov. 20, 1979)] at n.24 

(‘‘Proposing Release to Rule 3a–1’’) (‘‘Although 

[Tonopah] was decided under [S]ection 3(b)(2) of 

the Act, the ‘‘primary engagement’’ standard set 

forth in that case also appears to be applicable to 

the identical standard of Section 3(a)(1)[A] and 

[S]ection 3(b)(1).’’). The Commission has also 

considered the activities of the company’s 

employees, in addition to company’s officers and 

directors, in determining a company’s primary 

business. See, e.g., 17 CFR 270.3a–8 (Rule 3a–8 

under the Investment Company Act); Snowflake 

Inc., Release No. IC–34049 (Oct. 9, 2020) [85 FR 

65449 (Oct. 15, 2020)] (notice), Release No. IC– 

34085 (Nov. 4, 2020) (order); Lyft Inc., Release No. 

IC–33399 (Mar. 14, 2019) [84 FR 10156 (Mar. 19, 

2019)] (notice), Release No. IC–33442 (Apr. 8, 2019) 

(order). 

299See generally supra Section I. 

300We understand that SPACs typically place 

most of their assets in a trust or escrow accounts. 

Although the Commission has never addressed the 

status of SPACs under the Investment Company 

Act, the Commission has addressed the status of 

escrow or trust accounts established by blank check 

companies that comply with Rule 419 under the 

Securities Act (‘‘Rule 419 Accounts’’). The 

Commission took the position that ‘‘although a Rule 

419 Account may be an investment company under 

the Investment Company Act of 1940, in light of the 

purposes served by the regulatory requirement to 

establish such an account, the limited nature of the 

investments, and the limited duration of the 

account, such an account will neither be required 

to register as an investment company nor regulated 

as an investment company as long as it meets the 

requirements of Rule 419.’’ Blank Check Offerings, 

supra note 6 (‘‘Rule 419 Adopting Release’’), at text 

accompanying n.32. SPACs have evolved since the 

Commission adopted Rule 419, and as noted above, 

SPACs are not subject to the requirements of Rule 

419. See supra notes 12 and 13 and accompanying 

text. 

301For these reasons, we believe the safe harbor, 

subject to the proposed conditions, would be 

necessary or appropriate in the public interest, and 

consistent with the protection of investors and the 

purposes fairly intended by the policy and 

provisions of the Act. See Section 6(c) of the 

Investment Company Act [15 U.S.C. 80a–6(c)]. See 

Continued 

VI. Proposed Safe Harbor Under the 

Investment Company Act 

A. Background 

While the number of SPACs has 

grown dramatically in recent years,293

some SPACs have sought to operate in 

novel ways that suggest that SPACs and 

their sponsors should increase their 

focus on evaluating when a SPAC could 

be an investment company.294 We are 

concerned that SPACs may fail to 

recognize when their activities raise the 

investor protection concerns addressed 

by the Investment Company Act.295 To 

assist SPACs in focusing on, and 

appreciating when, they may be subject 

to investment company regulation, we 

are proposing Rule 3a–10, which would 

provide a safe harbor from the definition 

of ‘‘investment company’’ under Section 

3(a)(1)(A) 296 of the Investment 

Company Act for SPACs that meet the 

conditions discussed below.297 We 

believe that certain SPAC structures and 

practices may raise serious questions as 

to their status as investment companies. 

While a SPAC would not be required to 

rely on the safe harbor, we have 

designed the proposed conditions of the 

safe harbor to align with the structures 

and practices that we preliminarily 

believe would distinguish a SPAC that 

is likely to raise these questions from 

one that would not. 

1. Potential Status as an Investment 

Company 

Section 3(a)(1)(A) defines an 

‘‘investment company’’ as any issuer 

that is or holds itself out as being 

engaged primarily, or proposes to 

engage primarily, in the business of 

investing, reinvesting, or trading in 

securities. Depending on the facts and 

circumstances, SPACs could meet the 

definition of ‘‘investment company’’ in 

Section 3(a)(1)(A). To assess a SPAC’s 

status as an investment company under 

that definition, we generally look to the 

SPAC’s assets, the sources of its income, 

its historical development, its public 

representations of policy, and the 

activities of its officers and directors 

(known as the ‘‘Tonopah factors’’).298

SPACs are generally formed to 

identify, acquire and operate a target 

company through a business 

combination and not with a stated 

purpose of being an investment 

company.299 We understand that SPACs 

typically view their public 

representations, historical development 

and efforts of officers and directors as 

consistent with those of issuers that are 

not investment companies. At the same 

time, most SPACs ordinarily invest 

substantially all their assets in 

securities, often for a period of a year or 

more, meaning that investors hold 

interests for an extended period in a 

pool of securities. Moreover, whatever 

income a SPAC generates during this 

period is generally attributable to its 

securities holdings. The asset 

composition and sources of income for 

most SPACs may therefore raise 

questions about their status as 

investment companies under Section 

3(a)(1)(A) of the Investment Company 

Act and, in assessing this status, these 

factors would need to be weighed 

together with the other Tonopah factors. 

2. Rationale for the Safe Harbor 

The safe harbor we are proposing 

focuses on conditions that limit a 

SPAC’s duration, asset composition, 

business purpose and activities as a 

means of enhancing investor 

protection.300 The proposed rule is 

designed so that, if a SPAC satisfies the 

rule’s conditions, together with the 

disclosure requirements being proposed 

in this release, such SPAC’s operations 

would be limited and differ sufficiently 

from those of investment companies so 

as to generally not raise the types of 

investor protection concerns that the 

Investment Company Act is intended to 

address. In addition, the proposed rule 

may also promote investor protection by 

highlighting for SPACs and their 

sponsors the Investment Company Act 

concerns that certain SPAC activities 

may raise. 

The proposed rule may also have the 

effect of providing more certainty to 

SPACs regarding their status under the 

Investment Company Act. This in turn, 

could facilitate capital formation 

because SPACs that operate within the 

boundaries of the safe harbor would be 

assured that they would not qualify as 

investment companies. The rule may 

also promote efficiency by providing a 

clear framework for SPACs to determine 

their status under the Investment 

Company Act.301


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also Section 38(a) of the Investment Company Act 

[15 U.S.C. 80a–37(a)]. 

302See infra Section VI.B.2.b. 

303 In considering the investment company status 

of SPACs that do not comply with the safe harbor, 

we would use the traditional framework for 

evaluating the status of a potential investment 

company discussed above. 

304Section 3(a)(2) of the Investment Company Act 

generally defines ‘‘investment securities’’ to include 

all securities except Government securities, 

securities issued by employees’ securities 

companies, and securities issued by majorityowned subsidiaries of the owner which are not 

investment companies or certain private investment 

companies. 15 U.S.C. 80a–3(a)(2). 

305The remaining company (or companies) after 

the de-SPAC transaction may also raise separate 

questions of Investment Company Act status. If a 

remaining company meets the definition of 

‘‘investment company’’ following the de-SPAC 

transaction, that company would need to register as 

an investment company or rely on an appropriate 

exclusion or exemption under the Investment 

Company Act. 

306See supra Section II.A. 

307See supra note 300. 

308The conditions are also consistent with our 

approach with respect to Rule 419 Accounts. Id. 

309For purposes of the rule, any references to the 

SPAC’s assets refer to both the assets held in the 

trust or escrow account and any assets held by the 

SPAC directly. 

310The term ‘‘Government security’’ has the same 

meaning as defined in Section 2(a)(16) of the 

Investment Company Act. 15 U.S.C. 80a–2(a)(16). 

311The term ‘‘Government money market fund’’ 

has the same meaning as defined in paragraph 

3. Boundaries of the Safe Harbor 

While a SPAC would not be required 

to rely on the safe harbor, we have 

designed the proposed conditions of the 

safe harbor to align with the structures 

and practices that we preliminarily 

believe would distinguish a SPAC that 

is likely to raise serious questions as to 

its status as an investment company 

under the Investment Company Act 

from one that would not. Activities that 

would raise these concerns include, 

solely by way of example and without 

limitation, if a SPAC were to invest in 

securities not permitted by the proposed 

safe harbor, actively manage its 

portfolio, or hold itself out in a manner 

that suggests investors should invest to 

gain exposure to the portfolio it holds 

prior to the de-SPAC transaction. 

A SPAC would raise similar concerns 

if it were to invest its assets in 

securities, including those permitted by 

the safe harbor, for a lengthier period of 

time without identifying a target 

company. As discussed below, we are 

concerned that, the longer the SPAC 

operates with its assets invested in 

securities and its income derived from 

securities, the more likely investors will 

come to view the SPAC as a fund-like 

investment and the more likely the 

SPAC will appear to be deviating from 

its stated business purpose.302

Similarly, if a SPAC did not seek to 

engage in a business combination but 

instead sought to acquire a minority 

interest in a target company with the 

intention of being a passive investor, it 

is more likely that it will appear to be 

an investment company. Investors in 

SPACs that engage in the activities 

discussed above may be at a 

significantly greater risk of acquiring 

SPAC shares expecting a fund-like 

investment.303

The safe harbor we are proposing only 

addresses investment company status 

under Section 3(a)(1)(A) of the 

Investment Company Act, commonly 

known as the ‘‘subjective test.’’ Section 

3(a)(1)(C) of the Investment Company 

Act provides an alternate ‘‘objective 

test’’ that defines an ‘‘investment 

company’’ as any issuer that is engaged 

or proposes to engage in the business of 

investing, reinvesting, owning, holding, 

or trading in securities, and that owns 

or proposes to acquire investment 

securities,304 having a value exceeding 

40% of the value of the company’s total 

assets (exclusive of Government 

securities and cash items) on an 

unconsolidated basis. If a SPAC owns or 

proposes to acquire 40% or more of 

investment securities, it would likely 

need to register and be regulated as an 

investment company under the 

Investment Company Act. 

The safe harbor we are proposing is 

intended to address the status of a 

qualifying SPAC from the time of the 

SPAC’s initial public offering until it 

completes its de-SPAC transaction.305

For purposes of the proposed rule, the 

definitions of SPAC, de-SPAC 

transaction, and target company would 

be the same as those set forth in 

proposed Item 1601 of Regulation 

S–K.306

Request for Comment 

119. Instead of a safe harbor, should 

we provide an interpretation concerning 

when SPACs would meet the definition 

of ‘‘investment company’’? 

Alternatively, should we exempt SPACs 

that meet the definition of ‘‘investment 

company’’ from any provisions of the 

Investment Company Act, and if so, 

which provisions? Are there any 

changes we should make to the 

proposed approach that would better 

achieve the objectives of the proposed 

rule? Are there conditions we should 

include in addition to those set forth 

below? 

120. We request comment on whether 

the safe harbor should include an 

exemption from Section 3(a)(1)(C), in 

addition to Section 3(a)(1)(A). If such an 

expansion is needed, please explain the 

circumstances in which a SPAC could 

meet the definition of ‘‘investment 

company’’ in Section 3(a)(1)(C) while 

still complying with the conditions in 

the proposed safe harbor. 

121. Should the proposed rule 

incorporate the definitions of de-SPAC 

transaction, special purpose acquisition 

company and target company as 

proposed in Item 1601? Should any of 

these definitions be different under 

proposed Rule 3a–10? If so, please 

identify the definition, how the 

definition should be changed, and why. 

122. We understand that SPACs 

typically place most of their assets in a 

trust or escrow account as required by 

the listing standards. In the event that 

these accounts may also be ‘‘issuers’’ 

under the Investment Company Act,307

does the safe harbor need to address 

these accounts under that Act? 

Alternatively, should the rule text 

specify that assets and activities of the 

SPAC (as discussed below) include 

those of the trust? 

123. As proposed, an existing SPAC 

that has not completed a de-SPAC 

transaction prior to the effective date of 

the rule would not be prohibited from 

relying on the safe harbor if it satisfies 

the conditions. Should we permit an 

existing SPAC to rely on the safe harbor 

if it does not have a board resolution but 

has other contemporary evidence of its 

intent and otherwise meets the 

conditions of the safe harbor? 

Alternatively, should we limit reliance 

on the safe harbor to SPACs formed after 

the effective date of the rule? If 

proposed Rule 3a–10 is adopted, should 

the rule’s effective date reflect the 

possibility that some SPAC’s may need 

to alter their operations or more quickly 

complete a de-SPAC transaction in 

order to meet the conditions of the rule? 

If so, should we provide an extended or 

delayed effective date? Should we 

provide a compliance or transition 

period, and if so, why? 

B. Conditions 

The conditions to the safe harbor 

focus on certain defining characteristics 

of SPACs 308 and are designed to ensure 

that SPACs wishing to rely on the safe 

harbor do not operate, or hold 

themselves out, as investment 

companies. 

The conditions are discussed in more 

detail below. 

1. Nature and Management of SPAC 

Assets 

In order to rely on the proposed safe 

harbor, a SPAC’s assets 309 must consist 

solely of Government securities,310

Government money market funds 311


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(a)(14) of Rule 2a–7 under the Investment Company 

Act. 17 CFR 270.2a–7. 

312The Commission has previously included the 

following as cash items for purposes of Rule 3a–1: 

Cash, coins, paper currency, demand deposits with 

banks, timely checks of others, cashier checks, 

certified checks, bank drafts, money orders, 

travelers’ checks, and letters of credit. See 

Proposing Release to Rule 3a–1, supra note 298, at 

text accompanying n.11. We take the same view 

here with respect to the proposed rule. 

313Proposed Rule 3a–10(a)(1). 

314 If a SPAC were to significantly change its asset 

composition contrary to its original representations, 

it would raise questions whether the initial 

representations were false and misleading. 

315This limited asset composition would not, on 

its own, distinguish a SPAC from an investment 

company. This provision is designed to operate 

together with the other conditions to the safe 

harbor, and nothing in this provision is meant to 

address the status under Section 3(a)(1)(A) of a 

company that is not relying on this safe harbor, 

including those primarily engaged in the business 

of investing in government securities and/or 

government money market funds. For example, an 

issuer that holds these types of assets, but whose 

primary business is to achieve investment returns 

on such assets would still be an investment 

company under Section 3(a)(1)(A). 

316Proposed Rule 3a–10(a)(2). This provision is 

similar to that found in paragraph (a)(3)(iii) in 17 

CFR 270.3a–7 (Rule 3a–7), and we propose to apply 

this provision in the same manner in the proposed 

rule. 

317The Commission has taken the position that 

money market funds relying on Rule 2a–7 may be 

treated as cash equivalents for purposes of Rule 

2a–7 for GAAP purposes. See Money Market Fund 

Reform; Amendments to Form PF, Release No. IC– 

31166 (July 23, 2014) [79 FR 47736 (Aug. 14, 2014)]. 

318The proposed rule defines the term ‘‘surviving 

company’’ to mean the public company issuer that 

survives a de-SPAC transaction and in which the 

shareholders of the SPAC immediately prior to the 

de-SPAC transaction will own equity interests 

immediately following the de-SPAC transaction. 

Proposed Rule 3a–10(b)(3). 

319The proposed rule defines the term ‘‘primarily 

controlled company’’ to mean an issuer that (i) is 

controlled within the meaning of Section 2(a)(9) of 

the Investment Company Act by the surviving 

company following a de-SPAC transaction with a 

degree of control that is greater than that of any 

other person and (ii) is not an investment company. 

Proposed Rule 3a–10(b)(2). 

320As drafted, the proposed rule would permit a 

SPAC relying on the safe harbor to seek to engage 

in a de-SPAC transaction with any company other 

than an investment company. Thus, a SPAC may 

seek to engage in a de-SPAC transaction with a 

target company that is not considered an 

investment company under Section 3(a) or that is 

excepted or exempted from the definition of 

investment company by order under Section 3(b) 

[15 U.S.C. 80a–3(b)] or by rules or regulations under 

Section 3(a). 

321Proposed Rule 3a–10(a)(3)(i). The postbusiness combination surviving company would 

have to qualify for listing on a national securities 

exchange by meeting initial listing standards just as 

any company seeking an exchange listing would 

have to do. If the surviving company did not qualify 

for listing, it could not be listed for trading on a 

national securities exchange and delisting 

procedures would commence. 

and cash items 312 prior to the 

completion of the de-SPAC 

transaction.313 Thus, all proceeds 

obtained by the SPAC, including those 

from any SPAC offering, cash infusion 

from the sponsor, or any interest, 

dividend, distribution or other such 

return derived from the SPAC’s 

underlying assets would need to be held 

in these assets. We understand that 

SPACs typically acquire these assets in 

part because they may be easily 

liquidated to fund any acquisition or 

other expenses related to the de-SPAC 

transaction and investor redemptions 

and, unlike the investments of 

registered investment companies, are 

not primarily made to achieve an 

investment purpose.314 This condition 

reflects the SPAC’s intended business 

purpose to acquire assets to fund a deSPAC transaction and also generally 

limits the SPAC’s assets to those that 

may be consistent with cash 

management practices rather than 

primarily investment purposes.315

Under the proposed rule, a SPAC 

seeking to rely on the safe harbor may 

not acquire any other type of asset, 

including interests in an operating 

company, prior to the completion of a 

de-SPAC transaction. Acquiring other 

types of assets and then transferring 

such assets to another entity or to SPAC 

shareholders would suggest that the 

SPAC’s primary business is that of 

investing in securities. Nothing in this 

provision, however, is intended to 

preclude the SPAC from using SPAC 

assets to pay expenses related to the 

operation of the SPAC. 

Under the proposed rule, the assets 

set forth in paragraph (a)(1) may not at 

any time be acquired or disposed of for 

the primary purpose of recognizing 

gains or decreasing losses resulting from 

market value changes.316 Unlike 

management investment companies, 

SPACs typically do not actively manage 

their portfolios, often holding their 

Government securities to maturity. The 

proposed provision is therefore 

intended to allow SPACs the flexibility 

to hold their assets consistent with cash 

management practices yet ensure that 

SPACs relying on the safe harbor do not 

engage in activities that would 

necessitate the investor protections of 

the Investment Company Act, like 

portfolio management practices 

resembling those that management 

investment companies employ. 

Request for Comment 

124. Should we allow SPACs seeking 

to rely on the safe harbor to invest in 

Government securities? Alternatively, 

should we limit these SPACs to only 

certain types of Government securities, 

such as U.S. Treasury securities? 

125. Should we allow SPACs to invest 

in government money market funds, as 

defined in Rule 2a–7? Should we 

instead limit the type of money market 

funds that a SPAC may invest in to 

money market funds that only hold U.S. 

Treasury securities? Conversely, should 

the provision be expanded to permit 

SPACs to invest in all types of money 

market funds provided that they rely on 

Rule 2a–7? 317

126. In addition to the questions 

raised above, as a general matter, is 

paragraph (a)(1) too narrow? For 

example, should the safe harbor be 

expanded to include SPACs that acquire 

investment securities or other assets 

(e.g., assets that are not for investment 

purposes relevant to the operation of the 

SPAC)? If yes, please explain which 

investment securities and/or assets and 

why such an expansion of the safe 

harbor would be appropriate. 

127. Does paragraph (a)(2) provide 

enough flexibility with respect to a 

SPAC’s holdings but yet prevent SPACs 

from engaging in activities similar to 

management investment companies? 

128. As noted, we understand that 

SPACs typically place most of their 

assets in trust or escrow accounts. 

Should the rule text address the manner 

in which a SPAC holds its assets? For 

example, should the rule require SPAC 

assets to be held in trust or escrow 

accounts? If yes, should the safe harbor 

be conditioned on complying with the 

terms of the custody rules under the 

Investment Company Act as if they 

applied to these accounts? 

2. SPAC Activities 

a. De-SPAC Transactions 

The proposed rule would provide a 

safe harbor only to those SPACs that 

seek to complete a single de-SPAC 

transaction as a result of which the 

surviving public entity (the ‘‘surviving 

company’’),318 either directly or through 

a primarily controlled company,319 will 

be primarily engaged in the business of 

the target company or companies, which 

is not that of an investment company. 

Thus, to rely on the rule, the SPAC must 

have a business purpose aimed at 

providing its shareholders with the 

opportunity to own interests in a public 

entity that, in contrast to an investment 

company, will either be an operating 

company, or will, through a primarily 

controlled company, operate such 

operating company.320 In addition, the 

SPAC would need to seek to complete 

a de-SPAC transaction as a result of 

which the surviving company would 

have at least one class of securities 

listed for trading on a national securities 

exchange.321

A SPAC would be able to engage in 

only one de-SPAC transaction while 

relying on the safe harbor, but such 


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322The proposed definitions of ‘‘special purpose 

acquisition company’’ and ‘‘de-SPAC transaction’’ 

anticipate that a SPAC may engage in a de-SPAC 

transaction with more than one target company 

contemporaneously. See supra Section II.A. 

323See infra Section VI.B.3. 

324See supra note 319. 

325See Section 2(a)(9) of the Investment Company 

Act for the definition of ‘‘control’’[15 U.S.C. 80a– 

2(9)]. 

326See, e.g., paragraph (b)(2) of 17 CFR 270.3a– 

8 (Rule 3a–8 under the Investment Company Act). 

327See, e.g., Rule 3a–8 under the Investment 

Company Act; 17 CFR 270.3a–1 (Rule 3a–1 under 

the Investment Company Act). 

328See, e.g., Certain Research and Development 

Companies, Release No. IC–25835 (Nov. 26, 2002) 

[67 FR 71915 (Dec. 3, 2002)] (‘‘Proposing Release to 

Rule 3a–8’’) at nn.57–58 and accompanying text. 

329See Proposing Release to Rule 3a–1, supra 

note 287, at n.32. See also Proposing Release to 

Rule 3a–8, supra note 328, at text before n.58 (‘‘The 

Commission traditionally has viewed the fact that 

an issuer’s degree of control over a company is 

greater than that of any other person as strong 

evidence that the issuer is engaged in a business 

through the other company.’’). 

330 Id. 

331Proposed Rule 3a–10(a)(3)(i)(B). As noted in 

supra note 321, the surviving company would have 

to apply for and be approved for listing by meeting 

the initial listing standards of a national securities 

exchange. Otherwise, it could not be listed and 

traded on an exchange. 

332See supra Section I. 

333Proposed Rule 3a–10(a)(5)(i) through (iii). 

Such evidence may also include its articles of 

incorporation or other formation documents. 

334See, e.g., Rule 3a–8 under the Investment 

Company Act. As discussed previously, in addition 

to these factors, the Tonopah factors also focus on 

the company’s assets and sources of income. See 

supra Section VI.A.1. While proposed paragraph 

(a)(1) addresses the asset composition of SPACs 

wishing to rely on the safe harbor, the proposed safe 

harbor does not include a separate condition 

specifically addressing a SPAC’s source of income 

because the sources of income are addressed in the 

proposed rule’s limitations regarding the SPACs’ 

activities and the types of assets it may acquire. 

335Proposed Rule 3a–10(a)(5)(iv). 

336See 17 CFR 270.3a–2 (Rule 3a–2 under the 

Investment Company Act); Rule 3a–8 under the 

Investment Company Act. 

transaction may involve the 

combination of multiple target 

companies,322 provided that the SPAC 

treats them for all purposes as part of a 

single de-SPAC transaction. Such 

intentions would be evidenced by the 

description in any disclosure or 

reporting documents, and that the 

closing with respect to all target 

companies occurs contemporaneously 

and within the required time frames.323

We are imposing this limitation because 

we are concerned that a SPAC that 

makes multiple acquisitions could be 

engaging in the types of activities that 

raise the investor protection concerns 

addressed by the Investment Company 

Act. A SPAC that purchases multiple 

companies as part of a single transaction 

(and complies with the other conditions 

of the safe harbor) would not raise these 

concerns as it would still appear to be 

seeking to be primarily engaged in the 

business of an operating company or 

companies after the de-SPAC 

transaction, and not to be engaged in 

investment management activities. 

While recognizing that de-SPAC 

transactions may have various 

structures and may involve 

intermediary entities, the proposed safe 

harbor is intended to ensure that the 

SPAC must be seeking a business 

combination in which the surviving 

entity, directly or through a primarily 

controlled company,324 is primarily 

engaged in the business of the target 

company or companies and not merely 

seeking an investment opportunity. 

‘‘Primary control’’ within the definition 

of ‘‘primarily controlled company’’ 

means that the surviving company must 

have ‘‘control’’ 325 of such company and 

the degree of that control must be 

greater than that of any other person.326

The ‘‘primarily control’’ standard, 

which is similar to that found in other 

status rules under the Investment 

Company Act,327 is designed to 

distinguish a holding company structure 

for an operating company from an 

investment in securities of an operating 

company.328 As we previously 

expressed in a similar context, this level 

of control is more consistent with an 

active role in managing the affairs of a 

company than if the issuer owns a lesser 

controlling interest in such company.329

We believe that a lesser degree of 

control, or lack of control, would in 

these circumstances more closely 

resemble the activities of an investment 

company.330

In order to rely on the safe harbor, the 

surviving company must also have at 

least one class of securities listed for 

trading on a national securities 

exchange.331 This condition recognizes 

that a SPAC’s business plan is to engage 

in a de-SPAC transaction, the result of 

which is that SPAC shareholders receive 

the publicly traded shares of the 

surviving company.332 Similar to the 

other parts of this condition, this 

provision helps to ensure that the SPAC 

has a business purpose that is different 

from engaging primarily in the business 

of investing, reinvesting or trading in 

securities. 

b. Evidence of Primary Engagement 

The proposed rule would require a 

SPAC wishing to rely on the safe harbor 

to be primarily engaged in the business 

of seeking to complete a de-SPAC 

transaction in the manner and within 

the time frame set forth in the rule. Such 

engagement must be evidenced by the 

activities of its officers, directors and 

employees, its public representations of 

policies, and its historical 

development.333 For example, the 

officers, directors and employees of a 

SPAC wishing to rely on this safe harbor 

would need to be primarily focused on 

activities related to seeking a target 

company to operate and not on 

activities related to the management of 

its securities portfolio. These conditions 

incorporate three of the Tonopah factors 

and are intended, together with the 

other conditions to the safe harbor, to 

ensure that a SPAC may only rely on the 

safe harbor if it is primarily engaged in 

a business other than that of investing, 

reinvesting or trading in securities. 

These factors are also similar to those 

used to determine the primary 

engagement of a business in different 

contexts under the Investment Company 

Act.334

To rely on the safe harbor, the SPAC’s 

board of directors would also need to 

adopt an appropriate resolution 

evidencing that the company is 

primarily engaged in the business of 

seeking to complete a single de-SPAC 

transaction as described by the rule, and 

which is recorded contemporaneously 

in its minute books or comparable 

documents.335 This condition is similar 

to other exclusionary rules under the 

Investment Company Act in which the 

issuer may only rely on the safe harbor 

provided by the rule if the issuer’s board 

of directors adopts an appropriate 

resolution evidencing that the company 

is primarily engaged in a noninvestment business.336 Such action 

serves to publicly document the intent 

of management and helps to establish a 

shared understanding of shareholders 

concerning the business purpose of this 

issuer. 

A SPAC relying on the proposed rule 

also may not hold itself out as being 

primarily engaged in the business of 

investing, reinvesting or trading in 

securities. Given that SPACs invest in 

the same types of securities as certain 

investment companies, such as money 

market funds, a SPAC relying on the 

rule may not hold itself out, or 

otherwise suggest, that the SPAC 

operates in a manner similar to these 

types of investment companies. For 

example, a SPAC could not market itself 

as a means for gaining exposure to U.S. 

Treasury securities. 

Request for Comment 

129. Do SPACs engage in other 

activities that should be expressly 

permitted or prohibited by the safe 

harbor? If yes, please explain these 

business activities and why they should 

be permitted or prohibited. 


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337See generally Rule 3a–7 under the Investment 

Company Act. 338 Id. 

339See Proposing Release to Rule 3a–1, supra 

note 298, at n.19 and accompanying text. See also 

In the Matter of United Stores Corp., 10 SEC. 1145 

(Feb. 12, 1942). 

340Proposed Rule 3a–10(a)(3)(ii) and (iii). As we 

discuss below, the average time between the 

announcement by a SPAC of its intended de-SPAC 

transaction and the completion of that transaction 

is approximately 5 months. See infra Section IX.B.6. 

341Proposed Rule 3a–10(a)(4). 

130. As proposed, should the SPAC 

be required to seek a de-SPAC 

transaction in which the surviving 

company is required either to directly or 

through a primarily controlled company 

be primarily engaged in the business of 

the target company? Are the proposed 

definitions of ‘‘surviving company’’ and 

‘‘primarily controlled company’’ 

appropriate? Should the proposed 

definitions be revised, and if so, how? 

131. Should the safe harbor be limited 

to SPACs that seek de-SPAC 

transactions that result in the surviving 

company having at least a majority 

interest in the target company? 

Conversely, should the safe harbor 

permit the SPAC to seek a de-SPAC 

transaction in which the surviving 

company is only required to control the 

target company? Are there other 

approaches, such as requiring the deSPAC transaction to result in a 

consolidation of the SPAC and the target 

company? 

132. As proposed, should we require 

that the surviving company be primarily 

engaged in the business of operating the 

target company or companies? Is the use 

of the term ‘‘primarily engaged’’ 

consistent with current business 

practices in this context? Should we 

instead require that the surviving 

company be ‘‘solely’’ in the business of 

the target company or companies? If so, 

how should ‘‘solely’’ be defined? 

Alternatively, should we require that 

the surviving company be engaged in 

the business of the target company (and 

in activities related or incidental 

thereto)? 337

133. As proposed, should the SPAC 

be limited to only one de-SPAC 

transaction while relying on the safe 

harbor? Why or why not? Similarly, 

should a SPAC, as proposed, be limited 

to engaging in a combination with 

multiple target companies only if the 

combination occurs as part of a single 

de-SPAC transaction with a single 

closing? Why or why not? Should there 

be a limit on how many target 

companies may be part of a single deSPAC transaction? If so, what should 

that limit be and why? For example, 

would limiting the safe harbor to two 

target companies strike an appropriate 

balance of the relevant regulatory 

considerations? 

134. As proposed, should we require 

a SPAC to be ‘‘primarily engaged’’ in the 

business of seeking to complete a single 

de-SPAC transaction? Should we 

instead require that the SPAC should be 

‘‘solely’’ in the business of seeking to 

complete a single de-SPAC transaction? 

Why or why not? Alternatively, should 

we require that the SPAC be engaged in 

the business of seeking to complete a 

single de-SPAC transaction (and in 

activities related or incidental 

thereto)? 338

135. As drafted, the proposed rule 

would permit a SPAC relying on the 

safe harbor to seek to engage in a deSPAC transaction with any company 

other than an investment company. 

Should the safe harbor further limit the 

types of companies in which a SPAC 

may seek a de-SPAC transaction? For 

example, should a SPAC be precluded 

from seeking to engage in a de-SPAC 

transaction with issuers relying on 

Section 3(c)(1) or Section 3(c)(7)? 

Should a SPAC be precluded from 

seeking to engage in a de-SPAC 

transaction with issuers relying on other 

exclusions under Section 3(c)? Should a 

SPAC be precluded from seeking to 

engage in a de-SPAC transaction with 

issuers otherwise relying on an 

exclusion or exemption by order from 

the definition of ‘‘investment company’’ 

by Section 3(b) or the rules or 

regulations under Section 3(a)? If so 

please identify which issuers and why? 

136. Should the rule include as 

evidence of the SPAC’s business 

purpose the SPAC’s historical 

development given the SPAC’s short 

duration? Should the rule include, as 

evidence of the SPAC’s business 

purpose, the SPAC’s public 

representation of policies and the 

activities of its officers, directors and 

employees? Similarly, is it appropriate 

to require the board of directors to adopt 

a resolution stating that the SPAC is 

primarily engaged in the business of 

seeking to complete a de-SPAC 

transaction as described by the rule? 

Should we require that the SPAC’s 

activities also, or instead, be evidenced 

by its articles of incorporation, other 

formation documents or by-laws? If so, 

which documents should be required? If 

a SPAC’s business purpose is evidenced 

in its formation documents or by-laws, 

should we condition the proposed rule 

on those provisions being subject to 

change only with the approval of 

shareholders? Should the rule include a 

separate condition that addresses the 

SPAC’s sources of income? For example, 

should a SPAC’s income be limited to 

that derived from assets in proposed 

Rule 3a–10(a)(1)? Are any other 

conditions necessary to ensure that 

SPACs do not convey to investors that 

they have attributes similar to 

investment companies? Given the 

nature of a SPAC’s activities and the 

proposed conditions of the safe harbor, 

should the proposed rule also include a 

condition providing that a SPAC must 

not be a special situation investment 

company? 339

137. Should we include a condition to 

the safe harbor that SPACs must 

disclose their intention to rely on the 

safe harbor? Would such a condition be 

redundant to the disclosure 

requirements under the Securities Act 

or under the Exchange Act? Should the 

safe harbor include a condition that the 

SPAC’s board of directors must adopt a 

resolution indicating that the SPAC 

intends to rely on the safe harbor? 

3. Duration Limitations 

To rely on the safe harbor, a SPAC 

would have a limited time period to 

announce and complete a de-SPAC 

transaction. Specifically, the proposed 

rule would require a SPAC to file a 

report on Form 8–K with the 

Commission announcing that it has 

entered into an agreement with the 

target company (or companies) to 

engage in a de-SPAC transaction no later 

than 18 months after the effective date 

of the SPAC’s registration statement for 

its initial public offering. The SPAC 

must then complete the de-SPAC 

transaction no later than 24 months after 

the effective date of its registration 

statement for its initial public 

offering.340 Following the completion of 

the de-SPAC transaction, any assets that 

are not used in connection with the deSPAC transaction would need to be 

distributed in cash to investors as soon 

as reasonably practicable thereafter. 

The SPAC would also be required to 

distribute its assets in cash to investors 

as soon as reasonably practicable if it 

does not meet either the 18-month 

deadline or the 24-month deadline.341

Given that the time needed for such 

distribution in either case may be 

dependent on facts and circumstances, 

we are not defining the term 

‘‘reasonably practicable.’’ What is 

reasonably practicable generally would 

depend on, among other things, any 

logistical or legal limitations on an 

orderly, immediate return of funds to 

investors. 

We are proposing these duration 

conditions mindful of the framework of 

the Investment Company Act, the rules 

thereunder, and past Commission 


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342See generally Sections 7(a) and 8(a) of the 

Investment Company Act [15 U.S.C. 80a–7(a); 15 

U.S.C. 80a–8(a)]. 

343See Transient Investment Companies, Release 

No. IC–11552 (Jan. 14, 1981) [46 FR 6882 (Jan. 22, 

1981)] (‘‘Adopting Release to Rule 3a–2’’). See 

Transient Investment Companies, Release No. IC– 

10943 (Nov. 16, 1979) [44 FR 67152 (Nov. 23, 

1979)], at text accompany nn.5–6 (‘‘Proposing 

Release to Rule 3a–2’’) (‘‘Examples of unusual 

business occurrences include: (1) A ‘start-up’ 

company’s investing its offering proceeds in 

securities while arranging to purchase operating 

assets; (2) a company’s selling a large operating 

division and investing the proceeds in securities 

pending acquisition of additional operating assets; 

and (3) a company making a tender offer to 

stockholders of a non-investment company and 

failing to obtain a majority of the target company’s 

stock.’’). 

344See 17 CFR 230.419(e)(2)(iv) (‘‘If a 

consummated acquisition(s) meeting the 

requirements [of Rule 419] has not occurred by a 

date 18 months after the effective date of the initial 

registration statement, funds held in the escrow or 

trust account shall be returned [to investors.]’’). 

345Section 6(c) gives the Commission the broad 

power to exempt conditionally or unconditionally 

any person, security, or transaction from any 

provisions of the Act or any rule thereunder, 

provided that the exemption is ‘‘necessary or 

appropriate in the public interest and consistent 

with the protection of investors and the purposes 

fairly intended by the policy and provisions of [the 

Act].’’ An applicant requesting such relief must 

explain in its application that, given its particular 

facts and circumstances, the requested relief would 

meet the section’s standards. See generally 

Amendments to Procedures With Respect to 

Applications Under the Investment Company Act of 

1940, Release No. IC–33921 (July 6, 2020) [85 FR 

57089 (Sept. 15, 2020)]. 

346See, e.g., General Electric Company and GE 

Capital International Holdings Ltd., Release No. IC– 

32477 (Feb. 13, 2017) [82 FR 11079 (Feb. 17, 2017)] 

(notice), Release No. IC–32532 (Mar. 13, 2017) 

(order). 

347See infra Section IX.B.6. (discussing baseline 

data regarding average duration). One press report 

suggests that the average period of time between a 

SPAC’s initial public offering and the signing of its 

business combination agreement may be decreasing, 

with the average such period of time being 

approximately 7.5 months for de-SPAC transactions 

that closed in 2021. See ‘‘De-SPACs Still Popular 

But Becoming Harder To Close,’’ available at: 

https://www.law360.com/mergersacquisitions/ 

articles/1464716/de-spacs-still-popular-butbecoming-harder-to-close. 

348These additional agreements would need to be 

evidenced by the filing of a Form 8–K. 

349We stress that, for an issuer satisfying the 

safeguards tailored for transient investment 

companies under Rule 3a–2, a company’s inability 

to become engaged primarily in a noninvestment 

company business within that rule’s one year 

period would continue to raise serious questions 

concerning the applicability of the Investment 

Company Act to that company. See Adopting 

Release to Rule 3a–2, supra note 343, at text 

following n.5. See also infra note 358 and 

accompanying text (quoting from Proposing Release 

to Rule 3a–2, supra note 343). 

350See infra Section IX.B.6. 351We also note that some SPACs in the past have 

sought an extension to their lifespan by obtaining 

approval of their shareholders. The proposed rule 

does not provide for any extensions. 352Proposed Rule 3a–10(a)(4)(i). 

positions. The Investment Company Act 

provides that any issuer that meets the 

definition of ‘‘investment company’’ 

must register and be regulated under 

that Act unless the issuer can rely on an 

exclusion or exemption. The Investment 

Company Act requires that an issuer 

will register and be subject to the Act’s 

regulatory requirements once the issuer 

meets the definition.342 The 

Commission, however, has in the past 

provided conditional, temporary relief 

to certain issuers that meet the 

definition of ‘‘investment company’’ for 

only a short period of time. For 

example, Rule 3a–2 provides a one-year 

safe harbor to so-called ‘‘transient 

investment companies,’’ which are 

issuers that, as a result of an unusual 

business occurrence, may be considered 

an investment company under the 

statutory definitions but intend to be 

engaged in a non-investment company 

business.343 In addition, as discussed 

previously, the Commission took the 

position that Rule 419 Accounts need 

not be required to register as an 

investment company nor regulated as an 

investment company under the 

Investment Company Act in part 

because the rule limits the duration of 

such accounts to 18 months.344 The 

Commission has also at times granted 

short-term, conditional exemptive relief 

under Section 6(c) of the Investment 

Company Act 345 to certain issuers that 

needed additional time to restructure 

their businesses beyond that afforded by 

Rule 3a–2.346

Accordingly, the proposed rule would 

require a SPAC wishing to rely on the 

safe harbor to enter into an agreement 

with a target company no later than 18 

months after its initial public offering, 

as evidenced by its filing a report on 

Form 8–K.347 A SPAC may enter into 

agreements with additional target 

companies 348 after the 18-month period 

provided that the business combination 

contemplated by such later agreements 

are part of the de-SPAC transaction and 

all of the transactions close 

contemporaneously within the 24- 

month period. The condition that the 

de-SPAC transaction close within 24 

months is designed to allow SPACs to 

complete their stated business purpose 

while balancing the risk that investors 

may come to view a SPAC holding 

securities for a prolonged period as a 

fund-like investment, thereby 

necessitating the regulatory protections 

of the Investment Company Act. 

This timeframe is longer than the oneyear timeframe of Rule 3a–2. We are 

proposing a longer time frame under 

Rule 3a–10 because we understand that 

the search for a de-SPAC target 

frequently takes more than one year and 

an issuer relying on Rule 3a–10 would 

be more restricted in its business 

purpose and activities throughout the 

period of reliance than an issuer relying 

on Rule 3a–2.349 This proposed 

timeframe reflects a consideration of the 

Tonopah factors, including the factor 

that focuses on an issuer’s historical 

development as well as our position 

with respect to Rule 419. While an 

issuer relying on Rule 3a–10 may have 

certain characteristics resembling those 

of an investment company for a longer 

period than an issuer relying on Rule 

3a–2, its assets, income and purpose, 

and the activities of its officers and 

directors, would be further restricted 

under the other conditions of Rule 3a– 

10. Accordingly, the conditions are 

designed to work together to reduce the 

likelihood that investors will come to 

view the SPAC as a fund-like 

investment. Nevertheless, we stress that 

the inability of a SPAC to identify a 

target and complete a de-SPAC 

transaction within the proposed 

timeframe would raise serious questions 

concerning the applicability of the 

Investment Company Act to that SPAC. 

While we understand most SPACs 

commit to closing a de-SPAC 

transaction within 24 months, we also 

acknowledge that the duration limits we 

are proposing are shorter than the actual 

timeline of some SPACs that recently 

completed their de-SPAC 

transactions.350 We understand that 

SPACs that choose to rely on the 

proposed safe harbor may need to seek 

to identify and complete de-SPAC 

transactions on an accelerated timeline. 

Nonetheless, we are concerned that, the 

longer a SPAC operates with its assets 

invested in securities and its income 

derived from securities, the more likely 

investors will come to view the SPAC as 

a fund-like investment and the more 

likely the SPAC appears to be deviating 

from its stated business purpose.351 We 

have sought to strike a balance between 

providing flexibility for the SPAC to 

pursue its stated purpose and 

recognizing that, beyond some horizon, 

the SPAC’s historical development 

would become difficult to distinguish 

from that of an investment company. 

While exchange listing rules 

contemplate potentially longer SPAC 

lifespans, those rules were adopted for 

a different regulatory purpose. 

The proposed rule would also require 

that any assets that are not used in 

connection with the de-SPAC 

transaction be distributed in cash to 

SPAC shareholders as soon as 

reasonably practicable after the 

completion of the de-SPAC 

transaction.352 Thus, in the event that 

the de-SPAC transaction requires fewer 

assets than are owned by the SPAC, the 


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353Proposed Rule 3a–10(a)(4)(ii). 

354Once a SPAC has distributed its assets, the 

SPAC must cease to operate as a SPAC, and it may 

not rely on the safe harbor again. 

355The proposed rule would also preclude a 

SPAC from relying on proposed Rule 3a–10 after 

Rule 3a–2, because the time period in the proposed 

rule begins on the effective date of its initial 

registration statement. 

356See supra note 343 and accompanying text. 

357Rule 3a–2(b). 

358See Proposing Release to Rule 3a–2, supra 

note 343. 

SPAC would be unable to seek another 

de-SPAC transaction with its remaining 

assets, or otherwise continue to operate 

as a SPAC, even if the de-SPAC 

transaction met the duration conditions. 

As discussed previously, a SPAC that is 

relying on the safe harbor would already 

be precluded from engaging in more 

than one de-SPAC transaction pursuant 

to proposed Rule 3a–10(a)(3)(i). This 

separate condition supplements that 

provision and is designed to ensure that 

a SPAC may not continue to operate 

after its single de-SPAC transaction and 

still qualify for the safe harbor. 

A SPAC seeking to rely on the safe 

harbor would also be required to 

distribute the SPAC’s assets in cash to 

investors in the event that the SPAC 

fails to meet either the 18-month or the 

24-month deadline.353 As proposed, a 

SPAC would be required to distribute its 

assets in cash to investors if the SPAC 

fails to enter into an agreement with a 

target company within 18 months even 

if it believes that it would complete a 

transaction within 24 months. This 

condition would result in a SPAC that 

fails to meet these timing requirements 

either distributing its assets as soon as 

reasonably practicable or registering as 

an investment company. In any event, 

such a SPAC would not be permitted to 

continue to rely on the safe harbor.354

A SPAC would not be able to rely on 

Rule 3a–2 subsequent to its reliance on 

proposed Rule 3a–10 in the event that 

it fails to meet either proposed Rule 3a– 

10’s 18-month or 24-month time 

frame.355 A failure to meet either 

timeframe would not constitute an 

unusual business occurrence under that 

rule.356 In addition, Rule 3a–2 

specifically states that the 12-month safe 

harbor provided under that rule begins 

once the issuer acquires specified 

amounts of securities.357 Generally, the 

commencement date for reliance on 

Rule 3a–2 (and the 12 month safe harbor 

provided under that rule) would have 

passed in the event a SPAC wished later 

to rely on that rule subsequent to its 

reliance on proposed Rule 3a–10. 

Finally, both Rule 3a–2 and proposed 

Rule 3a–10 are safe harbors that provide 

or would provide temporary relief to 

certain issuers that may be investment 

companies, provided that, among other 

conditions, they transition to a noninvestment company business in a short 

period of time. When it was considering 

Rule 3a–2, the Commission was 

concerned that issuers could circumvent 

the Investment Company Act by 

repeatedly relying on the Rule 3a–2 safe 

harbor, explaining that ‘‘where an 

issuer’s activities would bring it within 

the definition of investment company 

more frequently than would be 

permitted by the rule, the investor 

protection concerns of the Act would be 

relevant, the need for shareholder 

protections would not be met, and there 

would be no persuasive public interest 

from the standpoint of investors in 

permitting a non-transient investment 

company to avoid complying with the 

prohibitions and regulatory provisions 

of the Act.’’ 358 This concern would also 

arise if SPACs were to rely on the Rule 

3a–2 safe harbor following reliance on 

proposed Rule 3a–10. 

Request for Comment 

138. Should we require, as proposed, 

that the SPAC reach an agreement with 

at least one target company within 18 

months? Should we require that the 

SPAC reach an agreement with at least 

one target company within 12 months, 

which would be more consistent with 

the time period in Rule 3a–2? Should 

the time period be even shorter than 12 

months (e.g., 6 months)? Should the 

time period be longer (e.g., 20 months, 

24 months, 36 months)? If the time 

period should be longer, please explain 

why such a longer period is necessary 

and how any such longer period would 

be consistent with the framework of the 

Investment Company Act, the rules 

thereunder, and prior Commission 

positions. 

139. Is there an alternative way to 

limit the duration of the SPAC? Should 

we require that such an agreement be 

evidenced by the filing of the Form 8– 

K? Should a SPAC be permitted, as 

proposed, to enter into agreements with 

other target companies after the 18- 

month period provided that all 

transactions close within 24 months? 

140. Should we include an option for 

SPACs that have not identified a target 

within 18 months, or completed the deSPAC transaction within 24 months to 

extend these deadlines? If so, what 

would that be and what conditions 

should be included? For example, 

should we provide that a SPAC can 

obtain an extra 2, 4 or 6 months and stay 

within the safe harbor if it obtains 

approval from its shareholders? Please 

explain how any extensions of these 

deadlines would be consistent with the 

framework of the Investment Company 

Act, the rules thereunder, and prior 

Commission positions. 

141. Should we require, as proposed, 

that the SPAC complete the de-SPAC 

transaction within a 24-month period? 

Should the time period be 18 months, 

as in Rule 419 or 12 months, as in Rule 

3a–2? Should the period be longer (e.g., 

30 months)? If so, how would that 

longer period be consistent with the 

framework of the Investment Company 

Act, the rules thereunder, and past 

Commission positions? 

142. The rule proposal requires that 

any assets of the SPAC that are not used 

in connection with the de-SPAC 

transaction, or in the event of the 

SPAC’s failure to meet the timelines 

required for identification or completion 

of a de-SPAC transaction, be distributed 

in cash to investors as soon as 

reasonably practicable. Should we allow 

distributions ‘‘in-kind’’? Are there any 

other distributions made by the SPAC 

that should be covered by the rule? 

Should the rule text define the term 

‘‘reasonably practicable’’? If yes, how 

should the term be defined? If the term 

‘‘reasonably practicable’’ is not defined, 

could that potentially result in 

unnecessarily extended periods of time 

before investor assets are returned? 

Instead of defining the term ‘‘reasonably 

practicable,’’ should we specifically 

require that such assets be distributed 

within a defined time period such as 30 

days? 15 days? 7 days? Should we 

require the SPAC to provide notification 

to the Commission, its investors and/or 

the SPAC’s board of directors if the 

distribution of cash takes longer than a 

certain period of time, e.g., 30 days? 

143. The proposed rule would 

require, following completion of a deSPAC transaction, or in the event that 

the SPAC failed to identify or complete 

a de-SPAC transaction, the SPAC to 

distribute all remaining assets and cease 

operating as a SPAC. The proposed rule, 

however, does not specifically mandate 

that the SPAC dissolve. Should we 

include this requirement as a condition 

to the safe harbor? Why or why not? 

144. In adopting Rule 3a–2, the 

Commission identified examples of 

companies that may be able to rely on 

that safe harbor. These examples did not 

specifically include SPACs or blank 

check companies. Are SPACs currently 

relying on Rule 3a–2 and, if so, what is 

the basis for their reliance? Should the 

Commission provide guidance 

concerning, or amend Rule 3a–2 to 

address, the ability of SPACs to rely on 

that safe harbor? 


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359According to one study, institutional investors 

typically purchase the vast majority of the securities 

in a SPAC’s initial public offering and are far more 

likely to redeem their shares instead of reselling the 

shares, resulting in limited secondary market 

trading of SPAC shares. Klausner, Ohlrogge, and 

Ruan, supra note 17. 

360See Rodrigues and Stegemoller, supra note 17. 

361See Securities Act Rule 164(e)(1). 

362See General Instruction A.1 to Form S–8. 

363See Securities Act Rule 139(a)(1)(ii)(B). 

364See supra note 35. 

VII. Additional Requests for Comment 

As discussed above, we believe that 

the proposed new rules and 

amendments would enhance the 

disclosure requirements applicable to 

SPACs in initial public offerings and in 

de-SPAC transactions and provide 

important investor protections in 

connection with de-SPAC transactions. 

In considering the SPAC market as a 

whole, we are requesting comment on a 

number of additional matters relating to 

the disclosures provided by SPACs, 

investor protection measures, and the 

treatment of companies following a deSPAC transaction. 

145. Are there disclosure 

requirements that we have not proposed 

that would be helpful for investors in 

SPACs at the initial public offering stage 

or at the de-SPAC transaction stage? 

146. Should the disclosure 

requirements and filer status 

determinations in a de-SPAC 

transaction be the same no matter the 

de-SPAC structure? Do our proposals 

accomplish this, or are there other 

disclosure requirements and filer status 

determinations impacted by transaction 

structure that we should address? 

147. What are the reasons, other than 

possible reporting outcomes, why a deSPAC transaction is structured so that 

an entity other than the SPAC is the 

acquirer and filing the registration 

statement or proxy or information 

statement for the de-SPAC transaction? 

Are there tax or other reasons that we 

should consider in relation to the 

proposed amendments in this release 

and whether the disclosure 

requirements should be further aligned 

across all de-SPAC transaction 

structures? 

148. Should we consider amendments 

to other registration statement forms 

under the Securities Act to require 

enhanced disclosures for offerings by 

SPACs that are similar to those 

proposed above with respect to Forms 

S–1 and F–1? Should we consider 

similar amendments to Regulation A 

and Form 1–A? 

149. The periodic reports filed by 

SPACs under the Exchange Act 

generally contain limited information 

due to the absence of an operating 

business. Should some of the disclosure 

requirements we are proposing also be 

required in the periodic reports filed by 

a SPAC following its initial public 

offering? If so, which disclosures? Are 

there other disclosures that we should 

require in the Exchange Act reports filed 

by a SPAC? 

150. We note that the announcement 

of a prospective de-SPAC transaction 

often results in an immediate and 

substantial increase in the trading 

volume of the securities of the SPAC, 

based on the terms of the transaction 

that have been disclosed and the limited 

information publicly available on the 

private operating company at the time of 

the announcement, which is far less 

extensive than that of a newly public 

company after a traditional initial 

public offering.359 Should we consider 

requiring additional disclosures, such as 

more disclosure on the private operating 

company or risk factor disclosure, in a 

Form 8–K filed pursuant to Item 1.01 of 

the form disclosing that the parties have 

entered into a business combination 

agreement? If so, what additional 

disclosure should we require? Should 

we amend Item 1.01 of Form 8–K to 

require the filing of the business 

combination agreement as an exhibit to 

the Form 8–K filing (as opposed to 

allowing the agreement to be filed as an 

exhibit to a subsequent periodic report)? 

What other amendments should we 

consider in this regard? 

151. Currently, the post-business 

combination company is required to file 

a Form 8–K with Form 10 information 

within four business days after the 

completion of a de-SPAC transaction. 

Should we require the filing of this 

Form 8–K within a shorter time frame 

in order to reduce the gap in timing 

between the completion of the 

transaction and the public availability of 

this information in the Form 8–K? 

152. Are there other rule changes the 

Commission should consider to enhance 

investor protections in initial public 

offerings by SPACs and in de-SPAC 

transactions? 

• We have not proposed requirements 

for SPAC offerings comparable to those 

applicable to blank check companies 

under Rule 419. Should we consider 

requiring SPACs to comply with 

conditions similar to those in Rule 419? 

If so, which conditions? 

• The shareholders of a SPAC are 

permitted to vote in favor of a proposed 

de-SPAC transaction while redeeming 

their shares prior to the closing of the 

transaction and retaining their warrants, 

such that the vote is decoupled from 

any continuing share ownership in the 

post-business combination company 

(unless and until the warrants are 

exercised).360 Should the Commission 

adopt rule changes or other approaches 

to address this situation? For example, 

should the Commission condition the 

continued availability of an exclusion 

from the requirements of Rule 419 on 

whether shareholders voting to approve 

a de-SPAC transaction retain an 

economic interest in the combined 

company? Should we address this issue 

through the Commission’s authority 

under Section 19(c) of the Exchange Act 

to adopt rules applicable to national 

securities exchanges? 

153. A post-business combination 

company following a de-SPAC 

transaction is subject to different 

treatment under various rules based on 

its status as a former shell company. For 

example, a post-business combination 

company following a de-SPAC 

transaction is an ‘‘ineligible issuer,’’ 

based on its status as a former shell 

company, which prevents the company 

from using free writing prospectuses 

pursuant to Securities Act Rules 164 

and 433 for a three-year period.361 As a 

former shell company, the post-business 

combination company is also ineligible 

to file a registration statement on Form 

S–8 for a 60-day period following the 

de-SPAC transaction,362 and the safe 

harbor in Rule 139 for broker-dealer 

research reports is not available for 

research reports on the post-business 

combination company for a three-year 

period.363 In this regard, we note that 

the treatment of former shell companies 

under these rules is based on 

heightened concerns regarding fraud 

and other abuses surrounding many 

shell company transactions. To better 

align de-SPAC transactions with initial 

public offerings, should we consider 

amending these and other rules relating 

to former shell companies to treat 

companies that have become public 

companies through a de-SPAC 

transaction in the same or similar 

manner as those that have completed 

traditional initial public offerings? 

Should we differentiate SPACs from 

other shell companies in applying these 

rules? If so, on what basis? 

154. Are there areas relating to SPACs 

where additional Commission guidance 

would be helpful? For example, would 

it be useful if the Commission reiterated 

or expanded upon the Commission 

staff’s guidance in 2020 and 2021 

regarding SPACs? 364

VIII. General Request for Comments 

We request and encourage any 

interested person to submit comments 

on any aspect of our proposals, other 

matters that might have an impact on 


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365Section 2(b) of the Securities Act [15 U.S.C. 

77b(b)] and Section 3(f) of the Exchange Act [17 

U.S.C. 78c(f)], and Section 2(c) of the Investment 

Company Act [15 U.S.C. 80a–2(c)] require the 

Commission, when engaging in rulemaking where 

it is required to consider or determine whether an 

action is necessary or appropriate in (or, with 

respect to the Investment Company Act, consistent 

with) the public interest, to consider, in addition to 

the protection of investors, whether the action will 

promote efficiency, competition, and capital 

formation. Further, Section 23(a)(2) of the Exchange 

Act [17 U.S.C. 78w(a)(2)] requires the Commission, 

when making rules under the Exchange Act, to 

consider the impact that the rules would have on 

competition, and prohibits the Commission from 

adopting any rule that would impose a burden on 

competition not necessary or appropriate in 

furtherance of the Exchange Act. 

366Throughout this section, ‘‘investor’’ can refer 

to any current or a potential shareholder of a 

company, though it is generally understood costs 

and benefits may accrue to such investors 

heterogeneously based on size, sophistication, and 

affiliation. 

367See infra Sections IX.C.1.b.7 & IX.C.1.b.8. 

368See, e.g., Orie E. Barron & Hong Qu, 

Information Asymmetry and the Ex Ante Impact of 

Public Disclosure Quality on Price Efficiency and 

the Cost of Capital: Evidence from a Laboratory 

Market, 89 Accounting Rev. 1269 (2014) (highquality public disclosure leads to increased price 

efficiency and decreased cost of capital); Ulf 

Bru ̈ ggemann, Aditya Kaul, Christian Leuz, & Ingrid 

Werner, The Twilight Zone: OTC Regulatory 

Regimes and Market Quality, 31(3) Rev. Fin. Stud. 

898, 898–942 (2018) (increased disclosure regimes 

lead to increased liquidity and lower crash risk). 

369See SPAC to the Future III, IPO Edge (Nov. 10, 

2021) (remarks of panelist Chris Weekes, Managing 

Director and Co-Head of SPACs, Cowen), available 

at https://ipo-edge.com/join-spac-to-the-future-iiiwith-nasdaq-cowen-gallagher-ve-icr-morrow-sodalimorganfranklin-featuring-gigcapital-hennessy-andswitchback/. 

the proposed amendments, and any 

suggestions for additional changes. With 

respect to any comments, we note that 

they are of greatest assistance if 

accompanied by supporting data and 

analysis of the issues addressed in those 

comments and by alternatives to our 

proposals where appropriate. 

IX. Economic Analysis 

We are mindful of the costs and 

benefits of these proposed new rules 

and amendments. The discussion below 

addresses the potential economic effects 

of the proposed new rules and 

amendments, including the likely 

benefits and costs, as well as the 

potential effects on efficiency, 

competition, and capital formation.365

We have analyzed the expected 

economic effects of the proposed new 

rules and amendments relative to the 

current baseline, which consists of the 

existing regulatory framework of 

disclosure requirements and liability 

provisions, current market practices, 

and the distribution of participants by 

type. 

As discussed above, we are proposing 

new rules and amendments to existing 

rules that are intended to enhance 

investor protections in SPAC registered 

offerings, including initial public 

offerings, and in de-SPAC transactions. 

The proposed new rules and 

amendments would require disclosures 

with respect to, among other things, 

compensation paid to sponsors, 

conflicts of interest, dilution, and the 

fairness of de-SPAC transactions. The 

proposed new rules and amendments 

would also revise certain rules and 

forms under the Securities Act and the 

Exchange Act to specify their 

application in the context of de-SPAC 

transactions, including, among other 

things, a proposed rule that a SPAC and 

a target company be treated as coregistrants when a SPAC files a 

registration statement for a de-SPAC 

transaction and a proposed rule that 

addresses the underwriter status of 

SPAC IPO underwriters in any 

subsequently registered de-SPAC 

transaction. 

Additional proposed rules are 

intended to align de-SPAC transactions 

more closely with initial public 

offerings. One would require certain 

non-financial disclosures regarding the 

target private operating company that 

are typically filed on Form 8–K within 

4 days after the completion of a deSPAC transaction to be included in the 

disclosures that are filed in connection 

with an anticipated de-SPAC 

transaction (Form S–4 or F–4, a proxy 

or information statement, or a Schedule 

TO). The other would require the 

surviving entity following a de-SPAC 

transaction to re-determine its eligibility 

for smaller reporting company status 

within four business days of the 

completion of the transaction. 

We are also proposing new rules and 

amendments that would apply to shell 

companies more broadly. Proposed Rule 

145a would deem any business 

combination involving a reporting shell 

company that is not a business 

combination related shell company, and 

another entity that is not a shell 

company, to involve a sale of securities 

to the reporting shell company’s 

shareholders. In addition, the proposed 

amendments to Regulation S–X are 

intended to more closely align the 

financial statement requirements in 

business combinations between a shell 

company (other than a business 

combination related shell company) and 

a non-shell company with those 

required on Forms S–1 or F–1 for an 

initial public offering. 

Furthermore, we are proposing to: (i) 

Amend Item 10(b) of Regulation S–K to 

expand and update our views with 

respect to projections used in 

Commission filings; (ii) require 

additional disclosures regarding 

projections when disclosed in 

connection with de-SPAC transactions; 

and (iii) amend the definition of ‘‘blank 

check company’’ for purposes of the 

PSLRA safe harbor for forward-looking 

statements, such that the safe harbor 

would not be available for projections 

by blank check companies that are not 

penny stock issuers, which would 

include SPACs and target companies in 

de-SPAC transactions. Finally, we are 

proposing to create a safe harbor from 

the definition of ‘‘investment company’’ 

under the Investment Company Act for 

SPACs that meet certain conditions. 

Overall, we expect the proposed new 

rules and amendments relating to SPAC 

transactions, in particular, and in some 

cases to shell company business 

combinations more broadly, to provide 

investors 366 with improved and, in 

some instances, potentially earlier 367

access to more consistent, 

comprehensive, and readily comparable 

information and to enhance their ability 

to make more informed investment 

decisions, which can lead to more 

efficient pricing of securities.368 Both 

public reporting companies seeking to 

make an acquisition (SPACs or other 

shell or blank check companies, in some 

cases) and target private operating 

companies may incur costs related to 

the production and public disclosure of 

the proposed required information; 

however, these costs may be mitigated 

to the extent that either party may 

already voluntarily produce or provide 

such information in response to 

evolving market demands.369 We further 

anticipate that addressing the liability of 

various parties in de-SPAC transactions 

or other shell company business 

combinations could encourage those 

parties to exercise greater care in either 

the selection of an intended target 

company or the preparation and review 

of the required disclosures. This could 

result in more reliable information for 

investors regarding a private company 

target at the time of a transaction, and 

would further align the protections 

afforded to investors with those of an 

initial public offering. 

To the extent that the proposed rules 

would also provide better, more readily 

accessible information about SPACs, 

they may result in less adverse selection 

than might otherwise occur at the deSPAC transaction. Overall, we expect 

the proposals may enhance the 

protection of investors, as well as 

promote market efficiency. We are 

mindful that some aspects of this 

rulemaking may deter some forms of 

communications or some transactions 


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370For our estimates of the paperwork burdens 

associated with the proposed rules and 

amendments for purposes of the Paperwork 

Reduction Act of 1995 (‘‘PRA’’), please see Section 

X below. These PRA burden estimates pertain to 

‘‘collections of information’’ as that term is defined 

in the PRA, and therefore reflect only the hours and 

costs to prepare required disclosures and maintain 

records. As a result, these estimates do not reflect 

the full economic effects or full scope of economic 

costs of the proposed rules and amendments that 

are discussed in this analysis. 

371Adverse selection is sometimes described as 

the ‘lemons’ problem: When buyers have less 

information than sellers, their bids will be lower to 

reflect this uncertainty. In response, the sellers of 

high quality products may exit the market, causing 

further decline in buyers’ willingness to pay, which 

could cause a market failure. See, e.g., George 

Akerlof, The Market for ‘‘Lemons’’: Quality 

Uncertainty and the Market Mechanism, 84 Qtr. J. 

Econ. 488 (1970). 

372This review includes benefits such as, for 

example, the production of additional valuable 

information in response to comments issued by the 

Commission staff during the filing reviews. See, 

e.g., Michelle Lowry, Roni Michaely, & Ekaterina 

Volkova, Information Revealed Through the 

Regulatory Process: Interactions Between the SEC 

and Companies Ahead of Their IPO, 33 Rev. Fin. 

Stud. 5510 (2020). 

373See Alexander Ljungqvist, Chapter 7—IPO 

Underpricing, in 1 Handbook of Empirical 

Corporate Finance 375 (B. Espen Eckbo ed., 2007); 

Kevin Rock, Why New Issues are Underpriced, 15 

J. Fin. Econ. 187 (1986); Tim Loughran & Jay Ritter, 

Why Has IPO Underpricing Changed Over Time?, 

33 Fin. Mgmt. 5 (2004). 

374While equity in a private company might also 

become publicly traded by participation in a rollup, because such transactions typically involve 

multiple companies and the surviving entity thus 

may resemble each of the rolled-up entities less 

specifically, individually, we do not consider this 

a comparable way of going public for the purposes 

of our discussion. Additionally, a handful of 

companies have listed their shares directly on a 

national securities exchange without the use of a 

traditional underwriter and without raising capital. 

As with participation in a roll-up, this method of 

accessing the public markets is not frequently used. 

From 2018 through 2021, only twelve companies 

went public using this approach. (This Commission 

estimate includes 9 direct listings on NYSE and 3 

direct listings on Nasdaq that occurred on or before 

Dec. 31, 2021.) In December 2020, the Commission 

issued an order approving a proposed rule change 

submitted by New York Stock Exchange LLC 

(NYSE) that would allow private companies to list 

on the NYSE via a direct listing and raise capital 

at the same time. See Release No. 34–90768 (Dec. 

22, 2020) [85 FR 85807 (Dec. 29, 2020)] (SR–NYSE– 

2019–67). In May 2021, the Commission approved 

a similar proposed rule change submitted by The 

Nasdaq Stock Market LLC. See Release No. 34– 

91947 (May 19, 2021) [86 FR 28169 (May 25, 2021)] 

(SR–NASDAQ–2020–057). While, it is possible that 

the number of companies that would seek to offer 

securities via direct listing will increase following 

these recent regulatory changes, it is unclear that 

future use would become comparable in purpose or 

scope to mergers with shell companies as an 

alternative means to access the public market. See 

Release No. 34–94311 (Feb. 24, 2022) [87 FR 11780 

(Mar. 2, 2022)] (SR–NASDAQ–2021–045) (order 

disapproving proposed rule change to modify 

certain price limitations in a direct listing with a 

capital raise). 

375See, e.g., James Brau & Stanley Fawcett, Initial 

Public Offerings: An Analysis of Theory and 

Practice, 61 J. Fin. 399 (2006). 

376Staff review of Form 8–K filings identified 28 

private operating companies acquired in calendar 

year 2019 and 10 in calendar year 2015 that could 

be confirmed in the Dealogic M&A module as a deSPAC transaction. 

377For a detailed description of the SPAC 

process, see Section 1. 

378 In addition to the potentially problematic 

incentives embedded in the SPAC structure as 

described in the following sections, we further 

acknowledge that in some cases management and 

other insiders in target companies may find that a 

de-SPAC transaction is a more attractive option for 

becoming a public reporting company than a 

traditional initial public offering for reasons that 

conflict more directly with adequate investor 

protections. These reasons may include the lack of 

a named underwriter or actionable liability. 

that might otherwise be efficient or to 

the economic benefit of issuers and 

investors. They also may deter some 

business combinations that otherwise 

would have created value. We discuss 

these considerations in more detail 

below. 

In many cases, we are unable to 

quantify the relative magnitudes of 

various economic effects because we 

lack information to quantify such effects 

with a reasonable degree of accuracy. 

Where we are unable to quantify the 

economic effects of the proposed new 

rules and amendments, we have 

provided a qualitative assessment of the 

potential effects and encourage 

commenters to provide data, studies, 

reports and other information that 

would help quantify the benefits, costs, 

and potential impacts on efficiency, 

competition, and capital formation.370

A. Broad Economic Considerations 

Although a significant level of 

information asymmetry exists when a 

private company ‘‘goes public,’’ the 

traditional initial public offering process 

(IPO) has developed mechanisms that 

can alleviate adverse selection 

problems.371 Those mechanisms include 

mandated public disclosures, staff 

review of registration statements,372 and 

the effects of Section 11 liability, which, 

among other things, motivates due 

diligence performed by underwriters, 

accountants, and other offering 

participants. These mechanisms 

generally lead to lower levels of 

information asymmetry, which can 

improve the security’s pricing and 

placement efficiency and encourages 

investor participation in the IPO market. 

The traditional IPO process, however, is 

associated with costs, which could be 

significant for certain firms. Those costs 

can be direct, in the form of fees, or 

indirect in the form of underpricing, as 

has long been recognized in the 

academic literature.373

Alternative ways 374 of going public 

have emerged that may allow companies 

to avoid some of the costs of the 

traditional initial public offering 

process, though this also might involve 

forgoing some of the benefits typically 

considered desirable by market 

participants (e.g., potentially better 

pricing due to underwriter help with the 

placement of securities as well as more 

robust due diligence and disclosure).375

While pursuit of these alternatives 

suggest private operating companies are 

interested in accessing the benefits of 

being publicly traded, it is not clear that 

these alternatives represent net 

improvements in the mechanism design 

of the traditional IPO process. 

One way a private company may 

become a public reporting company is 

via merger with a shell company that 

has already obtained exchange listing, 

quotation, or otherwise registered a 

class of securities under the Exchange 

Act. In recent years, a significant 

number of private companies have 

opted to become a public reporting 

company via a merger with a particular 

kind of shell company, a SPAC. SPACs 

have been in existence since the 1990s, 

and though their use by private 

companies as an alternative mechanism 

for becoming a public reporting 

company has varied over time, it has 

increased dramatically in the past three 

years. We estimate that in the past year 

alone, approximately 200 companies 

have become listed on an exchange via 

a de-SPAC transaction, which is slightly 

more than a sevenfold increase since 

2019 and a twentyfold increase since 

2015.376

As with a traditional IPO, becoming a 

public reporting company through a deSPAC transaction might also be subject 

to adverse selection given that this type 

of transaction is associated with 

significant information asymmetries 

between public investors in the SPAC 

and the private company that the SPAC 

intends to acquire. Public SPAC 

investors could rely on various 

mechanisms to overcome the adverse 

selection problem in the SPAC context: 

The contingent nature of sponsor 

compensation; the right to vote to 

approve a de-SPAC transaction or 

redeem shares; projections regarding 

anticipated future performance, to the 

extent they improve price formation; 

potential liability; and any additional 

unregistered investments by investors at 

the de-SPAC transaction stage.377 While 

in some cases, a private company might 

prefer these alternative mechanisms to a 

traditional IPO, their general efficacy in 

resolving the problems or costs of 

information asymmetry might, in 

practice, be limited.378

Some economic theorists have argued 

that the structure of SPAC sponsor 

compensation may efficiently 

incentivize transactions that benefit 


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379See, e.g., Sris Chatterjee, N.K. Chidambaran, 

Gautam Goswami, Security design for a nonstandard IPO: The case of SPACs, 69 J. Int’l Money 

& Fin. 151 (2016). 

380See supra note 12. 

381For listed SPACs, existing exchange listing 

standards, if a shareholder vote is held, require 

public shareholders voting against a de-SPAC 

transaction to have the right to redeem their shares 

if the de-SPAC transaction is approved and 

consummated. See infra Section IX.B.1.a. SPACs 

have often extended this redemption right to 

shareholders voting in favor of the de-SPAC 

transaction as well. 

382See infra Section IX.B.1.a. 

383See supra note 67 and accompanying text. 

384See supra Sections III.C & III.F. 

385See, e.g., Mike Hopkins & Donald G. Ross, Key 

Drivers of Private Equity Firm Certification at Initial 

Public Offering, 16 J. Private Equity, 69 (2013). 

386This role of PIPEs has been more common, 

historically, see, e.g., Vijay M. Jog & Chengye Sun, 

Blank Check IPOs: A Home Run for Management 

(SSRN Working Paper, 2007) (‘‘the median value of 

the transaction in relation to gross proceeds is 

approximately 178 percent, meaning that the size of 

the acquisition is higher than the proceeds raised 

through the IPO since many [blank check 

companies] raised additional debt to finance the 

acquisitions’’), and could be a contributing factor to 

the differences we continue to observe between 

average capital raised via SPAC IPO (see infra 

Section IX.B.6.a) and PIPE financing (see infra 

Section IX.B.2.c) and the average consideration paid 

per SPAC target (see infra Section IX.B.2.c). 

investors,379 but the effects in practice 

may be more ambiguous. On one hand, 

because almost all of the SPAC 

sponsor’s compensation is contingent 

on the completion of a de-SPAC 

transaction, the sponsors may therefore 

have an incentive to select target 

companies that would maximize their 

own, as well as investors’, returns at 

exit. As noted above, however, there is 

also a potential conflict of interest for 

sponsors precisely because their 

compensation (e.g., 20% promote) is 

dependent on the completion of a deSPAC transaction.380 This could create 

an incentive to enter into unfavorable, 

or less favorable, de-SPAC transactions 

than would otherwise be optimal for the 

SPAC’s unaffiliated shareholders 

because the sponsor’s alternative to a 

de-SPAC transaction is to liquidate the 

SPAC, and return the initial public 

offering proceeds, forfeiting their 

potential promote. While reputational 

concerns may be a mitigating source of 

discipline, sponsors may also be more 

likely to prioritize private benefits when 

these concerns are less pressing; for 

example, in periods when the market is 

broadly less risk-averse or if the sponsor 

does not intend to pursue serial SPAC 

activities. 

In addition, voting rights and 

redemption rights may protect SPAC 

investors, because SPAC investors have 

the right to vote against a de-SPAC 

transaction and may redeem their shares 

if they believe holding shares in the 

combined company is not in their best 

interest.381 However, these rights can 

also create potential conflicts of interest 

between non-redeeming shareholders 

and shareholders who choose to redeem 

shares but continue to hold warrants. 

When SPAC investors redeem the shares 

but retain and later exercise the 

warrants of the initial IPO unit, the 

equity shares of the non-redeeming 

shareholders are diluted relative to what 

they would be absent such exercise. A 

further conflict may arise because the 

value of the warrants is enhanced by 

greater volatility of the underlying 

security. Thus, warrant-holders may 

incur greater financial benefits from 

high-risk mergers in a manner that may 

not be aligned with the interests of the 

non-redeeming SPAC investors. 

Additionally, in cases where the SPAC 

is structured so that the shareholders are 

able to vote in favor of a merger but also 

redeem their shares, this could present 

a moral hazard problem, in economic 

terms, because these redeeming 

shareholders would not bear the full 

cost of a less than optimal choice of 

target. 

The use of projections regarding the 

future earnings and performance of the 

target company in the de-SPAC 

transaction may be another mechanism 

that helps SPAC investors overcome 

adverse selection, insofar as they 

provide information that could improve 

price formation. However, there may 

also be conflicts of interest associated 

with those projections given some 

features of the SPAC structure. The need 

to secure shareholder approval and meet 

the respective exchange listing’s 

valuation requirement 382 to complete 

the de-SPAC transaction may imply that 

it is in the target company’s interest to 

present the most favorable projections of 

its future performance. SPAC sponsors’ 

interests in completing the de-SPAC 

transaction in order to receive their 

compensation could also affect the 

degree to which they would be 

motivated to scrutinize or question a 

target company’s projections.383

Additionally, the basis, source, and 

support for any projections may not be 

adequately disclosed to shareholders, 

thereby limiting their value. For 

example, there may be confusion among 

some practitioners as to whether Item 

10(b) of Regulation S–K, which states 

the Commission’s views regarding the 

reasonableness of projections, applies to 

projections regarding the target 

company’s future performance that may 

be included in the SPAC’s filings. 

Applicable liability provisions may 

also provide some protections for SPAC 

investors. For example, SPACs are liable 

for material misstatements or omissions 

in their proxy solicitations under 

Section 14(a) and Rule 14a–9 of the 

Exchange Act. However, such liability 

generally requires proof of negligence. 

Similarly, SPAC investors may be 

protected by the application of Section 

11 and Section 12(a)(2) of the Securities 

Act for material misstatements or 

omissions made in connection with 

SPAC transactions involving the filing 

of a registration statement. However, as 

discussed above, there are potential 

gaps or inconsistencies in these 

protections that the proposed 

amendments are intended to address.384

Another mechanism that could help 

investors overcome the adverse 

selection problem is the potential signal 

of deal quality implied by the presence 

of PIPE investors.385 These investors, 

who are generally institutional 

investors, are often afforded an 

opportunity to gain considerable insight 

into the details of a de-SPAC transaction 

and the future financial prospects of the 

target company (subject to 

confidentiality agreements) for purposes 

of evaluating whether to participate in 

a PIPE that often occurs close in time to 

a de-SPAC transaction. Public SPAC 

investors could benefit from the 

participation of PIPE investors in a deSPAC transaction in a number of ways. 

At present, some PIPE investments in 

connection with de-SPAC transactions 

function as a backstop to offset high 

levels of redemption, thereby ensuring a 

de-SPAC transaction does not fail to 

meet the minimum cash requirement 

necessary to complete its intended 

business combination. In other cases, 

PIPE investments enable the SPAC to 

acquire a larger target, or one with a 

higher valuation, giving SPAC IPO 

investors access to a different type of 

target company than they might 

otherwise be able to acquire.386 On the 

other hand, the presence of PIPE 

investors in a de-SPAC transaction may 

not benefit public SPAC investors 

because they typically invest at a 

discount. When a de-SPAC redemption 

rate is high, the PIPE discount can 

exacerbate the dilution of the equity 

position of the SPAC’s non-redeeming 

shareholders. Additionally, because 

PIPEs may, in some cases, involve the 

purchase of only warrants, similar 

misalignments of incentives with 

respect to a de-SPAC transaction may 

occur with this category of warrant-only 

holders as those previously discussed in 

that they may have incentives to pursue 

riskier targets than would be optimal for 

a non-redeeming SPAC shareholder. As 


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29508 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

387Although as discussed above, a court could 

find that many parties to a de-SPAC transaction 

may meet the definition of ‘‘underwriter,’’ all of 

these issues may be compounded by the lack of a 

designated underwriter in de-SPAC transactions 

that could perform due diligence and would be 

subject to liability under Section 11 of the 

Securities Act. 

388See also supra Sections I–IV for further 

discussion of existing regulatory framework and 

market practices. 

389See Jessica Bai, Angela Ma, and Miles Zheng, 

Reaching for Yield in the Going-Public Market: 

Evidence from SPACs (SSRN Working Paper, 2021). 

such, the PIPE’s financial participation 

in a de-SPAC transaction may not be a 

reliable indication that the transaction 

would benefit unaffiliated SPAC 

investors. 

Therefore, while a number of the 

mechanisms associated with a SPAC 

transaction structure could mitigate 

adverse selection concerns for investors 

and could, theoretically, improve the 

process by which private companies 

may become publicly traded, many of 

their potential benefits over the 

traditional IPO process may be 

mitigated by countervailing conflicts of 

interest. As a result of the complexity 

inherent in the SPAC structure, 

investors may lack or otherwise be 

unable to readily decipher critical 

information regarding certain financial 

incentives (such as contingent sponsor 

or IPO underwriter compensation or the 

potential dilutive effects of PIPE 

financing) of the SPAC, the target 

company, their respective affiliates, or 

other parties in a manner necessary to 

properly assess the value of an 

investment position. 

There is also a question of whether 

investors, particularly retail investors, 

fully understand the costs involved in 

de-SPAC transactions and how these 

costs may affect investors’ post-de-SPAC 

transaction returns on their original 

investments. Specifically, investors may 

not fully anticipate the dilutive effects 

of sponsor compensation (the 

‘‘promote’’), PIPE financing, and 

outstanding warrants following deSPAC transactions. In a similar vein, the 

potential uncertainty regarding the 

availability of the PSLRA safe harbor 

and the applicability of the guidance of 

Item 10(b) of Regulation S–K to 

projections of a target company in a deSPAC transaction may result in the use 

of unreasonable or aspirational 

projections in connection with de-SPAC 

transactions that may misrepresent the 

benefits and risks involved in such 

transactions. Furthermore, while the 

SPAC vehicle may allow a private 

company to go public without using the 

traditional IPO process, the disclosure 

regarding the private company provided 

in connection with a de-SPAC 

transaction may be less complete or less 

reliable than that provided in a 

traditional IPO for reasons discussed in 

the release, including, among other 

reasons, the lack of due diligence by 

traditional gatekeepers, such as 

underwriters.387 By strengthening 

investor protection, the proposed rules 

could increase investors’ confidence in 

SPAC transactions, while keeping this 

alternative route of going public 

attractive for private companies. 

In addition to the SPAC-specific items 

that are of central concern to this 

proposal, we are also proposing 

amendments to address further areas of 

incongruity in requirements that guide 

the disclosures and liabilities in the 

broader context of shell-company 

mergers and the use of projections. For 

example, proposed Rule 145a would 

help investors in reporting shell 

companies more consistently receive the 

full protections of the Securities Act 

disclosure and liability provisions in 

business combinations involving shell 

companies, regardless of the transaction 

structure. Reporting shell companies 

would have to register offerings subject 

to proposed Rule 145a by filing a 

Securities Act registration statement 

unless there is an applicable exemption. 

Additionally, we are proposing new 

Article 15 of Regulation S–X and 

amendments to our forms, schedules, 

and rules to more closely align the 

financial statement reporting 

requirements in business combinations 

involving a shell company and a private 

operating company with those in 

traditional initial public offerings. For 

example, we are proposing to align the 

number of fiscal years required to be 

included in the financial statements for 

a private company that will be the 

predecessor(s) in a shell company 

combination with the financial 

statements required to be included in a 

Securities Act registration statement for 

an initial public offering of equity 

securities in proposed Regulation S–X 

Rule 15–01(b). Other proposed 

amendments would codify certain 

current staff guidance for transactions 

involving shell companies. 

In our analysis below, we first discuss 

the proposed provisions that pertain to 

specialized disclosure requirements for 

SPACs in registered offerings and for deSPAC transactions and then address the 

proposals concerning liability related to 

de-SPAC transactions and the PSLRA 

safe harbor. We then analyze the impact 

of the proposed new rules and 

amendments that would apply to shell 

companies and to the use of projections 

in Commission filings. Finally, we 

discuss the proposed safe harbor for 

SPACs from being deemed an 

investment company under the 

Investment Company Act. Where 

appropriate, we discuss the interactions 

between the proposed new rules and 

amendments. 

B. Baseline and Affected Parties 

To assess the economic impact of the 

proposed rules, the Commission uses as 

its baseline the current regulatory 

framework and existing market 

practices, including Commission staff 

guidance and other staff positions. We 

discuss in this section those parties 

likely to be affected by the proposed 

rules and some of the relevant 

regulatory and market baselines. The 

remainder of the discussion of the 

regulatory and market baselines is 

integrated into our analysis of the 

benefits and costs of the proposed rules 

to aid comprehension and minimize 

repetition.388

1. SPAC Initial Public Offerings 

The parties most likely to be directly 

affected by the proposed rules regarding 

specialized disclosure requirements for 

SPACs in initial public offerings and 

other registered offerings are existing or 

potential sponsors intending to organize 

a new SPAC, SPACs, prospective 

investors in such offerings, and any 

other market participants whose service 

or activities involve analysis of the 

information, data, and disclosures 

related to SPACs and their sponsors in 

these offerings. In 2021, there were 

approximately 620 SPAC initial public 

offerings. 

In addition, these proposed 

amendments would necessarily have 

secondary impacts on the prospects or 

opportunities of private companies that 

would be potential targets of such newly 

organized SPACs if, as a result of their 

adoption, a different number or type of 

SPAC sponsors and their affiliates 

participate in the market. Similarly, 

given that proposed Rule 140a clarifies 

the underwriter status of SPAC IPO 

underwriters at the de-SPAC transaction 

stage, this proposed rule may affect the 

number and type of potential targets 

that might be selected for acquisition by 

potentially reducing the number of 

SPAC IPOs underwriters are willing to 

support or by potentially deterring 

SPAC IPO underwriters from directly or 

indirectly participating in the de-SPAC 

transaction or any related financing 

transaction.389 Other potentially 

affected parties include those parties 

who provide advisory or other services 


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Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29509 

390SPACs first were listed on the AMEX in 2005. 

The Commission approved the NYSE’s proposed 

rule change to adopt listing standards to permit the 

listing of SPACs on May 6, 2008, and approved 

NASDAQ’s proposal to adopt listing standards to 

permit the listing of SPACs on July 25, 2008. See 

Release No. 34–57785 (May 6, 2008) [73 FR27597 

(May 13, 2008)] (SR–NYSE–2008–17); Release No. 

34–58228 (July 25, 2008) [73 FR 44794 (July 31, 

2008)] (SR–NASDAQ–2008–013). See also Release 

No. 34–63366 (Nov. 23, 2010) [75 FR 74119 (Nov. 

30, 2010)] (SRNYSEAMEX–2010–103) (notice of 

filing and immediate effectiveness of proposed rule 

change to adopt additional criteria for the listing of 

SPACs). 

391NYSE Listed Company Manual Section 

102.06; Nasdaq Listing Rule IM–5101–2; NYSE 

American Company Guide Section 119. The Rules 

of the CBOE BZX Exchange, Inc., provide another 

example of listing requirements that are 

substantially similar to those describe in this 

section. See CBOE BZX Rule 14.2(b). 

392NYSE Listed Company Manual Section 

102.06; Nasdaq Listing Rule IM–5101–2(a); NYSE 

American Company Guide Section 119(a). 

393NYSE Listed Company Manual Section 

102.06(e); Nasdaq Listing Rule IM–5101–2(b); NYSE 

American Company Guide Section 119(b). 

394NYSE Listed Company Manual Section 

102.06(d); Nasdaq Listing Rule IM–5101–2(c); NYSE 

American Company Guide Section 119(c). 

395NYSE Listed Company Manual Section 

102.06(a); Nasdaq Listing Rule IM–5101–2(d); NYSE 

American Company Guide Section 119(d). 

396NYSE Listed Company Manual Section 

102.06(b); Nasdaq Listing Rule IM–5101–2(d); 

NYSE American Company Guide Section 119(d). 

397NYSE Listed Company Manual Section 

102.06(c); Nasdaq Listing Rule IM–5101–2(e); NYSE 

American Company Guide Section 119(e). 

to sponsors of SPACs in connection 

with these registered offerings. 

a. SPAC Initial Public Offerings and 

Exchange Listing 

SPACs initial public offerings on 

national securities exchanges have 

greatly increased in recent years. 

Moreover, SPAC listings have migrated 

from the over-the-counter market to 

three national securities exchanges: 

First NYSE American (formerly AMEX), 

then Nasdaq and NYSE (see Table 1).390

NYSE, Nasdaq, and NYSE American 

have rules setting forth listing 

requirements for a company whose 

business plan is to complete an IPO and 

engage in a de-SPAC transaction.391

Among other things, all three exchanges 

permit the initial listing of SPACs only 

if at least 90% of the gross proceeds 

from the IPO and any concurrent sale by 

the SPAC of equity securities will be 

deposited in a trust account.392 These 

exchanges further require that within 

three years, for NYSE, or 36 months, for 

Nasdaq and NYSE American, of the 

effectiveness of its IPO registration 

statement (or such shorter period 

specified in the registration statement 

under Nasdaq and NYSE American 

rules or its constitutive documents or by 

contract under NYSE rules), the SPAC 

complete one or more business 

combinations having an aggregate fair 

market value of at least 80% of the value 

of the net assets in the account 

excluding certain costs.393 NYSE, 

Nasdaq, and NYSE American require 

that a de-SPAC transaction meeting the 

80% requirement be approved by a 

majority of the SPAC’s independent 

directors,394 and all three exchanges 

require, if a shareholder vote is held, 

that a majority of the shares voted at the 

shareholder meeting approve the deSPAC transaction meeting the 80% 

requirement.395 In addition, if a deSPAC transaction meeting the 80% 

requirement is approved and 

consummated, public shareholders 

voting against the transaction must have 

the right to convert their shares of 

common stock into a pro rata share of 

the aggregate amount then in the trust 

account net taxes and working capital 

disbursements.396 If a shareholder vote 

on a de-SPAC transaction is not held, 

the SPAC must provide all shareholders 

with the opportunity to redeem all their 

shares for cash equal to their pro rata 

share of the aggregate amount then in 

the trust account net of taxes and 

working capital disbursements, 

pursuant to Rule 13e–4 and Regulation 

14E under the Exchange Act, which 

regulate issuer tender offers.397

b. SPAC Sponsors 

Historically, it has been suggested that 

one reason a SPAC vehicle might 

provide a more attractive route to the 

public markets was the benefit of the 

leadership and professional advice by 

one or more individuals comprising the 

SPAC sponsor, including in some cases 


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Table 1. Number of SPAC IPOs, 1990-2021a 

NASDAQ 

NYSE 

AMEX 

OTC 

1990-

2000 

18 

2001-

2005 

0 

6 

35 

2006-

2010 

3 

1 

78 

46 

2011-

2015 

56 

0 

0 

2016-

2020 

248 

147 

5 

2021 

434 

183 

3 

• Estimates are based on all SPACs identified by Dealogic, SPAC Insider, Audit Analytics, and staff manual review, 

that conducted an initial public offering with a confirmed pricing date as of December 30,2021. 
29510 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

398See Robert Berger, SPACs: An Alternative Way 

to Access the Public Markets, 20 J. Applied 

Corporate Fin. 68 (2008) (‘‘Though privately 

negotiated, tailored transactions, SPACs can 

provide companies with access to the public 

markets in ways that a traditional IPO cannot. SPAC 

mergers typically exhibit . . . specialized SPAC 

management teams that add experience that is 

difficult to replicate.’’). 

399This estimate is based on staff analysis of data 

as described in Table 1, note a. 

400SPACs that conduct a firm commitment IPO 

and raise more than $5 million in the offering are 

not subject to the requirements of Securities Act 

Rule 419. See supra note 12. 

401This estimate is based on staff analysis of data 

as described in Table 1, note a. 

402See, e.g., Lola Miranda Hale, SPAC: A 

Financing Tool with Something for Everyone, 18 J. 

Corp. Acct. & Fin. 67 (2007) (‘‘The underwriting 

discounts are typically around 7–7.5 percent of the 

public offering price’’). 403See Yochanan Shachmurove & Milos 

Vulanovic, Specified Purpose Acquisition Company 

IPOs, in The Oxford Handbook of IPOs (Douglas 

Cumming ed., 2018). 

404See supra Section III.E.3. 

405This estimate is based on staff analysis of data 

as described in Table 1, note a, and may be 

positively skewed because the data features a 

greater proportion of deals occurring between 2019 

and 2021. 

406Based on staff analysis of data as described in 

Table 1, note a. We note that timing differences in 

where a SPAC might currently be, relative to its 

dissolution date, might result in overestimation of 

this difference. 

407See, e.g. Gu ̈l Okutan Nilsson, Incentive 

Structure of Special Purpose Acquisition 

Companies, 19 Eur Bus Org Law Review (2018) 

(‘‘[R]ecent SPACs seem to be experimenting with 

issuing certain ‘rights’ [. . .] defined as the ‘right 

to receive one-tenth of a SPAC share upon 

consummation of the business combination’ Unlike 

in the case of warrants, shareholders are not 

required to pay for receiving these shares. ‘Rights 

can also trade separately and even the shareholders 

who convert their shares can keep them. If the 

business combination cannot be completed, rights 

expire worthless.’’). 

beyond the de-SPAC and into the life of 

the target as public operating 

company.398 Although the majority of 

sponsors are financial institutions, a 

sizable fraction (47%) of SPACs are 

sponsored by individuals. 

c. SPAC IPO Underwriters 

During the period 1990–2021, the 

average number of underwriters 

participating in a SPAC IPO was 2.5.399

Approximately 99% of these SPAC IPOs 

were done via a firm commitment 

offering.400 The average fee charged by 

SPAC IPO underwriters during this time 

was approximately 5.6%.401 This 

reflects a decline from the underwriting 

fees associated with the earliest SPACs 

(approximately 7–7.5%),402 when 

underwriters typically received their 

full compensation at the time of the 

SPAC IPO.403 As mentioned above, a 

portion of this fee is typically deferred 

until, and conditioned upon, the 

completion of the de-SPAC 

transaction.404 In a typical SPAC 

underwriting, this deferred fee is placed 

in the SPAC trust or escrow account. 

During the period 1990–2021, we 

estimate that the average size of the 

deferred underwriter fee was 3.4%.405

We do not observe significant 

differences in the structure or level of 

underwriter fees and deferred fees, as 

disclosed at the IPO stage, between 

SPACs that have completed a de-SPAC 

transaction and those that have not. We 

observe that among SPACs that have 

completed a de-SPAC transaction the 

average number of underwriters was 3.1, 

which is slightly higher than the average 

number of underwriters per SPAC 

IPO.406 SPAC underwriters may provide 

other services to the SPAC or its 

eventual target after the IPO as well. For 

example, the SPAC underwriter may 

help the SPAC identify potential targets, 

provide financial advisory services to 

the SPAC or the target, or act as a PIPE 

placement agent. 

d. Warrants 

SPAC IPOs most often register the 

offering of a unit composed of a 

common share, warrants, or fractions 

thereof, and—in some cases—rights.407

In their earliest form, SPAC units 

usually included two in-the-money 


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Figure 1. Distribution of SPACs by Sponsor Type, 2019-2021 a 

■ Individuals 

!!!! Private Equity 

• Venture Capital 

■ Asset Managers 

"Banks 

111 Hedge Funds 

■ Other 

a Data presents the average composition of SPAC offerings by sponsor type as categorized by SPAC 

Insider. See SP AC Insider, 1 H 2021 SP AC Report (2021 ). Note, sponsor composition data for 2021 SP AC 

sponsorship reflects only data through end second quarter. 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29511 

408See, e.g., Hale, supra note 402 (‘‘The typical 

structure involves the offering of a unit consisting 

of common stock and one or two separate warrants 

for common stock. In a two-warrant unit, the unit 

price is $6, including one share of common stock 

and two warrants.[. . .] Typically, each warrant 

entitles the holder to purchase one share of 

common stock at a price of $5 each.’’); Carol Boyer 

& Glenn Baigent, SPACs as Alternative Investments: 

An Examination of Performance and Factors that 

Drive Prices, 11 J. Private Equity 8 (2008) (‘‘SPACs 

typically sell in units that are priced at $6, and each 

unit is composed of one common share and two 

warrants that give investors the right to buy two 

more shares for $5 each.’’). 

409Historically, this typically occurred around 90 

days after the initial public offering. Over the past 

decade, the usual number of days has decreased to 

approximately 60. See, e.g., Anh L. Tran, Blank 

Check Acquisitions (SSRN Working Paper, 2010); 

James S. Murray, The Regulation and Pricing of 

Special Purpose Acquisition Corporation IPOs 

(SSRN Working Paper, 2014); James S. Murray, 

Innovation, Imitation and Regulation in Finance: 

The Evolution of Special Purpose Acquisition 

Corporations, 6 Rev. Integrative Bus. & Econ. 1 

(2017). 

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

411See supra note 12. See also Rule 419(e)(2)(iv) 

under the Securities Act (‘‘If a consummated 

acquisition(s) meeting the requirements [of Rule 

419] has not occurred by a date 18 months after the 

effective date of the initial registration statement, 

funds held in the escrow or trust account shall be 

returned [to investors.]’’). 

warrants exercisable for full shares at 

the later of completion of the de-SPAC 

transaction or one year after the 

effective date of the IPO registration 

statement.408 These warrants could thus 

become highly dilutive to the equity 

shareholders given that warrants may 

begin trading separately from the unit 

common share once a Form 8–K 

containing the balance sheet of IPO 

proceeds has been filed.409 Shareholders 

could experience equity dilution if 

redeeming shareholders retain and later 

exercise their warrants. 

As SPAC offerings have evolved, 

however, the highly dilutive aspects of 

the warrant component of a SPAC 

offering unit appear to have somewhat 

attenuated. As indicated in Figure 2, 

many SPACs offer units with smaller 

warrant components. The majority of 

SPACs that have conducted an IPO in 

the past three years offered units with 

fractional warrants or units where 

warrants represented only fractional 

shares. The dilutive capacity of these 

warrants is further tempered by the fact 

that in current practice, warrants (or 

fractions thereof) are only offered at 

exercise prices higher than the SPAC 

IPO offering price. However, the 

reduced dilution attributable to 

warrants as a component of SPAC IPO 

units does not imply that current SPAC 

IPOs offer a security that is inherently 

less exposed to potential dilution or that 

warrants purchased separately from 

units, such as in sponsor compensation 

or PIPE financing transactions, are not 

still a significant source of dilution. 

Furthermore, while warrant features 

have in some respects become less 

dilutive, maximum allowable 

redemptions have generally increased, 

creating the possibility for nonredeeming shareholders to experience 

greater dilution albeit from a different 

source. The emergent size and 

significance of PIPE financing in deSPAC transactions 410 has presented yet 

another potential source of dilution. 

e. Time To Complete a De-SPAC 

Transaction 

Because SPACs are not blank check 

companies issuing penny stock, they 

have not been subject to Rule 419’s 

requirements, including the requirement 

that an acquisition occur by a date 18 

months after the effective date of the 

blank check company’s initial 

registration statement.411 Nevertheless, 

SPACs use, as a matter of practice, 

features of Rule 419 that would appear 

to enhance protections for investors, 

including a pre-specified intended 

lifespan before dissolution that is 

communicated to investors at the time 

of the initial public offering. Table 2 

documents the average proposed 

lifespans (in months) that SPACs in 

each period disclosed in their initial 


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Figure 2. Warrants offered in SPAC IPO Units, 1990-2021a 

35.0% 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

5.0% 

0.0% 

0 0.1 0.1 l 0.125 0.1667 0.2 0.25 0.33 0.5 0.75 

• The estimated distribution is based on the warrant offering information presented in either the IPO 

prospectus or the Form S-1 or Form F-1 registration filed in connection with all SPA Cs identified by 

Dealogic, SPAC Insider, Audit Analytics, and staff manual review, that conducted an initial public offering 

with a confirmed pricing date as of December 30,2021. 

2 10 
29512 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

412See supra Sections VI.B.3 & IX.B.1.a. 

413See, e.g., Luisa Beltran, SPACs Are Scrambling 

to Find Mergers. What That Means for Investors, 

Barrons, Feb. 24, 2022. 

414Studies performed in 2016 or later reviewing 

the 2003–2013 cohort of SPACs find that 

approximately 51.5% of SPACs that had an initial 

public offering during the decade successfully 

complete a de-SPAC transaction and 21.6% were 

still publicly traded three years later in 2016. See, 

e.g., Milos Vulanovic, SPACs: Post-Merger Survival, 

43 Managerial Fin. 679, 679–699 (2017); Kamal 

Ghosh Ray & Sangita Ghosh Ray, Can SPACs Ensure 

M&A Success?, 16 Advances in Mergers & 

Acquisitions 83, 83–97 (2017). 

public offering registration materials as 

well as the average actual number of 

months used by those SPACs that 

successfully completed a de-SPAC 

transaction, by cohort. We note that 

since 2006, the typical SPAC generally 

pre-commits to a lifespan at least two 

months, on average, longer than the 18- 

month limit in Rule 419 and 

approximately 13 months shorter than 

the exchange listing 36-month limit.412

2. De-SPAC Transactions 

The primary parties affected by the 

proposed disclosure requirements at the 

de-SPAC transaction stage include 

SPACs, sponsors of SPACs, investors, 

potential PIPE investors, and target 

private operating companies. 

Additionally, the proposed rules to 

amend or otherwise clarify the existing 

liability framework would affect SPACs, 

target companies, investors in SPACs, 

and the underwriters that SPACs use at 

the SPAC IPO and the de-SPAC 

stages.413

We are mindful that parties may be 

differentially affected for a number of 

reasons. For example, to the extent that 

regulatory changes we are proposing, if 

adopted, would become effective while 

some current SPACs are in the process 

of completing a de-SPAC transaction, 

these SPACs may incur greater 

unanticipated transaction costs to 

comply with the full set of new 

requirements. Other SPACs that have 

not yet found a target may find 

themselves ex-post to have inefficiently 

entered the market as compared to a 

SPAC that completes an IPO with 

knowledge of the costs associated with 

the proposed amendments. However, 

the fact that some of the proposed 

amendments may reduce costs or 

simply codify existing best practices 

may offset some of the potentially more 

costly elements of other amendments, 

thus the differential impact of the 

proposed amendments affecting parties 

at the de-SPAC transaction stage is 

expected to vary. 

Based on staff analysis of SPACs that 

registered a distribution of securities 

between 1990 and 2021, it appears that 

approximately half of all SPACs 

following their initial public offerings 

have announced a subsequent de-SPAC 

transaction, and about one third have 

completed their de-SPAC transaction. It 

is possible that SPACs currently 

searching for targets may still identify 

targets, complete de-SPAC transactions, 

and thereby increase the fractions of 

SPACs with announcements and 

completed transactions. However, the 

overall success rate of approximately 

one-third is generally consistent with 

previous research findings over more 

limited historical subsamples,414

suggesting that the number or 

proportion of SPACs and related parties 

that would directly incur the costs, or 

experience the benefits, of our de-SPACrelated proposals may be smaller than 

the population of parties affected by our 

proposed amendments pertaining to a 

SPAC’s initial registration and public 

offering. 

Of the SPAC initial public offerings in 

2020 and 2021, a majority have not yet 

filed a Form 8–K announcing that the 

SPAC has found a target company, or 

else have not filed a Form 8–K that 


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Table 2. Average Proposed Acquisition Periods in SPAC IPOs (months), 1990-2021a 

1990- 2001- 2006- 2011- 2016- 2021 2000 2005 2010 2015 2020 

Proposed Acquisition Period 17.25 20.84 20.58 21.98 20.45 

Proposed Extension 6.30 6.50 5.11 6.00 5.34 

Proposed Period with Extension 23.55 24.40 23.40 22.90 21.71 

Realized Average Acquisition 19.25 20.11 19.83 22.15 15.32 8.58 Periodb 

a Averages reported here are estimated over the subsample of SPAC IPOs (see supra Table 1 note a) after offerings withdrawn 

after the IPO pricing date have been removed. Proposed acquisition periods and proposed extension data is drawn from 

information as provided by the SPAC in its initial registration materials including prospectuses and Form S-1 or Form F-1. 

SPA Cs that disclose they would hold a shareholder vote to approve an extension period but did not pre-commit to specified 

extension period are treated as having such data missing for purposes of computing averages. 

h Data on realized average acquisition period for IPO cohorts 2016-2020 and 2021 reflect a downward bias due to the 

outstanding proportion of SPA Cs that conducted an IPO between 2019 and 2021 that have not yet completed their proposed 

acquisition period or approved extensions. See infra note 457. 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29513 

415See, e.g., Jemima McEvoy, Take Back The 

SPAC: More And More Companies Are Canceling 

High-Profile Deals To Go Public, Forbes, Dec. 22, 

2021. 416See Michael Levitt, Valerie Jacob, Sebastian 

Fain, Pamela Marcogliese, Paul Tiger, & Andrea 

Basham, 2021 De-SPAC Debrief, Freshfields (Jan. 

24, 2022), available at https://blog.freshfields.us/ 

post/102hgzy/2021-de-spac-debrief. We note that 

the scope of this study is limited to 2020 and 2021. 

417 Id. 

418See supra Section III A. 

419See Shell Company Adopting Release, supra 

note 211, at 15–17, 21 (adopting amendments 

requiring the entity surviving a merger with a shell 

company to file its report on Form 8–K within four 

business days after completion of the merger and 

limiting the use of Form S–8 to register offerings of 

securities). 

would follow within 4 days of a 

completed a de-SPAC transaction. As of 

December 31, 2021, approximately 77 of 

248 SPAC IPOs in 2020 (31%) and an 

additional 495 of 613 SPAC IPOs in 

2021 (81%) had not yet announced a 

target or have withdrawn an announced 

business combination and resumed 

searching. Some market participants 

have opined that, of recently listed 

SPACs that have not yet secured a 

target, a greater proportion are likely to 

liquidate without completing an 

acquisition.415 This may be due to 

factors such as changing market 

conditions (increased volatility, 

increasing interest or inflation rates, 

etc.) and an increasingly limited number 

of viable target private companies 

(particularly companies with valuations 

in the range that would match the 80% 

requirement of most SPACs). 

a. Filings in Connection With a DeSPAC Transaction 

Like any merger or acquisition 

activity pursued by other public 

reporting companies, the timing and 

types of filings that accompany a deSPAC transaction are usually a function 

of the way the business combination is 

structured and the form of consideration 

employed. Such transactions may 

require providing existing shareholders 

information in advance of a vote. Others 

may simply require providing 

shareholders with information and a 

specified period of time in which to 

redeem shares, if desired. Similarly, 

such transactions may include an offer 

of securities as a part of the merger or 

exchange offer, and if so, may require 

the filing of a registration statement. The 

cumulative effects of our proposals 

would vary in impact on individual deSPAC transactions based on their 

unique deal structure and the 

disclosures they would thus already be 

obligated or otherwise incentivized to 

provide. 

A recent review of 462 de-SPAC 

transactions completed in 2020 and 

2021 found that approximately 99% of 

transactions were accompanied by 

proxy disclosures and 81.0% involved a 

related filing of a registration statement 

on either Form S–4 or Form F–4.416 Of 

the 81.0% of de-SPAC transactions that 

involved the filing of a registration 

statement, 85.4% were accompanied by 

a proxy statement on Schedule 14A, and 

the remaining 14.6% were accompanied 

by an information statement on 

Schedule 14C as a result of a consent 

solicitation.417

b. Target Form 10 Information in 

Connection With De-SPAC Transactions 

If a shell company that has Exchange 

Act reporting obligations, including a 

SPAC, acquires a target that is not 

subject to the reporting requirements of 

Section 13(a) or 15(d) of the Exchange 

Act, after the business combination, it 

must file a Form 8–K that includes the 

same disclosures about the target 

company that would have been 

provided if the target had instead 

registered a class of securities under 

Section 12 of the Exchange Act on Form 

10.418 This Form 10 information in a 

Form 8–K must be filed within four 

business days after the completion of a 

de-SPAC transaction.419 Because we are 

proposing to require these disclosures to 

instead be included filings related to the 

de-SPAC transaction that occur prior to 

the consummation of the proposed 

business combination, whether in a 

proxy, information, or registration 

statement or Schedule TO, any SPAC 

that would otherwise file Form 10 

information about its target in a Form 8– 

K following a de-SPAC transaction 

would be affected. 


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Table 3. SPAC Outcomes, 1990-20213 

Filed IPO Priced Merger Announced Merger Completed Liquidated 

1672 1273 653 475 96 

• Estimates reported here are based on the respective subsamples of SPAC IPOs (see supra Table I note a) 

that reflect all confirmed, completed activity as of December 31, 2021. 
29514 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

420See Meghan Leerskov, Shell Mergers and 

SPACs: A Statistical Overview of Alternative Public 

Offering Methods, in The Issuer’s Guide to Pipes: 

New Markets, Deal Structures, and Global 

Opportunities for Private Investments in Public 

Equity 281 (Steven Dresner ed., 2015). 

421See Klausner, Ohlrogge, & Ruan, supra note 

17. The authors analyzed data for the 47 SECregistered SPACs that merged, and thereby brought 

companies public, between Jan. 2019 and June 

2020. 422 Id. 

423See Levitt et al., supra note 416. The 

difference between average and median PIPEs in 

this sample reflect that the data is positively 

skewed, implying that while some deals may 

involve low or no additional financing via PIPEs, 

other deals feature large investments outside the 

SPAC IPO process. 

424We note that while there may be more 

instances in which PIPE financing functions to 

ensure that the cash requirements of a de-SPAC 

transaction are met in recent years, the difference 

between the average and median amount of PIPE 

financing raised (respectively approximately $300 

As illustrated in Figure 3, staff review 

of Forms 8–K filed in connection with 

approximately 300 de-SPAC 

transactions completed between January 

1, 2006 and December 31, 2021 found 

that approximately 47% of combined 

companies filed the Form 8–K on the 

fourth business day after the de-SPAC 

transaction and approximately 88% of 

combined companies filed the Form 8– 

K within the 4-business day time limit. 

However, as discussed below in Section 

C.1.b.8, some registrants currently may 

voluntarily disclose Form 10 

information before filing the Form 8–K 

given the staff’s observations regarding 

incorporation by reference of this 

information into the Form 8–K from 

filings made in connection with the deSPAC transaction. 

c. PIPES in Connection With De-SPAC 

Transactions 

PIPEs have supported de-SPAC 

transactions since their general 

increased market presence began in 

2005.420 However, in some recent 

SPACs, PIPEs have played a larger role 

than they have historically played, and 

this has given rise to concern about the 

potential dilutive effects of PIPEs and 

how well those might be understood by 

other investors. 

According to a recent study analyzing 

the 47 registered de-SPAC transactions 

that occurred between January 2019 and 

June 2020, approximately 65% of the 

cash delivered in these merger 

transactions was contributed by public 

investors, and the amount typically 

contributed by third-party PIPE 

investors was approximately 25%, with 

the remaining funding provided by the 

sponsor.421 In such cases, while the 

equity position of the PIPE investors in 

the combined company following a deSPAC transaction was dilutive, it did 

not eclipse the ownership stake of the 

SPAC IPO shareholders. Because PIPE 

investors may receive confidential 

information with which to make an 

investment decision (including one-onone conversations with the target’s 

management, which may convey soft 

information) and may also engage in 

extended and detailed due diligence,422

their participation has at times been 

considered a benefit to SPAC IPO 

investors, providing a meaningful 

indicator of the expected future 

financial performance of a proposed deSPAC transaction. 

As the SPAC market has evolved, so 

too have the role and the structure of 

PIPEs that support, and in some cases 

enable, de-SPAC transactions. In 2021, 

according to one study, approximately 

95% of de-SPAC transactions included 

PIPE financings and the average and 

median amounts raised in PIPE 

financings (respectively approximately 

$300 million and $200 million) were 

similar to the average size of the SPAC 

trust account at the time of the IPO.423

This may reflect that in more recent 

SPACs, in addition to enabling larger 

deals, some PIPEs may provide capital 

to enhance deal certainty.424 In this 


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Figure 3. Number of Business Days to File Form 8-KAfter De-SPAC Transactiona 

50.0% 

45.0% 

40.0% 

35.0% 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

0.0% 

1 2 3 4 5 >5 

a Data represents the percent of filed Forms 8-K that could be identified, based on staff review, as filed in 

connection with a de-SP AC transaction that occurred between January 1, 2006 and December 31, 2021, 

and does not include de-SP AC transactions unaccompanied by an 8-K filing. Staff noted that de-SP AC 

transactions unaccompanied by a Form 8-K containing Form 10 information were otherwise accompanied 

by a Form 20-F and/or Form 6-K when the combined company was a foreign private issuer (FPI) and, in 

the remaining cases where the combined company was not an FPI, the de-SP AC transaction was 

accompanied by either a long form (Form 10-12B) or a short form (Form 8-A12B) registration. 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29515 

million and $200 million) and the average and 

median consideration paid to target shareholders 

(respectively approximately $2 billion and $1.25 

billions) suggests that many PIPE offerings in 

connections with a de-SPAC transaction still appear 

to facilitate larger acquisitions rather than replace 

SPAC share redemptions. See Levitt et al., supra 

note 416. 

425This outcome would also occur if the PIPE 

investments simply exceeded the size of the SPAC 

IPO proceeds without redemptions, but such cases 

have not been commonly observed. 

426 In a review of PIPE finance raised in 

connection with de-SPAC transactions that 

occurred between Jan. 2018 and June 2021, the 

Commission staff found that while PIPE proceeds 

ranged, on average from 60% to 88% of SPAC IPO 

proceeds, net of redemptions, these proceeds 

represented up to 137% on average (in calendar 

year 2019) of SPAC IPO proceeds at the 

consummation of the de-SPAC transaction. 427These estimates are based on staff analysis of 

data as described in Table 1, note a, and additional 

data from PrivateRaise. 428See Klausner, Ohlrogge, and Ruan, supra note 

17. 429See Jongha Lim, Michael Schwert, & Michael 

Weisbach, The Economics of PIPEs, 45 J. Fin. 

Intermediation 100832 (2021). These results are 

based on a sample of 3001 PIPE transactions by U.S. 

firms listed on NYSE or NASDAQ between 2001 

and 2015. 430See Chapman, Frankel, and Martin, supra note 

291. 431See Dambra, supra note 33. 432See Levitt, Jacob, Fain, Marcogliese, Tiger, & 

Basham, supra note 416. 433This finding is based on deals that occurred 

between 1995 and 2015, involving a publicly traded 

bidder that seeks to acquire a majority of the target’s 

shares. As discussed by the authors, it is difficult 

to estimate the fraction of deals that involve a 

fairness opinion since the use of fairness opinions 

is disclosed only if bidders are required to file 

proxy statements to solicit a shareholder vote. They 

note that listing rules of the NYSE, Amex, and 

NASDAQ require a bidder shareholder vote only 

when the bidder plans to issue 20% or more new 

equity to finance a deal. In other words, if the 

bidder issues less than 20% equity or uses cash to 

finance the deal, the bidder would not be required 

to disclose the fairness opinion even if the firm had 

obtained one. See Tingting Liu, The Wealth Effects 

of Fairness Opinions in Takeovers, 53 Fin. Rev. 533 

(2018) (finding positive wealth effects from fairness 

opinions after the SEC approved Rule 2290 in Oct. 

2007 which regulates the identification and 

disclosure of conflicts of interest of investment 

banks rendering fairness opinions.) 

434 Id. 

435 Id. 

alternative role, the financing raised via 

PIPE investment may ensure that a deal 

that otherwise may fail due to a high 

redemption rate can proceed to 

completion. In these cases,425 the 

ownership stake of the PIPE investors in 

the combined company may exceed that 

of the non-redeeming SPAC 

investors.426

PIPE investors may, therefore, come to 

have a larger stake in the combined 

company than SPAC IPO investors may 

have anticipated when making an initial 

investment. As a result, SPAC IPO 

investors may thus find that they hold 

a smaller stake in the combined 

company than they would find optimal. 

Further, they may not be able to 

purchase an ownership claim in the 

combined company at the same price as 

a PIPE investor when PIPEs are offered 

at a discount to the open market price. 

Although PIPE discounts may offset 

differences in the securities’ liquidity, 

discounts to PIPE investors contribute to 

the dilution of SPAC investors. 

Staff review of PIPEs in connection 

with de-SPAC transactions that 

occurred between January 2018 and 

June 2021 found the average and 

median discount to PIPE investors were 

respectively 1.8% and 2.4% when 

estimated over all PIPEs and slightly 

higher (respectively 4.4% and 2.4%) for 

PIPE offerings without warrants.427

These results appear generally 

consistent with a recent study that was 

more narrowly scoped to the height of 

the SPAC boom that found, between 

2019 and June 2020, that the median 

discount received by PIPE investors was 

5.5% relative to the market value of the 

publicly traded securities, and, in 37% 

of SPACs with PIPE deals, the PIPE was 

at a 10% discount or more.428 This level 

of discount appears to be more broadly 

consistent with estimated discounts 

associated with PIPE financing outside 

the SPAC context as, by comparison, a 

recent study indicates that the average 

discount for PIPE investors is 11.2%, 

and for the subsample of PIPES that do 

not include warrants, the average 

discount is 5.7%.429 While PIPE 

discounts may, on average, be smaller in 

the context of SPACs than in other PIPE 

financing, it is nevertheless a concern 

that the dilution they may cause may 

not be adequately anticipated by SPAC 

IPO investors. 

d. Use of Projections in Connection 

With De-SPAC Transactions 

Proposed Item 1609 of Regulation S– 

K would apply to projections used in 

de-SPAC transactions. Hence, proposed 

Item 1609 would potentially affect 

preparers and users of financial 

projections related to de-SPAC 

transactions, including SPACs, their 

sponsors, target companies, their 

controlling shareholders and 

management, and current and 

prospective investors. 

Three recent papers discuss the use of 

projections by SPACs and target private 

operating companies in de-SPAC 

transactions. Chapman, Frankel, and 

Martin (2021) collected data on 420 

SPACs with IPO dates from 2015 to 

2020.430 They found that 249 (59.29%) 

de-SPAC transactions were 

accompanied by at least one forecast. 

Dambra, Even-Tov, and George (2022) 

focus on de-SPAC transactions between 

January 1, 2010, and December 31, 2020. 

They restrict their sample to de-SPAC 

acquisitions with a single target and 

exclude SPACs that either delisted 

before the merger effective date, that 

traded on the OTC market, or focused 

on the biotech industry, yielding a 

sample of 142 observations.431 They 

identify 128 target private companies 

(90.1%) that provided at least one form 

of forecast (e.g., revenue or net income) 

in investor presentations. Blankespoor, 

Hendricks, Miller, and Stockbridge 

(2022) reviewed a sample of 963 SPAC 

IPOs completed between January 1, 

2000, and July 1, 2021. They removed 

firms ‘‘that are still seeking a merger 

target, have liquidated, are foreign, or 

have not publicly filed their roadshow’’, 

and arrived at a sample of 389 SPACs. 

Of this sample, 312 (80.21%) SPACs 

provided a revenue forecast. These 

studies suggest that the use of 

projections is fairly common in the deSPAC transactions and may have 

become increasingly common over time. 

e. Use of Fairness Opinions 

According to one source, in 2021, 

only 15% of de-SPAC transactions 

disclosed that they were supported by 

fairness opinions.432 In contrast, a study 

of mergers and acquisitions more 

broadly found that 85% of bidders 

obtain fairness opinions.433 The results 

indicate that deals in which bidders 

obtain fairness opinions may be 

associated with higher stock price 

reactions to the deal announcement and 

also better post-merger operating 

performance.434 This study suggests 

that, for mergers and acquisitions in 

which a proxy vote is required, a 

fairness opinion obtained by the bidder 

can mitigate information risks and 

enhance communications between 

bidder boards of directors and their 

shareholders.435

f. SPAC Filer Status 

Figure 4 below shows the proportion 

of SPACs that claimed smaller reporting 

company or EGC status, or both, in their 

first annual report after the initial public 

offering. Since 2016, almost all SPACs 

in their initial public offerings have 

claimed either smaller reporting 

company or EGC status, with the 

majority claiming both. For example, in 

2021, 399 SPACs in their initial public 

offerings claimed both smaller reporting 

company and EGC status, while 48 only 

claimed EGC status. 

BILLING CODE 8011–01–P 


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29516 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

g. Changes in Jurisdiction of the 

Combined Company 

As we consider the potential 

economic effects of the proposed new 

rules and amendments, we take into 

consideration elements of the both the 

economic and the regulatory baseline, 

which would include accounting for 

variations between the applicable legal 

frameworks in the jurisdictions in 

which SPACs are incorporated or 

organized. Table 4 presents information 

on the jurisdiction of incorporation or 

organization for each SPAC that 

conducted its initial public offering after 

1990 and completed a de-SPAC 

transaction before 2022. The first two 

columns state the percentage of SPACs 

that were originally incorporated or 

organized in each of six listed 

jurisdictions. The second two columns 

state—for each originating jurisdiction— 

the percentage of combined companies 

that were incorporated or organized in 

the listed jurisdictions following a deSPAC transaction. 

While the majority of SPACs that 

subsequently consummate a de-SPAC 

transaction remain incorporated in the 

same location, Table 4 indicates that the 

jurisdiction of incorporation or 

organization of the combined company 

may change in connection with the deSPAC transaction. As a result, SPACs 

may face changes in prevailing legal 

standards that arise from a change in 

jurisdiction of incorporation or 

organization. To the extent that different 

jurisdictions have different disclosure 

requirements and provide differing 

levels of investor protections, the 

baseline regulatory regime will vary 

across SPACs and may change upon the 

de-SPAC transaction. 


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Figure 4. Annual SPAC Cohorts by Smaller Reporting and Emerging Growth 

Company Statuses Reported at Original Registration Stagea 

450 

400 

350 

300 

250 

200 

150 

100 

50 

0 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 

II EGC __ SRC II Neither 

a Data presented here reflects the self-reported status disclosed by SPACs as of the Form S-1, Form F-1, or 

an amendment to either that was filed most proximate in time to the date of the initial public offering. 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29517 

BILLING CODE 8011–01–C 


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Table 4 Distribution of Combined Company Jurisdiction oflncorporation or Organization 

by SPAC Jurisdiction of Incorporation or Organization, 1990-2021 a 

Ca)'man 

Islands 

Marshall 

Islands 

23.48% 

0.29% 

Post de-SPAC transaction 

Delaware 

Ca an Islands 

Netherlands 

Israel 

Luxembo 

British Vi 

New York 

Ontario 

Nevada 

%ofIPOs 

54.32% 

33.33% 

3.70% 

2.47% 

2.47% 

1.23% 

1.23% 

1.23% 

100.00% 

• Estimates reported here arc based on the subsample of SPAC IPOs (sec supra Table 1 note a) after 

offerings withdrawn after the lPO pricing date and SP ACs with a missing merger completion date 

have been removed. State of incorporation data is obtained from a combination of sources, including 

Dcalogic, Audit Analytics, and SEC filings available on EDGAR. These estimates reflect all 

confirmed, completed activity as of December 31, 2021. 
29518 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

436See supra Section III.D. 437Although the PSLRA safe harbor may 

currently affect private litigation against some 

SPAC and blank check companies, those companies 

are subject to state and federal enforcement actions. 438See supra Sections IX.B.1.a & IX.B.2. 439This estimate is based on staff review of all 

registrants, by unique CIK, that filed at least one 

periodic or current report between 2019 and 2021 

and, as of its most recent filing, identifies its SIC 

code as 6770. We exclude CIKs that have already 

been identified as SPACs and those associated with 

filings that self-identify as penny stock issuers 

under Rule 419. We note that this estimate may 

represent an upper bound on the number of 

additional affected parties because it is based on 

registrants’ self-reported SIC and penny stock issuer 

status. Studies have reported that self-reported SIC 

codes may contain errors that could cause a higher 

number of issuers to be counted as affected parties 

than in effect would be. See, e.g., Murat Aydogdu, 

Chander Shekar, & Violet Torbey, Shell Companies 

as IPO Alternatives: An Analysis of Trading Activity 

Around Reverse Mergers, 17 Applied Fin. Econ. 

1335 (2007) (‘‘Not all firms that use SIC [code] 6770 

are actually blank checks. For instance, companies 

are required to file Form 12 after an acquisition to 

notify the SEC of their new SIC code. Many fail to 

file as they acquire operations in a business with 

a more descriptive SIC code, yet they continue to 

use 6770.’’). Our estimate does not seek to reclassify 

potential errors in this case because we are not able 

to distinguish when the classification error would 

represent a mistake made by a registrant that knows 

it is not a blank check company versus when the 

registrant is mistaken in its belief that it is a blank 

check company when it may not be. In the latter 

case, even if mistaken about its blank check 

company status as a registrant, the party would still 

be affected by the proposed amendment because 

they may currently make, or believe they are able 

to make, forward looking statements under the 

PSLRA safe harbor, and would not if the proposed 

amendment is adopted. 

440See the definition of ‘‘blank check company’’ 

in Rule 419(a)(2)(i) of the Securities Act. 

441We acknowledge the possibility of a situation 

in which a previously non-public shell company 

files an initial registrant statement. The financial 

statements included in the registration statement 

would be required to comply with Regulation S–X, 

including the proposed amendments in Rule 15–01. 

As we currently lack the data necessary to estimate 

the number of shell companies that are private, at 

present, that could be impacted by proposed Article 

15, they are not included in the estimates discussed 

in this analysis. However, the extent to which this 

may impact our conclusions is limited because, 

based on staff observation and experience with 

common transaction structures, we believe it is 

unlikely proposed Article 15 will impact many 

such shell companies. 

442This estimate is based on staff review of all 

registrants’ self-reported status as a shell company 

on the cover page of the most recent annual report 

(Forms 10–K, 20–F, or 40–F) or an amendment 

thereto filed in calendar year 2021 by unique CIKs 

of entities that are not already identified as SPACs. 

443Based on staff review of periodic filings, 

approximately 72.7% of these shells trade OTC, 

26.1% do not trade, and 0.6% each appear to have 

traded on Nasdaq Global Market and NYSE Market, 

respectively. 

444As of yearend 2021, the average market 

capitalization of non-SPACs shell companies was 

$154,731,262.50 while the average market 

capitalization of SPACs was $306,204,218.60. Based 

on the most recent periodic disclosure filed per 

registrant before Dec. 31, 2021, the average total 

asset position of a non-SPAC shell was 

$33,666,553.41 while the average of SPAC total 

assets was $309,570,778.30. 

3. Blank Check Companies 

We are also proposing an amendment 

to the definition of ‘‘blank check 

company’’ for purposes of the PSLRA 

safe harbor provisions.436 The proposed 

amendment would affect SPACs and 

certain other blank check companies 

that may not already be excluded from 

the PSLRA safe harbor, as well as 

investors and other market participants 

whose access to the informational 

content of forward-looking statements, 

or potential remedies in the case of 

material omissions or misstatements, 

would otherwise differ.437 We estimate 

that in addition to potentially affected 

SPACs, as previously discussed,438

approximately 30 non-SPAC entities 

that self-identified as blank check 

companies but did not self-identify as 

penny stock issuers may also be affected 

by the proposed amendment.439 Because 

such non-SPAC blank check companies 

may not be subject to the same 

limitations on duration as SPACs, the 

number of filings or disclosures they 

might make under the presumed 

protections of the safe harbor may be 

greater. However, due to the nature of a 

blank check company as a development 

stage company with no specific plan or 

purpose other than to merge with or 

acquire an unidentified company or 

companies, or other entity, or person,440

it is unlikely that the nature of the 

forward-looking statements such a 

registrant might produce would differ in 

substance from the informational 

content provided by SPACs and 

therefore should not have a differential 

impact on investors or other market 

participants. 

4. Shell-Company Business 

Combinations 

Proposed Securities Act Rule 145a 

and proposed Article 15 of Regulation 

S–X would affect SPACs and other shell 

companies (other than business 

combination related shell companies) 

involved in business combination 

transactions. Proposed Rule 145a would 

impact the disclosures reporting shell 

company investors may receive and 

potential sources of liability. Proposed 

Article 15 of Regulation S–X would 

impact the financial statements 

associated with business combinations 

involving shell companies and, thus, 

would also affect parties that are 

typically associated with the 

preparation, review, and dissemination 

of financial statements and the 

information they contain.441 Table 5 

below illustrates that the proportion of 

SPAC to non-SPAC reporting shellcompany business combinations has 

shifted due to the increasing number of 

SPACs entering the market. It also 

shows that, in 2021, more than onethird of all targets acquired by a 

reporting shell company appear to 

merge with a non-SPAC entity. 

We estimate that in addition to 

existing SPACs that have yet to 

complete a de-SPAC transaction, 

approximately 160 additional existing 

reporting shell companies may be 

affected by the proposed 

amendments.442 Almost all of these 

non-SPAC reporting shell companies 

trade on the OTC market 443 and tend to 

be smaller than SPACs in terms of 

market capitalization and total assets.444

We further estimate that approximately 


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Table 5. Distribution by Year of Shell-Mergers Reported on Form 8-Ka 

2016 2017 2018 2019 2020 2021 

SPAC 9.5% 8.8% 17.8% 30.2% 42.2% 65.2% 

Non-SPAC 90.5% 91.2% 82.2% 69.8% 57.8% 34.8% 

a Based on Form 8-Ks by calendar year of filing that contain Item 5.06 (Change in Shell 

Company Status) disclosures, excluding filings by asset-backed securities issuers. 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29519 

445This estimate is based on a cross-tabulation, 

by unique CIK, of potentially affected parties 

identified as blank check companies (see supra note 

439) and as shell companies (see supra note 442). 

446See Section 3(a)(10) of the Securities Act; Staff 

Legal Bulletin No. 3A (CF) (June 18, 2008), 

available at https://www.sec.gov/corpfin/staff-legalbulletin-3a. 

447See Claude Francoeur, Yuntian Li, Zvi Singer, 

& Jing Zhang. Earnings Forecasts of Female CEOs: 

Quality and Consequences, Rev. Acct. Stud. (2022). 

IBES is a database that includes quantitative 

(numeric) company earnings forecasts collected 

from press releases and transcripts of corporate 

events. To the extent that some of the management 

earnings forecasts in the IBES database are not 

included in SEC filings, these figures may overstate 

the activity that would be affected. However, 

because the study sample is drawn from a period 

after the adoption of Regulation FD, we believe the 

likelihood an IBES record would not also be present 

in an SEC filing is low. It is more likely that these 

figures may understate the number of affected 

projections, because the database does not include 

all public reporting companies, and because 

management may provide financial projections that 

are not captured by the IBES database. See, e.g., 

Zahn Bozanic, Darren T. Roulstone, and Andrew 

Van Buskirk, Management earnings forecasts and 

other forward-looking statements, 65 J. Acct & 

Econ., 1 (2018) (indicating that approximately 33% 

of Form 8–K filings of earnings announcements 

include at least one quantitative forecast.) 

448See supra Sections IX.B.1 and IX.B.2 

449See supra Section VI.A.1. 

450See supra note 392 and accompanying text. 

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

17. 

11.0% (18) of these shells would also be 

affected by the proposed amendment to 

redefine the term ‘‘blank check 

company’’ for purposes of the 

PSLRA.445

Our estimate of approximately 160 

shell companies represents an upper 

bound on the number of potentially 

affected shell companies because some 

of these shell companies could engage 

in transactions pursuant to an 

exemption from registration, or 

otherwise may engage in transactions 

that would not require registration. For 

example, if a shell company were to 

acquire another shell company, the 

acquiring shell would not be affected by 

proposed Rule 145a or proposed Article 

15. Similarly, a shell company that 

obtains a fairness determination from a 

court or authorized governmental entity 

might also be exempt.446 Given that a 

more precise estimate would require us 

to make assumptions about what 

proportion of future shell company 

mergers may be exempt or not require 

registration, we request additional data 

or comments that would help inform 

our expectations about how many shell 

companies that are not SPACs would 

also be involved in transactions that 

would be affected by the proposed rules. 

5. Projections Under Item 10(b) of 

Regulation S–K 

The proposed amendments to Item 

10(b) would update the Commission’s 

view on factors to be considered in 

formulating and disclosing financial 

projections and would specify the 

application of Item 10(b) to financial 

projections prepared by parties other 

than management. To the extent that 

parties elect to follow the updated 

guidance set forth in the proposed 

amendments, it would affect registrants 

and other entities providing financial 

projections in Commission filings, such 

as a target firm involved in a business 

combination with a reporting registrant. 

A recent study examined management 

earnings forecasts by focusing on public 

companies from 2000 to 2018.447

Drawing management earnings forecast 

data from IBES Guidance, they find that 

management provides earnings forecasts 

in 15,295 (30.8%) out of 49,595 firmyears. The proposed amendments to 

Item 10(b) would also affect investors 

and other users of the financial 

projections included in Commission 

filings, to the extent that parties elect to 

follow the updated guidance. 

6. Investment Company Act Safe Harbor 

The proposed safe harbor would affect 

all current and future SPACs, sponsors, 

investors, and potential target 

companies. For statistics on these 

affected parties in the SPAC market, see 

our discussion above.448 For a 

description of Section 3(a)(1)(A) of the 

Investment Company Act under the 

Securities Act, see our discussion 

above.449

a. Nature and Management of SPAC 

Assets 

Most SPACs hold a majority of their 

assets in a trust (or escrow) account, 

which is also required by current listing 

standards.450 For example, Table 6 

shows that, on average, approximately 

90% of the initial offering proceeds 

raised in a SPAC IPO in 2021 were 

deposited in trust accounts. 

It is also our understanding that SPAC 

assets, particularly those held in the 

trust account, are largely invested in 

Government securities or Government 

money market funds.451 We also 

understand that SPACs generally 

disclose in their IPO prospectuses that 

any income earned on assets in the trust 

account will be used toward the deSPAC transaction, after possible 

deductions for tax payments. Some 

SPACs also disclose that a portion of the 

interest income could be used toward 

any potential dissolution expenses. 


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Table 6. Average SPAC IPO Capital Raised and Amounts in Trust, 2001-

2021a 

2001- 2006-2010 2011-2015 2016-2020 2021 2005 

IPO Initial Offeringb 45.82 134.08 121.63 272.93 265.22 

IPO Offering w Overallotmentc 56.87 212.95 160.40 337.54 330.75 

Trust/Initial Offering 88.53% 97.38% 94.66% 91.46% 89.55% 

a Averages reported here are estimated over the subsample of SPAC IPOs (see supra Table 1 note a) after offerings 

withdrawn after the IPO pricing date have been removed. 

h In millions of dollars. 

0 In millions of dollars, includes exercise of overallotment as reported in Dealogic. 
29520 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

452See Nasdaq Listing Rule IM–5101–2 (listing 

standards for companies with a business plan to 

‘‘engage in a merger or acquisition with one or more 

unidentified companies’’); NYSE American 

Company Guide Section 119 (similar). 453This limited period may go beyond the precommitted lifespan SPACs disclose in their IPO 

registration statements. As we discuss in infra 

Section IX.B.6.c, SPACs currently may pre-commit 

to hold a vote on a pre-specified extension period, 

if needed, to complete a de-SPAC transaction. 

SPACs may also ask shareholders ex-post to vote for 

an extension of the lifespan of the SPAC, even if 

they did not pre-commit to such a vote. Based on 

the sample of SPACs analyzed in infra Section 

IX.B.6.c, the vast majority of SPACs conclude a deSPAC transaction or liquidate the SPAC within 36 

months of their IPO date. 

454There is some evidence consistent with such 

incentives. See, e.g., Dimitrova, supra note 30 

(finding that four-year post-IPO buy-and-hold 

abnormal return is on average 8.8% lower if the 

acquisition is announced at the end of the (selfimposed) two-year deadline instead of at the 

estimated earlier optimal time). 

455Based on data from Dealogic M&A module as 

of Jan. 2022. 456See supra note 393 and accompanying text. 457Note that the number of SPAC IPOs increased 

significantly in the 2020–2021 period. To the extent 

this increase has increased competition for target 

companies, it may affect the time it takes for more 

recent SPACs to announce or complete a de-SPAC 

transaction, or their ability to complete a de-SPAC 

transaction at all. As of Dec. 31, 2021, 

approximately 77 of 248 SPAC IPOs in 2020 (31%) 

and an additional 495 of 613 SPAC IPOs in 2021 

(81%) had not yet announced a target or have 

withdrawn an announced business combination 

and resumed searching (see supra Section IX.B.2). 

See also supra note 413 and accompanying text. 

458Based on data from Dealogic M&A module as 

of Jan. 2022. 

459 In two of these cases, a de-SPAC transaction 

was announced but later withdrawn. 

b. SPAC Activities 

Currently, the typical SPAC discloses 

in its IPO prospectuses that it is formed 

as a blank check company for the 

purpose of effecting a business 

combination with one or more 

businesses. In addition, SPACs usually 

provide disclosures in their IPO 

prospectuses indicating that they 

believe they do not meet the investment 

company definition under Section 3(a). 

They further typically disclose to 

prospective investors that if they are 

determined to be an investment 

company in the future, the costs and 

logistics of compliance with the 

Investment Company Act would be 

prohibitive. 

Current exchange listing standards 

and SPACs’ own disclosures in their 

initial public offering registration 

statements generally require that SPACs 

must combine with a target that is 

unidentified at the time of their initial 

public offerings.452 As a result of 

exchange rules and their own disclosed 

commitments to investors, SPACs 

generally have a limited period to find 

a target and negotiate the terms of a deSPAC transaction agreement.453 Because 

of the incentives provided to sponsors 

by the SPAC structure to complete a deSPAC transaction, the limited period 

provided for a SPAC to search for a 

target and complete a transaction deal 

may cause some SPACs to pursue 

comparatively less attractive targets as 

they get closer to their de-SPAC 

transaction deadlines.454 In addition, 

the limited period to search for a target 

and complete a de-SPAC transaction 

may increase the bargaining power of 

target companies in negotiations with 

SPACs compared to other potential 

buyers that do not face such regulatory 

or self-imposed time constraints. 

Most SPACs tend to pursue only one 

target company for a de-SPAC 

transaction. Of the 483 de-SPAC 

transactions that occurred over the 

1990–2021 period involving SEC 

registered SPACs, 3.3% (16/483) of 

transactions had 2 or more targets (14 

transactions had 2 targets, 2 had 3 

targets).455

c. Duration Statistics: Announcement 

and Completion of De-SPAC 

Transactions 

To rely on the proposed safe harbor 

from Investment Company status, a 

SPAC would be required to announce a 

de-SPAC transaction no later than 18 

months after the effective date of the 

registration statement for the SPAC’s 

initial public offering, and complete the 

transaction no later than 24 months after 

the date of the initial public offering. 

For the sake of comparison to other 

current requirements, this is a shorter 

period than the 36 months a SPAC can 

remain listed under current exchange 

rules as discussed above.456

Below we provide statistics on the 

timing of announcements and 

completion of de-SPAC transactions for 

a sample of SPACs with effective IPO 

dates between January 1, 2016 and 

December 31 2019. We chose December 

31, 2019, as the end date to ensure that 

at there is at least a 24-month history 

available for each SPAC included in the 

sample in order to reduce potential 

reverse survivorship bias in the 

estimates.457

We have data on 152 SPAC initial 

public offerings between January 1, 

2016 and December 31, 2019.458 Among 

these SPACs, all disclosed in their IPO 

prospectus that they would be limited to 

a 24 month lifespan or less, where 

almost 59% (89 of 152) disclosed that 

they would be limited to a 24-month 

period, and the rest to a shorter time 

period, in some cases as short as 12 

months (18, or 12%, of cases). In around 

14% of the SPACs (22 of 152), there was 

disclosure in their IPO prospectus about 

a pre-commitment to hold a vote on an 

optional extension period ranging from 

three to 24 months. There were five 

cases in which the combination of the 

initial lifespan and pre-committed 

extension period exceeded a 24-month 

potential total lifespan for the SPAC. 

However, we recognize that SPACs may, 

and some currently do, ask shareholders 

to vote for an extension of the lifespan 

of the SPAC even if they did not precommit to such a vote or a specified 

extension period in the event of a vote. 

As of December 31, 2021, 

approximately 96% (146 of 152) of the 

SPACs in the sample had announced an 

agreement to enter into a de-SPAC 

transaction, and approximately 91% 

had completed a de-SPAC transaction. 

Among the 13 cases (9%) in the sample 

where SPACs had not completed a deSPAC transaction at this time, seven 

SPACs had been formally liquidated,459

whereas six SPACs were still active 

(four of which had announced a deSPAC transaction). As of December 31, 

2021, the lifespan of the six still active 

SPACs ranged between 25 to 37 months 

since the IPO date. 

Overall, approximately 59% (89 of 

152) of the SPACs in the sample 

announced an agreement to enter into a 

de-SPAC transaction no later than 18- 

months after the date of the initial 

public offering, and 88% (134 of 152) 

announced a transaction agreement no 

later than 24 months after the IPO date. 

Figure 5 shows the distribution of the 

timing of announcements for de-SPAC 

transaction agreements expressed in 

event-time relative to the IPO effective 

date for the 146 sample SPACs that had 

made such an announcement by 

December 31, 2021. The longest time to 

an announcement was 39 months, and 

the shortest was four months. 

BILLING CODE 8011–01–P 


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Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29521 

Approximately 65% (99 of 152) of the 

SPACs in the sample had completed a 

de-SPAC transaction no later than 24 

months after the IPO date, whereas only 

31% (47 of 152) of the SPACs in the 

sample had completed a de-SPAC 

transaction no later than 18 months after 

the IPO date. Figure 6 shows the 

distribution of the timing of de-SPAC 

transactions expressed in event-time 

relative to the IPO effective date for the 

139 SPACs in the sample that 

completed de-SPAC transactions by 

December 31, 2021. The longest time to 

completion was 43 months, and the 

shortest was eight months. 


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Figure 5: Distribution of De-SP AC Transaction Agreement Announcements (In 

SPAC IPO Event Time). 

0 5 10 15 20 

Month 

25 30 35 40 
29522 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

460See supra Section II.E for more information 

about current disclosure requirements. 

BILLING CODE 8011–01–C 

Among the 139 SPACs in the sample 

that completed a de-SPAC transaction 

by December 31, 2021, the average and 

median times between the 

announcement and the completion of 

the transaction were respectively 150 

days (approximately 5 months) and 142 

days (approximately 4.7 months). The 

time between announcement and 

completion of the merger was less than 

6 months in 78% of the cases, and the 

shortest time observed in the sample 

was less than two months (50 days). For 

the subsample of 99 SPACs that 

completed the de-SPAC transactions in 

no more than 24 months since the IPO 

date, the average and median times 

between the announcement and the 

completion of the transaction were 

respectively 142 days (approximately 

4.7 months) and 125 days 

(approximately 4.1 months). For this 

subsample, approximately 79% of the 

de-SPAC transactions occurred less than 

6 months after the announcement, and 

there were 12 cases in which the 

announcement of the transaction 

agreement was made more than 18 

months after the IPO date. 

C. Benefits and Costs of the Proposed 

Rules 

1. Disclosure-Related Proposals 

a. SPAC Initial Public Offerings and 

Other Registered Offerings 

1. Definitions (Item 1601) 

We are proposing Item 1601 to 

identify certain parties and transactions 

to which the requirements of the 

subpart, as well as other parts of this 

proposal, would apply. Defining the 

terms ‘‘special purpose acquisition 

company,’’ ‘‘de-SPAC transaction,’’ 

‘‘SPAC sponsor,’’ and ‘‘target company’’ 

as proposed would establish the scope 

of the issuers and transactions subject to 

the requirements of Subpart 1600, and 

thereby provide both registrants and 

investors with notice of the associated 

obligations. The definitions may impose 

costs if the new definitions are not 

consistent with current understanding 

and consequently cause confusion for 

registrants, investors and market 

participants. Both the costs and benefits 

would be small to the extent that the 

new definitions are consistent with 

widely accepted views. 

2. Prospectus Cover Page and 

Prospectus Summary Disclosures (Item 

1602) 

Proposed Item 1602 would require a 

prospectus filed in connection with a 

SPAC’s initial public offering to disclose 

information on certain features unique 

to SPAC offerings and the potential 

associated risks, in addition to the 

information currently required by Item 

501 and Item 503 of Regulation S–K, on 

the prospectus cover page and in the 

prospectus summary, respectively, as 

discussed above.460 The proposed 

additional disclosures may reduce 

SPAC investors’ information processing 

costs and improve their investment 

decisions. Investors in SPACs vary in 


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Figure 6: Distribution of Completed De-SP AC Transactions (In SPAC IPO Event 

Time). 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29523 

461See, e.g., George Loewenstein, Cass R. 

Sunstein, & Russell Golman, Disclosure: Psychology 

Changes Everything, 6 Ann. Rev. Econ. 391 (2014). 

462Salience detection is a key feature of human 

cognition allowing individuals to focus their 

limited mental resources on a subset of the 

available information and can cause them to overweight this information in their decision making 

processes. See, e.g., Daniel Kahneman, Thinking, 

Fast and Slow (2013); Susan Fiske & Shelley E. 

Taylor, Social Cognition: From Brains to Culture 

(3d ed. 2017). Moreover, for financial disclosures, 

research suggests that increasing signal salience is 

particularly helpful in reducing limited attention of 

individuals with lower education levels and 

financial literacy. See, e.g., Victor Stango & 

Jonathan Zinman, Limited and Varying Consumer 

Attention: Evidence from Shocks to the Salience of 

Bank Overdraft Fees, 27 Rev. of Fin. Stud. 990 

(2014). 

463Existing research notes that individuals bear 

costs in absorbing information and that the ability 

of individuals to process information is not 

unbounded. See Richard Nisbett & Lee Ross, 

Human Inference: Strategies and Shortcomings of 

Social Judgment (1980); David Hirshleifer & Siew 

Hong Teoh, Limited Attention, Information 

Disclosure, and Financial Reporting, 36 J. Acct. & 

Econ. 337 (2003). Thus, summary disclosure may 

provide benefits by focusing investors’ attention 

and reducing information processing costs. 

464See John Hattie, Visible Learning: A Synthesis 

of Over 800 Meta-Analyses Relating to Achievement 

(2008). 

465See Izak Benbasat & Albert Dexter, An 

Investigation of the Effectiveness of Color and 

Graphical Information Presentation Under Varying 

Time Constraints, 10–1 MIS Q. 59 (1986). 

466See infra Section IX.C.1.a.4 for the discussion 

of proposed Item 1602(a)(4), which would require 

that the prospectus cover page include a simplified 

dilution table depicting the estimated remaining 

pro forma net tangible book value per share that 

would be realized at quartile intervals up to the 

maximum redemption threshold. 

467See supra Section II.B for more information 

about current disclosure requirements. 

468Academic literature provides some evidence 

that characteristics of the SPAC sponsor, such as 

experience or network may be indicative of its 

ability to select and execute quality transactions. 

See, e.g., Lin, supra note 30. 

financial sophistication and ability to 

process the information provided in 

SPAC IPO prospectuses. We expect that 

the potential benefits may especially 

accrue to investors that are less 

financially sophisticated. 

Specifically, because investors are 

likely to allocate their attention 

selectively,461 requiring disclosure 

regarding important features and 

associated risks of SPAC investments on 

the prospectus cover page (including 

cross-references to the locations of the 

more detailed related disclosures) and 

prospectus summary may increase the 

likelihood that investors pay attention 

to the information by making it more 

salient.462 In addition, the proposed 

additional disclosures in the prospectus 

summary may further reduce 

information processing costs, 

particularly for less financially 

sophisticated investors, by providing 

information in plain English about 

important SPAC features in a concise 

format.463

Proposed Item 1602(b)(6) would 

require tabular disclosure in the 

prospectus summary regarding the 

nature and amount of the compensation 

received or to be received by the SPAC 

sponsor, its affiliates and promoters, 

and the extent to which this 

compensation may result in a material 

dilution of the purchasers’ equity 

interests. There is empirical evidence 

that visualization improves individual 

perception of information.464 For 

example, one experimental study shows 

that tabular reports can lead to better 

decision making.465 Because sponsors’ 

compensation may be a material cost to 

SPAC investors, the tabular format of 

these required disclosures may help 

investors (especially those that are less 

financially sophisticated) more easily 

process the financial implications of 

compensation of the SPAC sponsor, its 

affiliates and promoters, thereby 

potentially incrementally improving 

their investment decisions.466

Additionally, the proposed rules and 

amendments would standardize this 

disclosure across all registration 

statements filed for SPAC initial public 

offerings, which may make it easier and 

less costly for investors to compare 

terms across offerings and thereby 

promote better investment decisions. 

Finally, to the extent the proposed 

additional disclosures on the cover page 

and in the prospectus summary would 

increase investors’ awareness of 

sponsors’ incentives and potential 

conflicts of interest, it may have an 

incremental disciplining effect on 

sponsors’ behavior. For example, to the 

extent sponsors would face potentially 

greater scrutiny by more attentive 

investors, they may take some 

additional care in finding and 

negotiating terms with target companies, 

or take steps to mitigate the extent of 

any disclosed conflict of interests. 

The proposed additional disclosures 

that would be required to be included 

on the prospectus cover page and in the 

prospectus summary may increase 

compliance costs for SPACs to the 

extent that they would need to provide 

additional information in their IPO 

prospectuses than they currently 

provide. We believe that SPACs should 

have this information readily available 

and in some cases may already be 

disclosing it, such as the time frame for 

the SPAC to consummate a de-SPAC 

transaction. Thus, we expect that any 

compliance costs resulting from these 

proposed items would not be 

significant. 

There could also be some potential 

costs for investors. In particular, there is 

a risk that, by requiring more items to 

be added to the cover page and the 

prospectus summary, the salience of the 

current required disclosures may be 

reduced because they will have to 

compete with the new required 

disclosures for investors’ attention 

compared to the baseline. In addition, 

because Item 501(b) of Regulation S–K 

limits the information on the outside 

cover page to one page, there is a risk 

that the amount of information required 

to be included could generally impair 

the readability of the cover page. As a 

result, some investors may pay less 

attention to the cover page as a whole. 

3. Sponsors and Conflicts of Interest 

(Item 1603) 

Proposed Item 1603(a) would require 

disclosure of certain information 

regarding a SPAC’s sponsor, its affiliates 

and any promoters, both at the SPAC 

initial public offering stage and at the 

de-SPAC transaction stage. To the extent 

that such disclosures are not already 

provided or are partially provided, this 

proposed disclosure requirement would 

provide investors with information 

related to the experience and incentives 

(due to characteristics of the 

compensation structure, for example) of 

the sponsor.467 Investors may benefit 

from such disclosure, as it could allow 

them to better evaluate the 

circumstances that may impact their 

investment decision in a specific SPAC. 

The proposed disclosure is likely to be 

beneficial to investors who may 

consider investing in a SPAC at a point 

in time that precedes the existence and 

disclosure of information about an 

acquisition target, or to investors 

seeking to evaluate a proposed de-SPAC 

transaction.468

Proposed Item 1603(b) would require 

disclosure of conflicts of interest at both 

the SPAC initial public offering stage 

and at the de-SPAC transaction stage. 

This disclosure would also be required 

in any Schedules TO filed in connection 

with a redemption. We believe that this 

proposed disclosure requirement would 

benefit investors by enabling them to 

better assess any actual or potential 

material conflicts of interest held by 

sponsors, its affiliates, officers and 

directors of the SPAC, and/or 

promoters. Such disclosure could allow 

investors to more accurately assess the 

potential risk associated with the 

conflicts of interest in a SPAC and thus 

make better investment decisions. 

Further, disclosure under proposed 

Item 1603(c) would provide investors 

information about the fiduciary duties 

that a SPAC’s officers and directors owe 

to other companies. We expect that this 


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469For examples of such disclosures, see Jog & 

Sun, supra note 386. 

470See supra Section II.D for more information 

about existing disclosure requirements under Item 

506 of Regulation S–K. 

471See Gahng, Ritter, & Zhang, supra note 23; 

Klausner, Ohlrogge, & Ruan, supra note 17. 

472See Hattie, supra note 464, and Benbasat & 

Dexter, supra note 465. 

473See supra note 74. 

disclosure would allow the SPAC’s 

shareholders and prospective investors 

to assess the extent to which the officers 

and directors may face outside 

obligations, including the possibility 

that they might be compelled to act in 

the interest of another company that 

compete with the SPAC. In addition, to 

the extent that a SPAC’s officers and 

directors owe fiduciary duties to other 

companies, these obligations may limit 

the attention that they are able to 

provide to the SPAC. We expect that 

these disclosures would benefit 

investors by allowing them to better 

assess the actions of the officers and 

directors in managing the SPACs 

activities, including a proposed deSPAC transaction. 

Proposed Item 1603(a) may increase 

compliance costs for SPACs, mainly in 

the form of collecting, preparing, and 

filing the required information for 

disclosure on sponsors, their affiliates 

and any promoters. We do not expect, 

however, such costs to be substantial 

because most of this information should 

be readily available, and some of it is 

currently being provided by SPACs. 

With respect to the conflicts of 

interest disclosures required by Item 

1603(b), SPACs could bear direct costs 

associated with: (i) Reviewing and 

preparing disclosures describing any 

such conflicts of interest; (ii) developing 

and maintaining methods for tracking 

any such conflicts of interest; and (iii) 

seeking legal or other advice. While the 

direct costs associated with Item 1603(b) 

disclosure requirements would depend 

on the extent to which a SPAC already 

provides this disclosure under current 

practices, we expect these costs to 

generally be low. As a baseline matter, 

the common practice of a SPAC 

disclosing the presence of actual or 

potential conflicts of interest as a 

material risk factor predates SPACs 

listing on national exchanges.469

Therefore, it would appear that most 

SPACs are generally aware of these 

actual or potential conflicts and would 

therefore only bear costs insofar as our 

proposed requirements would involve 

providing greater detail or specificity in 

the disclosures of conflicts of interest. 

Similarly, we do not expect the 

disclosures of a SPAC officer or 

director’s fiduciary duties to other 

companies, as would be required by 

proposed Item 1603(c) to be very costly 

to prepare. Given the significance of a 

fiduciary relationship, it is unlikely that 

a director or officer—and, by extension, 

the SPAC—would not already know 

what relationships would require 

disclosure. The incremental costs to 

produce, track, or review records also 

should be low because signed, written 

documents typically accompany the 

entrance into a relationship that 

engenders a fiduciary duty. 

4. Dilution (Items 1602(a)(4) and 

1602(c)) 

As discussed above,470 SPAC shares 

may experience dilution from various 

transactions by a number of parties or 

combinations of parties at various stages 

of a SPAC’s lifecycle. For example, 

sponsors typically obtain their 

‘‘promote’’ at a nominal value (e.g., 

$25,000) with most of their 

compensation typically contingent on 

the completion of a de-SPAC 

transaction. When sponsors receive 

compensation at the de-SPAC 

transaction stage, their compensation 

comes out of the stakes of SPAC 

investors who do not redeem their 

shares, leading to an interactive effect 

between redemptions and the promote 

that magnifies the dilution. PIPE 

investments, due to their typical 

discount to the IPO offering price and 

potential interactive effects with 

redemptions, can further dilute nonredeeming SPAC investors. Finally, 

investors that redeem their shares 

typically get to keep their warrants. 

Future exercises of these warrants 

further dilutes non-redeeming SPAC 

shareholders’ equity. Because most of 

these potentially dilutive transactions 

may occur after the SPAC’s initial 

public offering and both the direct and 

indirect dilutive effects can be unique to 

the specific SPAC’s structure, they may 

be difficult for prospective investors and 

other interested market participants to 

identify, anticipate, or adequately 

assess. In the absence of a more 

complete appreciation of these dilutive 

effects, the decision to invest, vote, or 

redeem, or the price at which one might 

be willing to enter or exit a position, 

may lack relevant information and, as a 

consequence, be suboptimal. SPAC 

investors who remain investors in the 

combined company absorb the abovementioned dilution effects. To the 

extent that investors may not 

understand the extent of the dilution, or 

may exhibit inertia regarding the 

decision to redeem, the dilution may 

not be reflected in market prices at the 

time of the target acquisition.471

Proposed Item 1602(c) would require 

that registration statements filed by 

SPACs, other than for de-SPAC 

transactions, describe all material 

potential sources of future dilution 

following the SPAC’s initial public 

offering and include tabular disclosure 

of the amount of potential future 

dilution from the public offering price 

that will be absorbed by non-redeeming 

SPAC shareholders, to the extent known 

and quantifiable. The proposed rule 

would benefit investors by providing 

them with more detailed information on 

the potential impact of dilution on the 

value of their SPAC shares, thus 

enabling them to better understand the 

effects of dilution on their investments 

and ultimately make better investment 

decisions. 

We are further proposing to require 

that registration statements on Form S– 

1 or Form F–1 filed by SPACs, including 

for an initial public offering, include a 

simplified dilution table depicting the 

estimated remaining pro forma net 

tangible book value per share that 

would be realized at quartile intervals 

up to the maximum redemption 

threshold. Given the empirical evidence 

that visualization improves individual 

perception of information and that 

dilution that may occur due to 

redemption may be a significant cost to 

investors,472 we expect that the tabular 

format of this disclosure will help 

investors (especially those that are less 

financially sophisticated) more easily 

process the financial implications of 

dilution and potentially improve their 

investment decisions. Moreover, the 

tabular presentation may provide 

investors with this information in a 

format that might more accurately 

represent the dilution that they might 

experience if they choose to invest in 

the SPAC, as compared to current 

disclosures.473 For example, Figure 7 

shows the average maximum allowable 

number of shares eligible to be 

redeemed prior to the de-SPAC 

transaction disclosed by SPACs in their 

registration statements. As shown, the 

maximum potential dilution is fairly 

stable over time, on average about 90% 

of net tangible book value per share. 


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474See Klausner, supra note 71. 

475See supra Section II.G. 

476See, e.g., Joung W. Kim, Jee-Hae Lim, & Won 

Gyun No, The Effect of First Wave Mandatory XBRL 

Reporting Across the Financial Information 

Environment, 26 J. Info. Sys. 127, 127–53 (2012) 

(finding evidence that ‘‘mandatory XBRL disclosure 

decreases information risk and information 

asymmetry in both general and uncertain 

information environments’’); Yuyun Huang, Jerry T. 

Parwada, Yuan George Shan, & Joey Wenling Yang, 

Insider Profitability and Public Information: 

Evidence From the XBRL Mandate (SSRN Working 

Paper, 2020) (finding that XBRL levels the playing 

field between insiders and non-insiders, in line 

with the hypothesis that ‘‘the adoption of XBRL 

enhances the processing of financial information by 

investors and hence reduces information 

asymmetry’’). 

Figure 7 also presents the average 

realized redemptions in de-SPAC 

transactions, which appear to vary 

considerably over time. Thus, despite 

the fact that SPACs are currently 

disclosing the maximum potential 

dilution that may occur as a function of 

redemptions, this information may not 

be as useful for investors as a 

presentation of the same information in 

a scenario table at quartile intervals of 

redemption, given that actual 

redemptions in connection with a deSPAC transaction rarely reach the 

maximum allowable amount. The 

proposed amendments would provide 

investors with more granular 

information about potential dilution, 

which could allow them to better 

anticipate the effects of such dilution on 

future returns.474 Additionally, the 

tabular format of the disclosure would 

standardize the dilution information, 

allowing investors to more easily 

analyze it and compare it across SPACs. 

We expect the incremental costs of 

these proposed disclosure requirements 

to be, in most cases, low. First, 

registrants should already have the 

underlying information at their disposal 

and are therefore unlikely to incur 

significant additional costs to procure 

the necessary data. Second, while the 

proposed rules would require registrants 

to account for potential future sources of 

dilution and analyze several levels of 

redemption, which may require the 

services or input of quantitative 

specialists (analysts, forecasters, or 

other consultants), the material sources 

and the levels of dilution are generally 

common across SPAC offerings (thus a 

standard approach based on best 

practices may emerge, reducing costs 

over time) and are known and 

quantifiable. For example, sources of 

dilution may include shareholder 

redemptions, sponsor compensation, 

underwriting fees, outstanding warrants 

and convertible securities, and PIPE 

financings. For proposed Item 

1602(a)(4), registrants will be required 

to analyze only four levels of 

redemption (i.e., 25%, 50%, 75%, and 

maximum redemption). Third, many 

initial registration statements filed by 

SPACs already include disclosures 

regarding dilution. Thus, the additional 

burden of these disclosures becoming a 

formal requirement may be relatively 

modest. We therefore expect that the 

proposed disclosure requirements 

should benefit the market broadly and 

investors in particular, insofar as the 

enhanced information on potential 

sources of dilution improves price 

formation. 

5. Structured Data Requirement (Item 

1610) 

Proposed Item 1610 would require all 

disclosures in proposed Items 1601– 

1609 of Regulation S–K to be tagged in 

Inline XBRL.475 We expect that this 

requirement would augment the 

informational benefits of the proposed 

new disclosure requirements by making 

them more easily retrievable and usable 

for aggregation, comparison, filtering, 

and other analysis. XBRL requirements 

for public operating company financial 

statement disclosures have been 

observed to mitigate information 

asymmetry by reducing information 

processing costs, thereby making the 

disclosures easier to access and 

analyze.476 This reduction in 

information processing cost has been 

observed to facilitate the monitoring of 

companies by external parties, and, as a 

result, to influence behavior of 


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Figure 7. Dilution Disclosures in IPO Registration Statements vs. Realized 

Redemptions at de-SP AC 

100.00 

90.00 

80.00 

70.00 

60.00 

50.00 

40.00 

30.00 

20.00 

10.00 

~ ~ ~ ~ ~? ~~ 'V 

II Average Realized Redemption II Average Disclosed Maximum 
29526 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

477See, e.g., Jeff Zeyun Chen, Hyun A. Hong, 

Jeong-Bon Kim, & Ji Woo Ryou, Information 

processing costs and corporate tax avoidance: 

Evidence from the SEC’s XBRL mandate, 40 J. Acct. 

& Pub. Policy 106822 (2021) (finding XBRL 

reporting decreases likelihood of firm tax avoidance 

because ‘‘XBRL reporting reduces the cost of IRS 

monitoring in terms of information processing, 

which dampens managerial incentives to engage in 

tax avoidance behavior’’); Paul A. Griffin, Hyun A. 

Hong, Jeong-Bon Kim, & Jee-Hae Lim, The SEC’s 

XBRL Mandate and Credit Risk: Evidence on a Link 

between Credit Default Swap Pricing and XBRL 

Disclosure (2014 a.m. Acct. Assoc. Annual Meeting 

Aug. 6, 2014) (finding XBRL reporting enables 

better outside monitoring of firms by creditors, 

leading to a reduction in firm default risk); 

Elizabeth Blankespoor, The Impact of Information 

Processing Costs on Firm Disclosure Choice: 

Evidence from the XBRL Mandate, 57 J. Acct. 

Research 919 (2019) (finding ‘‘firms increase their 

quantitative footnote disclosures upon 

implementation of XBRL detailed tagging 

requirements designed to reduce information users’ 

processing costs,’’ and ‘‘both regulatory and nonregulatory market participants play a role in 

monitoring firm disclosures,’’ suggesting ‘‘that the 

processing costs of market participants can be 

significant enough to impact firms’ disclosure 

decisions’’). 

478See, e.g., Nina Trentmann, Companies Adjust 

Earnings for Covid–19 Costs, but Are They Still a 

One-Time Expense?, Wall St. J., Sept. 24, 2020 

(citing an XBRL research software provider as a 

source for the analysis described in the article); 

Bloomberg Lists BSE XBRL Data, XBRL.org (2018); 

Rani Hoitash & Udi Hoitash, Measuring Accounting 

Reporting Complexity with XBRL, 93 Acct. Rev. 259, 

259–287 (2018). 

479For example, proposed Item 1603 would 

consist largely of narrative disclosure regarding the 

SPAC sponsor, but would also include quantitative 

disclosure regarding the compensation paid (or to 

be paid) to the SPAC sponsor, its affiliates, and any 

promoters for all services rendered in all capacities 

to the SPAC and its affiliates. 

480To illustrate, using the search term ‘‘warrant’’ 

to search through the text of all SPAC registration 

statements for initial public offerings to determine 

how many such initial public offerings disclosed 

the inclusion of warrants within SPAC sponsor 

compensation could return many narrative 

disclosures outside of the discussion (e.g., 

disclosures related to warrants offered to investors 

as part of the initial public offering). 

481An AICPA survey of 1,032 reporting 

companies with $75 million or less in market 

capitalization in 2018 found an average cost of 

$5,850 per year, a median cost of $2,500 per year, 

and a maximum cost of $51,500 per year for fully 

outsourced XBRL creation and filing, representing 

a 45% decline in average cost and a 69% decline 

in median cost since 2014. See Michael Cohn, 

AICPA Sees 45% Drop in XBRL Costs for Small 

Companies, Acct. Today (Aug. 15, 2018) (stating 

that a 2018 NASDAQ survey of 151 listed 

registrants found an average XBRL compliance cost 

of $20,000 per quarter, a median XBRL compliance 

cost of $7,500 per quarter, and a maximum, XBRL 

compliance cost of $350,000 per quarter in XBRL 

costs per quarter), available at https://

www.accountingtoday.com/news/aicpa-sees-45- 

drop-in-xbrl-costs-for-small-reporting-companies 

(retrieved from Factiva database); Letter from 

Nasdaq, Inc., Mar. 21, 2019, to the Request for 

Comment on Earnings Releases and Quarterly 

Reports; Release No. 33–10588 (Dec. 18, 2018) [83 

FR 65601 (Dec. 21, 2018)]. 

482The benefits of proposed Item 1603 in 

connection with disclosures regarding sponsors and 

conflicts of interest in connection with a de-SPAC 

transaction on a proxy, information, or registration 

statement or Schedule TO are expected to be largely 

the same as the effects of those disclosures made 

in connection with a SPAC IPO, though they may 

be incrementally higher in so far as the disclosures 

could also guide voting and redemption decisions 

at the de-SPAC transaction stage, which would not 

occur in connection with a SPAC IPO. See supra 

Section IX.C.1.a.3. We would similarly expect the 

costs of compliance with Item 1603 to be 

comparable at the de-SPAC transaction stage as in 

connection with a SPAC IPO. However, to the 

extent that Item 1603 would require SPACs to 

disclose certain information in connection with 

their IPOs, the costs of making those same 

disclosures at the de-SPAC transaction stage should 

be lower because the materials necessary would 

have largely already been prepared. 

483See supra Section II.E for more information 

about the regulatory baseline. 

484See supra Section II.D for more information 

about the regulatory baseline. 

485See discussion in supra Section IX.C.1.a.2. 

companies, including their disclosure 

choices.477

While these observations are specific 

to operating company financial 

statement disclosures and not to 

disclosures outside the financial 

statements, such as the proposed 

specialized disclosure requirements 

applicable to SPACs, they indicate that 

the proposed Inline XBRL requirements 

could directly or indirectly (i.e., through 

information intermediaries, such as 

financial media, data aggregators, and 

academic researchers) provide investors 

with increased insight into the proposed 

specialized SPAC disclosures at specific 

SPACs, and allow them to compare it to 

information provided by other SPACs at 

the time of their initial public offerings, 

perhaps through filtering by criteria, 

such as offering size or the name of the 

sponsor.478 Also, like Inline XBRL 

financial statements (including 

footnotes), the proposed SPAC 

specialized disclosures would include 

tagged narrative disclosures in addition 

to tagged quantitative disclosures.479

Tagging narrative disclosures can 

facilitate analytical benefits, such as 

automatic comparison/redlining of these 

disclosures against that provided by 

other SPACs in their initial public 

offerings and the performance of 

targeted assessments of specific SPAC 

specialized disclosures.480

We expect the proposed requirement 

to tag SPAC specialized disclosures in 

Inline XBRL would impose compliance 

costs on SPACs at an earlier stage of 

their life cycle than under the current 

baseline. Currently, SPACs are required 

to tag financial statements (including 

footnotes) and cover page information in 

certain registration statements and 

periodic reports in Inline XBRL. 

However, SPACs are not obligated to tag 

any disclosures until they file their first 

post-IPO periodic report on Form 10–Q, 

Form 20–F, or Form 40–F. Various 

preparation solutions have been 

developed and used by operating 

companies to fulfill XBRL requirements, 

and some evidence suggests that, for 

smaller companies, XBRL compliance 

costs have decreased over time.481

Generally, registrants without prior 

experience using such compliance 

solutions often incur initial 

implementation costs associated with 

Inline XBRL tagging, such as costs 

associated with licensing Inline XBRL 

compliance software and training staff 

to use the software to tag the 

disclosures. Because SPACs typically 

operate as shell companies with no or 

nominal operations, it may be more 

likely that SPACs outsource their 

tagging obligations to a third-party 

service provider, and thus avoid the 

aforementioned software licensing and 

training costs. They would, however, 

incur the costs of retaining such third 

party services. 

b. De-SPAC Transactions 482

1. Prospectus Cover Page, Summary, 

and Disclosure of Dilution (Item 1604) 

In connection with a de-SPAC 

transaction, many SPACs currently 

register an offering of securities using a 

Form S–4 or F–4. We expect most deSPAC transactions to include a 

Securities Act registration statement 

going forward. Proposed Items 1604(a) 

and 1604(b) would require any 

prospectus accompanying a registration 

statement at the de-SPAC transaction 

stage to include certain information 

unique to the de-SPAC transaction on 

the cover page and in the summary, in 

a style and substance comparable to the 

additional disclosures that proposed 

Item 1602 would require at the initial 

public offering stage.483 In addition, 

proposed Item 1604(c) would require 

disclosure in the prospectus of each 

material potential source of additional 

dilution that non-redeeming 

shareholders may experience by electing 

not to redeem their shares in connection 

with the de-SPAC transaction, a 

sensitivity analysis in tabular format 

that expresses the amount of potential 

dilution under a range of reasonably 

likely redemption levels, and a 

description of the model, methods, 

assumptions, estimates, and parameters 

necessary to understand the sensitivity 

analysis disclosure.484

We expect the proposed Items 1604(a) 

and 1604(b) would have similar 

potential direct benefits to investors as 

those we discussed for proposed Item 

1602 above.485 That is, we expect that 

including the additional disclosures on 

the de-SPAC transaction prospectus 

cover page and in the prospectus 


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486See supra notes 464 and 465 and 

accompanying text. 

487Here we are considering the potential 

incremental benefits of the placement of this 

information on the cover page and in the summary. 

For a discussion of the incremental informational 

value of these disclosures, see infra Section 

IX.C.1.b.3. 

488See supra note 74. 

489See supra notes 464 and 465, and 

accompanying text. 

summary may increase the likelihood 

that investors pay attention to and 

process this information by making it 

more salient. Additionally, the proposed 

additions to the de-SPAC transaction 

prospectus summary may reduce 

information-processing costs of 

investors, particularly less financially 

sophisticated investors, by providing 

certain SPAC-specific disclosures 

concisely and in plain English. 

Moreover, like for proposed Item 

1602(b)(6), proposed Item 1604(b)(4) 

would require tabular disclosure in the 

prospectus summary regarding the 

terms and amount of the compensation 

received or to be received by the SPAC 

sponsor and its affiliates in connection 

with the de-SPAC transaction or any 

related financing transaction, and 

whether that compensation has resulted 

or may result in a material dilution of 

the equity interests of unaffiliated 

security holders of the SPAC. Presenting 

this information in tabular format may 

further help reduce informationprocessing costs for some investors.486

Additionally, proposed Items 1604(a) 

and 1604(b) would standardize the 

required information across all 

registration statements filed for deSPAC transactions, making it potentially 

easier and less costly for investors to 

compare terms across transactions. 

Overall, because of the aforementioned 

potential effects on investors’ attention 

and information processing costs, the 

proposed additional disclosures on the 

prospectus cover page and in prospectus 

summary may help improve investors’ 

investment decisions. 

Certain items that proposed Items 

1604(a) and 1604(b) would require 

SPACs to include on the prospectus 

cover page and in the summary may 

potentially benefit investors through 

incrementally improved SPAC 

governance. For example, the inclusion 

of disclosures regarding material 

potential or actual conflicts of interest 

could increase investors’ attention to 

such issues. In turn, this may have an 

ex ante disciplining effect on sponsors 

that would mitigate the potential costs 

to investors of conflicts of interests. In 

addition, the SPAC would be required 

to state whether it reasonably believes 

that the de-SPAC transaction is fair or 

unfair to unaffiliated security holders, 

the bases for such belief, and whether 

the SPAC or SPAC sponsor received any 

report, opinion, or appraisal from an 

outside party regarding the fairness of 

the de-SPAC transaction. Prominent 

disclosure of these items may increase 

investor attention to the fairness or 

unfairness of the transaction, which 

may incentivize sponsors to avoid 

transactions that could potentially be 

viewed as unfair.487

As with proposed Item 1602, the 

additional items that proposed Items 

1604(a) and 1604(b) would require to be 

included on the de-SPAC transaction 

prospectus cover page and in the 

prospectus summary may increase 

compliance costs for SPACs to the 

extent that they would need to provide 

additional information compared to 

what they currently provide. To the 

extent that SPACs already disclose some 

of this information or have most of this 

information readily available, these 

costs would be mitigated. 

There could also be some potential 

costs to investors from proposed Items 

1604(a) and 1604(b). In particular, as 

with proposed Item 1602, there is a risk 

that, by requiring more items to be 

added to the cover page and the 

summary, the salience of the current 

required disclosures may be reduced 

because they will have to compete with 

the new required disclosures for 

investors’ attention compared to the 

baseline. In addition, because Item 

501(b) of Regulation S–K limits the 

information on the outside cover page to 

one page, there is a risk that the amount 

of information required to be included 

could generally impair the readability of 

the cover page. As a result, some 

investors may pay less attention to the 

cover page as a whole. 

We expect proposed Item 1604(c) 

would benefit investors by providing 

them with detailed information on the 

potential impact of dilution on the value 

of their SPAC shares in connection with 

the de-SPAC transaction, thus enabling 

them to better understand the effects of 

dilution on their investments and 

ultimately make better investment 

decisions. Besides requiring disclosure 

of each material potential source of 

future dilution that non-redeeming 

shareholders may experience, proposed 

Item 1604(c) also would require 

sensitivity analysis disclosure in tabular 

format that expresses the amount of 

potential dilution under a range of 

reasonably likely redemption levels. 

This sensitivity analysis may provide 

investors with information that could 

more accurately represent the dilution 

that they might experience if they 

choose not to redeem their shares as 

compared to current disclosures.488

Such more granular information about 

potential dilution may allow investors 

to better anticipate the effects of the 

dilution on future returns. In addition, 

as discussed above,489 we expect that 

the tabular format of this disclosure will 

further help investors (especially those 

that are less financially sophisticated) 

more easily process the financial 

implications of dilution. 

We expect some incremental 

compliance costs of proposed Item 

1604(c) to the extent registrants are not 

already providing disclosures similar in 

nature to what is required by the 

proposed amendment. In particular, the 

proposed rules would require registrants 

to engage in a sensitivity analysis to 

account for potential future sources of 

dilution and analyze several levels of 

redemption, which may require the 

services or input of quantitative 

specialists (analysts, forecasters, or 

other consultants). However, we expect 

the compliance costs of providing this 

disclosure would be mitigated by 

several factors. First, registrants should 

already have the underlying information 

at their disposal and are therefore 

unlikely to incur significant additional 

costs to procure the necessary data. 

Second, material sources and the levels 

of dilution are generally common across 

SPAC offerings (thus a standard 

approach based on best practices may 

emerge, reducing costs over time), and 

are known and quantifiable. For 

example, sources of dilution may 

include shareholder redemptions, 

sponsor compensation, underwriting 

fees, outstanding warrants and 

convertible securities, and PIPE 

financings. Third, although proposed 

Item 1604(c) does not specify the 

number of redemption levels to be 

analyzed, the fact that this disclosure 

could be calculated in a manner 

consistent with the methodologies and 

assumptions used in the disclosures 

provided pursuant to Item 506 

elsewhere in the prospectus may reduce 

incremental costs. Thus, depending on 

how significant these mitigating factors 

are, the additional burden to registrants 

of this disclosure may be limited. 

2. Background, Material Terms, and 

Effects of the De-SPAC Transaction 

(Item 1605) 

Proposed Items 1605(a), (b) and (c) of 

Regulation S–K would require 

disclosure of the background (e.g., 

description of any contacts, 

negotiations, or transactions concerning 

the transaction), material terms, and 

effects of the de-SPAC transaction and 


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490See supra Section II.F.1 for information about 

the regulatory baseline. 

491See supra Sections II.F.2 and II.F.3 for 

additional information about the regulatory 

baseline. 

492See supra Section IX.B.2.e. 

493See Levitt, Jacob, Fain, Marcogliese, Tiger, & 

Basham, supra note 416. 

494As calculated over the observations in the 

baseline sample (reference first table in de-SPAC 

baseline (or its footnotes)) where data is available 

in the Dealogic M&A module or SDC Platinum 

database. 

495For example, see existing FINRA Rule 5150 

requirements for disclosures required of a brokerdealer when providing a fairness opinion in the role 

of financial advisor. 

496 Id. 

497FINRA Rule 5150(a)(2). 

498FINRA Rule 5150(a)(4). 

499FINRA Rule 5150(a)(6). 

any related financing transaction. In 

addition, proposed Item 1605(d) would 

require disclosure of any material 

interests of a SPAC’s sponsor, officers, 

and directors in a de-SPAC transaction 

or any related financing transaction, 

including fiduciary or contractual 

obligations to other entities and any 

interest in, or affiliation with, the target 

company.490 Such disclosure would 

benefit investors by providing them 

with more detailed information about 

significant aspects of de-SPAC 

transactions, thereby enabling them to 

make more informed decisions. For 

example, some of the proposed 

disclosures may enable investors to 

better assess whether the de-SPAC 

transaction or any related financing 

transaction has been structured in a 

manner that would benefit, for example, 

the SPAC’s sponsor to the detriment of 

unaffiliated security holders of the 

SPAC. 

Proposed Item 1605(e) would require 

disclosure as to whether or not security 

holders are entitled to any redemption 

or appraisal rights, and if so, a summary 

of the redemption or appraisal rights. 

These disclosures would help investors 

to better assess the impact of any 

redemption or appraisal rights on a 

proposed de-SPAC transaction, 

including whether the existence of such 

rights might lead some investors to 

redeem their securities after voting in 

favor of a de-SPAC transaction. 

The proposed disclosures could 

increase the compliance costs for deSPAC transactions. The magnitude of 

these costs would depend on the 

amount of information that SPACs and 

target companies are already disclosing 

in connection with de-SPAC 

transactions. To the extent that 

registrants already disclose some of this 

information or have most of this 

information readily available, these 

costs would be mitigated. 

3. Fairness of the De-SPAC Transaction 

and Reports, Opinions, Appraisals and 

Negotiations (Items 1606 and 1607) 

Proposed Item 1606(a) would require 

a statement from a SPAC as to whether 

it reasonably believes that the de-SPAC 

transaction and any related financing 

transaction are fair or unfair to the 

SPAC’s unaffiliated security holders, as 

well as disclosures regarding whether 

any director voted against or abstained 

from voting on, approval of the de-SPAC 

transaction or any related financing 

transaction. In addition, proposed Item 

1606(b) would require a discussion of 

the material factors upon which the 

statement as to the fairness or unfairness 

of the transaction is based. Proposed 

Items 1606(c) through 1606(e) would 

provide additional information about 

the de-SPAC transaction and any related 

financing transaction, including 

whether a majority of unaffiliated 

security holders is required to approve 

the transaction(s), the involvement of 

any unaffiliated representative acting on 

behalf of unaffiliated shareholders, and 

whether the transaction(s) were 

approved by a majority of directors of 

the SPAC who are not employees of the 

SPAC. These proposed rules could 

allow investors to better evaluate 

potential conflicts of interest and 

misaligned incentives in connection 

with the decision to proceed with a deSPAC transaction, which in turn would 

assist them in assessing the fairness of 

a particular de-SPAC transaction and 

any related financing transaction to 

unaffiliated security holders.491

As discussed in the baseline, SPACs 

rarely report the use of a fairness 

opinion when evaluations of 

prospective target are disclosed in deSPAC-related filings.492 A recent review 

of de-SPAC transactions in 2021 

reported that approximately 85% did 

not disclose that a fairness opinion was 

obtained in connection with a de-SPAC 

transaction.493 To the extent that the 

proposed required disclosures with 

respect to the fairness or unfairness of 

the proposed business combination 

would increase the use of fairness 

opinions, the cost of obtaining such 

services would present a new cost to the 

transaction that would likely be passed 

along to shareholders. The average costs 

for fairness opinions obtained by SPAC 

acquirers where such information was 

presented in an itemized format in SEC 

filings was approximately 

$270,000.00.494

Thus, SPACs may incur additional 

costs associated with proposed Item 

1606(a) to the extent that, in response to 

this proposed item, SPACs newly seek 

to obtain fairness opinions. In addition, 

there is some potential for indirect costs 

to SPACs if they respond by providing 

for approval by unaffiliated security 

holders or directors, or retain an 

unaffiliated representative to act on 

behalf of unaffiliated security holders 

for purposes of negotiating the terms of 

a de-SPAC transaction of any related 

financing transaction. However, some 

costs to collecting or producing the 

newly required disclosures may be 

mitigated by other components of the 

regulatory baseline, which in this case 

includes the requirements imposed by 

self-regulatory organizations such a 

listing standards and FINRA rules.495

In particular, if the SPAC obtained its 

fairness opinion from a FINRA member, 

some of the disclosures responsive to 

proposed Item 1606(a) may already be 

prepared and provided to the SPAC 

because of existing FINRA 

requirements. Specifically, FINRA Rule 

5150 requires its members (i.e., brokerdealers or underwriters) to provide 

specified disclosures in a fairness 

opinion if it knows, or has reason to 

know, that the opinion will be provided 

to shareholders.496 Some of the 

information that is required to be 

disclosed includes the following: (1) 

Whether the FINRA member will 

receive any additional significant 

payment or compensation contingent on 

the completion of the merger 

transaction; 497 (2) if the FINRA member 

independently verified information 

provided by the company requesting the 

opinion, a description of the 

information that was verified; 498 and (3) 

whether or not the fairness opinion 

addresses the fairness of the 

compensation to be received by the 

company’s officers, directors or 

employees relative to the compensation 

to the public shareholders of the 

company.499

Proposed Item 1607(a) would require 

disclosure about whether or not the 

SPAC or its sponsor has received any 

report, opinion, or appraisal obtained 

from an outside party relating to the 

consideration or the fairness of the 

consideration to be offered to security 

holders or the fairness of the de-SPAC 

transaction or any related financing 

transaction to the SPAC, the sponsor or 

security holders who are not affiliates. 

Proposed Item 1607(c) would require 

any such report, opinion, or appraisal to 

be filed as an exhibit to the Form S–4, 

Form F–4, and Schedule TO for the deSPAC transaction or included in the 

Schedule 14A or 14C for the transaction, 

as applicable. In addition, under 

proposed Item 1607(b), investors would 

receive information regarding, among 


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500See supra Section II.F.4 

501Staff review of SPACs that conducted an IPO 

between 2000 and 2021 and subsequently filed any 

type of potential de-SPAC transaction related filing 

(SC TO, SC13E4F, PRE 14A, PRE 14C, DEFA14A, 

DEFA14C, DEFM14A, DEFM 14C, DEF 14A, DEF 

14C, S–4, or F–4) found that only approximately 

7.1% of such SPACs, by unique CIK, filed a 

Schedule TO. It appears that the historic use of a 

Schedule TO in connection with a de-SPAC 

transaction corresponds to a period when share 

redemption was more limited and de-SPAC 

transactions were more commonly targeted by 

hedge funds engaged in ‘greenmailing.’ See, e.g., 

Lucian Bebchuk, Alon Brav, Wei Jiang, Thomas 

Keusch, Dancing with Activists, 137 J. Fin. Econ. 1 

(2020) (describing ‘greenmail’ as an event in which 

a company targeted by an activist shareholder such 

as a hedge fund, purchases shares from the activist 

at a premium to the market price). In the SPAC 

context, the activists were most commonly hedge 

funds that would threaten to prevent an acquisition 

by voting against a de-SPAC transaction and 

redeeming a large enough block of shares to cross 

the SPAC’s redemption threshold if the SPAC 

refused to buy back its shares at a premium. See, 

e.g., Leerskov, supra note 420 (‘‘Many of these 

funds are arbitrage investors . . . turning a profit 

by voting against an acquisition, therefore 

recouping their initial investment while holding the 

associated warrants against any possible upside 

from a successful acquisition. Additionally, more 

investors began threatening to veto potential SPAC 

mergers in 2006 and 2007 unless they received deal 

sweeteners. Mostly, investors asked to be bought 

out at a premium in exchange for their votes in 

favor of a merger.’’). This activity decreased, as did 

the use of a Schedule TO in connection with a deSPAC transaction, as SPAC redemption thresholds 

increased in the early 2000s from approximately 

20% on average to approximately 80% on average. 

See, e.g., Milan Lakicevic, Yochana Shachmrove, & 

Milos Vulanovic, Institutional Changes of Specified 

Purpose Acquisition Companies (SPACs), 28 N. Am. 

J. Econ. & Fin. 149 (2014) (20.47% to 84.24% from 

2003–2006 to 2009–2012); Rodrigues, supra note 67 

(20.0% to 74.4% from 2003–2011); Vulanovic, 

supra note 414 (20% to 81.52% from 2003–2013). 

As such, historic use may be a poor predictor for 

estimates of future usage. 

502See supra note 103. 

other things, the outside party, 

including its qualifications and certain 

material relationships with the SPAC, 

its sponsors and their affiliates. We 

expect that these disclosures would 

benefit investors by providing relevant 

information about the fairness of a deSPAC transaction and any related 

financing transaction. In addition, by 

providing more information to 

investors, these disclosures may lead to 

improved market participation, 

liquidity, and price efficiency. We 

expect that these disclosures would 

increase the costs associated with the 

de-SPAC transaction. However, those 

costs should be mitigated because the 

disclosure requirement does not require 

preparation of additional reports, 

appraisals and opinions, rather, it 

requires disclosure of documents that 

were obtained by management. 

4. Proposed Item 1608 of Regulation S– 

K 

We are proposing Item 1608 of 

Regulation S–K to codify a staff position 

that a Schedule TO filed in connection 

with a de-SPAC transaction should 

contain substantially the same 

information about a target private 

operating company that is required 

under the proxy rules and clarify that a 

SPAC must comply with the procedural 

requirements of the tender offer rules 

when conducting the transaction for 

which the Schedule TO is filed.500 For 

example, proposed Item 1608 would 

clarify that SPACs that file a Schedule 

TO for a redemption must comply with 

the procedural requirements of Rule 

13e–4 and Regulation 14E, such as the 

requirement to keep the redemption 

period open for at least 20 business 

days. 

We expect that both the benefits and 

costs associated with this proposal to 

present modest changes from current 

practice, if any, because, historically, 

relatively few de-SPAC transactions 

have involved the filing of a Schedule 

TO alone and because, due to the staff 

position, most of the proposed 

disclosures are currently already 

provided. Between 2000 and 2021, of 

the approximately 575 registrants that 

filed a proxy statement on Schedule 

14A, an information statement on 

Schedule 14C, a Schedule TO, or a 

registration statement on Form S–4 or 

F–4 that could relate to a de-SPAC 

transaction, a small portion of those 

registrants (approximately 7.1% or 41) 

filed a Schedule TO.501 A smaller 

portion of these Schedule TO filings 

(approximately 20% or 8) occurred 

alone (i.e., without the concurrent filing 

of a proxy statement, information 

statement, or registration statement that 

would provide additional disclosures 

regarding the de-SPAC transaction) (see 

Figure 8). However, given that the staff 

has historically expressed the view that 

a Schedule TO should include the same 

information about the target company 

that would be required in a Schedule 

14A, in view of the requirements of Item 

11 of Schedule TO and Item 1011(c) of 

Regulation M–A and the importance of 

this information in making a 

redemption decision, the proposed rule 

is unlikely to result in a meaningful 

difference in the nature or amount of 

information provided by registrants.502


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503See supra Section V.B.1; infra Section IX.C.4. 504See supra Section III.D & Section VI. For 

additional information about the regulatory baseline 

for Item 1609, see supra Section V.B.2. 

505 D. Eric Hirst, Lisa Koonce, & Shankar 

Venkatram, How Disaggregation Enhances the 

Credibility of Management Earnings Forecasts, 45 J. 

Acct. Research 811 (2007), experimentally show 

that disaggregated forecasts, which include 

forecasts of individual income statement line items, 

e.g., revenue and costs, are more credible to 

investors than aggregated forecasts that provide 

only the bottom-line earnings forecasts. 

Furthermore, Zahn Bozanic, Darren T. Roulston, & 

Andrew Van Buskirk, Management Earnings 

Forecasts and Other Forward-looking Statements, 

65 J. Acct. & Econ. 1 (2018), demonstrate that nonearnings-forecast forward-looking statements can 

generate significant responses from both investors 

and analysts. Their findings indicate that the 

forward-looking statements, even statements 

unrelated to earnings, can provide value-relevant 

information to the capital market participants. 

506Auditing literature provides evidence that 

audit quality increases and misreporting decreases 

when engaging partners are required to sign the 

audit report or when their identities are disclosed. 

Joseph V. Carcello & Chan Li, Costs and Benefits of 

Requiring an Engagement Partner Signature: Recent 

Experience in the United Kingdom, 88 Acct. Rev. 

1511 (2013), document evidence that audit quality 

and audit fees increase in the first year when 

engaging partners are required to sign the audit 

report in the United Kingdom. Allen D. Blay, Eric 

S. Gooden, Mark J. Mellon, & Douglas E. Stevens, 

Can Social Norm Activation Improve Audit 

Quality? Evidence from an Experimental Audit 

Market, 156 J. Bus. Ethics 513 (2019), 

Finally, of the registrants that filed 

only a Schedule TO, 75% were foreign 

private issuers that originally registered 

an offering of shares via a Form F–1, 

while the remaining 25% were 

registrants incorporated or organized in 

a foreign jurisdiction that originally 

registered an offering of shares using a 

Form S–1. It is possible that, holding all 

else constant, any benefits or costs 

accruing as the result of proposed Item 

1608 would do so to SPACs that are 

similar to these entities that may either 

not hold a shareholder vote or else hold 

a vote that is not subject to federal proxy 

rules. However, it is unclear what 

proportion of future SPACs would be of 

this type, since in the event proposed 

Rule 145a is also adopted, the number 

of SPACs may be less likely to file 

Schedules TO. 

5. Enhanced Projections Disclosure 

Requirements (Item 1609) 

Proposed Item 1609 complements the 

proposed amendments to Item 10(b) of 

Regulation S–K,503 and pertains to 

projections made in connection with an 

anticipated de-SPAC transaction.504

Proposed Item 1609 would require a 

registrant to disclose who prepared the 

projections and the purposes for which 

the projections were prepared. It would 

also require a discussion of all material 

bases of the disclosed projections and 

all material assumptions underlying 

projections, and any factors that may 

impact such assumptions. Furthermore, 

the proposed rule would require the 

board or management of the SPAC or 

target company to confirm at the date of 

the filing whether the projections reflect 

their current view, and if not, the 

purpose of disclosing the projections 

and the reasons for any continued 

reliance by management or the board on 

the projections. 

In general, we expect that proposed 

Item 1609 would allow investors to 

better evaluate and use projections in 

connection with de-SPAC transactions. 

The required disclosure of preparers’ 

identity and purposes for which the 

projections were prepared would help 

reveal potential conflicts of interest and 

the qualifications of the preparers’ 

projection ability. The requirement to 

discuss material assumptions and 

underlying rationales would also inform 

investors about the verifiability of the 

projections. The proposed requirement 

to disclose whether the projections still 

reflect the views of management or the 

board should provide investors with 

further insight into the reliability and 

utility of those projections. Overall, the 

proposed disclosure under Item 1609 

should benefit investors by helping 

them assess whether and to what extent 

they should rely on projections used in 

a de-SPAC transaction in making voting, 

redemption, and investment 

decisions.505

Proposed Item 1609, by requiring 

projection providers to identify 

themselves and related parties to 

confirm their reliance on the 

projections, would likely also increase 

the preparers’ sense of accountability, 

and potentially increase their incentives 

to make reliable projections.506 In turn, 


lotter on DSK11XQN23PROD with PROPOSALS2EP13MY22.013</GPH>

Figure 8. De-SPAC Transactions Involving Schedule TO, 2000-2021 

SC TO, Proxy or 

Information 

Statement, and S-4 

orF-4, 34% 

SC TO and S-4 or 

F-4, 7% SC TO and Proxy or 

Information 

Statement, 39% 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29531 

experimentally demonstrate that PCAOB’s 

requirement of disclosing engaging partners’ 

identity can reduce misreporting. 507See Amy P. Hutton, Gregory S. Miller, & 

Gregory S. Skinner, The Role of Supplementary 

Statements with Management Earnings Forecasts, 

41 J. Acct. Research 867, 867–890 (2003). They find 

that good news earnings forecasts are positively 

associated with investor reaction (i.e., have 

information content) only when the forecasts are 

accompanied by verifiable supplementary forwardlooking disclosures. 

508See Elizabeth Blankespoor, Ed deHaan, & Iva ́n 

Marinovic, Disclosure Processing Costs, Investors’ 

Information Choice, and Equity Market Outcomes: 

A review, 70 J. Acct. & Econ. 1, 1–46 (2020). They 

suggest that it is costly to process firms’ disclosures, 

even for the most sophisticated investors, and they 

conceptualize processing costs as awareness cost, 

acquisition cost, and integration cost. 

509See supra Section II.G. 

510See supra Section IX.C.1.a.5. 

511See proposed Item 1604(a)(3) of Regulation 

S–K. 

512See supra note 110 and accompanying text. 

513See supra note 481 and accompanying text. 

514Because a Schedule TO filed in connection 

with a de-SPAC transaction must already be filed 

20 business days in advance of the close of the 

redemption period, the proposed 20 calendar day 

minimum dissemination period would not have an 

incremental effect. Similarly, there would be no 

incremental effect on the dissemination of Forms S– 

4 or F–4 in connection with a de-SPAC transaction 

if the registration incorporates any information 

about the registrant or its target by reference 

because a similar 20 business day requirement 

applies. See supra note 127. Further, in the event 

that proposed Rule 145a is adopted, we anticipate 

the majority of de-SPAC transactions would be 

accompanied by an S–4 or F–4 in which 

incorporation by reference is highly likely to occur. 

515See supra Section II.F.5 

516See supra Section III.B for more information 

about the regulatory baseline. 

investors could benefit from potentially 

improved projections in their 

investment decisions. The enhanced 

disclosure transparency about 

projections and the plausible improved 

projection accuracy would, in turn, 

facilitate more efficient allocation of 

capital.507

We do not expect the direct 

compliance costs to be substantial since 

companies should have the required 

information (e.g., the party that provides 

the projections and the assumptions of 

growth rates or discount multiples) 

readily available at their disposal. To 

the extent that proposed Item 1609 

increases contextual information related 

to SPAC projections, investors would 

incur incremental costs in processing 

the added information.508 Potentially 

heightened accountability under 

proposed Item 1609 may also dampen 

the willingness of the managements and 

boards of SPACs and target companies 

to provide projections, which may 

decrease the amount of forward-looking 

information made available to investors 

and thus increases valuation 

uncertainty. To the extent that proposed 

Item 1609 dampens the willingness to 

provide projections, it would likely 

reduce projections without reasonable 

bases more than those with reasonable 

bases. Thus, the incremental costs of 

proposed Item 1609 would likely be 

justified by the incremental benefit of 

increased investor protection against 

materially misleading or speculative 

projections in connection with de-SPAC 

transactions. 

6. Structured Data Requirement 

As with the proposed specialized 

disclosure requirements applicable to 

SPACs at the IPO stage as discussed 

above, proposed Item 1610 would also 

require that the proposed disclosures 

prepared in compliance with respective 

sections of Regulation S–K Subpart 1600 

applicable to de-SPAC transactions be 

tagged in Inline XBRL.509 For the same 

reasons discussed above, we expect that 

the tagging requirement for de-SPAC 

transaction disclosures would augment 

the informational benefits to investors 

resulting from the proposed new 

disclosure requirements.510 For 

example, tagging the disclosure of terms 

and amounts of the compensation 

received or to be received by a SPAC’s 

sponsor and its affiliates in connection 

with a de-SPAC transaction, and the 

potential dilutive effects related to such 

compensation, could allow investors to 

make quantitative and qualitative 

comparisons to similar disclosure in 

other de-SPAC transactions or make it 

easier to compare these disclosures— 

including numeric values—to those 

presented at the SPAC’s IPO stage.511

Unlike the proposed Inline XBRL 

tagging requirement for SPAC 

specialized disclosures which would 

apply to registration statements for 

initial public offerings, the proposed 

tagging requirement for de-SPAC 

transaction disclosures would not 

impose a tagging obligation on 

registrants that were not previously 

subject to tagging obligations, because 

SPACs are already subject to Inline 

XBRL tagging obligations as of their first 

periodic report on Form 10–Q, Form 

20–F, or Form 40–F.512 As such, the 

Inline XBRL tagging requirement for deSPAC transaction disclosures would be 

limited to the cost of selecting, 

applying, and reviewing Inline XBRL 

tags to a new set of disclosures, or 

paying a third party to do so. As 

previously noted, there is some 

indication that these costs have trended 

downward in the years since the initial 

adoption of XBRL requirements for SEC 

filings.513

7. Minimum Dissemination Period 

The proposed minimum 

dissemination period for prospectuses 

and proxy and information statements 

filed in connection with de-SPAC 

transactions is designed to ensure that 

SPAC shareholders have adequate time 

to review the information disclosed 

therein before making voting, 

investment and redemption decisions. 

To the extent that this would provide 

investors with more time than they 

would otherwise have because the 

SPAC’s jurisdiction of incorporation or 

organization does not provide for a 

minimum dissemination period before a 

shareholder meeting or action by 

consent, or has a minimum 

dissemination period of fewer than 20 

calendar days, this may allow them to 

make more informed choices. Relative 

to the current baseline, this proposal is 

likely to provide its greatest potential 

benefits to SPAC shareholders in deSPAC transactions involving SPACs that 

do not incorporate by reference any 

information about the SPAC or the 

target, and are not incorporated in 

Delaware, or do not file a Schedule 

TO.514 While Delaware General 

Corporation Law only requires that due 

notice of an upcoming meeting be 

provided 20 days prior to the event, and 

does not mandate a minimum period for 

dissemination of proxy statements or 

joint prospectus/proxy statements 

required by the federal securities 

laws,515 we believe, based on staff 

experience reviewing filings, that the 

notices of the meeting mandated by 

Delaware law are often included in the 

proxy statement or joint prospectus/ 

proxy statements, with many companies 

then delivering the proxy statements or 

joint prospectus/proxy statements in 

time to meet the Delaware notice 

requirement.516

While we recognize that the 

additional time we propose to provide 

to shareholders for review of de-SPAC 

transaction related disclosures may in 

effect shorten the time a SPAC may 

otherwise have to pursue a business 

combination within its limited time 

before dissolution, the incremental costs 

of formalizing a minimum review 

period should in most cases be low 

based on the existing requirements and 

practices discussed above and marketspecific incentives. For example, as 

retail ownership of its shares increases, 

a SPAC may face increasing pressure to 

communicate with its investors earlier, 

more extensively, and with greater 

frequency to ensure that a quorum will 

be present at the shareholder meeting to 

approve a de-SPAC transaction and that 

a sufficiently high number of votes are 

cast in favor of the transaction. 


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517See supra Section III A. 

518 Items 2.01(f), 5.01(a)(8), and 9.01(c) of Form 8– 

K each provide that if any required disclosure 

under these items has been previously reported, the 

registrant may, in lieu of including that disclosure 

in the Form 8–K, identify the filing in which that 

disclosure is included. 

519Because some filers incorporate disclosure by 

reference from more than one source, the total 

percentage of usage across sources exceeds 100%. 

Notwithstanding this, we 

acknowledge that any costs associated 

with this proposal would likely increase 

as the dissolution date approaches, 

because, under such conditions, unique 

logistical costs like expedited printing 

and delivery would accrue. It is 

plausible that a de-SPAC transaction 

would not be able to proceed due to 

these proposed timing requirements, 

which could result in negative 

consequences (e.g., forgone returns) for 

sponsors and SPAC shareholders. Given 

the significance of a de-SPAC 

transaction to SPACs and targets, 

however, we think it is more likely that 

SPACs and targets will account for the 

proposed dissemination period in 

establishing a timeline for their business 

combination. Another potential cost of 

the minimum dissemination period is 

that it could cause SPACs to enter into 

sub-optimal deals earlier in the process 

to avoid the risk of failing to acquire a 

company later in the window. However, 

given the state of current market 

practices as discussed above, we expect 

the incremental costs on this aspect of 

deal-formation uniquely attributable to 

the proposed minimum dissemination 

period are minimal. 

8. Aligning Non-Financial Disclosures 

in De-SPAC Disclosure Documents 

We are proposing that, if the target 

company in a de-SPAC transaction is 

not subject to the reporting 

requirements of Section 13(a) or 15(d) of 

the Exchange Act, the registration 

statement or schedule filed in 

connection with the de-SPAC must 

include disclosures relating to the target 

company that would be provided in a 

Form S–1 or F–1 for an initial public 

offering.517 Currently, this information 

is required to be included in a Form 8– 

K with Form 10 information that must 

be filed within 4 business days after the 

completion of a de-SPAC transaction. In 

contrast, the proposed disclosure 

requirements would require that target 

company information be provided to 

shareholders before they make voting, 

investment, or redemption decisions in 

connection with the de-SPAC 

transaction. This could reduce potential 

opportunities to engage in regulatory 

arbitrage, minimize differences in 

informational content, timing, and 

presentation, and potentially provide 

investors with more information about 

the target company when making such 

decisions. The benefits of such 

alignment to unaffiliated investors 

would depend on the ability of investors 

to otherwise procure such information 

prior to the filing of the Form 8–K with 

Form 10 information. 

We expect that a SPAC or its sponsors 

would absorb the related costs if the 

proposed additional information 

necessitates earlier or increased 

information production and 

dissemination, although a portion of 

these costs may accrue to nonredeeming shareholders if costs are paid 

from the trust or escrow account of the 

SPAC. Generally, we expect that such 

costs will be low to the extent that 

SPACs disclose this information about 

the target company prior to the 

completion of the de-SPAC transaction; 

however, we recognize that some items 

may be more costly to disclose earlier 

than others. 

The costs and benefits of these 

proposed disclosures depend on the 

baseline level of information available 

that is required to be disclosed in the 

Form 8–K with Form 10 information 

that is currently disclosed in advance of 

the filing of the Form 8–K. To assess the 

extent to which registrants may already 

disclose Form 10 information about the 

target company in a different 

Commission filing before filing the 

Form 8–K, the staff examined the 

frequency and scope of incorporation by 

reference in such 8–K filings, finding 

that 95% of the 8–K filers incorporated 

at least one of the required Form 10 

items by reference.518 Most of the Form 

8–K filings that incorporated items by 

reference referred to disclosures 

previously filed in a proxy or 

information statement (88% of filers), 

and 46% of these filings incorporated 

disclosures from a registration statement 

filed in connection with the de-SPAC 

transaction.519


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Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29533 

520While these items are less frequently 

incorporated by reference, their absence may not 

indicate missing information. For example, filers 

may not have provided Item 304 or Item 701 

disclosures in earlier filings because there were no 

changes in and disagreements with accountants or 

recent sales of unregistered securities to report. 

When disclosures are presented in the Form 8–K, 

Item 304 disclosures are incorporated by reference 

in approximately 32% of filings and newly 

disclosed in 68% of filings. Similarly, for Item 701 

disclosures, the proportions of Forms 8–K that 

incorporate by reference and include new 

disclosure, are respectively approximately 35% and 

65%. 

Figure 9 shows the information that is 

incorporated by reference in the Forms 

8–K filed in connection with de-SPAC 

transactions, as identified by the item 

requirement of Regulation S–K. 

Disclosures pursuant to Items 101 

(description of business), Item 102 

(description of property), and Item 103 

(legal proceedings) of Regulation S–K 

are most commonly incorporated by 

reference. Less frequently incorporated 

by reference are disclosures pursuant to 

Item 304 (changes in and disagreements 

with accountants on accounting and 

financial disclosure), Item 403 (security 

ownership of certain beneficial owners 

and management, assuming the 

completion of the de-SPAC transaction 

and any related financing transaction), 

and Item 701 (recent sales of 

unregistered securities) of Regulation S– 

K.520 Thus, to the extent that registrants 

already provide this information in the 

proxy statements, information 

statements, registration statements, and 

Schedules TO filed in connection with 

the de-SPAC transaction, the benefits 

and costs of compliance with this 

proposed rule may be mitigated. 

As a result of this proposed rule, 

investors may obtain disclosure 

required by Item 403 of Regulation S– 

K regarding the target company’s 

beneficial ownership structure before 

making a voting, redemption, or 

investment decision in connection with 

the de-SPAC transaction, which could, 

in some cases, represent a meaningful 

change to the informational 

environment in advance of the 

completion of a de-SPAC transaction, 

particularly when this information may 

be critical to an investor’s ability to 

evaluate potential conflicts of interest. 

In addition, the disclosures may allow 

investors to identify potential 

misalignments of interests between nonredeeming shareholders and other 

parties to the de-SPAC transaction. This 

proposed requirement therefore may 

provide increased investor protections 

and generally improve the information 

environment for investors to make a 

voting, redemption, or investment 

decision in connection with the deSPAC transaction. 

Because a SPAC and its intended 

target should have access to this 

information in advance of a de-SPAC 

transaction, we do not anticipate 

significant costs to preparing such 

information and incorporating it into 

disclosures disseminated at an earlier 

stage in the de-SPAC transaction 

process. 

We believe that the proposed 

additional information is unlikely to 

impose significant changes to the 

information that a SPAC would 

otherwise disclose or the costs for 

incremental changes relative to current 

market practice. To the extent that these 

requirements may lead to the 

production and dissemination of 

information that would not be disclosed 

until after the completion of the deSPAC transaction, the availability of this 

information in the registration statement 

or schedule filed in connection with the 

de-SPAC transaction may improve 

investor decision-making. 

9. Re-Determination of Smaller 

Reporting Company Status 

The main benefit from the proposed 

amendment to re-determine smaller 

reporting company status of a postVerDate Sep<11>2014 19:42 May 12, 2022 Jkt 256001 PO 00000 Frm 00077 Fmt 4701 Sfmt 4702 E:\FR\FM\13MYP2.SGM 13MYP2

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Figure 9. Incorporation by Reference in Form 8-K by Regulation S-K Disclosure 

100.0% 

90.0% 

80.0% 

70.0% 

60.0% 

50.0% 

40.0% 

30.0% 

20.0% 

10.0% 

0.0% 

101 102 103 304 403 701 

a Data here represents the frequency of incorporation by reference per item that would be affected by the proposed 

amendment as a percent of Forms 8-K filed in connection with a de-SP AC transaction ( described in Figure 3 note a) 

that incorporated any item by reference. 
29534 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

521See infra Section III.C for more information on 

the regulatory baseline. 

522See supra note 368. 

523See supra Section III.C for more information 

about the regulatory baseline. 

business combination company 

following a de-SPAC transaction would 

be to reduce regulatory arbitrage by 

requiring a target company going public 

through a de-SPAC transaction to 

provide similar information to investors 

as a comparable company conducting a 

traditional initial public offering.521 For 

larger target companies, this would 

require providing more comprehensive 

and more detailed disclosure to 

investors soon after the de-SPAC 

transaction. Overall, we expect this 

amendment to increase investor 

protection by allowing investors to 

assess the combined company more 

thoroughly and sooner. Large target 

companies may also reap the benefit of 

reduced cost of capital insofar as 

providing additional historical periods 

of financial statement data might further 

reduce information asymmetries or 

otherwise improve price formation.522

The proposed amendment would 

increase compliance costs compared to 

the current baseline for large target 

companies that, after combining with 

the SPAC, do not meet the smaller 

reporting company definition as of the 

proposed new re-determination date. 

Those companies may need to provide 

more detailed disclosure to investors 

soon after the de-SPAC transaction. We 

note, however, that some of these 

companies that meet the definition of 

emerging growth company could avail 

themselves of the accommodations 

associated with EGC reporting 

requirements, which could mitigate 

some of the disclosure costs required by 

the proposed amendment. We do not 

expect the proposed amendment to 

impose any costs on post-business 

combination companies when, at the 

time of the de-SPAC transaction, neither 

the SPAC nor the target company meet 

the smaller reporting company 

definition. 

2. Liability-Related Proposals 

In addition to the proposals discussed 

above pertaining to disclosures, we are 

proposing to clarify and amend the 

existing liability framework in an effort 

to resolve certain ambiguities and 

protect investors. In this section, we 

discuss the potential costs and benefits 

of the proposed amendment to Form S– 

4 and Form F–4 to require that the 

SPAC and the target company be treated 

as co-registrants when these registration 

statements are filed by the SPAC in 

connection with a de-SPAC transaction. 

In addition, we discuss the proposed 

amendment to the definition of ‘‘blank 

check company’’ for purposes of the 

PSLRA to remove the ‘‘penny stock’’ 

condition, and proposed Rule 140a that 

would clarify the underwriter status of 

SPAC IPO underwriters in registered deSPAC transactions. 

a. Private Operating Company as CoRegistrant to Form S–4 and Form F–4 

When a de-SPAC transaction is 

registered on a Form S–4 or F–4, the 

party that files a registration statement 

currently depends on the structure of 

the merger or acquisition. While the 

result of any de-SPAC transaction 

involving a registered offering would be 

that the target company becomes a 

public reporting company, the liability 

it and its officers and directors face for 

disclosures in the registration statement 

that inform investors’ decisions 

regarding the de-SPAC transaction is 

largely a function of how the transaction 

is structured. For example, when the deSPAC transaction is structured such that 

the SPAC registers the offering of its 

shares to target shareholders and the 

target merges into the SPAC, the SPAC 

would typically sign the registration 

statement as the registrant and the SPAC 

and certain officers and directors of the 

SPAC that sign the registration 

statement would incur liability for 

disclosures in the registration statement. 

Alternatively, a de-SPAC transaction 

can be structured so that the target 

registers the offering of its shares to 

SPAC shareholders, such that the target 

would typically be the registrant, and 

the target and certain officers and 

directors of the target would sign the 

registration statement and incur liability 

for disclosures in the registration 

statement.523

We are proposing to amend Form S– 

4 and Form F–4 to require that the 

SPAC and the target company be treated 

as co-registrants when a registration 

statement is filed by the SPAC in 

connection with a de-SPAC transaction. 

As a result, both the SPAC and the 

target, and certain officers and directors 

of the SPAC and target, would be 

required to sign the registration 

statement and incur potential liability 

for statements and omissions therein. 

Treating the target as a co-registrant in 

this situation is intended to provide 

similar investor protections as if the 

target had entered the public market 

through a traditional IPO (or a de-SPAC 

transaction structure in which a 

Securities Act registration statement is 

filed by the target, rather than the 

SPAC). 

The liability associated with being a 

co-registrant could incentivize the target 

company’s directors and management to 

exercise greater care in the preparation 

and presentation of material information 

about the company, its financial 

condition, and its future prospects; 

perform more robust due diligence with 

respect to materials it obtains from 

third-party sources in connection with 

the de-SPAC transaction; and more 

closely monitor disclosures in the 

registration statement. Thus, the 

proposed requirement could improve 

the reliability of the disclosure provided 

to investors about the target company, 

reduce the instances of misstatements 

and omissions, and generally improve 

investors’ decision making with regard 

to these transactions. 

The proposed co-registrant 

requirement would increase compliance 

costs for targets compared to the 

baseline in cases where the target would 

not already have been the registrant at 

the time of the de-SPAC transaction. 

Under the proposed rule, a target and its 

signing officers and directors would be 

liable to investors for the accuracy of the 

disclosures in such a registration 

statement. This increase in potential 

liability from the current baseline for 

targets and their signing officers and 

directors could impact the decision of a 

private company to go public via a deSPAC transaction. It is possible that, 

due to some of the ways the proposed 

rules would alter differences, actual or 

perceived, between the disclosure 

requirements and liabilities associated 

with becoming a public reporting 

company via a traditional IPO versus 

being acquired by a SPAC, some targets 

could reconsider a traditional initial 

public offering instead. It is also 

possible that other potential targets may 

determine that the liability costs 

(including, but not limited to, increased 

litigation risk and the potential need for 

new insurance coverage or higher 

premiums for existing coverage) 

associated with being a co-registrant 

would be too high and elect not to go 

public. Given the multifaceted benefits 

of being a public company, however, it 

is unclear that the costs of being a coregistrant would be the determining 

factor that would discourage a target 

from going public through a de-SPAC 

transaction or outweigh other factors 

that typically drive the going public 

decision such as liquidity for company 

insiders and the lower cost of capital. 

b. PSLRA Safe Harbor 

Defining the term ‘‘blank check 

company’’ for purposes of the PSLRA as 

proposed, would make the PSLRA safe 

harbor unavailable for forward-looking 


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524See supra Section IX.B.3. See also supra 

Section III.E for more information about the 

regulatory baseline. 

525See supra note 33. 

526See supra note 279. 

527See Vijay Jog & Bruce J. McConomy, 30 J. Bus. 

Fin. & Adver. 125 (2003) (finding that the voluntary 

provision of earnings forecasts in connection with 

Canadian IPOs (subject to a two-year horizon 

maximum and accompanied by a statement of 

opinion by a public accountant) had incremental 

value beyond other methods of signaling firm 

quality such as the use of a highly reputable 

underwriter or auditor, including ‘‘a favorable and 

noticeable impact on the degree of underpricing 

and the post-issue return performance’’ and that 

benefits are most pronounced for ‘‘small firms and 

those making conservative forecasts.’’). 528See supra Section IX.B.4 and note 445. 

statements made in connection with an 

offering by a blank check company that 

is not issuing ‘‘penny stock’’ as defined 

in Exchange Act Rule 3a51–1, including 

an offering of securities by a SPAC in 

connection with a de-SPAC 

transaction.524 As noted above, many 

commentators have raised concerns 

about the use of forward-looking 

statements that they believe to be 

unreasonable in de-SPAC 

transactions.525 By providing greater 

clarity regarding the availability of the 

PSLRA safe harbor, the proposed 

amendment should strengthen the 

incentives for a blank check company 

that is not issuing penny stock, 

including a SPAC, to avoid potentially 

unreasonable and potentially 

misleading forward-looking statements, 

and to expend more effort or care in the 

preparation and review of forwardlooking statements.526 For example, if 

less time and effort is required to 

produce meaningful cautionary 

statements than to produce careful and 

robust forward-looking statements, 

absent the proposed changes, market 

participants may have an incentive to 

underinvest in the production of 

reliable forward-looking statements. By 

increasing the potential costs to 

companies of making forward-looking 

statements, the proposed changes are 

expected to increase the incentives for 

blank check companies that are not 

issuing penny stock to exercise more 

care in making any such statements. 

Similar investor protection benefits may 

apply to registered securities offerings of 

non-SPAC registrants that would meet 

the current definition of a ‘‘blank check 

company’’ but for the ‘‘penny stock’’ 

condition. 

The net economic effect of this 

proposed amendment, however, would 

depend on, among other things: (1) The 

extent to which practitioners currently 

are willing to advise their clients that 

the PSLRA safe harbor is available for 

forward-looking statements made by 

blank check companies that are not 

issuing penny stock that otherwise meet 

the conditions of the safe harbor; (2) the 

extent to which the market does not 

already discount the informational 

value of forward-looking statements; 

and (3) the costs associated with 

valuable information that may no longer 

be provided due to any perceived 

increase in the risk of potential 

litigation. 

While amending the definition of 

‘‘blank check company’’ in this manner 

would clarify that the statutory safe 

harbor in the PSLRA is not available for 

forward-looking statements made in 

connection with offerings by SPACs or 

other blank check companies that are 

not penny stock issuers, it could impose 

costs on any such companies that 

currently attempt to rely upon the safe 

harbor to communicate value-relevant 

information to investors through 

forward-looking statements. For such 

companies, this proposed amendment 

could increase the perceived risk of 

litigation and dissuade them from 

including such forward-looking 

information. This information could be 

valuable in offerings involving business 

combinations with private operating 

companies given that less historical 

information regarding private 

companies is likely otherwise 

available.527 In addition, we note that, 

while there is no prohibition on the use 

of forward-looking statements in 

connection with an initial public 

offering, the fact that the express terms 

of the PSLRA provide that the safe 

harbor is unavailable for such 

statements, and the concomitant 

heightened litigation risks associated 

with providing forward-looking 

statements, may have created a chilling 

effect given that, in staff experience, 

projections are almost never provided to 

the public in connection with an IPO. 

The proposed amendments similarly 

may lead to fewer forward-looking 

statements in connection with offerings 

by SPACs or other blank check 

companies that are not penny stock 

issuers. This effect would likely be 

stronger for blank check companies 

affected by the proposal that are 

considering whether to include forwardlooking statements about younger target 

companies with fewer observable 

periods of profit historically, as most of 

their value typically comes in the form 

of future growth options. Such blank 

check companies that are not penny 

stock issuers might otherwise be the 

most likely to use forward-looking 

statements to communicate the potential 

for future value creation to investors at 

the time of a business combination. 

Additionally, if the proposed 

amendment reduces the amount of 

potentially relevant information 

presented to investors in connection 

with a de-SPAC transaction or other 

business combination involving a blank 

check company that is not a penny stock 

issuer due to perceived litigation risk, 

this may negatively affect investors’ 

ability to accurately value these 

companies and allocate their 

investments accordingly. For blank 

check companies that are SPACs, such 

costs could be mitigated if some of the 

other amendments that we are 

concurrently proposing are adopted and 

improve the flow of relevant 

information to investors at the de-SPAC 

transaction stage. Similar costs may also 

be mitigated for investors in non-SPAC 

blank check companies not issuing 

penny stock that would be subject to 

proposed Rule 145a as reporting shellcompanies.528 Because reporting shell 

company shareholders may, under 

proposed Rule 145a, receive registration 

statement disclosures in connection 

with a reporting shell company’s merger 

activity, the proposed rule could result 

in incremental information about the 

target company being provided to 

reporting shell company shareholders, 

to the extent that those investors would 

not otherwise receive such information. 

c. Underwriter Status and Liability in 

Securities Transactions 

Proposed Rule 140a would clarify that 

a person who has acted as an 

underwriter in a SPAC IPO and 

participates in the distribution by taking 

steps to facilitate the de-SPAC 

transaction, or any related financing 

transaction, or otherwise participates 

(directly or indirectly) in the de-SPAC 

transaction will be deemed to be 

engaged in the distribution of the 

securities of the surviving public entity 

in a de-SPAC transaction within the 

meaning of Section 2(a)(11) of the 

Securities Act. The statutory definition 

of an ‘‘underwriter’’ under the 

Securities Act is broad and does not 

include an element of intent; as a result, 

a person could perform functions that 

would cause the person to meet the 

statutory definition of an ‘‘underwriter’’ 

within the meaning of Section 2(a)(11) 

of the Securities Act without 

appreciating that they are doing so. This 

may in turn lead to both deal-specific 

and market-wide economic 

inefficiencies such as underinvestment 

in diligence or screening. For example, 

an investment banker, or financial 


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29536 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

529See supra Section III.E.3 for more regulatory 

baseline information. 

530See, e.g., Hsuan-Chi Chen & Jay Ritter, The 

Seven Percent Solution, 55 J. Fin. 1105 (2000). 

531See supra Section IV.A.2 for more information 

about the regulatory baseline. 

advisor providing services in 

connection with a de-SPAC transaction 

may not adequately fulfill their role as 

a gatekeeper for disclosures in a deSPAC transaction registration statement 

if they are unaware that they are an 

underwriter and face potential liability 

as such.529

A key benefit from proposed Rule 

140a would be the incentives that it 

would create for SPAC IPO underwriters 

that may be subject to Section 11 

liability for registered de-SPAC 

transactions to perform due diligence to 

ensure the accuracy of the disclosures in 

these transactions. Improved due 

diligence would enhance investor 

protection by allowing investors to 

better evaluate the target company and, 

in turn, potentially make better 

investment decisions. We expect that 

clarifying the application of underwriter 

liability, combined with the disclosures 

of proposed Subpart 1600 of Regulation 

S–K, could significantly improve the 

ability of SPAC shareholders to evaluate 

the target company. This may allow 

these investors to better price the 

securities of the combined company and 

decrease the likelihood that they 

overvalue the target company under 

consideration. Additionally, more 

clearly defined Section 11 liability may 

enhance shareholders’ ability to pursue 

a remedy, if needed. 

Potential Section 11 liability may 

deter a SPAC IPO underwriter from 

participating in the de-SPAC transaction 

or any related financing transactions by 

increasing their costs. The extent to 

which proposed Rule 140a would 

impose new costs on SPAC IPO 

underwriters would depend heavily on 

the extent to which they do not already 

perform due diligence that would be 

sufficient to perfect such a defense in 

connection with the de-SPAC 

transaction or a related financing 

transaction. If SPAC IPO underwriters 

decide not to provide services in 

connection with the de-SPAC 

transaction or a related financing 

transaction due to proposed Rule 140a, 

the SPAC may incur greater monetary 

and non-monetary costs related to 

identifying, negotiating with, and hiring 

financial advisors. Also, because a 

significant portion of SPAC IPO 

underwriting fees (typically 3.5% of IPO 

proceeds) is usually deferred until, and 

conditioned upon, the completion of the 

de-SPAC transaction, SPAC IPO 

underwriters that decide not to 

participate in the de-SPAC transaction 

as a result of this proposal may revise 

their compensation agreements so that 

they would be paid only at the time of 

the SPAC initial public offering. Such a 

change in the timing of compensation 

may increase the up-front transaction 

costs of the initial public offering for 

SPAC investors and sponsors. It is 

possible, however, that underwriter 

compensation may decrease if 

underwriters would not be expected to 

provide any services in connection with 

the de-SPAC transaction or any related 

financing transaction. 

Alternatively, proposed Rule 140a 

may cause SPAC IPO underwriters to 

demand higher compensation for their 

participation in the de-SPAC transaction 

or any related financing transaction 

given the potential exposure to Section 

11 liability. The fees that SPAC IPO 

underwriters currently charge for their 

efforts in connection with a SPAC initial 

public offering generally range between 

5% and 5.5% of the initial public 

offering proceeds, with potentially 

additional merger advising fees charged 

at the de-SPAC transaction stage. It is 

difficult to predict whether these fees 

would increase to incentivize SPAC 

underwriters to participate in de-SPAC 

transactions or the amount of any such 

increase. For comparison, the 

underwriter fees in the traditional initial 

public offering process, where 

underwriters have Section 11 liability, 

are, on average, 7% of the IPO 

proceeds.530 It is possible, however, that 

SPAC IPO underwriters could demand 

higher fees for potentially bearing 

Section 11 liability in connection with 

the de-SPAC transaction or any related 

financing transaction. Any increase in 

the compensation of SPAC IPO 

underwriters would increase the 

transaction costs to investors and 

sponsors, potentially lowering their 

returns on their investment. 

Finally, to the extent that SPAC IPO 

underwriters decide not to participate in 

the de-SPAC transaction or any related 

financing transaction due to potential 

Section 11 liability, investors would not 

have the protection of any due diligence 

that SPAC IPO underwriters may have 

performed in connection with such 

transactions. However, if SPAC IPO 

underwriters are able and willing to 

absorb some of the costs associated with 

potential Section 11 liability (e.g., 

because of other benefits, such as 

revenues from future repeat business 

with sponsors), the potential cost 

increase for SPAC shareholders and 

sponsors may be small. 

3. Shell-Company Related Proposals 

a. Proposed Rule 145a 

Proposed Rule 145a would deem any 

business combination of a reporting 

shell company (that is not a business 

combination related shell company) 

involving an entity that is not a shell 

company to involve a sale of securities 

under the Securities Act to the reporting 

shell company’s shareholders. Proposed 

Rule 145a is intended to address 

concerns regarding the use of reporting 

shell companies generally as a means by 

which private unregistered companies 

access the U.S. capital markets. One 

reason for these concerns is that 

reporting shell company shareholders 

may not receive the Securities Act 

protections (including disclosure and 

liability) they receive in a traditional 

IPO because of transaction structure. 

Under the proposed rule, SPACs and 

other reporting shell companies would 

have to register these deemed sales by 

filing a Securities Act registration 

statement unless there is an applicable 

exemption.531

Proposed Rule 145a would potentially 

provide shareholders in a reporting 

shell company, engaged in a business 

combination involving a non-shell 

company, with more consistent 

Securities Act protections, regardless of 

the structure used for the business 

combination. Currently, if a reporting 

shell company buys a target by issuing 

its shares as consideration for the 

interests of the target shareholders, and 

the reporting shell company is the 

surviving entity, reporting shell 

company investors are unlikely to 

receive a registration statement in 

connection with the transaction. In this 

example, the reporting shell company 

shareholders would not receive the 

protections afforded by the Securities 

Act, including any enhanced disclosure 

or liability that would be available if the 

transaction were registered under the 

Securities Act. 

Proposed Rule 145a is intended to 

address potential disparities in the types 

of disclosure and liability protections 

available to reporting shell company 

shareholders depending on the 

transaction structure used in a reporting 

shell company business combination, 

and thus, is expected to bolster investor 

protection for reporting shell company 

shareholders. This could be of particular 

benefit to shareholders in reporting 

shell companies that may not otherwise 

receive information about the intended 

target, or potentially even notification 

that a specific business combination 


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532 Investor inertia refers to the tendency to avoid 

trading. See, e.g., Laurent E. Calvert, John Y. 

Campbell, & Paolo Sodini, Fight or Flight? Portfolio 

Rebalancing by Individual Investors, 124 Q. J. Econ. 

301 (2009) (‘‘observing little aggregate rebalancing 

in the financial portfolio of participants’’). 

533See generally supra Section IX.C.2 discussion 

on costs of increased liability. 

534See Michael Minnis, The Value of Financial 

Statement Verification in Debt Financing: Evidence 

from Private U.S. Firms, 49 J. Acct. Research 457, 

457–506 (2010). Using a large sample of privately 

held U.S. firms, the author found that audited firms 

enjoy a lower interest rate than unaudited firms, 

and that lenders place more weight on audited 

financial information in setting the interest rate. See 

also Mathieu Luypaert & Tom Van Caneghem, Can 

Auditors Mitigate Information Asymmetry in 

M&As? An Empirical Analysis of the Method of 

Payment in Belgian Transactions, 33 Auditing 57, 

57–91 (2014). This study finds that audits can 

mitigate information asymmetry about the target’s 

value, reducing the need for a contingent payment. 

535See supra note 508. 

536See supra Section IV.B for additional 

regulatory baseline information. 

537See Phillip Lamoreaux, Does PCAOB 

Inspection Access Improve Audit Quality? An 

Examination of Foreign Firms Listed in the United 

Continued 

will be entered into, until after the 

transaction has occurred. Additionally, 

receipt of registration materials may 

provide a beneficial nudge to reporting 

shell company shareholders who might 

otherwise be vulnerable to inertia by 

calling attention to the nature in which 

their investment would be transformed 

should they continue to hold their 

securities.532 However, these 

informational benefits to affected 

reporting shell company shareholders 

may be mitigated to the extent that the 

reporting shell company is able to rely 

on an exemption from registration and 

shareholders do not receive offering 

materials in connection with the 

deemed sale. Because it is unclear the 

extent to which reporting shell company 

shareholders may be able to anticipate 

which disclosure and liability 

protections will be available to them at 

the time of a business combination (as 

a function of whether an exemption 

would be available), the extent to which 

proposed Rule 145a might improve 

price or capital formation is also 

unclear. 

As a result of proposed Rule 145a, 

reporting shell companies, including 

SPACs, would be required to register the 

deemed sale of their securities to their 

shareholders at the time of certain 

business combinations, unless there is 

an available exemption. Costs would 

increase to the extent that a business 

combination is not already structured in 

a manner that otherwise would have 

been considered a sale to the reporting 

shell company shareholders under the 

securities laws. This would include all 

costs associated with conducting a 

registered offering of securities, such as 

preparing a Securities Act registration 

statement, if no exemption is available. 

The proposed rule may also introduce 

opportunity costs in the form of 

transactions that might otherwise have 

occurred, but would be disincentivized 

under the new requirements. For 

example, under current rules, a business 

combination involving a reporting shell 

company can be structured to avoid 

registration, such as through the use of 

cash, rather than stock, as consideration. 

Because proposed Rule 145a would 

deem such a transaction to involve a 

sale to reporting shell company 

shareholders that would need to be 

registered unless there is an applicable 

exemption, affected parties may opt not 

to pursue such a transaction rather than 

incur the new transaction costs 

involved. There may also be financialexclusion related costs if reporting shell 

companies are increasingly incentivized 

to pursue exemptions from registration 

and as a consequence pre-emptively 

seek to place their securities with only 

certain types of investors such as 

accredited investors or non-accredited 

sophisticated investors. 

To the extent that this proposal would 

apply the strict liability standard of 

Section 11 to transaction-related 

disclosures to which it would not 

otherwise apply, we expect there to be 

extra costs associated with greater care 

in preparation and review of any 

reporting shell company registration 

statement.533 Also, there could be some 

costs associated with timing issues 

generated by SEC staff review of any 

registration statement. Some of these 

costs may be mitigated to the extent that 

the reporting shell company or target is 

already preparing disclosure 

documents, particularly Securities Act 

registration statements, in connection 

with a business combination that would 

be covered by proposed Rule 145a. For 

example, in a de-SPAC transaction, the 

SPAC and/or target company may 

already be preparing a Schedule 14A, 

14C, or TO, or a Form S–4 or F–4. 

Reporting shell companies and SPACs 

also typically prepare Forms 8–K 

containing Form 10 disclosures that are 

filed shortly after the business 

combination. 

b. Financial Statement Requirements in 

Business Combination Transactions 

Involving Shell Companies 

Proposed Article 15 of Regulation S– 

X and related amendments aim to align 

more closely the financial statement 

reporting requirements in business 

combinations involving a shell company 

and a private operating company with 

those in traditional initial public 

offerings. These amendments may 

reduce the potential for regulatory 

arbitrage by private companies that go 

public through a business combination 

with a shell company rather than a 

traditional initial public offering. 

Furthermore, the proposed disclosure 

and audit requirements (e.g., proposed 

Rule 15–01(a)) may reduce information 

asymmetry surrounding shell company 

business combinations, including deSPAC transactions, which may in turn 

benefit private operating companies 

going public by reducing the cost of 

capital.534 The proposed rules and 

amendments that clarify applicable 

definitions and streamline compliance 

processes (e.g., Rule 15–01(b), (c), (d), 

(e)), are expected to reduce ambiguity 

and facilitate compliance. 

The proposed rules and amendments 

may allow investors to more readily 

locate and process relevant information, 

reduce processing costs, and increase 

their confidence in the reporting 

provided by entities involved in these 

business combinations.535 In turn, the 

proposed rules and amendments may 

help investors to more efficiently make 

voting, redemption, and investment 

decisions. In addition, many of the 

proposed rules and amendments would 

codify existing staff guidance or 

financial reporting practices. Thus, to 

the extent that registrants are already 

preparing statements and reports 

consistent with the proposed rules and 

amendments, the incremental benefits 

and costs would be limited. Below, we 

discuss the potential benefits and costs 

of each individual item under proposed 

Rule 15–01 of Regulation S–X and the 

other amendments.536

1. Rule 15–01(a) Audit Requirements of 

Predecessor 

Proposed Rule 15–01(a) would align 

the level of audit assurance required for 

the target private operating company in 

merger transactions involving a shell 

company with the audit requirements 

for an initial public offering of equity 

securities. The proposed rule would 

codify existing staff guidance that 

financial statements of the business, i.e., 

target private operating company, in a 

transaction involving a shell company 

should be audited to the same extent as 

a registrant in an initial public offering; 

that is, an examination of the financial 

statements by an independent 

accountant in accordance with the 

standards of the PCAOB for the purpose 

of expressing an opinion thereon. 

Proposed Rule 15–01(a) should 

benefit investors by requiring assurance 

over financial statements consistent 

with a traditional IPO.537 To the extent 


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States, 61 J. Acct. & Econ. 313, 313–337 (2016). The 

author documented that PCAOB-inspected auditors, 

compared to auditors not subject to PCAOB 

inspections, provide higher quality audits, which 

are reflected by more going concern opinions, more 

reported material weaknesses, and less earnings 

management. 

538See Michael Minnis, The Value of Financial 

Statement Verification in Debt Financing: Evidence 

from Private U.S. Firms, 49 J. Acct. Research 457, 

457–506 (2010) (finding that audited financial 

statements have more predictive power for future 

cash flows, which may explain lower cost of capital 

as well as greater reliance by lenders). 

that audited financial statements may 

have more predictive power of future 

cash flows, the proposed rule also may 

benefit shell companies and target 

private operating companies by 

lowering their cost of capital.538 The 

proposed amendment may, however, 

increase the compliance costs (e.g., 

audit costs) of the business 

combination. To the extent that target 

private operating companies are, in 

practice, already including financial 

statements audited under PCAOB 

standards, the above incremental 

benefits and costs likely would be 

limited. 

2. Rule 15–01(b) Number of Years of 

Financial Statements 

Under proposed Rule 15–01(b), a shell 

company registrant would be permitted 

to include in its Form S–4/F–4/proxy or 

information statement two years of 

statements of comprehensive income, 

changes in stockholders’ equity, and 

cash flows for the private operating 

company for all transactions involving 

an EGC shell company and a private 

operating company that would qualify 

as an EGC, and this determination 

would not be dependent on whether the 

shell company has filed or was already 

required to file its annual report or not. 

For such transactions, registrants may 

benefit from reduced cost of producing 

audited financial statements because 

this rule would potentially reduce the 

number of years of financial statements 

required from three years to two years. 

For those transactions, this proposed 

rule would cause some information loss 

for investors. However, at least two 

years’ of statements of comprehensive 

income, changes in stockholders’ equity, 

and cash flows for the private operating 

company would be provided, the same 

amount that would be required for an 

initial public offering. 

3. Rule 15–01(c) Age of Financial 

Statements of the Predecessor 

Proposed Rule 15–01(c) would 

provide that the age of financial 

statements for a private operating 

company that would be the predecessor 

to a shell company in a registration 

statement or proxy statement would be 

based on whether the private operating 

company would qualify as a smaller 

reporting company if it were filing its 

own initial registration statement. 

Because we believe that this proposed 

amendment would be consistent with 

existing practice, we do not expect it to 

have significant economic effects for 

registrants or investors. This proposed 

rule also should help maintain 

consistency in disclosure requirements 

across the different routes of goingpublic, which may reduce compliance 

uncertainty for registrants and their 

predecessors and increase investor 

confidence. 

4. Rule 15–01(d) Acquisitions of 

Businesses by a Shell Company 

Registrant or Its Predecessor That Are 

Not or Will Not Be the Predecessor 

Proposed Rule 15–01(d) would 

require application of Rules 3–05 or 8– 

04 (or Rule 3–14 as it relates to a real 

estate operation), the Regulation S–X 

provisions related to financial 

statements of an acquired business, to 

acquisitions of businesses by a shell 

company registrant, or its predecessor, 

that are not or will not be the 

predecessor to the registrant. Given our 

understanding that this proposed 

amendment codifies current market 

practices, we believe that the 

incremental benefits and costs should 

be limited. 

We also are proposing to amend Rule 

1–02(w) of Regulation S–X to require 

that the significance of the acquired 

business be calculated using the private 

operating company’s financial 

information as the denominator instead 

of that of the shell company registrant. 

The current use of the shell company 

registrant, which has nominal activity, 

for the denominator results in limited to 

no sliding scale for business 

acquisitions, including those made by 

the private operating company that will 

be the predecessor to the shell company 

because every acquisition would be 

significant and thus require financial 

statements. Therefore, the proposed 

amendment may alleviate registrants’ 

compliance burden to the extent that it 

would not result in disclosure related to 

insignificant acquisitions. Although, the 

proposed amendment may reduce the 

information available to investors about 

business acquisitions by the private 

operating company that will be the 

predecessor to the shell company, it 

may also reduce investors’ information 

processing costs by focusing on 

financial statements of acquired 

businesses that are significant rather 

than all acquired businesses. 

This proposed amendment to Rule 

11–01(d) may change the application of 

Rule 11–01(b)(3) such that subsequent 

business acquisitions may be tested 

against pro forma amounts that combine 

the SPAC and the private operating 

company. This may result in fewer 

subsequent acquisitions being 

significant because the denominator of 

the significance tests, including the 

combined total assets of the private 

operating company and SPACs, are 

larger than only the private company’s 

total assets. Accordingly, registrants’ 

compliance burden would likely be 

reduced. We also believe any potential 

costs to investors as a result of decreases 

in disclosure may be mitigated by the 

fact that registrants must otherwise 

disclose material information about the 

acquisition that is necessary to make the 

required statements not misleading. 

Proposed Rule 15–01(d)(2) would 

require a shell company that omits from 

a registration statement or proxy 

statement the financial statements of a 

recently acquired business that is not or 

will not be its predecessor pursuant to 

Rule 3–05(b)(4)(i) file those financial 

statements in an Item 2.01(f) Form 8–K. 

The proposed amendment would 

alleviate any ambiguity regarding the 

timing in which these financial 

statements are required to be filed, 

which would facilitate compliance for 

the registrant. This amendment also 

should help ensure that investors 

receive predictable and timely 

disclosure about the acquired business. 

5. Rule 15–01(e) Financial Statements of 

a Shell Company Registrant After the 

Combination With Predecessor 

Proposed Rule 15–01(e) would allow 

a registrant to exclude the preacquisition financial statements of a 

shell company (including a SPAC) for 

periods prior to the acquisition once the 

following conditions have been met: (1) 

The financial statements of the shell 

company have been filed for all required 

periods through the acquisition date, 

and (2) the financial statements of the 

registrant include the period in which 

the acquisition was consummated. The 

proposed rule could reduce disclosure 

that may no longer be relevant or 

meaningful to investors when the prebusiness combination financial 

statements of the shell company are 

included in previous filings and the 

historical financial statements of the 

shell company likely are no longer 

representative of the combined 

company. Thus, this proposed rule 

should reduce compliance costs related 

to filing previous year financial 

statements of a shell company. Investors 

may also benefit from the increased 


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539See supra Section IV.B.6 for additional 

regulatory baseline information. 

540See supra Section V.B.1 for additional 

regulatory baseline information. 

541See Anne Beyer, Daniel A. Cohen, Thomas Z. 

Lys, & Beverly R. Walther, The Financial Reporting 

Environment: Review of the Recent Literature, 50 J. 

Acct. & Econ. 296, 296–343 (2010) (By employing 

a sample from 1994 to 2007, this article shows 

management forecasts providing over half of 

accounting-based information to the market. In 

summary, the management forecast literature 

suggests that earnings projections and realizations 

both provide value-relevant information to the 

market.). 

542See supra Section VI.A. 

efficiency in processing business 

combination filings. 

6. Other Amendments 

We are proposing additional 

amendments to Regulation S–X, as well 

as an amendment to Form 8–K.539 The 

proposed amendment to Rule 11–01(d) 

would state that a SPAC is a business 

for purposes of the rule, which may 

cause an issuer that is not a SPAC to be 

required to file financial statements of 

the SPAC in a resale registration 

statement on Form S–1. This proposed 

amendment may facilitate the 

compliance process for companies 

engaging in an acquisition with a SPAC 

and alleviate their compliance burden. 

Investors also would likely benefit from 

having the financial statements of the 

SPAC, particularly when they underpin 

adjustments to pro forma financial 

information in a transaction when an 

operating company is the legal acquirer 

of a SPAC. As a result of the proposed 

amendment, a registrant may incur 

additional compliance costs if it is 

required to provide financial statements 

of the SPAC in a resale registration 

statement. However, any additional 

costs should be mitigated to the extent 

that financial statements of the SPAC 

were previously prepared, audited, and 

filed with the Commission. 

The proposed revision to Item 2.01(f) 

of Form 8–K, which would apply to all 

shell companies, clarifies that the 

information provided in the Form 8–K 

should relate to the ‘‘acquired business’’ 

and not the ‘‘registrant,’’ as currently 

stated in the Form. The proposed 

amendment is intended to eliminate any 

potential misunderstanding as to the 

entity for which Item 2.01(f) disclosure 

is necessary. The increased clarity may 

reduce registrants’ compliance costs to 

the extent there is currently any 

confusion. In turn, investors may also 

benefit from the timely disclosure of 

information about ‘‘acquired 

businesses’’ due to registrants’ more 

consistent application of Item 2.01(f). 

We are also proposing amendments to 

Rules 3–01, 8–02, and 10–01(a)(1) of 

Regulation S–X to clarify that the 

requirement of ‘‘financial statements’’ 

would apply to both the registrant and 

its predecessors rather than only to the 

registrant alone, as the existing rules 

may unintentionally imply for the 

balance sheet in Rules 3–01 and 8–02 

and financial statements for Rule 10– 

01(a)(1). Because these proposed 

amendments would codify existing 

financial reporting practices, they 

should not impact registrants’ 

compliance costs. 

4. Enhanced Projections Disclosure 

(Amendments to Item 10(b) of 

Regulation S–K) 

Item 10(b) of Regulation S–K sets 

forth the Commission’s views on 

important factors to be considered in 

formulating and disclosing projections 

in certain filings with the Commission. 

The proposed amendments would 

update this guidance.540 More 

specifically, the proposed amendments 

would state that the guidelines also 

apply to projections of future economic 

performance of persons other than the 

registrant, such as the target company in 

a business combination transaction, that 

are included in the registrant’s filings. 

The proposed amendments to Item 10(b) 

would also state that projections that are 

not based on historical financial results 

or operational history should be clearly 

distinguished from projected measures 

based on historical financial results or 

operational history. In addition, the 

proposed amendments would state that 

it generally would be misleading to 

present projections that are based on 

historical financial results or 

operational history without presenting 

such historical financial measure or 

operational history with equal or greater 

prominence. Finally, for projections 

based on a non-GAAP measure, the 

proposed amendments to Item 10(b) 

would state that the presentation should 

include a clear definition or explanation 

of the non-GAAP measure, a description 

of the most closely related GAAP 

measure, and an explanation why the 

non-GAAP measure was selected 

instead of a GAAP measure. To the 

extent that registrants conform 

projections included in Commission 

filings to some or all of the proposed 

amendments to the guidance set forth in 

Item 10(b), investors would have 

additional information to evaluate the 

reasonableness of the projections and 

make more informed investment 

decisions. For example, the proposals 

related to historical financial results or 

operational history could inform 

investors about potential biases in 

assumptions underlying different 

financial projections and help them 

more efficiently process the underlying 

assumptions of the financial projections 

in making their investment decisions.541

These benefits would be mitigated to the 

extent that registrants are already 

providing this information, or include 

projections of future economic 

performance that do not follow some or 

all of the proposed amendments. 

In addition, to the extent that 

registrants have not previously applied 

the Commission’s guidance in Item 

10(b) to third-party projections included 

in the registrant’s filings, and choose to 

do so as a result of the proposed 

amendments, investors may benefit 

from improved care and presentation 

with respect to any third-party 

projections in a registrant’s filing. These 

benefits would be mitigated to the 

extent that registrants already follow the 

Commission’s guidance set forth in Item 

10(b) for third party projections 

included in their filings, or choose not 

to do so. To the extent that registrants 

follow the guidance in the proposed 

amendments to Item 10(b), the 

incremental compliance costs are likely 

to be limited. Registrants should already 

have information about historical 

financial results or operational history 

and GAAP financial measures, and 

should be able to easily obtain this 

information in connection with any 

included third-party estimates. 

Moreover, potential liability for false or 

misleading projections is likely to shape 

disclosure practices with respect to 

third-party projections in addition to the 

existing guidance in Item 10(b). 

The proposed amendments to Item 

10(b) could discourage registrants from 

including projections in their filings, 

which would provide investors with 

less information for their investment 

decisions. In addition, the proposed 

additional contextual disclosure, to the 

extent included by registrants, could 

increase investors’ processing cost of 

any included financial projections. 

5. Investment Company Act Safe Harbor 

As discussed above, whether a SPAC 

meets the definition of investment 

company under Section 3(a)(1)(A) of the 

Investment Company Act in the period 

between its IPO and either the 

completion of its de-SPAC transaction 

or its dissolution is a question of facts 

and circumstances.542 Currently, SPACs 

typically provide disclosures indicating 

that they believe they do not meet the 

investment company definition under 

Section 3(a). They further typically 

disclose to prospective investors that if 

they are determined to be an investment 


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543See supra Section VI. 

544See supra note 295 for a description of 

investor protection concerns addressed by the 

Investment Company Act. 

545The significant compliance costs of 

investment company registration under the 

Investment Company Act may give some SPACs an 

incentive to try to engage in such regulatory 

arbitrage. 

546See supra Section VI.B.1. 

547See supra Section VI.B.2. 

548See supra Section VI.B.3. 

549See supra note 393 and accompanying text. 

550As discussed in more detail below, such 

SPACs may alternatively seek to operate outside the 

safe harbor without making any operational changes 

or make other changes to their operations in order 

to avoid meeting the definition of an investment 

company under Section 3(a)(1)(A) of the Investment 

Company Act, including, for example, by avoiding 

investing, reinvesting or trading in securities. 

company in the future, the costs and 

logistics of compliance with the 

Investment Company Act would be 

prohibitive. We are, however, concerned 

that SPACs may fail to recognize when 

their activities raise the investor 

protection concerns addressed by the 

Investment Company Act. To assist 

SPACs in focusing on, and appreciating 

when, they may be subject to 

investment company regulation, we are 

proposing Rule 3a–10, which would 

provide a safe harbor from the definition 

of ‘‘investment company’’ under Section 

3(a)(1)(A) of the Investment Company 

Act that we believe would enhance 

investor protection.543

We have designed the proposed 

conditions of the safe harbor to align 

with the structures and practices that 

we preliminarily believe would 

distinguish a SPAC that is likely to raise 

investor protection concerns under the 

Investment Company Act from those 

that we believe generally do not.544

Specifically, the proposed rule would 

promote investor protection by 

highlighting to SPACs and their 

sponsors the potential Investment 

Company Act concerns that SPAC 

activities may raise, such that investors 

would benefit from a reduced risk that 

the SPACs they invest in will engage in 

activities typically associated with 

investment companies but without the 

investor protections provided by the 

Investment Company Act. This may, in 

turn, reduce the possibility for 

regulatory arbitrage, which may be used 

by some SPACs in an attempt to operate 

like an investment company without 

investment company registration.545 A 

reduction of the possibility of regulatory 

arbitrage would also reduce costs 

related to potential uncertainty about a 

SPAC’s legal status and promote 

confidence in the SPAC market among 

market participants. Finally, a reduction 

in the possibility of regulatory arbitrage 

would potentially promote competition 

among all companies engaging in 

investment management activities 

regulated by the Investment Company 

Act. 

In terms of expected investor 

protection benefits for investors in 

SPACs that would rely on the proposed 

safe harbor, the safe harbor conditions 

are designed to ensure that SPACs do 

not engage in activities that would make 

them investment companies. For 

example, the proposed conditions on 

the nature and management of SPAC 

assets are designed to ensure that a 

SPAC relying on the safe harbor would 

not engage in portfolio management 

practices resembling those that 

management investment companies 

employ.546

In addition, the proposed conditions 

for SPAC activities are designed to 

ensure that SPACs relying on the safe 

harbor would have a business purpose 

aimed at completing a single de-SPAC 

transaction, after which the surviving 

company would be primarily engaged in 

the business of the target company or 

companies and have at least one class of 

exchange listed securities.547 As a 

result, a SPAC relying on the safe harbor 

would not be engaging in activities that 

raise investor protection concerns 

addressed by the Investment Company 

Act. 

Finally, the proposed duration 

conditions are designed to ensure that a 

SPAC relying on the safe harbor would 

have a limited time period to announce 

and complete a de-SPAC transaction 

before being required to distribute the 

SPACs assets in cash to investors.548

The proposed 18-month condition for 

the announcement of a de-SPAC 

agreement and condition that the deSPAC transaction close within 24 

months would potentially reduce the 

risk that investors may come to view a 

SPAC holding securities for a prolonged 

period as a fund-like investment, 

thereby necessitating the regulatory 

protections of the Investment Company 

Act. We recognize that most SPACs are 

listed on a national securities exchange 

and as such are subject to exchange 

listing standards requiring that the 

SPAC completes a de-SPAC transaction 

within 36-months (or three years) of the 

effectiveness of its IPO registration 

statement.549 For such SPACs the 

proposed safe harbor duration condition 

would have reduced benefits since the 

exchange rules already provide a limit 

on the duration of the SPAC, albeit 12 

months longer that the proposed limit. 

Beyond providing investor protection 

benefits, we expect that the proposed 

safe harbor could reduce compliance 

costs for some market participants. 

Specifically, because registering as an 

investment company and complying 

with the associated Investment 

Company Act requirements would be 

potentially cost-prohibitive for most 

SPACs, we expect registrants, sponsors, 

and investors would all benefit from the 

additional certainty regarding a SPAC’s 

status to the extent it meets the 

conditions of the safe harbor. Such 

benefits would directly accrue for 

SPACs that already meet the conditions 

of the proposed safe harbor, or for future 

SPACs that would meet the conditions 

even in the absence of the proposed safe 

harbor. Because of the compliance costs 

and significant operational changes 

involved with investment company 

registration, we expect that most SPACs 

that do not presently meet the 

conditions of the proposed safe harbor 

would seek to fall within the safe harbor 

by making changes to their operations in 

order to meet the safe harbor conditions. 

However, for some SPACs that currently 

do not meet such conditions, there may 

be potentially meaningful costs related 

to bringing the operations in line with 

the new safe harbor (discussed in more 

detail below).550 We also expect that 

most future SPACs that would 

otherwise under the baseline have run 

operations not meeting the safe harbor 

conditions would take advantage of the 

legal certainty conferred by the 

proposed safe harbor and elect to meet 

the conditions. In addition, because 

SPACs that operate within the 

boundaries of the safe harbor would be 

assured that they would not qualify as 

investment companies, there may also 

be an increased propensity for sponsors 

to launch new SPACs operating within 

the safe harbor conditions to the extent 

that they might not have otherwise 

chosen to create a SPAC due to the 

uncertainty of the Investment Company 

Act status. Thus, the reduced 

uncertainty regarding the legal status of 

SPACs operating within the proposed 

safe harbor could facilitate capital 

formation. Finally, the proposed safe 

harbor would also promote efficiency of 

a SPAC’s compliance process by 

providing a clear framework for SPACs 

to determine their status under the Act. 

To the extent the potential benefits to 

investors of current and future SPACs 

operating under the new safe harbor 

would be significant, we may see an 

increase in investor demand for SPACs 

that could potentially lower the cost of 

capital for SPACs. In turn, a lower cost 

of capital could increase the size and 

number of SPAC IPO offerings and 

thereby promote capital formation. 


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551See supra Section IX.B.6.a. 

552 Id. 

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

554The value of the option to wait derives from 

the fact that whereas the choice to wait is generally 

reversible, the choice to invest now rather than later 

is generally irreversible. See, e.g., Robert McDonald 

& Daniel Siegel, The Value of Waiting to Invest, 101 

Q. J. Econ. 707, 707–27 (1986). 

555See supra note 454 for some evidence of such 

behavior under SPAC’s current self-imposed 

duration limitations. 

556See supra Sections II.F and III. 

557See supra Section IX.B.6.c. 

558 Id. 

For current or future SPACs that 

would meet the safe harbor conditions 

absent the proposed rule, we do not 

expect any direct costs from the 

proposed safe harbor. By contrast, for 

SPACs currently not meeting the 

proposed safe harbor conditions, or for 

future SPACs that would otherwise not 

meet the safe harbor conditions, there 

may be costs related to SPACs changing 

their operations to meet the conditions 

or to make other changes to their 

operations in order to avoid falling 

under the definition of an investment 

company under Section 3(a)(1)(A) of the 

Investment Company Act. 

In terms of potential costs of bringing 

SPAC operations in line with the 

proposed safe harbor conditions, we do 

not expect that the proposed safe harbor 

conditions with respect to the nature 

and management of SPAC assets would 

impose significant costs on SPACs and 

their sponsors and investors, as it is our 

understanding that most SPACs’ assets 

are already held as government 

securities, government money-market 

funds, or cash items.551 We also 

understand that SPACs generally are not 

actively managing these assets, most of 

which are held in an escrow or trust 

account.552 To the extent there are some 

SPACs that are currently holding other 

types of assets, they would have to 

liquidate such assets and move them 

into an allowable asset class prior to 

completion of the de-SPAC transaction 

to rely on the proposed safe harbor, and 

would thereby incur some transactions 

costs and possibly also realize some 

capital losses depending on how market 

conditions for such assets have changed. 

With respect to the proposed safe 

harbor conditions for SPAC activities, 

we do not expect the condition that 

SPACs have to seek to complete a single 

de-SPAC transaction to impose any 

significant costs on SPAC operations 

under the baseline. It is our 

understanding that almost all current 

SPACs seek to complete one single deSPAC transaction, albeit such a 

transaction may involve multiple target 

companies, which would still be 

feasible under this proposed safe harbor 

condition. 

We also do not expect the proposed 

condition that a SPAC wishing to rely 

on the safe harbor to be primarily 

engaged in the business of seeking to 

complete a de-SPAC transaction would 

impose any significant incremental 

costly constraints on SPAC activities 

under the baseline. It is our 

understanding that most SPACs 

presently communicate to investors 

their sole intent to seek a target 

company to operate and that they do not 

intend to act as an investment company 

under the Investment Company Act.553

Adherence to the proposed duration 

conditions under the safe harbor is 

likely to impose costs on SPACs that 

would seek to avail themselves of the 

proposed safe harbor by limiting the 

time they have to search for a target 

company and complete a de-SPAC 

transaction compared to the baseline. 

The option of waiting to invest can be 

valuable, and to the extent that SPACs 

would have to shorten the duration of 

their search for an appropriate target 

company and complete a de-SPAC 

transaction in order to take advantage of 

the safe harbor, the proposed duration 

conditions would potentially reduce the 

value of this option for SPACs.554

Additionally, to the extent an expected 

value-increasing de-SPAC transaction 

would not occur under the proposed 

duration conditions, but it could have 

under the baseline, the proposed rules 

may lead to forced liquidation of the 

SPAC and impose associated costs on 

both investors and sponsors (in 

particular, the loss of their respective 

portions of the expected value increase). 

However, because of the typical 

compensation structure of SPAC 

sponsors, they have strong incentives to 

complete a de-SPAC transaction rather 

than liquidating the SPAC and returning 

the proceeds in the trust or escrow 

account to the SPAC’s shareholders. 

Therefore, SPACs that are seeking to 

meet the proposed safe harbor 

conditions may in some cases 

compromise on the quality of the type 

of targets pursued to speed up their 

search, or offer to pay more for the target 

to complete a de-SPAC transaction 

sooner, compared to under the 

baseline.555 In some circumstances, the 

duration conditions may give sponsors 

of SPACs seeking to avail themselves of 

the proposed safe harbor increased 

incentives to complete a de-SPAC 

transaction even if liquidation would be 

the better choice for investors. That is, 

the duration conditions may increase 

the agency costs of the sponsors’ 

managerial control. However, such 

agency costs would be mitigated by 

other provisions of this proposal, such 

as the proposed specialized disclosure 

and procedural requirements in deSPAC transactions and the proposed 

amendments aligning de-SPAC 

transactions with traditional initial 

public offerings.556

Based on the data presented above for 

recent SPACs that have at least a 24- 

month history,557 approximately 65% 

completed a de-SPAC transaction no 

later than 24 months after the IPO date. 

Thus, the proposed 24-month condition 

for completion of a de-SPAC transaction 

may be a binding constraint for a 

significant percentage of SPACs. For the 

same sample of SPACs, the condition 

that a SPAC would need to announce a 

de-SPAC transaction agreement in a 

Form 8–K filing no later than 18 months 

after the IPO date would have been met 

by approximately 59% of the SPACs.558

Therefore, unconditionally, the 18- 

month announcement condition is 

potentially binding for a larger 

percentage of SPACs than the 24-month 

de-SPAC transaction completion 

condition. The data also show that if a 

sample SPAC had met the 24-month 

transaction completion condition, 

around 12% of such SPACs (12 of 99 

cases) would not have met the 18-month 

announcement condition. Conversely, 

among the sample SPACs meeting the 

18 month announcement condition, 

only approximately 2.2% of such SPACs 

(2 cases of 89) would not have met the 

24 month condition. Among all sample 

SPACs, around 57% (87 of 152) would 

have met both the 18-month and the 24- 

month deadlines. Thus, we expect that 

the combined effect of the two proposed 

duration conditions would be to force a 

significant proportion of SPACs that 

would seek to take advantage of the safe 

harbor to conclude their search for a 

target sooner than they would have 

under the baseline or forgo a de-SPAC 

transaction, either of which could 

potentially impose costs on SPACs and 

their investors and sponsors, as 

discussed above. 

A SPAC that seeks to rely on the 

proposed safe harbor would also be 

required to distribute its assets in cash 

to investors as soon as reasonably 

practicable if it does not meet either the 

18 month deadline or the 24 month 

deadline. Because a SPAC would be 

required to hold only liquid assets such 

as cash items, government securities, or 

government money market funds, to rely 

on the proposed safe harbor, we do not 

expect SPACs to incur significant 

incremental cost from this condition in 

terms of direct transaction costs. 

Moreover, a SPAC already must plan for 


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559As indicated in supra note 314, if a SPAC 

were to significantly change its asset composition 

contrary to its original representations, it would 

raise questions whether the initial representations 

were false and misleading. 

the distribution of its assets back to the 

investors if not used in a de-SPAC 

transaction. Therefore, this condition 

should also not impose a new 

significant burden on a SPAC. 

The proposed duration conditions 

may lead SPACs to complete less 

profitable de-SPAC transactions, or fail 

to complete a de-SPAC transaction at 

all. To the extent investors anticipate 

this, there may be a reduction in 

investor demand that leads to fewer 

SPAC initial public offerings and/or less 

capital being raised in these offerings, 

which could potentially reduce capital 

formation depending on the type of 

investments SPAC investors would shift 

their funds to instead. In addition, an 

increase in SPACs that liquidate 

without a de-SPAC transaction and/or a 

reduction of capital raised through 

SPACs may ultimately result in fewer 

publicly traded operating companies 

and therefore a reduced investment 

opportunity set for investors. Such 

negative investment opportunity effects 

may be mitigated to the extent potential 

SPAC targets would instead go public 

through initial public offerings without 

SPAC involvement. 

The proposed duration conditions 

may also affect the bargaining 

environment in de-SPAC transactions. 

Knowing that SPACs would face a 

regulatory imposed deadline for when 

to announce an agreement in order to 

qualify for the safe harbor, target 

companies may deliberately prolong 

negotiations so that they can attempt to 

extract better terms as the regulatory 

imposed deadlines approaches. Such 

strategic behavior by targets may reduce 

returns to SPAC investors further, but 

may not be an economic loss per se if 

the transaction is still completed, as the 

immediate effect in such a case would 

be a pure wealth transfer from SPAC 

investors to target company owners. The 

potential for an increase in target 

bargaining power would be mitigated by 

the fact that most SPACs’ securities are 

listed on a national securities exchange 

and therefore already subject to the 

exchanges’ required deadlines (36 

months or 3 years) for completion of a 

business combination. However, to the 

extent target company bargaining power 

would increase and lead to worse terms 

in de-SPAC transactions for investors it 

could potentially reduce ex ante 

demand among investors for SPAC 

investments, which could reduce the 

number of operating companies 

ultimately being traded in public 

markets, all else being equal. However, 

such effects would be mitigated if 

potential target operating companies 

instead access public capital markets in 

alternative ways. 

Any SPAC that would find the 

proposed safe harbor conditions too 

costly to comply with could seek to not 

rely on the safe harbor and instead 

choose to bear the legal uncertainty of 

operating outside of it. Besides the 

direct compliance costs associated with 

being an investment company, a SPAC 

that operates as an investment company 

would also potentially be subject to 

delisting, as current exchange rules do 

not appear to provide for SPACs to 

operate as an investment company and 

maintain their listing. 

As an alternative to relying on the 

proposed safe harbor, it is possible that 

current or future SPACs would seek to 

avoid being considered an investment 

company under the Investment 

Company Act by holding different assets 

than are commonly held today. 

However, holding different assets (such 

as cash items) may provide a lower 

return than holding the types of assets 

permitted under the safe harbor 

conditions. Thus, the possibility of 

switching assets to cash items to avoid 

being an investment company may not 

fully mitigate the potential costs 

imposed on the SPAC market from the 

proposed safe harbor conditions.559

D. Effects on Efficiency, Competition, 

and Capital Formation 

1. Efficiency 

The proposed rules and amendments 

would enhance and standardize 

disclosure about specific aspects 

inherent to the SPAC structure at both 

the SPAC initial public offering stage 

and the de-SPAC transaction stage. 

Requiring the SPAC and the target 

company to provide such disclosure 

may in some cases afford market 

participants greater access to 

information relevant to voting, 

redemption, and investment decisions. 

By increasing the standardization and 

comparability of disclosures, the 

proposed rules may make it easier for 

investors to properly and efficiently 

process information about SPACs and 

for market prices to reflect such 

information. In addition, invested 

capital may be more likely to be more 

efficiently deployed. 

Additionally, the proposed rules 

would increase the incentives for 

issuers and underwriters to exercise the 

care necessary to ensure accuracy in 

disclosures by affirming the underwriter 

status of SPAC IPO underwriters in 

connection with de-SPAC transactions 

and proposing a new definition of 

‘‘blank check company’’ for purposes of 

the PSLRA safe harbor. In addition, the 

proposed rules regarding shell company 

business combination transactions 

would make certain disclosures and 

liabilities more consistent with 

traditional IPOs, which could benefit 

investors and potentially decrease the 

cost of capital for shell companies. To 

the extent that disclosure accuracy is 

improved, investors would have access 

to more reliable information when 

making their investing decisions, which 

would lead to an increase in market 

efficiency. 

2. Competition 

By improving the informational 

environment at the SPAC initial public 

offering and the de-SPAC stages through 

changes in disclosure requirements and 

the scope of liability, the proposed rules 

and amendments could encourage 

greater competition between SPAC 

sponsors and SPAC underwriters, in 

both SPAC IPO and de-SPAC activities. 

For example, by standardizing and 

increasing the comparability between 

the disclosures provided by SPACs, the 

proposed rules and amendments may 

lead to improved investor awareness 

and more efficient information 

processing. To the extent that the 

proposed rules and amendments lead to 

an increase in competition between 

shell company mergers, including deSPAC transactions, and traditional 

initial public offerings, they may bring 

down the costs of capital raising 

through these approaches. 

If the proposed rules and amendments 

create significant costs that lead to a 

reduction in shell company mergers and 

overall initial public offering activity in 

the SPAC market, this could reduce 

competition for investment 

opportunities. Such a reduction could 

result in higher fees in both the 

traditional IPO and SPAC markets. 

Additionally, if some of the proposed 

new rules and amendments 

disincentivize underwriters and PIPE 

investors from participating in de-SPAC 

transactions and related financings, it 

could reduce competition among service 

and capital providers in the SPAC 

market and lead to higher fees. 

To the extent that the proposed safe 

harbor from the Investment Company 

Act would reduce the costs of 

compliance, it may encourage 

additional sponsor participation in the 

SPAC market and thus encourage 

competition among SPACs. However, 

for potential SPACs that would not meet 

the safe harbor conditions, the proposed 

safe harbor may increase the costs of 

sponsoring a SPAC, and thus the 


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560As discussed in supra Section IX.C.5, an 

increase in investor demand for SPACs could 

potentially lower the cost of capital for SPAC, 

which may increase the size and number of SPAC 

IPO offerings. 

561For example, as discussed in more detail in 

supra Section IX.C.5, for SPACs that would take 

advantage of the proposed Investment Company Act 

Safe Harbor, the duration requirements could 

potentially lead investors to anticipate less 

profitable de-SPAC transactions or a lower 

likelihood of completion of de-SPAC transactions, 

which, in turn, could reduce investor demand for 

SPAC initial public offerings. Moreover, an increase 

in SPACs that liquidate without a de-SPAC 

transaction and/or a reduction of capital raised 

through SPACs may ultimately result in fewer 

publicly traded operating companies and therefore 

a reduced investment opportunity set for investors. 

proposed rule may have an adverse 

effect on competition among SPACs. 

3. Capital Formation 

Enhanced disclosure at both the SPAC 

initial public offering and the de-SPAC 

stages, combined with a stronger 

incentive to perform better due 

diligence in the de-SPAC transaction 

stage, would likely improve investor 

protection at both stages. In addition, 

the proposed rules and amendments for 

shell company mergers would likely 

improve investor protection. For 

example, proposed Rule 145a would 

help shareholders of reporting shell 

companies more consistently receive the 

full protections of the Securities Act 

disclosure and liability provisions in 

business combinations involving 

reporting shell companies, regardless of 

the transaction structure. Increased 

protections could incentivize more 

investors to invest in shell companies, 

including SPACs, thus enhancing 

capital formation. In addition, to the 

extent that the proposed safe harbor 

from the Investment Company Act 

reduces regulatory uncertainty and thus 

encourages participation in SPACs, it 

may also lead to an increase in capital 

formation.560

If the proposed rules and amendments 

create significant costs for shell 

companies, including SPACs, this may 

limit the number of private companies 

that go public through shell companies, 

including a de-SPAC transaction 

mechanism, or at all.561 Given the 

potential increase in the cost of going 

public through a shell company merger 

such as a de-SPAC transaction 

compared to the current baseline, it is 

possible that some private companies 

could consider the traditional initial 

public offering channel a more viable 

alternative. We are not able to estimate 

how many companies would consider 

using a traditional initial public offering 

mechanism if the cost of the overall 

SPAC transaction structure increases. It 

is possible, however, that a significant 

increase in the cost of shell company 

mergers and de-SPAC transactions 

could deter some private companies 

from going public, and thus potentially 

reduce overall initial public offering 

activity and capital formation. 

E. Reasonable Alternatives 

1. Disclosure-Related Proposals 

a. Require Disclosure of Policies and 

Procedures That Address Conflicts of 

Interest 

As an alternative to Item 1603 as 

proposed, we could include a 

complementary requirement to describe 

any policies and procedures used or to 

be used by a SPAC to minimize 

potential or actual conflicts of interest 

related to disclosures provided in 

response to proposed Items 1603(b) and 

1603(c). Such information could assist 

investors in gauging the economic 

significance, or lack thereof, of the 

various conflicts of interest given the 

presence, absence and likely degree of 

effectiveness of the policies and 

procedures designed to address or 

ameliorate them. On the other hand, 

requiring this information would 

increase compliance costs for SPACs 

and may cause some of these companies 

to adopt policies and procedures that 

would not be efficient or cost-effective 

given their particular organizational 

structure. In this regard, we note that 

there could be incentives to provide 

such disclosure voluntarily, as it would 

indicate to investors the degree to which 

conflicts of interest may be ameliorated. 

b. Certain Reports, Opinions, or 

Appraisals 

We are proposing to require the filing 

of reports, opinions, or appraisals 

provided to the SPAC or its sponsor 

relating to valuation and/or fairness of 

a de-SPAC transaction or related 

financing transactions (Item 1607) as 

exhibits to registration statements and 

schedules provided in connection with 

a de-SPAC transaction. We are also 

proposing to require disclosures 

summarizing the negotiation, report, 

opinion, or appraisal and certain 

additional disclosures, such as for 

example, information about who 

prepared the report, opinion, or 

appraisal, and how they were selected. 

As an alternative, we could require 

disclosure of only a summary of the 

reports, opinions, appraisals, and 

negotiations. This could reduce some of 

the costs of compliance to the extent 

that it is more costly to obtain a report 

that will become public. At the same 

time, this alternative would reduce the 

benefits of the disclosure, as investors 

and market participants would have less 

information available to assess the 

quality and robustness of the analysis 

underlying such report, opinion, or 

appraisal. 

c. Require a Fixed Re-Determination 

Date To Measure Public Float for 

Smaller Reporting Company Status 

When re-determining a post-business 

combination company’s eligibility for 

smaller reporting company status, 

instead of requiring the public float 

threshold to be measured as of a date 

within four days after the 

consummation of the de-SPAC 

transaction, we could alternatively 

require the re-determination to occur on 

a fixed date, such as the consummation 

date or on the fourth day after 

consummation. A fixed redetermination date would have the 

benefit of establishing a consistent date 

for all post-business combination 

companies to use and remove any 

management judgment in the selection 

of a re-determination date, while still 

requiring that the re-determination of 

smaller reporting company status occur 

before the post-business combination 

company makes its first filing. However, 

reduced flexibility regarding the time 

frame within which the required redetermination must be made could 

increase costs for post-business 

combination companies without 

substantial additional benefits for 

investors. 

d. Re-Determine Smaller Reporting 

Company Status of a Post-Business 

Combination Company Without a Public 

Float Test 

As another alternative, we considered 

whether the re-determination for 

smaller reporting company status of the 

combined company following a deSPAC transaction should require only a 

re-measurement of the revenue 

component of smaller reporting 

company test and not its public float 

component. Generally, smaller reporting 

company status is re-determined on an 

annual basis based on the issuer’s 

public float as well as annual revenues. 

Revenues of the combined company 

may be more relevant to smaller 

reporting company status than public 

float because, generally, the target 

company has generated revenue while 

the SPAC has not done so. Accordingly, 

the revenue test may be the more 

determinative factor than the public 

float test in determining whether the 

combined company following de-SPAC 

transaction remains a smaller reporting 

company because, based on staff 

experience, the public float of most 

SPACs and subsequent combined 

companies typically is between $250 


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562See Jenny Zha Giedt, Modelling Receivables 

and Deferred Revenues to Detect Revenue 

Management, 54 (2) Abacus 181, 181–209 (2018) 

(focusing on the SEC Accounting and Auditing 

Enforcement Releases, i.e., AAER, from 1982 to 

2016, and documenting that forty-seven percent of 

all financial misstatements are related to revenue). 

563The Commission’s EDGAR electronic filing 

system generally requires filers to use ASCII or 

HTML for their document submissions, subject to 

certain exceptions. See EDGAR Filer Manual 

(Volume II) version 61 (Mar. 2022), at 5–1; 17 CFR 

232.301 (incorporating EDGAR Filer Manual into 

Regulation S–T). See also 17 CFR 232.101 (setting 

forth the obligation to file electronically on 

EDGAR). 

564See supra Section IX.C.1.a.5. 565To illustrate, without Inline XBRL, using a 

search string such as ‘‘dilution’’ to search through 

the text of all de-SPAC filings, so as to determine 

the extent to which dilutive effects are among the 

material factors being considered by SPACs at 

arriving at fairness determinations, could return 

many narrative disclosures outside of the fairness 

determination disclosure that would be required by 

proposed Item 1606(b) of Regulation S–K, such as 

disclosures in the risk factors section or in the 

description of stock incentive plans. However, if 

Inline XBRL is used, it would enable a user to 

search for the term ‘‘dilution’’ exclusively within 

the proposed fairness determination disclosure, 

thereby likely reducing the number of irrelevant 

results. 

and $700 million, which exceeds the 

public float threshold for smaller 

reporting company status. Also, the 

public float component of this test is 

measured as of the last business day of 

the issuer’s most recently completed 

second fiscal quarter. Given that the 

public float re-measurement likely 

would not occur at the end of the 

second fiscal quarter when the annual 

public float measurement occurs, the 

combined company may have to 

measure its public float more than one 

time during the same fiscal year, which 

may impose additional burdens for the 

company. 

However, compared to public float, 

revenue, if used as a sole basis of the 

significance test, may be subject to a 

greater degree of managerial 

discretion.562 Also, using revenue alone 

may expose a large number of investors 

to business-specific risks because SPAC 

targets may represent nascent industries 

that could feature extended pre- or lowrevenue periods but, as indicated above, 

may have a public float following a deSPAC transaction that would exceed the 

threshold for smaller reporting company 

status. Thus, we believe it is appropriate 

that these companies should take the 

public float into account in redetermining smaller reporting company 

status following the consummation of a 

de-SPAC transaction. 

e. Structured Data Requirement 

We could change the scope of the 

proposed Inline XBRL tagging 

requirements for the proposed SPAC 

disclosures, such as by excluding 

certain subsets of registrants or 

disclosures. For example, the tagging 

requirements could exclude the SPAC 

initial public offering disclosures. 

Under such an alternative, SPACs 

would submit initial public offering 

disclosures in unstructured HTML or 

ASCII and would not incur Inline XBRL 

compliance costs until their first 

periodic filing on Form 10–Q, 20–F, or 

40–F.563 This could make it 

incrementally easier for SPACs to 

consummate an initial public offering. 

However, narrowing the scope of the 

proposed tagging requirements, whether 

based on filing, offering size, or other 

criteria, would diminish the extent of 

any informational benefits that would 

accrue as a result of the proposed 

disclosure requirements by making the 

excluded disclosures comparatively 

costlier to process and analyze. 

As another alternative, we could 

require only the quantitative SPACrelated disclosures to be tagged in Inline 

XBRL. Excluding qualitative disclosures 

from the tagging requirements could 

provide some incremental cost savings 

for registrants compared to the proposal, 

because incrementally less time would 

be required to select and review the 

particular tags to apply to quantitative 

disclosures. However, we expect these 

incremental cost savings would be low, 

because SPACs would be subject to 

similar Inline XBRL requirements, 

including requirements to tag 

quantitative and qualitative disclosures, 

in other Commission filings.564

Moreover, narrowing the scope of 

tagging requirements to exclude 

qualitative information would diminish 

the extent of informational benefits that 

would accrue to investors by inhibiting 

the efficient extraction and searching of 

narrative SPAC-related disclosures (e.g., 

disclosures regarding conflicts of 

interest, fairness determinations, and 

financial projections), thus creating the 

need to manually review search results 

drawn from entire documents to find 

these disclosures.565 Such an alternative 

would also inhibit the automatic 

comparison of narrative disclosures 

against prior periods. It also may be 

harder for investors to perform a 

targeted assessment of a filing for 

particular types of narrative SPACrelated disclosures because they would 

need to assess the entire filing for 

relevant information. 

2. Liability-Related Proposals 

a. PSLRA Safe Harbor 

As an alternative to addressing the 

use of projections in de-SPAC 

transactions and other business 

combinations involving blank check 

companies that are not penny stock 

issuers by proposing to amend the 

‘‘blank check company’’ definition, we 

could have issued interpretive guidance 

stating that the PSLRA safe harbor for 

forward-looking statements is not 

available because business 

combinations with shell companies that 

are not penny stock issuers are ‘‘initial 

public offerings’’ by target private 

operating companies for purposes of the 

PSLRA. This alternative would avoid 

some of the complexity associated with 

defining blank check companies for 

purposes of the PSLRA, but issuing 

guidance rather than a rule may result 

in weaker incentives for SPACs or target 

companies to take greater care in 

preparing forward-looking statements, 

such as projections, in de-SPAC 

transactions and thus result in fewer 

investor protection benefits than the 

proposed rule. 

b. Issuing Guidance on Underwriter 

Status 

Instead of proposing Rule 140a, the 

Commission could issue guidance that 

would describe the factors that should 

be considered in determining 

underwriter status in connection with 

de-SPAC transactions, which could 

potentially be relevant for parties other 

than SPAC IPO underwriters. Issuing 

guidance rather than designating an 

underwriter by rule within the context 

of these transactions might prompt the 

full range of parties involved in 

facilitating de-SPAC transactions to 

consider their potential liability and 

thus take greater care in performing 

their designated functions. This could 

result in more robust investor 

protections overall. On the other hand, 

compared to the proposed rule, this 

alternative would rely on the judgment 

of de-SPAC participants to apply the 

guidance and may result in weaker 

incentives for those parties that are 

potentially subject to Section 11 liability 

to perform robust due diligence. As a 

result of such weaker incentives, there 

could be a reduced impact on the 

accuracy of the disclosure in de-SPAC 

transactions and investor protection 

benefits. 

3. Expanding Disclosure in Reporting 

Shell Company Business Combinations 

Proposed Rule 145a would deem any 

business combination of a reporting 

shell company (that is not a business 

combination-related shell company) 

involving another entity that is not a 

shell company to involve a sale of 

securities to the reporting shell 

company’s shareholders. As an 

alternative, instead of deeming all such 

transactions to be a sale that would need 


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to be registered under the Securities 

Act, absent an applicable exemption, we 

could expand the disclosure 

requirements applicable to reporting 

shell company business combinations 

such that the disclosure requirements 

would be the same as what would have 

been required if the transaction was 

registered under the Securities Act. 

Under this alternative, regardless of the 

document that is filed with the 

Commission (e.g., proxy or information 

statement, Schedule TO, or Form 8–K), 

the set of disclosures investors receive 

would be the same as they would 

receive had a registration statement 

been filed for the transaction. This 

would ensure that the reporting shell 

company’s shareholders receive the 

same information regardless of how the 

transaction is structured and would 

reduce regulatory arbitrage 

opportunities stemming from different 

disclosure requirements in different 

documents that may be filed with the 

Commission to report a shell company 

business combination. As a registration 

statement would not necessarily be 

required in all transaction structures, 

the costs of such an alternative would 

also be less that the costs of liability 

associated with the purchase and sale of 

securities and potential Securities Act 

registration of shell company business 

combinations under proposed Rule 

145a, to the extent no exemption is 

available for the transaction. 

However, merely expanding the set of 

disclosures investors receive regardless 

of transaction structure does not provide 

investors with the same level of 

protection because the liability 

standards differ based on the type of 

filing that is required. Only by deeming 

the transaction to be a sale would 

investors necessarily receive the 

protections that apply in connection 

with a purchase and sale of securities 

under the federal securities laws, such 

as the availability of private actions 

under Section 10(b) and Rule 10b–5. In 

addition, to the extent there is not an 

available exemption for the reporting 

shell company business combination, 

only with Securities Act registration do 

investors receive the full panoply of 

available protections under that Act that 

they would receive in a traditional IPO, 

such as a private right of action under 

Section 11. 

4. Enhanced Projections Disclosures 

The proposed amendments to Item 

10(b) of Regulation S–K present our 

updated views on projected 

performance measures and include a 

statement that projections based on a 

non-GAAP financial measure should 

include a clear definition or explanation 

of the non-GAAP measure, and a 

description of the GAAP financial 

measure to which it is most closely 

related. As an alternative to this 

guidance, we could adopt a rule 

requiring firms, when providing 

projections, to present a reconciliation 

of projections based on a non-GAAP 

measure to those based on the nearest 

GAAP measure. While the 

reconciliation would further help 

investors understand the bases of 

projections involving non-GAAP 

measures, it would likely also increase 

compliance costs and in turn might 

reduce the provision of otherwise useful 

projections. 

5. Investment Company Act Safe Harbor 

a. Shorter Duration Limitations 

As an alternative, we considered 

shorter duration limitations by instead 

requiring a SPAC to announce a 

transaction no later than 12-months 

from the IPO registration date, and to 

complete a de-SPAC transaction or 

liquidate the SPAC no later than 18- 

months after the IPO registrations date. 

The benefit of this alternative is that it 

would further decrease the possibility of 

regulatory arbitrage. It would also 

reduce the risk that investors may come 

to view a SPAC holding securities as a 

fund-like investment, and the related 

risk of investor protection concerns. We 

expect this alternative would impose 

the same type of costs we discussed 

above for the proposed duration 

conditions, but at a greater magnitude. 

Based on a sample of SPACs with 

effective IPO dates from January 1, 2016 

to June 30, 2020 (i.e., a sample of SPACs 

with at least an 18-month history since 

the IPO date as of December 31, 2021; 

189 SPACs in total), we find that 

approximately 36% of the SPACs in the 

sample announced a transaction 

agreement no later than 12-months after 

the date of the initial public offering and 

40% of the SPACs had completed a deSPAC transaction no later than 18- 

months after the date of the initial 

public offering. The proportion of 

SPACs in the sample that both 

announced a de-SPAC transaction by 

12-months and completed the de-SPAC 

transaction by 18-months was 

approximately 33%, which is a 

significantly lower proportion compared 

to 57% of sample SPACs that would 

have managed to meet both of the 

proposed duration conditions, as 

discussed above. Thus, we expect that 

costs would be greater under this 

alternative by forcing a greater 

proportion of SPACs to conclude their 

search for a target or liquidate earlier 

than they may otherwise do. In 

addition, because of the tighter 

deadlines this alternative would 

impose, those SPACs that would be at 

risk of not being able to meet the 

proposed longer duration conditions 

would likely be at comparatively greater 

risk of not meeting the deadlines under 

this alternative, which may also 

increase the costs such SPACs would 

face in trying to meet these alternative 

duration conditions. 

b. No Announcement Condition 

We also considered an alternative that 

would keep the 24-month condition for 

completion of a de-SPAC transaction, 

but remove the duration condition for 

the announcement of a transaction. This 

alternative would increase the 

proportion of SPACs meeting the 

duration condition to 65% compared to 

57% under the proposal. The benefit of 

this alternative would thus be to 

increase the proportion of SPACs not 

having to potentially sub-optimally 

come to a merger agreement earlier (or, 

in some circumstances, potentially 

inefficiently liquidating the SPAC), 

while still imposing a firm 24-month 

maximum lifespan for SPACs seeking to 

take advantage of the proposed safe 

harbor. However, by not imposing an 

18-month announcement condition 

investors would lose any investor 

protection benefits that may be 

associated with an earlier signal of a 

SPAC’s intent to complete a de-SPAC 

transaction than they might receive 

under this alternative. 

c. Longer Duration Limitations 

As an alternative, we could require a 

longer duration before a SPAC would 

have to complete a de-SPAC transaction. 

For example, if we increase this 

duration to no later than 36 months after 

the IPO date (with no announcement 

condition), less than 4% of the sample 

SPACs that completed a de-SPAC 

transition would not have met such a 

condition. As discussed above, the 

national securities exchanges already 

require SPACs to complete a de-SPAC 

transaction within 36 months (or 3 

years). Thus, based on both the recent 

evidence and the current exchange rules 

for SPACs, we expect that this 

alternative would not impose the 

potential costs of a truncated search 

period for a target company for most 

SPACs, in particular SPACs with 

exchange-traded securities. However, as 

discussed above, the longer the SPAC 

operates with its assets invested in 

securities and its income derived from 

securities, the more likely investors will 

come to view the SPAC as a fund-like 

investment and the more likely the 

SPAC appears to be deviating from its 


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stated business purpose. In turn, this 

may raise investor protection concerns 

and increase the possibility of 

regulatory arbitrage compared to the 

proposed duration conditions. 

F. Requests for Comment 

155. Because of the potential for one 

or more of the proposed amendments to 

have interactive effects, we are 

requesting public input on the extent to 

which such interactive effects are likely 

to conflict with the overall aims of this 

rulemaking, if adopted as proposed. 

156. Have we correctly characterized 

the benefits and costs from the proposed 

new disclosure requirements at the 

SPAC IPO stage? Are there any other 

benefits or costs that should be 

considered? Please provide supportive 

data to the extent available. 

157. Our analysis suggests the 

proposed rules and amendments would 

generally strengthen the investor 

protection in SPAC transactions at the 

initial public offering stage. Are there 

any significant costs or benefits 

associated with adopting these rules and 

amendments that we have not 

considered that would lead to a 

different characterization? Please 

provide supportive data to the extent 

available. 

158. Have we correctly characterized 

the benefits and costs from the proposed 

new disclosure requirements at the deSPAC transaction stage and the 

alignment of disclosure requirements in 

the de-SPAC disclosure documents with 

IPOs? Are there any other benefits or 

costs that should be considered? Please 

provide supportive data to the extent 

available. 

159. Our analysis suggests the 

proposed rules and amendments would 

generally strengthen investor protection 

in de-SPAC transactions. Are there any 

significant costs or benefits associated 

with adopting these rules and 

amendments that we have not 

considered that would lead to a 

different characterization? Please 

provide supportive data to the extent 

available. 

160. Have we correctly characterized 

the benefits and costs from proposed 

Item 1608 holding all other aspects of 

the proposed amendments constant? 

Have we correctly characterized the 

benefits and costs that would accrue 

given the potential interactive effects 

with proposed Rule 145a? Are there 

other interactive effects with respect to 

other proposed items that, had we 

considered, would substantially alter 

our assessment of the associated costs, 

benefit, or anticipated effects on 

efficiency, competition, or capital 

formation? 

161. Have we correctly characterized 

the benefits and costs from the proposed 

amendments to the enhanced 

projections disclosure requirements 

(Item 1609 of Regulation S–K)? Are 

there any other benefits and costs that 

should be considered? Please provide 

supportive data to the extent available. 

162. Would the effects of the 

proposed amendments related to the 

PSLRA safe harbor have significant 

interactive effects with proposed Item 

1609 of Regulation S–K such that our 

estimates of the incremental costs and 

benefits of adopting Item 1609 should 

be revised? Please provide either 

qualitative or quantitative data to the 

extent available. 

163. How, and to what extent, would 

investors benefit from the proposed 

requirement to tag the SPAC specialized 

disclosures in Inline XBRL? What 

would be the costs of the proposed 

requirement to registrants? Should we 

consider alternative tagging 

requirements for the proposed SPAC 

disclosures? If so, what would be their 

benefits and costs? 

164. Have we correctly characterized 

the benefits and costs from the proposed 

re-determination of smaller reporting 

company status? Are there any other 

benefits and costs that should be 

considered? Please provide supportive 

data to the extent available. 

165. For the re-determination of a 

post-business combination company’s 

smaller reporting company status, what 

would be the benefits and costs of 

requiring a fixed date to measure public 

float? If the benefits outweigh the costs 

of requiring a fixed date, do the relative 

benefits and costs of different possible 

fixed dates indicate that one approach 

would be preferential? 

166. What would be the costs and 

benefits of relying solely on revenues to 

re-determine a post-business 

combination company’s smaller 

reporting company status rather than 

including the public float? 

167. Have we correctly characterized 

the benefits and costs from the proposal 

to require target companies to be coregistrants to Form S–4 and F–4? Are 

there any other benefits and costs that 

should be considered? Please provide 

supportive data to the extent available. 

168. Would the relative benefits and 

costs associated with the proposed 

amendments related to de-SPACtransaction disclosures and liability 

have additional effects on the calculus 

of pursuing a de-SPAC business 

combination versus a traditional IPO 

that we have not considered? In terms 

of the market choice to utilize a deSPAC transaction versus a traditional 

IPO, would the change in relative 

benefits and costs associated with the 

proposed rules and amendments be 

beneficial or detrimental in terms of 

their effects on efficiency, competition 

and capital formation? Please provide 

supportive evidence or data to the 

extent available. 

169. Have we correctly characterized 

the benefits and costs from the proposed 

amendments related to the PSLRA safe 

harbor? Are there any other benefits and 

costs that should be considered? Please 

provide supportive data to the extent 

available. 

170. With respect to the proposed 

changes to the definition of ‘‘blank 

check company’’ for purposes of the 

PSLRA safe harbor, are there any 

additional benefits and costs that would 

apply primarily to blank check 

companies that are not penny stock 

issuers and not SPACs? Please provide 

supportive data to the extent available. 

171. Have we correctly characterized 

the benefits and costs of the underwriter 

status and liability proposals? Are there 

any other benefits and costs for SPACs, 

SPAC IPO underwriters, target 

companies and investors that should be 

considered? Please provide supportive 

data to the extent available. 

172. Have we correctly characterized 

the scope and scale of both SPAC and 

non-SPAC shell companies that would 

be affected by proposed Rule 145a? 

Please provide data or analysis to the 

extent available. 

173. Have we correctly characterized 

the benefits and costs of proposed Rule 

145a? Are there any other benefits and 

costs that should be considered? Are 

there any additional benefits and costs 

that would apply primarily to nonSPAC shell companies that are not 

business-combination related shell 

companies? Please provide supportive 

data to the extent available. 

174. As noted above, we are unable to 

estimate the number of shell companies 

that are currently private that could be 

impacted by proposed Article 15 of 

Regulation S–X. We request data on the 

number of these entities that may be 

impacted by the proposed rule. Would 

analysis of the economic effects on these 

currently private entities broadly impact 

the balance of costs and benefits to 

adopting Article 15 of Regulation S–X as 

proposed? 

175. Have we correctly characterized 

the benefits and costs of proposed new 

Article 15 of Regulation S–X and the 

related proposed amendments? Are 

there any other benefits and costs that 

should be considered? Please provide 

supportive data to the extent available. 

176. Have we correctly characterized 

the benefits and costs to proposed Rule 

15–01(b)? Are there additional costs, 


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Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29547 

566 44 U.S.C. 3501 et seq. 

567 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

568The paperwork burdens for Regulation S–X, 

Regulation S–K, Regulation C, Regulation 12B, and 

Regulation S–T are imposed through the forms, 

schedules and reports that are subject to the 

requirements in these regulations and are reflected 

in the analysis of those documents. 

569We estimate that there would be a negligible 

or no change in burden to Form 20–F and Form 8– 

K as a result of the proposed amendments to 

Regulation S–X, in that these proposed 

amendments would be codifying existing 

interpretations of existing rules. Accordingly, we 

are not making any revisions to the PRA burden 

estimates for Form 20–F and Form 8–K at this time. 

570Registrants claiming smaller reporting 

company status have the option to comply with the 

scaled disclosures available to them on an item-byitem basis. In addition, if an entity determines not 

to rely on the safe harbor provided in Rule 3a–10 

of the Investment Company Act, it would not be 

required to adopt the board resolution 

contemplated in that proposed rule. 

particularly to investors, of permitting a 

shell company registrant to include in 

its Form S–4/F–4/proxy or information 

statement two (rather than three) years 

of statements of comprehensive income, 

changes in stockholders’ equity, and 

cash flows for the private operating 

company for all transactions involving 

an EGC shell company and a private 

operating company that would qualify 

as an EGC that would affect our 

assessment of the likely effects of this 

proposed rule on investor protection? 

177. Have we correctly characterized 

the benefits and costs of the enhanced 

projection guidance (amendments to 

Item 10(b) of Regulation S–K)? Are there 

any other benefits and costs that should 

be considered? Please provide 

supportive data to the extent available. 

178. Have we correctly characterized 

the benefits and costs of the proposed 

Investment Company Act safe harbor? 

Are there any other benefits and costs 

that should be considered? Please 

provide supportive data to the extent 

available. 

179. Is it feasible for SPACs to hold 

most of their assets in cash accounts 

rather than Government securities or 

Government money market funds? What 

would be the costs to SPACs of holding 

their assets in cash? How costly would 

it be for SPACs that are currently 

invested in Government securities or 

Government funds to switch to cash? 

Please provide supportive data or 

estimates to the extent available. 

180. Have we correctly characterized 

the effects on efficiency, competition 

and capital formation from the proposed 

rules and amendments? Are there any 

effects that should be considered? 

Please provide supportive data to the 

extent available. 

X. Paperwork Reduction Act 

A. Summary of the Collections of 

Information 

Certain provisions of our rules, 

schedules, and forms that would be 

affected by the proposed new rules and 

amendments contain ‘‘collection of 

information’’ requirements within the 

meaning of the PRA.566 We are 

submitting the proposed new rules and 

amendments to the Office of 

Management and Budget (‘‘OMB’’) for 

review and approval in accordance with 

the PRA and its implementing 

regulations.567 The hours and costs 

associated with preparing, filing and 

sending the schedules and forms, and 

retaining records constitute reporting 

and cost burdens imposed by each 

collection of information.568 An agency 

may not conduct or sponsor, and a 

person is not required to comply with, 

a collection of information requirement 

unless it displays a currently valid OMB 

control number. The titles for the 

collections of information are: 

• Regulation 14A (Commission Rules 

14a–1 through 14a–21 and Schedule 

14A) (OMB Control No. 3235–0059); 

• Regulation 14C (Commission Rules 

14c–1 through 14c–7 and Schedule 14C) 

(OMB Control No. 3235–0057); 

• Schedule TO (OMB Control No. 

3235–0515); 

• Form S–1 (OMB Control No. 3235– 

0065); 

• Form S–4 (OMB Control No. 3235– 

0324); 

• Form F–1 (OMB Control No. 3235– 

0258); 

• Form F–4 (OMB Control No. 3235– 

0325); 

• Form 10–K (OMB Control No. 

3235–0063); 

• Form 10–Q (OMB Control No. 

3235–0070); and 

• Rule 3a–10 under the Investment 

Company Act (a proposed new 

collection of information).569

The forms, schedules, and regulations 

listed above were adopted under the 

Securities Act, the Exchange Act, and/ 

or the Investment Company Act. These 

regulations, schedules, and forms set 

forth the disclosure requirements for 

registration statements, annual and 

quarterly reports, current reports, proxy 

and information statements, and tender 

offer statements filed by registrants to 

provide investors with information to 

make informed investment, voting, and 

redemption decisions. In addition, we 

are proposing a new requirement that 

certain entities adopt a board resolution 

in order to rely on the safe harbor 

provided by proposed Rule 3a–10 of the 

Investment Company Act. Compliance 

with these information collections is 

mandatory to the extent applicable to 

each registrant.570 Other than the 

proposed new collection of information 

(Rule 3a–10 under the Investment 

Company Act), responses to these 

information collections are not kept 

confidential, and there is no mandatory 

retention period for the information 

disclosed. Responses to the information 

collection under the Investment 

Company Act are kept confidential, 

subject to the provisions of applicable 

law. 

A description of the proposed new 

rules and amendments, including the 

need for the information and its use, as 

well as a description of the likely 

respondents, can be found in Sections II 

through VI above, and a discussion of 

the economic effects of the proposed 

new rules and amendments can be 

found in Section IX above. 

B. Estimates of the Effects of the 

Proposed New Rules and Amendments 

on the Collections of Information 

The following Table 1 summarizes the 

estimated effects of the proposed new 

rules and amendments on the 

paperwork burdens associated with the 

affected forms and schedules. 

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PRA Table 1. Estimated Paperwork Burden Effects of the Proposed New Rules and 

Amendments Applicable to SPACs 

Proposed Requirement and Effects Affected Forms and Estimated Effect Per 

Schedules Affected Response . 

Item 1602: Registered offerings by special Forms S-1 andF-1 • 1 hour increase in 

purpose acquisition companies compliance burden per 

Form S-1 or F-1 • Require certain information on the prospectus 

cover page and in the prospectus summary of 

registration statements for offerings by SPACs 

other than de-SP AC transactions. 

• Require enhanced dilution disclosure in these 

registration statements. 

Item 1603: SPAC sponsor; conflicts of interest • Forms S-1, F-1, S-4, • 2 hour increase in 

andF-4 compliance burden per • Require certain disclosure regarding the sponsor Form S-1, F-1, S-4, orFand its affiliates and any promoters of SPACs. • Schedules 14A and 4 

14C • Require disclosure regarding conflicts of interest • 2 hour increase in 

between the sponsor or its affiliates or promoters • Schedule TO compliance burden per and unaffiliated security holders. Schedule 14A or 14C 

• 2 hour increase in 

compliance burden per 

Schedule TO 

Item 1604: De-SPAC transactions • Forms S-4 and F-4 • 1 hour increase in 

• Require certain information on the prospectus • Schedules 14A and 

compliance burden per 

Form S-4 or F-4 cover page and in the prospectus summary of 14C 

registration statements for de-SP AC transactions. • 1 hour increase in • Schedule TO compliance burden per • Require enhanced dilution disclosure in these Schedule 14A or 14C 

registration statements. 

• 1 hour increase in 

compliance burden per 

Schedule TO 

Item 1605: Background of and reasons for the • Forms S-4 and F-4 • 1 hour increase in 

de-SPAC transaction; terms of the de-SPAC compliance burden per 

transaction; effects • Schedules 14A and Form S-4 or F-4 

14C 

• Require disclosure on the background, material • 1 hour increase in 

terms and effects of the de-SP AC transaction. • Schedule TO compliance burden per 

Schedule 14A or 14C 

• 1 hour increase in 

compliance burden per 

Schedule TO 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29549 


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Proposed Requirement and Effects Affected Forms and Estimated Effect Per 

Schedules Affected Response . 

Item 1606: Fairness of the de-SPAC transaction • Forms S-4 and F-4 • 4 hour increase in 

and any related financing transaction 

• Schedules 14A and 

compliance burden per 

Form S-4 or F-4 • Require disclosure on whether a SPAC 14C 

reasonably believes that a de-SP AC transaction • 4 hour increase in 

and any related financing transactions are fair or • Schedule TO compliance burden per 

unfair to irwestors. Schedule 14A or 14C 

• Require a discussion of the bases for this • 4 hour increase in 

reasonable belief. compliance burden per 

Schedule TO 

Item 1607: Reports, opinions, appraisals and • Forms S-4 and F-4 • 1 hour increase in 

negotiations 

• Schedules 14A and 

compliance burden per 

Form S-4 or F-4 • Require disclosure regarding any report, opinion 14C 

or appraisal received by a SPAC or its sponsor • 1 hour increase in 

from an outside party relating to the fairness of a • Schedule TO compliance burden per 

de-SP AC transaction or any related financing Schedule 14A or 14C 

transaction, including disclosure on the 

qualifications of the outside party, method of • 1 hour increase in 

selection, and certain material relationships that compliance burden per 

existed during the past two years. Schedule TO 

Item 1608: Tender offer filing obligations in de- • Schedule TO • 3 hour increase in 

SPAC transactions compliance burden per 

Schedule TO • Require additional disclosures in a Schedule TO 

filed in connection with a de-SP AC transaction. 

Item 1609: Financial projections in de-SPAC • Forms S-4 and F-4 • 2 hour increase in 

transactions compliance burden per • Schedules 14A and Form S-4 or F-4 • Require additional disclosures regarding 14C 

financial projections disclosed in a disclosure • 2 hour increase in 

document for a de-SP AC transaction. • Schedule TO compliance burden per 

Schedule 14A or 14C 

• 2 hour increase in 

compliance burden per 

Schedule TO 
29550 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 


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Proposed Requirement and Effects Affected Forms and Estimated Effect Per 

Schedules Affected Response . 

Item 1610: Structured data requirement • Forms S-1, F-1, S-4, • 1 hour increase in 

andF-4 compliance burden per • Require information disclosed pursuant to Form S-1, F-1, S-4, orFSubpart 1600 to be tagged in a structured, • Schedules 14A and 4 

machine-readable data language. 14C 

• 1 hour increase in • Schedule TO compliance burden per 

Schedule 14A or 14C 

• 1 hour increase in 

compliance burden per 

Schedule TO 

Proposed Amendments to Regulation S-X • Forms S-4 and F-4 • 50 hour net decrease in 

Amend financial statement requirements and the • Schedules 14A and 

compliance burden per 

affected Form S-4 or F -

forms and schedules filed in connection with 14C 4** 

business combination transactions involving shell 

companies ( other than business combination • Schedule TO • 50 hour net decrease in 

related shell companies), including de-SPAC compliance burden per 

transactions, to more closely align required affected Schedule 14A or 

disclosures about the target private operating 14C** 

company with those required in a Form S-1 or F-1 

for an initial public offering, including: • 50 hour net decrease in 

compliance burden per 

• Expanding the circumstances in which target affected Schedule TO** 

companies may report two years, instead of three 

years, of audited financial statements (resulting 

in a net decrease in burden) (proposed Rule 15-

0l(b)); and 

• Further aligning the requirements for audited 

financial statements in these transactions with 

those required in a registered initial public 

offering (resulting in a net decrease in burden) 

(proposed Rule 15-0l(c), (d) and (e)). 

Proposed Amendments to Align Non-Financial • Forms S-4 and F-4 • 8 hour increase in 

Statement Disclosures in De-SPAC compliance burden per 

Transactions • Schedules 14A and Form S-4 or F-4 

14C 

• Amend the forms and schedules filed in • 8 hour increase in 

connection with de-SP AC transactions to more • Schedule TO compliance burden per 

closely align required non-financial statement Schedule 14A or 14C 

disclosures about the target private operating 

company with those required in a Form S-1 or F- • 8 hour increase in 

1 for an initial public offering. compliance burden per 

Schedule TO 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29551 

In addition, we are proposing to 

require that a post-business combination 

company re-determine whether it is a 

smaller reporting company (SRC) 

following a de-SPAC transaction. As 

proposed, the post-business 

combination company would be 

required to reflect this re-determination 

in its first periodic report after the deSPAC transaction and in Commission 

filings thereafter until its next annual redetermination of SRC status. We 

estimate that the proposed redetermination of SRC status would 

result in increased burdens in filing 

Forms 10–K, Forms 10–Q, Schedules 

14A, Schedules 14C, and Forms S–1 for 

those post-business combination 

companies that would lose SRC status, 

which takes into account the increased 

incremental burden in providing 

disclosures pursuant to non-SRC 

disclosure requirements. The following 

Table 2 sets forth our estimates 

regarding the increase in compliance 

burden when a post-business 

combination company loses SRC status: 


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Proposed Requirement and Effects 

Proposed Amendment to Forms S-4 and F-4 

• Amend Form S-4 and Form F-4 to require that 

the SPAC and the target private operating 

company be treated as co-registrants when the 

Form S-4 or Form F-4 is filed by the SPAC in 

connection with a de-SP AC transaction 

Proposed Rule Ja-10 under the Investment 

Company Act 

• Require the board of directors of a SPAC relying 

on Rule 3a-l 0 to adopt an appropriate resolution 

evidencing that SPAC is primarily engaged in 

the business of seeking to complete a single deSP AC transaction. 

Notes: 

Affected Forms and 

Schedules 

• Forms S-4 and F-4 

• None 

Estimated Effect Per 

Affected Response• 

• 100 hour increase in 

compliance burden per 

Form S-4 or F-4*** 

• 1 hour increase in 

compliance burden per 

SPAC 

* Estimated effect expressed as increase or decrease of burden hours on average and, as applicable, derived 

from Commission staff review of samples of relevant sections of the affected forms. 

** We arrive at an estimate for these amendments to Regulation S-X on the assumption that approximately 

30% of affected responses would require one fewer year of audited financial statements under proposed Rule 

15-0l(b) than under the current rules from registrants that would not otherwise have prepared financial 

statements for such year. Coupled with an incremental increase in burden for the proposed amendments to 

Regulation S-X other than proposed Rule 15-0l(b), when this decrease is spread across all affected 

responses, we arrive at a net burden decrease of 50 hours. 

*** The estimated 100 hour increase in burden is based on an estimate of the additional time that a target 

company, as a co-registrant, would spend on preparing disclosures in a Form S-4 or F-4 filed by a SPAC for 

a de-SP AC transaction. 
29552 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

571Throughout this release and as stated earlier, 

we use ‘‘shell company’’ and ‘‘reporting shell 

company’’ in lieu of the phrases ‘‘shell company, 

other than a business combination related shell 

company’’ and ‘‘reporting shell company, other 

than a business combination related shell 

company.’’ 572We based our estimates, in part, on a review 

of Commission filings over a 10-year period because 

we believe that this longer timeframe would more 

accurately reflect the average number of registration 

statements filed by SPACs and disclosure 

documents for de-SPAC transactions in a given 

year. 

573This estimate represents the upper bound of 

the estimated number of Forms S–4 and F–4 filed 

for these transactions. 

C. Incremental and Aggregate Burden 

and Cost Estimates 

We estimate below the incremental 

and aggregate increase in paperwork 

burden as a result of the proposed new 

rules and amendments. These estimates 

represent the average burden for all 

respondents, both large and small. In 

deriving our estimates, we recognize 

that the burdens will likely vary among 

individual respondents based on a 

number of factors, including the size 

and complexity of their business. These 

estimates include the time and the cost 

of preparing and reviewing disclosure, 

filing documents, and retaining records. 

We believe that some registrants will 

experience costs in excess of this 

average and some registrants will 

experience less than the average costs. 

Our methodologies for deriving these 

estimates are discussed below. 

Our estimates represent the burden 

for all SPACs that file registration 

statements with the Commission for 

registered offerings and all registrants 

that file disclosure documents in 

connection with a de-SPAC transaction 

or a business combination involving a 

shell company or a reporting shell 

company.571 Additionally, our estimates 

take into account an expected increase 

in the number of Securities Act 

registration statements as a result of 

proposed Rule 145a. Based on a review 

of Commission filings during the period 

2011–2021 and an analysis of the effects 

of the proposed new rules and 

amendments,572 the staff estimates that: 

• SPACs will file an average of 90 

registration statements each year for 

registered offerings on Form S–1 and 8 

registration statements on Form F–1, 

other than for de-SPAC transactions; 

• An average of 30 registration 

statements on Form S–4 and 4 

registration statements on Form F–4, 30 

definitive proxy statements on Schedule 

14A, 4 definitive information statements 

on Schedule 14C, and 2 tender offer 

statements on Schedule TO will be filed 

each year in connection with de-SPAC 

transactions; and 

• An average of 20 registration 

statements on Form S–4 and 2 

registration statements on Form F–4 will 

be filed each year for business 

combination transactions involving a 

reporting shell company and a non-shell 

company, other than de-SPAC 

transactions.573


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PRA Table 2. Increase in Compliance Burden After Losing SRC Status 

Form / Schedule Estimated Increase in Estimated Increase in Estimated Increase in 

Internal Hours per Outside Professional Hours Outside Professional 

Filing per Filing Costs per Filing 

Form 10-K* 439 147 $58,800 

Form 10-Q* 36.57 11.88 $4,752 

Schedule 14A** 0.75 0.25 $100 

Schedule 14C*** 0.75 0.25 $100 

Form S-1* 5.75 17.25 $6,900 

Notes: 

* The estimated increases in compliance burdens are based on the difference between the current estimates for 

the applicable form and the estimated burden for SRCs in filing the form. We estimate the compliance burden for 

an SRC in filing these forms using the same methodology as in 2018 when the Commission amended the smaller 

reporting company definition. See Smaller Reporting Company Definition, Release No. 33-10513 (June 28, 

2018) [83 FR 31992 (July 10, 2018)], at section V. 

** In regard to Schedule 14A, we estimate that a company that loses SRC status would experience an increased 

compliance burden of 0.75 internal burden hours and a cost of $100 (0.25 professional hours x $400/hour) per 

schedule, based on our estimate of the compliance burden for 17 CFR 229.407(d)(5) and (e)(4) and (5) (Item 

407(d)(5) and (e)(4) and (5) of Regulation S-K), with which smaller reporting companies are not required to 

comply. 

*** Similar to Schedule 14A, we estimate that, in regard to Schedule 14C, a company that loses SRC status 

would experience an increased compliance burden of 0. 7 5 burden hours and a cost of $100 (0 .25 professional 

hours x $400/hour) per report, based on our estimate of the compliance burden for Item 407 ( d)( 5) and ( e )( 4) and 

(5) of Regulation S-K. 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29553 

574We recognize that the costs of retaining 

outside professionals may vary depending on the 

nature of the professional services, but for purposes 

of this PRA analysis, we estimate that such costs 

would be an average of $400 per hour. This is the 

rate we typically estimate for outside legal services 

used in connection with public company reporting. 

For purposes of the PRA, the burden 

is allocated between internal burden 

hours and outside professional costs. 

The portion of the burden carried by 

outside professionals is reflected as a 

cost, while the portion of the burden 

carried by the company internally is 

reflected in hours. The following Table 

3 sets forth the percentage estimates we 

use for the burden allocation for each 

form and schedule, consistent with 

current OMB estimates and recent 

Commission rulemakings. We estimate 

that the average cost of retaining outside 

professionals is $400 per hour.574

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PRA Table 3. Standard Estimated Burden Allocation for Specified Forms, Schedules, and 

Records 

Form / Schedule/ Record Type Internal Outside Professionals 

Forms S-1, F-1, S-4, and F-4 25% 75% 

Schedules 14A and 14C 75% 25% 

Schedule TO 25% 75% 

Form 10-K and Form 10-Q 75% 25% 

Resolution prepared in accordance 50% 50% 

with Rule 3a-10 
29554 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

The following Table 4 summarizes the 

estimated effects of the proposed new 

rules and amendments, other than Rule 

145a, on the paperwork burdens 

associated with the affected forms, 

schedules, and records: 


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PRA Table 4. Calculation of the Incremental Change in Burden Estimates of Current 

Responses Resulting from the Proposed New Rules and Amendments, Other Than 

Rule 145a 

Form/ Number Estimated Total Estimated Estimated Total Increase or 

Schedule/ of Burden Incremental Increase or Increase or Decrease in 

Record Estimated Hour Increase or Decrease in Decrease in Outside 

Affected Increase Decrease in Internal Outside Professional Costs 

Responses or Burden Burden Professional 

Decrease Hours Hours Hours 

/ Affected 

Response 

(A) (B) (C) =(A)* (D) = (C) * (E) = (C) * (F) = (E) * $400 

(B) (Allocation (Allocation 

%) %) 

Schedule 30 (30) (900) (675) (225) ($90,000) 

14A 

Schedule 4 (30) (120) (90) (30) ($12,000) 

14C 

Schedule 2 (27) (54) (14) (41) ($16,200) 

TO 

Form S-1 90 6 540 135 405 $108,000 

Form S-4 30 95 2,850 713 2,138 $855,000 

FormF-1 8 6 48 12 36 $9,600 

FormF-4 4 95 380 95 285 $114,000 

Resolution 98 1 98 49 49 $19,600 

prepared in 

accordance 

with 

Rule 3a10+ 

Total 266 112 2,842 225 2,617 $988,000 

Notes: 

+ As discussed above, we believe that proposed Rule 3a-10 would offer market participants a number of benefits, 

including the reduction of compliance costs for some market participants. As a result, while no SP AC would be 

required to rely on Rule 3a-10, for purposes of this analysis, we assume that all SP A Cs conducting an initial 

public offering subsequent to adoption of the proposed rule would rely on proposed Rule 3a-l O and, therefore, 

prepare a board resolution in accordance with the conditions of Rule 3a-10. 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29555 

575This estimate is based, in part, on our estimate 

of the number of de-SPAC transactions in which the 

SPAC is the legal acquirer. 

576This estimated realization rate is based on the 

same methodology and data set forth in Release No. 

33–10513, Section V.D. Though the estimated 

realization rate in Release No. 33–10513 preceded 

the effective date of the amendments to the smaller 

reporting company definition in 2018, we expect 

that the current realization rate for eligible 

companies using the scaled SRC disclosure 

provisions to be generally consistent with the 

estimated realization rate in 2018. 

The following Table 5 summarizes the 

estimated effects of proposed Rule 145a 

on the paperwork burdens associated 

with the affected forms: 

In addition, we estimate that an 

average of 50 fewer post-business 

combination companies following a deSPAC transaction will qualify as smaller 

reporting companies than under the 

current rules until the next annual redetermination date.575 While we cannot 

predict with certainty the number of 

these post-business combination 

companies, we estimate for purposes of 

our PRA calculations that currently all 

post-business combination companies 

qualify as SRCs following de-SPAC 

transactions in which the SPAC is the 

legal acquirer and that 80% of these 

companies that are eligible to use the 

scaled SRC disclosure provisions do 

so.576 We estimate that these registrants 

would file, on average, one Form 10–K, 

1.5 Forms 10–Q, one Schedule 14A, and 

one registration statement on Form S–1 

prior to the next re-determination of 

SRC status. 


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PRA Table 5. Calculation of the Change in Burden Estimates of the Affected Forms 

Resulting from Proposed Rule 145a 

Form/ Estimated Estimated Total Estimated Estimated Total Increase 

Schedule Increase Burden Incremental Increase in Increase in in Outside 

/ Record in the Per Form Increase or Internal Outside Professional 

Number Decrease in Burden Professional Costs 

of Burden Hours Hours 

Responses Hours 

(A) (B) (C) =(A)* (D) = (C) * (E) = (C) * (F) = (E) * 

(B) (Allocation (Allocation $400 

%) %) 

Form S-4 20 3,826 76,512 19,128 57,384 $22,953,551 

FormF-4 2 1,441 2,882 720 2,161 $864,554 

Total 22 5,267 79,394 19,848 59,545 $23,818,105 
29556 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

The following Table 6 summarizes the 

estimated effects of the proposed redetermination of SRC status on the 

paperwork burdens associated with the 

affected forms and schedules: 


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PRA Table 6. Calculation of the Incremental Change in Burden Estimates of 

Current Responses Resulting from the Proposed Re-Determination of SRC Status 

Form/ Number Estimated Total Estimated Estimated Total 

Schedule/ of Burden Incremental Increase or Increase or Increase or 

Record Estimated Hour Increase or Decrease in Decrease in Decrease in 

Affected Increase or Decrease in Internal Outside Outside 

Responses Decrease/ Burden Burden Professional Professional 

Affected Hours Hours Hours Costs 

Response 

(A) (B) (C) =(A)* (D) = (C) * (E) = (C) * (F) = (E) * 

(B) (Allocation (Allocation $400 

%) %) 

Schedule 40 1 40 30 10 $4,000 

14A 

Schedule 4 1 4 3 1 $400 

14C 

Form S-1 40 23 920 230 690 $276,000 

Form 10- 40 586 23,440 17,560 5,880 $2,352,000 

K 

Form 10- 60 48 2,880 2,194 713 $285,120 

Q 

Total 184 659 27,284 20,017 7,294 $2,917,520 
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29557 

577Public Law 104–121, Tit. II, 110 Stat. 857 

(1996). 

The following Table 7 summarizes the 

requested paperwork burden changes to 

existing information collections, 

including the estimated total reporting 

burdens and costs, under the proposed 

new rules and amendments. 

BILLING CODE 8011–01–C 

D. Request for Comment 

Pursuant to 44 U.S.C. 3506(c)(2)(B), 

we request comment in order to: 

• Evaluate whether the proposed 

changes to the collections of 

information are necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information will have practical utility; 

• Evaluate the accuracy of our 

estimates of the additional burden hours 

that would result from adoption of the 

proposed new rules and amendments; 

• Determine whether there are ways 

to enhance the quality, utility, and 

clarity of the information to be 

collected; 

• Evaluate whether there are ways to 

minimize the burden of the collections 

of information on those who respond, 

including through the use of automated 

collection techniques or other forms of 

information technology; and 

• Evaluate whether the proposed new 

rules and amendments would have any 

effects on any other collection of 

information not previously identified in 

this section. 

Any member of the public may direct 

to us any comments concerning the 

accuracy of these burden estimates and 

any suggestions for reducing these 

burdens. Persons submitting comments 

on the collection of information 

requirements should direct their 

comments to the Office of Management 

and Budget, Attention: Desk Officer for 

the U.S. Securities and Exchange 

Commission, Office of Information and 

Regulatory Affairs, Washington, DC 

20503, and send a copy to, Vanessa A. 

Countryman, Secretary, U.S. Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090, with 

reference to File No. S7–13–22. 

Requests for materials submitted to 

OMB by the Commission with regard to 

the collection of information should be 

in writing, refer to File No. S7–13–22 

and be submitted to the U.S. Securities 

and Exchange Commission, Office of 

FOIA Services, 100 F Street NE, 

Washington, DC 20549–2736. OMB is 

required to make a decision concerning 

the collections of information between 

30 and 60 days after publication of this 

release. Consequently, a comment to 

OMB is best assured of having its full 

effect if the OMB receives it within 30 

days of publication. 

XI. Small Business Regulatory 

Enforcement Fairness Act 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’),577 the Commission 

must advise the OMB as to whether a 

proposed regulation constitutes a 

‘‘major’’ rule. Under SBREFA, a rule is 

considered ‘‘major’’ where, if adopted, it 

results or is likely to result in: 

• An annual effect on the economy of 

$100 million or more (either in the form 

of an increase or a decrease); 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment or innovation. 


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Form/ 

Schedule 

Schedule 

14A 

Schedule 

14C 

Schedule 

TO 

FormS-1 

FormS-4 

FormF-1 

FmmF-4 

Form 10-K 

Form 10-Q 

Total 

PRA Table 7. Requested Paperwork Burden under the Proposed New Rules and 

Amendments+ 

+ Figures in this table have been rounded to the nearest whole number. 

Current Burden Program Change Requested Change in Burden 

Current 

Annual 

Responses 

(A) 

6,369 

569 

1,378 

898 

588 

66 

39 

8,272 

22,925 

41,124 

Current Current Cost Number of Estimated Increase or Annual 

Burden Burden Affected Increase Decrease in Responses 

Hours Responses or Outside 

Decrease Professional 

in Outside Costs 

Prof. 

Hours 

(B) (C) (D) (E) (F) (G) = (A) 

777,590 $103,678,712 ++ (645) ($86,000) 6,369 

56,356 $7,514,944 4 (90) ($12,000) 569 

29,972 $11,988,600 2 (14) ($16,200) 1,378 

146,062 $178,916,043 +++ 320 $384,000 898 

562,362 $677,255,579 ++++ 19,840 $23,890,904 608 

26,707 $32,293,375 8 12 $14,400 66 

14,049 $17,073,825 ++++ 815 $989,581 41 

14,188,040 $1,893,793,119 40 17,560 $2,352,000 8,292 

3,182,333 $421,490,754 60 2,194 $285,120 22,925 

18,983,471 $3,334,004,951 370 20,190 $3,944,320 41,124 

++See PRA Tables 4 and 6 for the nwnber of affected responses for Schedule 14A. 

+++ See PRA Tables 4 and 6 for the number of affected responses for Form S-1. 

Burden 

Hours 

(H) = (B)+ 

(E) 

776,945 

56,266 

29,959 

178,916,363 

563,075 

26,719 

14,144 

14,205,600 

3,184,527 

197,773,642 

++++ See PRA Tables 4 and 5 for the number of affected responses for Form S-4 andFormF-4. 

Cost Burden 

(I)= (C) + (F) 

$103,592,712 

$7,502,944 

$11,972,400 

$179,300,043 

$701,146,483 

$32,307,775 

$18,063,406 

$1,896,145,119 

$421,775,874 

$3,347,949,271 
29558 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

578 5 U.S.C. 601 et seq. 

579 5 U.S.C. 603(a); 5 U.S.C. 605(b). 

580 Item 10(b) sets forth guidelines representing 

the Commission’s views on important factors to be 

considered in formulating and disclosing 

management’s projections of future economic 

performance in Commission filings. 

581Throughout this release and as stated earlier, 

we use ‘‘shell company’’ and ‘‘reporting shell 

company’’ in lieu of the phrases ‘‘shell company, 

other than a business combination related shell 

company’’ and ‘‘reporting shell company, other 

than a business combination related shell 

company.’’ 

582The definition of ‘‘small entity’’ is set forth in 

Section XII.D below. 

583Based on data from Dealogic M&A module as 

of Jan. 2022. 

584While no SPAC would be required to rely on 

proposed Rule 3a–10, for purposes of this analysis, 

we assume that all SPACs conducting an initial 

public offering subsequent to adoption of the 

proposed rule would rely on proposed Rule 3a–10. 

585 5 U.S.C. 601(6). 

586See 17 CFR 270.0–10(a). 

If a rule is ‘‘major,’’ its effectiveness will 

generally be delayed for 60 days 

pending Congressional review. 

We request comment on whether our 

proposed amendments would be a 

‘‘major rule’’ for purposes of SBREFA. 

We solicit comment and empirical data 

on: 

• The potential effect on the U.S. 

economy on an annual basis; 

• Any potential increase in costs or 

prices for consumers or individual 

industries; and 

• Any potential effect on competition, 

investment or innovation. 

We request those submitting comments 

to provide empirical data and other 

factual support for their views to the 

extent possible. 

XII. Initial Regulatory Flexibility 

Analysis and Certification 

The Regulatory Flexibility Act 578

requires an agency, when issuing a 

rulemaking proposal, to prepare and 

make available for public comment an 

Initial Regulatory Flexibility Analysis 

(‘‘IRFA’’) that describes the impact of 

the proposed rule on small entities, 

unless the Commission certifies that the 

rule, if adopted, would not have a 

significant economic impact on a 

substantial number of small entities.579

This IRFA has been prepared in 

accordance with the Regulatory 

Flexibility Act. It relates to the proposed 

new rules and amendments described in 

Sections II through VI above. 

A. Reasons for, and Objectives of, the 

Proposed Action 

As discussed throughout the release, 

we are proposing new Subpart 1600 of 

Regulation S–K and amendments to 

existing forms and schedules to require 

specialized disclosures in registered 

offerings by SPACs, including initial 

public offerings, and in disclosure 

documents for de-SPAC transactions 

with respect to, among other things, 

compensation paid to sponsors, 

conflicts of interest, and dilution. For 

de-SPAC transactions, we are also 

proposing to require disclosure of a 

fairness determination, additional 

disclosures on the target private 

operating company, a re-determination 

of smaller reporting company status 

following the completion of a de-SPAC 

transaction, and a minimum 

dissemination period for certain 

disclosure documents in these 

transactions. These proposed rules and 

amendments would be applicable to, 

depending on the circumstances, 

registration statements on Forms S–1, 

F–1, S–4 and F–4 filed under the 

Securities Act and Schedules 14A, 14C 

and TO under the Exchange Act. The 

proposed rules would also clarify the 

underwriter status of SPAC IPO 

underwriters in connection with deSPAC transactions and would require 

that the target company be named as a 

co-registrant in a Form S–4 or F–4 filed 

by a SPAC for a de-SPAC transaction. 

Further, we are proposing to amend the 

definition of ‘‘blank check company’’ for 

purposes of the PSLRA such that the 

safe harbor under the PSLRA for 

forward-looking information would not 

be available to SPACs and certain other 

blank check companies; to update and 

expand our guidance in Item 10(b) of 

Regulation S–K regarding the use of 

projections in Commission filings; 580

and to require additional disclosure 

when projections are disclosed in 

connection with de-SPAC transactions. 

In regard to business combination 

transactions involving a reporting shell 

company,581 we are proposing 

Securities Act Rule 145a to deem these 

transactions with a non-shell company 

to involve a sale of securities to the shell 

company’s shareholders. In addition, we 

are proposing amendments to the 

financial statement reporting 

requirements for transactions involving 

shell companies in Regulation S–X. 

Finally, we are proposing a new safe 

harbor, Rule 3a–10, under the 

Investment Company Act that would 

provide that a SPAC that satisfies the 

conditions of the safe harbor would not 

be an investment company and 

therefore would not be subject to 

regulation as an investment company 

under the Investment Company Act. 

The need for and objectives of the 

proposed rules and amendments are 

discussed in more detail in Sections II– 

VI above. We discuss the economic 

impact, including the estimated costs 

and burdens, of the proposed rules and 

amendments on all registrants, 

including small entities, in Sections IX 

and X above. 

B. Legal Basis 

We are proposing the new rules and 

rule amendments under the authority 

set forth in Sections 6, 7, 10, 19(a), and 

28 of the Securities Act; Sections 3, 12, 

13, 14, 15, 23(a), and 36 of the Exchange 

Act; and Sections 6(c) and 38(a) of the 

Investment Company Act. 

C. Regulatory Flexibility Act 

Certification 

Pursuant to Section 605(b) of the 

Regulatory Flexibility Act, the 

Commission hereby certifies that 

proposed Rule 3a–10 under the 

Investment Company Act would not, if 

adopted, have a significant economic 

impact on a substantial number of small 

entities.582 Based on information 

available to the Commission, there were 

861 initial public offerings conducted 

by SPACs in 2020 and 2021, of which 

6 were for SPACs that sold $50 million 

or less in units.583 As a result, we 

believe that approximately 0.7% of 

SPACs directly affected by proposed 

Rule 3a–10 would be small entities.584

Accordingly, the Commission believes 

that proposed Rule 3a–10 would not, if 

adopted, have a significant economic 

impact on a substantial number of small 

entities. 

D. Small Entities Subject to the 

Proposed Rules and Amendments 

The proposed rules and amendments 

would apply to registrants that are small 

entities. The Regulatory Flexibility Act 

defines ‘‘small entity’’ to mean ‘‘small 

business,’’ ‘‘small organization,’’ or 

‘‘small governmental jurisdiction.’’ 585

17 CFR 230.157 (Securities Act Rule 

157) defines an issuer, other than an 

investment company, to be a ‘‘small 

business’’ or ‘‘small organization’’ for 

purposes of the Regulatory Flexibility 

Act if it had total assets of $5 million 

or less on the last day of its most recent 

fiscal year and is engaged or proposing 

to engage in an offering of securities not 

exceeding $5 million. 17 CFR 240.0– 

10(a) (Exchange Act Rule 0–10(a)) 

defines an issuer, other than an 

investment company, to be a ‘‘small 

business’’ or ‘‘small organization’’ if it 

had total assets of $5 million or less on 

the last day of its most recent fiscal year. 

An investment company is a small 

entity if, together with other investment 

companies in the same group of related 

investment companies, it has net assets 

of $50 million or less as of the end of 

its most recent fiscal year.586


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Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29559 

587See supra note 12 and the discussion of the 

proposed definition of ‘‘special purpose acquisition 

company’’ in Section II.A. 

588As noted above, the vast majority of initial 

public offerings by SPACs in 2020 and 2021 raised 

more than $50 million. In 2020, the smallest 

amount raised in an initial public offering by a 

SPAC was $40 million, and, in 2021, the smallest 

amount raised in an initial public offering by a 

SPAC was $44 million. When viewed over a 10-year 

period, we do not expect the outcome to be 

different due to how SPACs are structured to 

address Rule 419. See supra note 12. Further, with 

respect to proposed Rule 140a, we do not expect 

any underwriters in SPAC initial public offerings to 

be small entities. 

589 In this regard, we note that exchange listing 

requirements and provisions in the governing 

instruments of many SPACs, along with how SPACs 

are structured to avoid the application of Rule 419, 

make it less likely that SPACs would merge with 

or acquire a small entity. See supra notes 12 and 

13. 

590This estimate does not include business 

combination related shell companies. 

591We believe that it is unlikely that a reporting 

company would engage in a business combination 

transaction with a shell company such that it would 

be subject to proposed Rule 145a. Therefore, we are 

not estimating the number of reporting companies 

for purposes of this analysis. 

592We do not expect the proposed redetermination of smaller reporting company status 

following a de-SPAC transaction to have any effect 

on small entities because we do not expect any 

small entities to lose smaller reporting company 

following this re-determination, based on the public 

float and revenue thresholds in the smaller 

reporting company definition. 

The proposed specialized disclosure 

and other requirements applicable to 

SPACs would not apply to issuers that 

raise less than $5 million at the time of 

their initial public offerings.587

However, we acknowledge that there 

may be instances where a SPAC may be 

a small entity at the time of a 

subsequent registered offering or at the 

time of a de-SPAC transaction.588 While 

we are not aware to date of any such 

instances, we request comment on the 

number of these small entities. In 

addition, due to data limitations, we are 

unable to estimate the number of 

potential target private operating 

companies in de-SPAC transactions that 

may be small entities; 589 therefore, we 

request comment on the number of 

these small entities. 

In regard to proposed Rule 145a and 

the proposed amendments to Regulation 

S–X, we estimate that there are 163 

reporting shell companies that are small 

entities.590 However, due to data 

limitations, we are unable to estimate 

the number of private operating 

companies and private shell companies 

that are small entities that may engage 

in a business combination 

transaction.591 We request comment on 

the number of these small entities. 

E. Reporting, Recordkeeping, and Other 

Compliance Requirements 

We expect that the proposed 

specialized disclosure and other 

requirements applicable to SPACs and 

target private operating companies 

would have an incremental effect on 

reporting, recordkeeping and other 

compliance burdens for registrants, 

including small entities. These 

proposed requirements would increase 

compliance costs for registrants, and 

compliance with these proposed 

requirements would require the use of 

professional skills, including 

accounting, legal, and technical skills. 

We generally expect that the nature of 

any benefits and costs associated with 

the proposed rules and amendments to 

be similar for large and small entities. 

We also anticipate that the economic 

benefits and costs likely could vary 

among small entities based on a number 

of factors, such as the nature and 

conduct of their businesses, which 

makes it difficult to project the 

economic impact on small entities with 

precision.592 The proposed rules and 

amendments are discussed in detail in 

Sections II–VI above. We discuss the 

economic effect, including the estimated 

costs and burdens, of the proposed rules 

and amendments on all registrants, 

including small entities, in Section IX 

above. 

Proposed Rule 145a, in deeming 

certain business combination 

transactions involving a reporting shell 

company to involve a sale of securities 

to the reporting shell company’s 

shareholders, may impose reporting, 

recordkeeping, or compliance 

requirements and related costs on small 

entities that are reporting shell 

companies to the extent such a deemed 

sale of securities would require such a 

small entity to register the transaction 

under the Securities Act or comply with 

an exemption from registration. These 

costs could also include the costs 

associated with the proposed 

amendments to Regulation S–X, which 

would require an issuer in a business 

combination transaction involving a 

shell company to comply with financial 

statement reporting requirements that 

would align with those applicable in 

traditional initial public offerings. The 

proposed changes to the financial 

statement requirements would increase 

compliance costs for small entities 

when these transactions are registered 

under the Securities Act, although we 

do not expect the increase in 

incremental compliance costs resulting 

from the proposed amendments to be 

significant because the proposed 

amendments would codify existing staff 

guidance on financial statement 

requirements for these transactions. 

F. Duplicative, Overlapping or 

Conflicting Federal Rules 

The proposed disclosure requirements 

in Subpart 1600 may partially duplicate 

and overlap with a number of existing 

disclosure requirements under 

Regulation S–K that are currently 

applicable to SPAC registered offerings 

and in de-SPAC transactions. To the 

extent that the disclosure requirements 

in proposed Subpart 1600 overlap with 

these existing disclosure requirements, 

the requirements of proposed Subpart 

1600 would be controlling. Other than 

these proposed disclosure requirements, 

the Commission believes that the 

proposed new rules and amendments 

would not duplicate, overlap or conflict 

with other federal rules. 

G. Significant Alternatives 

The Regulatory Flexibility Act directs 

us to consider alternatives that would 

accomplish our stated objectives, while 

minimizing any significant adverse 

impact on small entities. Accordingly, 

we considered several alternatives, 

including the following: 

• Establishing different compliance or 

reporting requirements or timetables 

that take into account the resources 

available to small entities; 

• Clarifying, consolidating or 

simplifying compliance and reporting 

requirements under the rules for small 

entities; 

• Using performance rather than 

design standards; and 

• Exempting small entities from all or 

part of the requirements. 

The proposed specialized disclosure 

and other requirements with respect to 

SPAC registered offerings and de-SPAC 

transactions are intended to improve the 

usefulness and clarity of the information 

provided to investors so that they can 

make better informed decisions as to 

whether to purchase securities in SPAC 

registered offerings, or in secondary 

trading markets, and in voting, 

investment and redemption decisions in 

connection with de-SPAC transactions. 

They are also intended to enhance 

investor protections as well as provide 

additional clarity regarding the legal 

obligations of target companies and 

others in connection with a de-SPAC 

transaction. We believe that these 

proposed requirements are equally 

appropriate for SPACs of all sizes that 

are engaged in a registered offering and 

for SPACs and target private operating 

companies that are engaged in a deSPAC transaction. As a result, we do not 

believe that it is appropriate to propose 

different compliance or reporting 

requirements for small entities; clarify, 

consolidate or simplify compliance and 


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29560 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

reporting requirements for small 

entities; or to exempt small entities from 

these requirements. As noted above, in 

our view, a private operating company’s 

method of becoming a public company 

should not negatively impact investor 

protection. 

With respect to using performance 

rather than design standards, these 

proposed requirements use primarily 

design standards in order to promote 

uniform compliance requirements for all 

registrants. Further, we believe that the 

proposed requirements would be more 

beneficial to investors if there are 

specific disclosure requirements that 

apply to all registrants, regardless of 

size, for the reasons discussed above. 

Proposed Rule 145a would deem 

business combinations involving a 

reporting shell company and a non-shell 

company to involve a sale of securities 

to the reporting shell company’s 

shareholders. Given that proposed Rule 

145a is intended to address potential 

disparities in the disclosure and liability 

protections available to reporting shell 

company shareholders, we do not 

believe that it is appropriate to propose 

different compliance or reporting 

requirements for small entities; clarify, 

consolidate or simplify compliance and 

reporting requirements for small 

entities; or to exempt small entities from 

the proposed rule. 

The proposed amendments to 

Regulation S–X would generally codify 

existing staff guidance on financial 

statement requirements for certain 

business combinations involving shell 

companies, and, based on staff analysis 

of disclosures in these transactions, we 

believe that most companies already 

report consistent with this staff 

guidance. Further, the amendments are 

not expected to have any significant 

adverse effect on small entities (and are, 

in fact, expected to relieve burdens for 

some of these entities). Accordingly, we 

do not believe that it is necessary to 

exempt small entities from all or part of 

the proposed amendments to Regulation 

S–X; establish different compliance or 

reporting requirements for such entities; 

or clarify, consolidate or simplify 

compliance and reporting requirements 

for small entities. Likewise, while we 

primarily use design standards to 

promote consistency, we do not believe 

it is necessary to use performance 

standards in connection with this aspect 

of the proposed rules. 

H. Request for Comment 

We encourage the submission of 

comments with respect to any aspect of 

this IRFA and certifications. In 

particular, we request comments 

regarding: 

• The number of small entities that 

may be affected by the proposed rules 

and amendments; 

• The existence or nature of the 

potential impact of the proposed rules 

and amendments on small entities 

discussed in the analysis; 

• How the proposed amendments 

could further lower the burden on small 

entities; and 

• How to quantify the impact of the 

proposed rules and amendments. 

Commenters are asked to describe the 

nature of any impact and provide 

empirical data supporting the extent of 

the impact. Comments will be 

considered in the preparation of the 

Final Regulatory Flexibility Analysis, if 

the proposed rules and amendments are 

adopted, and will be placed in the same 

public file as comments on the proposed 

rules and amendments themselves. 

Statutory Authority and Text of 

Proposed Rule and Form Amendments 

We are proposing the rule and form 

amendments contained in this 

document under the authority set forth 

in Sections 6, 7, 10, 19(a), and 28 of the 

Securities Act; Sections 3, 12, 13, 14, 15, 

23(a), and 36 of the Exchange Act; and 

Sections 6(c) and 38(a) of the 

Investment Company Act. 

List of Subjects 

17 CFR Parts 210 

Accountants, Accounting, Banks, 

Banking, Employee benefit plans, 

Holding companies, Insurance 

companies, Investment companies, Oil 

and gas exploration, Reporting and 

recordkeeping requirements, Securities, 

Utilities. 

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

and 249 

Administrative practice and 

procedure, Reporting and recordkeeping 

requirements, Securities. 

17 CFR Part 270 

Investment companies, Reporting and 

recordkeeping requirements, Securities. 

In accordance with the foregoing, we 

are proposing to amend title 17, chapter 

II of the Code of Federal Regulations as 

follows: 

PART 210—FORM AND CONTENT OF 

AND REQUIREMENTS FOR FINANCIAL 

STATEMENTS, SECURITIES ACT OF 

1933, SECURITIES EXCHANGE ACT 

OF 1934, INVESTMENT COMPANY ACT 

OF 1940, INVESTMENT ADVISERS ACT 

OF 1940, AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975 

■ 1. The authority citation for part 210 

continues to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 

77s, 77z–2, 77z–3, 77aa(25), 77aa(26), 

77nn(25), 77nn(26), 78c, 78j–1, 78l, 78m, 

78n, 78o(d), 78q, 78u–5, 78w, 78ll, 78mm, 

80a–8, 80a–20, 80a–29, 80a–30, 80a–31, 80a– 

37(a), 80b–3, 80b–11, 7202 and 7262, and 

sec. 102(c), Pub. L. 112–106, 126 Stat. 310 

(2012), unless otherwise noted. 

■ 2. Amend § 210.1–02 by revising 

paragraph (d) and paragraph (w)(1) 

introductory text to read as follows: 

§ 210.1–02 Definitions of terms used in 

Regulation S–X (17 CFR part 210). 

* * * * * 

(d) Audit (or examination). The term 

audit (or examination), when used in 

regard to financial statements of issuers 

as defined by Section 2(a)(7) of the 

Sarbanes-Oxley Act of 2002, means an 

examination of the financial statements 

by an independent accountant in 

accordance with the standards of the 

Public Company Accounting Oversight 

Board (United States) (‘‘PCAOB’’) for the 

purpose of expressing an opinion 

thereon. See § 210.15–01(a) for 

definition of an audit when used in 

regard to financial statements of a 

company that will be a predecessor to 

an issuer that is a shell company (other 

than a business combination related 

shell company). When used in regard to 

financial statements of entities that are 

not issuers as defined by Section 2(a)(7) 

of the Sarbanes-Oxley Act of 2002, the 

term means an examination of the 

financial statements by an independent 

accountant in accordance with either 

the standards of the PCAOB or U.S. 

generally accepted auditing standards 

(‘‘U.S. GAAS’’) as specified or permitted 

in the regulations and forms applicable 

to those entities for the purpose of 

expressing an opinion thereon. The 

standards of the PCAOB and U.S. GAAS 

may be modified or supplemented by 

the Commission. 

* * * * * 

(w) * * * 

(1) The term significant subsidiary 

means a subsidiary, including its 

subsidiaries, which meets any of the 

conditions in paragraph (w)(1)(i), (ii), or 

(iii) of this section; however if the 

registrant is a registered investment 

company or a business development 

company, the tested subsidiary meets 

any of the conditions in paragraph 

(w)(2) of this section instead of any of 

the conditions in this paragraph (w)(1). 

In either an acquisition by a shell 

company (other than a business 

combination related shell company) of a 

business that is not the predecessor or 

an acquisition by the shell company’s 

predecessor, use the predecessor’s 

financial statements instead of the 

registrant and the subsidiaries 


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consolidated in applying the 

significance tests in paragraphs (w)(1)(i), 

(ii), and (iii) of this section. 

* * * * * 

■ 3. Amend § 210.3–01 by revising 

paragraph (a) to read as follows: 

§ 210.3–01 Consolidated balance sheets. 

(a) There shall be filed, for the 

registrant and its subsidiaries 

consolidated and for its predecessors, 

audited balance sheets as of the end of 

each of the two most recent fiscal years. 

If the registrant has been in existence for 

less than one fiscal year, there shall be 

filed an audited balance sheet as of a 

date within 135 days of the date of filing 

the registration statement. 

* * * * * 

■ 4. Amend § 210.3–05 by revising 

paragraph (b)(4)(ii) to read as follows: 

§ 210.3–05 Financial statements of 

businesses acquired or to be acquired. 

* * * * * 

(b) * * * 

(4) * * * 

(ii) A registrant, other than a foreign 

private issuer required to file reports on 

Form 6–K (§ 249.306 of this chapter) or 

a shell company (other than a business 

combination related shell company), 

that omits from its initial registration 

statement financial statements of a 

recently consummated business 

acquisition pursuant to paragraph 

(b)(4)(i) of this section must file those 

financial statements and any pro forma 

information specified by §§ 210.11–01 

through 210.11–03 (Article 11) under 

cover of Form 8–K (§ 249.308 of this 

chapter) no later than 75 days after 

consummation of the acquisition. A 

shell company (other than a business 

combination related shell company) that 

acquires a business, which is not or will 

not be its predecessor, that omits from 

a registration statement or proxy 

statement the financial statements of 

that recently consummated business 

acquisition pursuant to (b)(4)(i) of this 

section shall refer to § 210.15–01(d)(2). 

* * * * * 

■ 5. Amend § 210.3–14 by revising 

paragraph (b)(3)(ii) to read as follows: 

§ 210.3–14 Special instructions for 

financial statements of real estate 

operations acquired or to be acquired. 

* * * * * 

(b) * * * 

(3) * * * 

(ii) A registrant, other than a foreign 

private issuer required to file reports on 

Form 6–K (§ 249.306 of this chapter) or 

shell company (other than a business 

combination related shell company), 

that omits from its initial registration 

statement financial statements of a 

recently consummated acquisition of a 

real estate operation pursuant to 

paragraph (b)(3)(i) of this section must 

file those financial statements and any 

pro forma information specified by 

§§ 210.11–01 through 210.11–03 (Article 

11) under cover of Form 8–K (§ 249.308 

of this chapter) no later than 75 days 

after consummation of the acquisition. 

A shell company (other than a business 

combination related shell company) that 

acquires a real estate operation, which 

is not or will not be its predecessor that 

omits from a registration statement or 

proxy statement the financial statements 

of a recently consummated business 

acquisition pursuant to (b)(4)(i) of this 

section shall refer to § 210.15–01(d)(2). 

* * * * * 

■ 6. Amend § 210.8–02 by revising it to 

read as follows: 

§ 210.8–02 Annual financial statements. 

Smaller reporting companies shall file 

an audited balance sheet for the 

registrant and for its predecessors as of 

the end of each of the most recent two 

fiscal years, or as of a date within 135 

days if the issuer has existed for a 

period of less than one fiscal year, and 

audited statements of comprehensive 

income, cash flows and changes in 

stockholders’ equity for each of the two 

fiscal years preceding the date of the 

most recent audited balance sheet (or 

such shorter period as the registrant has 

been in business). 

■ 7. Amend § 210.10–01 by revising 

paragraph (a)(1) to read as follows: 

§ 210.10–01 Interim financial statements. 

(a) * * * 

(1) Interim financial statements 

required by this rule need only be 

provided as to the registrant and its 

subsidiaries consolidated and its 

predecessors and may be unaudited. 

Separate statements of other entities 

which may otherwise be required by 

this regulation may be omitted. 

* * * * * 

■ 8. Amend § 210.11–01 by revising 

paragraph (d) introductory text to read 

as follows: 

§ 210.11–01 Presentation requirements. 

* * * * * 

(d) For purposes of this rule, the term 

business should be evaluated in light of 

the facts and circumstances involved 

and whether there is sufficient 

continuity of the acquired entity’s 

operations prior to and after the 

transactions so that disclosure of prior 

financial information is material to an 

understanding of future operations. A 

presumption exists that a separate 

entity, a subsidiary, or a division is a 

business. A special purpose acquisition 

company, as defined in § 229.1601(a), is 

a business for purposes of this rule. 

However, a lesser component of an 

entity may also constitute a business. 

Among the facts and circumstances 

which should be considered in 

evaluating whether an acquisition of a 

lesser component of an entity 

constitutes a business are the following: 

* * * * * 

■ 9. Add an undesignated center 

heading and § 210.15–01 to read as 

follows: 

Acquisitions of Businesses by a Shell 

Company (Other Than a Business 

Combination Related Shell Company) 

§ 210.15–01 Acquisitions of businesses by 

a shell company (other than a business 

combination related shell company). 

(a) Audit requirements of predecessor. 

The term audit (or examination), when 

used in regard to financial statements of 

a business that is or will be a 

predecessor to a shell company (other 

than a business combination related 

shell company), means an examination 

of the financial statements by an 

independent accountant in accordance 

with the standards of the PCAOB for the 

purpose of expressing an opinion 

thereon. 

(b) Financial statements. When the 

registrant is a shell company (other than 

a business combination related shell 

company) and the financial statements 

of a business that will be a predecessor 

to the registrant are required in a 

registration statement or proxy 

statement, the registrant must file 

financial statements of the business in 

accordance with §§ 210.3–01 through 

210.3–12 and 210.10–01 (Articles 3 and 

10 of Regulation S–X) as if the filing 

were a Securities Act registration 

statement for the initial public offering 

of the business’s equity securities. The 

financial statements of the business may 

be filed pursuant to §§ 210.8–01 through 

210.8–08 (Article 8) when that business 

would qualify to be a smaller reporting 

company based on its annual revenues 

as of the most recently completed fiscal 

year, if it were filing a registration 

statement itself. 

(c) Age of financial statements of the 

predecessor. The financial statements of 

a business that will be a predecessor to 

a shell company (other than a business 

combination related shell company) 

shall comply with the requirements in 

§ 210.3–12 (§ 210.8–08 when that 

business would qualify to be a smaller 

reporting company based on its annual 

revenues as of the most recently 

completed fiscal year, if it were filing a 

registration statement itself) in 

determining the age of financial 


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statements of the predecessor business 

in the registration statement or proxy 

statement of the registrant. 

(d) Acquisitions of businesses by a 

shell company or its predecessor that 

are not or will not be the predecessor. 

Registrants shall apply § 210.3–05 

(§ 210.8–04 when that business would 

qualify to be a smaller reporting 

company based on its annual revenues 

as of the most recently completed fiscal 

year if it were filing a registration 

statement itself) to acquisitions of 

businesses by a shell company (other 

than a business combination related 

shell company) or its predecessor that 

are not or will not be the predecessor to 

the registrant. 

(1) See § 210.1–02(w)(1) for rules on 

applying the significance tests to 

acquisitions of businesses by a shell 

company (other than a business 

combination related shell company) or 

its predecessor that are not or will not 

be the predecessor. 

(2) A shell company (other than a 

business combination related shell 

company) that omits from a registration 

statement or proxy statement the 

financial statements of a recently 

acquired business that is not or will not 

be its predecessor pursuant to Rule 3– 

05(b)(4)(i) of Regulation S–X (§ 210.1– 

02(b)(4)(i)) must file those financial 

statements in its Form 8–K filed 

pursuant to Item 2.01(f). 

(e) Financial statements of shell 

company. After a shell company (other 

than a business combination related 

shell company) acquires a business that 

is its predecessor, the financial 

statements of the shell company for 

periods prior to consummation of the 

acquisition are not required to be 

included in a filing once the financial 

statements of the predecessor have been 

filed for all required periods through the 

acquisition date and the financial 

statements of the registrant include the 

period in which the acquisition was 

consummated. 

PART 229—STANDARD 

INSTRUCTIONS FOR FILING FORMS 

UNDER SECURITIES ACT OF 1933, 

SECURITIES EXCHANGE ACT OF 1934 

AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975— 

REGULATION S–K 

■ 10. The authority citation for part 229 

continues to read as follows: 

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 

77j, 77k, 77s, 77z–2, 77z–3, 77aa(25), 

77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 

77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j–3, 78l, 

78m, 78n, 78n–1, 78o, 78u–5, 78w, 78ll, 

78mm, 80a–8, 80a–9, 80a–20, 80a–29, 80a– 

30, 80a–31(c), 80a–37, 80a–38(a), 80a–39, 

80b–11 and 7201 et seq.; 18 U.S.C. 1350; sec. 

953(b), Pub. L. 111–203, 124 Stat. 1904 

(2010); and sec. 102(c), Pub. L. 112–106, 126 

Stat. 310 (2012). 

■ 11. Amend § 229.10 by: 

■ a. Revising paragraph (b); and 

■ b. Adding paragraph (f)(2)(iv). 

The revisions and additions read as 

follows. 

§ 229.10 (Item 10) General. 

* * * * * 

(b) Commission policy on projections. 

The Commission encourages the use in 

documents specified in Rule 175 under 

the Securities Act (§ 230.175 of this 

chapter) and Rule 3b–6 under the 

Exchange Act (§ 240.3b–6 of this 

chapter) of management’s projections of 

future economic performance that have 

a reasonable basis and are presented in 

an appropriate format. The guidelines 

set forth herein represent the 

Commission’s views on important 

factors to be considered in formulating 

and disclosing such projections. These 

guidelines also apply to projections of 

future economic performance of persons 

other than the registrant, such as the 

target company in a business 

combination transaction, that are 

included in the registrant’s Commission 

filings. 

(1) Basis for projections. The 

Commission believes that management 

must have the option to present in 

Commission filings its good faith 

assessment of a registrant’s future 

performance. Management, however, 

must have a reasonable basis for such an 

assessment. Although a history of 

operations or experience in projecting 

may be among the factors providing a 

basis for management’s assessment, the 

Commission does not believe that a 

registrant always must have had such a 

history or experience in order to 

formulate projections with a reasonable 

basis. An outside review of 

management’s projections may furnish 

additional support for having a 

reasonable basis for a projection. If 

management decides to include a report 

of such a review in a Commission filing, 

there also should be disclosure of the 

qualifications of the reviewer, the extent 

of the review, the relationship between 

the reviewer and the registrant, and 

other material factors concerning the 

process by which any outside review 

was sought or obtained. Moreover, in 

the case of a registration statement 

under the Securities Act, the reviewer 

would be deemed an expert and an 

appropriate consent must be filed with 

the registration statement. 

(2) Format for projections. (i) In 

determining the appropriate format for 

projections included in Commission 

filings, consideration must be given to, 

among other things, the financial items 

to be projected, the period to be 

covered, and the manner of presentation 

to be used. Although traditionally 

projections have been given for three 

financial items generally considered to 

be of primary importance to investors 

(revenues, net income (loss) and 

earnings (loss) per share), projection 

information need not necessarily be 

limited to these three items. However, 

management should take care to assure 

that the choice of items projected is not 

susceptible of misleading inferences 

through selective projection of only 

favorable items. Revenues, net income 

(loss) and earnings (loss) per share 

usually are presented together in order 

to avoid any misleading inferences that 

may arise when the individual items 

reflect contradictory trends. There may 

be instances, however, when it is 

appropriate to present earnings (loss) 

from continuing operations in addition 

to or in lieu of net income (loss). It 

generally would be misleading to 

present sales or revenue projections 

without one of the foregoing measures 

of income. The period that 

appropriately may be covered by a 

projection depends to a large extent on 

the particular circumstances of the 

company involved. For certain 

companies in certain industries, a 

projection covering a two or three year 

period may be entirely reasonable. 

Other companies may not have a 

reasonable basis for projections beyond 

the current year. Accordingly, 

management should select the period 

most appropriate in the circumstances. 

In addition, management, in making a 

projection, should disclose what, in its 

opinion, is the most probable specific 

amount or the most reasonable range for 

each financial item projected based on 

the selected assumptions. Ranges, 

however, should not be so wide as to 

make the disclosures meaningless. 

Moreover, several projections based on 

varying assumptions may be judged by 

management to be more meaningful 

than a single number or range and 

would be permitted. 

(ii) The presentation of projected 

measures that are not based on 

historical financial results or 

operational history should be clearly 

distinguished from projected measures 

that are based on historical financial 

results or operational history. 

(iii) It generally would be misleading 

to present projections that are based on 

historical financial results or 

operational history without presenting 

such historical financial measure or 

operational history with equal or greater 

prominence. 


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(iv) The presentation of projections 

that include non-GAAP financial 

measures should include a clear 

definition or explanation of those 

financial measures, a description of the 

Generally Accepted Accounting 

Principles (GAAP) financial measure to 

which it is most closely related, and an 

explanation why the non-GAAP 

measure was selected instead of a GAAP 

measure. 

* * * * * 

(f) * * * 

* * * * * 

(2) * * * 

(iv) Upon the consummation of a deSPAC transaction, as defined in Item 

1601(a) of Regulation S–K (17 CFR 

229.1601(a)), an issuer must redetermine its status as a smaller 

reporting company pursuant to the 

thresholds set forth in paragraph (f)(1) of 

this section prior to its first filing, other 

than pursuant to Items 2.01(f), 

5.01(a)(8), and/or 9.01(c) of Form 8–K, 

following the de-SPAC transaction and 

reflect this re-determination in its next 

periodic report. 

(A) Public float is measured as of a 

date within four business days after the 

consummation of the de-SPAC 

transaction and is computed by 

multiplying the aggregate worldwide 

number of shares of its voting and nonvoting common equity held by nonaffiliates as of that date by the price at 

which the common equity was last sold, 

or the average of the bid and asked 

prices of common equity, in the 

principal market for the common equity; 

and 

(B) Annual revenues are the annual 

revenues of the target company, as 

defined in Item 1601(d) of Regulation S– 

K (17 CFR 229.1601(d)), as of the most 

recently completed fiscal year reported 

in the Form 8–K filed pursuant to Items 

2.01(f), 5.01(a)(8), and/or 9.01(c) of 

Form 8–K. 

* * * * * 

■ 12. Amend § 229.601 by adding 

paragraph (b)(101)(i)(D) to read as 

follows: 

§ 229.601 (Item 601) Exhibits. 

* * * * * 

(b) * * * 

(101) * * * 

(i) * * * 

(D) Any filing that is subject to the 

exceptions listed in paragraphs (A), (B), 

or (C), and contains any disclosure 

required by subpart 229.1600 of this 

part, must include an Interactive Data 

File consisting solely of that disclosure. 

* * * * * 

■ 13. Amend part 229 by adding subpart 

229.1600 to read as follows: 

Subpart 229.1600—Special Purpose 

Acquisition Companies 

Sec. 

229.1601 (Item 1601) Definitions. 

229.1602 (Item 1602) Registered offerings 

by special purpose acquisition 

companies. 

229.1603 (Item 1603) SPAC sponsor; 

conflicts of interest. 

229.1604 (Item 1604) De-SPAC transactions. 

229.1605 (Item 1605) Background of and 

reasons for the de-SPAC transaction; 

terms of the de-SPAC transaction; effects. 

229.1606 (Item 1606) Fairness of the deSPAC transaction and any related 

financing transaction. 

229.1607 (Item 1607) Reports, opinions, 

appraisals and negotiations. 

229.1608 (Item 1608) Tender offer filing 

obligations in de-SPAC transactions. 

229.1609 (Item 1609) Financial projections 

in de-SPAC transactions. 

229.1610 (Item 1610) Structured data 

requirement. 

Subpart 229.1600—Special Purpose 

Acquisition Companies 

§ 229.1601 (Item 1601) Definitions. 

For the purposes of this subpart 

229.1600: 

(a) De-SPAC transaction. The term deSPAC transaction means a business 

combination such as a merger, 

consolidation, exchange of securities, 

acquisition of assets, or similar 

transaction involving a special purpose 

acquisition company and one or more 

target companies (contemporaneously, 

in the case of more than one target 

company). 

(b) Special purpose acquisition 

company (SPAC). The term special 

purpose acquisition company means a 

company that has indicated that its 

business plan is to: 

(1) Register a primary offering of 

securities that is not subject to the 

requirements of § 230.419 (Rule 419 

under the Securities Act); 

(2) Complete a de-SPAC transaction 

within a specified time frame; and 

(3) Return all remaining proceeds 

from the registered offering and any 

concurrent offerings to its shareholders 

if the company does not complete a deSPAC transaction within the specified 

time frame. 

(c) SPAC sponsor. The term SPAC 

sponsor means the entity and/or 

person(s) primarily responsible for 

organizing, directing or managing the 

business and affairs of a special purpose 

acquisition company, other than in their 

capacities as directors or officers of the 

special purpose acquisition company as 

applicable. 

(d) Target company. The term target 

company means an operating company, 

business or assets. 

§ 229.1602 (Item 1602) Registered 

offerings by special purpose acquisition 

companies. 

(a) Forepart of registration statement 

and outside cover page of the 

prospectus. In addition to the 

information required by § 229.501 (Item 

501 of Regulation S–K), provide the 

following information on the outside 

front cover page of the prospectus in 

plain English as required by 

§ 230.421(d) of this chapter: 

(1) State the time frame for the special 

purpose acquisition company to 

consummate a de-SPAC transaction and 

whether this time frame may be 

extended. 

(2) State whether security holders will 

have the opportunity to redeem the 

securities offered and whether the 

redemptions will be subject to any 

limitations. 

(3) State the amount of the 

compensation received or to be received 

by the SPAC sponsor and its affiliates, 

and whether this compensation may 

result in a material dilution of the 

purchasers’ equity interests. Provide a 

cross-reference, highlighted by 

prominent type or in another manner, to 

the locations of related disclosures in 

the prospectus. 

(4) Disclose in the tabular format 

specified below the estimated remaining 

pro forma net tangible book value per 

share at quartile intervals up to the 

maximum redemption threshold, 

consistent with the methodologies and 

assumptions used in the disclosure 

provided pursuant to § 229.506 (Item 

506 of Regulation S–K), and provide a 

cross-reference, highlighted by 

prominent type or in another manner, to 

the locations of related disclosures in 

the prospectus: 


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TABLE 1 TO PARAGRAPH (a)(4) 

Remaining pro forma net tangible book value per share 

Offering price of ll 

25% of 

maximum 

redemption 

50% of 

maximum 

redemption 

75% of 

maximum 

redemption 

Maximum 

redemption 

Instruction 1 to Item 1602(a)(4). If the 

offering includes an over-allotment 

option, include separate rows in the 

tabular disclosure showing remaining 

pro forma net tangible book value per 

share with and without the exercise of 

the over-allotment option. 

(5) State whether there may be actual 

or potential conflicts of interest between 

the SPAC sponsor or its affiliates or 

promoters and purchasers in the 

offering. Provide a cross-reference, 

highlighted by prominent type or in 

another manner, to the locations of 

related disclosures in the prospectus. 

(b) Prospectus summary. The 

information required by § 229.503(a) 

(Item 503(a) of Regulation S–K) shall 

include, but not be limited to, a brief 

description of the following in plain 

English as required by § 230.421(d) of 

this chapter: 

(1) The manner in which the special 

purpose acquisition company will 

identify and evaluate potential business 

combination candidates and whether it 

will solicit shareholder approval for the 

de-SPAC transaction; 

(2) The material terms of the trust or 

escrow account and the amount or 

percentage of the gross offering proceeds 

that the special purpose acquisition 

company will place in the trust or 

escrow account; 

(3) The material terms of the 

securities being offered, including 

redemption rights, and whether the 

securities are the same class as those 

held by the SPAC sponsor and its 

affiliates; 

(4) The period of time in which the 

special purpose acquisition company 

intends to consummate a de-SPAC 

transaction and its plans in the event 

that it does not consummate a de-SPAC 

transaction within this time period, 

including whether, and if so, how, it 

may extend the time period; any 

limitations on extensions, including the 

number of times; the consequences to 

the SPAC sponsor of not completing an 

extension of this time period; and 

whether security holders will have 

voting or redemption rights with respect 

to such an extension; 

(5) Any plans to seek additional 

financings and how the terms of 

additional financings may impact 

unaffiliated security holders; 

(6) In a tabular format, the nature and 

amount of the compensation received or 

to be received by the SPAC sponsor, its 

affiliates and promoters, and the extent 

to which this compensation may result 

in a material dilution of the purchasers’ 

equity interests; and 

(7) Any material actual or potential 

conflicts of interest between the SPAC 

sponsor or its affiliates or promoters and 

purchasers in the offering, including 

those that may arise in determining 

whether to pursue a de-SPAC 

transaction. 

(c) Dilution. In addition to the 

disclosure required by § 229.506 (Item 

506 of Regulation S–K), describe 

material potential sources of future 

dilution following the registered 

offering by the special purpose 

acquisition company. Disclose in 

tabular format the amount of future 

dilution from the public offering price 

that will be absorbed by purchasers of 

the securities being offered, to the extent 

known and quantifiable. 

§ 229.1603 (Item 1603) SPAC sponsor; 

conflicts of interest. 

(a) SPAC sponsor, its affiliates and 

promoters. Provide the following 

information about the SPAC sponsor, its 

affiliates and promoters of the special 

purpose acquisition company: 

(1) State the SPAC sponsor’s name 

and describe the SPAC sponsor’s form 

of organization. 

(2) Describe the general character of 

the SPAC sponsor’s business. 

(3) Describe the experience of the 

SPAC sponsor, its affiliates and any 

promoters in organizing special purpose 

acquisition companies and the extent to 

which the SPAC sponsor, its affiliates 

and the promoters are involved in other 

special purpose acquisition companies. 

(4) Describe the material roles and 

responsibilities of the SPAC sponsor, its 

affiliates and any promoters in directing 

and managing the special purpose 

acquisition company’s activities. 

(5) Describe any agreement, 

arrangement or understanding between 

the SPAC sponsor and the special 

purpose acquisition company, its 

executive officers, directors or affiliates 

in determining whether to proceed with 

a de-SPAC transaction. 

(6) Disclose the nature (e.g., cash, 

shares of stock, warrants and rights) and 

amounts of all compensation that has or 

will be awarded to, earned by, or paid 

to the SPAC sponsor, its affiliates and 

any promoters for all services rendered 

in all capacities to the special purpose 

acquisition company and its affiliates. 

In addition, disclose the nature and 

amounts of any reimbursements to be 

paid to the SPAC sponsor, its affiliates 

and any promoters upon the completion 

of a de-SPAC transaction. 

(7) Identify the controlling persons of 

the SPAC sponsor. Disclose, as of the 

most recent practicable date, the 

persons who have direct and indirect 

material interests in the SPAC sponsor, 

as well as the nature and amount of 

their interests. Provide an organizational 

chart that shows the relationship 

between the special purpose acquisition 

company, the SPAC sponsor, and the 

SPAC sponsor’s affiliates. 

(8) Describe any agreement, 

arrangement or understanding, 

including any payments, between the 

SPAC sponsor and unaffiliated security 

holders of the special purpose 

acquisition company regarding the 

redemption of outstanding securities of 

the special purpose acquisition 

company. 

(9) Disclose, in a tabular format to the 

extent practicable, the material terms of 

any agreement, arrangement or 

understanding regarding restrictions on 

whether and when the SPAC sponsor 

and its affiliates may sell securities of 

the special purpose acquisition 

company, including the date(s) on 

which the agreement, arrangement or 

understanding may expire; the natural 

persons and entities subject to such an 

agreement, arrangement or 

understanding; any exceptions under 

such an agreement, arrangement or 

understanding; and any terms that 

would result in an earlier expiration of 

such an agreement, arrangement or 

understanding. 


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(b) Conflicts of interest. Describe any 

actual or potential material conflict of 

interest, including any material conflict 

of interest in determining whether to 

proceed with a de-SPAC transaction and 

any material conflict of interest arising 

from the manner in which the special 

purpose acquisition company 

compensates the SPAC sponsor, 

executive officers and directors or the 

manner in which the SPAC sponsor 

compensates its executive officers and 

directors, between: 

(1) The SPAC sponsor or its affiliates 

or the special purpose acquisition 

company’s officers, directors, or 

promoters; and 

(2) Unaffiliated security holders. 

(c) Briefly describe the fiduciary 

duties of each officer and director of the 

special purpose acquisition company to 

other companies to which they have 

fiduciary duties. 

§ 229.1604 (Item 1604) De-SPAC 

transactions. 

(a) Forepart of registration statement 

and outside cover page of the 

prospectus. In addition to the 

information required by § 229.501 (Item 

501 of Regulation S–K), provide the 

following information on the outside 

front cover page of the prospectus in 

plain English as required by 

§ 230.421(d) of this chapter: 

(1) State whether the special purpose 

acquisition company reasonably 

believes that the de-SPAC transaction is 

fair or unfair to unaffiliated security 

holders, and whether the special 

purpose acquisition company or the 

SPAC sponsor has received a report, 

opinion or appraisal from an outside 

party regarding the fairness of the 

transaction. 

(2) Describe briefly any material 

financing transactions that have 

occurred since the initial public offering 

of the special purpose acquisition 

company or will occur in connection 

with the consummation of the de-SPAC 

transaction. 

(3) State the amount of the 

compensation received or to be received 

by the SPAC sponsor, its affiliates and 

promoters in connection with the deSPAC transaction or any related 

financing transaction, and whether this 

compensation may result in a material 

dilution of the equity interests of nonredeeming shareholders who hold the 

securities until the consummation of the 

de-SPAC transaction. Provide a crossreference, highlighted by prominent 

type or in another manner, to the 

locations of related disclosures in the 

prospectus. 

(4) State whether there may be 

material actual or potential conflicts of 

interest between the SPAC sponsor or 

its affiliates or promoters and 

unaffiliated security holders in 

connection with the de-SPAC 

transaction. Provide a cross-reference, 

highlighted by prominent type or in 

another manner, to the locations of 

related disclosures in the prospectus. 

(b) Prospectus summary. The 

information required by § 229.503(a) 

(Item 503(a) of Regulation S–K) shall 

include, but not be limited to, a brief 

description of the following in plain 

English as required by § 230.421(d) of 

this chapter: 

(1) The background and material 

terms of the de-SPAC transaction; 

(2) Whether the special purpose 

acquisition company reasonably 

believes that the de-SPAC transaction is 

fair or unfair to unaffiliated security 

holders, the bases for such belief, and 

whether the special purpose acquisition 

company or the SPAC sponsor has 

received any report, opinion or 

appraisal from an outside party 

concerning the fairness of the de-SPAC 

transaction; 

(3) Any material actual or potential 

conflicts of interest between the SPAC 

sponsor or its affiliates or promoters and 

unaffiliated security holders in 

connection with the de-SPAC 

transaction; 

(4) In a tabular format, the terms and 

amount of the compensation received or 

to be received by the SPAC sponsor and 

its affiliates in connection with the deSPAC transaction or any related 

financing transaction, and whether that 

compensation has resulted or may result 

in a material dilution of the equity 

interests of unaffiliated security holders 

of the special purpose acquisition 

company; 

(5) The material terms of any 

financing transactions that have 

occurred or will occur in connection 

with the consummation of the de-SPAC 

transaction, the anticipated use of 

proceeds from these financing 

transactions and the dilutive impact, if 

any, of these financing transactions on 

unaffiliated security holders; and 

(6) The rights of security holders to 

redeem the outstanding securities of the 

special purpose acquisition company 

and the potential impact of redemptions 

on the value of the securities owned by 

non-redeeming shareholders. 

(c) Dilution. Describe each material 

potential source of future dilution that 

non-redeeming shareholders may 

experience by electing not to tender 

their shares in connection with the deSPAC transaction. 

(1) Provide sensitivity analysis 

disclosure in tabular format that 

expresses the amount of potential 

dilution under a range of reasonably 

likely redemption levels. At each 

redemption level in the sensitivity 

analysis, quantify the dilutive impact on 

non-redeeming shareholders of each 

source of dilution, such as the amount 

of compensation paid or to be paid to 

the SPAC sponsor, the terms of 

outstanding warrants and convertible 

securities, and underwriting and other 

fees. For each redemption level in the 

sensitivity analysis, state the company 

valuation at or above which the 

potential dilution results in the amount 

of the non-redeeming shareholders’ 

interest per share being at least the 

initial public offering price per share of 

common stock. 

(2) Provide a description of the model, 

methods, assumptions, estimates, and 

parameters necessary to understand the 

sensitivity analysis disclosure. 

§ 229.1605 (Item 1605) Background of and 

reasons for the de-SPAC transaction; terms 

of the de-SPAC transaction; effects. 

(a) Furnish a summary of the 

background of the de-SPAC transaction. 

Such summary shall include, but not be 

limited to, a description of any contacts, 

negotiations or transactions that have 

occurred concerning the de-SPAC 

transaction. 

(b) State the material terms of the deSPAC transaction, including but not 

limited to: 

(1) A brief description of the de-SPAC 

transaction; 

(2) A brief description of any related 

financing transaction, including any 

payments from the SPAC sponsor to 

investors in connection with the 

financing transaction; 

(3) A reasonably detailed discussion 

of the reasons for engaging in the deSPAC transaction and for the structure 

and timing of the de-SPAC transaction 

and any related financing transaction; 

(4) An explanation of any material 

differences in the rights of security 

holders of the combined company as a 

result of the de-SPAC transaction after 

the completion of the de-SPAC 

transaction; 

(5) A brief statement as to the 

accounting treatment of the de-SPAC 

transaction, if material; and 

(6) The Federal income tax 

consequences of the de-SPAC 

transaction, if material. 

(c) Describe the effects of the de-SPAC 

transaction and any related financing 

transaction on the special purpose 

acquisition company and its affiliates, 

the SPAC sponsor and its affiliates, the 

target company and its affiliates, and 

unaffiliated security holders of the 

special purpose acquisition company. 

The description must include a 


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reasonably detailed discussion of both 

the benefits and detriments of the deSPAC transaction and any related 

financing transaction to the special 

purpose acquisition company and its 

affiliates, the SPAC sponsor and its 

affiliates, the target company and its 

affiliates, and unaffiliated security 

holders. The benefits and detriments of 

the de-SPAC transaction and any related 

financing transaction must be quantified 

to the extent practicable. 

(d) Disclose any material interests in 

the de-SPAC transaction or any related 

financing transaction held by the SPAC 

sponsor and the special purpose 

acquisition company’s officers and 

directors, including fiduciary or 

contractual obligations to other entities 

as well as any interest in, or affiliation 

with, the target company. 

(e) State whether or not security 

holders are entitled to any redemption 

or appraisal rights. If so, summarize the 

redemption or appraisal rights. If there 

are no redemption or appraisal rights 

available for security holders who object 

to the de-SPAC transaction, briefly 

outline any other rights that may be 

available to security holders. 

§ 229.1606 (Item 1606) Fairness of the deSPAC transaction and any related financing 

transaction. 

(a) Fairness. State whether the special 

purpose acquisition company 

reasonably believes that the de-SPAC 

transaction and any related financing 

transaction are fair or unfair to 

unaffiliated security holders of the 

special purpose acquisition company. If 

any director voted against, or abstained 

from voting on, approval of the de-SPAC 

transaction or any related financing 

transaction, identify the director, and 

indicate, if known, after making 

reasonable inquiry, the reasons for the 

vote against the transaction or 

abstention. 

(b) Factors considered in determining 

fairness. Discuss in reasonable detail the 

material factors upon which the belief 

stated in paragraph (a) of this section is 

based and, to the extent practicable, the 

weight assigned to each factor. Such 

factors shall include, but not be limited 

to, the valuation of the target company, 

the consideration of any financial 

projections, any report, opinion or 

appraisal described in § 229.1607 (Item 

1607 of Regulation S–K), and the 

dilutive effects described in 

§ 229.1604(c) (Item 1604(c) of 

Regulation S–K). 

(c) Approval of security holders. State 

whether or not the de-SPAC transaction 

or any related financing transaction is 

structured so that approval of at least a 

majority of unaffiliated security holders 

is required. 

(d) Unaffiliated representative. State 

whether or not a majority of directors 

who are not employees of the special 

purpose acquisition company has 

retained an unaffiliated representative 

to act solely on behalf of unaffiliated 

security holders for purposes of 

negotiating the terms of the de-SPAC 

transaction or any related financing 

transaction and/or preparing a report 

concerning the fairness of the de-SPAC 

transaction or any related financing 

transaction. 

(e) Approval of directors. State 

whether or not the de-SPAC transaction 

or any related financing transaction was 

approved by a majority of the directors 

of the special purpose acquisition 

company who are not employees of the 

special purpose acquisition company. 

Instruction 1 to Item 1606: A 

statement that the special purpose 

acquisition company has no reasonable 

belief as to the fairness or unfairness of 

the de-SPAC transaction or any related 

financing transaction to unaffiliated 

security holders will not be considered 

sufficient disclosure in response to 

paragraph (a) of this section. 

§ 229.1607 (Item 1607) Reports, opinions, 

appraisals and negotiations. 

(a) Report, opinion or appraisal. State 

whether or not the special purpose 

acquisition company or SPAC sponsor 

has received any report, opinion or 

appraisal from an outside party relating 

to the consideration or the fairness of 

the consideration to be offered to 

security holders or the fairness of the 

de-SPAC transaction or any related 

financing transaction to the special 

purpose acquisition company, SPAC 

sponsor or security holders who are not 

affiliates. 

(b) Preparer and summary of the 

report, opinion or appraisal. For each 

report, opinion or appraisal described in 

response to paragraph (a) of this section 

or any negotiation or report described in 

response to § 229.1606(d) (Item 1606(d) 

of Regulation S–K) concerning the terms 

of the transaction: 

(1) Identify the outside party and/or 

unaffiliated representative; 

(2) Briefly describe the qualifications 

of the outside party and/or unaffiliated 

representative; 

(3) Describe the method of selection of 

the outside party and/or unaffiliated 

representative; 

(4) Describe any material relationship 

that existed during the past two years or 

is mutually understood to be 

contemplated and any compensation 

received or to be received as a result of 

the relationship between: 

(i) The outside party, its affiliates, 

and/or unaffiliated representative; and 

(ii) The special purpose acquisition 

company, the SPAC sponsor and/or 

their respective affiliates, 

(5) State whether the special purpose 

acquisition company or SPAC sponsor 

determined the amount of consideration 

to be paid to the target company or its 

security holders, or the valuation of the 

target company, or whether the outside 

party recommended the amount of 

consideration to be paid or the valuation 

of the target company; and 

(6) Furnish a summary concerning the 

negotiation, report, opinion or appraisal. 

The summary must include, but need 

not be limited to, the procedures 

followed; the findings and 

recommendations; the bases for and 

methods of arriving at such findings and 

recommendations; instructions received 

from the special purpose acquisition 

company or SPAC sponsor; and any 

limitation imposed by the special 

purpose acquisition company or SPAC 

sponsor on the scope of the 

investigation. 

Instruction 1 to Item 1607(b): The 

information called for by paragraphs 

(b)(1), (2), and (3) of this section must 

be given with respect to the firm that 

provides the report, opinion, or 

appraisal rather than the employees of 

the firm that prepared the report. 

(c) All reports, opinions or appraisals 

referred to in paragraph (a) of this 

section shall be, as applicable, filed as 

exhibits to the registration statement or 

schedule or included in the schedule if 

the schedule does not have exhibit filing 

requirements. 

§ 229.1608 (Item 1608) Tender offer filing 

obligations in de-SPAC transactions. 

If the special purpose acquisition 

company files a Schedule TO 

(§ 240.14d–100) pursuant to § 240.13e– 

4(c)(2) (Rule 13e–4(c)(2)) for any 

redemption of securities offered to 

security holders, such Schedule TO 

must provide the information required 

by General Instruction L.2. to 

Form S–4, General Instruction I.2. to 

Form F–4, and Item 14(f) of Schedule 

14A, as applicable, in addition to the 

information otherwise required by 

Schedule TO. Such redemption shall be 

conducted in compliance with all other 

provisions of Rule 13e–4 and Regulation 

14E. 

§ 229.1609 (Item 1609) Financial 

projections in de-SPAC transactions. 

(a) With respect to any projections 

disclosed in the filing, disclose the 

purpose for which the projections were 

prepared and the party that prepared the 

projections. 


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(b) Disclose all material bases of the 

disclosed projections and all material 

assumptions underlying the projections, 

and any factors that may impact such 

assumptions. The disclosure referred to 

in this section should include a 

discussion of any material growth rates 

or discount multiples used in preparing 

the projections, and the reasons for 

selecting such growth rates or discount 

multiples. 

(c) If the projections relate to the 

performance of the special purpose 

acquisition company, state whether the 

projections reflect the view of the 

special purpose acquisition company’s 

management or board about its future 

performance as of the date of the filing. 

If the projections relate to the target 

company, disclose whether the target 

company has affirmed to the special 

purpose acquisition company that its 

projections reflect the view of the target 

company’s management or board about 

its future performance as of the date of 

the filing. If the projections no longer 

reflects the views of the special purpose 

acquisition company’s or the target 

company’s management or board 

regarding the future performance of 

their respective companies as the date of 

the filing, state the purpose of disclosing 

the projections and the reasons for any 

continued reliance by the management 

or board on the projections. 

§ 229.1610 (Item 1610) Structured data 

requirement. 

Provide the disclosure required by 

this subpart 229.1600 in an Interactive 

Data File in accordance with Rule 405 

of Regulation S–T and the EDGAR Filer 

Manual. 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 14. The general authority citation for 

part 230 continues to read as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 

77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 

78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 

28, 80a–29, 80a–30, and 80a–37, and Public 

Law 112–106, sec. 201(a), sec. 401, 126 Stat. 

313 (2012), unless otherwise noted. 

* * * * * 

■ 15. Revise § 230.137(d)(1) to read as 

follows: 

§ 230.137 Publications or distributions of 

research reports by brokers or dealers that 

are not participating in an issuer’s 

registered distribution of securities. 

* * * * * 

(d) * * * 

(1) A blank check company issuing 

penny stock, as defined in § 230.405 

(Rule 405); 

* * * * * 

■ 16. Revise § 230.138(a)(4)(i) to read as 

follows: 

§ 230.138 Publications or distributions of 

research reports by brokers or dealers 

about securities other than those they are 

distributing. 

(a) * * * 

(4) * * * 

(i) A blank check company issuing 

penny stock, as defined in § 230.405 

(Rule 405); 

* * * * * 

■ 17. Revise § 230.139(a)(1)(ii)(A) to 

read as follows: 

§ 230.139 Publications or distributions of 

research reports by brokers or dealers 

distributing securities. 

(a) * * * 

(1) * * * 

(ii) * * * 

(A) A blank check company issuing 

penny stock, as defined in § 230.405 

(Rule 405); 

* * * * * 

■ 18. Add § 230.140a to read as follows: 

§ 230.140a Definition of ‘‘distribution’’ in 

section 2(a)(11) for certain parties. 

A person who has acted as an 

underwriter of the securities of a special 

purpose acquisition company and takes 

steps to facilitate the de-SPAC 

transaction, or any related financing 

transaction, or otherwise participates 

(directly or indirectly) in the de-SPAC 

transaction will be deemed to be 

engaged in the distribution of the 

securities of the surviving public entity 

in a de-SPAC transaction within the 

meaning of section 2(a)(11) of the Act. 

Terms used in this subsection have the 

same definitions as in Item 1601 of 

Regulation S–K (17 CFR 229.1601). 

■ 19. Add § 230.145a to read as follows: 

§ 230.145a Business combinations with 

reporting shell companies. 

With respect to a reporting shell 

company’s shareholders, any direct or 

indirect business combination of a 

reporting shell company that is not a 

business combination related shell 

company involving another entity that 

is not a shell company, as those terms 

are defined in § 230.405, is deemed to 

involve an offer, offer to sell, offer for 

sale, or sale within the meaning of 

section 2(a)(3) of the Act. For purposes 

of this rule, a reporting shell company 

is a company other than an asset-backed 

issuer as defined in Item 1101(b) of 

Regulation AB (§ 229.1101(b) of this 

chapter), that has: 

(1) No or nominal operations; 

(2) Either: 

(i) No or nominal assets; 

(ii) Assets consisting solely of cash 

and cash equivalents; or 

(iii) Assets consisting of any amount 

of cash and cash equivalents and 

nominal other assets; and 

(3) an obligation to file reports under 

Section 13 (15 U.S.C. 78m) or Section 

15(d) (15 U.S.C. 78o(d)) of the Securities 

Exchange Act of 1934 (15 U.S.C. 78a et 

seq.). 

* * * * * 

■ 20. Amend § 230.163A by: 

■ a. Removing the preliminary note; 

■ b. Adding an introductory paragraph; 

and 

■ c. Revising paragraph (b)(3)(i). 

The revision and addition read as 

follows: 

§ 230.163A Exemption from section 5(c) of 

the Act for certain communications made 

by or on behalf of issuers more than 30 

days before a registration statement is filed. 

Attempted compliance with this 

section does not act as an exclusive 

election and the issuer also may claim 

the availability of any other applicable 

exemption or exclusion. Reliance on 

this section does not affect the 

availability of any other exemption or 

exclusion from the requirements of 

section 5 of the Act. 

* * * * * 

(b) * * * 

(3) * * * 

(i) A blank check company issuing 

penny stock, as defined in § 230.405 

(Rule 405); 

* * * * * 

■ 21. Amend § 230.164 by: 

■ a. Removing the preliminary notes; 

■ b. Adding an introductory paragraph; 

and 

■ c. Revising paragraph (e)(2)(i). 

The revision and addition read as 

follows: 

§ 230.164 Post-filing free writing 

prospectuses in connection with certain 

registered offerings. 

This section is not available for any 

communication that, although in 

technical compliance with this section, 

is part of a plan or scheme to evade the 

requirements of section 5 of the Act. 

Attempted compliance with this section 

does not act as an exclusive election and 

the person relying on this section also 

may claim the availability of any other 

applicable exemption or exclusion. 

Reliance on this section does not affect 

the availability of any other exemption 

or exclusion from the requirements of 

section 5 of the Act. 

* * * * * 

(e) * * * 

(2) * * * 


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(i) A blank check company issuing 

penny stock, as defined in § 230.405 

(Rule 405); 

* * * * * 

■ 22. Amend § 230.174 by revising the 

heading and paragraph (g) to read as 

follows: 

§ 230.174 Delivery of prospectus by 

dealers; exemptions under section 4(a)(3) of 

the Act. 

* * * * * 

(g) If the registration statement relates 

to an offering of securities of a blank 

check company issuing penny stock, as 

defined in Rule 405 (§ 230.405), the 

statutory period for prospectus delivery 

specified in section 4(a)(3) of the Act 

shall not terminate until 90 days after 

the date funds and securities are 

released from the escrow or trust 

account pursuant to Rule 419 under the 

Act (17 CFR 230.419). 

* * * * * 

■ 23. Amend § 230.405 by: 

■ a. Adding the definition for ‘‘blank 

check company’’ in alphabetical order; 

■ b. Adding the definition for ‘‘blank 

check company issuing penny stock’’ in 

alphabetical order; 

■ c. Revising paragraph (1)(ii)(A) in the 

definition for ‘‘ineligible issuer’’; and 

■ d. Adding paragraph (3)(iv) to the 

definition for ‘‘smaller reporting 

company’’. 

The additions and revisions read as 

follows: 

§ 230.405 Definitions of terms. 

* * * * * 

Blank check company. The term 

blank check company means a company 

that has no specific business plan or 

purpose or has indicated that its 

business plan is to engage in a merger 

or acquisition with an unidentified 

company or companies, or other entity 

or person. 

* * * * * 

Blank check company issuing penny 

stock. The term blank check company 

issuing penny stock means a company 

that is subject to § 230.419 of this 

chapter. 

* * * * * 

Ineligible issuer. (1) * * * 

(ii) * * * 

(A) A blank check company issuing 

penny stock (as defined in § 230.405); 

* * * * * 

Smaller reporting company. * * * 

(3) * * * 

(iv) Upon the consummation of a deSPAC transaction, as defined in 

§ 229.1601(a) (Item 1601(a) of 

Regulation S–K), an issuer must redetermine its status as a smaller 

reporting company pursuant to the 

thresholds set forth in paragraphs (1) 

and (2) of this definition prior to its first 

filing, other than pursuant to Items 

2.01(f), 5.01(a)(8), and/or 9.01(c) of 

Form 8–K, following the de-SPAC 

transaction and reflect this redetermination in its next periodic 

report. 

(A) Public float is measured as of a 

date within four business days after the 

consummation of the de-SPAC 

transaction and is computed by 

multiplying the aggregate worldwide 

number of shares of its voting and nonvoting common equity held by nonaffiliates as of that date by the price at 

which the common equity was last sold, 

or the average of the bid and asked 

prices of common equity, in the 

principal market for the common equity; 

and 

(B) Annual revenues are the annual 

revenues of the target company, as 

defined in § 229.1601(d) (Item 1601(d) 

of Regulation S–K), as of the most 

recently completed fiscal year reported 

in the Form 8–K filed pursuant to Items 

2.01(f), 5.01(a)(8), and/or 9.01(c) of 

Form 8–K. 

* * * * * 

■ 24. Amend § 230.419 by: 

■ a. Revising the heading; 

■ b. Revising paragraph (a)(1); 

■ c. Removing paragraph (a)(2); 

■ d. Redesignating paragraph (a)(3) as 

paragraph (a)(2); and 

■ e. Revising paragraph (b)(1)(i). 

The revisions read as follows: 

§ 230.419 Offerings by blank check 

companies issuing penny stock. 

(a) * * * 

(1) The provisions of this section shall 

apply to every registration statement 

filed under the Act relating to an 

offering by a blank check company that: 

(i) Is a development stage company; 

and 

(ii) Is issuing ‘‘penny stock,’’ as 

defined in § 240.3a51–1 of this chapter 

(Rule 3a51–1) under the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’). 

* * * * * 

(b) * * * 

(1) * * * 

(i) Except as otherwise provided in 

this section or prohibited by other 

applicable law, all securities issued in 

connection with an offering by a blank 

check company subject to this section 

and the gross proceeds from the offering 

shall be deposited promptly into: 

* * * * * 

■ 25. Revise § 230.430B(b)(2)(iv)(A) to 

read as follows: 

§ 230.430B Prospectus in a registration 

statement after effective date. 

(b) * * * 

(2) * * * 

(iv) * * * 

(A) A blank check company issuing 

penny stock, as defined in § 230.405 

(Rule 405); 

* * * * * 

■ 26. Revise § 230.437a(a)(1) to read as 

follows: 

§ 230.437a Written consents. 

(a) * * * 

(1) Are not a blank check company 

issuing penny stock, as defined in 

§ 230.405 (Rule 405); and 

* * * * * 

PART 232—REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

■ 27. The general authority citation for 

part 232 continues to read in part as 

follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 

77j, 77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 

78n, 78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 

80a–29, 80a–30, 80a–37, 7201 et seq.; and 18 

U.S.C. 1350, unless otherwise noted. 

* * * * * 

■ 28. Amend § 232.405 by: 

■ a. Revising the introductory text and 

paragraphs (a)(2) and (4); 

■ b. Removing ‘‘and’’ from the end of 

the paragraph (b)(1)(i); 

■ c. Removing the period and adding in 

its place ‘‘; and’’ in paragraph (b)(1)(ii); 

■ d. Adding paragraph (b)(1)(iii); 

■ e. Adding paragraph (b)(4); and 

■ f. Revising Note 1 to § 232.405. 

The revisions and additions read as 

follows: 

§ 232.405 Interactive Data File 

Submissions. 

This section applies to electronic 

filers that submit Interactive Data Files. 

Section 229.601(b)(101) of this chapter 

(Item 601(b)(101) of Regulation S–K), 

paragraph (101) of Part II—Information 

Not Required to be Delivered to Offerees 

or Purchasers of Form F–10 (§ 239.40 of 

this chapter), Note D.5 of Exchange Act 

Rule 14a–101 (§ 240.14a–101 of this 

chapter), General Instruction L of 

Exchange Act Rule 14d–100 (240.14d– 

100 of this chapter), paragraph 101 of 

the Instructions as to Exhibits of Form 

20–F (§ 249.220f of this chapter), 

paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), General 

Instruction C.3.(g) of Form N–1A 

(§§ 239.15A and 274.11A of this 

chapter), General Instruction I of Form 

N–2 (§§ 239.14 and 274.11a–1 of this 

chapter), General Instruction C.3.(h) of 

Form N–3 (§§ 239.17a and 274.11b of 


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this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), and General Instruction 

C.4 of Form N–CSR (§§ 249.331 and 

274.128 of this chapter) specify when 

electronic filers are required or 

permitted to submit an Interactive Data 

File (§ 232.11), as further described in 

note 1 to this section. This section 

imposes content, format, and 

submission requirements for an 

Interactive Data File, but does not 

change the substantive content 

requirements for the financial and other 

disclosures in the Related Official Filing 

(§ 232.11). 

(a) * * * 

(2) Be submitted only by an electronic 

filer either required or permitted to 

submit an Interactive Data File as 

specified by § 229.601(b)(101) of this 

chapter (Item 601(b)(101) of Regulation 

S–K), paragraph (101) of Part II— 

Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

Note D.5 of Exchange Act Rule 14a–101 

(§ 240.14a–101 of this chapter), General 

Instruction L of Exchange Act Rule 14d– 

100 (240.14d–100 of this chapter), 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F (§ 249.220f of this 

chapter), paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), General 

Instruction C.3.(g) of Form N–1A 

(§§ 239.15A and 274.11A of this 

chapter), General Instruction I of Form 

N–2 (§§ 239.14 and 274.11a–1 of this 

chapter), General Instruction C.3.(h) of 

Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter), or General Instruction C.4 

of Form N–CSR (§§ 249.331 and 274.128 

of this chapter), as applicable; 

* * * * * 

(4) Be submitted in accordance with 

the EDGAR Filer Manual and, as 

applicable, Item 601(b)(101) of 

Regulation S–K (§ 229.601(b)(101) of 

this chapter), paragraph (101) of Part 

II—Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

Note D.5 of Exchange Act Rule 14a–101 

(§ 240.14a–101 of this chapter), General 

Instruction L of Exchange Act Rule 14d– 

100 (240.14d–100 of this chapter), 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F (§ 249.220f of this 

chapter), paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), General 

Instruction C.3.(g) of Form N–1A 

(§§ 239.15A and 274.11A of this 

chapter), General Instruction I of Form 

N–2 (§§ 239.14 and 274.11a–1 of this 

chapter), General Instruction C.3.(h) of 

Form N–3 (§§ 239.17a and 274.11b of 

this chapter), General Instruction C.3.(h) 

of Form N–4 (§§ 239.17b and 274.11c of 

this chapter), General Instruction C.3.(h) 

of Form N–6 (§§ 239.17c and 274.11d of 

this chapter); or General Instruction C.4 

of Form N–CSR (§§ 249.331 and 274.128 

of this chapter). 

* * * * * 

(b) * * * 

(1) * * * 

(iii) The disclosure set forth in 

paragraph (4) of this section. 

* * * * * 

(4) The disclosure provided under 

Regulation S–K (17 CFR 229) and 

related provisions that is required to be 

tagged, including, as applicable: 

(a) The information required by 

Subpart 1600 of Regulation S–K 

(§ 229.1601 through § 229.1610 of this 

chapter). 

* * * * * 

Note 1 to § 232.405: Section 

229.601(b)(101) of this chapter (Item 

601(b)(101) of Regulation S–K) specifies the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to § 239.11 of this 

chapter (Form S–1), § 239.13 of this chapter 

(Form S–3), § 239.25 of this chapter (Form S– 

4), § 239.18 of this chapter (Form S–11), 

§ 239.31 of this chapter (Form F–1), § 239.33 

of this chapter (Form F–3), § 239.34 of this 

chapter (Form F–4), § 249.310 of this chapter 

(Form 10–K), § 249.308a of this chapter 

(Form 10–Q), and § 249.308 of this chapter 

(Form 8–K). Note D.5 of Section 240.14a–101 

of this chapter (Note D.5 of Exchange Act 

Rule 14a–101) specifies the circumstances 

under which an Interactive Data File must be 

submitted with respect to § 240.14a–101 of 

this chapter (Schedule 14A). General 

Instruction L of Section 240.14d–100 of this 

chapter (General Instruction L) of Exchange 

Act Rule 14d–100) specifies the 

circumstances under which an Interactive 

Data File must be submitted with respect to 

§ 240.14d–100 of this chapter (Schedule TO). 

Paragraph (101) of Part II—Information not 

Required to be Delivered to Offerees or 

Purchasers of § 239.40 of this chapter (Form 

F–10) specifies the circumstances under 

which an Interactive Data File must be 

submitted and the circumstances under 

which it is permitted to be submitted, with 

respect to Form F–10. Paragraph 101 of the 

Instructions as to Exhibits of § 249.220f of 

this chapter (Form 20–F) specifies the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to Form 20–F. 

Paragraph B.(15) of the General Instructions 

to § 249.240f of this chapter (Form 40–F) and 

Paragraph C.(6) of the General Instructions to 

§ 249.306 of this chapter (Form 6–K) specify 

the circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to § 249.240f of 

this chapter (Form 40–F) and § 249.306 of 

this chapter (Form 6–K). Section 

229.601(b)(101) (Item 601(b)(101) of 

Regulation S–K), paragraph (101) of Part II— 

Information not Required to be Delivered to 

Offerees or Purchasers of Form F–10, 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F, paragraph B.(15) of 

the General Instructions to Form 40–F, and 

paragraph C.(6) of the General Instructions to 

Form 6–K all prohibit submission of an 

Interactive Data File by an issuer that 

prepares its financial statements in 

accordance with 17 CFR 210.6–01 through 

210.6–10 (Article 6 of Regulation S–X). For 

an issuer that is a management investment 

company or separate account registered 

under the Investment Company Act of 1940 

(15 U.S.C. 80a et seq.) or a business 

development company as defined in Section 

2(a)(48) of the Investment Company Act of 

1940 (15 U.S.C. 80a–2(a)(48)), General 

Instruction C.3.(g) of Form N–1A (§§ 239.15A 

and 274.11A of this chapter), General 

Instruction I of Form N–2 (§§ 239.14 and 

274.11a–1 of this chapter), General 

Instruction C.3.(h) of Form N–3 (§§ 239.17a 

and 274.11b of this chapter), General 

Instruction C.3.(h) of Form N–4 (§§ 239.17b 

and 274.11c of this chapter), General 

Instruction C.3.(h) of Form N–6 (§§ 239.17c 

and 274.11d of this chapter), and General 

Instruction C.4 of Form N–CSR (§§ 249.331 

and 274.128 of this chapter), as applicable, 

specifies the circumstances under which an 

Interactive Data File must be submitted. 

PART 239—FORMS PRESCRIBED 

UNDER THE SECURITIES ACT OF 1933 

■ 29. The general authority citation for 

part 239 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 

77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 

78n, 78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 

78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 

10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, 

and 80a–37; and sec. 107, Pub. L. 112–106, 

126 Stat. 312, unless otherwise noted. 

* * * * * 

■ 30. Amend Form S–1 (referenced in 

§ 239.11) by adding General Instruction 

VIII to read as follows: 

Note: The text of Form S–1 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

Form S–1 

* * * * * 

General Instructions 

* * * * * 


lotter on DSK11XQN23PROD with PROPOSALS2
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VIII. Offering by a Special Purpose 

Acquisition Company 

If a registration statement on this 

Form S–1 is being used to register an 

offering of securities of a special 

purpose acquisition company, as 

defined in Item 1601(b) of Regulation S– 

K (17 CFR 229.1601(b)), other than in 

connection with a de-SPAC transaction, 

as defined in Item 1601(a) of Regulation 

S–K (17 CFR 229.1601(a)), the registrant 

must furnish in the prospectus the 

information required by Items 1602 and 

1603 of Regulation S–K (17 CFR 

229.1602 and 229.1603), in the manner 

set forth by the structured data 

provision of Item 1610 of Regulation S– 

K (17 CFR 229.1610), in addition to the 

Items that are otherwise required by this 

Form. If the securities to be registered 

on this Form will be issued in a deSPAC transaction, attention is directed 

to the requirements of Form S–4 

applicable to de-SPAC transactions, 

including, but not limited to, General 

Instruction L. 

■ 31. Amend Form S–4 (referenced in 

§ 239.25) by: 

■ a. Adding General Instruction L; 

■ b. Revising paragraph (b)(7) 

introductory text of Item 17 and 

Instruction 1 of paragraph (b)(7) of Item 

17; and 

■ c. Revising Instruction 1 to the 

signature block. 

The addition and revisions read as 

follows: 

Note: The text of Form S–4 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

Form S–4 

* * * * * 

General Instructions 

* * * * * 

L. De-SPAC Transactions 

1. If securities to be registered on this 

Form will be issued in a de-SPAC 

transaction, as defined in Item 1601(a) 

of Regulation S–K (17 CFR 229.1601(a)), 

then the disclosure provisions of Items 

1603 through 1607 and 1609 of 

Regulation S–K (17 CFR 229.1603 

through 229.1607 and 229.1609), as well 

as the structured data provision of Item 

1610 of Regulation S–K (17 CFR 

229.1610), shall apply in addition to the 

provisions of this Form. To the extent 

that the applicable disclosure 

requirements of Subpart 229.1600 are 

inconsistent with the disclosure 

requirements of this Form, the 

requirements of Subpart 229.1600 are 

controlling. If the securities to be 

registered on this Form will be issued 

by a special purpose acquisition 

company, as defined in Item 1601(b) of 

Regulation S–K (17 CFR 229.1601(b)), in 

a de-SPAC transaction, the term 

‘‘registrant’’ for purposes of the 

disclosure requirements of this Form 

shall mean the special purpose 

acquisition company. 

2. If the target company, as defined in 

Item 1601(d) of Regulation S–K (17 CFR 

229.1601(d)), in a de-SPAC transaction 

is not subject to the reporting 

requirements of either Section 13(a) or 

15(d) of the Exchange Act, provide the 

following additional information with 

respect to the target company: 

a. Item 101 of Regulation S–K 

(§ 229.101 of this chapter), description 

of business; 

b. Item 102 of Regulation S–K 

(§ 229.102 of this chapter), description 

of property; 

c. Item 103 of Regulation S–K 

(§ 229.103 of this chapter), legal 

proceedings; 

d. Item 304 of Regulation S–K 

(§ 229.304 of this chapter), changes in 

and disagreements with accountants on 

accounting and financial disclosure; 

e. Item 403 of Regulation S–K 

(§ 229.403 of this chapter), security 

ownership of certain beneficial owners 

and management, assuming the 

completion of the de-SPAC transaction 

and any related financing transaction; 

and 

f. Item 701 of Regulation S–K 

(§ 229.701 of this chapter), recent sales 

of unregistered securities. 

If the target company is a foreign 

private issuer, as defined in Rule 405 

(§ 230.405 of this chapter), information 

with respect to the target company may 

be provided in accordance with Items 

3.C, 4, 6.E, 7.A, 8.A.7, and 9.E of Form 

20–F, in lieu of the information 

specified above. 

3. If securities to be registered on this 

Form will be issued in a de-SPAC 

transaction, as defined in Item 1601(a) 

of Regulation S–K (17 CFR 229.1601(a)), 

the prospectus must be distributed to 

security holders no later than the lesser 

of 20 calendar days prior to the date on 

which action is to be taken or the 

maximum number of days permitted for 

disseminating the prospectus under the 

applicable laws of the jurisdiction of 

incorporation or organization. 

* * * * * 

Item 17. Information With Respect to 

Companies Other Than S–3 Companies 

* * * * * 

(7) Financial statements that would be 

required in an annual report sent to 

security holders under Rules 14a–3(b)(1) 

and (b)(2) (§ 240.14b–3 of this chapter), 

if an annual report was required. In a 

de-SPAC transaction, provide the 

financial statements required by 

§ 240.15–01 (Rule 15–01 of Regulation 

S–X). If the registrant’s security holders 

are not voting, the transaction is not a 

roll-up transaction (as described by Item 

901 of Regulation S–K (§ 229.901 of this 

chapter)), and: 

* * * * * 

Instructions 

1. The financial statements required 

by paragraph for the latest fiscal year 

need be audited only to the extent 

practicable. The financial statements for 

the fiscal years before the latest fiscal 

year need not be audited if they were 

not previously audited. If the company 

being acquired will be a predecessor to 

a registrant that is a shell company, see 

§ 210.15–01(a). 

* * * * * 

Signatures 

* * * * * 

Instructions 

1. The registration statement shall be 

signed by the registrant, its principal 

executive officer or officers, its principal 

financial officer, its controller or 

principal accounting officer, and by at 

least a majority of the board of directors 

or persons performing similar functions. 

If the registrant is a foreign person, the 

registration statement shall also be 

signed by its authorized representative 

in the United States. Where the 

registrant is a limited partnership, the 

registration statement shall be signed by 

a majority of the board of directors of 

any corporate general partner signing 

the registration statement. If the 

securities to be registered on this Form 

will be issued by the special purpose 

acquisition company in a de-SPAC 

transaction, as such terms are defined in 

Items 1601(b) and (a) of Regulation S– 

K, the term ‘‘registrant’’ for purposes of 

this instruction shall mean the special 

purpose acquisition and the target 

company, as such term is defined in 

Item 1601(d) of Regulation S–K. 

* * * * * 

■ 32. Amend Form F–1 (referenced in 

§ 239.31) by adding General Instruction 

VII to read as follows: 

Note: The text of Form F–1 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

Form F–1 

* * * * * 

General Instructions 

* * * * * 


lotter on DSK11XQN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 29571 

VII. Offering by a Special Purpose 

Acquisition Company 

If a registration statement on this 

Form F–1 is being used to register an 

offering of securities of a special 

purpose acquisition company, as 

defined in Item 1601(b) of Regulation S– 

K (17 CFR 229.1601(b)), other than in 

connection with a de-SPAC transaction, 

as defined in Item 1601(a) of Regulation 

S–K (17 CFR 229.1601(a)), the registrant 

must furnish in the prospectus the 

information required by Items 1602 and 

1603 of Regulation S–K (17 CFR 

229.1602 and 229.1603), in the manner 

set forth by the structured data 

provision of Item 1610 of Regulation S– 

K (17 CFR 229.1610), in addition to the 

Items that are otherwise required by this 

Form. If the securities to be registered 

on this Form will be issued in a deSPAC transaction, attention is directed 

to the requirements of Form F–4 

applicable to de-SPAC transactions, 

including, but not limited to, General 

Instruction I. 

* * * * * 

■ 33. Amend Form F–4 (referenced in 

§ 239.34) by: 

■ a. Adding General Instruction I; 

■ b. Revising Instruction 1 to paragraph 

(b)(5) of Item 17; and 

■ c. Revising the Instructions to 

paragraph (b)(5) and (b)(6) of Item 17; 

and 

■ d. Revising Instruction 1 to the 

signature block. 

The addition and revisions read as 

follows: 

Note: The text of Form F–4 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

Form F–4 

* * * * * 

General Instructions 

* * * * * 

I. De-SPAC Transactions 

1. If securities to be registered on this 

Form will be issued in a de-SPAC 

transaction, as defined in Item 1601(a) 

of Regulation S–K (17 CFR 229.1601(a)), 

then the disclosure provisions of Items 

1603 through 1607 and 1609 of 

Regulation S–K (17 CFR 229.1603 

through 229.1607 and 1609), as well as 

the structured data provision of Item 

1610 of Regulation S–K (17 CFR 

229.1610), shall apply in addition to the 

provisions of this Form. To the extent 

that the disclosure requirements of 

Subpart 229.1600 are inconsistent with 

the disclosure requirements of this 

Form, the requirements of Subpart 

229.1600 are controlling. If the 

securities to be registered on this Form 

will be issued by a special purpose 

acquisition company, as defined in Item 

1601(b) of Regulation S–K (17 CFR 

229.1601(b)), in a de-SPAC transaction, 

the term ‘‘registrant’’ for purposes of the 

disclosure requirements of this Form 

shall mean the special purpose 

acquisition company. 

2. If the target company, as defined in 

Item 1601(d) of Regulation S–K (17 CFR 

229.1601(d)), in a de-SPAC transaction 

is not subject to the reporting 

requirements of either Section 13(a) or 

15(d) of the Exchange Act, provide the 

following additional information with 

respect to the company: 

a. Item 101 of Regulation S–K 

(§ 229.101 of this chapter), description 

of business; 

b. Item 102 of Regulation S–K 

(§ 229.102 of this chapter), description 

of property; 

c. Item 103 of Regulation S–K 

(§ 229.103 of this chapter), legal 

proceedings; 

d. Item 403 of Regulation S–K 

(§ 229.403 of this chapter), security 

ownership of certain beneficial owners 

and management, assuming the 

completion of the de-SPAC transaction 

and any related financing transaction; 

and 

e. Item 701 of Regulation S–K 

(§ 229.701 of this chapter), recent sales 

of unregistered securities. 

If the target company is a foreign 

private issuer, as defined in Rule 405 

(§ 230.405 of this chapter), information 

with respect to the target company may 

be provided in accordance with Items 

3.C, 4, 6.E, 7.A, 8.A.7, and 9.E of Form 

20–F, in lieu of the information 

specified above. 

3. If securities to be registered on this 

Form will be issued in a de-SPAC 

transaction, as defined in Item 1601(a) 

of Regulation S–K (17 CFR 229.1601(a)), 

the prospectus must be distributed to 

security holders no later than the lesser 

of 20 calendar days prior to the date on 

which action is to be taken or the 

maximum number of days permitted for 

disseminating the prospectus under the 

applicable laws of the jurisdiction of 

incorporation or organization. 

* * * * * 

Part I 

* * * * * 

Item 17. Information With Respect to 

Foreign Companies Other Than F–3 

Companies 

* * * * * 

Instructions 

1. The financial statements required 

by this paragraph for the latest fiscal 

year need be audited only to the extent 

practicable. The financial statements for 

the fiscal years before the latest fiscal 

year need not be audited if they were 

not previously audited. If the foreign 

company being acquired will be a 

predecessor to a registrant that is a shell 

company, see § 210.15–01(a). 

* * * * * 

Instructions to Paragraph (b)(5) and 

(b)(6) 

If the financial statements required by 

paragraphs (b)(5) and (b)(6) are prepared 

on the basis of a comprehensive body of 

accounting principles other than U.S. 

GAAP, provide a reconciliation to U.S. 

GAAP in accordance with Item 18 of 

Form 20–F (§ 249.220f of this chapter) if 

the foreign business being acquired will 

be a predecessor to the issuer that is a 

shell company or, in all other 

circumstances, with Item 17 of Form 

20–F (§ 249.220f of this chapter) unless 

a reconciliation is unavailable or not 

obtainable without unreasonable cost or 

expense. At a minimum, provide a 

narrative description of all material 

variations in accounting principles, 

practices and methods used in 

preparing the non-U.S. GAAP financial 

statements from those accepted in the 

U.S. when the financial statements are 

prepared on a basis other than U.S. 

GAAP. 

Signatures 

* * * * * 

Instructions 

1. The registration statement shall be 

signed by the registrant, its principal 

executive officer or officers, its principal 

financial officer, its controller or 

principal accounting officer, at least a 

majority of the board of directors or 

persons performing similar functions 

and its authorized representative in the 

United States. Where registrant is a 

limited partnership, the registration 

statement shall be signed by a majority 

of the board of directors of any 

corporate general partner signing the 

registration statement. If the securities 

to be registered on this Form will be 

issued by the special purpose 

acquisition company in a de-SPAC 

transaction, as such terms are defined in 

Items 1601(b) and (a) of Regulation S– 

K, the term ‘‘registrant’’ for purposes of 

this instruction shall mean the special 

purpose acquisition and the target 

company, as such term is defined in 

Item 1601(d) of Regulation S–K. 

* * * * * 


lotter on DSK11XQN23PROD with PROPOSALS2
29572 Federal Register / Vol. 87, No. 93 / Friday, May 13, 2022 / Proposed Rules 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 34. The general authority citation for 

part 240 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 

78n, 78n–1, 78o, 78o4, 78o–10, 78p, 78q, 

78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 

80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– 

4, 80b–11, 7201 et seq., and 8302; 7 U.S.C. 

2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 

1350; Pub. L. 111–203, 939A, 124 Stat. 1887 

(2010); and sec. 503 and 602, Pub. L. 112– 

106, 126 Stat. 326 (2012), unless otherwise 

noted. 

* * * * * 

■ 35. Amend § 240.12b–2 by adding 

paragraph (3)(iv) to the definition of 

‘‘smaller reporting company’’ to read as 

follows: 

§ 240.12b–2 Definitions. 

* * * * * 

Smaller reporting company. * * * 

(3) * * * 

(iv) Upon the consummation of a deSPAC transaction, as defined in Item 

1601(a) of Regulation S–K (17 CFR 

229.1601(a)), an issuer must redetermine its status as a smaller 

reporting company pursuant to the 

thresholds set forth in paragraphs (1) 

and (2) of this definition prior to its first 

filing, other than pursuant to Items 

2.01(f), 5.01(a)(8), and/or 9.01(c) of 

Form 8–K, following the de-SPAC 

transaction and reflect this redetermination in in its next periodic 

report. 

(A) Public float is measured as of a 

date within 4 business days after the 

consummation of the de-SPAC 

transaction and is computed by 

multiplying the aggregate worldwide 

number of shares of its voting and nonvoting common equity held by nonaffiliates as of that date by the price at 

which the common equity was last sold, 

or the average of the bid and asked 

prices of common equity, in the 

principal market for the common equity; 

and 

(B) Annual revenues are the annual 

revenues of the target company, as 

defined in Item 1601(d) of Regulation S– 

K (17 CFR 229.1601(d)), as of the most 

recently completed fiscal year reported 

in the Form 8–K filed pursuant to Items 

2.01(f), 5.01(a)(8), and/or 9.01(c) of 

Form 8–K. 

* * * * * 

■ 36. Amend § 240.14a–6 by adding 

paragraph (q) to read as follows: 

§ 240.14a–6 Filing requirements. 

* * * * * 

(q) De-SPAC transactions. If a 

transaction is a de-SPAC transaction, as 

defined in § 229.1601(a) of this chapter 

(Item 1601(a) of Regulation S–K), the 

proxy statement of the special purpose 

acquisition company as defined in 

§ 229.1601(b) of this chapter (Item 

1601(b) of Regulation S–K) must be 

distributed to security holders no later 

than the lesser of 20 calendar days prior 

to the date on which the meeting of 

security holders is held or action is 

taken, or the maximum number of days 

permitted for disseminating the proxy 

statement under the applicable laws of 

the jurisdiction of incorporation or 

organization. 

■ 37. Amend § 240.14a–101 by adding 

paragraph D.5 to the Notes and 

paragraph (f) to Item 14 to read as 

follows: 

* * * * * 

§ 240.14a–101 Schedule 14A. Information 

required in proxy statement. 

* * * * * 

Notes * * * 

D. * * * 

5. Interactive Data File. An Interactive 

Data File must be included in 

accordance with § 232.405 of this 

chapter (Rule 405 of Regulation S–T) 

and the EDGAR Filer Manual where 

applicable pursuant to Item 14(f) of this 

Schedule and § 229.1610 of this chapter 

(Item 1610 of Regulation S–K). 

* * * * * 

Item 14. * * * 

* * * * * 

(f) De-SPAC transactions. (1) If the 

transaction is a de-SPAC transaction, as 

defined in § 229.1601(a) (Item 1601(a) of 

Regulation S–K), then the disclosure 

provisions of §§ 229.1603 through 

229.1607 and 229.1609 (Items 1603 

through 1607 and 1609 of Regulation S– 

K), as well as the structured data 

provision of § 229.1610 (Item 1610 of 

Regulation S–K), shall apply to the 

transaction in addition to the provisions 

of this schedule. To the extent that the 

disclosure requirements of Subpart 

229.1600 are inconsistent with the 

disclosure requirements of this 

schedule, the requirements of Subpart 

229.1600 are controlling. 

(2) Provide the following additional 

information for the target company: 

(i) Information required by § 229.101 

of this chapter (Item 101 of Regulation 

S–K), description of business; 

(ii) Information required by § 229.102 

of this chapter (Item 102 of Regulation 

S–K), description of property; 

(iii) Information required by § 229.103 

of this chapter (Item 103 of Regulation 

S–K), legal proceedings; 

(iv) Section 229.304 of this chapter 

(Item 304 of Regulation S–K), changes in 

and disagreements with accountants on 

accounting and financial disclosure; 

(v) Information required by § 229.403 

of this chapter (Item 403 of Regulation 

S–K), security ownership of certain 

beneficial owners and management, 

assuming the completion of the deSPAC transaction and any related 

financing transaction; 

(vi) Information required by § 229.701 

of this chapter (Item 701 of Regulation 

S–K), recent sales of unregistered 

securities; and 

(vii) If any directors are appointed 

without action by the security holders of 

the special purpose acquisition 

company, §§ 229.103(c)(2), 229.401, and 

229.404(a) and (b) of this chapter (Items 

103(c)(2), 401, and 404(a) and (b) of 

Regulation S–K). 

* * * * * 

■ 38. Amend § 240.14c–2 by adding 

paragraph (e) to read as follows: 

§ 240.14c–2 Distribution of information 

statement. 

* * * * * 

(e) If a transaction is a de-SPAC 

transaction, as defined in § 229.1601(a) 

of this chapter (Item 1601(a) of 

Regulation S–K), the information 

statement of the special purpose 

acquisition company as defined in 

§ 229.1601(b) (Item 1601(b) of 

Regulation S–K) must be distributed to 

security holders no later than the lesser 

of 20 calendar days prior to the date on 

which the meeting of security holders is 

held or action is taken, or the maximum 

number of days permitted for 

disseminating the information statement 

under the applicable laws of the 

jurisdiction of incorporation or 

organization. 

■ 39. Amend § 240.14d–100 by: 

■ a. Redesignating General Instruction K 

as General Instruction M; and 

■ b. Adding new General Instructions K 

and L. 

The additions read as follows: 

* * * * * 

§ 240.14d–100 Schedule TO. Tender offer 

statement under section 14(d)(1) or 13(e)(1) 

of the Securities Exchange Act of 1934. 

* * * * * 

General Instructions: 

* * * * * 

K. De-SPAC Transactions. If the filing 

relates to a de-SPAC transaction, as 

defined in § 229.1601(a) of this chapter 

(Item 1601(a) of Regulation S–K), then 

the disclosure provisions of §§ 229.1603 

through 229.1609 of this chapter (Items 

1603 through 1609 of Regulation S–K), 

as well as the structured data provision 

of § 229.1610 of this chapter (Item 1610 


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of Regulation S–K), shall apply to the 

transaction in addition to the provisions 

of this statement. To the extent that the 

disclosure requirements of Subpart 

229.1600 of this chapter are inconsistent 

with the disclosure requirements of this 

filing, the requirements of Subpart 

229.1600 of this chapter are controlling. 

L. Interactive Data File. An Interactive 

Data File must be included in 

accordance with § 232.405 of this 

chapter (Rule 405 of Regulation S–T) 

and the EDGAR Filer Manual where 

applicable pursuant to Item 14(f) of 

§ 240.14a–101 of this chapter (Schedule 

14A) and § 229.1610 of this chapter 

(Item 1610 of Regulation S–K). 

* * * * * 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 40. The authority citation for part 249 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 

et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; 

Sec. 953(b), Pub. L. 111–203, 124 Stat. 1904; 

Sec. 102(a)(3), Pub. L. 112–106, 126 Stat. 309 

(2012); Sec. 107, Pub. L. 112–106, 126 Stat. 

313 (2012), and Sec. 72001, Pub. L. 114–94, 

129 Stat. 1312 (2015), unless otherwise 

noted. 

Section 249.220f is also issued under secs. 

3(a), 202, 208, 302, 306(a), 401(a), 401(b), 406 

and 407, Pub. L. 107–204, 116 Stat. 745, and 

secs. 2 and 3, Pub. L. 116–222, 134 Stat. 

1063. 

* * * * * 

Section 249.308 is also issued under 15 

U.S.C. 80a–29 and 80a–37. 

* * * * * 

■ 41. Amend Form 20–F (referenced in 

§ 249.220f) by adding Instruction 4 to 

Item 8 to read as follows: 

Note: The text of Form 20–F does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

Form 20–F 

* * * * * 

Item 8. Financial Information 

* * * * * 

Instructions to Item 8: 

* * * * * 

4. When the issuer is a shell company 

that will acquire a business that will be 

its predecessor, provide the information 

required by § 240.15–01 (Rule 15–01 of 

Regulation S–X). 

* * * * * 

■ 42. Amend Form 8–K (referenced in 

§ 249.308) by revising paragraph (f) of 

Item 2.01 by removing the phrase ‘‘the 

registrant were filing a general form for 

registration of securities on Form 10’’ 

and adding in its place ‘‘the acquired 

business were filing a general form for 

registration of securities on Form 10’’. 

The revision reads as follows: 

Note: The text of Form 8–K does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

Form 8–K 

* * * * * 

Item 2.01 Completion of Acquisition or 

Disposition of Assets 

* * * * * 

(f) if the registrant was a shell 

company, other than a business 

combination related shell company, as 

those terms are defined in Rule 12b–2 

under the Exchange Act (17 CFR 

240.12b–2), immediately before the 

transaction in which the registrant 

acquired a business, disclose the 

information that would be required if 

the acquired business were filing a 

general form for registration of securities 

on Form 10 under the Exchange Act 

reflecting all classes of the registrant’s 

securities subject to the reporting 

requirements of Section 13 (15 U.S.C. 

78m) or Section 15(d) (15 U.S.C. 78o(d)) 

of such Act upon consummation of the 

transaction. Notwithstanding General 

Instruction B.3. to Form 8–K, if any 

disclosure required by this Item 2.01(f) 

is previously reported, as that term is 

defined in Rule 12b–2 under the 

Exchange Act (17 CFR 240.12b–2), the 

registrant may identify the filing in 

which that disclosure is included 

instead of including that disclosure in 

this report. 

* * * * * 

PART 270—RULES AND 

REGULATIONS, INVESTMENT 

COMPANY ACT OF 1940 

■ 43. The authority citation for part 270 

continues to read in part as follows: 

Authority: 15 U.S.C. 80a–1 et seq., 80a– 

34(d), 80a–37, 80a–39, and Pub. L. 111–203, 

sec. 939A, 124 Stat. 1376, unless otherwise 

noted. 

■ 44. Add § 270.3a–10 to read as 

follows: 

§ 270.3a–10 Special Purpose Acquisition 

Companies. 

(a) Notwithstanding section 3(a)(1)(A) 

of the Act, a special purpose acquisition 

company (‘‘SPAC’’) will not be deemed 

to be an investment company; provided 

that: 

(1) The SPAC’s assets consist solely of 

Government securities, securities issued 

by government money market funds as 

defined in § 270.2a–7(a)(14), and cash 

items prior to completion of the deSPAC transaction; 

(2) The assets set forth in paragraph 

(a)(1) of this section are not at any time 

acquired or disposed of for the primary 

purpose of recognizing gains or 

decreasing losses resulting from market 

value changes; 

(3) The SPAC: 

(i) Seeks to complete a single deSPAC transaction as a result of which: 

(A) The surviving company, either 

directly or through a primarily 

controlled company, will be primarily 

engaged in the business of the target 

company or companies, which business 

is not that of an investment company, 

and 

(B) The surviving company will have 

at least one class of securities listed for 

trading on a national securities 

exchange; 

(ii) Files a Form 8–K with the 

Commission, no later than 18 months 

after the effective date of its initial 

registration statement, disclosing an 

agreement to engage in the de-SPAC 

transaction with at least one target 

company; and 

(iii) Completes the de-SPAC 

transaction no later than 24 months after 

the effective date of its initial 

registration statement. 

(4) Any assets of the SPAC: 

(i) That are not used in connection 

with the de-SPAC transaction; or 

(ii) In the event of a failure of the 

SPAC to file a Form 8–K within the time 

frame set forth in paragraph (a)(3)(ii) of 

this section or complete a de-SPAC 

transaction within the time frame set 

forth in paragraph (a)(3)(iii) of this 

section will be distributed in cash to 

investors as soon as reasonably 

practicable thereafter; 

(5) The SPAC is primarily engaged in 

the business of seeking to complete a 

single de-SPAC transaction, as set forth 

in paragraphs (a)(3) of this section and 

evidenced by: 

(i) The activities of its officers, 

directors and employees; 

(ii) Its public representations of 

policies; 

(iii) Its historical development; and 

(iv) An appropriate resolution of its 

board of directors, which resolution or 

action has been recorded 

contemporaneously in its minute books 

or comparable documents; and 

(6) The SPAC does not hold itself out 

as being primarily engaged in the 

business of investing, reinvesting or 

trading in securities. 

(b) For purposes of this section: 

(1) Initial registration statement 

means the registration statement that the 

SPAC filed under the Securities Act of 

1933 for its initial public offering. 

(2) Primarily controlled company 

means an issuer that: 

(i) Is controlled within the meaning of 

section 2(a)(9) of the Act by the 


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surviving company following a de-SPAC 

transaction with a degree of control that 

is greater than that of any other person; 

and 

(ii) Is not an investment company. 

(3) Surviving company means the 

public company issuer that survives a 

de-SPAC transaction and in which the 

shareholders of the SPAC immediately 

prior to the de-SPAC transaction will 

own equity interests immediately 

following the de-SPAC transaction. 

(4) De-SPAC transaction has the same 

meaning as defined in § 229.1601(a) of 

this chapter (Item 1601(a) of Regulation 

S–K). 

(5) Special purpose acquisition 

company has the same meaning as 

defined in § 229.1601(b) of this chapter 

(Item 1601(b) of Regulation S–K). 

(6) Target company has the same 

meaning as defined in § 229.1601(d) of 

this chapter (Item 1601(d) of Regulation 

S–K). 

By the Commission. 

Dated: March 30, 2022. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2022–07189 Filed 5–9–22; 11:15 am] 

BILLING CODE 8011–01–P 


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