SEC Adopts Rules Relating to SPACs, Shell Companies, and Projections
SEC Releases
Introduction
On January 24th, the SEC adopted final rules and amendments to enhance disclosures and provide additional investor protections in initial public offerings (IPOs) by special purpose acquisition companies (SPACs) and in subsequent business combination transactions between SPACs and target companies (de-SPAC transactions).
The SEC feels that the complexity of these transactions requires enhanced investor protection involving the adequacy of disclosures.
Rule Adoptions
- SPAC IPOs and de-SPAC Transaction investor protections requiring:
- Disclosures and legal liabilities closely aligned with those of traditional IPOs.
- Disclosures regarding, among other things, SPAC sponsors, SPAC sponsor compensation, conflicts of interest, dilution, and the target company.
- Disclosures in de-SPAC transactions regarding any determination by a board of directors or similar body as to whether the de-SPAC transaction is advisable and in the best interests of the SPAC and its shareholders, if required by law, and any outside report, opinion, or appraisal received that materially relates to the de-SPAC transaction.
- A 20-calendar-day minimum dissemination period for prospectuses and proxy and information statements filed for de-SPAC transactions where consistent with local law.
- A re-determination of smaller reporting company status following the consummation of a de-SPAC transaction and requiring such re-determination to be reflected in filings beginning 45 days after the de-SPAC transaction’s consummation.
- Projections Disclosure:
- The definition of “blank check company” under the PSLRA is changed to disallow the safe harbor for forward looking statements; this will include SPACs.
- For de-SPAC transactions, disclosures will be required of all material bases of the projections and all material assumptions of the underlying projections.
- Shell Companies:
- Financial statements requirements applicable to shell companies and private operating companies will align with traditional IPOs.
- Adoption of Rule 145a involving an expanded version of an offer to sell under Section 2(a)(3) of the Securities Act.
Vigilant’s Conclusion
The final rules will become effective 125 days after publication in the Federal Register.
As the liabilities and expectations of Firms involved in these transactions will align with traditional IPOs, we suggest that compliance departments assess their current policies and procedures to be sure that they address the new regulations. If you have any questions about how this new rule may affect your business, please reach out to us.