Published on Apr 21st, 2022 |

Brief Introduction

The SEC recently proposed new rules and regulations to increase investor protection in initial public offerings (IPOs) through special purpose acquisition companies (SPACs), as well as the combination of transactions with shell companies, such as SPACs, and private operating companies.

Synopsis Of The Proposed Rules

Proposition to add new Subpart 1600 to Regulation S-K to implement specific disclosure requirements relating to SPACs.

The following below is what the new Subpart 1600 is relating to:

  • The sponsor;
  • Potential conflicts of interest;
  • Dilution;
  • Require certain disclosures on the prospectus cover page and summary; and
  • Require enhanced disclosure for de-SPAC transactions, including a fairness determination requirement.

Proposition of new rules that would apply to business combination transactions involving shell companies, including SPAC transactions. Proposing new Rule 145a under the Securities Act. The Proposed Rule is below.

  • Deems 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 company’s shareholders
  • Efforts for shareholders to more consistently receive the full protections of the Securities Act disclosure and liability provisions in combinations that involve reporting shell companies.
  • “Inhibit the creation of public markets in securities of issuers about which adequate current information is not available to the public”

The following below are excluded transactions in Proposed Rule 145a:

  • Rule 145a would have no impact on business combinations between two bona fide non-shell entities
  • Any reporting shell company having more than “nominal” assets or operations is subject to rule 145a
  • Exclude the business combination of one shell company into another shell company

Rule Proposals intended to address concerns about the use of projections in de-SPAC transactions below:

  • Item 10(b) of Regulation S-K
    • 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 operational history
    • Presentation of projection must include explanation why the non-GAAP financial measure was used as opposed to a GAAP measure
  • Item 1609 of Regulation S-K
    • Applies to only de-SPAC transactions
    • State the purpose for which the projections were prepared and the party that prepared the projections
    • State all material bases of the disclosed projections and all material assumptions underlying the projections, and any factors that may materially impact such assumptions
    • State whether the disclosed projections still reflect the view of the board or management of the SPAC / target company, including date of filing

Vigilant’s Final Conclusion

The 2022 Examination Priorities provide great insight and updates that are helpful for the entire Industry.

The Priorities reflect the Division of Examinations assessment of certain risks, issues, and policy matters from information they gathered, market and regulatory developments, tips, complaints, and more.

Following your review of these Examination Priorities, should you require (1) analysis of potential gaps in your compliance program (2) need assistance in filling gaps in your program, or (3) need additional compliance resources; Contact Us today to learn more.

 

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