SEC Proposes New SPAC Rules – Corporate/Commercial Law

On March 30, 2022, the SEC announced proposed rules regarding
SPACs and the use of projections. The proposed rules would require
expanded disclosures regarding SPAC sponsors, conflicts of interest
and dilution and require additional disclosures in de-SPAC
transactions, including with respect to the fairness of the
transaction to the SPAC’s investors. The target company in the
de-SPAC transaction would also be required to be a co-registrant
when the SPAC files its registration statement. The proposed rules
would also deem the SPAC IPO’s underwriters to be underwriters
in connection with the subsequent de-SPAC transaction when certain
conditions are met.

The proposed rules would amend the definition of “blank
check company” to make the liability safe harbor in the
Private Securities Litigation Reform Act of 1995 for
forward-looking statements, such as projections, unavailable in
filings by SPACs. The proposed amendments would expand and update
the SEC’s guidance on the presentation of projections of future
economic performance in registration statements. The SEC will
consider proposing additional disclosure requirements when
projections are used in SPAC business combination transactions.

The proposed rules clarify that a SPAC does not need to register
as an investment company under the Investment Company Act if it (1)
maintains assets comprising only cash items, government securities
and certain money market funds; (2) seeks to complete a de-SPAC
transaction after which the surviving entity will be primarily
engaged in the business of the target company; and (3) enters into
an agreement with a target company to engage in a de-SPAC
transaction within 18 months after its IPO and completes its
de-SPAC transaction within 24 months of such offering.

See the Fact Sheet and the Proposed Rules. The comment period will be open
for 30 days after Federal Register publication. A legal update will
follow.

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