February 13, 2024Client Alert

SEC Adopts New Rules Regulating SPACs, Shell Companies, and the Use of Projections in SEC Filings

On Wednesday, January 24, 2024, the Securities and Exchange Commission (the “Commission”) adopted new rules and amendments (the “Rules”) to enhance investor protections relating to special purpose acquisition companies (“SPACs”), shell companies, and “de-SPAC” transactions. The Commission has also provided guidance on the use of projections in all SEC filings.

SPAC IPOs and De-SPAC Transactions

The Rules enhance investor protections relating to SPAC IPOs and de-SPAC transactions by requiring:

  • Target companies to sign (as an issuer) a Securities Act registration statement filed by a SPAC (or other shell company) in connection with the de-SPAC transaction.
  • Additional disclosures regarding SPAC sponsors, SPAC sponsor compensation, conflicts of interest, dilution, and the target company, among others.
  • Disclosures regarding determinations by the Board of Directors as to whether a de-SPAC transaction is advisable and in the best interest of the SPAC and its shareholders, and any opinion, report, or appraisal that materially relates to the de-SPAC transaction.
  • A minimum of a 20-calendar-day period for dissemination of prospectuses and proxy/information statements filed for the de-SPAC transaction.
  • Re-determination of smaller reporting company status after a de-SPAC transaction occurs. Re-determinations must be reflected in filings within 45 days of the de-SPAC transaction’s completion.

Shell Company Business Combination Transactions

To enhance investor protections in business combinations involving shell companies:

  • A new Rule 145a provides that any direct or indirect business combination of a reporting shell company and non-shell company involves an offer, offer to sell, offer for sale, or sale within the meaning of Section 2(a)(3) of the Securities Act.
  • Financial statements requirements will now be more aligned with traditional IPOs.

Projections Disclosures

The Rules also made changes to the use of projections in SEC filings – these changes will impact business combinations involving blank check companies, as well as all SEC reporting companies.

First, the Rules adopt a definition of “blank check company” that make the forward-looking statements safe harbor unavailable to such companies. Second, the Rules include new disclosure requirements for projections in connection with SPAC transactions, including disclosure of the material bases and assumptions of the projections. Finally, the Rules update and expand guidance on the use of projections in all SEC filings.

The Rules provide the following guidance on the use of projections in all SEC filings:

  • Companies must clearly distinguish projected measures that are not based on historical financial results or operational history from those that are.
  • It generally would be misleading to present projections that are based on historical financial results or operational history without presenting the measure or operational history with equal or greater prominence.
  • 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, and an explanation of why the non-GAAP financial measure is used instead of a GAAP measure.

Compliance Dates

The Rule will become effective 125 days after being posted in the Federal Register. Compliance with the data requirements, including tagging information pursuant to Regulation S-K, is required 490 days after publication in the Federal Register.

The Securities & Capital Markets team at Michael Best has attorneys that can guide SPACs, shell companies, and other reporting companies through these new requirements. Please contact a member of our team for more information.

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