On January 24, 2024, the SEC adopted final rules enhancing disclosure obligations for SPAC IPOs and subsequent de-SPAC business combination transactions. The rules are designed to more closely align the required disclosures and legal liabilities that may be incurred in de-SPAC transactions with those in traditional IPOs. The new rules spread beyond SPACs to shell companies and blank check companies in general. The compliance date for the new rules is July 1, 2025.
In the first blog in this series, I provided background on and a summary of the new rules – see HERE. Last week’s blog began a granular discussion of the 581-page rule release starting with partial coverage of new Subpart 1600 to Regulation S-K related to disclosures in SPAC IPO’s and de-SPAC transactions – see HERE. The third blog in the series continued the summary of Subpart 1600 and in particular the new dilution disclosure requirements – see HERE. This week’s blog will continue a review of new Subpart 1600 to Regulation S-K including the new prospectus cover page and summary requirements and the de-SPAC background discussion.
New Subpart 1600 of Regulation S-K
The SEC has adopted new Subpart 1600 to Regulation S-K to: (i) set forth disclosure obligations for SPACs regarding the sponsor, potential conflicts of interest, and dilution; (ii) adding certain disclosures to the prospectus cover page and summary; (iii) require disclosures of whether law of the SPAC organizational jurisdiction requires the board of directors to determine whether the de-SPAC is advisable and in the best interests of the SPAC shareholders or make a comparable determination, and to disclose that determination; and (iv) whether the SPAC or SPAC sponsor has received any outside report, opinion, or appraisal relating to the de-SPAC transaction and certain disclosures pertaining to such report, opinion or appraisal. The SEC has adopted numerous form changes, including to Forms S-1, F-1, S-4, F-4, Schedule 14A and 14C, and Schedule TO, to implement these new rules.
Prospectus Cover Page and Prospectus Summary – Items 1602 and 1604
Prospectus Cover Page
New Item 1602 delineates multiple items that must be included on the prospectus cover page and prospectus summary disclosure in a SPAC IPO or other registered offering besides a de-SPAC transaction. In particular, Item 1602 requires disclosure of: (i) the time frame for the SPAC to consummate a de-SPAC transaction, (ii) redemptions, (iii) SPAC sponsor compensation, (iv) dilution (including simplified tabular disclosure) – see HERE, and (v) conflicts of interest.
New Item 1604 delineates items that must included on the prospectus cover page and prospectus summary disclosure in a de-SPAC transaction. In particular, Item 1604 requires disclosure about: (i) the fairness of the de-SPAC transaction; (ii) material financing transactions; (iii) SPAC sponsor compensation and dilution (see HERE); and (v) conflicts of interest.
Prospectus Summary
For a SPAC IPO or other registered offering besides a de-SPAC transaction, Item 1602 requires that the prospectus summary include: (i) how the SPAC will identify and evaluate potential business combination candidates and whether it will solicit shareholder approval for the de-SPAC transaction; (ii) the material terms of the trust or escrow account and the amount or percentage of the gross offering proceeds that will be placed in such account; (iii) 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; (iv) the period of time in which the SPAC intends to consummate a de-SPAC transaction; (v) any plans to seek additional financings and how the terms of additional financings may impact unaffiliated security holders; (vi) in a tabular format, compensation of 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 (vii) 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.
For a de-SPAC transaction, Item 1604 requires that the prospectus summary include: (i) the background and material terms of the de-SPAC transaction; (ii) whether the SPAC reasonably believes that the de-SPAC transaction is fair or unfair to non-redeeming security holders, the bases for such belief, and whether the SPAC or the SPAC sponsor has received any report, opinion, or appraisal from an outside party concerning the fairness of the de-SPAC transaction; (iii) any material actual or potential conflicts of interest between the SPAC sponsor or its affiliates or promoters and non-redeeming security holders in connection with the de-SPAC transaction, including any material conflict of interest that may arise in determining whether to proceed with a de-SPAC transaction and any material conflict of interest arising from the manner in which the SPAC compensates a SPAC sponsor, officers, and directors or the manner in which a SPAC sponsor compensates its officers and directors; (iv) 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 de-SPAC transaction or any related financing transaction, including the amount of securities issued or to be issued by the SPAC and the price paid or to be paid for such securities, and whether that compensation has resulted or may result in a material dilution of the equity interests of non-redeeming security holders of the SPAC; (v) 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 non-redeeming security holders; and (vi) the rights of security holders to redeem the outstanding securities of the SPAC and the potential dilutive impact of redemptions on non-redeeming shareholders.
De-SPAC Transactions: Background, Reasons, Terms, and Effects – Item 1605
Item 1605 requires 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 de-SPAC transaction;
- A brief description of any related financing transaction, including any payments from the SPAC sponsor to investors in connection with the financing transaction;
- A reasonably detailed discussion of the reasons of the SPAC and the target company for engaging in the de-SPAC transaction and reasons of the SPAC 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 SPAC and target company security holders as compared with security holders of the combined company as a result of the de-SPAC transaction;
- The Federal income tax consequences of the de-SPAC transaction to the SPAC, the target company, and their respective security holders;
- Any material interests in the de-SPAC transaction or any related financing transaction held by the SPAC sponsor and the SPAC’s officers and directors, or held by the target company’s officers or directors that consist of any interest in, or affiliation with, the SPAC sponsor or SPAC, including fiduciary or contractual obligations to other entities; and
- A statement whether or not security holders are entitled to any redemption or appraisal rights, a summary of such redemption or appraisal rights, and, if there are no redemption or appraisal rights available for security holders who object to the de-SPAC transaction, a brief outline of any other rights that may be available to security holders.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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