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. The second 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. Part 4 continued 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 – see HERE. Part 5 completed the Subpart 1600 discussion – see HERE.
Part 6 covers further rule amendments impacting de-SPAC transactions including non-financial disclosures, minimum dissemination periods, requiring a target to be a co-registrant, re-determining smaller reporting company status, the PSLRA safe harbor, and underwriter status in a de-SPAC transaction – see HERE. Part 7 delves into new Rule 145a for business combinations with any shell company, not just SPACs – see HERE. Part 8 explores Article 15 financial statement requirements for business combinations with any shell company, not just SPACs – see HERE.
This Part 9 covers the new enhanced projections disclosures, and the final Part 10 will discuss the status of SPACs under the Investment Company Act.
Enhanced Projections Disclosure
Disclosure of financial projections is not expressly required by the federal securities laws; however, there are various reasons why companies produce and disclose such information, including to justify a board’s decision to approve a business combination transaction or to form the basis for an underlying fairness opinion. Companies engaged in business combination transactions may use projections to negotiate the offered consideration, terms, and conditions and to allocate risks in those transactions.
Item 10(b) of Regulation S-K addresses the use of projections and requires that a Company have a reasonable basis for any future performance assessment. Item 10(b) also sets for the SEC’s views on the need for disclosure of the assumptions underlying the projections, the limitations of such projections, and the format of the projections.
The SEC has amended Item 10(b) to: (i) modify the presentation of projections by companies with no history of operations; and (ii) expand the scope of the guidance in the Item to include projections of future economic performance of entities other than the registrant such as the target in a business combination. The SEC has also adopted new Item 1609 of Regulation S-K that will be particularly applicable to the use of projections in de-SPAC transactions including expanding the disclosure requirements.
Item 10(b) has been amended to provide that:
- Any projected measure that are not based on historical financial results or operational history should be clearly distinguished from projected measures that are based on historical results or operational history;
- It generally would be misleading to present projections that are based on historical financial results or operational history without presenting such historical results 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 directly comparable, and an explanation why the non-GAAP financial measure is being used instead of a GAAP measure (for more on the use of non-GAAP measures, see HERE; and
- The guidance in Item 10(b) applies to any projections of future economic performance of persons other than the registrant, such as the target company in a business combination transaction, that are included in the registrant’s SEC filings.
New Item 1609 of Regulation S-K applies only to de-SPAC transactions and requires a registrant to provide the following disclosures:
- With respect to any projections disclosed in the filing, the purpose for which the projections were prepared and the party that prepared the projections;
- All material bases of the disclosed projections, all material assumptions underlying the projections, and any factors that may impact such assumptions (including a discussion of any material growth or reduction rates or discount rates used in preparing the projections, and the reasons for selecting such growth rates or discount multiples); and
- Whether the disclosed projections reflect the view of the board of directors (or similar governing body) or management of the SPAC or target company, as applicable, as of the most recent practicable date prior to the date of the disclosure document required to be disseminated to security holders; if not, then a statement regarding the purpose of disclosing the projections and the reasons for any continued reliance by management or the board on the projections.
The SEC has also amended General Instruction B to Form 8-K to require the information set forth in paragraphs (a) and (b) of Item 1609 in any Form 8-K report or exhibit to such report that relates to a de-SPAC transaction and includes projections that relate to the performance of the SPAC or the target company.
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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