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SPAC initial public offerings (IPOs)

SEC Adopts Final Rules On SPACS, Shell Companies And The Use Of Projections – Part 1

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 SEC is specifically requiring enhanced disclosures with respect to compensation paid to sponsors, conflicts of interest, dilution, and the determination, if any, of the board of directors (or similar governing body) of a SPAC regarding whether a de-SPAC transaction is advisable and in the best interests of the SPAC and its shareholders.  The SEC has also adopted rules that deem any business combination transaction involving a reporting shell company, including a SPAC, to involve a sale of securities to the reporting shell company’s shareholders, and has amended several financial statement requirements applicable to transactions involving

SEC Chair Gary Gensler’s Annual Congressional Testimony

On September 12, 2023, Gary Gensler gave his annual testimony to the United States Senate Committee on Banking, Housing and Urban Affairs and then on September 27th to the United States House of Representatives Committee on Financial Services (for a review of last year’s testimony see HERE).  Both appearances included the same prepared remarks followed by robust Q&A from the lawmakers.

This year Chair Gensler’s prepared remarks focused on: (i) rule amendments and updates; (ii) improving efficiency in equity markets; (iii) disclosure matters and related enforcement including related to cryptocurrency; and (iv) general updates on the SEC and capital markets.

Prepared Remarks

We shouldn’t expect the busy SEC rule making agenda to slow down any time soon.  Chair Gensler prioritizes updating rules for technology, business and market changes.  Although Gensler’s speech focuses on rule changes to make the markets more efficient and resilient and lower costs, the reality is that not all rule changes will accomplish

SPAC Director And Sponsor Fiduciary Obligations

A year following the Delaware Chancery Court’s decision in Multiplan Corp. Stockholders Litigation (f/k/a Churchill Capital Corp III), the court again issued an opinion supporting a breach of fiduciary duty cause of action against SPAC directors and sponsors and confirming that a de-SPAC transaction should be reviewed using the “entire fairness” standard.  In the January 2023 case of Delman v. Gigacquisitions3, LLC, et al. the Delaware Court denied a motion to dismiss by SPAC sponsors and directors, upholding their potential liability.  Interestingly, the Delman motion was in front of the same vice-chancellor as was Multiplan.  My blog on the Multiplan Corp. Stockholders Litigation (f/k/a Churchill Capital Corp III) case and its ramifications can be read HERE.

In addition to confirming the inherent conflict of interest of SPAC sponsors and directors, the cases will undoubtedly cause practitioners and market participants to implement new policies and procedures related to proxy statement disclosures, diligence, board discussions, financial valuations, capital raising

Class Voting in Delaware – The Saga Continues

Just a few weeks ago, I wrote about the Garfield v. Boxed, Inc. case in Delaware questioning whether Class A and Class B common stock in a SPAC structure were different series of a same class or different classes of stock requiring separate class voting in certain circumstances (see HERE).  The Delaware Chancery court in Garfield v. Boxed, found that in that particular case, the Class A and Class B were separate classes requiring a separate class vote to increase the total outstanding common stock as required by the Delaware General Corporate Law (DGCL) Section 242(b)(2).

Following the Garfield decision, there has been a run on the Chancery Court by post-business-combination SPACs seeking to ratify shareholder approvals obtained during the de-SPAC process, in reliance on DGCL Section 205.  Although the wording has varied, in essence each of the companies have asked the Chancery court to (i) validate and declare effective the company’s current certificate of incorporation

Class Voting In Delaware And The Impact On SPACs

In December 2022, the Delaware Chancery Court entered a ruling sending the SPAC world spiraling, for what seems like the 10th time in the last couple of years.  As is always the case in a SPAC (or at least 99% of the time), common stock is broken into two series, Class A and Class B.  The Class A common stock is issued to the public shareholders in the underwritten initial public offering and the Class B common stock is issued to the sponsor.  Upon closing a business combination transaction, the sponsor Class B common stock automatically converts into Class A common stock, leaving one Class of common stock.  Also, in the majority of SPAC transactions, the shareholder approval for the business combination transaction involves other changes to the charter documents for the SPAC, including a name change, and changes in authorized capital stock, etc.  The term “charter” in this blog refers to the certificate of incorporation and any amendments

Compliance Deadlines For Nasdaq Board Diversity Rules

On August 6, 2021, the SEC approved Nasdaq’s board diversity listing standards proposal.  Nasdaq Rule 5605(f) requires Nasdaq listed companies, subject to certain exceptions, to: (i) to have at least one director who self-identifies as a female, and (ii) have at least one director who self-identifies as Black or African American, Hispanic or Latino, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+, or (iii) explain why the company does not have at least two directors on its board who self-identify in the categories listed above.  The rule changes also made headlines in most major publications.  One of the most common themes in the press was the lack of inclusion of people with disabilities in the definition of an “underrepresented minority” for purposes of complying with the new rules.

The original rules had tiered compliance deadlines which Nasdaq (and practitioners) found confusing and unnecessarily complicated.  On December 14,

The SEC’S Spring 2022 Flex Regulatory Agenda

On June 22, 2022, the SEC published its semiannual regulatory agenda and plans for rulemaking.  The Unified Agenda of Regulatory and Deregulatory Actions contains the Regulatory Plans of 28 federal agencies and 68 federal agency regulatory agendas.  As expected, the Spring 2022 Agenda (“Agenda”) met with criticism from Commissioner Hester M. Peirce.  Commissioner Peirce rips the newest Agenda as being disconnected with the SEC’s core mission and as being focused on special interest groups instead of a broad range of market participants.  I’ll include her comments throughout this blog.  The Agenda is published twice a year, and for several years I have blogged about each publication.

The Agenda is broken down by (i) “Pre-rule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions.  The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that.  The number of items to be completed in a

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