would be mitigated to the extent that registrants are already providing
this information, or include projections of future economic performance
that do not follow some or all of the proposed amendments.
---------------------------------------------------------------------------

    \540\ See supra Section V.B.1 for additional regulatory baseline
information.
    \541\ See Anne Beyer, Daniel A. Cohen, Thomas Z. Lys, & Beverly
R. Walther, The Financial Reporting Environment: Review of the
Recent Literature, 50 J. Acct. & Econ. 296, 296-343 (2010) (By
employing a sample from 1994 to 2007, this article shows management
forecasts providing over half of accounting-based information to the
market. In summary, the management forecast literature suggests that
earnings projections and realizations both provide value-relevant
information to the market.).
---------------------------------------------------------------------------

    In addition, to the extent that registrants have not previously
applied the Commission's guidance in Item 10(b) to third-party
projections included in the registrant's filings, and choose to do so
as a result of the proposed amendments, investors may benefit from
improved care and presentation with respect to any third-party
projections in a registrant's filing. These benefits would be mitigated
to the extent that registrants already follow the Commission's guidance
set forth in Item 10(b) for third party projections included in their
filings, or choose not to do so. To the extent that registrants follow
the guidance in the proposed amendments to Item 10(b), the incremental
compliance costs are likely to be limited. Registrants should already
have information about historical financial results or operational
history and GAAP financial measures, and should be able to easily
obtain this information in connection with any included third-party
estimates. Moreover, potential liability for false or misleading
projections is likely to shape disclosure practices with respect to
third-party projections in addition to the existing guidance in Item
10(b).
    The proposed amendments to Item 10(b) could discourage registrants
from including projections in their filings, which would provide
investors with less information for their investment decisions. In
addition, the proposed additional contextual disclosure, to the extent
included by registrants, could increase investors' processing cost of
any included financial projections.
5. Investment Company Act Safe Harbor
    As discussed above, whether a SPAC meets the definition of
investment company under Section 3(a)(1)(A) of the Investment Company
Act in the period between its IPO and either the completion of its de-
SPAC transaction or its dissolution is a question of facts and
circumstances.\542\ Currently, SPACs typically provide disclosures
indicating that they believe they do not meet the investment company
definition under Section 3(a). They further typically disclose to
prospective investors that if they are determined to be an investment

company in the future, the costs and logistics of compliance with the
Investment Company Act would be prohibitive. We are, however, concerned
that SPACs may fail to recognize when their activities raise the
investor protection concerns addressed by the Investment Company Act.
To assist SPACs in focusing on, and appreciating when, they may be
subject to investment company regulation, we are proposing Rule 3a-10,
which would provide a safe harbor from the definition of ``investment
company'' under Section 3(a)(1)(A) of the Investment Company Act that
we believe would enhance investor protection.\543\
---------------------------------------------------------------------------

    \542\ See supra Section VI.A.
    \543\ See supra Section VI.
---------------------------------------------------------------------------

    We have designed the proposed conditions of the safe harbor to
align with the structures and practices that we preliminarily believe
would distinguish a SPAC that is likely to raise investor protection
concerns under the Investment Company Act from those that we believe
generally do not.\544\ Specifically, the proposed rule would promote
investor protection by highlighting to SPACs and their sponsors the
potential Investment Company Act concerns that SPAC activities may
raise, such that investors would benefit from a reduced risk that the
SPACs they invest in will engage in activities typically associated
with investment companies but without the investor protections provided
by the Investment Company Act. This may, in turn, reduce the
possibility for regulatory arbitrage, which may be used by some SPACs
in an attempt to operate like an investment company without investment
company registration.\545\ A reduction of the possibility of regulatory
arbitrage would also reduce costs related to potential uncertainty
about a SPAC's legal status and promote confidence in the SPAC market
among market participants. Finally, a reduction in the possibility of
regulatory arbitrage would potentially promote competition among all
companies engaging in investment management activities regulated by the
Investment Company Act.
---------------------------------------------------------------------------

    \544\ See supra note 295 for a description of investor
protection concerns addressed by the Investment Company Act.
    \545\ The significant compliance costs of investment company
registration under the Investment Company Act may give some SPACs an
incentive to try to engage in such regulatory arbitrage.
---------------------------------------------------------------------------

    In terms of expected investor protection benefits for investors in
SPACs that would rely on the proposed safe harbor, the safe harbor
conditions are designed to ensure that SPACs do not engage in
activities that would make them investment companies. For example, the
proposed conditions on the nature and management of SPAC assets are
designed to ensure that a SPAC relying on the safe harbor would not
engage in portfolio management practices resembling those that
management investment companies employ.\546\
---------------------------------------------------------------------------

    \546\ See supra Section VI.B.1.
---------------------------------------------------------------------------

    In addition, the proposed conditions for SPAC activities are
designed to ensure that SPACs relying on the safe harbor would have a
business purpose aimed at completing a single de-SPAC transaction,
after which the surviving company would be primarily engaged in the
business of the target company or companies and have at least one class
of exchange listed securities.\547\ As a result, a SPAC relying on the
safe harbor would not be engaging in activities that raise investor
protection concerns addressed by the Investment Company Act.
---------------------------------------------------------------------------

    \547\ See supra Section VI.B.2.
---------------------------------------------------------------------------

    Finally, the proposed duration conditions are designed to ensure
that a SPAC relying on the safe harbor would have a limited time period
to announce and complete a de-SPAC transaction before being required to
distribute the SPACs assets in cash to investors.\548\ The proposed 18-
month condition for the announcement of a de-SPAC agreement and
condition that the de-SPAC transaction close within 24 months would
potentially reduce the risk that investors may come to view a SPAC
holding securities for a prolonged period as a fund-like investment,
thereby necessitating the regulatory protections of the Investment
Company Act. We recognize that most SPACs are listed on a national
securities exchange and as such are subject to exchange listing
standards requiring that the SPAC completes a de-SPAC transaction
within 36-months (or three years) of the effectiveness of its IPO
registration statement.\549\ For such SPACs the proposed safe harbor
duration condition would have reduced benefits since the exchange rules
already provide a limit on the duration of the SPAC, albeit 12 months
longer that the proposed limit.
---------------------------------------------------------------------------

    \548\ See supra Section VI.B.3.
    \549\ See supra note 393 and accompanying text.
---------------------------------------------------------------------------

    Beyond providing investor protection benefits, we expect that the
proposed safe harbor could reduce compliance costs for some market
participants. Specifically, because registering as an investment
company and complying with the associated Investment Company Act
requirements would be potentially cost-prohibitive for most SPACs, we
expect registrants, sponsors, and investors would all benefit from the
additional certainty regarding a SPAC's status to the extent it meets
the conditions of the safe harbor. Such benefits would directly accrue
for SPACs that already meet the conditions of the proposed safe harbor,
or for future SPACs that would meet the conditions even in the absence
of the proposed safe harbor. Because of the compliance costs and
significant operational changes involved with investment company
registration, we expect that most SPACs that do not presently meet the
conditions of the proposed safe harbor would seek to fall within the
safe harbor by making changes to their operations in order to meet the
safe harbor conditions. However, for some SPACs that currently do not
meet such conditions, there may be potentially meaningful costs related
to bringing the operations in line with the new safe harbor (discussed
in more detail below).\550\ We also expect that most future SPACs that
would otherwise under the baseline have run operations not meeting the
safe harbor conditions would take advantage of the legal certainty
conferred by the proposed safe harbor and elect to meet the conditions.
In addition, because SPACs that operate within the boundaries of the
safe harbor would be assured that they would not qualify as investment
companies, there may also be an increased propensity for sponsors to
launch new SPACs operating within the safe harbor conditions to the
extent that they might not have otherwise chosen to create a SPAC due
to the uncertainty of the Investment Company Act status. Thus, the
reduced uncertainty regarding the legal status of SPACs operating
within the proposed safe harbor could facilitate capital formation.
Finally, the proposed safe harbor would also promote efficiency of a
SPAC's compliance process by providing a clear framework for SPACs to
determine their status under the Act.
---------------------------------------------------------------------------

    \550\ As discussed in more detail below, such SPACs may
alternatively seek to operate outside the safe harbor without making
any operational changes or make other changes to their operations in
order to avoid meeting the definition of an investment company under
Section 3(a)(1)(A) of the Investment Company Act, including, for
example, by avoiding investing, reinvesting or trading in
securities.
---------------------------------------------------------------------------

    To the extent the potential benefits to investors of current and
future SPACs operating under the new safe harbor would be significant,
we may see an increase in investor demand for SPACs that could
potentially lower the cost of capital for SPACs. In turn, a lower cost
of capital could increase the size and number of SPAC IPO offerings and
thereby promote capital formation.

    For current or future SPACs that would meet the safe harbor
conditions absent the proposed rule, we do not expect any direct costs
from the proposed safe harbor. By contrast, for SPACs currently not
meeting the proposed safe harbor conditions, or for future SPACs that
would otherwise not meet the safe harbor conditions, there may be costs
related to SPACs changing their operations to meet the conditions or to
make other changes to their operations in order to avoid falling under
the definition of an investment company under Section 3(a)(1)(A) of the
Investment Company Act.
    In terms of potential costs of bringing SPAC operations in line
with the proposed safe harbor conditions, we do not expect that the
proposed safe harbor conditions with respect to the nature and
management of SPAC assets would impose significant costs on SPACs and
their sponsors and investors, as it is our understanding that most
SPACs' assets are already held as government securities, government
money-market funds, or cash items.\551\ We also understand that SPACs
generally are not actively managing these assets, most of which are
held in an escrow or trust account.\552\ To the extent there are some
SPACs that are currently holding other types of assets, they would have
to liquidate such assets and move them into an allowable asset class
prior to completion of the de-SPAC transaction to rely on the proposed
safe harbor, and would thereby incur some transactions costs and
possibly also realize some capital losses depending on how market
conditions for such assets have changed.
---------------------------------------------------------------------------

    \551\ See supra Section IX.B.6.a.
    \552\ Id.
---------------------------------------------------------------------------

    With respect to the proposed safe harbor conditions for SPAC
activities, we do not expect the condition that SPACs have to seek to
complete a single de-SPAC transaction to impose any significant costs
on SPAC operations under the baseline. It is our understanding that
almost all current SPACs seek to complete one single de-SPAC
transaction, albeit such a transaction may involve multiple target
companies, which would still be feasible under this proposed safe
harbor condition.
    We also do not expect the proposed condition that a SPAC wishing to
rely on the safe harbor to be primarily engaged in the business of
seeking to complete a de-SPAC transaction would impose any significant
incremental costly constraints on SPAC activities under the baseline.
It is our understanding that most SPACs presently communicate to
investors their sole intent to seek a target company to operate and
that they do not intend to act as an investment company under the
Investment Company Act.\553\
---------------------------------------------------------------------------

    \553\ See supra Section IX.B.6.b.
---------------------------------------------------------------------------

    Adherence to the proposed duration conditions under the safe harbor
is likely to impose costs on SPACs that would seek to avail themselves
of the proposed safe harbor by limiting the time they have to search
for a target company and complete a de-SPAC transaction compared to the
baseline. The option of waiting to invest can be valuable, and to the
extent that SPACs would have to shorten the duration of their search
for an appropriate target company and complete a de-SPAC transaction in
order to take advantage of the safe harbor, the proposed duration
conditions would potentially reduce the value of this option for
SPACs.\554\ Additionally, to the extent an expected value-increasing
de-SPAC transaction would not occur under the proposed duration
conditions, but it could have under the baseline, the proposed rules
may lead to forced liquidation of the SPAC and impose associated costs
on both investors and sponsors (in particular, the loss of their
respective portions of the expected value increase). However, because
of the typical compensation structure of SPAC sponsors, they have
strong incentives to complete a de-SPAC transaction rather than
liquidating the SPAC and returning the proceeds in the trust or escrow
account to the SPAC's shareholders. Therefore, SPACs that are seeking
to meet the proposed safe harbor conditions may in some cases
compromise on the quality of the type of targets pursued to speed up
their search, or offer to pay more for the target to complete a de-SPAC
transaction sooner, compared to under the baseline.\555\ In some
circumstances, the duration conditions may give sponsors of SPACs
seeking to avail themselves of the proposed safe harbor increased
incentives to complete a de-SPAC transaction even if liquidation would
be the better choice for investors. That is, the duration conditions
may increase the agency costs of the sponsors' managerial control.
However, such agency costs would be mitigated by other provisions of
this proposal, such as the proposed specialized disclosure and
procedural requirements in de-SPAC transactions and the proposed
amendments aligning de-SPAC transactions with traditional initial
public offerings.\556\
---------------------------------------------------------------------------

    \554\ The value of the option to wait derives from the fact that
whereas the choice to wait is generally reversible, the choice to
invest now rather than later is generally irreversible. See, e.g.,
Robert McDonald & Daniel Siegel, The Value of Waiting to Invest, 101
Q. J. Econ. 707, 707-27 (1986).
    \555\ See supra note 454 for some evidence of such behavior
under SPAC's current self-imposed duration limitations.
    \556\ See supra Sections II.F and III.
---------------------------------------------------------------------------

    Based on the data presented above for recent SPACs that have at
least a 24-month history,\557\ approximately 65% completed a de-SPAC
transaction no later than 24 months after the IPO date. Thus, the
proposed 24-month condition for completion of a de-SPAC transaction may
be a binding constraint for a significant percentage of SPACs. For the
same sample of SPACs, the condition that a SPAC would need to announce
a de-SPAC transaction agreement in a Form 8-K filing no later than 18
months after the IPO date would have been met by approximately 59% of
the SPACs.\558\ Therefore, unconditionally, the 18-month announcement
condition is potentially binding for a larger percentage of SPACs than
the 24-month de-SPAC transaction completion condition. The data also
show that if a sample SPAC had met the 24-month transaction completion
condition, around 12% of such SPACs (12 of 99 cases) would not have met
the 18-month announcement condition. Conversely, among the sample SPACs
meeting the 18 month announcement condition, only approximately 2.2% of
such SPACs (2 cases of 89) would not have met the 24 month condition.
Among all sample SPACs, around 57% (87 of 152) would have met both the
18-month and the 24-month deadlines. Thus, we expect that the combined
effect of the two proposed duration conditions would be to force a
significant proportion of SPACs that would seek to take advantage of
the safe harbor to conclude their search for a target sooner than they
would have under the baseline or forgo a de-SPAC transaction, either of
which could potentially impose costs on SPACs and their investors and
sponsors, as discussed above.
---------------------------------------------------------------------------

    \557\ See supra Section IX.B.6.c.
    \558\ Id.
---------------------------------------------------------------------------

    A SPAC that seeks to rely on the proposed safe harbor would also be
required to distribute its assets in cash to investors as soon as
reasonably practicable if it does not meet either the 18 month deadline
or the 24 month deadline. Because a SPAC would be required to hold only
liquid assets such as cash items, government securities, or government
money market funds, to rely on the proposed safe harbor, we do not
expect SPACs to incur significant incremental cost from this condition
in terms of direct transaction costs. Moreover, a SPAC already must
plan for

the distribution of its assets back to the investors if not used in a
de-SPAC transaction. Therefore, this condition should also not impose a
new significant burden on a SPAC.
    The proposed duration conditions may lead SPACs to complete less
profitable de-SPAC transactions, or fail to complete a de-SPAC
transaction at all. To the extent investors anticipate this, there may
be a reduction in investor demand that leads to fewer SPAC initial
public offerings and/or less capital being raised in these offerings,
which could potentially reduce capital formation depending on the type
of investments SPAC investors would shift their funds to instead. In
addition, an increase in SPACs that liquidate without a de-SPAC
transaction and/or a reduction of capital raised through SPACs may
ultimately result in fewer publicly traded operating companies and
therefore a reduced investment opportunity set for investors. Such
negative investment opportunity effects may be mitigated to the extent
potential SPAC targets would instead go public through initial public
offerings without SPAC involvement.
    The proposed duration conditions may also affect the bargaining
environment in de-SPAC transactions. Knowing that SPACs would face a
regulatory imposed deadline for when to announce an agreement in order
to qualify for the safe harbor, target companies may deliberately
prolong negotiations so that they can attempt to extract better terms
as the regulatory imposed deadlines approaches. Such strategic behavior
by targets may reduce returns to SPAC investors further, but may not be
an economic loss per se if the transaction is still completed, as the
immediate effect in such a case would be a pure wealth transfer from
SPAC investors to target company owners. The potential for an increase
in target bargaining power would be mitigated by the fact that most
SPACs' securities are listed on a national securities exchange and
therefore already subject to the exchanges' required deadlines (36
months or 3 years) for completion of a business combination. However,
to the extent target company bargaining power would increase and lead
to worse terms in de-SPAC transactions for investors it could
potentially reduce ex ante demand among investors for SPAC investments,
which could reduce the number of operating companies ultimately being
traded in public markets, all else being equal. However, such effects
would be mitigated if potential target operating companies instead
access public capital markets in alternative ways.
    Any SPAC that would find the proposed safe harbor conditions too
costly to comply with could seek to not rely on the safe harbor and
instead choose to bear the legal uncertainty of operating outside of
it. Besides the direct compliance costs associated with being an
investment company, a SPAC that operates as an investment company would
also potentially be subject to delisting, as current exchange rules do
not appear to provide for SPACs to operate as an investment company and
maintain their listing.
    As an alternative to relying on the proposed safe harbor, it is
possible that current or future SPACs would seek to avoid being
considered an investment company under the Investment Company Act by
holding different assets than are commonly held today. However, holding
different assets (such as cash items) may provide a lower return than
holding the types of assets permitted under the safe harbor conditions.
Thus, the possibility of switching assets to cash items to avoid being
an investment company may not fully mitigate the potential costs
imposed on the SPAC market from the proposed safe harbor
conditions.\559\
---------------------------------------------------------------------------

    \559\ As indicated in supra note 314, if a SPAC were to
significantly change its asset composition contrary to its original
representations, it would raise questions whether the initial
representations were false and misleading.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

1. Efficiency
    The proposed rules and amendments would enhance and standardize
disclosure about specific aspects inherent to the SPAC structure at
both the SPAC initial public offering stage and the de-SPAC transaction
stage. Requiring the SPAC and the target company to provide such
disclosure may in some cases afford market participants greater access
to information relevant to voting, redemption, and investment
decisions. By increasing the standardization and comparability of
disclosures, the proposed rules may make it easier for investors to
properly and efficiently process information about SPACs and for market
prices to reflect such information. In addition, invested capital may
be more likely to be more efficiently deployed.
    Additionally, the proposed rules would increase the incentives for
issuers and underwriters to exercise the care necessary to ensure
accuracy in disclosures by affirming the underwriter status of SPAC IPO
underwriters in connection with de-SPAC transactions and proposing a
new definition of ``blank check company'' for purposes of the PSLRA
safe harbor. In addition, the proposed rules regarding shell company
business combination transactions would make certain disclosures and
liabilities more consistent with traditional IPOs, which could benefit
investors and potentially decrease the cost of capital for shell
companies. To the extent that disclosure accuracy is improved,
investors would have access to more reliable information when making
their investing decisions, which would lead to an increase in market
efficiency.
2. Competition
    By improving the informational environment at the SPAC initial
public offering and the de-SPAC stages through changes in disclosure
requirements and the scope of liability, the proposed rules and
amendments could encourage greater competition between SPAC sponsors
and SPAC underwriters, in both SPAC IPO and de-SPAC activities. For
example, by standardizing and increasing the comparability between the
disclosures provided by SPACs, the proposed rules and amendments may
lead to improved investor awareness and more efficient information
processing. To the extent that the proposed rules and amendments lead
to an increase in competition between shell company mergers, including
de-SPAC transactions, and traditional initial public offerings, they
may bring down the costs of capital raising through these approaches.
    If the proposed rules and amendments create significant costs that
lead to a reduction in shell company mergers and overall initial public
offering activity in the SPAC market, this could reduce competition for
investment opportunities. Such a reduction could result in higher fees
in both the traditional IPO and SPAC markets. Additionally, if some of
the proposed new rules and amendments disincentivize underwriters and
PIPE investors from participating in de-SPAC transactions and related
financings, it could reduce competition among service and capital
providers in the SPAC market and lead to higher fees.
    To the extent that the proposed safe harbor from the Investment
Company Act would reduce the costs of compliance, it may encourage
additional sponsor participation in the SPAC market and thus encourage
competition among SPACs. However, for potential SPACs that would not
meet the safe harbor conditions, the proposed safe harbor may increase
the costs of sponsoring a SPAC, and thus the

proposed rule may have an adverse effect on competition among SPACs.
3. Capital Formation
    Enhanced disclosure at both the SPAC initial public offering and
the de-SPAC stages, combined with a stronger incentive to perform
better due diligence in the de-SPAC transaction stage, would likely
improve investor protection at both stages. In addition, the proposed
rules and amendments for shell company mergers would likely improve
investor protection. For example, proposed Rule 145a would help
shareholders of reporting shell companies more consistently receive the
full protections of the Securities Act disclosure and liability
provisions in business combinations involving reporting shell
companies, regardless of the transaction structure. Increased
protections could incentivize more investors to invest in shell
companies, including SPACs, thus enhancing capital formation. In
addition, to the extent that the proposed safe harbor from the
Investment Company Act reduces regulatory uncertainty and thus
encourages participation in SPACs, it may also lead to an increase in
capital formation.\560\
---------------------------------------------------------------------------

    \560\ As discussed in supra Section IX.C.5, an increase in
investor demand for SPACs could potentially lower the cost of
capital for SPAC, which may increase the size and number of SPAC IPO
offerings.
---------------------------------------------------------------------------

    If the proposed rules and amendments create significant costs for
shell companies, including SPACs, this may limit the number of private
companies that go public through shell companies, including a de-SPAC
transaction mechanism, or at all.\561\ Given the potential increase in
the cost of going public through a shell company merger such as a de-
SPAC transaction compared to the current baseline, it is possible that
some private companies could consider the traditional initial public
offering channel a more viable alternative. We are not able to estimate
how many companies would consider using a traditional initial public
offering mechanism if the cost of the overall SPAC transaction
structure increases. It is possible, however, that a significant
increase in the cost of shell company mergers and de-SPAC transactions
could deter some private companies from going public, and thus
potentially reduce overall initial public offering activity and capital
formation.
---------------------------------------------------------------------------

    \561\ For example, as discussed in more detail in supra Section
IX.C.5, for SPACs that would take advantage of the proposed
Investment Company Act Safe Harbor, the duration requirements could
potentially lead investors to anticipate less profitable de-SPAC
transactions or a lower likelihood of completion of de-SPAC
transactions, which, in turn, could reduce investor demand for SPAC
initial public offerings. Moreover, an increase in SPACs that
liquidate without a de-SPAC transaction and/or a reduction of
capital raised through SPACs may ultimately result in fewer publicly
traded operating companies and therefore a reduced investment
opportunity set for investors.
---------------------------------------------------------------------------

E. Reasonable Alternatives

1. Disclosure-Related Proposals
a. Require Disclosure of Policies and Procedures That Address Conflicts
of Interest
    As an alternative to Item 1603 as proposed, we could include a
complementary requirement to describe any policies and procedures used
or to be used by a SPAC to minimize potential or actual conflicts of
interest related to disclosures provided in response to proposed Items
1603(b) and 1603(c). Such information could assist investors in gauging
the economic significance, or lack thereof, of the various conflicts of
interest given the presence, absence and likely degree of effectiveness
of the policies and procedures designed to address or ameliorate them.
On the other hand, requiring this information would increase compliance
costs for SPACs and may cause some of these companies to adopt policies
and procedures that would not be efficient or cost-effective given
their particular organizational structure. In this regard, we note that
there could be incentives to provide such disclosure voluntarily, as it
would indicate to investors the degree to which conflicts of interest
may be ameliorated.
b. Certain Reports, Opinions, or Appraisals
    We are proposing to require the filing of reports, opinions, or
appraisals provided to the SPAC or its sponsor relating to valuation
and/or fairness of a de-SPAC transaction or related financing
transactions (Item 1607) as exhibits to registration statements and
schedules provided in connection with a de-SPAC transaction. We are
also proposing to require disclosures summarizing the negotiation,
report, opinion, or appraisal and certain additional disclosures, such
as for example, information about who prepared the report, opinion, or
appraisal, and how they were selected. As an alternative, we could
require disclosure of only a summary of the reports, opinions,
appraisals, and negotiations. This could reduce some of the costs of
compliance to the extent that it is more costly to obtain a report that
will become public. At the same time, this alternative would reduce the
benefits of the disclosure, as investors and market participants would
have less information available to assess the quality and robustness of
the analysis underlying such report, opinion, or appraisal.
c. Require a Fixed Re-Determination Date To Measure Public Float for
Smaller Reporting Company Status
    When re-determining a post-business combination company's
eligibility for smaller reporting company status, instead of requiring
the public float threshold to be measured as of a date within four days
after the consummation of the de-SPAC transaction, we could
alternatively require the re-determination to occur on a fixed date,
such as the consummation date or on the fourth day after consummation.
A fixed re-determination date would have the benefit of establishing a
consistent date for all post-business combination companies to use and
remove any management judgment in the selection of a re-determination
date, while still requiring that the re-determination of smaller
reporting company status occur before the post-business combination
company makes its first filing. However, reduced flexibility regarding
the time frame within which the required re-determination must be made
could increase costs for post-business combination companies without
substantial additional benefits for investors.
d. Re-Determine Smaller Reporting Company Status of a Post-Business
Combination Company Without a Public Float Test
    As another alternative, we considered whether the re-determination
for smaller reporting company status of the combined company following
a de-SPAC transaction should require only a re-measurement of the
revenue component of smaller reporting company test and not its public
float component. Generally, smaller reporting company status is re-
determined on an annual basis based on the issuer's public float as
well as annual revenues. Revenues of the combined company may be more
relevant to smaller reporting company status than public float because,
generally, the target company has generated revenue while the SPAC has
not done so. Accordingly, the revenue test may be the more
determinative factor than the public float test in determining whether
the combined company following de-SPAC transaction remains a smaller
reporting company because, based on staff experience, the public float
of most SPACs and subsequent combined companies typically is between
$250

and $700 million, which exceeds the public float threshold for smaller
reporting company status. Also, the public float component of this test
is measured as of the last business day of the issuer's most recently
completed second fiscal quarter. Given that the public float re-
measurement likely would not occur at the end of the second fiscal
quarter when the annual public float measurement occurs, the combined
company may have to measure its public float more than one time during
the same fiscal year, which may impose additional burdens for the
company.
    However, compared to public float, revenue, if used as a sole basis
of the significance test, may be subject to a greater degree of
managerial discretion.\562\ Also, using revenue alone may expose a
large number of investors to business-specific risks because SPAC
targets may represent nascent industries that could feature extended
pre- or low-revenue periods but, as indicated above, may have a public
float following a de-SPAC transaction that would exceed the threshold
for smaller reporting company status. Thus, we believe it is
appropriate that these companies should take the public float into
account in re-determining smaller reporting company status following
the consummation of a de-SPAC transaction.
---------------------------------------------------------------------------

    \562\ See Jenny Zha Giedt, Modelling Receivables and Deferred
Revenues to Detect Revenue Management, 54 (2) Abacus 181, 181-209
(2018) (focusing on the SEC Accounting and Auditing Enforcement
Releases, i.e., AAER, from 1982 to 2016, and documenting that forty-
seven percent of all financial misstatements are related to
revenue).
---------------------------------------------------------------------------

e. Structured Data Requirement
    We could change the scope of the proposed Inline XBRL tagging
requirements for the proposed SPAC disclosures, such as by excluding
certain subsets of registrants or disclosures. For example, the tagging
requirements could exclude the SPAC initial public offering
disclosures. Under such an alternative, SPACs would submit initial
public offering disclosures in unstructured HTML or ASCII and would not
incur Inline XBRL compliance costs until their first periodic filing on
Form 10-Q, 20-F, or 40-F.\563\ This could make it incrementally easier
for SPACs to consummate an initial public offering. However, narrowing
the scope of the proposed tagging requirements, whether based on
filing, offering size, or other criteria, would diminish the extent of
any informational benefits that would accrue as a result of the
proposed disclosure requirements by making the excluded disclosures
comparatively costlier to process and analyze.
---------------------------------------------------------------------------

    \563\ The Commission's EDGAR electronic filing system generally
requires filers to use ASCII or HTML for their document submissions,
subject to certain exceptions. See EDGAR Filer Manual (Volume II)
version 61 (Mar. 2022), at 5-1; 17 CFR 232.301 (incorporating EDGAR
Filer Manual into Regulation S-T). See also 17 CFR 232.101 (setting
forth the obligation to file electronically on EDGAR).
---------------------------------------------------------------------------

    As another alternative, we could require only the quantitative
SPAC-related disclosures to be tagged in Inline XBRL. Excluding
qualitative disclosures from the tagging requirements could provide
some incremental cost savings for registrants compared to the proposal,
because incrementally less time would be required to select and review
the particular tags to apply to quantitative disclosures. However, we
expect these incremental cost savings would be low, because SPACs would
be subject to similar Inline XBRL requirements, including requirements
to tag quantitative and qualitative disclosures, in other Commission
filings.\564\ Moreover, narrowing the scope of tagging requirements to
exclude qualitative information would diminish the extent of
informational benefits that would accrue to investors by inhibiting the
efficient extraction and searching of narrative SPAC-related
disclosures (e.g., disclosures regarding conflicts of interest,
fairness determinations, and financial projections), thus creating the
need to manually review search results drawn from entire documents to
find these disclosures.\565\ Such an alternative would also inhibit the
automatic comparison of narrative disclosures against prior periods. It
also may be harder for investors to perform a targeted assessment of a
filing for particular types of narrative SPAC-related disclosures
because they would need to assess the entire filing for relevant
information.
---------------------------------------------------------------------------

    \564\ See supra Section IX.C.1.a.5.
    \565\ To illustrate, without Inline XBRL, using a search string
such as ``dilution'' to search through the text of all de-SPAC
filings, so as to determine the extent to which dilutive effects are
among the material factors being considered by SPACs at arriving at
fairness determinations, could return many narrative disclosures
outside of the fairness determination disclosure that would be
required by proposed Item 1606(b) of Regulation S-K, such as
disclosures in the risk factors section or in the description of
stock incentive plans. However, if Inline XBRL is used, it would
enable a user to search for the term ``dilution'' exclusively within
the proposed fairness determination disclosure, thereby likely
reducing the number of irrelevant results.
---------------------------------------------------------------------------

2. Liability-Related Proposals
a. PSLRA Safe Harbor
    As an alternative to addressing the use of projections in de-SPAC
transactions and other business combinations involving blank check
companies that are not penny stock issuers by proposing to amend the
``blank check company'' definition, we could have issued interpretive
guidance stating that the PSLRA safe harbor for forward-looking
statements is not available because business combinations with shell
companies that are not penny stock issuers are ``initial public
offerings'' by target private operating companies for purposes of the
PSLRA. This alternative would avoid some of the complexity associated
with defining blank check companies for purposes of the PSLRA, but
issuing guidance rather than a rule may result in weaker incentives for
SPACs or target companies to take greater care in preparing forward-
looking statements, such as projections, in de-SPAC transactions and
thus result in fewer investor protection benefits than the proposed
rule.
b. Issuing Guidance on Underwriter Status
    Instead of proposing Rule 140a, the Commission could issue guidance
that would describe the factors that should be considered in
determining underwriter status in connection with de-SPAC transactions,
which could potentially be relevant for parties other than SPAC IPO
underwriters. Issuing guidance rather than designating an underwriter
by rule within the context of these transactions might prompt the full
range of parties involved in facilitating de-SPAC transactions to
consider their potential liability and thus take greater care in
performing their designated functions. This could result in more robust
investor protections overall. On the other hand, compared to the
proposed rule, this alternative would rely on the judgment of de-SPAC
participants to apply the guidance and may result in weaker incentives
for those parties that are potentially subject to Section 11 liability
to perform robust due diligence. As a result of such weaker incentives,
there could be a reduced impact on the accuracy of the disclosure in
de-SPAC transactions and investor protection benefits.
3. Expanding Disclosure in Reporting Shell Company Business
Combinations
    Proposed Rule 145a would deem any business combination of a
reporting shell company (that is not a business combination-related
shell company) involving another entity that is not a shell company to
involve a sale of securities to the reporting shell company's
shareholders. As an alternative, instead of deeming all such
transactions to be a sale that would need

to be registered under the Securities Act, absent an applicable
exemption, we could expand the disclosure requirements applicable to
reporting shell company business combinations such that the disclosure
requirements would be the same as what would have been required if the
transaction was registered under the Securities Act. Under this
alternative, regardless of the document that is filed with the
Commission (e.g., proxy or information statement, Schedule TO, or Form
8-K), the set of disclosures investors receive would be the same as
they would receive had a registration statement been filed for the
transaction. This would ensure that the reporting shell company's
shareholders receive the same information regardless of how the
transaction is structured and would reduce regulatory arbitrage
opportunities stemming from different disclosure requirements in
different documents that may be filed with the Commission to report a
shell company business combination. As a registration statement would
not necessarily be required in all transaction structures, the costs of
such an alternative would also be less that the costs of liability
associated with the purchase and sale of securities and potential
Securities Act registration of shell company business combinations
under proposed Rule 145a, to the extent no exemption is available for
the transaction.
    However, merely expanding the set of disclosures investors receive
regardless of transaction structure does not provide investors with the
same level of protection because the liability standards differ based
on the type of filing that is required. Only by deeming the transaction
to be a sale would investors necessarily receive the protections that
apply in connection with a purchase and sale of securities under the
federal securities laws, such as the availability of private actions
under Section 10(b) and Rule 10b-5. In addition, to the extent there is
not an available exemption for the reporting shell company business
combination, only with Securities Act registration do investors receive
the full panoply of available protections under that Act that they
would receive in a traditional IPO, such as a private right of action
under Section 11.
4. Enhanced Projections Disclosures
    The proposed amendments to Item 10(b) of Regulation S-K present our
updated views on projected performance measures and include a statement
that projections based on a non-GAAP financial measure should include a
clear definition or explanation of the non-GAAP measure, and a
description of the GAAP financial measure to which it is most closely
related. As an alternative to this guidance, we could adopt a rule
requiring firms, when providing projections, to present a
reconciliation of projections based on a non-GAAP measure to those
based on the nearest GAAP measure. While the reconciliation would
further help investors understand the bases of projections involving
non-GAAP measures, it would likely also increase compliance costs and
in turn might reduce the provision of otherwise useful projections.
5. Investment Company Act Safe Harbor
a. Shorter Duration Limitations
    As an alternative, we considered shorter duration limitations by
instead requiring a SPAC to announce a transaction no later than 12-
months from the IPO registration date, and to complete a de-SPAC
transaction or liquidate the SPAC no later than 18-months after the IPO
registrations date. The benefit of this alternative is that it would
further decrease the possibility of regulatory arbitrage. It would also
reduce the risk that investors may come to view a SPAC holding
securities as a fund-like investment, and the related risk of investor
protection concerns. We expect this alternative would impose the same
type of costs we discussed above for the proposed duration conditions,
but at a greater magnitude. Based on a sample of SPACs with effective
IPO dates from January 1, 2016 to June 30, 2020 (i.e., a sample of
SPACs with at least an 18-month history since the IPO date as of
December 31, 2021; 189 SPACs in total), we find that approximately 36%
of the SPACs in the sample announced a transaction agreement no later
than 12-months after the date of the initial public offering and 40% of
the SPACs had completed a de-SPAC transaction no later than 18-months
after the date of the initial public offering. The proportion of SPACs
in the sample that both announced a de-SPAC transaction by 12-months
and completed the de-SPAC transaction by 18-months was approximately
33%, which is a significantly lower proportion compared to 57% of
sample SPACs that would have managed to meet both of the proposed
duration conditions, as discussed above. Thus, we expect that costs
would be greater under this alternative by forcing a greater proportion
of SPACs to conclude their search for a target or liquidate earlier
than they may otherwise do. In addition, because of the tighter
deadlines this alternative would impose, those SPACs that would be at
risk of not being able to meet the proposed longer duration conditions
would likely be at comparatively greater risk of not meeting the
deadlines under this alternative, which may also increase the costs
such SPACs would face in trying to meet these alternative duration
conditions.
b. No Announcement Condition
    We also considered an alternative that would keep the 24-month
condition for completion of a de-SPAC transaction, but remove the
duration condition for the announcement of a transaction. This
alternative would increase the proportion of SPACs meeting the duration
condition to 65% compared to 57% under the proposal. The benefit of
this alternative would thus be to increase the proportion of SPACs not
having to potentially sub-optimally come to a merger agreement earlier
(or, in some circumstances, potentially inefficiently liquidating the
SPAC), while still imposing a firm 24-month maximum lifespan for SPACs
seeking to take advantage of the proposed safe harbor. However, by not
imposing an 18-month announcement condition investors would lose any
investor protection benefits that may be associated with an earlier
signal of a SPAC's intent to complete a de-SPAC transaction than they
might receive under this alternative.
c. Longer Duration Limitations
    As an alternative, we could require a longer duration before a SPAC
would have to complete a de-SPAC transaction. For example, if we
increase this duration to no later than 36 months after the IPO date
(with no announcement condition), less than 4% of the sample SPACs that
completed a de-SPAC transition would not have met such a condition. As
discussed above, the national securities exchanges already require
SPACs to complete a de-SPAC transaction within 36 months (or 3 years).
Thus, based on both the recent evidence and the current exchange rules
for SPACs, we expect that this alternative would not impose the
potential costs of a truncated search period for a target company for
most SPACs, in particular SPACs with exchange-traded securities.
However, as discussed above, the longer the SPAC operates with its
assets invested in securities and its income derived from securities,
the more likely investors will come to view the SPAC as a fund-like
investment and the more likely the SPAC appears to be deviating from
its

stated business purpose. In turn, this may raise investor protection
concerns and increase the possibility of regulatory arbitrage compared
to the proposed duration conditions.

F. Requests for Comment

    155. Because of the potential for one or more of the proposed
amendments to have interactive effects, we are requesting public input
on the extent to which such interactive effects are likely to conflict
with the overall aims of this rulemaking, if adopted as proposed.
    156. Have we correctly characterized the benefits and costs from
the proposed new disclosure requirements at the SPAC IPO stage? Are
there any other benefits or costs that should be considered? Please
provide supportive data to the extent available.
    157. Our analysis suggests the proposed rules and amendments would
generally strengthen the investor protection in SPAC transactions at
the initial public offering stage. Are there any significant costs or
benefits associated with adopting these rules and amendments that we
have not considered that would lead to a different characterization?
Please provide supportive data to the extent available.
    158. Have we correctly characterized the benefits and costs from
the proposed new disclosure requirements at the de-SPAC transaction
stage and the alignment of disclosure requirements in the de-SPAC
disclosure documents with IPOs? Are there any other benefits or costs
that should be considered? Please provide supportive data to the extent
available.
    159. Our analysis suggests the proposed rules and amendments would
generally strengthen investor protection in de-SPAC transactions. Are
there any significant costs or benefits associated with adopting these
rules and amendments that we have not considered that would lead to a
different characterization? Please provide supportive data to the
extent available.
    160. Have we correctly characterized the benefits and costs from
proposed Item 1608 holding all other aspects of the proposed amendments
constant? Have we correctly characterized the benefits and costs that
would accrue given the potential interactive effects with proposed Rule
145a? Are there other interactive effects with respect to other
proposed items that, had we considered, would substantially alter our
assessment of the associated costs, benefit, or anticipated effects on
efficiency, competition, or capital formation?
    161. Have we correctly characterized the benefits and costs from
the proposed amendments to the enhanced projections disclosure
requirements (Item 1609 of Regulation S-K)? Are there any other
benefits and costs that should be considered? Please provide supportive
data to the extent available.
    162. Would the effects of the proposed amendments related to the
PSLRA safe harbor have significant interactive effects with proposed
Item 1609 of Regulation S-K such that our estimates of the incremental
costs and benefits of adopting Item 1609 should be revised? Please
provide either qualitative or quantitative data to the extent
available.
    163. How, and to what extent, would investors benefit from the
proposed requirement to tag the SPAC specialized disclosures in Inline
XBRL? What would be the costs of the proposed requirement to
registrants? Should we consider alternative tagging requirements for
the proposed SPAC disclosures? If so, what would be their benefits and
costs?
    164. Have we correctly characterized the benefits and costs from
the proposed re-determination of smaller reporting company status? Are
there any other benefits and costs that should be considered? Please
provide supportive data to the extent available.
    165. For the re-determination of a post-business combination
company's smaller reporting company status, what would be the benefits
and costs of requiring a fixed date to measure public float? If the
benefits outweigh the costs of requiring a fixed date, do the relative
benefits and costs of different possible fixed dates indicate that one
approach would be preferential?
    166. What would be the costs and benefits of relying solely on
revenues to re-determine a post-business combination company's smaller
reporting company status rather than including the public float?
    167. Have we correctly characterized the benefits and costs from
the proposal to require target companies to be co-registrants to Form
S-4 and F-4? Are there any other benefits and costs that should be
considered? Please provide supportive data to the extent available.
    168. Would the relative benefits and costs associated with the
proposed amendments related to de-SPAC-transaction disclosures and
liability have additional effects on the calculus of pursuing a de-SPAC
business combination versus a traditional IPO that we have not
considered? In terms of the market choice to utilize a de-SPAC
transaction versus a traditional IPO, would the change in relative
benefits and costs associated with the proposed rules and amendments be
beneficial or detrimental in terms of their effects on efficiency,
competition and capital formation? Please provide supportive evidence
or data to the extent available.
    169. Have we correctly characterized the benefits and costs from
the proposed amendments related to the PSLRA safe harbor? Are there any
other benefits and costs that should be considered? Please provide
supportive data to the extent available.
    170. With respect to the proposed changes to the definition of
``blank check company'' for purposes of the PSLRA safe harbor, are
there any additional benefits and costs that would apply primarily to
blank check companies that are not penny stock issuers and not SPACs?
Please provide supportive data to the extent available.
    171. Have we correctly characterized the benefits and costs of the
underwriter status and liability proposals? Are there any other
benefits and costs for SPACs, SPAC IPO underwriters, target companies
and investors that should be considered? Please provide supportive data
to the extent available.
    172. Have we correctly characterized the scope and scale of both
SPAC and non-SPAC shell companies that would be affected by proposed
Rule 145a? Please provide data or analysis to the extent available.
    173. Have we correctly characterized the benefits and costs of
proposed Rule 145a? Are there any other benefits and costs that should
be considered? Are there any additional benefits and costs that would
apply primarily to non-SPAC shell companies that are not business-
combination related shell companies? Please provide supportive data to
the extent available.
    174. As noted above, we are unable to estimate the number of shell
companies that are currently private that could be impacted by proposed
Article 15 of Regulation S-X. We request data on the number of these
entities that may be impacted by the proposed rule. Would analysis of
the economic effects on these currently private entities broadly impact
the balance of costs and benefits to adopting Article 15 of Regulation
S-X as proposed?
    175. Have we correctly characterized the benefits and costs of
proposed new Article 15 of Regulation S-X and the related proposed
amendments? Are there any other benefits and costs that should be
considered? Please provide supportive data to the extent available.
    176. Have we correctly characterized the benefits and costs to
proposed Rule 15-01(b)? Are there additional costs,

particularly to investors, of permitting a shell company registrant to
include in its Form S-4/F-4/proxy or information statement two (rather
than three) years of statements of comprehensive income, changes in
stockholders' equity, and cash flows for the private operating company
for all transactions involving an EGC shell company and a private
operating company that would qualify as an EGC that would affect our
assessment of the likely effects of this proposed rule on investor
protection?
    177. Have we correctly characterized the benefits and costs of the
enhanced projection guidance (amendments to Item 10(b) of Regulation S-
K)? Are there any other benefits and costs that should be considered?
Please provide supportive data to the extent available.
    178. Have we correctly characterized the benefits and costs of the
proposed Investment Company Act safe harbor? Are there any other
benefits and costs that should be considered? Please provide supportive
data to the extent available.
    179. Is it feasible for SPACs to hold most of their assets in cash
accounts rather than Government securities or Government money market
funds? What would be the costs to SPACs of holding their assets in
cash? How costly would it be for SPACs that are currently invested in
Government securities or Government funds to switch to cash? Please
provide supportive data or estimates to the extent available.
    180. Have we correctly characterized the effects on efficiency,
competition and capital formation from the proposed rules and
amendments? Are there any effects that should be considered? Please
provide supportive data to the extent available.

X. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules, schedules, and forms that would be
affected by the proposed new rules and amendments contain ``collection
of information'' requirements within the meaning of the PRA.\566\ We
are submitting the proposed new rules and amendments to the Office of
Management and Budget (``OMB'') for review and approval in accordance
with the PRA and its implementing regulations.\567\ The hours and costs
associated with preparing, filing and sending the schedules and forms,
and retaining records constitute reporting and cost burdens imposed by
each collection of information.\568\ An agency may not conduct or
sponsor, and a person is not required to comply with, a collection of
information requirement unless it displays a currently valid OMB
control number. The titles for the collections of information are:
---------------------------------------------------------------------------

    \566\ 44 U.S.C. 3501 et seq.
    \567\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \568\ The paperwork burdens for Regulation S-X, Regulation S-K,
Regulation C, Regulation 12B, and Regulation S-T are imposed through
the forms, schedules and reports that are subject to the
requirements in these regulations and are reflected in the analysis
of those documents.
---------------------------------------------------------------------------

     Regulation 14A (Commission Rules 14a-1 through 14a-21 and
Schedule 14A) (OMB Control No. 3235-0059);
     Regulation 14C (Commission Rules 14c-1 through 14c-7 and
Schedule 14C) (OMB Control No. 3235-0057);
     Schedule TO (OMB Control No. 3235-0515);
     Form S-1 (OMB Control No. 3235-0065);
     Form S-4 (OMB Control No. 3235-0324);
     Form F-1 (OMB Control No. 3235-0258);
     Form F-4 (OMB Control No. 3235-0325);
     Form 10-K (OMB Control No. 3235-0063);
     Form 10-Q (OMB Control No. 3235-0070); and
     Rule 3a-10 under the Investment Company Act (a proposed
new collection of information).\569\
---------------------------------------------------------------------------

    \569\ We estimate that there would be a negligible or no change
in burden to Form 20-F and Form 8-K as a result of the proposed
amendments to Regulation S-X, in that these proposed amendments
would be codifying existing interpretations of existing rules.
Accordingly, we are not making any revisions to the PRA burden
estimates for Form 20-F and Form 8-K at this time.
---------------------------------------------------------------------------

    The forms, schedules, and regulations listed above were adopted
under the Securities Act, the Exchange Act, and/or the Investment
Company Act. These regulations, schedules, and forms set forth the
disclosure requirements for registration statements, annual and
quarterly reports, current reports, proxy and information statements,
and tender offer statements filed by registrants to provide investors
with information to make informed investment, voting, and redemption
decisions. In addition, we are proposing a new requirement that certain
entities adopt a board resolution in order to rely on the safe harbor
provided by proposed Rule 3a-10 of the Investment Company Act.
Compliance with these information collections is mandatory to the
extent applicable to each registrant.\570\ Other than the proposed new
collection of information (Rule 3a-10 under the Investment Company
Act), responses to these information collections are not kept
confidential, and there is no mandatory retention period for the
information disclosed. Responses to the information collection under
the Investment Company Act are kept confidential, subject to the
provisions of applicable law.
---------------------------------------------------------------------------

    \570\ Registrants claiming smaller reporting company status have
the option to comply with the scaled disclosures available to them
on an item-by-item basis. In addition, if an entity determines not
to rely on the safe harbor provided in Rule 3a-10 of the Investment
Company Act, it would not be required to adopt the board resolution
contemplated in that proposed rule.
---------------------------------------------------------------------------

    A description of the proposed new rules and amendments, including
the need for the information and its use, as well as a description of
the likely respondents, can be found in Sections II through VI above,
and a discussion of the economic effects of the proposed new rules and
amendments can be found in Section IX above.

B. Estimates of the Effects of the Proposed New Rules and Amendments on
the Collections of Information

    The following Table 1 summarizes the estimated effects of the
proposed new rules and amendments on the paperwork burdens associated
with the affected forms and schedules.
BILLING CODE 8011-01-P

[GRAPHIC] [TIFF OMITTED] TP13MY22.015

[GRAPHIC] [TIFF OMITTED] TP13MY22.016

[GRAPHIC] [TIFF OMITTED] TP13MY22.017

[GRAPHIC] [TIFF OMITTED] TP13MY22.018

    In addition, we are proposing to require that a post-business
combination company re-determine whether it is a smaller reporting
company (SRC) following a de-SPAC transaction. As proposed, the post-
business combination company would be required to reflect this re-
determination in its first periodic report after the de-SPAC
transaction and in Commission filings thereafter until its next annual
re-determination of SRC status. We estimate that the proposed re-
determination of SRC status would result in increased burdens in filing
Forms 10-K, Forms 10-Q, Schedules 14A, Schedules 14C, and Forms S-1 for
those post-business combination companies that would lose SRC status,
which takes into account the increased incremental burden in providing
disclosures pursuant to non-SRC disclosure requirements. The following
Table 2 sets forth our estimates regarding the increase in compliance
burden when a post-business combination company loses SRC status:

[GRAPHIC] [TIFF OMITTED] TP13MY22.019

C. Incremental and Aggregate Burden and Cost Estimates

    We estimate below the incremental and aggregate increase in
paperwork burden as a result of the proposed new rules and amendments.
These estimates represent the average burden for all respondents, both
large and small. In deriving our estimates, we recognize that the
burdens will likely vary among individual respondents based on a number
of factors, including the size and complexity of their business. These
estimates include the time and the cost of preparing and reviewing
disclosure, filing documents, and retaining records. We believe that
some registrants will experience costs in excess of this average and
some registrants will experience less than the average costs. Our
methodologies for deriving these estimates are discussed below.
    Our estimates represent the burden for all SPACs that file
registration statements with the Commission for registered offerings
and all registrants that file disclosure documents in connection with a
de-SPAC transaction or a business combination involving a shell company
or a reporting shell company.\571\ Additionally, our estimates take
into account an expected increase in the number of Securities Act
registration statements as a result of proposed Rule 145a. Based on a
review of Commission filings during the period 2011-2021 and an
analysis of the effects of the proposed new rules and amendments,\572\
the staff estimates that:
---------------------------------------------------------------------------

    \571\ Throughout this release and as stated earlier, we use
``shell company'' and ``reporting shell company'' in lieu of the
phrases ``shell company, other than a business combination related
shell company'' and ``reporting shell company, other than a business
combination related shell company.''
    \572\ We based our estimates, in part, on a review of Commission
filings over a 10-year period because we believe that this longer
timeframe would more accurately reflect the average number of
registration statements filed by SPACs and disclosure documents for
de-SPAC transactions in a given year.
---------------------------------------------------------------------------

     SPACs will file an average of 90 registration statements
each year for registered offerings on Form S-1 and 8 registration
statements on Form F-1, other than for de-SPAC transactions;
     An average of 30 registration statements on Form S-4 and 4
registration statements on Form F-4, 30 definitive proxy statements on
Schedule 14A, 4 definitive information statements on Schedule 14C, and
2 tender offer statements on Schedule TO will be filed each year in
connection with de-SPAC transactions; and
     An average of 20 registration statements on Form S-4 and 2
registration statements on Form F-4 will be filed each year for
business combination transactions involving a reporting shell company
and a non-shell company, other than de-SPAC transactions.\573\
---------------------------------------------------------------------------

    \573\ This estimate represents the upper bound of the estimated
number of Forms S-4 and F-4 filed for these transactions.

---------------------------------------------------------------------------

    For purposes of the PRA, the burden is allocated between internal
burden hours and outside professional costs. The portion of the burden
carried by outside professionals is reflected as a cost, while the
portion of the burden carried by the company internally is reflected in
hours. The following Table 3 sets forth the percentage estimates we use
for the burden allocation for each form and schedule, consistent with
current OMB estimates and recent Commission rulemakings. We estimate
that the average cost of retaining outside professionals is $400 per
hour.\574\
---------------------------------------------------------------------------

    \574\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis, we estimate that
such costs would be an average of $400 per hour. This is the rate we
typically estimate for outside legal services used in connection
with public company reporting.
---------------------------------------------------------------------------

BILLING CODE 8011-01-P
[GRAPHIC] [TIFF OMITTED] TP13MY22.020

    The following Table 4 summarizes the estimated effects of the
proposed new rules and amendments, other than Rule 145a, on the
paperwork burdens associated with the affected forms, schedules, and
records:
[GRAPHIC] [TIFF OMITTED] TP13MY22.021

    The following Table 5 summarizes the estimated effects of proposed
Rule 145a on the paperwork burdens associated with the affected forms:
[GRAPHIC] [TIFF OMITTED] TP13MY22.022

    In addition, we estimate that an average of 50 fewer post-business
combination companies following a de-SPAC transaction will qualify as
smaller reporting companies than under the current rules until the next
annual re-determination date.\575\ While we cannot predict with
certainty the number of these post-business combination companies, we
estimate for purposes of our PRA calculations that currently all post-
business combination companies qualify as SRCs following de-SPAC
transactions in which the SPAC is the legal acquirer and that 80% of
these companies that are eligible to use the scaled SRC disclosure
provisions do so.\576\ We estimate that these registrants would file,
on average, one Form 10-K, 1.5 Forms 10-Q, one Schedule 14A, and one
registration statement on Form S-1 prior to the next re-determination
of SRC status.
---------------------------------------------------------------------------

    \575\ This estimate is based, in part, on our estimate of the
number of de-SPAC transactions in which the SPAC is the legal
acquirer.
    \576\ This estimated realization rate is based on the same
methodology and data set forth in Release No. 33-10513, Section V.D.
Though the estimated realization rate in Release No. 33-10513
preceded the effective date of the amendments to the smaller
reporting company definition in 2018, we expect that the current
realization rate for eligible companies using the scaled SRC
disclosure provisions to be generally consistent with the estimated
realization rate in 2018.

---------------------------------------------------------------------------

    The following Table 6 summarizes the estimated effects of the
proposed re-determination of SRC status on the paperwork burdens
associated with the affected forms and schedules:
[GRAPHIC] [TIFF OMITTED] TP13MY22.023

    The following Table 7 summarizes the requested paperwork burden
changes to existing information collections, including the estimated
total reporting burdens and costs, under the proposed new rules and
amendments.
[GRAPHIC] [TIFF OMITTED] TP13MY22.024

BILLING CODE 8011-01-C

D. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order
to:
     Evaluate whether the proposed changes to the collections
of information are necessary for the proper performance of the
functions of the Commission, including whether the information will
have practical utility;
     Evaluate the accuracy of our estimates of the additional
burden hours that would result from adoption of the proposed new rules
and amendments;
     Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of
the collections of information on those who respond, including through
the use of automated collection techniques or other forms of
information technology; and
     Evaluate whether the proposed new rules and amendments
would have any effects on any other collection of information not
previously identified in this section.
    Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct their comments to the Office of
Management and Budget, Attention: Desk Officer for the U.S. Securities
and Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and send a copy to, Vanessa A. Countryman,
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File No. S7-13-22.
Requests for materials submitted to OMB by the Commission with regard
to the collection of information should be in writing, refer to File
No. S7-13-22 and be submitted to the U.S. Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736. OMB is required to make a decision concerning the
collections of information between 30 and 60 days after publication of
this release. Consequently, a comment to OMB is best assured of having
its full effect if the OMB receives it within 30 days of publication.

XI. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\577\ the Commission must advise the OMB as to
whether a proposed regulation constitutes a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results or
is likely to result in:
---------------------------------------------------------------------------

    \577\ Public Law 104-121, Tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or
individual industries; or
     Significant adverse effects on competition, investment or
innovation.

If a rule is ``major,'' its effectiveness will generally be delayed for
60 days pending Congressional review.
    We request comment on whether our proposed amendments would be a
``major rule'' for purposes of SBREFA. We solicit comment and empirical
data on:
     The potential effect on the U.S. economy on an annual
basis;
     Any potential increase in costs or prices for consumers or
individual industries; and
     Any potential effect on competition, investment or
innovation.

We request those submitting comments to provide empirical data and
other factual support for their views to the extent possible.

XII. Initial Regulatory Flexibility Analysis and Certification

    The Regulatory Flexibility Act \578\ requires an agency, when
issuing a rulemaking proposal, to prepare and make available for public
comment an Initial Regulatory Flexibility Analysis (``IRFA'') that
describes the impact of the proposed rule on small entities, unless the
Commission certifies that the rule, if adopted, would not have a
significant economic impact on a substantial number of small
entities.\579\ This IRFA has been prepared in accordance with the
Regulatory Flexibility Act. It relates to the proposed new rules and
amendments described in Sections II through VI above.
---------------------------------------------------------------------------

    \578\ 5 U.S.C. 601 et seq.
    \579\ 5 U.S.C. 603(a); 5 U.S.C. 605(b).
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

    As discussed throughout the release, we are proposing new Subpart
1600 of Regulation S-K and amendments to existing forms and schedules
to require specialized disclosures in registered offerings by SPACs,
including initial public offerings, and in disclosure documents for de-
SPAC transactions with respect to, among other things, compensation
paid to sponsors, conflicts of interest, and dilution. For de-SPAC
transactions, we are also proposing to require disclosure of a fairness
determination, additional disclosures on the target private operating
company, a re-determination of smaller reporting company status
following the completion of a de-SPAC transaction, and a minimum
dissemination period for certain disclosure documents in these
transactions. These proposed rules and amendments would be applicable
to, depending on the circumstances, registration statements on Forms S-
1, F-1, S-4 and F-4 filed under the Securities Act and Schedules 14A,
14C and TO under the Exchange Act. The proposed rules would also
clarify the underwriter status of SPAC IPO underwriters in connection
with de-SPAC transactions and would require that the target company be
named as a co-registrant in a Form S-4 or F-4 filed by a SPAC for a de-
SPAC transaction. Further, we are proposing to amend the definition of
``blank check company'' for purposes of the PSLRA such that the safe
harbor under the PSLRA for forward-looking information would not be
available to SPACs and certain other blank check companies; to update
and expand our guidance in Item 10(b) of Regulation S-K regarding the
use of projections in Commission filings; \580\ and to require
additional disclosure when projections are disclosed in connection with
de-SPAC transactions.
---------------------------------------------------------------------------

    \580\ Item 10(b) sets forth guidelines representing the
Commission's views on important factors to be considered in
formulating and disclosing management's projections of future
economic performance in Commission filings.
---------------------------------------------------------------------------

    In regard to business combination transactions involving a
reporting shell company,\581\ we are proposing Securities Act Rule 145a
to deem these transactions with a non-shell company to involve a sale
of securities to the shell company's shareholders. In addition, we are
proposing amendments to the financial statement reporting requirements
for transactions involving shell companies in Regulation S-X. Finally,
we are proposing a new safe harbor, Rule 3a-10, under the Investment
Company Act that would provide that a SPAC that satisfies the
conditions of the safe harbor would not be an investment company and
therefore would not be subject to regulation as an investment company
under the Investment Company Act.
---------------------------------------------------------------------------

    \581\ Throughout this release and as stated earlier, we use
``shell company'' and ``reporting shell company'' in lieu of the
phrases ``shell company, other than a business combination related
shell company'' and ``reporting shell company, other than a business
combination related shell company.''
---------------------------------------------------------------------------

    The need for and objectives of the proposed rules and amendments
are discussed in more detail in Sections II-VI above. We discuss the
economic impact, including the estimated costs and burdens, of the
proposed rules and amendments on all registrants, including small
entities, in Sections IX and X above.

B. Legal Basis

    We are proposing the new rules and rule amendments under the
authority set forth in Sections 6, 7, 10, 19(a), and 28 of the
Securities Act; Sections 3, 12, 13, 14, 15, 23(a), and 36 of the
Exchange Act; and Sections 6(c) and 38(a) of the Investment Company
Act.

C. Regulatory Flexibility Act Certification

    Pursuant to Section 605(b) of the Regulatory Flexibility Act, the
Commission hereby certifies that proposed Rule 3a-10 under the
Investment Company Act would not, if adopted, have a significant
economic impact on a substantial number of small entities.\582\ Based
on information available to the Commission, there were 861 initial
public offerings conducted by SPACs in 2020 and 2021, of which 6 were
for SPACs that sold $50 million or less in units.\583\ As a result, we
believe that approximately 0.7% of SPACs directly affected by proposed
Rule 3a-10 would be small entities.\584\ Accordingly, the Commission
believes that proposed Rule 3a-10 would not, if adopted, have a
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \582\ The definition of ``small entity'' is set forth in Section
XII.D below.
    \583\ Based on data from Dealogic M&A module as of Jan. 2022.
    \584\ While no SPAC would be required to rely on proposed Rule
3a-10, for purposes of this analysis, we assume that all SPACs
conducting an initial public offering subsequent to adoption of the
proposed rule would rely on proposed Rule 3a-10.
---------------------------------------------------------------------------

D. Small Entities Subject to the Proposed Rules and Amendments

    The proposed rules and amendments would apply to registrants that
are small entities. The Regulatory Flexibility Act defines ``small
entity'' to mean ``small business,'' ``small organization,'' or ``small
governmental jurisdiction.'' \585\ 17 CFR 230.157 (Securities Act Rule
157) defines an issuer, other than an investment company, to be a
``small business'' or ``small organization'' for purposes of the
Regulatory Flexibility Act if it had total assets of $5 million or less
on the last day of its most recent fiscal year and is engaged or
proposing to engage in an offering of securities not exceeding $5
million. 17 CFR 240.0-10(a) (Exchange Act Rule 0-10(a)) defines an
issuer, other than an investment company, to be a ``small business'' or
``small organization'' if it had total assets of $5 million or less on
the last day of its most recent fiscal year. An investment company is a
small entity if, together with other investment companies in the same
group of related investment companies, it has net assets of $50 million
or less as of the end of its most recent fiscal year.\586\
---------------------------------------------------------------------------

    \585\ 5 U.S.C. 601(6).
    \586\ See 17 CFR 270.0-10(a).

---------------------------------------------------------------------------

    The proposed specialized disclosure and other requirements
applicable to SPACs would not apply to issuers that raise less than $5
million at the time of their initial public offerings.\587\ However, we
acknowledge that there may be instances where a SPAC may be a small
entity at the time of a subsequent registered offering or at the time
of a de-SPAC transaction.\588\ While we are not aware to date of any
such instances, we request comment on the number of these small
entities. In addition, due to data limitations, we are unable to
estimate the number of potential target private operating companies in
de-SPAC transactions that may be small entities; \589\ therefore, we
request comment on the number of these small entities.
---------------------------------------------------------------------------

    \587\ See supra note 12 and the discussion of the proposed
definition of ``special purpose acquisition company'' in Section
II.A.
    \588\ As noted above, the vast majority of initial public
offerings by SPACs in 2020 and 2021 raised more than $50 million. In
2020, the smallest amount raised in an initial public offering by a
SPAC was $40 million, and, in 2021, the smallest amount raised in an
initial public offering by a SPAC was $44 million. When viewed over
a 10-year period, we do not expect the outcome to be different due
to how SPACs are structured to address Rule 419. See supra note 12.
Further, with respect to proposed Rule 140a, we do not expect any
underwriters in SPAC initial public offerings to be small entities.
    \589\ In this regard, we note that exchange listing requirements
and provisions in the governing instruments of many SPACs, along
with how SPACs are structured to avoid the application of Rule 419,
make it less likely that SPACs would merge with or acquire a small
entity. See supra notes 12 and 13.
---------------------------------------------------------------------------

    In regard to proposed Rule 145a and the proposed amendments to
Regulation S-X, we estimate that there are 163 reporting shell
companies that are small entities.\590\ However, due to data
limitations, we are unable to estimate the number of private operating
companies and private shell companies that are small entities that may
engage in a business combination transaction.\591\ We request comment
on the number of these small entities.
---------------------------------------------------------------------------

    \590\ This estimate does not include business combination
related shell companies.
    \591\ We believe that it is unlikely that a reporting company
would engage in a business combination transaction with a shell
company such that it would be subject to proposed Rule 145a.
Therefore, we are not estimating the number of reporting companies
for purposes of this analysis.
---------------------------------------------------------------------------

E. Reporting, Recordkeeping, and Other Compliance Requirements

    We expect that the proposed specialized disclosure and other
requirements applicable to SPACs and target private operating companies
would have an incremental effect on reporting, recordkeeping and other
compliance burdens for registrants, including small entities. These
proposed requirements would increase compliance costs for registrants,
and compliance with these proposed requirements would require the use
of professional skills, including accounting, legal, and technical
skills. We generally expect that the nature of any benefits and costs
associated with the proposed rules and amendments to be similar for
large and small entities. We also anticipate that the economic benefits
and costs likely could vary among small entities based on a number of
factors, such as the nature and conduct of their businesses, which
makes it difficult to project the economic impact on small entities
with precision.\592\ The proposed rules and amendments are discussed in
detail in Sections II-VI above. We discuss the economic effect,
including the estimated costs and burdens, of the proposed rules and
amendments on all registrants, including small entities, in Section IX
above.
---------------------------------------------------------------------------

    \592\ We do not expect the proposed re-determination of smaller
reporting company status following a de-SPAC transaction to have any
effect on small entities because we do not expect any small entities
to lose smaller reporting company following this re-determination,
based on the public float and revenue thresholds in the smaller
reporting company definition.
---------------------------------------------------------------------------

    Proposed Rule 145a, in deeming certain business combination
transactions involving a reporting shell company to involve a sale of
securities to the reporting shell company's shareholders, may impose
reporting, recordkeeping, or compliance requirements and related costs
on small entities that are reporting shell companies to the extent such
a deemed sale of securities would require such a small entity to
register the transaction under the Securities Act or comply with an
exemption from registration. These costs could also include the costs
associated with the proposed amendments to Regulation S-X, which would
require an issuer in a business combination transaction involving a
shell company to comply with financial statement reporting requirements
that would align with those applicable in traditional initial public
offerings. The proposed changes to the financial statement requirements
would increase compliance costs for small entities when these
transactions are registered under the Securities Act, although we do
not expect the increase in incremental compliance costs resulting from
the proposed amendments to be significant because the proposed
amendments would codify existing staff guidance on financial statement
requirements for these transactions.

F. Duplicative, Overlapping or Conflicting Federal Rules

    The proposed disclosure requirements in Subpart 1600 may partially
duplicate and overlap with a number of existing disclosure requirements
under Regulation S-K that are currently applicable to SPAC registered
offerings and in de-SPAC transactions. To the extent that the
disclosure requirements in proposed Subpart 1600 overlap with these
existing disclosure requirements, the requirements of proposed Subpart
1600 would be controlling. Other than these proposed disclosure
requirements, the Commission believes that the proposed new rules and
amendments would not duplicate, overlap or conflict with other federal
rules.

G. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider alternatives
that would accomplish our stated objectives, while minimizing any
significant adverse impact on small entities. Accordingly, we
considered several alternatives, including the following:
     Establishing different compliance or reporting
requirements or timetables that take into account the resources
available to small entities;
     Clarifying, consolidating or simplifying compliance and
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the
requirements.
    The proposed specialized disclosure and other requirements with
respect to SPAC registered offerings and de-SPAC transactions are
intended to improve the usefulness and clarity of the information
provided to investors so that they can make better informed decisions
as to whether to purchase securities in SPAC registered offerings, or
in secondary trading markets, and in voting, investment and redemption
decisions in connection with de-SPAC transactions. They are also
intended to enhance investor protections as well as provide additional
clarity regarding the legal obligations of target companies and others
in connection with a de-SPAC transaction. We believe that these
proposed requirements are equally appropriate for SPACs of all sizes
that are engaged in a registered offering and for SPACs and target
private operating companies that are engaged in a de-SPAC transaction.
As a result, we do not believe that it is appropriate to propose
different compliance or reporting requirements for small entities;
clarify, consolidate or simplify compliance and

reporting requirements for small entities; or to exempt small entities
from these requirements. As noted above, in our view, a private
operating company's method of becoming a public company should not
negatively impact investor protection.
    With respect to using performance rather than design standards,
these proposed requirements use primarily design standards in order to
promote uniform compliance requirements for all registrants. Further,
we believe that the proposed requirements would be more beneficial to
investors if there are specific disclosure requirements that apply to
all registrants, regardless of size, for the reasons discussed above.
    Proposed Rule 145a would deem business combinations involving a
reporting shell company and a non-shell company to involve a sale of
securities to the reporting shell company's shareholders. Given that
proposed Rule 145a is intended to address potential disparities in the
disclosure and liability protections available to reporting shell
company shareholders, we do not believe that it is appropriate to
propose different compliance or reporting requirements for small
entities; clarify, consolidate or simplify compliance and reporting
requirements for small entities; or to exempt small entities from the
proposed rule.
    The proposed amendments to Regulation S-X would generally codify
existing staff guidance on financial statement requirements for certain
business combinations involving shell companies, and, based on staff
analysis of disclosures in these transactions, we believe that most
companies already report consistent with this staff guidance. Further,
the amendments are not expected to have any significant adverse effect
on small entities (and are, in fact, expected to relieve burdens for
some of these entities). Accordingly, we do not believe that it is
necessary to exempt small entities from all or part of the proposed
amendments to Regulation S-X; establish different compliance or
reporting requirements for such entities; or clarify, consolidate or
simplify compliance and reporting requirements for small entities.
Likewise, while we primarily use design standards to promote
consistency, we do not believe it is necessary to use performance
standards in connection with this aspect of the proposed rules.

H. Request for Comment

    We encourage the submission of comments with respect to any aspect
of this IRFA and certifications. In particular, we request comments
regarding:
     The number of small entities that may be affected by the
proposed rules and amendments;
     The existence or nature of the potential impact of the
proposed rules and amendments on small entities discussed in the
analysis;
     How the proposed amendments could further lower the burden
on small entities; and
     How to quantify the impact of the proposed rules and
amendments.
    Commenters are asked to describe the nature of any impact and
provide empirical data supporting the extent of the impact. Comments
will be considered in the preparation of the Final Regulatory
Flexibility Analysis, if the proposed rules and amendments are adopted,
and will be placed in the same public file as comments on the proposed
rules and amendments themselves.

Statutory Authority and Text of Proposed Rule and Form Amendments

    We are proposing the rule and form amendments contained in this
document under the authority set forth in Sections 6, 7, 10, 19(a), and
28 of the Securities Act; Sections 3, 12, 13, 14, 15, 23(a), and 36 of
the Exchange Act; and Sections 6(c) and 38(a) of the Investment Company
Act.

List of Subjects

17 CFR Parts 210

    Accountants, Accounting, Banks, Banking, Employee benefit plans,
Holding companies, Insurance companies, Investment companies, Oil and
gas exploration, Reporting and recordkeeping requirements, Securities,
Utilities.

17 CFR Parts 229, 230, 232, 239, 240, and 249

    Administrative practice and procedure, Reporting and recordkeeping
requirements, Securities.

17 CFR Part 270

    Investment companies, Reporting and recordkeeping requirements,
Securities.

    In accordance with the foregoing, we are proposing to amend title
17, chapter II of the Code of Federal Regulations as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF
1934, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF
1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

0
1. The authority citation for part 210 continues to read as follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n,
78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30,
80a-31, 80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c),
Pub. L. 112-106, 126 Stat. 310 (2012), unless otherwise noted.

0
2. Amend Sec.  210.1-02 by revising paragraph (d) and paragraph (w)(1)
introductory text to read as follows:

Sec.  210.1-02   Definitions of terms used in Regulation S-X (17 CFR
part 210).

* * * * *
    (d) Audit (or examination). The term audit (or examination), when
used in regard to financial statements of issuers as defined by Section
2(a)(7) of the Sarbanes-Oxley Act of 2002, means an examination of the
financial statements by an independent accountant in accordance with
the standards of the Public Company Accounting Oversight Board (United
States) (``PCAOB'') for the purpose of expressing an opinion thereon.
See Sec.  210.15-01(a) for definition of an audit when used in regard
to financial statements of a company that will be a predecessor to an
issuer that is a shell company (other than a business combination
related shell company). When used in regard to financial statements of
entities that are not issuers as defined by Section 2(a)(7) of the
Sarbanes-Oxley Act of 2002, the term means an examination of the
financial statements by an independent accountant in accordance with
either the standards of the PCAOB or U.S. generally accepted auditing
standards (``U.S. GAAS'') as specified or permitted in the regulations
and forms applicable to those entities for the purpose of expressing an
opinion thereon. The standards of the PCAOB and U.S. GAAS may be
modified or supplemented by the Commission.
* * * * *
    (w) * * *
    (1) The term significant subsidiary means a subsidiary, including
its subsidiaries, which meets any of the conditions in paragraph
(w)(1)(i), (ii), or (iii) of this section; however if the registrant is
a registered investment company or a business development company, the
tested subsidiary meets any of the conditions in paragraph (w)(2) of
this section instead of any of the conditions in this paragraph (w)(1).
In either an acquisition by a shell company (other than a business
combination related shell company) of a business that is not the
predecessor or an acquisition by the shell company's predecessor, use
the predecessor's financial statements instead of the registrant and
the subsidiaries

consolidated in applying the significance tests in paragraphs
(w)(1)(i), (ii), and (iii) of this section.
* * * * *
0
3. Amend Sec.  210.3-01 by revising paragraph (a) to read as follows:

Sec.  210.3-01   Consolidated balance sheets.

    (a) There shall be filed, for the registrant and its subsidiaries
consolidated and for its predecessors, audited balance sheets as of the
end of each of the two most recent fiscal years. If the registrant has
been in existence for less than one fiscal year, there shall be filed
an audited balance sheet as of a date within 135 days of the date of
filing the registration statement.
* * * * *
0
4. Amend Sec.  210.3-05 by revising paragraph (b)(4)(ii) to read as
follows:

Sec.  210.3-05   Financial statements of businesses acquired or to be
acquired.

* * * * *
    (b) * * *
    (4) * * *
    (ii) A registrant, other than a foreign private issuer required to
file reports on Form 6-K (Sec.  249.306 of this chapter) or a shell
company (other than a business combination related shell company), that
omits from its initial registration statement financial statements of a
recently consummated business acquisition pursuant to paragraph
(b)(4)(i) of this section must file those financial statements and any
pro forma information specified by Sec. Sec.  210.11-01 through 210.11-
03 (Article 11) under cover of Form 8-K (Sec.  249.308 of this chapter)
no later than 75 days after consummation of the acquisition. A shell
company (other than a business combination related shell company) that
acquires a business, which is not or will not be its predecessor, that
omits from a registration statement or proxy statement the financial
statements of that recently consummated business acquisition pursuant
to (b)(4)(i) of this section shall refer to Sec.  210.15-01(d)(2).
* * * * *
0
5. Amend Sec.  210.3-14 by revising paragraph (b)(3)(ii) to read as
follows:

Sec.  210.3-14   Special instructions for financial statements of real
estate operations acquired or to be acquired.

* * * * *
    (b) * * *
    (3) * * *
    (ii) A registrant, other than a foreign private issuer required to
file reports on Form 6-K (Sec.  249.306 of this chapter) or shell
company (other than a business combination related shell company), that
omits from its initial registration statement financial statements of a
recently consummated acquisition of a real estate operation pursuant to
paragraph (b)(3)(i) of this section must file those financial
statements and any pro forma information specified by Sec. Sec.
210.11-01 through 210.11-03 (Article 11) under cover of Form 8-K (Sec.
249.308 of this chapter) no later than 75 days after consummation of
the acquisition. A shell company (other than a business combination
related shell company) that acquires a real estate operation, which is
not or will not be its predecessor that omits from a registration
statement or proxy statement the financial statements of a recently
consummated business acquisition pursuant to (b)(4)(i) of this section
shall refer to Sec.  210.15-01(d)(2).
* * * * *
0
6. Amend Sec.  210.8-02 by revising it to read as follows:

Sec.  210.8-02   Annual financial statements.

    Smaller reporting companies shall file an audited balance sheet for
the registrant and for its predecessors as of the end of each of the
most recent two fiscal years, or as of a date within 135 days if the
issuer has existed for a period of less than one fiscal year, and
audited statements of comprehensive income, cash flows and changes in
stockholders' equity for each of the two fiscal years preceding the
date of the most recent audited balance sheet (or such shorter period
as the registrant has been in business).
0
7. Amend Sec.  210.10-01 by revising paragraph (a)(1) to read as
follows:

Sec.  210.10-01   Interim financial statements.

    (a) * * *
    (1) Interim financial statements required by this rule need only be
provided as to the registrant and its subsidiaries consolidated and its
predecessors and may be unaudited. Separate statements of other
entities which may otherwise be required by this regulation may be
omitted.
* * * * *
0
8. Amend Sec.  210.11-01 by revising paragraph (d) introductory text to
read as follows:

Sec.  210.11-01   Presentation requirements.

* * * * *
    (d) For purposes of this rule, the term business should be
evaluated in light of the facts and circumstances involved and whether
there is sufficient continuity of the acquired entity's operations
prior to and after the transactions so that disclosure of prior
financial information is material to an understanding of future
operations. A presumption exists that a separate entity, a subsidiary,
or a division is a business. A special purpose acquisition company, as
defined in Sec.  229.1601(a), is a business for purposes of this rule.
However, a lesser component of an entity may also constitute a
business. Among the facts and circumstances which should be considered
in evaluating whether an acquisition of a lesser component of an entity
constitutes a business are the following:
* * * * *
0
9. Add an undesignated center heading and Sec.  210.15-01 to read as
follows:

Acquisitions of Businesses by a Shell Company (Other Than a Business
Combination Related Shell Company)

Sec.  210.15-01   Acquisitions of businesses by a shell company (other
than a business combination related shell company).

    (a) Audit requirements of predecessor. The term audit (or
examination), when used in regard to financial statements of a business
that is or will be a predecessor to a shell company (other than a
business combination related shell company), means an examination of
the financial statements by an independent accountant in accordance
with the standards of the PCAOB for the purpose of expressing an
opinion thereon.
    (b) Financial statements. When the registrant is a shell company
(other than a business combination related shell company) and the
financial statements of a business that will be a predecessor to the
registrant are required in a registration statement or proxy statement,
the registrant must file financial statements of the business in
accordance with Sec. Sec.  210.3-01 through 210.3-12 and 210.10-01
(Articles 3 and 10 of Regulation S-X) as if the filing were a
Securities Act registration statement for the initial public offering
of the business's equity securities. The financial statements of the
business may be filed pursuant to Sec. Sec.  210.8-01 through 210.8-08
(Article 8) when that business would qualify to be a smaller reporting
company based on its annual revenues as of the most recently completed
fiscal year, if it were filing a registration statement itself.
    (c) Age of financial statements of the predecessor. The financial
statements of a business that will be a predecessor to a shell company
(other than a business combination related shell company) shall comply
with the requirements in Sec.  210.3-12 (Sec.  210.8-08 when that
business would qualify to be a smaller reporting company based on its
annual revenues as of the most recently completed fiscal year, if it
were filing a registration statement itself) in determining the age of
financial

statements of the predecessor business in the registration statement or
proxy statement of the registrant.
    (d) Acquisitions of businesses by a shell company or its
predecessor that are not or will not be the predecessor. Registrants
shall apply Sec.  210.3-05 (Sec.  210.8-04 when that business would
qualify to be a smaller reporting company based on its annual revenues
as of the most recently completed fiscal year if it were filing a
registration statement itself) to acquisitions of businesses by a shell
company (other than a business combination related shell company) or
its predecessor that are not or will not be the predecessor to the
registrant.
    (1) See Sec.  210.1-02(w)(1) for rules on applying the significance
tests to acquisitions of businesses by a shell company (other than a
business combination related shell company) or its predecessor that are
not or will not be the predecessor.
    (2) A shell company (other than a business combination related
shell company) that omits from a registration statement or proxy
statement the financial statements of a recently acquired business that
is not or will not be its predecessor pursuant to Rule 3-05(b)(4)(i) of
Regulation S-X (Sec.  210.1-02(b)(4)(i)) must file those financial
statements in its Form 8-K filed pursuant to Item 2.01(f).
    (e) Financial statements of shell company. After a shell company
(other than a business combination related shell company) acquires a
business that is its predecessor, the financial statements of the shell
company for periods prior to consummation of the acquisition are not
required to be included in a filing once the financial statements of
the predecessor have been filed for all required periods through the
acquisition date and the financial statements of the registrant include
the period in which the acquisition was consummated.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K

0
10. The authority citation for part 229 continues to read as follows:

    Authority:  15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c),
80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350;
sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec.
102(c), Pub. L. 112-106, 126 Stat. 310 (2012).

0
11. Amend Sec.  229.10 by:
0
a. Revising paragraph (b); and
0
b. Adding paragraph (f)(2)(iv).
    The revisions and additions read as follows.

Sec.  229.10   (Item 10) General.

* * * * *
    (b) Commission policy on projections. The Commission encourages the
use in documents specified in Rule 175 under the Securities Act (Sec.
230.175 of this chapter) and Rule 3b-6 under the Exchange Act (Sec.
240.3b-6 of this chapter) of management's projections of future
economic performance that have a reasonable basis and are presented in
an appropriate format. The guidelines set forth herein represent the
Commission's views on important factors to be considered in formulating
and disclosing such projections. These guidelines also apply to
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 Commission filings.
    (1) Basis for projections. The Commission believes that management
must have the option to present in Commission filings its good faith
assessment of a registrant's future performance. Management, however,
must have a reasonable basis for such an assessment. Although a history
of operations or experience in projecting may be among the factors
providing a basis for management's assessment, the Commission does not
believe that a registrant always must have had such a history or
experience in order to formulate projections with a reasonable basis.
An outside review of management's projections may furnish additional
support for having a reasonable basis for a projection. If management
decides to include a report of such a review in a Commission filing,
there also should be disclosure of the qualifications of the reviewer,
the extent of the review, the relationship between the reviewer and the
registrant, and other material factors concerning the process by which
any outside review was sought or obtained. Moreover, in the case of a
registration statement under the Securities Act, the reviewer would be
deemed an expert and an appropriate consent must be filed with the
registration statement.
    (2) Format for projections. (i) In determining the appropriate
format for projections included in Commission filings, consideration
must be given to, among other things, the financial items to be
projected, the period to be covered, and the manner of presentation to
be used. Although traditionally projections have been given for three
financial items generally considered to be of primary importance to
investors (revenues, net income (loss) and earnings (loss) per share),
projection information need not necessarily be limited to these three
items. However, management should take care to assure that the choice
of items projected is not susceptible of misleading inferences through
selective projection of only favorable items. Revenues, net income
(loss) and earnings (loss) per share usually are presented together in
order to avoid any misleading inferences that may arise when the
individual items reflect contradictory trends. There may be instances,
however, when it is appropriate to present earnings (loss) from
continuing operations in addition to or in lieu of net income (loss).
It generally would be misleading to present sales or revenue
projections without one of the foregoing measures of income. The period
that appropriately may be covered by a projection depends to a large
extent on the particular circumstances of the company involved. For
certain companies in certain industries, a projection covering a two or
three year period may be entirely reasonable. Other companies may not
have a reasonable basis for projections beyond the current year.
Accordingly, management should select the period most appropriate in
the circumstances. In addition, management, in making a projection,
should disclose what, in its opinion, is the most probable specific
amount or the most reasonable range for each financial item projected
based on the selected assumptions. Ranges, however, should not be so
wide as to make the disclosures meaningless. Moreover, several
projections based on varying assumptions may be judged by management to
be more meaningful than a single number or range and would be
permitted.
    (ii) The presentation of projected measures that are not based on
historical financial results or operational history should be clearly
distinguished from projected measures that are based on historical
financial results or operational history.
    (iii) It generally would be misleading to present projections that
are based on historical financial results or operational history
without presenting such historical financial measure or operational
history with equal or greater prominence.

    (iv) The presentation of projections that include non-GAAP
financial measures should include a clear definition or explanation of
those financial measures, a description of the Generally Accepted
Accounting Principles (GAAP) financial measure to which it is most
closely related, and an explanation why the non-GAAP measure was
selected instead of a GAAP measure.
* * * * *
    (f) * * *
* * * * *
    (2) * * *
    (iv) Upon the consummation of a de-SPAC transaction, as defined in
Item 1601(a) of Regulation S-K (17 CFR 229.1601(a)), an issuer must re-
determine its status as a smaller reporting company pursuant to the
thresholds set forth in paragraph (f)(1) of this section prior to its
first filing, other than pursuant to Items 2.01(f), 5.01(a)(8), and/or
9.01(c) of Form 8-K, following the de-SPAC transaction and reflect this
re-determination in its next periodic report.
    (A) Public float is measured as of a date within four business days
after the consummation of the de-SPAC transaction and is computed by
multiplying the aggregate worldwide number of shares of its voting and
non-voting common equity held by non-affiliates as of that date by the
price at which the common equity was last sold, or the average of the
bid and asked prices of common equity, in the principal market for the
common equity; and
    (B) Annual revenues are the annual revenues of the target company,
as defined in Item 1601(d) of Regulation S-K (17 CFR 229.1601(d)), as
of the most recently completed fiscal year reported in the Form 8-K
filed pursuant to Items 2.01(f), 5.01(a)(8), and/or 9.01(c) of Form 8-
K.
* * * * *
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12. Amend Sec.  229.601 by adding paragraph (b)(101)(i)(D) to read as
follows:

Sec.  229.601   (Item 601) Exhibits.

* * * * *
    (b) * * *
    (101) * * *
    (i) * * *
    (D) Any filing that is subject to the exceptions listed in
paragraphs (A), (B), or (C), and contains any disclosure required by
subpart 229.1600 of this part, must include an Interactive Data File
consisting solely of that disclosure.
* * * * *
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13. Amend part 229 by adding subpart 229.1600 to read as follows:

Subpart 229.1600--Special Purpose Acquisition Companies

Sec.
229.1601 (Item 1601) Definitions.
229.1602 (Item 1602) Registered offerings by special purpose
acquisition companies.
229.1603 (Item 1603) SPAC sponsor; conflicts of interest.
229.1604 (Item 1604) De-SPAC transactions.
229.1605 (Item 1605) Background of and reasons for the de-SPAC
transaction; terms of the de-SPAC transaction; effects.
229.1606 (Item 1606) Fairness of the de-SPAC transaction and any
related financing transaction.
229.1607 (Item 1607) Reports, opinions, appraisals and negotiations.
229.1608 (Item 1608) Tender offer filing obligations in de-SPAC
transactions.
229.1609 (Item 1609) Financial projections in de-SPAC transactions.
229.1610 (Item 1610) Structured data requirement.

Subpart 229.1600--Special Purpose Acquisition Companies

Sec.  229.1601   (Item 1601) Definitions.

    For the purposes of this subpart 229.1600:
    (a) De-SPAC transaction. The term de-SPAC transaction means a
business combination such as a merger, consolidation, exchange of
securities, acquisition of assets, or similar transaction involving a
special purpose acquisition company and one or more target companies
(contemporaneously, in the case of more than one target company).
    (b) Special purpose acquisition company (SPAC). The term special
purpose acquisition company means a company that has indicated that its
business plan is to:
    (1) Register a primary offering of securities that is not subject
to the requirements of Sec.  230.419 (Rule 419 under the Securities
Act);
    (2) Complete a de-SPAC transaction within a specified time frame;
and
    (3) Return all remaining proceeds from the registered offering and
any concurrent offerings to its shareholders if the company does not
complete a de-SPAC transaction within the specified time frame.
    (c) SPAC sponsor. The term SPAC sponsor means the entity and/or
person(s) primarily responsible for organizing, directing or managing
the business and affairs of a special purpose acquisition company,
other than in their capacities as directors or officers of the special
purpose acquisition company as applicable.
    (d) Target company. The term target company means an operating
company, business or assets.

Sec.  229.1602   (Item 1602) Registered offerings by special purpose
acquisition companies.

    (a) Forepart of registration statement and outside cover page of
the prospectus. In addition to the information required by Sec.
229.501 (Item 501 of Regulation S-K), provide the following information
on the outside front cover page of the prospectus in plain English as
required by Sec.  230.421(d) of this chapter:
    (1) State the time frame for the special purpose acquisition
company to consummate a de-SPAC transaction and whether this time frame
may be extended.
    (2) State whether security holders will have the opportunity to
redeem the securities offered and whether the redemptions will be
subject to any limitations.
    (3) State the amount of the compensation received or to be received
by the SPAC sponsor and its affiliates, and whether this compensation
may result in a material dilution of the purchasers' equity interests.
Provide a cross-reference, highlighted by prominent type or in another
manner, to the locations of related disclosures in the prospectus.
    (4) Disclose in the tabular format specified below the estimated
remaining pro forma net tangible book value per share at quartile
intervals up to the maximum redemption threshold, consistent with the
methodologies and assumptions used in the disclosure provided pursuant
to Sec.  229.506 (Item 506 of Regulation S-K), and provide a cross-
reference, highlighted by prominent type or in another manner, to the
locations of related disclosures in the prospectus:

                                           Table 1 to Paragraph (a)(4)
----------------------------------------------------------------------------------------------------------------
                              Remaining pro forma net tangible book value per share
-----------------------------------------------------------------------------------------------------------------
                           25% of maximum        50% of  maximum         75% of maximum
 Offering price of __        redemption             redemption             redemption        Maximum redemption
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------

    Instruction 1 to Item 1602(a)(4). If the offering includes an over-
allotment option, include separate rows in the tabular disclosure
showing remaining pro forma net tangible book value per share with and
without the exercise of the over-allotment option.
    (5) State whether there may be actual or potential conflicts of
interest between the SPAC sponsor or its affiliates or promoters and
purchasers in the offering. Provide a cross-reference, highlighted by
prominent type or in another manner, to the locations of related
disclosures in the prospectus.
    (b) Prospectus summary. The information required by Sec.
229.503(a) (Item 503(a) of Regulation S-K) shall include, but not be
limited to, a brief description of the following in plain English as
required by Sec.  230.421(d) of this chapter:
    (1) The manner in which the special purpose acquisition company
will identify and evaluate potential business combination candidates
and whether it will solicit shareholder approval for the de-SPAC
transaction;
    (2) The material terms of the trust or escrow account and the
amount or percentage of the gross offering proceeds that the special
purpose acquisition company will place in the trust or escrow account;
    (3) 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;
    (4) The period of time in which the special purpose acquisition
company intends to consummate a de-SPAC transaction and its plans in
the event that it does not consummate a de-SPAC transaction within this
time period, including whether, and if so, how, it may extend the time
period; any limitations on extensions, including the number of times;
the consequences to the SPAC sponsor of not completing an extension of
this time period; and whether security holders will have voting or
redemption rights with respect to such an extension;
    (5) Any plans to seek additional financings and how the terms of
additional financings may impact unaffiliated security holders;
    (6) In a tabular format, the nature and amount of the compensation
received or to be received by 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
    (7) 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.
    (c) Dilution. In addition to the disclosure required by Sec.
229.506 (Item 506 of Regulation S-K), describe material potential
sources of future dilution following the registered offering by the
special purpose acquisition company. Disclose in tabular format the
amount of future dilution from the public offering price that will be
absorbed by purchasers of the securities being offered, to the extent
known and quantifiable.

Sec.  229.1603   (Item 1603) SPAC sponsor; conflicts of interest.

    (a) SPAC sponsor, its affiliates and promoters. Provide the
following information about the SPAC sponsor, its affiliates and
promoters of the special purpose acquisition company:
    (1) State the SPAC sponsor's name and describe the SPAC sponsor's
form of organization.
    (2) Describe the general character of the SPAC sponsor's business.
    (3) Describe the experience of the SPAC sponsor, its affiliates and
any promoters in organizing special purpose acquisition companies and
the extent to which the SPAC sponsor, its affiliates and the promoters
are involved in other special purpose acquisition companies.
    (4) Describe the material roles and responsibilities of the SPAC
sponsor, its affiliates and any promoters in directing and managing the
special purpose acquisition company's activities.
    (5) Describe any agreement, arrangement or understanding between
the SPAC sponsor and the special purpose acquisition company, its
executive officers, directors or affiliates in determining whether to
proceed with a de-SPAC transaction.
    (6) Disclose the nature (e.g., cash, shares of stock, warrants and
rights) and amounts of all compensation that has or will be awarded to,
earned by, or paid to the SPAC sponsor, its affiliates and any
promoters for all services rendered in all capacities to the special
purpose acquisition company and its affiliates. In addition, disclose
the nature and amounts of any reimbursements to be paid to the SPAC
sponsor, its affiliates and any promoters upon the completion of a de-
SPAC transaction.
    (7) Identify the controlling persons of the SPAC sponsor. Disclose,
as of the most recent practicable date, the persons who have direct and
indirect material interests in the SPAC sponsor, as well as the nature
and amount of their interests. Provide an organizational chart that
shows the relationship between the special purpose acquisition company,
the SPAC sponsor, and the SPAC sponsor's affiliates.
    (8) Describe any agreement, arrangement or understanding, including
any payments, between the SPAC sponsor and unaffiliated security
holders of the special purpose acquisition company regarding the
redemption of outstanding securities of the special purpose acquisition
company.
    (9) Disclose, in a tabular format to the extent practicable, the
material terms of any agreement, arrangement or understanding regarding
restrictions on whether and when the SPAC sponsor and its affiliates
may sell securities of the special purpose acquisition company,
including the date(s) on which the agreement, arrangement or