investors to redeem their securities after voting in favor of a de-SPAC
transaction.\93\
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    \92\ This proposed disclosure requirement would build upon, and
be in addition to, the existing disclosure requirement in Item 202
of Regulation S-K (Description of registrant's securities). Under
Item 202, SPACs are currently required to disclose the redemption
provisions of their capital stock being registered, such as whether
redemptions would be required under certain circumstances at the
SPAC's option, e.g., whether a SPAC may require the redemption of
warrants held by public shareholders for nominal consideration if
the underlying shares trade above a certain threshold price.
    \93\ One commentator has observed that SPAC shareholders may
vote in favor of a proposed de-SPAC transaction while redeeming
their shares prior to the closing of the transaction, such that the
vote is decoupled from any economic interest in the post-business
combination company. Rodrigues and Stegemoller, supra note 17. See
also supra note 29.
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Request for Comment
    31. Would the proposed disclosure requirements provide investors
with important information regarding the background of and reasons for
a de-SPAC transaction? Is there any additional information about the
background of and reasons for the de-SPAC transaction that we should
require to be disclosed? Are there any additional or alternative
requirements that we should consider to further

improve the disclosures about de-SPAC transactions?
    32. Should we adopt the proposed disclosure requirements with
respect to the effects of the de-SPAC transaction and any related
financing transaction, as proposed? Should we require additional or
alternative disclosure regarding the effects of the de-SPAC transaction
and any related financing transaction?
    33. Should we require disclosure with respect to material interests
in a prospective de-SPAC transaction or any related financing
transaction held by the sponsor and the SPAC's officers and directors,
as proposed? Should we require additional or alternative disclosure
regarding the interests of these parties in the de-SPAC transaction?
    34. Should we require disclosure regarding whether or not security
holders are entitled to any redemption or appraisal rights and a
summary of any such rights, as proposed? Is there additional or
alternative disclosure about redemption or appraisal rights that we
should require?
    35. Would the disclosure requirements in proposed Item 1605 result
in duplicative disclosures? If so, are there alternative approaches
that we should consider to avoid this result?
2. Fairness of the De-SPAC Transaction
    To address concerns regarding potential conflicts of interest and
misaligned incentives in connection with the decision to proceed with a
de-SPAC transaction and to assist investors in assessing the fairness
of a particular de-SPAC transaction to unaffiliated investors,\94\ we
are proposing Item 1606(a) to require a statement from a SPAC as to
whether it reasonably believes that the de-SPAC transaction and any
related financing transaction are fair or unfair to the SPAC's
unaffiliated security holders, as well as a discussion of the bases for
this statement.\95\ We are proposing to require that this statement
encompass both the de-SPAC transaction and any related financing
transaction so that the fairness determination would require
consideration of the combined effects of both transactions, which are
often dependent on each other, on unaffiliated security holders. As
proposed, a SPAC would be required to include this statement in any
Forms S-4 and F-4 or Schedules 14A, 14C, and TO filed in connection
with a de-SPAC transaction.\96\ Proposed Item 1606(a) would also
require disclosure on whether any director voted against, or abstained
from voting on, approval of the de-SPAC transaction or any related
financing transaction, and if so, identification of the director and,
if known after making a reasonable inquiry, the reasons for the vote
against the transaction or abstention.
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    \94\ See supra note 28. See also Michael Klausner and Michael
Ohlrogge, SPAC Governance: In Need of Judicial Review (SSRN Working
Paper, 2021).
    \95\ In this regard, we are proposing an instruction to Item
1606 that a ``statement that the special purpose acquisition company
has no reasonable belief as to the fairness or unfairness of the de-
SPAC transaction or any related financing transaction to
unaffiliated security holders will not be considered sufficient
disclosure in response to [Item 1606(a)].'' As proposed, a SPAC
would not be required to disclose that a de-SPAC transaction and any
related financing transaction are fair but rather would be required
to state its reasonable belief as to the fairness or unfairness of
the transaction as well as the bases for this statement.
    \96\ We have modeled certain of the proposed requirements in
Item 1606 and Item 1607 (see infra Section II.F.3.), on the
disclosures required in going-private transactions subject to 17 CFR
240.13e-3 (Exchange Act Rule 13e-3). See Items 1014 and 1015 of
Regulation M-A. In our view, the disclosure requirements in Rule
13e-3 provide an appropriate model for the proposed requirements
with respect to de-SPAC transactions, in that the conflicts of
interests and misaligned incentives inherent in going-private
transactions are similar to those often present in de-SPAC
transactions.
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    Under proposed Item 1606(b), a SPAC would be required to discuss in
reasonable detail the material factors upon which a reasonable belief
regarding the fairness of a de-SPAC transaction and any related
financing transaction is based and, to the extent practicable, the
weight assigned to each factor. These factors would include but not be
limited to: The valuation of the private operating company; the
consideration of any financial projections; any report, opinion, or
appraisal obtained from a third party; and the dilutive effects of the
de-SPAC transaction and any related financing transaction on non-
redeeming shareholders. Together, these proposed disclosures are
intended to help investors assess the reasonableness of the SPAC's
stated belief about the fairness of the transaction.
    To provide additional context for understanding the process by
which a SPAC determined to proceed with a de-SPAC transaction, we are
proposing Items 1606(c), (d), and (e), which would require disclosure
on whether:
     The de-SPAC transaction or any related financing
transaction is structured so that approval of at least a majority of
unaffiliated security holders is required;
     A majority of directors who are not employees of the SPAC
has retained an unaffiliated representative to act solely on behalf of
unaffiliated security holders for purposes of negotiating the terms of
the de-SPAC transaction or any related financing transaction and/or
preparing a report concerning the fairness of the de-SPAC transaction
or any related financing transaction; and
     The de-SPAC transaction or any related financing
transaction was approved by a majority of the directors of the SPAC who
are not employees of the SPAC.
Request for Comment
    36. Should we adopt Item 1606 as proposed?
    37. Should we require a statement from the SPAC as to whether it
reasonably believes that the de-SPAC transaction and any related
financing transaction are fair or unfair to unaffiliated security
holders, as proposed? Should the scope of the fairness determination
include both the de-SPAC transaction and any related financing
transaction, as proposed? Should the fairness determination be as to
the SPAC's security holders as a whole, rather than to the SPAC's
unaffiliated security holders? The factors enumerated in proposed Item
1606(b) in determining fairness include, but are not limited to, the
valuation of the target company, the consideration of any financial
projections, any report, opinion, or appraisal described in Item 1607
of Regulation S-K, and the dilutive effects described in Item 1604(c)
of Regulation S-K. Is there any additional or alternative information
that should be disclosed in connection with the SPAC's fairness
determination?
    38. Should we include an instruction to Item 1606 that a statement
that the SPAC has no reasonable belief as to the fairness or unfairness
of the de-SPAC transaction or any related financing transaction to
unaffiliated security holders will not be considered sufficient
disclosure in response to Item 1606(a), as proposed?
    39. What are the potential benefits and costs of the statement that
would be required by proposed Item 1606(a)? Would the costs of
complying with this disclosure requirement discourage SPAC initial
public offerings or discourage private operating companies from
pursuing business combinations with SPACs?
    40. Should we require registrants to disclose whether any director
voted against, or abstained from voting on, the approval of a de-SPAC
transaction or any related financing transaction, as well as the
reasons for such vote or abstention, as proposed? Are there additional
or alternative disclosures that we should require in this regard?
    41. Should we require registrants to discuss in reasonable detail
the material factors and, to the extent practicable, the weight
assigned to each factor

underlying the fairness determination, as proposed? Are there
additional or alternative factors that should be specified in the
proposed rule to enhance an investor's understanding of the fairness
determination?
    42. How would investors use disclosure about whether the approval
of at least a majority of unaffiliated security holders is required and
whether the de-SPAC transaction or any related financing transaction
was approved by a majority of non-employee directors of the SPAC? How
would investors use disclosure about whether a representative has been
retained to represent the investors in the negotiations of the de-SPAC
transaction?
3. Reports, Opinions, and Appraisals
    In addition, we are proposing Item 1607 to require disclosure about
certain reports, opinions, or appraisals from outside parties.\97\
Proposed Item 1607(a) would require disclosure about whether or not the
SPAC or its sponsor has received any report, opinion, or appraisal
obtained from an outside party relating to the consideration or the
fairness of the consideration to be offered to security holders or the
fairness of the de-SPAC transaction or any related financing
transaction to the SPAC, the sponsor or security holders who are not
affiliates.\98\ This requirement would provide additional transparency
about whether a SPAC's board of directors and/or its sponsor have
access to information underlying a fairness determination that
shareholders could find useful in making voting, investment, and
redemption decisions in connection with the de-SPAC transaction.\99\
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    \97\ As noted above, we have modeled the proposed requirements
in Item 1607 on the disclosures required in going-private
transactions subject to Exchange Act Rule 13e-3. See Item 1015 of
Regulation M-A.
    \98\ Though currently not a routine practice in de-SPAC
transactions, SPACs often obtain fairness opinions in connection
with de-SPAC transactions involving an affiliated private operating
company.
    \99\ For example, the proposed rule would require a SPAC to
disclose whether or not the SPAC or its sponsor has received a
fairness opinion or valuation report from a financial advisor.
---------------------------------------------------------------------------

    To assist investors in considering the usefulness and reliability
of any outside party report, opinion or appraisal described in response
to proposed Item 1607(a), as well as any negotiation or report by an
unaffiliated representative acting solely on behalf of unaffiliated
security holders described in response to proposed Item 1606(d),
proposed Item 1607(b) would require disclosure of:
     The identity, qualifications, and method of selection of
the outside party and/or unaffiliated representative;
     Any material relationship between (1) the outside party,
its affiliates, and/or unaffiliated representative, and (2) the SPAC,
its sponsor and/or their affiliates, that existed during the past two
years or is mutually understood to be contemplated and any compensation
received or to be received as a result of the relationship; \100\
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    \100\ For example, this disclosure could include whether the
compensation for a financial advisor's fairness opinion is
conditioned on the completion of the de-SPAC transaction or whether
the amount of compensation due the financial advisor may include a
bonus or may be increased depending on the ultimate financial terms
of the de-SPAC transaction.
---------------------------------------------------------------------------

     Whether the SPAC or the sponsor determined the amount of
consideration to be paid to the private operating company or its
security holders, or the valuation of the private operating company, or
whether the outside party recommended the amount of consideration to be
paid or the valuation of the private operating company; and
     A summary concerning the negotiation, report, opinion or
appraisal, which would be required to include a description of the
procedures followed; the findings and recommendations; the bases for
and methods of arriving at such findings and recommendations;
instructions received from the SPAC or its sponsor; and any limitation
imposed by the SPAC or its sponsor on the scope of the investigation.
    Finally, proposed Item 1607(c) would require all such reports,
opinions or appraisals to be filed as exhibits to the Form S-4, Form F-
4, and Schedule TO for the de-SPAC transaction or included in the
Schedule 14A or 14C for the transaction, as applicable.
Request for Comment
    43. Should we require disclosure regarding reports, opinions, or
appraisals from an outside party, as proposed? Is there any additional
or alternative information that we should require with respect to these
reports, opinions, or appraisals? Is there any proposed information
that should not be required?
    44. Should we require that the reports, opinions or appraisals be
filed as exhibits to the Form S-4, Form F-4, or Schedule TO for the de-
SPAC transaction or included in the Schedule 14A or Schedule 14C for
the transaction, as proposed? Should we require instead that such
reports, opinions, or appraisals be made available for inspection and
copying upon written request? Should we require the filing of board
books and other written materials presented to the board in connection
with the reports, opinions, or appraisals, as is the case with going-
private transactions? Are there other means by which investors should
be able to access such report, opinion, or appraisal, such as posting
on a website?
    45. As proposed, filers would be required to include a summary of
the report, opinion, or appraisal and file such report, opinion, or
appraisal as an exhibit to the filing. Would investors benefit from
having both the summary and the actual report, opinion, or appraisal
disclosed, or would one or the other item of disclosure be sufficient?
4. Proposed Item 1608 of Regulation S-K
    We are proposing Item 1608 of Regulation S-K to codify a staff
position that a Schedule TO filed in connection with a de-SPAC
transaction should contain substantially the same information about a
target private operating company that is required under the proxy rules
and that a SPAC must comply with the procedural requirements of the
tender offer rules when conducting the transaction for which the
Schedule TO is filed, such as a redemption of the SPAC securities.
Redemption rights offered by a SPAC to its security holders in
connection with the de-SPAC transaction or an extension of the
timeframe to complete a de-SPAC transaction generally have indicia of
being a tender offer, but the Commission staff has not objected if a
SPAC does not comply with the tender offer rules when the SPAC files a
Schedule 14A or 14C in connection with a de-SPAC transaction or an
extension and complies with Regulation 14A or 14C, because the federal
proxy rules would generally mandate substantially similar disclosures
and applicable procedural protections as required by the tender offer
rules.\101\ Proposed Item 1608, if adopted, would not affect the
availability of this staff position for those SPACs that file Schedule
14A or 14C for their de-SPAC transactions or extensions. SPACs that are
unable to avail themselves of this position and file a Schedule TO
(such as foreign private issuers \102\), however, would be subject

to the requirements of proposed Item 1608 of Regulation S-K, which
would codify the staff's view regarding the information required to be
included in a Schedule TO filed for a SPAC redemption and clarify the
need to comply with the procedural requirements of the tender offer
rules.\103\
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    \101\ See supra note 21.
    \102\ ``Foreign private issuer'' is defined in Securities Act
Rule 405 and Exchange Act Rule 3b-4(c). A foreign private issuer is
any foreign issuer other than a foreign government, except for an
issuer that (1) has more than 50% of its outstanding voting
securities held of record by U.S. residents and (2) any of the
following: (i) A majority of its officers and directors are citizens
or residents of the United States, (ii) more than 50 percent of its
assets are located in the United States, or (iii) its business is
principally administered in the United States.
    \103\ The staff has historically expressed the view that the
same information about the target company that would be required in
a Schedule 14A should be included in such a Schedule TO, in view of
the requirements of Item 11 of Schedule TO and Item 1011(c) of
Regulation M-A and the importance of this information in making a
redemption decision. Item 11 of Schedule TO states ``Furnish the
information required by Item 1011(a) and (c) of Regulation M-A.''
Item 1011(c) of Regulation M-A states ``Furnish such additional
material information, if any, as may be necessary to make the
required statements, in light of the circumstances under which they
are made, not materially misleading.''
---------------------------------------------------------------------------

    Proposed Item 1608 would require a SPAC that files a Schedule TO
pursuant to Exchange Act Rule 13e-4(c)(2) for any redemption of
securities offered in connection with a de-SPAC transaction to include
disclosures required by specified provisions of Forms S-4 and F-4, and
Schedule 14A, as applicable. Proposed Item 1608 would specify and
standardize the information required in a Schedule TO that is filed in
connection with a de-SPAC transaction so that it is consistent with the
information required by the proposed amendments to Forms S-4 and F-4
and Schedule 14A. As a result, SPAC shareholders who are not solicited
for their votes to approve a de-SPAC transaction (in a solicitation
subject to Regulation 14A) would nevertheless receive the same
information about the target private operating company that could be
material to their redemption decisions.\104\ Proposed Item 1608 would
clarify that SPACs that file a Schedule TO for a redemption also must
comply with the procedural requirements of Rule 13e-4 and Regulation
14E (such as the requirement to keep the redemption period open for at
least 20 business days). This proposed codification would eliminate any
potential ambiguity as to the SPAC's obligation to provide the tender
offer rules' procedural protections to the SPAC security holders who
are considering whether to redeem their securities.
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    \104\ Proposed Item 1608 would also be consistent with exchange
listing rules regarding the use of Schedule TO in de-SPAC
transactions. See, e.g., Nasdaq Listing Rule IM-5101-2(e) and NYSE
Listed Company Manual Section 102.06(c).
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Request for Comment
    46. Should we adopt Item 1608 as proposed?
    47. Is there any additional or alternative information that we
should require in proposed Item 1608 when a Schedule TO is filed in
connection with a de-SPAC transaction?
    48. Are there any requirements of Rule 13e-4 and Regulation 14E
that should not apply to SPACs that file a Schedule TO for the
redemption of the SPAC securities?
    49. Are there any other provisions of Rule 13e-4 or Regulation 14E
that should be amended to ensure that SPAC security holders are
provided with the information material to their decision on whether to
redeem their SPAC securities or to address other issues arising from
the SPAC redemption process? For example, should we amend Exchange Act
Rule 14e-5, which generally prohibits a bidder or its affiliates from
making purchases outside of a tender offer, to permit a sponsor's
purchases of SPAC securities outside of the redemption offer as long as
certain conditions are satisfied (such as requiring disclosures of the
sponsor's purchases and limiting the purchase price to no more than the
price offered through the redemption offer), e.g., in a manner
consistent with the Division of Corporation Finance's Tender Offers and
Schedules Compliance and Disclosure Interpretation 166.01 (Mar. 22,
2022)? \105\
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    \105\ This staff interpretation is available at: https://www.sec.gov/divisions/corpfin/guidance/cdi-tender-offers-and-schedules.htm.
---------------------------------------------------------------------------

    50. As noted above, the staff has taken the position that a SPAC
filing a Schedule 14A or 14C in connection with a de-SPAC transaction
or an extension of the time frame to complete a de-SPAC transaction
would not need to file a Schedule TO or otherwise comply with the
tender offer rules, including the procedural requirements of the tender
offer rules, such as the all-holders requirement. Should we codify this
position? Should we reconsider this position?

G. Structured Data Requirement

    We are proposing to require SPACs to tag all information disclosed
pursuant to Subpart 1600 of Regulation S-K in a structured, machine-
readable data language. Specifically, we are proposing to require SPACs
to tag the disclosures required under Subpart 1600 in Inline XBRL in
accordance with Rule 405 of Regulation S-T and the EDGAR Filer
Manual.\106\ The proposed requirements would include detail tagging of
the quantitative disclosures and block text tagging of the narrative
disclosures that would be required under Subpart 1600.
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    \106\ This tagging requirement would be implemented by including
a cross-reference to Rule 405 of Regulation S-T in Subpart 1600 of
Regulation S-K, and by revising 17 CFR 232.405(b) of Regulation S-T
to include the proposed SPAC-related disclosures. A corresponding
Note and Instruction would also be added to Schedules 14A and TO,
respectively. Pursuant to Rule 301 of Regulation S-T, the EDGAR
Filer Manual is incorporated by reference into the Commission's
rules. In conjunction with the EDGAR Filer Manual, Regulation S-T
governs the electronic submission of documents filed with the
Commission. Rule 405 of Regulation S-T specifically governs the
scope and manner of disclosure tagging requirements for operating
companies and investment companies, including the requirement in 17
CFR 232.405(a)(3) to use Inline XBRL as the specific structured data
language to use for tagging the disclosures.
---------------------------------------------------------------------------

    In 2009, the Commission adopted rules requiring operating companies
to submit the information from the financial statements (including
footnotes and schedules thereto) included in certain registration
statements and periodic and current reports in a structured, machine-
readable data language using eXtensible Business Reporting Language
(``XBRL'').\107\ In 2018, the Commission adopted modifications to these
requirements by requiring issuers to use Inline XBRL, which is both
machine-readable and human-readable, to reduce the time and effort
associated with preparing XBRL filings and improve the quality and
usability of XBRL data for investors.\108\
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    \107\ Interactive Data to Improve Financial Reporting, Release
No. 33-9002 (Jan. 30, 2009) [74 FR 6776 (Feb. 10, 2009)] (``2009
Financial Statement Information Adopting Release'') (requiring
submission of an Interactive Data File to the Commission in exhibits
to such reports). See also Interactive Data to Improve Financial
Reporting, Release No. 33-9002A (Apr. 1, 2009) [74 FR 15666 (Apr. 7,
2009)].
    \108\ Inline XBRL Filing of Tagged Data, Release No. 33-10514
(June 28, 2018) [83 FR 40846, 40847 (Aug. 16, 2018)]. Inline XBRL
allows filers to embed XBRL data directly into an HTML document,
eliminating the need to tag a copy of the information in a separate
XBRL exhibit. Id. at 40851.
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    Requiring Inline XBRL tagging of the Subpart 1600 disclosures would
benefit investors by making SPAC disclosures more readily available and
easily accessible to investors and other market participants for
aggregation, comparison, filtering, and other analysis, as compared to
requiring a non-machine readable data language such as ASCII or HTML.
This would enable automated extraction and analysis of granular SPAC
disclosures, allowing investors and other market participants to more
efficiently perform large-scale analysis and comparison of SPAC
disclosures across SPAC transactions and time periods, including
information on sponsor compensation and material conflicts of interest.
At the same time, we do not expect the incremental compliance burden
associated with tagging the additional information to be unduly
burdensome, because SPACs subject to the proposed

tagging requirements would be subject to similar Inline XBRL
requirements in other Commission filings.\109\ However, because issuers
(including SPACs) are not required to tag any filings until after they
have filed a periodic report on Form 10-Q, 20-F, or 40-F, the proposed
tagging requirement for disclosures in SPAC IPO registration statements
would accelerate the tagging obligations (and related compliance
burdens) of SPACs compared to those of other filers.\110\ Enhancing the
usability of the SPAC initial public offering disclosures through a
tagging requirement is of particular importance given the unique nature
of SPAC offerings and the potential risks they present to investors.
---------------------------------------------------------------------------

    \109\ Id.
    \110\ See 17 CFR 229.601(b)(101)(i)(A).
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Request for Comment
    51. Should we require SPACs to tag the disclosures required by
Subpart 1600 of Regulation S-K, as proposed? Are there any changes we
should make to ensure accurate and consistent tagging? If so, what
changes should we make?
    52. Should we modify the scope of the Subpart 1600 disclosures
required to be tagged? For example, should we require tagging of
quantitative disclosures only? Should we limit the tagging requirement
to only those disclosures required in de-SPAC transactions?
    53. Where an item in Subpart 1600 requests that a registrant
provide a tabular presentation without specifying a particular format
for the table, or data points to include in the table, such as the
proposed disclosure related to SPAC sponsor compensation, dilution of
unaffiliated shareholders, and the related sensitivity analysis, should
we instead require specific elements in the tabular presentation? If we
do not propose a specific tabular presentation or required elements,
would detail tagging provide useful data for investors and other market
participants?
    54. Should we require SPACs to use a different structured data
language to tag the Subpart 1600 disclosures? If so, what structured
data language should we require, and why?
    55. We have not proposed exemptions or different requirements from
the proposed structured data requirement for foreign private issuers,
smaller reporting companies,\111\ or emerging growth companies.\112\
Should we exempt or provide different requirements from some or all of
the proposed structured data requirements for these or other classes of
registrants?
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    \111\ See infra Section III.D.
    \112\ Section 101(a) of the JOBS Act amended Section 2(a) of the
Securities Act [15 U.S.C. 77b(a)] and Section 3(a) of the Exchange
Act [15 U.S.C. 78c(a)] to define an ``emerging growth company'' as
an issuer with less than $1 billion in total annual gross revenues
during its most recently completed fiscal year, as such amount is
indexed for inflation every five years by the Commission. If an
issuer qualifies as an EGC on the first day of its fiscal year, it
maintains that status until the earliest of (1) the last day of the
fiscal year of the issuer during which it has total annual gross
revenues of $1.07 billion or more; (2) the last day of its fiscal
year following the fifth anniversary of the first sale of its common
equity securities pursuant to an effective registration statement;
(3) the date on which the issuer has, during the previous three-year
period, issued more than $1 billion in nonconvertible debt; or (4)
the date on which the issuer is deemed to be a ``large accelerated
filer'' (as defined in Exchange Act Rule 12b-2). See Section
2(a)(19) of the Securities Act [15 U.S.C. 77b(a)(19)]; Section
3(a)(80) of the Exchange Act [15 U.S.C. 78c(a)(80)]; and Inflation
Adjustments and Other Technical Amendments under Titles I and II of
the JOBS Act, Release No. 33-10332 (Mar. 31, 2017) [82 FR 17545
(Apr. 12, 2017)].
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III. Aligning De-SPAC Transactions With Initial Public Offerings

    As discussed above, private operating companies have increasingly
turned to de-SPAC transactions as a means of accessing public
securities markets and becoming public reporting companies. As the
SPACs that were part of the unprecedented growth in the SPAC market in
2020 and 2021 continue to identify target private operating companies
and consummate de-SPAC transactions, it is likely that a significant
proportion of companies in the coming years that enter the U.S. public
securities markets will do so through de-SPAC transactions.
    A private operating company's path to the public markets through a
de-SPAC transaction usually commences when a SPAC begins considering it
as a potential business combination candidate. After agreeing to the
terms of the business combination, the SPAC typically files a Form 8-K
announcing the transaction that includes limited information on the
material terms of the business combination agreement.\113\ This
announcement is usually followed by a disclosure document (a Securities
Act registration statement, proxy statement, or information statement)
filed by the SPAC that includes more extensive information about the
private operating company.\114\ SPACs use a variety of legal structures
to effect de-SPAC transactions, and the particular transaction
structure and the consideration used can affect (1) the Commission
filings required for the transaction,\115\ (2) which entity will have a
continuing Exchange Act reporting obligation following the
transaction,\116\ and (3) the disclosures provided in connection with
the transaction.\117\
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    \113\ A SPAC is required to file a Form 8-K that provides
certain disclosures regarding the business combination agreement if
the agreement is a material definitive agreement not made in the
ordinary course of business. See Item 1.01 of Form 8-K.
    \114\ The disclosure document may be a Form S-4 or F-4, Schedule
14A or Schedule TO, depending on, among other things, whether
shareholder approval is required and whether the SPAC is registering
an offering of shares to be issued in the transaction.
    \115\ SPACs may use cash, securities, or a combination of both
to acquire a target company in a de-SPAC transaction, and the form
of consideration is a factor in determining whether a registration
statement, proxy or information statement, or tender offer statement
is required to be filed in connection with a de-SPAC transaction.
Additionally, the SPAC, the target company or a new holding company
may issue securities in a de-SPAC transaction, which may necessitate
the filing of a registration statement on Form S-4 or F-4 for the
transaction.
    \116\ For example, when a holding company is formed to acquire
both the private operating company and the SPAC, and the holding
company files a registration statement for the de-SPAC transaction,
generally the holding company would continue as the registrant with
the Exchange Act reporting obligation following the transaction. In
these situations, the private operating company would be the holding
company's predecessor, as the term is used in Regulation S-X, with
respect to the financial statements and possibly the accounting
acquirer under generally accepted accounting principles as used in
the United States (``U.S. GAAP''), with the equity ownership
percentage in the combined company held by the former owners of the
private operating company and the degree to which former management
of the private operating company continues with the combined company
among the factors that could impact the accounting acquirer
determination under U.S. GAAP. Under the proposed amendments to
Regulation S-X, the SPAC would be an acquired business. See infra
Section IV.B.
    \117\ The disclosures required in connection with a de-SPAC
transaction are determined by the applicable disclosure form (Form
S-4 or F-4, Schedule 14A or 14C, or Schedule TO) and which entity is
filing the form. Under the proposed amendments, companies would not
be subject to the same disclosure requirements in every de-SPAC
transaction structure. For example, if the SPAC is a domestic
registrant and a new holding company is a foreign issuer, and the
private operating company meets the criteria to be a foreign private
issuer, the holding company (the company filing the de-SPAC
transaction filing) would also qualify as a foreign private issuer.
Foreign private issuer status would permit the foreign holding
company to file a Form F-4 for the de-SPAC transaction and apply the
foreign private issuer disclosure regime. In contrast, if a de-SPAC
transaction is structured so that (1) a domestic SPAC is the company
issuing securities as the acquiring entity of the foreign private
operating company, (2) there is no foreign holding company, and (3)
the SPAC makes the de-SPAC transaction filing, the registrant would
continue to be a domestic issuer and follow domestic reporting rules
until the next determination date for foreign private issuer status.
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    After the completion of the de-SPAC transaction, the post-business
combination company is required to file a Form 8-K within four business
days that includes even more information about the private operating
company that is equivalent to the information that a new reporting
company would be required to provide when filing a Form

10 under the Exchange Act.\118\ The result is that investors may
receive disclosures about the future public company that differ from,
or are not provided in the same manner as, the information disclosed in
a Form S-1 or F-1 filed in connection with a traditional initial public
offering. Additionally, some of the investor protections afforded in a
traditional initial public offering are not available or are more
attenuated when a private operating company becomes a public company
through a de-SPAC transaction.\119\
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    \118\ Form 10 is the long-form registration statement to
register a class of securities under Section 12(b) or 12(g) of the
Exchange Act. See Items 2.01(f), 5.01(a)(8), and 9.01(c) of Form 8-
K. By the time the Form 8-K with Form 10 information is filed, the
securities of the post-business combination company have often
already begun trading on a national securities exchange with a new
ticker symbol, in that the securities of the SPAC generally trade on
an exchange until the consummation of the de-SPAC transaction, after
which the securities of the post-business combination company
generally commence trading on the following business day.
    \119\ For example, a private company engaged in a traditional
initial public offering is generally more limited in its ability to
make communications about its offering prior to the filing of a
Securities Act registrations statement on Form S-1 than companies
engaged in a business combination transaction that will be
registered on Form S-4 or F-4. De-SPAC transactions also often lack
named underwriters that perform due diligence and other traditional
gatekeeping functions, and it may be more difficult for investors to
trace their purchases to the registered de-SPAC transaction for
purposes of establishing a Section 11 claim for material
misstatements or omissions in de-SPAC disclosure documents.
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    In light of the increasingly common reliance on de-SPAC
transactions as a vehicle for private operating companies to access the
U.S. public securities markets, we are proposing a number of new rules
and amendments to existing rules to align more closely the treatment of
private operating companies entering the public markets through de-SPAC
transactions with that of companies conducting traditional initial
public offerings. In our view, a private operating company's method of
becoming a public company should not negatively impact investor
protection. Accordingly, the proposed new rules and amendments are
intended to provide investors with disclosures and liability
protections comparable to those that would be present if the private
operating company were to conduct a traditional firm commitment initial
public offering.
    These proposed new rules and amendments would (1) more closely
align the non-financial statement disclosure requirements with respect
to the private operating company in disclosure documents for a de-SPAC
transaction with the disclosure required in a Form S-1 or F-1 for an
initial public offering; \120\ (2) require a minimum dissemination
period for disclosure documents in de-SPAC transactions; (3) treat the
private operating company as a co-registrant of the Form S-4 or Form F-
4 for a de-SPAC transaction when a SPAC is filing the registration
statement; (4) require a re-determination of smaller reporting company
status following the consummation of a de-SPAC transaction; (5) amend
the definition of ``blank check company'' for PSLRA purposes such that
the safe harbor for forward-looking information would not apply to
projections in filings by SPACs and certain other blank check companies
that are not penny stock issuers; and (6) provide, in a Commission
rule, that underwriters in a SPAC initial public offering are deemed to
be underwriters in a subsequent de-SPAC transaction under certain
circumstances.
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    \120\ We are also proposing to more closely align the financial
statement disclosure requirements with respect to the private
operating company in any business combination involving a shell
company with the disclosure required in a Form S-1 for an initial
public offering, which would encompass de-SPAC transactions. See
infra Section IV.B.
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A. Aligning Non-Financial Disclosures in De-SPAC Disclosure Documents

    In regard to non-financial statement disclosures, we are proposing
that, if the target company in a de-SPAC transaction is not subject to
the reporting requirements of Section 13(a) or 15(d) of the Exchange
Act, disclosure with respect to such company pursuant to the following
items in Regulation S-K would be required in the registration statement
or schedule filed in connection with the de-SPAC transaction: (1) Item
101 (description of business); (2) Item 102 (description of property);
(3) Item 103 (legal proceedings); (4) Item 304 (changes in and
disagreements with accountants on accounting and financial disclosure);
(5) Item 403 (security ownership of certain beneficial owners and
management, assuming the completion of the de-SPAC transaction and any
related financing transaction); \121\ and (6) Item 701 (recent sales of
unregistered securities).\122\ If the private operating company is a
foreign private issuer,\123\ the proposed rules would include the
option of providing disclosure relating to the private operating
company in accordance with Items 3.C, 4, 6.E, 7.A, 8.A.7, and 9.E of
Form 20-F, consistent with disclosure that could be provided by these
entities in an initial public offering.\124\
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    \121\ We note that Item 18(a)(5) of Form S-4 currently requires
disclosure pursuant to Item 403 regarding the target company and a
SPAC's principal shareholders, through Item 6 of Schedule 14A, in a
Form S-4 that includes a proxy seeking shareholder approval of the
de-SPAC transaction.
    \122\ Proposed General Instruction L.2. to Form S-4; Proposed
General Instruction I.2. to Form F-4; Proposed Item 14(f) of
Schedule 14A; Proposed General Instruction K to Schedule TO. We note
that disclosure pursuant to Item 303 (management's discussion and
analysis of financial condition and results of operations) of
Regulation S-K is already required with respect to a non-reporting
target company in Forms S-4 and F-4 and in Schedules 14A and 14C for
a de-SPAC transaction. As proposed, disclosure pursuant to Item 701
of Regulation S-K would be required in Part I (information required
in the prospectus) of Form S-4 and Form F-4, whereas in Form S-1,
the Item 701 disclosure requirement appears under Part II
(information not required in prospectus) of the form.
    \123\ See supra note 102.
    \124\ Disclosure requirements for foreign private issuers differ
from domestic registrants, including the absence of quarterly
reporting requirements, the use of different forms with different
disclosure provisions, and an ability to present financial
statements in accordance with IFRS instead of U.S. GAAP. In
addition, foreign private issuers are not required to file current
reports on Form 8-K using the Form 8-K disclosure criteria; rather,
they can furnish current reports on Form 6-K applying the disclosure
requirements of that Form. See Foreign Issuer Reporting
Enhancements, Release 33-8959 (Sep. 23, 2008) [73 FR 58300 (Oct. 6,
2008)].
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    The proposed additional information is already required to be
included in a Form 8-K due within four business days of the completion
of the de-SPAC transaction, such that registrants currently should
already be preparing this information in anticipation of this Form 8-K
filing in connection with a de-SPAC transaction.\125\ Aligning the
disclosure requirements in de-SPAC transactions in this manner with
those in initial public offerings would mandate that this additional
information about the private operating company be provided to
shareholders before they make voting, investment, or redemption
decisions in connection with the proposed transactions.\126\ As
proposed, this information would also be available to investors prior
to the inception of trading of the post-business

combination company's securities on a national securities exchange,
rather than being required in a Form 8-K due within four business days
of the completion of the de-SPAC transaction. Further, if this
disclosure is included in a Form S-4 or Form F-4, any material
misstatements or omissions contained therein would subject the issuers
and other parties to liability under Sections 11 and 12 of the
Securities Act, which would align with the protections afforded to
investors under the Securities Act for disclosures provided in a Form
S-1 or F-1 for an initial public offering.
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    \125\ This Form 8-K is required to include the same information
that would be required for a newly reporting company when filing a
Form 10 under the Exchange Act. See Items 2.01(f), 5.01(a)(8), and
9.01(c) of Form 8-K. In this regard, we note that these items of
Form 8-K each provide that if any disclosure required by these items
has been previously reported, the registrant may identify the filing
in which that disclosure is included instead of including that
disclosure in the Form 8-K.
    \126\ In this regard, we note that many, but not all, Forms S-4
and F-4 and Schedules 14A and 14C that are filed in connection with
de-SPAC transactions contain information about the target company as
proposed. The proposed amendments, if adopted, would require that
this information be provided in all de-SPAC transactions subject to
the specialized disclosure requirements in Subpart 1600.
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Request for Comment
    56. Should we require additional information regarding the private
operating company in disclosure documents filed in connection with a
de-SPAC transaction, as proposed? Would these additional disclosures
provide investors with a better understanding of the private operating
company's operations and related risks? Should we require more or less
disclosure regarding the private operating company in the registration
statements or schedules filed in connection with de-SPAC transactions?
    57. What are the benefits of providing this information earlier to
investors when they are making voting, investment, and redemption
decisions in connection with a de-SPAC transaction or at or before the
commencement of trading in the post-business combination company's
securities on a securities exchange? Would it be unduly burdensome to
provide this additional information regarding the private operating
company at this earlier point in time?
    58. Should a private operating company that would qualify as a
foreign private issuer have the option of providing disclosure in
accordance with certain items of Form 20-F, as proposed?
    59. Should we require additional or less information in proposed
Item 1608 and Schedule TO when a SPAC files a Schedule TO in connection
with a de-SPAC transaction? For example, should we require disclosure
regarding management's discussion and analysis of financial condition
and results of operations (Item 303 of Regulation S-K) pursuant to Item
1608 or Schedule TO?
    60. Should the proposed disclosure requirements with respect to the
private operating company be scaled to take into account the size,
nature, or certain characteristics of the company?

B. Minimum Dissemination Period

    In addition to the need for enhanced disclosure in de-SPAC
transactions, we recognize the importance of ensuring that SPAC
shareholders have adequate time to analyze the information presented in
these transactions. There is currently no federally mandated period in
business combination transactions to provide security holders with a
minimum amount of time to consider proxy statement or other
disclosures.\127\ In view of the unique circumstances surrounding de-
SPAC transactions, we are proposing to amend Exchange Act Rules 14a-6
and 14c-2, as well as to add instructions to Forms S-4 and F-4,\128\ to
require that prospectuses and proxy and information statements filed in
connection with de-SPAC transactions be distributed to shareholders at
least 20 calendar days in advance of a shareholder meeting or the
earliest date of action by consent, or the maximum period for
disseminating such disclosure documents permitted under the applicable
laws of the SPAC's jurisdiction of incorporation or organization if
such period is less than 20 calendar days.\129\ As stated above, SPACs
are organized for the purpose of completing a de-SPAC transaction
within a certain time frame, and as a SPAC approaches the end of this
period, there is less time available for a SPAC to find a candidate for
a business combination transaction, prepare and file the appropriate
de-SPAC disclosure documents with the Commission, disseminate such
documents to its shareholders, receive the requisite shareholder
approval when applicable, and consummate the de-SPAC transaction.
Although the laws of a SPAC's jurisdiction of incorporation or
organization may require the SPAC to send a notice to its shareholders
at least a specified number of days before the shareholder meeting to
approve a proposed business combination transaction, such notices are
generally limited to information regarding the time, place, and purpose
of the meeting, along with a copy or summary of the business
combination agreement.\130\ They do not generally require a minimum
period of time for dissemination of any other information about the
transaction (including any proxy statements or other materials required
by the federal securities laws) to shareholders.\131\ Similarly, such
requirements do not exist in exchange listing standards.\132\ Without a
minimum period for dissemination of prospectuses, proxy statements, and
other materials before a shareholder meeting (or action by consent), a
SPAC and its sponsor may have incentives to provide prospectuses or
proxy or information statements for a de-SPAC transaction to the SPAC's
security holders within an abbreviated time frame, leaving the security
holders with relatively little time to review what are often complex
disclosure documents for these transactions.
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    \127\ In Form S-4 and Form F-4, however, there is a minimum 20-
business day period requirement in sending a prospectus to security
holders prior to a security holder meeting that is applicable when a
registrant incorporates by reference information about the
registrant or the company being acquired into the form. General
Instruction A.2 of Form S-4 and General Instruction A.2 of Form F-4.
    \128\ Proposed General Instruction L.3. to Form S-4; Proposed
General Instruction I.3. to Form F-4.
    \129\ The proposed amendments would be applicable to Forms S-4
and F-4 and Schedules 14A and 14C. We are not proposing to amend the
20 business day period when a Schedule TO is filed in connection
with a de-SPAC transaction. See supra Section II.F.4.
    \130\ See, e.g., DEL. CODE ANN. tit. 8, sec. 251(c) (2022)
(stating, in part, that ``[d]ue notice of the time, place and
purpose of the meeting shall be given to each holder of stock,
whether voting or nonvoting, of the corporation at the stockholder's
address as it appears on the records of the corporation, at least 20
days prior to the date of the meeting [to vote on an agreement of
merger or consolidation]'').
    \131\ See R. Franklin Balotti, et al., Delaware Law of
Corporations and Business Organizations, Sec.  9.16 (4th ed. 2022 &
Supp. 2022) (``[t]he only statutory requirements for the notice of
the meeting are that it state the time, place and purpose of the
meeting and that the notice contain a copy of the merger agreement
or a summary of the agreement . . . [i]n practice, of course, many
such meetings will be governed by the federal proxy rules, which
require that a full proxy statement be submitted to the
stockholders.'').
    \132\ Although both the NYSE and Nasdaq generally require that
listed companies solicit proxies and provide proxy statements for
all shareholder meetings, neither requires a minimum number of days
between when proxy materials are provided to shareholders and when
the meeting is held. Instead, for example, NYSE Listed Company
Manual Section 402.03 simply ``recommends that a minimum of 30 days
be allowed between the record and meeting dates so as to give ample
time for the solicitation of proxies.''
---------------------------------------------------------------------------

    We are proposing a minimum 20-calendar day dissemination period for
prospectuses and proxy and information statements that, in our view,
would provide an important investor protection.\133\ We recognize that
SPACs are often required under their governing

instruments and applicable exchange listing rules to complete de-SPAC
transactions within a certain time frame and that relying on the safe
harbor we are proposing under the Investment Company Act would also
limit the time frame in which to announce and complete a de-SPAC
transaction.\134\ Nevertheless, given the complexity of the SPAC
structure, the conflicts of interest that are often present in this
structure and the effects of dilution on non-redeeming shareholders,
the proposed 20-calendar day period would establish a minimum time
period for shareholders to review prospectuses and proxy and
information statements in de-SPAC transactions (subject to the carve-
out discussed below),\135\ so that they have sufficient time to
consider the disclosures and to make more informed voting, investment
and redemption decisions.\136\ In the event that the laws of a SPAC's
jurisdiction of incorporation or organization have a provision
applicable to the dissemination of prospectuses and proxy and
information statements required under the federal securities laws, we
are proposing to include a provision that would require a registrant to
satisfy the maximum dissemination period permitted under the applicable
law of such jurisdiction when this period is less than 20 calendar days
to avoid conflicting with such a requirement.\137\
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    \133\ The proposed 20-calendar day period is the same length of
time as the 20-day advance disclosure period in 17 CFR 13e-3(f)(1)
(Exchange Act Rule 13e-3(f)(1)). In adopting a 20-day advance
disclosure requirement for dissemination of documents in connection
with going private transactions, the Commission stated this
requirement was intended to provide reasonable assurance that the
information required to be disclosed to security holders would be
disseminated sufficiently far in advance of the transactions to
permit security holders to make ``an unhurried and informed''
decision. Going Private Transactions by Public Companies or Their
Affiliates, Release No. 33-6100 (Aug. 2, 1979) [44 FR 46736 (Aug. 8,
1979)].
    \134\ See infra Section VI.B.3.
    \135\ When a registrant incorporates by reference information
about the registrant or the company being acquired in the Form S-4
or F-4 for a de-SPAC transaction, the 20-business day period in Form
S-4 and Form F-4, which we are not proposing to amend, would
continue to be applicable. General Instruction A.2 of Form S-4 and
General Instruction A.2 of Form F-4.
    \136\ The proposed minimum dissemination period is intended to
apply to the dissemination of certain Commission filings in
connection with de-SPAC transactions and is not intended to impact
any requirements of the jurisdiction of incorporation or
organization regarding the notice of an annual or special meeting,
such as Section 251(c) of the Delaware General Corporation Law.
    \137\ For example, if the jurisdiction has no minimum
dissemination period and does not have a maximum dissemination
period, the minimum 20-day period, as proposed, would apply. If the
jurisdiction has a minimum dissemination period of less than 20 days
(e.g., 10 days) and does not have a maximum dissemination period,
the minimum 20-day period, as proposed, would apply. If the
jurisdiction has a minimum dissemination period of less than 20 days
(e.g., 10 days) and a maximum dissemination period of less than 20
days (e.g., 15 days), the maximum dissemination period under the
jurisdiction would apply. If the jurisdiction has no minimum
dissemination period and a maximum dissemination period of less than
20 days (e.g., 15 days), the maximum dissemination period under the
jurisdiction would apply.
---------------------------------------------------------------------------

Request for Comment
    61. Should we require a minimum dissemination period for
prospectuses and proxy or information statements in de-SPAC
transactions as proposed? Is a 20-day period necessary or appropriate
to enable shareholders to review and consider these disclosure
documents relating to a de-SPAC transaction? Should this 20 calendar
day period be longer or shorter? Should the minimum dissemination
period be based on business days (e.g., 20 business days) instead of
calendar days as proposed?
    62. Would there be timing concerns on the part of SPACs in meeting
the proposed minimum 20-day dissemination period? Should we include an
exception for the applicable laws of the SPAC's jurisdiction of
incorporation or organization, as proposed? Should we include other
exceptions to the proposed minimum 20-day dissemination period?
    63. Would additional guidance be helpful in determining how to
apply this proposed requirement?
    64. Are there additional or alternative requirements we should
adopt in connection with the dissemination of disclosure documents in a
de-SPAC transaction?

C. Private Operating Company as Co-Registrant to Form S-4 and Form F-4

    Under Section 6(a) of the Securities Act, each ``issuer'' must sign
a Securities Act registration statement.\138\ The Securities Act
broadly defines the term ``issuer'' to include every person who issues
or proposes to issue any securities.\139\ Currently, when a SPAC offers
and sells its securities in a registered de-SPAC transaction, only the
SPAC, its principal executive officer or officers, its principal
financial officer, its controller or principal accounting officer, and
at least a majority of its board of directors (or persons performing
similar functions) are required to sign the registration statement for
the transaction. In these situations, the private operating company,
for which the de-SPAC transaction effectively serves as its initial
public offering, and its officers and directors do not sign the
registration statement that contains disclosure about the private
operating company's business and financial results and thereby may
avoid liability as signatories to the registration statement under
Section 11 of the Securities Act, unlike if the private operating
company had conducted a traditional initial public offering registered
on Form S-1 or Form F-1.\140\
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    \138\ In addition, Section 6(a) requires the issuer's principal
executive officer or officers, principal financial officer,
comptroller or principal accounting officer, and the majority of its
board of directors or persons performing similar functions (or, if
there is no board of directors or persons performing similar
functions, by the majority of the persons or board having the power
of management of the issuer) to sign a registration statement. When
the issuer is a foreign entity, the registration statement must also
be signed by the issuer's duly authorized representative in the
United States.
    \139\ Section 2(a)(4) of the Securities Act.
    \140\ Even when not liable under Section 11, the private
operating company and its affiliates, however, may be subject to
enforcement actions by the Commission, including those under
Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule
10b-5, as well as potential liability under 17 CFR 240.10b-5
(Exchange Act Rule 10b-5) in private rights of action. See, e.g., In
the Matter of Momentus, Inc., et al., Release No. 34-92391 (July 13,
2021) (settled proceeding charging privately held company with
violations of Section 17(a) of the Securities Act and Section 10(b)
of the Exchange Act and Rule 10b-5 for, among other things,
allegedly materially false statements and omissions in the
registration statement/proxy statement filed in connection with a
business combination with a publicly traded SPAC).
---------------------------------------------------------------------------

    We are proposing to amend Form S-4 and Form F-4 to require that the
SPAC and the target company be treated as co-registrants when these
registration statements are filed by the SPAC in connection with a de-
SPAC transaction.\141\ In view of the protections that the Securities
Act provides to investors in a traditional initial public offering, it
is appropriate in our view to interpret Section 6(a) to encompass the
target company, in addition to the SPAC, as an issuer for purposes of
Section 6(a) and the signature requirements of Form S-4 or Form F-4.
---------------------------------------------------------------------------

    \141\ Proposed General Instruction L.4. to Form S-4; Proposed
General Instruction I.4. to Form F-4. Section 6(a) of the Securities
Act uses the term ``issuer,'' but Securities Act registration
statement forms use the term ``registrant.'' The term ``registrant''
is defined in Rule 405 as ``the issuer of the securities for which
the registration statement is filed.'' As a co-registrant of the
Form S-4 or Form F-4, the private operating company would have an
Exchange Act reporting obligation pursuant to Section 15(d) of the
Exchange Act following the effectiveness of the registration
statement.
---------------------------------------------------------------------------

    A de-SPAC transaction marks the introduction of the private
operating company to the U.S. public securities markets, and investors
look to the business and prospects of the private operating company in
evaluating an investment in the combined company.\142\ Accordingly, it
is the private operating company that, in substance, issues or proposes
to issue its securities, as securities of the newly combined public
company.\143\ While

similar policy considerations can arise in other business combination
contexts, given the substantial increase in the number of SPAC
transactions in recent years, the number of shareholders typically
impacted by such transactions, and concerns that are unique to the SPAC
structure, we are concerned that a narrow approach to registrant status
in de-SPAC transactions could undermine the statutory liability scheme
that Congress applied to initial public offerings of securities.
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    \142\ That is, the operations of the private company constitute
the business and the basis for the financial and other disclosures
of the newly combined public company following a de-SPAC
transaction.
    \143\ The legislative history of the broad definition of the
term ``issuer'' in the Securities Act suggests that the
identification of the ``issuer'' of a security should be based on
the economic reality of a transaction to ensure that, in service of
the disclosure purpose of the Act, the person(s) that have access to
the information relevant to investors are responsible as an
``issuer'' for providing such information. See, e.g., H.R. REP. 73-
85, 12 (``Special provisions govern the definition of `issuer' in
connection with security issues of an unusual character. . . . [For
example, in the case of an investment trust], although the actual
issuer is the trustee, the depositor is the person responsible for
the flotation of the issue. Consequently, information relative to
the depositor and to the basic securities is what chiefly concerns
the investor--information respecting the assets and liabilities of
the trust rather than of the trustee.'').
---------------------------------------------------------------------------

    We are proposing to amend the signature instructions to Form S-4
and F-4 to state that, if a SPAC is offering its securities in a de-
SPAC transaction that is registered on the form, the term
``registrant'' for purposes of the signature requirements of the form
would mean the SPAC and the target company.\144\ This requirement would
make the additional signatories to the form, including the principal
executive officer, principal financial officer, controller/principal
accounting officer, and a majority of the board of directors or persons
performing similar functions of the target company, liable (subject to
a due diligence defense for all parties other than the SPAC and the
target company), for any material misstatements or omissions in the
Form S-4 or Form F-4 and would thereby mitigate the risk that the
target company's directors and management would not be held accountable
to investors for the accuracy of the disclosures in the registration
statement due to the absence of the deterrent threat of liability under
Section 11.\145\ Moreover, this proposed requirement could improve the
reliability of the disclosure provided to investors in connection with
de-SPAC transactions by creating strong incentives for such additional
signing persons to review more closely the disclosure about the target
company in these registration statements and to conduct more searching
due diligence in connection with de-SPAC transactions and related
registration statements.
---------------------------------------------------------------------------

    \144\ The Commission has previously specified who constitutes
the ``registrant'' for purposes of signing a Securities Act
registration statement in certain contexts. For example, an
instruction in Forms S-4 and F-4 requires two or more existing
corporations to be deemed co-registrants when they will be parties
to a consolidation and the securities to be offered are those of a
corporation not yet in existence at the time of filing. See
Instruction 3 to the signature page for Form S-4 and Form F-4 (``If
the securities to be offered are those of a corporation not yet in
existence at the time the registration statement is filed which will
be a party to a consolidation involving two or more existing
corporations, then each such existing corporation shall be deemed a
registrant and shall be so designated on the cover page of this
Form, and the registration statement shall be signed by each such
existing corporation and by the officers and directors of each such
existing corporation as if each such existing corporation were the
registrant.'').
    \145\ In this regard, we note that the target company's
directors and executive officers are the parties most similarly
situated to the directors and officers of a private company
conducting a traditional initial public offering, in terms of their
knowledge of, and background in, the company going public through a
de-SPAC transaction.
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Request for Comment
    65. Should we amend Form S-4 and Form F-4, as proposed, to require
that the SPAC and the private operating company be treated as co-
registrants when the registration statement is filed by the SPAC in
connection with a de-SPAC transaction?
    66. Would amending Form S-4 and Form F-4 in this manner improve the
disclosure provided in connection with de-SPAC transactions that are
registered on these forms?
    67. Should the proposed amendment to Form S-4 and Form F-4 be
extended to apply to all business combination transactions where a
shell company, other than a business combination related shell company,
is the acquirer?
    68. Should the sponsor of a SPAC also be required to sign a Form S-
4 or Form F-4 filed in connection with a de-SPAC transaction, as well
as a Form S-1 or Form F-1 filed for a SPAC's initial public offering,
in view of, among other things, the sponsor's control over the SPAC and
the sponsor's role in preparing these registration statements? Would
such a requirement be consistent with the Commission's approach in
requiring a majority of the board of directors of any corporate general
partner to sign a registration statement when the registrant is a
limited partnership?
    69. Should we also adopt corresponding amendments to Form S-1 and
Form F-1 in the event that these forms are used by a SPAC for a de-SPAC
transaction?

D. Re-Determination of Smaller Reporting Company Status

    Smaller reporting companies are a category of registrants that are
eligible for scaled disclosure requirements in Regulation S-K and
Regulation S-X and in various forms under the Securities Act and the
Exchange Act.\146\ For example, smaller reporting companies are not
required to provide quantitative and qualitative information about
market risk pursuant to Item 305 of Regulation S-K.\147\ In general, a
smaller reporting company is a company that is not an investment
company, an asset-backed issuer or a majority-owned subsidiary of a
parent that is not a smaller reporting company, and had (1) a public
float of less than $250 million, or (2) had annual revenues of less
than $100 million during the most recently completed fiscal year for
which audited financial statements are available and either had no
public float or a public float of less than $700 million.\148\ Smaller
reporting company status is determined at the time of filing an initial
registration statement under the Securities Act or Exchange Act for
shares of common equity and is re-determined on an annual basis. Once a
company determines that it is not a smaller reporting company, it will
retain this status unless it determines, when making its annual
determination, that its public float was less than $200 million or,
alternatively, that its public float and annual revenues fell under
certain thresholds.\149\
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    \146\ See, e.g., 17 CFR 229.10(f) (Item 10(f) of Regulation S-
K); Rules 8-01, 8-02, 8-03, 8-07, and 8-08 of Regulation S-X; Item
1A of Form 10 and Form 10-K; Item 3.02 of Form 8-K. A foreign
private issuer is not eligible to use the scaled disclosure
requirements for smaller reporting companies unless it uses the
forms and rules designated for domestic issuers and provides
financial statements prepared in accordance with U.S. GAAP.
Instruction 2 to Item 10(f); Instruction 2 to definition of
``smaller reporting company'' in Securities Act Rule 405 and
Exchange Act Rule 12b-2.
    \147\ Item 305(e) of Regulation S-K.
    \148\ The definition of ``smaller reporting company'' is set
forth in Securities Act Rule 405, Exchange Act Rule 12b-2 and Item
10(f) of Regulation S-K.
    \149\ See Item 10(f)(2)(iii) of Regulation S-K; Securities Act
Rule 405; Exchange Act Rule 12b-2.
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    Currently, most SPACs qualify as smaller reporting companies,\150\
and a post-business combination company after a de-SPAC transaction is
permitted by rule \151\ to retain this status until the next annual
determination date when a SPAC is the legal acquirer of the private
operating company in a de-SPAC transaction. The absence of a re-
determination of smaller reporting company status upon the completion
of these de-SPAC transactions permits certain post-business combination
companies to avail themselves of scaled disclosure and other
accommodations when they otherwise would not have

qualified as a smaller reporting company had they become public
companies through a traditional initial public offering.
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    \150\ See infra Section IX.B.2.f.
    \151\ See Item 10(f)(2) of Regulation S-K; Securities Act Rule
405; Exchange Act Rule 12b-2.
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    In view of the informational asymmetries that result when a private
operating company chooses to go public through such a de-SPAC
transaction and the increasing prevalence of these transactions as a
vehicle for private operating companies to become reporting companies
under the Exchange Act, we are proposing to require a re-determination
of smaller reporting company status following the consummation of a de-
SPAC transaction. As proposed, this re-determination of smaller
reporting company status would occur prior to the time the post-
business combination company makes its first Commission filing, other
than the Form 8-K with Form 10 information,\152\ with the public float
threshold measured as of a date within four business days after the
consummation of the de-SPAC transaction and the revenue threshold
determined by using the annual revenues of the private operating
company as of the most recently completed fiscal year for which audited
financial statements are available.\153\ The applicable thresholds in
the current definition would remain unchanged.
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    \152\ A Form 8-K with Form 10 information is filed pursuant to
Items 2.01(f), 5.01(a)(8), and/or 9.01(c) of the form.
    \153\ Proposed Item 10(f)(2)(iv) and the proposed amendments to
the definition of ``smaller reporting company'' in Securities Act
Rule 405 and Exchange Act Rule 12b-2. The float determination would
be required to precede the first Commission filing after the Form 8-
K with Form 10 information.
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    The proposed four-business day window to calculate the public float
threshold following a de-SPAC transaction would end on the due date for
the Form 8-K with Form 10 information that a post-business combination
company is required to file after the completion of a de-SPAC
transaction. The proposed four-business day period would provide some
flexibility for issuers to measure public float, compared to the annual
re-determination of smaller reporting company status,\154\ and would
allow for a more accurate reflection of a post-business combination
company's public float, in view of the limited trading history of the
common equity securities of the post-business combination company
following a de-SPAC transaction.
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    \154\ In re-determining smaller reporting company status
annually, a registrant is required to measure its public float as of
the last business day of its most recently completed second fiscal
quarter.
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    We are proposing to require a post-business combination company to
reflect this re-determination of smaller reporting company status in
its first periodic report (Form 10-K or Form 10-Q) following a de-SPAC
transaction, which would provide the post-business combination company
with time to prepare for any loss of the scaled disclosure and other
accommodations available to smaller reporting companies.\155\ As
proposed, a post-business combination company that fails to qualify for
smaller reporting company status after a de-SPAC transaction would
remain unqualified until its next annual re-determination of this
status.
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    \155\ For example, as proposed, a post-business combination
company would be required to re-determine whether it qualifies as a
smaller reporting company, using the initial qualification
thresholds in the definition, prior to the time the company makes
its first Commission filing (e.g., a Form 8-K, registration
statement or periodic report) after the filing of a Form 8-K with
Form 10 information, with its public float measured as of a date
within four business days after the completion of the de-SPAC
transaction. The company would not be required to reflect this re-
determination of smaller reporting company status in any Commission
filing until it files its first periodic report (Form 10-K or Form
10-Q) following the de-SPAC transaction. Thus, if a SPAC qualified
as a smaller reporting company before a de-SPAC transaction and was
the legal acquirer in the de-SPAC transaction, the post-business
combination company would continue to be able to rely on the scaled
disclosure accommodations for smaller reporting companies when
filing a registration statement between the re-determination date
and the post-business combination company's first periodic report.
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Request for Comment
    70. As proposed, the re-determination of smaller reporting company
status must be based on public float measured as of a date within four
business days after the consummation of the de-SPAC transaction and the
annual revenues of the private operating company as of the most
recently completed fiscal year for which audited financial statements
are available. Should we require the re-determination of smaller
reporting company status upon the completion of a de-SPAC transaction,
as proposed? Should public float be determined within a different time
frame (e.g., 30 days) or through a different method (e.g., as the
average over a certain period)? Should the annual revenues of the
private operating company be used in determining whether the revenue
threshold has been met, as proposed?
    71. Should we require a post-business combination company following
a de-SPAC transaction to reflect the re-determination of smaller
reporting company status in its next periodic report, as proposed?
Alternatively, should we require a post-business combination company to
reflect the re-determination of smaller reporting company status at an
earlier or later point in time after the completion of a de-SPAC
transaction, such as in the first periodic report that covers the
period in which the de-SPAC transaction occurred (e.g., when a de-SPAC
transaction is completed after the end of a fiscal year but prior to
the due date of the Form 10-K for that fiscal year)? Should we provide
an accommodation if a de-SPAC transaction is completed close in time to
the due date for the registrant's first periodic report?
    72. To the extent that a post-business combination company no
longer qualifies for smaller reporting company status as a result of
the proposed re-determination of this status following a de-SPAC
transaction, would the proposed re-determination make it more difficult
for such a company to file a registration statement after the filing of
its first periodic report that complies with the disclosure
requirements applicable to non-smaller reporting companies? If so,
should we provide any accommodations for this scenario?
    73. Should we make any additional changes with respect to re-
determining smaller reporting company status after the completion of a
de-SPAC transaction? For example, should we replace the public float
test with a revenue test for this purpose? Should we provide any
guidance with respect to how to apply this proposal?
    74. Should we similarly require a re-determination of emerging
growth company status, accelerated filer status, large accelerated
filer status and/or foreign private issuer status upon the completion
of a de-SPAC transaction?

E. PSLRA Safe Harbor

    The PSLRA provides a safe harbor for forward-looking statements
under the Securities Act and the Exchange Act, under which a company is
protected from liability for forward-looking statements in any private
right of action under the Securities Act or Exchange Act when, among
other things, the forward-looking statement is identified as such and
is accompanied by meaningful cautionary statements.\156\ The safe
harbor is not available, however, when a forward-looking statement is
made in connection with an offering by a blank check company or an
initial public offering.\157\
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    \156\ Section 27A of the Securities Act and Section 21E of the
Exchange Act. The PSLRA does not impact the Commission's ability to
bring enforcement actions relating to forward-looking statements.
    \157\ Section 27A(b) of the Securities Act and Section 21E(b) of
the Exchange Act. In addition, the safe harbor is not available for
an offering by a penny stock issuer, a roll-up transaction, a going
private transaction, an offering by a partnership or a limited
liability company, a tender offer, or an offering by an issuer
convicted of specified securities law violations or subject to
certain injunctive or cease and desist actions.

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    For purposes of the safe harbor, the term ``blank check company''
and certain other terms \158\ ``have the meanings given those terms by
rule or regulation of the Commission.'' \159\ The Commission has
defined the term ``blank check company'' for purposes of and in Rule
419 as a development stage company that is issuing ``penny stock,'' as
defined in Exchange Act Rule 3a51-1, and that has no specific business
plan or purpose, or has indicated that its business plan is to merge
with or acquire an unidentified company or companies, or other entity
or person.\160\ This definition, which has not been amended since it
was adopted by the Commission in 1992, predates the enactment of the
PSLRA in 1995. SPACs that raise more than $5 million in a firm
commitment underwritten initial public offering are excluded from this
definition of ``blank check company'' because they are not selling
``penny stock.'' \161\
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    \158\ These other terms are ``rollup transaction,''
``partnership,'' ``limited liability company,'' ``executive officer
of an entity,'' and ``direct participation investment program.''
    \159\ Section 27A(i)(7) of the Securities Act and Section
21E(i)(5) of the Exchange Act.
    \160\ See supra notes 3 and 13. The statutory definition of
``blank check company'' appears in Section 7(b)(3) of the Securities
Act.
    \161\ See supra note 12.
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    Projections of the private operating company's performance are
typically prepared and disclosed in connection with a de-SPAC
transaction. Some market participants are of the view that the PSLRA
safe harbor for forward-looking statements is available in de-SPAC
transactions when a SPAC is not a blank check company under Rule 419
and thus may not exercise the same level of care in preparing forward-
looking statements, such as projections, as in a traditional initial
public offering.\162\ As noted above, a number of commentators have
raised concerns about the use of projections that they believe to be
unreasonable in de-SPAC transactions.\163\
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    \162\ See, e.g., Matt Levine, Money Stuff: Maybe SPACs Are
Really IPOs, Bloomberg, Apr. 12, 2021; Eliot Brown, Electric-Vehicle
Startups Promise Record-Setting Revenue Growth, The Wall Street
Journal, Mar. 15, 2021; Public Statement on SPACs, IPOs and
Liability Risk under the Securities Laws (Division of Corporation
Finance, Apr. 8, 2021).
    \163\ See supra note 33.
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    To address concerns about the use of forward-looking statements,
such as projections, in connection with de-SPAC transactions, and
pursuant to the statutory authority under the PSLRA to define ``blank
check company'' by Commission rule or regulation, we are proposing to
amend the definition of ``blank check company'' for purposes of the
PSLRA to remove the ``penny stock'' condition and to define the term as
``a company that has no specific business plan or purpose or has
indicated that its business plan is to engage in a merger or
acquisition with an unidentified company or companies, or other entity
or person.'' \164\ As discussed above, private companies are
increasingly using de-SPAC transactions as a mechanism to become public
companies. For purposes of the PSLRA, we see no reason to treat
forward-looking statements made in connection with de-SPAC transactions
differently than forward-looking statements made in traditional initial
public offerings, in that both instances involve private issuers
entering the public U.S. securities markets for the first time and
similar informational asymmetries that exist between these issuers (and
their insiders and early investors) and public investors. Moreover, we
see no reason to treat blank check companies differently for purposes
of the PSLRA safe harbor depending on whether they raise more than $5
million in a firm commitment underwritten initial public offering and
thus are not selling penny stock.
---------------------------------------------------------------------------

    \164\ We are also proposing to amend the definition to remove
the reference to ``development stage company'' because the reference
would be unnecessary for purposes of the proposed definition.
---------------------------------------------------------------------------

    Amending the definition of ``blank check company'' in this manner
would clarify that the statutory safe harbor in the PSLRA is not
available for forward-looking statements, such as projections, made in
connection with de-SPAC transactions involving an offering of
securities by a SPAC or other issuer that meets the definition of
``blank check company'' as amended, such that forward-looking
statements by SPACs, such as statements regarding the projections of
target private operating companies in these transactions, would not
fall under the safe harbor.\165\ The proposed amendment would also
eliminate the current overlap in the safe harbor in regard to the
exclusion for offerings by blank check companies and the exclusion for
penny stock issuers.\166\ To avoid multiple definitions for the term
``blank check company,'' we are proposing to amend Rule 419 in a manner
that would otherwise retain the current scope of the rule. We are also
proposing to amend the references to ``blank check company'' in various
Securities Act rules to ``blank check company issuing penny stock,'' as
such term would be defined in Securities Act Rule 405, to maintain the
current scope of these rules.\167\
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    \165\ Forward-looking statements made by target private
operating companies do not fall under the safe harbor, because the
safe harbor is not available to companies that are not subject to
the reporting requirements of Section 13(a) or 15(d) of the Exchange
Act at the time that the statement is made. Further, the safe harbor
would not be available to the subset of shell companies that meet
the amended definition of ``blank check company'' (i.e., that has no
specific business plan or purpose or has indicated that its business
plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person).
    \166\ The exclusion in the safe harbor for offerings by ``blank
check companies'' is subsumed by the exclusion for penny stock
issuers, in that the term ``blank check company,'' as currently
defined in Rule 419, is ``a development stage company that . . . is
issuing `penny stock.' ''
    \167\ See proposed amendments to Rules 137, 138, 139, 163A, 164,
174, 430B, and 437a. As proposed, the term ``blank check company
issuing penny stock'' would be defined as a company that is subject
to Rule 419. Due to current Federal Register formatting
requirements, we are also proposing technical changes to Rule 163A
and Rule 164 to move the Preliminary Note(s) in these rules to
introductory paragraphs of the respective rules.
---------------------------------------------------------------------------

Request for Comment
    75. Should we define ``blank check company'' in Rule 405, as
proposed? Should we include a reference in the definition to
``development stage company'' or the issuance of ``penny stock''?
Should we consider other changes to the proposed definition?
    76. Would the proposed amendments improve the quality of
projections in connection with de-SPAC transactions by clarifying that
the safe harbor under the PSLRA is unavailable? Would the proposed
amendment discourage some SPACs from disclosing projections in
connection with these transactions or affect the ability of SPACs or
target companies to comply with their obligations under the laws of
their jurisdiction of incorporation or organization to disclose
projections used by the board of directors or the companies' fairness
opinion advisers?
    77. As an alternative approach, should we issue an interpretation
addressing whether a de-SPAC transaction is an ``initial public
offering'' for purposes of the PSLRA?
    78. Would including the proposed Rule 405 definition of ``blank
check company'' in Rule 419 create confusion for registrants and
investors? Should we consider retaining a separate definition of
``blank check company'' for purposes of Rule 419? If so, why?
    79. Should we amend the references to ``blank check company'' in
Securities Act Rules 137, 138, 139, 163A, 164, 174, 430B and 437a to
refer to ``blank check company issuing penny stock,'' as proposed?

    80. Should we amend Rule 419 so that some or all of its conditions
are applicable to SPACs that raise more than $5 million in a firm
commitment underwritten initial public offering? If so, which
conditions? What would be the advantages and drawbacks of such an
approach? Should we amend the definition of ``penny stock'' to bring
more SPACs within the scope of Rule 419?
    81. Are there other rule amendments we should consider in
connection with the PSLRA?

F. Underwriter Status and Liability in Securities Transactions

    Underwriters form an essential link in the distribution of
securities from an issuer to investors. The term ``underwriter'' is
broadly defined in Section 2(a)(11) of the Securities Act to mean ``any
person who has purchased from an issuer with a view to, or offers or
sells for an issuer in connection with, the distribution of any
security, or participates or has a direct or indirect participation in
any such undertaking, or participates or has a participation in the
direct or indirect underwriting of any such undertaking.'' \168\ The
determination of whether a particular person is an ``underwriter'' does
not depend on the person's business but rather on that person's
relationship to a particular securities offering. Any person whose
activities with respect to any given offering fall within one of the
prongs of the Section 2(a)(11) definition is deemed to meet the
statutory definition of underwriter--commonly known as a ``statutory
underwriter.'' \169\ Congress enacted a broad definition of
``underwriter'' in order to ``include as underwriters all persons who
might operate as conduits for securities being placed into the hands of
the investing public.'' \170\ Correspondingly, the Commission's
longstanding view is that, depending on facts and circumstances, any
person, including an individual investor who is not a professional in
the securities business, can be an ``underwriter'' within the meaning
of the Securities Act if that person acts as a link in a chain of
transactions through which securities are distributed from an issuer or
its control persons to the public.\171\
---------------------------------------------------------------------------

    \168\ 15 U.S.C. 77b(a)(11). Section 2(a)(11) states that the
term ``issuer'' shall include, in addition to an issuer, any person
directly or indirectly controlling or controlled by the issuer, or
any person under direct or indirect common control with the issuer.
Therefore, any person who purchased securities from an affiliate of
an issuer is an underwriter under Section 2(a)(11) if that person
purchased with a view to the distribution of the securities.
    \169\ See 2 Louis Loss (late), Joel Seligman, and Troy Paredes,
Securities Regulation 3.A.3 (6th ed. 2019) (``The term underwriter
is defined not with reference to the particular person's general
business but on the basis of his or her relationship to the
particular offering. . . . Any person who performs one of the
specified functions in relation to the offering is a statutory
underwriter even though he or she is not a broker or dealer.'').
    \170\ Thomas Lee Hazen, The Law of Securities Regulation,
section 4:98.
    \171\ 17 CFR 230.144, Preliminary Note; Notice of Adoption of
Rule 144 Relating to the Definition of the Terms ``Underwriter'' in
Sections 4(1) and 2(11) and ``Brokers Transactions'' in Section 4(4)
of the Securities Act of 1933, Adoption of Form 144, and Rescission
of Rules 154 and 155 Under That Act, Release No. 33-5223 (Jan. 11,
1972) [37 FR 591 (Jan. 13, 1972)].
---------------------------------------------------------------------------

    As intermediaries between an issuer and the investing public,
underwriters play a critical role as ``gatekeepers'' to the public
markets.\172\ Historically, in initial public offerings, where the
investing public might be unfamiliar with a particular issuer,
financial firms that act as underwriters would lend their well-known
name to support that issuer's offering. Where public investors may not
have been inclined to invest with the company seeking to conduct a
public offering, they could take comfort in the fact that a large,
well-known financial institution, acting as underwriter, was including
its name on the first page of the issuer's prospectus.\173\ In
exchange, in a firm commitment underwritten offering, the underwriters
earn the ``gross spread'' between the price stated on the cover of the
prospectus (the price at which the underwriters will sell the issuer's
shares to the public for the first time) and the price at which the
underwriters are able to negotiate with the issuer for the initial
purchase of the issuer's shares.\174\
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    \172\ See, e.g., Ronald J. Gilson & Reinier Kraakman, The
Mechanisms of Market Efficiency, 70 Va. L. Rev. 549, 620 (1984);
Coffee, supra note 34, at 302 n. 1, 308 nn.13-14; John C. Coffee,
Jr., Brave New World?: The Impact(s) of the internet on Modern
Securities Regulation, 52 Bus. Law. 1195, 1210-13, 1232-33 (1999)
(each discussing the role of underwriters as ``gatekeepers'' or
``reputational intermediaries''). See also Securities Act Concepts
and Their Effects of Capital Formation, Release No. 33-7314 (July
25, 1996) [61 FR 40044 (July 31, 1996)] (discussing the role of
gatekeepers in maintaining the quality of disclosure); Michael P.
Dooley, The Effects of Civil Liability on Investment Banking and the
New Issues Market, 58 Va. L. Rev. 776 (1972) (``The most important
function performed during origination is the selection of candidates
for public investment. The decision to underwrite a particular issue
is normally made only after careful investigation of the issuer and
evaluation of its prospects. Not all corporations are able to win
sponsorship of proposed flotations, and prestigious underwriters
reject many more candidates than they accept. After initially
deciding to sponsor a flotation, the managing underwriter must
conduct another, more intensive investigation into the issuer's
affairs in order to satisfy the duty to conduct a `reasonable
investigation' imposed on underwriters by section 11 of the 1933 Act
. . . [t]he screening and investigative processes employed in
origination should weed out those prospective issuers least likely
to make productive use of publicly invested funds and should
identify elements of risk in those issues which are selected and
presented to the public. The successful performance of these
functions is important to the protection of investors and to the
optimum allocation of economic resources.'').
    \173\ See, e.g., Harold S. Bloomenthal & Samuel Wolff, Due
diligence defenses--Underwriter's responsibilities and liabilities,
3B Sec. & Fed. Corp. Law Sec.  12:42 (2d ed.) (``The managing or
initiating underwriter plays a critical role in determining access
to capital markets. The decision of a particular investment banking
firm to put together an underwriting syndicate in order to float an
issue of securities or to refrain from doing so for a particular
issuer obviously has significance beyond investors since it
determines to a degree the shape of our economy. However, it has
specific and immediate significance to members of the investing
public in that in large part reliance is being placed on such
underwriters to screen the multitude of issuers seeking access to
the capital markets.'').
    \174\ SPACs initially engage in firm commitment underwritten
offerings in order to first sell their securities to the public. See
supra Section I. However, as we further discuss below, the
compensation structure for SPAC initial public offerings is
generally different than that in traditional firm commitment
offerings because a significant portion of the compensation is
deferred.
---------------------------------------------------------------------------

    An underwriter's participation in an issuer's offering also exposes
the underwriter to potential liability under the Securities Act. The
civil liability provisions of the Securities Act reflect the unique
position underwriters occupy in the chain of distribution of securities
and provide strong incentives for underwriters to take steps to help
ensure the accuracy of disclosure in a registration statement. Section
11 of the Securities Act imposes on underwriters, among other parties
identified in Section 11(a), civil liability for any part of the
registration statement, at effectiveness, which contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, to any person acquiring such security.\175\
Similarly, Section 12(a)(2) imposes liability upon anyone, including
underwriters, who offers or sells a security, by means of a prospectus
or oral communication, which includes an untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were
made, not misleading, to any person purchasing such security from
them.\176\ These provisions provide significant investor protections to
those who acquire securities sold pursuant to a registration statement
by providing tools to hold companies, underwriters, and other parties
accountable for misstatements and omissions in connection with public
offerings of

securities.\177\ As a result, anyone who might be named as a potential
defendant in these suits has strong incentives to take the necessary
steps to avoid such liability.
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    \175\ 15 U.S.C. 77k.
    \176\ 15 U.S.C. 77l(a)(2).
    \177\ See William O. Douglas & George E. Bates, The Federal
Securities Act of 1933, 43 Yale L.J. 171 (1933) (``The civil
liabilities imposed by the Act are not only compensatory in nature
but also in terrorem. They have been set high to guarantee that the
risk of their invocation will be effective in assuring that the
`truth about securities' will be told.'').
---------------------------------------------------------------------------

    One defense available to an underwriter in a distribution is the
``due diligence'' defense, which shields an underwriter from liability
if it can establish that, after reasonable investigation, the
underwriter had reasonable ground to believe and did believe, at the
time the registration statement became effective, that the statements
therein were true and that there was no omission to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.\178\ To establish its ``due diligence''
defense, an underwriter must establish that it exercised reasonable
care in verifying the statements in the registration statement.
Underwriters in a traditional initial public offering are therefore
motivated to take the investigative steps necessary to establish the
``due diligence'' defense.\179\ The statutory provision of a due
diligence defense appears to reflect an intent to improve the standards
of conduct to which persons associated with the distribution of
securities are to be held by imposing upon them standards of ``honesty,
care, and competence.'' \180\ It was believed that the imposition of
civil liability under the Securities Act upon participants in a
distribution would cause them to exercise the care necessary to assure
the accuracy of the statements in the registration statement.\181\
---------------------------------------------------------------------------

    \178\ See Section 11(b)(3) of the Securities Act. [15 U.S.C.
77k(b)(3).].
    \179\ Similarly, Section 12(a)(2) of the Securities Act provides
a defense for defendants who, in the exercise of ``reasonable
care,'' could not have known of the alleged misstatement or omission
(15 U.S.C. 77l(a)(2)). Courts generally have construed these two
defenses similarly. See, e.g., In re WorldCom Inc. Sec. Litig., 346
F. Supp. 2d 628, 663-64 (S.D.N.Y. 2004).
    \180\ H.R. No. 85, 73d Cong., 1st Sess. (1933) (From the
Introductory Statement to the Report submitted by Mr. Rayburn,
Committee on Interstate and Foreign Commerce: ``Honesty, care, and
competence are the demands of trusteeship. These demands are made by
the bill on the directors of the issues, its experts, and the
underwriters who sponsor the issue. If it be said that the
imposition of such responsibilities upon these persons will be to
alter corporate organization and corporate practice in this country,
such a result is only what your committee expects.'').
    \181\ Id. (``The duty of care to discover varies in its demands
upon participants in security distribution with the importance of
their place in the scheme of distribution and with the degree of
protection that the public has a right to expect.''). See also New
High Risk Ventures, Release No. 33-5275 (July 27, 1972) [37 FR 16011
(Aug. 9, 1972)] (discussing the Commission's views that Section 11
was designed by Congress to incentivize persons associated with the
distribution of securities to ``exercise the `honesty, care and
competence' necessary to assure the accuracy of the [s]tatements in
the registration statement'').
---------------------------------------------------------------------------

    Consistent with this intent, the Commission has stated that the due
diligence efforts performed by underwriters are central to the
integrity of our disclosure system.\182\ The investing public relies on
underwriters to ``screen the multitude of issuers seeking access to the
capital markets'' and expects them to verify the accuracy of the
information in the registration statement.\183\ Moreover, although the
Securities Act does not expressly require an underwriter to conduct a
due diligence investigation, the Commission has long expressed the view
that underwriters nonetheless have an affirmative obligation to conduct
reasonable due diligence.\184\ The Commission has stated that ``an
underwriter [in a securities offering] impliedly represents that he has
made such an investigation [of the accuracy of the information in the
registration statement] in accordance with professional standards'' and
``[i]nvestors properly rely on this added protection which has a direct
bearing on their appraisal of the reliability of the representations in
the prospectus.'' \185\
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    \182\ See, e.g., Circumstances Affecting the Determination of
What Constitutes Reasonable Investigation & Reasonable Grounds for
Belief Under Section 11 of the Sec. Act Treatment of Info. Inc. by
Reference into Registration Statements, Release No. 33-6335 (Aug. 6,
1981) [46 FR 42015 (Aug. 18, 1981)] (``In sum, the Commission
strongly affirms the need for due diligence and its attendant
vigilance and verification.'').
    \183\ See Bloomenthal, supra note 173. See also Release No. 33-
5275, supra note 181.
    \184\ See, e.g., In re Charles E. Bailey & Co., 35 S.E.C. 33, at
41 (Mar. 25, 1953) (``[An underwriter] owe[s] a duty to the
investing public to exercise a degree of care reasonable under the
circumstances of th[e] offering to assure the substantial accuracy
of representations made in the prospectus and other sales
literature.''); In re Brown, Barton & Engel, 41 SEC 59, at 64 (June
8, 1962) (``[I]n undertaking a distribution . . . [the underwriter]
had a responsibility to make a reasonable investigation to assure
[itself] that there was a basis for the representations they made
and that a fair picture, including adverse as well as favorable
factors, was presented to investors.''); In the Matter of the
Richmond Corp., infra note 185 (``It is a well established practice,
and a standard of the business, for underwriters to exercise
diligence and care in examining into an issuer's business and the
accuracy and adequacy of the information contained in the
registration statement. . . . The underwriter who does not make a
reasonable investigation is derelict in his responsibilities to deal
fairly with the investing public.'').
    \185\ In the Matter of the Richmond Corp., Release No. 33-4584
(Feb. 27, 1963). See also In re WorldCom, Inc. Sec. Litig., 346 F.
Supp. 2d 628, 684 (S.D.N.Y. 2004) (``Underwriters . . . have special
access to information about an issuer at a critical time in the
issuer's corporate life, at a time it is seeking to raise capital.
The public relies on the underwriter to obtain and verify relevant
information and then make sure that essential facts are
disclosed.''); Sanders v. John Nuveen & Co., Inc., 524 F.2d 1064,
1069-70 (7th Cir. 1975) (``An underwriter's relationship with the
issuer gives the underwriter access to facts that are not equally
available to members of the public who must rely on published
information. And the relationship between the underwriter and its
customers implicitly involves a favorable recommendation of the
issued security. Because the public relies on the integrity,
independence and expertise of the underwriter, the underwriter's
participation significantly enhances the marketability of the
security. And since the underwriter is unquestionably aware of the
public's reliance on his participation in the sale of the issue, the
mere fact that he has underwritten it is an implied representation
that he has met the standards of his profession in his investigation
of the issuer.''); Chris-Craft Industries, Inc. v. Piper Aircraft
Corp., 480 F.2d 341, 370 (2d Cir. 1973) (``No greater reliance in
our self-regulatory system is placed on any single participant in
the issuance of securities than upon the underwriter. He is most
heavily relied upon to verify published materials because of his
expertise in appraising the securities issue and the issuer, and
because of his incentive to do so. He is familiar with the process
of investigating the business condition of a company and possesses
extensive resources for doing so. . . . Prospective investors look
to the underwriter . . . to pass on the soundness of the security
and the correctness of the registration statement and
prospectus.''); Escott v. BarChris Const. Corp., 283 F. Supp. 643,
697 (S.D.N.Y. 1968) (``The purpose of Section 11 is to protect
investors. To that end the underwriters are made responsible for the
truth of the prospectus.'').
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1. Participants in a Distribution as ``Underwriters''
    Common interpretations of the underwriter definition in Section
2(a)(11) traditionally have focused on the words ``with a view to'' in
the phrase ``purchased from an issuer with a view to . . .
distribution.'' Thus, an investment banking firm that arranges with an
issuer for the public sale of its securities is clearly an
``underwriter.'' However, as noted above, the statutory definition of
underwriter is much broader. Both federal courts and the Commission
previously have found that other parties involved in securities
offerings can be deemed ``statutory underwriters'' under the
underwriter definition, such as by selling ``for an issuer;'' \186\
and/or directly or indirectly

``participating'' in a distribution by engaging in activities
``necessary to the distribution'' \187\ or in ``distribution-related
activities.'' \188\ Such parties can attain underwriter status even if
they do not receive compensation for their services,\189\ do not sell
securities directly to the public,\190\ and do not have privity of
contract with the issuer.\191\ Similarly, courts have interpreted the
underwriter definition broadly to include promoters, officers, and
control persons who have arranged for public trading of an unregistered
security or have stimulated investor interest in such security through
advertisements, research reports, or other promotional efforts.\192\
Moreover, the Commission has stated that ``there is nothing in Section
2[(a)](11) which places a time limit on a person's status as an
underwriter'' because the ``public has the same need for protection
afforded by registration whether the securities are distributed shortly
after their purchase or after a considerable length of time.'' \193\
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    \186\ See SEC v. Chinese Consolidated Benevolent Association,
120 F.2d 738 (2d Cir. 1941) (charitable association deemed a
statutory underwriter in promoting the sale of war bonds, collecting
funds and distributing the securities to its members notwithstanding
the charitable association's lack of a relationship with the issuer
of the bonds); SEC v. Kern, 425 F.3d 143 (2d Cir. 2005). See also
Release No. 33-5223, supra note 171 (stating that any persons may be
underwriters within the meaning of Section 2(a)(11) ``if they act as
links in a chain of transactions through which securities move from
an issuer to the public . . . . the Commission hereby emphasizes and
draws attention to the fact that the statutory language of Section
2[(a)](11) is in the disjunctive. Thus, it is insufficient to
conclude that a person is not an underwriter solely because he did
not purchase securities from an issuer with a view to their
distribution. It must also be established that the person is not
offering or selling for an issuer in connection with the
distribution of the securities and that the person does not
participate or have a participation in any such undertaking, and
does not participate or have a participation in the underwriting of
any such undertaking.'').
    \187\ See, e.g., Harden v. Raffensperger, Hughes & Co., 65 F.3d
1392 (7th Cir. 1995) (third party retained as a ``qualified
independent underwriter'' to perform due diligence and recommend a
minimum yield for a bond offering deemed a statutory underwriter).
The defendant argued that it was not an underwriter because it had
neither purchased nor sold any of the distributed securities. The
court held that the defendant's activities fell within the
``participates'' and ``has a participation'' language of Section
2(a)(11), reasoning that Section 2(a)(11) is broad enough to
encompass all persons who engage in the steps necessary to the
distribution of securities.
    \188\ See, e.g., Geiger v. SEC, 363 F.3d 481, 487 (D.C. Cir.
2004) (defendant ``participated'' in a distribution as a statutory
underwriter through its actions in finding a buyer, negotiating the
terms of the transaction, and facilitating the resale of
securities).
    \189\ See, e.g., Chinese Consolidated Benevolent Association,
supra note 186, at 740 (``The solicitation of offers to buy the
unregistered bonds, either with or without compensation, brought
defendant's activities literally within the prohibition of the
statute.''); see also J. William Hicks, 7A Exempted Trans. Under
Securities Act 1933 Sec.  9:39 (citing the Brief for the Securities
and Exchange Commission in Chinese Consolidated Benevolent
Association: ``The legislative history of Section 2[(a)](11) makes
it apparent that Congress did not intend to require the elements of
compensation or a contract with the issuer in order to make a
distributor of securities an underwriter. In an earlier draft of the
Securities Act, which was considered by the House Committee on
Interstate and Foreign Commerce, the definition of underwriter . . .
would have made the underwriting relationship depend upon the
receipt of compensation. In abandoning that definition and adopting
the definition which is included in the bill as enacted, Congress
showed a clear intention of extending the term to include all
persons who sell for an issuer, whether or not they do so for
profit.'').
    \190\ See, e.g., Raffensperger, supra note 187.
    \191\ See, e.g., Chinese Consolidated Benevolent Association,
supra note 186, at 740 (Hand, J. explaining, ``Whether the Chinese
government as issuer authorized the solicitation, or merely availed
itself of gratuitous and even unknown acts on the part of the
defendant whereby written offers to buy, and the funds collected for
payment, were transmitted to the Chinese banks does not affect the
meaning of the statutory provisions which are quite explicit. In
either case, the solicitation was equally for the benefit of the
Chinese government and broadly speaking was for the issuer in
connection with the distribution of the bonds.'').
    \192\ See, e.g., SEC v. Allison, No. C-81-19 RPA, 1982 WL 1322
(N.D. Cal. 1982).
    \193\ Release No. 33-5223, supra note 171, at 4. See also
Gilligan, Will & Co. v. SEC, 267 F.2d 461 (2d Cir. 1959) (holding
that a distribution exists if there are sales to those who cannot
``fend for themselves'' and citing Ralston Purina Co., 346 U.S. 119
(1953)).
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2. The De-SPAC Transaction as a ``Distribution'' of the Combined
Company's Securities
    Underwriter status depends upon a person's activities occurring
``in connection with'' a ``distribution'' of any security. The
Commission has explained that underwriter status under the
``participation'' prong of the underwriter definition depends on the
putative underwriter ``enjoying substantial relationships with the
issuer or underwriter, or engaging in the performance of any
substantial functions in the organization or management of the
distribution.'' \194\ The Securities Act does not define the term
``distribution;'' however, the federal courts and the Commission have
interpreted the term as synonymous with a ``public offering'' within
the meaning of Section 4(a)(2) of the Act.\195\ Moreover, a
distribution has been said to comprise ``the entire process by which in
the course of a public offer [a] block of securities is dispersed and
ultimately comes to rest in the hands of the investing public.'' \196\
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    \194\ See Opinion of General Counsel relating to Rule 142,
Release No. 33-1862 (Dec. 14, 1938).
    \195\ See J. William Hicks, 7A Exempted Trans. Under Securities
Act 1933 Sec.  9:18. Courts have equated the term ``distribution''
with a public offering of securities. See, e.g., Berckeley Inv.
Group, Ltd. v. Colkitt, 455 F.3d 195, 215 (3d Cir. 2006) (``We agree
with the rationale of those courts and similarly hold that the term
``distribution'' in Sec.  2(a)(11) is synonymous with `public
offering.'''); see also Gilligan, Will & Co., supra note 193, at 466
(``a `distribution' requires a `public offering''' (citation
omitted)).
    \196\ J. William Hicks, 7A Exempted Trans. Under Securities Act
1933 Sec.  9:18 (citing Geiger v. SEC, 363 F.3d 481, 484, 487 (D.C.
Cir. 2004), where the court agreed with the SEC that the
petitioners, Charles F. Kirby and Gene Geiger (head trader and
salesman, respectively, at a securities brokerage firm), who made
resales in broker transactions over a two-week period of 133,333
shares of the roughly 25 million shares then outstanding, were
engaged in a distribution within the meaning of Section 2(a)(11) of
the Securities Act and that one ``did not have to be involved in the
final step of [a] distribution to have participated in it''). See
also R.A Holman v. SEC, 366 F.2d 446, 449 (2d Cir. 1966) (finding
that an ongoing distribution and related manipulation had occurred
where a broker-dealer sold securities on a ``delayed delivery''
basis and there was a real possibility at the time of purchase that
the purchaser would cancel the order and quoting Lewisohn Copper
Corp., 38 SEC. 226, 234 (1958)); accord In the Matter of Oklahoma-
Texas Tr., 2 SEC. 764, 769, 1937 WL 32951 (Sept. 23, 1937), aff'd,
100 F.2d 888 (10th Cir. 1939) (finding an ongoing distribution where
portions of a registered offering continued to be held by securities
dealers).
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    The purpose of a SPAC initial public offering is to raise a pool of
cash in order to subsequently merge with a private operating company in
a de-SPAC transaction that will convert the private operating company
into a public company. Although the timing of a SPAC initial public
offering and a de-SPAC transaction is bifurcated because a private
operating company is not identified at the SPAC initial public offering
stage, the result of a de-SPAC transaction, however structured, is
consistent with that of a traditional initial public offering. The
substance of a de-SPAC transaction is, in many ways, analogous to the
distribution that occurs in a traditional IPO--i.e., a SPAC's assets
consist primarily of highly liquid assets, such as cash and government
securities, and the combined company effectively distributes its
securities to public holders of SPAC shares in exchange for the
contribution of the SPAC's assets to the combined company. The de-SPAC
transaction marks the introduction of the private operating company to
the public capital markets \197\ and is effectively how the private
operating company's securities ``come to rest''--in other words, are
distributed--to public investors as shareholders of the combined
company.\198\ Accordingly, as in a

traditional underwritten initial public offering, public investors--who
were unfamiliar with the formerly private company--would benefit from
the additional care and diligence exercised by SPAC underwriters in
connection with the de-SPAC transaction.\199\
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    \197\ Such a transaction may take a variety of forms and involve
a multitude of issuers. However, the rule we are proposing would
apply to all de-SPAC transactions involving a registered offer of
securities.
    \198\ A court has addressed in dicta whether a somewhat
analogous situation involving the introduction of private companies
to the public markets through an existing shareholder base was a
distribution. See SEC v. Datronics Engineers, Inc., 490 F.2d 250,
254 (4th Cir. 1973), cert denied, 416 U.S. 937 (1974) wherein
Datronics, a public corporation, acquired a number of privately-
held, target companies in merger transactions. A subsidiary of the
defendant would merge with the target company, with the subsidiary
surviving the merger. Both the shareholder-principals of the target
and Datronics received stock in the surviving subsidiary. After the
merger, Datronics distributed some of its shares to its shareholders
as a dividend. In this way, formerly privately-held companies became
publicly owned without going through a registered public offering.
The court stated in dicta, ``we think that Datronics was an
underwriter within the meaning of the 1933 Act. Hence its
transactions were covered by the prohibitions, and were not within
the exemptions, of the Act. Sec. Sec.  3(a)(1) and 4(1) of the 1933
Act, 15 U.S.C. 77c, 77d. By definition, the term underwriter `means
any person who has purchased from an issuer with a view to, or
offers or sells for an issuer in connection with, the distribution
of any security, or participates or has a direct or indirect
participation in any such undertaking. . . .' Sec.  2(11) of the
1933 Act, 15 U.S.C. 77b(11). . . . By this underwriter distribution
Datronics violated [Section] 5 of the 1933 Act--sale of unregistered
securities.''
    \199\ See Gilligan, Will & Co., supra note 193.
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3. Proposed Rule: SPAC IPO Underwriters Are Underwriters in Registered
De-SPAC Transactions
    Proposed Rule 140a would clarify that a person who has acted as an
underwriter in a SPAC initial public offering (``SPAC IPO
underwriter'') and participates in the distribution by taking steps to
facilitate the de-SPAC transaction, or any related financing
transaction,\200\ or otherwise participates (directly or indirectly) in
the de-SPAC transaction will be deemed to be engaged in the
distribution of the securities of the surviving public entity in a de-
SPAC transaction within the meaning of Section 2(a)(11) of the
Securities Act. Clarifying the underwriter status of SPAC IPO
underwriters in connection with de-SPAC transactions should motivate
them to exercise the care necessary to help ensure the accuracy of the
disclosures in these transactions by affirming that they are subject to
Section 11 liability for registered de-SPAC transactions.\201\ In this
way, proposed Rule 140a underscores and reinforces that the liability
protections in de-SPAC transactions involving registered offerings have
the same effect as those in underwritten initial public offerings.
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    \200\ Most SPAC deals contain an available cash condition that
represents a minimum amount of proceeds below which the target will
not be obligated to consummate the transaction. The cash condition
represents a number the sponsor group believes it can reasonably
achieve given their banking syndicate, network, access to capital,
and the target company itself. Since cash in trust is subject to
redemption, one mechanism to ensure the cash condition will be
satisfied is to secure commitments for a PIPE investment. See SPAC
Research Weekly Newsletter (Oct. 19, 2020), available at https://www.spacresearch.com/newsletter?date=2020-10-19. In addition the
staff has observed that for the vast majority of PIPEs associated
with de-SPAC transactions, the closing of the PIPE financing is
cross-conditioned on the closing of the de-SPAC transaction.
    \201\ Under Section 11, ``any person acquiring such security''
has a right of recovery. The Commission's longstanding view for
traditional firm commitment registered offerings is that standing to
sue under this provision extends to all purchasers of securities,
whether the purchase occurred in the offering or subsequently in the
secondary market. See Brief of the SEC in DeMaria v. Andersen, 318
F.3d 170 (2d Cir. 2003).
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    As described above, the purpose of a SPAC's initial public offering
is to facilitate a subsequent de-SPAC transaction, and for target
companies merging with a SPAC, the de-SPAC transaction is the means
chosen, out of the several avenues available under the securities laws,
for a private operating company to go public. It is the method by which
the target company's securities, as securities of the combined company,
are distributed into the hands of public investors. Although SPAC IPO
underwriters typically are not retained to act as firm commitment
underwriters in the de-SPAC transaction, they nevertheless typically
participate in activities that are necessary to that distribution.\202\
For instance, it is common for a SPAC IPO underwriter (or its
affiliates) to participate in the de-SPAC transaction as a financial
advisor to the SPAC, and engage in activities necessary to the
completion of the de-SPAC distribution such as assisting in identifying
potential target companies, negotiating merger terms, or finding
investors for and negotiating PIPE investments. Furthermore, receipt of
compensation in connection with the de-SPAC transaction could
constitute direct or indirect participation in the de-SPAC transaction.
While SPAC IPO underwriting fees--those fees the SPAC IPO underwriters
earn for their efforts in connection with the initial offering of SPAC
shares to the public--generally range between 5% and 5.5% of IPO
proceeds, a significant portion (typically 3.5% of IPO proceeds) is
deferred until, and conditioned upon, the completion of the de-SPAC
transaction.\203\ A SPAC IPO underwriter therefore typically has a
strong financial interest in taking steps to ensure the consummation of
the de-SPAC transaction.\204\ For these reasons, proposed Rule 140a