an additional 495 of 613 SPAC IPOs in 2021 (81%) had not yet
announced a target or have withdrawn an announced business
combination and resumed searching (see supra Section IX.B.2). See
also supra note 413 and accompanying text.
---------------------------------------------------------------------------

    We have data on 152 SPAC initial public offerings between January
1, 2016 and December 31, 2019.\458\ Among these SPACs, all disclosed in
their IPO prospectus that they would be limited to a 24 month lifespan
or less, where almost 59% (89 of 152) disclosed that they would be
limited to a 24-month period, and the rest to a shorter time period, in
some cases as short as 12 months (18, or 12%, of cases). In around 14%
of the SPACs (22 of 152), there was disclosure in their IPO prospectus
about a pre-commitment to hold a vote on an optional extension period
ranging from three to 24 months. There were five cases in which the
combination of the initial lifespan and pre-committed extension period
exceeded a 24-month potential total lifespan for the SPAC. However, we
recognize that SPACs may, and some currently do, ask shareholders to
vote for an extension of the lifespan of the SPAC even if they did not
pre-commit to such a vote or a specified extension period in the event
of a vote.
---------------------------------------------------------------------------

    \458\ Based on data from Dealogic M&A module as of Jan. 2022.
---------------------------------------------------------------------------

    As of December 31, 2021, approximately 96% (146 of 152) of the
SPACs in the sample had announced an agreement to enter into a de-SPAC
transaction, and approximately 91% had completed a de-SPAC transaction.
Among the 13 cases (9%) in the sample where SPACs had not completed a
de-SPAC transaction at this time, seven SPACs had been formally
liquidated,\459\ whereas six SPACs were still active (four of which had
announced a de-SPAC transaction). As of December 31, 2021, the lifespan
of the six still active SPACs ranged between 25 to 37 months since the
IPO date.
---------------------------------------------------------------------------

    \459\ In two of these cases, a de-SPAC transaction was announced
but later withdrawn.
---------------------------------------------------------------------------

    Overall, approximately 59% (89 of 152) of the SPACs in the sample
announced an agreement to enter into a de-SPAC transaction no later
than 18-months after the date of the initial public offering, and 88%
(134 of 152) announced a transaction agreement no later than 24 months
after the IPO date. Figure 5 shows the distribution of the timing of
announcements for de-SPAC transaction agreements expressed in event-
time relative to the IPO effective date for the 146 sample SPACs that
had made such an announcement by December 31, 2021. The longest time to
an announcement was 39 months, and the shortest was four months.
BILLING CODE 8011-01-P

[GRAPHIC] [TIFF OMITTED] TP13MY22.010

    Approximately 65% (99 of 152) of the SPACs in the sample had
completed a de-SPAC transaction no later than 24 months after the IPO
date, whereas only 31% (47 of 152) of the SPACs in the sample had
completed a de-SPAC transaction no later than 18 months after the IPO
date. Figure 6 shows the distribution of the timing of de-SPAC
transactions expressed in event-time relative to the IPO effective date
for the 139 SPACs in the sample that completed de-SPAC transactions by
December 31, 2021. The longest time to completion was 43 months, and
the shortest was eight months.

[GRAPHIC] [TIFF OMITTED] TP13MY22.011

BILLING CODE 8011-01-C
    Among the 139 SPACs in the sample that completed a de-SPAC
transaction by December 31, 2021, the average and median times between
the announcement and the completion of the transaction were
respectively 150 days (approximately 5 months) and 142 days
(approximately 4.7 months). The time between announcement and
completion of the merger was less than 6 months in 78% of the cases,
and the shortest time observed in the sample was less than two months
(50 days). For the subsample of 99 SPACs that completed the de-SPAC
transactions in no more than 24 months since the IPO date, the average
and median times between the announcement and the completion of the
transaction were respectively 142 days (approximately 4.7 months) and
125 days (approximately 4.1 months). For this subsample, approximately
79% of the de-SPAC transactions occurred less than 6 months after the
announcement, and there were 12 cases in which the announcement of the
transaction agreement was made more than 18 months after the IPO date.

C. Benefits and Costs of the Proposed Rules

1. Disclosure-Related Proposals
a. SPAC Initial Public Offerings and Other Registered Offerings
1. Definitions (Item 1601)
    We are proposing Item 1601 to identify certain parties and
transactions to which the requirements of the subpart, as well as other
parts of this proposal, would apply. Defining the terms ``special
purpose acquisition company,'' ``de-SPAC transaction,'' ``SPAC
sponsor,'' and ``target company'' as proposed would establish the scope
of the issuers and transactions subject to the requirements of Subpart
1600, and thereby provide both registrants and investors with notice of
the associated obligations. The definitions may impose costs if the new
definitions are not consistent with current understanding and
consequently cause confusion for registrants, investors and market
participants. Both the costs and benefits would be small to the extent
that the new definitions are consistent with widely accepted views.
2. Prospectus Cover Page and Prospectus Summary Disclosures (Item 1602)
    Proposed Item 1602 would require a prospectus filed in connection
with a SPAC's initial public offering to disclose information on
certain features unique to SPAC offerings and the potential associated
risks, in addition to the information currently required by Item 501
and Item 503 of Regulation S-K, on the prospectus cover page and in the
prospectus summary, respectively, as discussed above.\460\ The proposed
additional disclosures may reduce SPAC investors' information
processing costs and improve their investment decisions. Investors in
SPACs vary in

financial sophistication and ability to process the information
provided in SPAC IPO prospectuses. We expect that the potential
benefits may especially accrue to investors that are less financially
sophisticated.
---------------------------------------------------------------------------

    \460\ See supra Section II.E for more information about current
disclosure requirements.
---------------------------------------------------------------------------

    Specifically, because investors are likely to allocate their
attention selectively,\461\ requiring disclosure regarding important
features and associated risks of SPAC investments on the prospectus
cover page (including cross-references to the locations of the more
detailed related disclosures) and prospectus summary may increase the
likelihood that investors pay attention to the information by making it
more salient.\462\ In addition, the proposed additional disclosures in
the prospectus summary may further reduce information processing costs,
particularly for less financially sophisticated investors, by providing
information in plain English about important SPAC features in a concise
format.\463\
---------------------------------------------------------------------------

    \461\ See, e.g., George Loewenstein, Cass R. Sunstein, & Russell
Golman, Disclosure: Psychology Changes Everything, 6 Ann. Rev. Econ.
391 (2014).
    \462\ Salience detection is a key feature of human cognition
allowing individuals to focus their limited mental resources on a
subset of the available information and can cause them to over-
weight this information in their decision making processes. See,
e.g., Daniel Kahneman, Thinking, Fast and Slow (2013); Susan Fiske &
Shelley E. Taylor, Social Cognition: From Brains to Culture (3d ed.
2017). Moreover, for financial disclosures, research suggests that
increasing signal salience is particularly helpful in reducing
limited attention of individuals with lower education levels and
financial literacy. See, e.g., Victor Stango & Jonathan Zinman,
Limited and Varying Consumer Attention: Evidence from Shocks to the
Salience of Bank Overdraft Fees, 27 Rev. of Fin. Stud. 990 (2014).
    \463\ Existing research notes that individuals bear costs in
absorbing information and that the ability of individuals to process
information is not unbounded. See Richard Nisbett & Lee Ross, Human
Inference: Strategies and Shortcomings of Social Judgment (1980);
David Hirshleifer & Siew Hong Teoh, Limited Attention, Information
Disclosure, and Financial Reporting, 36 J. Acct. & Econ. 337 (2003).
Thus, summary disclosure may provide benefits by focusing investors'
attention and reducing information processing costs.
---------------------------------------------------------------------------

    Proposed Item 1602(b)(6) would require tabular disclosure in the
prospectus summary regarding the nature and amount of the compensation
received or to be received by the SPAC sponsor, its affiliates and
promoters, and the extent to which this compensation may result in a
material dilution of the purchasers' equity interests. There is
empirical evidence that visualization improves individual perception of
information.\464\ For example, one experimental study shows that
tabular reports can lead to better decision making.\465\ Because
sponsors' compensation may be a material cost to SPAC investors, the
tabular format of these required disclosures may help investors
(especially those that are less financially sophisticated) more easily
process the financial implications of compensation of the SPAC sponsor,
its affiliates and promoters, thereby potentially incrementally
improving their investment decisions.\466\
---------------------------------------------------------------------------

    \464\ See John Hattie, Visible Learning: A Synthesis of Over 800
Meta-Analyses Relating to Achievement (2008).
    \465\ See Izak Benbasat & Albert Dexter, An Investigation of the
Effectiveness of Color and Graphical Information Presentation Under
Varying Time Constraints, 10-1 MIS Q. 59 (1986).
    \466\ See infra Section IX.C.1.a.4 for the discussion of
proposed Item 1602(a)(4), which would require that the prospectus
cover page include a simplified dilution table depicting the
estimated remaining pro forma net tangible book value per share that
would be realized at quartile intervals up to the maximum redemption
threshold.
---------------------------------------------------------------------------

    Additionally, the proposed rules and amendments would standardize
this disclosure across all registration statements filed for SPAC
initial public offerings, which may make it easier and less costly for
investors to compare terms across offerings and thereby promote better
investment decisions.
    Finally, to the extent the proposed additional disclosures on the
cover page and in the prospectus summary would increase investors'
awareness of sponsors' incentives and potential conflicts of interest,
it may have an incremental disciplining effect on sponsors' behavior.
For example, to the extent sponsors would face potentially greater
scrutiny by more attentive investors, they may take some additional
care in finding and negotiating terms with target companies, or take
steps to mitigate the extent of any disclosed conflict of interests.
    The proposed additional disclosures that would be required to be
included on the prospectus cover page and in the prospectus summary may
increase compliance costs for SPACs to the extent that they would need
to provide additional information in their IPO prospectuses than they
currently provide. We believe that SPACs should have this information
readily available and in some cases may already be disclosing it, such
as the time frame for the SPAC to consummate a de-SPAC transaction.
Thus, we expect that any compliance costs resulting from these proposed
items would not be significant.
    There could also be some potential costs for investors. In
particular, there is a risk that, by requiring more items to be added
to the cover page and the prospectus summary, the salience of the
current required disclosures may be reduced because they will have to
compete with the new required disclosures for investors' attention
compared to the baseline. In addition, because Item 501(b) of
Regulation S-K limits the information on the outside cover page to one
page, there is a risk that the amount of information required to be
included could generally impair the readability of the cover page. As a
result, some investors may pay less attention to the cover page as a
whole.
3. Sponsors and Conflicts of Interest (Item 1603)
    Proposed Item 1603(a) would require disclosure of certain
information regarding a SPAC's sponsor, its affiliates and any
promoters, both at the SPAC initial public offering stage and at the
de-SPAC transaction stage. To the extent that such disclosures are not
already provided or are partially provided, this proposed disclosure
requirement would provide investors with information related to the
experience and incentives (due to characteristics of the compensation
structure, for example) of the sponsor.\467\ Investors may benefit from
such disclosure, as it could allow them to better evaluate the
circumstances that may impact their investment decision in a specific
SPAC. The proposed disclosure is likely to be beneficial to investors
who may consider investing in a SPAC at a point in time that precedes
the existence and disclosure of information about an acquisition
target, or to investors seeking to evaluate a proposed de-SPAC
transaction.\468\
---------------------------------------------------------------------------

    \467\ See supra Section II.B for more information about current
disclosure requirements.
    \468\ Academic literature provides some evidence that
characteristics of the SPAC sponsor, such as experience or network
may be indicative of its ability to select and execute quality
transactions. See, e.g., Lin, supra note 30.
---------------------------------------------------------------------------

    Proposed Item 1603(b) would require disclosure of conflicts of
interest at both the SPAC initial public offering stage and at the de-
SPAC transaction stage. This disclosure would also be required in any
Schedules TO filed in connection with a redemption. We believe that
this proposed disclosure requirement would benefit investors by
enabling them to better assess any actual or potential material
conflicts of interest held by sponsors, its affiliates, officers and
directors of the SPAC, and/or promoters. Such disclosure could allow
investors to more accurately assess the potential risk associated with
the conflicts of interest in a SPAC and thus make better investment
decisions.
    Further, disclosure under proposed Item 1603(c) would provide
investors information about the fiduciary duties that a SPAC's officers
and directors owe to other companies. We expect that this

disclosure would allow the SPAC's shareholders and prospective
investors to assess the extent to which the officers and directors may
face outside obligations, including the possibility that they might be
compelled to act in the interest of another company that compete with
the SPAC. In addition, to the extent that a SPAC's officers and
directors owe fiduciary duties to other companies, these obligations
may limit the attention that they are able to provide to the SPAC. We
expect that these disclosures would benefit investors by allowing them
to better assess the actions of the officers and directors in managing
the SPACs activities, including a proposed de-SPAC transaction.
    Proposed Item 1603(a) may increase compliance costs for SPACs,
mainly in the form of collecting, preparing, and filing the required
information for disclosure on sponsors, their affiliates and any
promoters. We do not expect, however, such costs to be substantial
because most of this information should be readily available, and some
of it is currently being provided by SPACs.
    With respect to the conflicts of interest disclosures required by
Item 1603(b), SPACs could bear direct costs associated with: (i)
Reviewing and preparing disclosures describing any such conflicts of
interest; (ii) developing and maintaining methods for tracking any such
conflicts of interest; and (iii) seeking legal or other advice. While
the direct costs associated with Item 1603(b) disclosure requirements
would depend on the extent to which a SPAC already provides this
disclosure under current practices, we expect these costs to generally
be low. As a baseline matter, the common practice of a SPAC disclosing
the presence of actual or potential conflicts of interest as a material
risk factor predates SPACs listing on national exchanges.\469\
Therefore, it would appear that most SPACs are generally aware of these
actual or potential conflicts and would therefore only bear costs
insofar as our proposed requirements would involve providing greater
detail or specificity in the disclosures of conflicts of interest.
---------------------------------------------------------------------------

    \469\ For examples of such disclosures, see Jog & Sun, supra
note 386.
---------------------------------------------------------------------------

    Similarly, we do not expect the disclosures of a SPAC officer or
director's fiduciary duties to other companies, as would be required by
proposed Item 1603(c) to be very costly to prepare. Given the
significance of a fiduciary relationship, it is unlikely that a
director or officer--and, by extension, the SPAC--would not already
know what relationships would require disclosure. The incremental costs
to produce, track, or review records also should be low because signed,
written documents typically accompany the entrance into a relationship
that engenders a fiduciary duty.
4. Dilution (Items 1602(a)(4) and 1602(c))
    As discussed above,\470\ SPAC shares may experience dilution from
various transactions by a number of parties or combinations of parties
at various stages of a SPAC's lifecycle. For example, sponsors
typically obtain their ``promote'' at a nominal value (e.g., $25,000)
with most of their compensation typically contingent on the completion
of a de-SPAC transaction. When sponsors receive compensation at the de-
SPAC transaction stage, their compensation comes out of the stakes of
SPAC investors who do not redeem their shares, leading to an
interactive effect between redemptions and the promote that magnifies
the dilution. PIPE investments, due to their typical discount to the
IPO offering price and potential interactive effects with redemptions,
can further dilute non-redeeming SPAC investors. Finally, investors
that redeem their shares typically get to keep their warrants. Future
exercises of these warrants further dilutes non-redeeming SPAC
shareholders' equity. Because most of these potentially dilutive
transactions may occur after the SPAC's initial public offering and
both the direct and indirect dilutive effects can be unique to the
specific SPAC's structure, they may be difficult for prospective
investors and other interested market participants to identify,
anticipate, or adequately assess. In the absence of a more complete
appreciation of these dilutive effects, the decision to invest, vote,
or redeem, or the price at which one might be willing to enter or exit
a position, may lack relevant information and, as a consequence, be
suboptimal. SPAC investors who remain investors in the combined company
absorb the above-mentioned dilution effects. To the extent that
investors may not understand the extent of the dilution, or may exhibit
inertia regarding the decision to redeem, the dilution may not be
reflected in market prices at the time of the target acquisition.\471\
---------------------------------------------------------------------------

    \470\ See supra Section II.D for more information about existing
disclosure requirements under Item 506 of Regulation S-K.
    \471\ See Gahng, Ritter, & Zhang, supra note 23; Klausner,
Ohlrogge, & Ruan, supra note 17.
---------------------------------------------------------------------------

    Proposed Item 1602(c) would require that registration statements
filed by SPACs, other than for de-SPAC transactions, describe all
material potential sources of future dilution following the SPAC's
initial public offering and include tabular disclosure of the amount of
potential future dilution from the public offering price that will be
absorbed by non-redeeming SPAC shareholders, to the extent known and
quantifiable. The proposed rule would benefit investors by providing
them with more detailed information on the potential impact of dilution
on the value of their SPAC shares, thus enabling them to better
understand the effects of dilution on their investments and ultimately
make better investment decisions.
    We are further proposing to require that registration statements on
Form S-1 or Form F-1 filed by SPACs, including for an initial public
offering, include a simplified dilution table depicting the estimated
remaining pro forma net tangible book value per share that would be
realized at quartile intervals up to the maximum redemption threshold.
Given the empirical evidence that visualization improves individual
perception of information and that dilution that may occur due to
redemption may be a significant cost to investors,\472\ we expect that
the tabular format of this disclosure will help investors (especially
those that are less financially sophisticated) more easily process the
financial implications of dilution and potentially improve their
investment decisions. Moreover, the tabular presentation may provide
investors with this information in a format that might more accurately
represent the dilution that they might experience if they choose to
invest in the SPAC, as compared to current disclosures.\473\ For
example, Figure 7 shows the average maximum allowable number of shares
eligible to be redeemed prior to the de-SPAC transaction disclosed by
SPACs in their registration statements. As shown, the maximum potential
dilution is fairly stable over time, on average about 90% of net
tangible book value per share.
---------------------------------------------------------------------------

    \472\ See Hattie, supra note 464, and Benbasat & Dexter, supra
note 465.
    \473\ See supra note 74.

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

Figure 7 also presents the average realized redemptions in de-SPAC
transactions, which appear to vary considerably over time. Thus,
despite the fact that SPACs are currently disclosing the maximum
potential dilution that may occur as a function of redemptions, this
information may not be as useful for investors as a presentation of the
same information in a scenario table at quartile intervals of
redemption, given that actual redemptions in connection with a de-SPAC
transaction rarely reach the maximum allowable amount. The proposed
amendments would provide investors with more granular information about
potential dilution, which could allow them to better anticipate the
effects of such dilution on future returns.\474\ Additionally, the
tabular format of the disclosure would standardize the dilution
information, allowing investors to more easily analyze it and compare
it across SPACs.
---------------------------------------------------------------------------

    \474\ See Klausner, supra note 71.
    [GRAPHIC] [TIFF OMITTED] TP13MY22.012

    We expect the incremental costs of these proposed disclosure
requirements to be, in most cases, low. First, registrants should
already have the underlying information at their disposal and are
therefore unlikely to incur significant additional costs to procure the
necessary data. Second, while the proposed rules would require
registrants to account for potential future sources of dilution and
analyze several levels of redemption, which may require the services or
input of quantitative specialists (analysts, forecasters, or other
consultants), the material sources and the levels of dilution are
generally common across SPAC offerings (thus a standard approach based
on best practices may emerge, reducing costs over time) and are known
and quantifiable. For example, sources of dilution may include
shareholder redemptions, sponsor compensation, underwriting fees,
outstanding warrants and convertible securities, and PIPE financings.
For proposed Item 1602(a)(4), registrants will be required to analyze
only four levels of redemption (i.e., 25%, 50%, 75%, and maximum
redemption). Third, many initial registration statements filed by SPACs
already include disclosures regarding dilution. Thus, the additional
burden of these disclosures becoming a formal requirement may be
relatively modest. We therefore expect that the proposed disclosure
requirements should benefit the market broadly and investors in
particular, insofar as the enhanced information on potential sources of
dilution improves price formation.
5. Structured Data Requirement (Item 1610)
    Proposed Item 1610 would require all disclosures in proposed Items
1601-1609 of Regulation S-K to be tagged in Inline XBRL.\475\ We expect
that this requirement would augment the informational benefits of the
proposed new disclosure requirements by making them more easily
retrievable and usable for aggregation, comparison, filtering, and
other analysis. XBRL requirements for public operating company
financial statement disclosures have been observed to mitigate
information asymmetry by reducing information processing costs, thereby
making the disclosures easier to access and analyze.\476\ This
reduction in information processing cost has been observed to
facilitate the monitoring of companies by external parties, and, as a
result, to influence behavior of

companies, including their disclosure choices.\477\
---------------------------------------------------------------------------

    \475\ See supra Section II.G.
    \476\ See, e.g., Joung W. Kim, Jee-Hae Lim, & Won Gyun No, The
Effect of First Wave Mandatory XBRL Reporting Across the Financial
Information Environment, 26 J. Info. Sys. 127, 127-53 (2012)
(finding evidence that ``mandatory XBRL disclosure decreases
information risk and information asymmetry in both general and
uncertain information environments''); Yuyun Huang, Jerry T.
Parwada, Yuan George Shan, & Joey Wenling Yang, Insider
Profitability and Public Information: Evidence From the XBRL Mandate
(SSRN Working Paper, 2020) (finding that XBRL levels the playing
field between insiders and non-insiders, in line with the hypothesis
that ``the adoption of XBRL enhances the processing of financial
information by investors and hence reduces information asymmetry'').
    \477\ See, e.g., Jeff Zeyun Chen, Hyun A. Hong, Jeong-Bon Kim, &
Ji Woo Ryou, Information processing costs and corporate tax
avoidance: Evidence from the SEC's XBRL mandate, 40 J. Acct. & Pub.
Policy 106822 (2021) (finding XBRL reporting decreases likelihood of
firm tax avoidance because ``XBRL reporting reduces the cost of IRS
monitoring in terms of information processing, which dampens
managerial incentives to engage in tax avoidance behavior''); Paul
A. Griffin, Hyun A. Hong, Jeong-Bon Kim, & Jee-Hae Lim, The SEC's
XBRL Mandate and Credit Risk: Evidence on a Link between Credit
Default Swap Pricing and XBRL Disclosure (2014 a.m. Acct. Assoc.
Annual Meeting Aug. 6, 2014) (finding XBRL reporting enables better
outside monitoring of firms by creditors, leading to a reduction in
firm default risk); Elizabeth Blankespoor, The Impact of Information
Processing Costs on Firm Disclosure Choice: Evidence from the XBRL
Mandate, 57 J. Acct. Research 919 (2019) (finding ``firms increase
their quantitative footnote disclosures upon implementation of XBRL
detailed tagging requirements designed to reduce information users'
processing costs,'' and ``both regulatory and non-regulatory market
participants play a role in monitoring firm disclosures,''
suggesting ``that the processing costs of market participants can be
significant enough to impact firms' disclosure decisions'').
---------------------------------------------------------------------------

    While these observations are specific to operating company
financial statement disclosures and not to disclosures outside the
financial statements, such as the proposed specialized disclosure
requirements applicable to SPACs, they indicate that the proposed
Inline XBRL requirements could directly or indirectly (i.e., through
information intermediaries, such as financial media, data aggregators,
and academic researchers) provide investors with increased insight into
the proposed specialized SPAC disclosures at specific SPACs, and allow
them to compare it to information provided by other SPACs at the time
of their initial public offerings, perhaps through filtering by
criteria, such as offering size or the name of the sponsor.\478\ Also,
like Inline XBRL financial statements (including footnotes), the
proposed SPAC specialized disclosures would include tagged narrative
disclosures in addition to tagged quantitative disclosures.\479\
Tagging narrative disclosures can facilitate analytical benefits, such
as automatic comparison/redlining of these disclosures against that
provided by other SPACs in their initial public offerings and the
performance of targeted assessments of specific SPAC specialized
disclosures.\480\
---------------------------------------------------------------------------

    \478\ See, e.g., Nina Trentmann, Companies Adjust Earnings for
Covid-19 Costs, but Are They Still a One-Time Expense?, Wall St. J.,
Sept. 24, 2020 (citing an XBRL research software provider as a
source for the analysis described in the article); Bloomberg Lists
BSE XBRL Data, XBRL.org (2018); Rani Hoitash & Udi Hoitash,
Measuring Accounting Reporting Complexity with XBRL, 93 Acct. Rev.
259, 259-287 (2018).
    \479\ For example, proposed Item 1603 would consist largely of
narrative disclosure regarding the SPAC sponsor, but would also
include quantitative disclosure regarding the compensation paid (or
to be paid) to the SPAC sponsor, its affiliates, and any promoters
for all services rendered in all capacities to the SPAC and its
affiliates.
    \480\ To illustrate, using the search term ``warrant'' to search
through the text of all SPAC registration statements for initial
public offerings to determine how many such initial public offerings
disclosed the inclusion of warrants within SPAC sponsor compensation
could return many narrative disclosures outside of the discussion
(e.g., disclosures related to warrants offered to investors as part
of the initial public offering).
---------------------------------------------------------------------------

    We expect the proposed requirement to tag SPAC specialized
disclosures in Inline XBRL would impose compliance costs on SPACs at an
earlier stage of their life cycle than under the current baseline.
Currently, SPACs are required to tag financial statements (including
footnotes) and cover page information in certain registration
statements and periodic reports in Inline XBRL. However, SPACs are not
obligated to tag any disclosures until they file their first post-IPO
periodic report on Form 10-Q, Form 20-F, or Form 40-F. Various
preparation solutions have been developed and used by operating
companies to fulfill XBRL requirements, and some evidence suggests
that, for smaller companies, XBRL compliance costs have decreased over
time.\481\ Generally, registrants without prior experience using such
compliance solutions often incur initial implementation costs
associated with Inline XBRL tagging, such as costs associated with
licensing Inline XBRL compliance software and training staff to use the
software to tag the disclosures. Because SPACs typically operate as
shell companies with no or nominal operations, it may be more likely
that SPACs outsource their tagging obligations to a third-party service
provider, and thus avoid the aforementioned software licensing and
training costs. They would, however, incur the costs of retaining such
third party services.
---------------------------------------------------------------------------

    \481\ An AICPA survey of 1,032 reporting companies with $75
million or less in market capitalization in 2018 found an average
cost of $5,850 per year, a median cost of $2,500 per year, and a
maximum cost of $51,500 per year for fully outsourced XBRL creation
and filing, representing a 45% decline in average cost and a 69%
decline in median cost since 2014. See Michael Cohn, AICPA Sees 45%
Drop in XBRL Costs for Small Companies, Acct. Today (Aug. 15, 2018)
(stating that a 2018 NASDAQ survey of 151 listed registrants found
an average XBRL compliance cost of $20,000 per quarter, a median
XBRL compliance cost of $7,500 per quarter, and a maximum, XBRL
compliance cost of $350,000 per quarter in XBRL costs per quarter),
available at https://www.accountingtoday.com/news/aicpa-sees-45-drop-in-xbrl-costs-for-small-reporting-companies (retrieved from
Factiva database); Letter from Nasdaq, Inc., Mar. 21, 2019, to the
Request for Comment on Earnings Releases and Quarterly Reports;
Release No. 33-10588 (Dec. 18, 2018) [83 FR 65601 (Dec. 21, 2018)].
---------------------------------------------------------------------------

b. De-SPAC Transactions \482\
---------------------------------------------------------------------------

    \482\ The benefits of proposed Item 1603 in connection with
disclosures regarding sponsors and conflicts of interest in
connection with a de-SPAC transaction on a proxy, information, or
registration statement or Schedule TO are expected to be largely the
same as the effects of those disclosures made in connection with a
SPAC IPO, though they may be incrementally higher in so far as the
disclosures could also guide voting and redemption decisions at the
de-SPAC transaction stage, which would not occur in connection with
a SPAC IPO. See supra Section IX.C.1.a.3. We would similarly expect
the costs of compliance with Item 1603 to be comparable at the de-
SPAC transaction stage as in connection with a SPAC IPO. However, to
the extent that Item 1603 would require SPACs to disclose certain
information in connection with their IPOs, the costs of making those
same disclosures at the de-SPAC transaction stage should be lower
because the materials necessary would have largely already been
prepared.
---------------------------------------------------------------------------

1. Prospectus Cover Page, Summary, and Disclosure of Dilution (Item
1604)
    In connection with a de-SPAC transaction, many SPACs currently
register an offering of securities using a Form S-4 or F-4. We expect
most de-SPAC transactions to include a Securities Act registration
statement going forward. Proposed Items 1604(a) and 1604(b) would
require any prospectus accompanying a registration statement at the de-
SPAC transaction stage to include certain information unique to the de-
SPAC transaction on the cover page and in the summary, in a style and
substance comparable to the additional disclosures that proposed Item
1602 would require at the initial public offering stage.\483\ In
addition, proposed Item 1604(c) would require disclosure in the
prospectus of each material potential source of additional dilution
that non-redeeming shareholders may experience by electing not to
redeem their shares in connection with the de-SPAC transaction, a
sensitivity analysis in tabular format that expresses the amount of
potential dilution under a range of reasonably likely redemption
levels, and a description of the model, methods, assumptions,
estimates, and parameters necessary to understand the sensitivity
analysis disclosure.\484\
---------------------------------------------------------------------------

    \483\ See supra Section II.E for more information about the
regulatory baseline.
    \484\ See supra Section II.D for more information about the
regulatory baseline.
---------------------------------------------------------------------------

    We expect the proposed Items 1604(a) and 1604(b) would have similar
potential direct benefits to investors as those we discussed for
proposed Item 1602 above.\485\ That is, we expect that including the
additional disclosures on the de-SPAC transaction prospectus cover page
and in the prospectus

summary may increase the likelihood that investors pay attention to and
process this information by making it more salient. Additionally, the
proposed additions to the de-SPAC transaction prospectus summary may
reduce information-processing costs of investors, particularly less
financially sophisticated investors, by providing certain SPAC-specific
disclosures concisely and in plain English. Moreover, like for proposed
Item 1602(b)(6), proposed Item 1604(b)(4) would require tabular
disclosure in the prospectus summary regarding the terms and amount of
the compensation received or to be received by the SPAC sponsor and its
affiliates in connection with the de-SPAC transaction or any related
financing transaction, and whether that compensation has resulted or
may result in a material dilution of the equity interests of
unaffiliated security holders of the SPAC. Presenting this information
in tabular format may further help reduce information-processing costs
for some investors.\486\ Additionally, proposed Items 1604(a) and
1604(b) would standardize the required information across all
registration statements filed for de-SPAC transactions, making it
potentially easier and less costly for investors to compare terms
across transactions. Overall, because of the aforementioned potential
effects on investors' attention and information processing costs, the
proposed additional disclosures on the prospectus cover page and in
prospectus summary may help improve investors' investment decisions.
---------------------------------------------------------------------------

    \485\ See discussion in supra Section IX.C.1.a.2.
    \486\ See supra notes 464 and 465 and accompanying text.
---------------------------------------------------------------------------

    Certain items that proposed Items 1604(a) and 1604(b) would require
SPACs to include on the prospectus cover page and in the summary may
potentially benefit investors through incrementally improved SPAC
governance. For example, the inclusion of disclosures regarding
material potential or actual conflicts of interest could increase
investors' attention to such issues. In turn, this may have an ex ante
disciplining effect on sponsors that would mitigate the potential costs
to investors of conflicts of interests. In addition, the SPAC would be
required to state whether it reasonably believes that the de-SPAC
transaction is fair or unfair to unaffiliated security holders, the
bases for such belief, and whether the SPAC or SPAC sponsor received
any report, opinion, or appraisal from an outside party regarding the
fairness of the de-SPAC transaction. Prominent disclosure of these
items may increase investor attention to the fairness or unfairness of
the transaction, which may incentivize sponsors to avoid transactions
that could potentially be viewed as unfair.\487\
---------------------------------------------------------------------------

    \487\ Here we are considering the potential incremental benefits
of the placement of this information on the cover page and in the
summary. For a discussion of the incremental informational value of
these disclosures, see infra Section IX.C.1.b.3.
---------------------------------------------------------------------------

    As with proposed Item 1602, the additional items that proposed
Items 1604(a) and 1604(b) would require to be included on the de-SPAC
transaction prospectus cover page and in the prospectus summary may
increase compliance costs for SPACs to the extent that they would need
to provide additional information compared to what they currently
provide. To the extent that SPACs already disclose some of this
information or have most of this information readily available, these
costs would be mitigated.
    There could also be some potential costs to investors from proposed
Items 1604(a) and 1604(b). In particular, as with proposed Item 1602,
there is a risk that, by requiring more items to be added to the cover
page and the summary, the salience of the current required disclosures
may be reduced because they will have to compete with the new required
disclosures for investors' attention compared to the baseline. In
addition, because Item 501(b) of Regulation S-K limits the information
on the outside cover page to one page, there is a risk that the amount
of information required to be included could generally impair the
readability of the cover page. As a result, some investors may pay less
attention to the cover page as a whole.
    We expect proposed Item 1604(c) would benefit investors by
providing them with detailed information on the potential impact of
dilution on the value of their SPAC shares in connection with the de-
SPAC transaction, thus enabling them to better understand the effects
of dilution on their investments and ultimately make better investment
decisions. Besides requiring disclosure of each material potential
source of future dilution that non-redeeming shareholders may
experience, proposed Item 1604(c) also would require sensitivity
analysis disclosure in tabular format that expresses the amount of
potential dilution under a range of reasonably likely redemption
levels. This sensitivity analysis may provide investors with
information that could more accurately represent the dilution that they
might experience if they choose not to redeem their shares as compared
to current disclosures.\488\ Such more granular information about
potential dilution may allow investors to better anticipate the effects
of the dilution on future returns. In addition, as discussed
above,\489\ we expect that the tabular format of this disclosure will
further help investors (especially those that are less financially
sophisticated) more easily process the financial implications of
dilution.
---------------------------------------------------------------------------

    \488\ See supra note 74.
    \489\ See supra notes 464 and 465, and accompanying text.
---------------------------------------------------------------------------

    We expect some incremental compliance costs of proposed Item
1604(c) to the extent registrants are not already providing disclosures
similar in nature to what is required by the proposed amendment. In
particular, the proposed rules would require registrants to engage in a
sensitivity analysis to account for potential future sources of
dilution and analyze several levels of redemption, which may require
the services or input of quantitative specialists (analysts,
forecasters, or other consultants). However, we expect the compliance
costs of providing this disclosure would be mitigated by several
factors. First, registrants should already have the underlying
information at their disposal and are therefore unlikely to incur
significant additional costs to procure the necessary data. Second,
material sources and the levels of dilution are generally common across
SPAC offerings (thus a standard approach based on best practices may
emerge, reducing costs over time), and are known and quantifiable. For
example, sources of dilution may include shareholder redemptions,
sponsor compensation, underwriting fees, outstanding warrants and
convertible securities, and PIPE financings. Third, although proposed
Item 1604(c) does not specify the number of redemption levels to be
analyzed, the fact that this disclosure could be calculated in a manner
consistent with the methodologies and assumptions used in the
disclosures provided pursuant to Item 506 elsewhere in the prospectus
may reduce incremental costs. Thus, depending on how significant these
mitigating factors are, the additional burden to registrants of this
disclosure may be limited.
2. Background, Material Terms, and Effects of the De-SPAC Transaction
(Item 1605)
    Proposed Items 1605(a), (b) and (c) of Regulation S-K would require
disclosure of the background (e.g., description of any contacts,
negotiations, or transactions concerning the transaction), material
terms, and effects of the de-SPAC transaction and

any related financing transaction. In addition, proposed Item 1605(d)
would require disclosure of any material interests of a SPAC's sponsor,
officers, and directors in a de-SPAC transaction or any related
financing transaction, including fiduciary or contractual obligations
to other entities and any interest in, or affiliation with, the target
company.\490\ Such disclosure would benefit investors by providing them
with more detailed information about significant aspects of de-SPAC
transactions, thereby enabling them to make more informed decisions.
For example, some of the proposed disclosures may enable investors to
better assess whether the de-SPAC transaction or any related financing
transaction has been structured in a manner that would benefit, for
example, the SPAC's sponsor to the detriment of unaffiliated security
holders of the SPAC.
---------------------------------------------------------------------------

    \490\ See supra Section II.F.1 for information about the
regulatory baseline.
---------------------------------------------------------------------------

    Proposed Item 1605(e) would require disclosure as to whether or not
security holders are entitled to any redemption or appraisal rights,
and if so, a summary of the redemption or appraisal rights. These
disclosures would help investors to better assess the impact of any
redemption or appraisal rights on a proposed de-SPAC transaction,
including whether the existence of such rights might lead some
investors to redeem their securities after voting in favor of a de-SPAC
transaction.
    The proposed disclosures could increase the compliance costs for
de-SPAC transactions. The magnitude of these costs would depend on the
amount of information that SPACs and target companies are already
disclosing in connection with de-SPAC transactions. To the extent that
registrants already disclose some of this information or have most of
this information readily available, these costs would be mitigated.
3. Fairness of the De-SPAC Transaction and Reports, Opinions,
Appraisals and Negotiations (Items 1606 and 1607)
    Proposed Item 1606(a) would 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 disclosures regarding whether
any director voted against or abstained from voting on, approval of the
de-SPAC transaction or any related financing transaction. In addition,
proposed Item 1606(b) would require a discussion of the material
factors upon which the statement as to the fairness or unfairness of
the transaction is based. Proposed Items 1606(c) through 1606(e) would
provide additional information about the de-SPAC transaction and any
related financing transaction, including whether a majority of
unaffiliated security holders is required to approve the
transaction(s), the involvement of any unaffiliated representative
acting on behalf of unaffiliated shareholders, and whether the
transaction(s) were approved by a majority of directors of the SPAC who
are not employees of the SPAC. These proposed rules could allow
investors to better evaluate potential conflicts of interest and
misaligned incentives in connection with the decision to proceed with a
de-SPAC transaction, which in turn would assist them in assessing the
fairness of a particular de-SPAC transaction and any related financing
transaction to unaffiliated security holders.\491\
---------------------------------------------------------------------------

    \491\ See supra Sections II.F.2 and II.F.3 for additional
information about the regulatory baseline.
---------------------------------------------------------------------------

    As discussed in the baseline, SPACs rarely report the use of a
fairness opinion when evaluations of prospective target are disclosed
in de-SPAC-related filings.\492\ A recent review of de-SPAC
transactions in 2021 reported that approximately 85% did not disclose
that a fairness opinion was obtained in connection with a de-SPAC
transaction.\493\ To the extent that the proposed required disclosures
with respect to the fairness or unfairness of the proposed business
combination would increase the use of fairness opinions, the cost of
obtaining such services would present a new cost to the transaction
that would likely be passed along to shareholders. The average costs
for fairness opinions obtained by SPAC acquirers where such information
was presented in an itemized format in SEC filings was approximately
$270,000.00.\494\
---------------------------------------------------------------------------

    \492\ See supra Section IX.B.2.e.
    \493\ See Levitt, Jacob, Fain, Marcogliese, Tiger, & Basham,
supra note 416.
    \494\ As calculated over the observations in the baseline sample
(reference first table in de-SPAC baseline (or its footnotes)) where
data is available in the Dealogic M&A module or SDC Platinum
database.
---------------------------------------------------------------------------

    Thus, SPACs may incur additional costs associated with proposed
Item 1606(a) to the extent that, in response to this proposed item,
SPACs newly seek to obtain fairness opinions. In addition, there is
some potential for indirect costs to SPACs if they respond by providing
for approval by unaffiliated security holders or directors, or retain
an unaffiliated representative to act on behalf of unaffiliated
security holders for purposes of negotiating the terms of a de-SPAC
transaction of any related financing transaction. However, some costs
to collecting or producing the newly required disclosures may be
mitigated by other components of the regulatory baseline, which in this
case includes the requirements imposed by self-regulatory organizations
such a listing standards and FINRA rules.\495\
---------------------------------------------------------------------------

    \495\ For example, see existing FINRA Rule 5150 requirements for
disclosures required of a broker-dealer when providing a fairness
opinion in the role of financial advisor.
---------------------------------------------------------------------------

    In particular, if the SPAC obtained its fairness opinion from a
FINRA member, some of the disclosures responsive to proposed Item
1606(a) may already be prepared and provided to the SPAC because of
existing FINRA requirements. Specifically, FINRA Rule 5150 requires its
members (i.e., broker-dealers or underwriters) to provide specified
disclosures in a fairness opinion if it knows, or has reason to know,
that the opinion will be provided to shareholders.\496\ Some of the
information that is required to be disclosed includes the following:
(1) Whether the FINRA member will receive any additional significant
payment or compensation contingent on the completion of the merger
transaction; \497\ (2) if the FINRA member independently verified
information provided by the company requesting the opinion, a
description of the information that was verified; \498\ and (3) whether
or not the fairness opinion addresses the fairness of the compensation
to be received by the company's officers, directors or employees
relative to the compensation to the public shareholders of the
company.\499\
---------------------------------------------------------------------------

    \496\ Id.
    \497\ FINRA Rule 5150(a)(2).
    \498\ FINRA Rule 5150(a)(4).
    \499\ FINRA Rule 5150(a)(6).
---------------------------------------------------------------------------

    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. Proposed Item 1607(c) would require any such report,
opinion, or appraisal to be filed as an exhibit 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. In addition,
under proposed Item 1607(b), investors would receive information
regarding, among

other things, the outside party, including its qualifications and
certain material relationships with the SPAC, its sponsors and their
affiliates. We expect that these disclosures would benefit investors by
providing relevant information about the fairness of a de-SPAC
transaction and any related financing transaction. In addition, by
providing more information to investors, these disclosures may lead to
improved market participation, liquidity, and price efficiency. We
expect that these disclosures would increase the costs associated with
the de-SPAC transaction. However, those costs should be mitigated
because the disclosure requirement does not require preparation of
additional reports, appraisals and opinions, rather, it requires
disclosure of documents that were obtained by management.
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 clarify 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.\500\ For example, proposed Item 1608 would
clarify that SPACs that file a Schedule TO for a redemption 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.
---------------------------------------------------------------------------

    \500\ See supra Section II.F.4
---------------------------------------------------------------------------

    We expect that both the benefits and costs associated with this
proposal to present modest changes from current practice, if any,
because, historically, relatively few de-SPAC transactions have
involved the filing of a Schedule TO alone and because, due to the
staff position, most of the proposed disclosures are currently already
provided. Between 2000 and 2021, of the approximately 575 registrants
that filed a proxy statement on Schedule 14A, an information statement
on Schedule 14C, a Schedule TO, or a registration statement on Form S-4
or F-4 that could relate to a de-SPAC transaction, a small portion of
those registrants (approximately 7.1% or 41) filed a Schedule TO.\501\
A smaller portion of these Schedule TO filings (approximately 20% or 8)
occurred alone (i.e., without the concurrent filing of a proxy
statement, information statement, or registration statement that would
provide additional disclosures regarding the de-SPAC transaction) (see
Figure 8). However, given that the staff has historically expressed the
view that a Schedule TO should include the same information about the
target company that would be required in a Schedule 14A, 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, the proposed rule is unlikely to result in a meaningful
difference in the nature or amount of information provided by
registrants.\502\
---------------------------------------------------------------------------

    \501\ Staff review of SPACs that conducted an IPO between 2000
and 2021 and subsequently filed any type of potential de-SPAC
transaction related filing (SC TO, SC13E4F, PRE 14A, PRE 14C,
DEFA14A, DEFA14C, DEFM14A, DEFM 14C, DEF 14A, DEF 14C, S-4, or F-4)
found that only approximately 7.1% of such SPACs, by unique CIK,
filed a Schedule TO. It appears that the historic use of a Schedule
TO in connection with a de-SPAC transaction corresponds to a period
when share redemption was more limited and de-SPAC transactions were
more commonly targeted by hedge funds engaged in `greenmailing.'
See, e.g., Lucian Bebchuk, Alon Brav, Wei Jiang, Thomas Keusch,
Dancing with Activists, 137 J. Fin. Econ. 1 (2020) (describing
`greenmail' as an event in which a company targeted by an activist
shareholder such as a hedge fund, purchases shares from the activist
at a premium to the market price). In the SPAC context, the
activists were most commonly hedge funds that would threaten to
prevent an acquisition by voting against a de-SPAC transaction and
redeeming a large enough block of shares to cross the SPAC's
redemption threshold if the SPAC refused to buy back its shares at a
premium. See, e.g., Leerskov, supra note 420 (``Many of these funds
are arbitrage investors . . . turning a profit by voting against an
acquisition, therefore recouping their initial investment while
holding the associated warrants against any possible upside from a
successful acquisition. Additionally, more investors began
threatening to veto potential SPAC mergers in 2006 and 2007 unless
they received deal sweeteners. Mostly, investors asked to be bought
out at a premium in exchange for their votes in favor of a
merger.''). This activity decreased, as did the use of a Schedule TO
in connection with a de-SPAC transaction, as SPAC redemption
thresholds increased in the early 2000s from approximately 20% on
average to approximately 80% on average. See, e.g., Milan Lakicevic,
Yochana Shachmrove, & Milos Vulanovic, Institutional Changes of
Specified Purpose Acquisition Companies (SPACs), 28 N. Am. J. Econ.
& Fin. 149 (2014) (20.47% to 84.24% from 2003-2006 to 2009-2012);
Rodrigues, supra note 67 (20.0% to 74.4% from 2003-2011); Vulanovic,
supra note 414 (20% to 81.52% from 2003-2013). As such, historic use
may be a poor predictor for estimates of future usage.
    \502\ See supra note 103.

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

[GRAPHIC] [TIFF OMITTED] TP13MY22.013

    Finally, of the registrants that filed only a Schedule TO, 75% were
foreign private issuers that originally registered an offering of
shares via a Form F-1, while the remaining 25% were registrants
incorporated or organized in a foreign jurisdiction that originally
registered an offering of shares using a Form S-1. It is possible that,
holding all else constant, any benefits or costs accruing as the result
of proposed Item 1608 would do so to SPACs that are similar to these
entities that may either not hold a shareholder vote or else hold a
vote that is not subject to federal proxy rules. However, it is unclear
what proportion of future SPACs would be of this type, since in the
event proposed Rule 145a is also adopted, the number of SPACs may be
less likely to file Schedules TO.
5. Enhanced Projections Disclosure Requirements (Item 1609)
    Proposed Item 1609 complements the proposed amendments to Item
10(b) of Regulation S-K,\503\ and pertains to projections made in
connection with an anticipated de-SPAC transaction.\504\ Proposed Item
1609 would require a registrant to disclose who prepared the
projections and the purposes for which the projections were prepared.
It would also require a discussion of all material bases of the
disclosed projections and all material assumptions underlying
projections, and any factors that may impact such assumptions.
Furthermore, the proposed rule would require the board or management of
the SPAC or target company to confirm at the date of the filing whether
the projections reflect their current view, and if not, the purpose of
disclosing the projections and the reasons for any continued reliance
by management or the board on the projections.
---------------------------------------------------------------------------

    \503\ See supra Section V.B.1; infra Section IX.C.4.
    \504\ See supra Section III.D & Section VI. For additional
information about the regulatory baseline for Item 1609, see supra
Section V.B.2.
---------------------------------------------------------------------------

    In general, we expect that proposed Item 1609 would allow investors
to better evaluate and use projections in connection with de-SPAC
transactions. The required disclosure of preparers' identity and
purposes for which the projections were prepared would help reveal
potential conflicts of interest and the qualifications of the
preparers' projection ability. The requirement to discuss material
assumptions and underlying rationales would also inform investors about
the verifiability of the projections. The proposed requirement to
disclose whether the projections still reflect the views of management
or the board should provide investors with further insight into the
reliability and utility of those projections. Overall, the proposed
disclosure under Item 1609 should benefit investors by helping them
assess whether and to what extent they should rely on projections used
in a de-SPAC transaction in making voting, redemption, and investment
decisions.\505\
---------------------------------------------------------------------------

    \505\ D. Eric Hirst, Lisa Koonce, & Shankar Venkatram, How
Disaggregation Enhances the Credibility of Management Earnings
Forecasts, 45 J. Acct. Research 811 (2007), experimentally show that
disaggregated forecasts, which include forecasts of individual
income statement line items, e.g., revenue and costs, are more
credible to investors than aggregated forecasts that provide only
the bottom-line earnings forecasts. Furthermore, Zahn Bozanic,
Darren T. Roulston, & Andrew Van Buskirk, Management Earnings
Forecasts and Other Forward-looking Statements, 65 J. Acct. & Econ.
1 (2018), demonstrate that non-earnings-forecast forward-looking
statements can generate significant responses from both investors
and analysts. Their findings indicate that the forward-looking
statements, even statements unrelated to earnings, can provide
value-relevant information to the capital market participants.
---------------------------------------------------------------------------

    Proposed Item 1609, by requiring projection providers to identify
themselves and related parties to confirm their reliance on the
projections, would likely also increase the preparers' sense of
accountability, and potentially increase their incentives to make
reliable projections.\506\ In turn,

investors could benefit from potentially improved projections in their
investment decisions. The enhanced disclosure transparency about
projections and the plausible improved projection accuracy would, in
turn, facilitate more efficient allocation of capital.\507\
---------------------------------------------------------------------------

    \506\ Auditing literature provides evidence that audit quality
increases and misreporting decreases when engaging partners are
required to sign the audit report or when their identities are
disclosed. Joseph V. Carcello & Chan Li, Costs and Benefits of
Requiring an Engagement Partner Signature: Recent Experience in the
United Kingdom, 88 Acct. Rev. 1511 (2013), document evidence that
audit quality and audit fees increase in the first year when
engaging partners are required to sign the audit report in the
United Kingdom. Allen D. Blay, Eric S. Gooden, Mark J. Mellon, &
Douglas E. Stevens, Can Social Norm Activation Improve Audit
Quality? Evidence from an Experimental Audit Market, 156 J. Bus.
Ethics 513 (2019), experimentally demonstrate that PCAOB's
requirement of disclosing engaging partners' identity can reduce
misreporting.
    \507\ See Amy P. Hutton, Gregory S. Miller, & Gregory S.
Skinner, The Role of Supplementary Statements with Management
Earnings Forecasts, 41 J. Acct. Research 867, 867-890 (2003). They
find that good news earnings forecasts are positively associated
with investor reaction (i.e., have information content) only when
the forecasts are accompanied by verifiable supplementary forward-
looking disclosures.
---------------------------------------------------------------------------

    We do not expect the direct compliance costs to be substantial
since companies should have the required information (e.g., the party
that provides the projections and the assumptions of growth rates or
discount multiples) readily available at their disposal. To the extent
that proposed Item 1609 increases contextual information related to
SPAC projections, investors would incur incremental costs in processing
the added information.\508\ Potentially heightened accountability under
proposed Item 1609 may also dampen the willingness of the managements
and boards of SPACs and target companies to provide projections, which
may decrease the amount of forward-looking information made available
to investors and thus increases valuation uncertainty. To the extent
that proposed Item 1609 dampens the willingness to provide projections,
it would likely reduce projections without reasonable bases more than
those with reasonable bases. Thus, the incremental costs of proposed
Item 1609 would likely be justified by the incremental benefit of
increased investor protection against materially misleading or
speculative projections in connection with de-SPAC transactions.
---------------------------------------------------------------------------

    \508\ See Elizabeth Blankespoor, Ed deHaan, & Iv[aacute]n
Marinovic, Disclosure Processing Costs, Investors' Information
Choice, and Equity Market Outcomes: A review, 70 J. Acct. & Econ. 1,
1-46 (2020). They suggest that it is costly to process firms'
disclosures, even for the most sophisticated investors, and they
conceptualize processing costs as awareness cost, acquisition cost,
and integration cost.
---------------------------------------------------------------------------

6. Structured Data Requirement
    As with the proposed specialized disclosure requirements applicable
to SPACs at the IPO stage as discussed above, proposed Item 1610 would
also require that the proposed disclosures prepared in compliance with
respective sections of Regulation S-K Subpart 1600 applicable to de-
SPAC transactions be tagged in Inline XBRL.\509\ For the same reasons
discussed above, we expect that the tagging requirement for de-SPAC
transaction disclosures would augment the informational benefits to
investors resulting from the proposed new disclosure requirements.\510\
For example, tagging the disclosure of terms and amounts of the
compensation received or to be received by a SPAC's sponsor and its
affiliates in connection with a de-SPAC transaction, and the potential
dilutive effects related to such compensation, could allow investors to
make quantitative and qualitative comparisons to similar disclosure in
other de-SPAC transactions or make it easier to compare these
disclosures--including numeric values--to those presented at the SPAC's
IPO stage.\511\
---------------------------------------------------------------------------

    \509\ See supra Section II.G.
    \510\ See supra Section IX.C.1.a.5.
    \511\ See proposed Item 1604(a)(3) of Regulation S-K.
---------------------------------------------------------------------------

    Unlike the proposed Inline XBRL tagging requirement for SPAC
specialized disclosures which would apply to registration statements
for initial public offerings, the proposed tagging requirement for de-
SPAC transaction disclosures would not impose a tagging obligation on
registrants that were not previously subject to tagging obligations,
because SPACs are already subject to Inline XBRL tagging obligations as
of their first periodic report on Form 10-Q, Form 20-F, or Form 40-
F.\512\ As such, the Inline XBRL tagging requirement for de-SPAC
transaction disclosures would be limited to the cost of selecting,
applying, and reviewing Inline XBRL tags to a new set of disclosures,
or paying a third party to do so. As previously noted, there is some
indication that these costs have trended downward in the years since
the initial adoption of XBRL requirements for SEC filings.\513\
---------------------------------------------------------------------------

    \512\ See supra note 110 and accompanying text.
    \513\ See supra note 481 and accompanying text.
---------------------------------------------------------------------------

7. Minimum Dissemination Period
    The proposed minimum dissemination period for prospectuses and
proxy and information statements filed in connection with de-SPAC
transactions is designed to ensure that SPAC shareholders have adequate
time to review the information disclosed therein before making voting,
investment and redemption decisions. To the extent that this would
provide investors with more time than they would otherwise have because
the SPAC's jurisdiction of incorporation or organization does not
provide for a minimum dissemination period before a shareholder meeting
or action by consent, or has a minimum dissemination period of fewer
than 20 calendar days, this may allow them to make more informed
choices. Relative to the current baseline, this proposal is likely to
provide its greatest potential benefits to SPAC shareholders in de-SPAC
transactions involving SPACs that do not incorporate by reference any
information about the SPAC or the target, and are not incorporated in
Delaware, or do not file a Schedule TO.\514\ While Delaware General
Corporation Law only requires that due notice of an upcoming meeting be
provided 20 days prior to the event, and does not mandate a minimum
period for dissemination of proxy statements or joint prospectus/proxy
statements required by the federal securities laws,\515\ we believe,
based on staff experience reviewing filings, that the notices of the
meeting mandated by Delaware law are often included in the proxy
statement or joint prospectus/proxy statements, with many companies
then delivering the proxy statements or joint prospectus/proxy
statements in time to meet the Delaware notice requirement.\516\
---------------------------------------------------------------------------

    \514\ Because a Schedule TO filed in connection with a de-SPAC
transaction must already be filed 20 business days in advance of the
close of the redemption period, the proposed 20 calendar day minimum
dissemination period would not have an incremental effect.
Similarly, there would be no incremental effect on the dissemination
of Forms S-4 or F-4 in connection with a de-SPAC transaction if the
registration incorporates any information about the registrant or
its target by reference because a similar 20 business day
requirement applies. See supra note 127. Further, in the event that
proposed Rule 145a is adopted, we anticipate the majority of de-SPAC
transactions would be accompanied by an S-4 or F-4 in which
incorporation by reference is highly likely to occur.
    \515\ See supra Section II.F.5
    \516\ See supra Section III.B for more information about the
regulatory baseline.
---------------------------------------------------------------------------

    While we recognize that the additional time we propose to provide
to shareholders for review of de-SPAC transaction related disclosures
may in effect shorten the time a SPAC may otherwise have to pursue a
business combination within its limited time before dissolution, the
incremental costs of formalizing a minimum review period should in most
cases be low based on the existing requirements and practices discussed
above and market-specific incentives. For example, as retail ownership
of its shares increases, a SPAC may face increasing pressure to
communicate with its investors earlier, more extensively, and with
greater frequency to ensure that a quorum will be present at the
shareholder meeting to approve a de-SPAC transaction and that a
sufficiently high number of votes are cast in favor of the transaction.

    Notwithstanding this, we acknowledge that any costs associated with
this proposal would likely increase as the dissolution date approaches,
because, under such conditions, unique logistical costs like expedited
printing and delivery would accrue. It is plausible that a de-SPAC
transaction would not be able to proceed due to these proposed timing
requirements, which could result in negative consequences (e.g.,
forgone returns) for sponsors and SPAC shareholders. Given the
significance of a de-SPAC transaction to SPACs and targets, however, we
think it is more likely that SPACs and targets will account for the
proposed dissemination period in establishing a timeline for their
business combination. Another potential cost of the minimum
dissemination period is that it could cause SPACs to enter into sub-
optimal deals earlier in the process to avoid the risk of failing to
acquire a company later in the window. However, given the state of
current market practices as discussed above, we expect the incremental
costs on this aspect of deal-formation uniquely attributable to the
proposed minimum dissemination period are minimal.
8. Aligning Non-Financial Disclosures in De-SPAC Disclosure Documents
    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, the registration statement or
schedule filed in connection with the de-SPAC must include disclosures
relating to the target company that would be provided in a Form S-1 or
F-1 for an initial public offering.\517\ Currently, this information is
required to be included in a Form 8-K with Form 10 information that
must be filed within 4 business days after the completion of a de-SPAC
transaction. In contrast, the proposed disclosure requirements would
require that target company information be provided to shareholders
before they make voting, investment, or redemption decisions in
connection with the de-SPAC transaction. This could reduce potential
opportunities to engage in regulatory arbitrage, minimize differences
in informational content, timing, and presentation, and potentially
provide investors with more information about the target company when
making such decisions. The benefits of such alignment to unaffiliated
investors would depend on the ability of investors to otherwise procure
such information prior to the filing of the Form 8-K with Form 10
information.
---------------------------------------------------------------------------

    \517\ See supra Section III A.
---------------------------------------------------------------------------

    We expect that a SPAC or its sponsors would absorb the related
costs if the proposed additional information necessitates earlier or
increased information production and dissemination, although a portion
of these costs may accrue to non-redeeming shareholders if costs are
paid from the trust or escrow account of the SPAC. Generally, we expect
that such costs will be low to the extent that SPACs disclose this
information about the target company prior to the completion of the de-
SPAC transaction; however, we recognize that some items may be more
costly to disclose earlier than others.
    The costs and benefits of these proposed disclosures depend on the
baseline level of information available that is required to be
disclosed in the Form 8-K with Form 10 information that is currently
disclosed in advance of the filing of the Form 8-K. To assess the
extent to which registrants may already disclose Form 10 information
about the target company in a different Commission filing before filing
the Form 8-K, the staff examined the frequency and scope of
incorporation by reference in such 8-K filings, finding that 95% of the
8-K filers incorporated at least one of the required Form 10 items by
reference.\518\ Most of the Form 8-K filings that incorporated items by
reference referred to disclosures previously filed in a proxy or
information statement (88% of filers), and 46% of these filings
incorporated disclosures from a registration statement filed in
connection with the de-SPAC transaction.\519\
---------------------------------------------------------------------------

    \518\ Items 2.01(f), 5.01(a)(8), and 9.01(c) of Form 8-K each
provide that if any required disclosure under these items has been
previously reported, the registrant may, in lieu of including that
disclosure in the Form 8-K, identify the filing in which that
disclosure is included.
    \519\ Because some filers incorporate disclosure by reference
from more than one source, the total percentage of usage across
sources exceeds 100%.

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[GRAPHIC] [TIFF OMITTED] TP13MY22.014

    Figure 9 shows the information that is incorporated by reference in
the Forms 8-K filed in connection with de-SPAC transactions, as
identified by the item requirement of Regulation S-K. Disclosures
pursuant to Items 101 (description of business), Item 102 (description
of property), and Item 103 (legal proceedings) of Regulation S-K are
most commonly incorporated by reference. Less frequently incorporated
by reference are disclosures pursuant to Item 304 (changes in and
disagreements with accountants on accounting and financial disclosure),
Item 403 (security ownership of certain beneficial owners and
management, assuming the completion of the de-SPAC transaction and any
related financing transaction), and Item 701 (recent sales of
unregistered securities) of Regulation S-K.\520\ Thus, to the extent
that registrants already provide this information in the proxy
statements, information statements, registration statements, and
Schedules TO filed in connection with the de-SPAC transaction, the
benefits and costs of compliance with this proposed rule may be
mitigated.
---------------------------------------------------------------------------

    \520\ While these items are less frequently incorporated by
reference, their absence may not indicate missing information. For
example, filers may not have provided Item 304 or Item 701
disclosures in earlier filings because there were no changes in and
disagreements with accountants or recent sales of unregistered
securities to report. When disclosures are presented in the Form 8-
K, Item 304 disclosures are incorporated by reference in
approximately 32% of filings and newly disclosed in 68% of filings.
Similarly, for Item 701 disclosures, the proportions of Forms 8-K
that incorporate by reference and include new disclosure, are
respectively approximately 35% and 65%.
---------------------------------------------------------------------------

    As a result of this proposed rule, investors may obtain disclosure
required by Item 403 of Regulation S-K regarding the target company's
beneficial ownership structure before making a voting, redemption, or
investment decision in connection with the de-SPAC transaction, which
could, in some cases, represent a meaningful change to the
informational environment in advance of the completion of a de-SPAC
transaction, particularly when this information may be critical to an
investor's ability to evaluate potential conflicts of interest. In
addition, the disclosures may allow investors to identify potential
misalignments of interests between non-redeeming shareholders and other
parties to the de-SPAC transaction. This proposed requirement therefore
may provide increased investor protections and generally improve the
information environment for investors to make a voting, redemption, or
investment decision in connection with the de-SPAC transaction.
    Because a SPAC and its intended target should have access to this
information in advance of a de-SPAC transaction, we do not anticipate
significant costs to preparing such information and incorporating it
into disclosures disseminated at an earlier stage in the de-SPAC
transaction process.
    We believe that the proposed additional information is unlikely to
impose significant changes to the information that a SPAC would
otherwise disclose or the costs for incremental changes relative to
current market practice. To the extent that these requirements may lead
to the production and dissemination of information that would not be
disclosed until after the completion of the de-SPAC transaction, the
availability of this information in the registration statement or
schedule filed in connection with the de-SPAC transaction may improve
investor decision-making.
9. Re-Determination of Smaller Reporting Company Status
    The main benefit from the proposed amendment to re-determine
smaller reporting company status of a post-

business combination company following a de-SPAC transaction would be
to reduce regulatory arbitrage by requiring a target company going
public through a de-SPAC transaction to provide similar information to
investors as a comparable company conducting a traditional initial
public offering.\521\ For larger target companies, this would require
providing more comprehensive and more detailed disclosure to investors
soon after the de-SPAC transaction. Overall, we expect this amendment
to increase investor protection by allowing investors to assess the
combined company more thoroughly and sooner. Large target companies may
also reap the benefit of reduced cost of capital insofar as providing
additional historical periods of financial statement data might further
reduce information asymmetries or otherwise improve price
formation.\522\
---------------------------------------------------------------------------

    \521\ See infra Section III.C for more information on the
regulatory baseline.
    \522\ See supra note 368.
---------------------------------------------------------------------------

    The proposed amendment would increase compliance costs compared to
the current baseline for large target companies that, after combining
with the SPAC, do not meet the smaller reporting company definition as
of the proposed new re-determination date. Those companies may need to
provide more detailed disclosure to investors soon after the de-SPAC
transaction. We note, however, that some of these companies that meet
the definition of emerging growth company could avail themselves of the
accommodations associated with EGC reporting requirements, which could
mitigate some of the disclosure costs required by the proposed
amendment. We do not expect the proposed amendment to impose any costs
on post-business combination companies when, at the time of the de-SPAC
transaction, neither the SPAC nor the target company meet the smaller
reporting company definition.
2. Liability-Related Proposals
    In addition to the proposals discussed above pertaining to
disclosures, we are proposing to clarify and amend the existing
liability framework in an effort to resolve certain ambiguities and
protect investors. In this section, we discuss the potential costs and
benefits of the proposed amendment to 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. In addition, we discuss the proposed amendment
to the definition of ``blank check company'' for purposes of the PSLRA
to remove the ``penny stock'' condition, and proposed Rule 140a that
would clarify the underwriter status of SPAC IPO underwriters in
registered de-SPAC transactions.
a. Private Operating Company as Co-Registrant to Form S-4 and Form F-4
    When a de-SPAC transaction is registered on a Form S-4 or F-4, the
party that files a registration statement currently depends on the
structure of the merger or acquisition. While the result of any de-SPAC
transaction involving a registered offering would be that the target
company becomes a public reporting company, the liability it and its
officers and directors face for disclosures in the registration
statement that inform investors' decisions regarding the de-SPAC
transaction is largely a function of how the transaction is structured.
For example, when the de-SPAC transaction is structured such that the
SPAC registers the offering of its shares to target shareholders and
the target merges into the SPAC, the SPAC would typically sign the
registration statement as the registrant and the SPAC and certain
officers and directors of the SPAC that sign the registration statement
would incur liability for disclosures in the registration statement.
Alternatively, a de-SPAC transaction can be structured so that the
target registers the offering of its shares to SPAC shareholders, such
that the target would typically be the registrant, and the target and
certain officers and directors of the target would sign the
registration statement and incur liability for disclosures in the
registration statement.\523\
---------------------------------------------------------------------------

    \523\ See supra Section III.C for more information about the
regulatory baseline.
---------------------------------------------------------------------------

    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 a
registration statement is filed by the SPAC in connection with a de-
SPAC transaction. As a result, both the SPAC and the target, and
certain officers and directors of the SPAC and target, would be
required to sign the registration statement and incur potential
liability for statements and omissions therein. Treating the target as
a co-registrant in this situation is intended to provide similar
investor protections as if the target had entered the public market
through a traditional IPO (or a de-SPAC transaction structure in which
a Securities Act registration statement is filed by the target, rather
than the SPAC).
    The liability associated with being a co-registrant could
incentivize the target company's directors and management to exercise
greater care in the preparation and presentation of material
information about the company, its financial condition, and its future
prospects; perform more robust due diligence with respect to materials
it obtains from third-party sources in connection with the de-SPAC
transaction; and more closely monitor disclosures in the registration
statement. Thus, the proposed requirement could improve the reliability
of the disclosure provided to investors about the target company,
reduce the instances of misstatements and omissions, and generally
improve investors' decision making with regard to these transactions.
    The proposed co-registrant requirement would increase compliance
costs for targets compared to the baseline in cases where the target
would not already have been the registrant at the time of the de-SPAC
transaction. Under the proposed rule, a target and its signing officers
and directors would be liable to investors for the accuracy of the
disclosures in such a registration statement. This increase in
potential liability from the current baseline for targets and their
signing officers and directors could impact the decision of a private
company to go public via a de-SPAC transaction. It is possible that,
due to some of the ways the proposed rules would alter differences,
actual or perceived, between the disclosure requirements and
liabilities associated with becoming a public reporting company via a
traditional IPO versus being acquired by a SPAC, some targets could
reconsider a traditional initial public offering instead. It is also
possible that other potential targets may determine that the liability
costs (including, but not limited to, increased litigation risk and the
potential need for new insurance coverage or higher premiums for
existing coverage) associated with being a co-registrant would be too
high and elect not to go public. Given the multifaceted benefits of
being a public company, however, it is unclear that the costs of being
a co-registrant would be the determining factor that would discourage a
target from going public through a de-SPAC transaction or outweigh
other factors that typically drive the going public decision such as
liquidity for company insiders and the lower cost of capital.
b. PSLRA Safe Harbor
    Defining the term ``blank check company'' for purposes of the PSLRA
as proposed, would make the PSLRA safe harbor unavailable for forward-
looking

statements made in connection with an offering by a blank check company
that is not issuing ``penny stock'' as defined in Exchange Act Rule
3a51-1, including an offering of securities by a SPAC in connection
with a de-SPAC transaction.\524\ As noted above, many commentators have
raised concerns about the use of forward-looking statements that they
believe to be unreasonable in de-SPAC transactions.\525\ By providing
greater clarity regarding the availability of the PSLRA safe harbor,
the proposed amendment should strengthen the incentives for a blank
check company that is not issuing penny stock, including a SPAC, to
avoid potentially unreasonable and potentially misleading forward-
looking statements, and to expend more effort or care in the
preparation and review of forward-looking statements.\526\ For example,
if less time and effort is required to produce meaningful cautionary
statements than to produce careful and robust forward-looking
statements, absent the proposed changes, market participants may have
an incentive to underinvest in the production of reliable forward-
looking statements. By increasing the potential costs to companies of
making forward-looking statements, the proposed changes are expected to
increase the incentives for blank check companies that are not issuing
penny stock to exercise more care in making any such statements.
Similar investor protection benefits may apply to registered securities
offerings of non-SPAC registrants that would meet the current
definition of a ``blank check company'' but for the ``penny stock''
condition.
---------------------------------------------------------------------------

    \524\ See supra Section IX.B.3. See also supra Section III.E for
more information about the regulatory baseline.
    \525\ See supra note 33.
    \526\ See supra note 279.
---------------------------------------------------------------------------

    The net economic effect of this proposed amendment, however, would
depend on, among other things: (1) The extent to which practitioners
currently are willing to advise their clients that the PSLRA safe
harbor is available for forward-looking statements made by blank check
companies that are not issuing penny stock that otherwise meet the
conditions of the safe harbor; (2) the extent to which the market does
not already discount the informational value of forward-looking
statements; and (3) the costs associated with valuable information that
may no longer be provided due to any perceived increase in the risk of
potential litigation.
    While 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 made in connection with
offerings by SPACs or other blank check companies that are not penny
stock issuers, it could impose costs on any such companies that
currently attempt to rely upon the safe harbor to communicate value-
relevant information to investors through forward-looking statements.
For such companies, this proposed amendment could increase the
perceived risk of litigation and dissuade them from including such
forward-looking information. This information could be valuable in
offerings involving business combinations with private operating
companies given that less historical information regarding private
companies is likely otherwise available.\527\ In addition, we note
that, while there is no prohibition on the use of forward-looking
statements in connection with an initial public offering, the fact that
the express terms of the PSLRA provide that the safe harbor is
unavailable for such statements, and the concomitant heightened
litigation risks associated with providing forward-looking statements,
may have created a chilling effect given that, in staff experience,
projections are almost never provided to the public in connection with
an IPO. The proposed amendments similarly may lead to fewer forward-
looking statements in connection with offerings by SPACs or other blank
check companies that are not penny stock issuers. This effect would
likely be stronger for blank check companies affected by the proposal
that are considering whether to include forward-looking statements
about younger target companies with fewer observable periods of profit
historically, as most of their value typically comes in the form of
future growth options. Such blank check companies that are not penny
stock issuers might otherwise be the most likely to use forward-looking
statements to communicate the potential for future value creation to
investors at the time of a business combination.
---------------------------------------------------------------------------

    \527\ See Vijay Jog & Bruce J. McConomy, 30 J. Bus. Fin. &
Adver. 125 (2003) (finding that the voluntary provision of earnings
forecasts in connection with Canadian IPOs (subject to a two-year
horizon maximum and accompanied by a statement of opinion by a
public accountant) had incremental value beyond other methods of
signaling firm quality such as the use of a highly reputable
underwriter or auditor, including ``a favorable and noticeable
impact on the degree of underpricing and the post-issue return
performance'' and that benefits are most pronounced for ``small
firms and those making conservative forecasts.'').
---------------------------------------------------------------------------

    Additionally, if the proposed amendment reduces the amount of
potentially relevant information presented to investors in connection
with a de-SPAC transaction or other business combination involving a
blank check company that is not a penny stock issuer due to perceived
litigation risk, this may negatively affect investors' ability to
accurately value these companies and allocate their investments
accordingly. For blank check companies that are SPACs, such costs could
be mitigated if some of the other amendments that we are concurrently
proposing are adopted and improve the flow of relevant information to
investors at the de-SPAC transaction stage. Similar costs may also be
mitigated for investors in non-SPAC blank check companies not issuing
penny stock that would be subject to proposed Rule 145a as reporting
shell-companies.\528\ Because reporting shell company shareholders may,
under proposed Rule 145a, receive registration statement disclosures in
connection with a reporting shell company's merger activity, the
proposed rule could result in incremental information about the target
company being provided to reporting shell company shareholders, to the
extent that those investors would not otherwise receive such
information.
---------------------------------------------------------------------------

    \528\ See supra Section IX.B.4 and note 445.
---------------------------------------------------------------------------

c. Underwriter Status and Liability in Securities Transactions
    Proposed Rule 140a would clarify that a person who has acted as an
underwriter in a SPAC IPO and participates in the distribution by
taking steps to facilitate the de-SPAC transaction, or any related
financing transaction, 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. The statutory definition of an ``underwriter'' under
the Securities Act is broad and does not include an element of intent;
as a result, a person could perform functions that would cause the
person to meet the statutory definition of an ``underwriter'' within
the meaning of Section 2(a)(11) of the Securities Act without
appreciating that they are doing so. This may in turn lead to both
deal-specific and market-wide economic inefficiencies such as
underinvestment in diligence or screening. For example, an investment
banker, or financial

advisor providing services in connection with a de-SPAC transaction may
not adequately fulfill their role as a gatekeeper for disclosures in a
de-SPAC transaction registration statement if they are unaware that
they are an underwriter and face potential liability as such.\529\
---------------------------------------------------------------------------

    \529\ See supra Section III.E.3 for more regulatory baseline
information.
---------------------------------------------------------------------------

    A key benefit from proposed Rule 140a would be the incentives that
it would create for SPAC IPO underwriters that may be subject to
Section 11 liability for registered de-SPAC transactions to perform due
diligence to ensure the accuracy of the disclosures in these
transactions. Improved due diligence would enhance investor protection
by allowing investors to better evaluate the target company and, in
turn, potentially make better investment decisions. We expect that
clarifying the application of underwriter liability, combined with the
disclosures of proposed Subpart 1600 of Regulation S-K, could
significantly improve the ability of SPAC shareholders to evaluate the
target company. This may allow these investors to better price the
securities of the combined company and decrease the likelihood that
they overvalue the target company under consideration. Additionally,
more clearly defined Section 11 liability may enhance shareholders'
ability to pursue a remedy, if needed.
    Potential Section 11 liability may deter a SPAC IPO underwriter
from participating in the de-SPAC transaction or any related financing
transactions by increasing their costs. The extent to which proposed
Rule 140a would impose new costs on SPAC IPO underwriters would depend
heavily on the extent to which they do not already perform due
diligence that would be sufficient to perfect such a defense in
connection with the de-SPAC transaction or a related financing
transaction. If SPAC IPO underwriters decide not to provide services in
connection with the de-SPAC transaction or a related financing
transaction due to proposed Rule 140a, the SPAC may incur greater
monetary and non-monetary costs related to identifying, negotiating
with, and hiring financial advisors. Also, because a significant
portion of SPAC IPO underwriting fees (typically 3.5% of IPO proceeds)
is usually deferred until, and conditioned upon, the completion of the
de-SPAC transaction, SPAC IPO underwriters that decide not to
participate in the de-SPAC transaction as a result of this proposal may
revise their compensation agreements so that they would be paid only at
the time of the SPAC initial public offering. Such a change in the
timing of compensation may increase the up-front transaction costs of
the initial public offering for SPAC investors and sponsors. It is
possible, however, that underwriter compensation may decrease if
underwriters would not be expected to provide any services in
connection with the de-SPAC transaction or any related financing
transaction.
    Alternatively, proposed Rule 140a may cause SPAC IPO underwriters
to demand higher compensation for their participation in the de-SPAC
transaction or any related financing transaction given the potential
exposure to Section 11 liability. The fees that SPAC IPO underwriters
currently charge for their efforts in connection with a SPAC initial
public offering generally range between 5% and 5.5% of the initial
public offering proceeds, with potentially additional merger advising
fees charged at the de-SPAC transaction stage. It is difficult to
predict whether these fees would increase to incentivize SPAC
underwriters to participate in de-SPAC transactions or the amount of
any such increase. For comparison, the underwriter fees in the
traditional initial public offering process, where underwriters have
Section 11 liability, are, on average, 7% of the IPO proceeds.\530\ It
is possible, however, that SPAC IPO underwriters could demand higher
fees for potentially bearing Section 11 liability in connection with
the de-SPAC transaction or any related financing transaction. Any
increase in the compensation of SPAC IPO underwriters would increase
the transaction costs to investors and sponsors, potentially lowering
their returns on their investment.
---------------------------------------------------------------------------

    \530\ See, e.g., Hsuan-Chi Chen & Jay Ritter, The Seven Percent
Solution, 55 J. Fin. 1105 (2000).
---------------------------------------------------------------------------

    Finally, to the extent that SPAC IPO underwriters decide not to
participate in the de-SPAC transaction or any related financing
transaction due to potential Section 11 liability, investors would not
have the protection of any due diligence that SPAC IPO underwriters may
have performed in connection with such transactions. However, if SPAC
IPO underwriters are able and willing to absorb some of the costs
associated with potential Section 11 liability (e.g., because of other
benefits, such as revenues from future repeat business with sponsors),
the potential cost increase for SPAC shareholders and sponsors may be
small.
3. Shell-Company Related Proposals
a. Proposed Rule 145a
    Proposed Rule 145a would deem any business combination of a
reporting shell company (that is not a business combination related
shell company) involving an entity that is not a shell company to
involve a sale of securities under the Securities Act to the reporting
shell company's shareholders. Proposed Rule 145a is intended to address
concerns regarding the use of reporting shell companies generally as a
means by which private unregistered companies access the U.S. capital
markets. One reason for these concerns is that reporting shell company
shareholders may not receive the Securities Act protections (including
disclosure and liability) they receive in a traditional IPO because of
transaction structure. Under the proposed rule, SPACs and other
reporting shell companies would have to register these deemed sales by
filing a Securities Act registration statement unless there is an
applicable exemption.\531\
---------------------------------------------------------------------------

    \531\ See supra Section IV.A.2 for more information about the
regulatory baseline.
---------------------------------------------------------------------------

    Proposed Rule 145a would potentially provide shareholders in a
reporting shell company, engaged in a business combination involving a
non-shell company, with more consistent Securities Act protections,
regardless of the structure used for the business combination.
Currently, if a reporting shell company buys a target by issuing its
shares as consideration for the interests of the target shareholders,
and the reporting shell company is the surviving entity, reporting
shell company investors are unlikely to receive a registration
statement in connection with the transaction. In this example, the
reporting shell company shareholders would not receive the protections
afforded by the Securities Act, including any enhanced disclosure or
liability that would be available if the transaction were registered
under the Securities Act.
    Proposed Rule 145a is intended to address potential disparities in
the types of disclosure and liability protections available to
reporting shell company shareholders depending on the transaction
structure used in a reporting shell company business combination, and
thus, is expected to bolster investor protection for reporting shell
company shareholders. This could be of particular benefit to
shareholders in reporting shell companies that may not otherwise
receive information about the intended target, or potentially even
notification that a specific business combination

will be entered into, until after the transaction has occurred.
Additionally, receipt of registration materials may provide a
beneficial nudge to reporting shell company shareholders who might
otherwise be vulnerable to inertia by calling attention to the nature
in which their investment would be transformed should they continue to
hold their securities.\532\ However, these informational benefits to
affected reporting shell company shareholders may be mitigated to the
extent that the reporting shell company is able to rely on an exemption
from registration and shareholders do not receive offering materials in
connection with the deemed sale. Because it is unclear the extent to
which reporting shell company shareholders may be able to anticipate
which disclosure and liability protections will be available to them at
the time of a business combination (as a function of whether an
exemption would be available), the extent to which proposed Rule 145a
might improve price or capital formation is also unclear.
---------------------------------------------------------------------------

    \532\ Investor inertia refers to the tendency to avoid trading.
See, e.g., Laurent E. Calvert, John Y. Campbell, & Paolo Sodini,
Fight or Flight? Portfolio Rebalancing by Individual Investors, 124
Q. J. Econ. 301 (2009) (``observing little aggregate rebalancing in
the financial portfolio of participants'').
---------------------------------------------------------------------------

    As a result of proposed Rule 145a, reporting shell companies,
including SPACs, would be required to register the deemed sale of their
securities to their shareholders at the time of certain business
combinations, unless there is an available exemption. Costs would
increase to the extent that a business combination is not already
structured in a manner that otherwise would have been considered a sale
to the reporting shell company shareholders under the securities laws.
This would include all costs associated with conducting a registered
offering of securities, such as preparing a Securities Act registration
statement, if no exemption is available. The proposed rule may also
introduce opportunity costs in the form of transactions that might
otherwise have occurred, but would be disincentivized under the new
requirements. For example, under current rules, a business combination
involving a reporting shell company can be structured to avoid
registration, such as through the use of cash, rather than stock, as
consideration. Because proposed Rule 145a would deem such a transaction
to involve a sale to reporting shell company shareholders that would
need to be registered unless there is an applicable exemption, affected
parties may opt not to pursue such a transaction rather than incur the
new transaction costs involved. There may also be financial-exclusion
related costs if reporting shell companies are increasingly
incentivized to pursue exemptions from registration and as a
consequence pre-emptively seek to place their securities with only
certain types of investors such as accredited investors or non-
accredited sophisticated investors.
    To the extent that this proposal would apply the strict liability
standard of Section 11 to transaction-related disclosures to which it
would not otherwise apply, we expect there to be extra costs associated
with greater care in preparation and review of any reporting shell
company registration statement.\533\ Also, there could be some costs
associated with timing issues generated by SEC staff review of any
registration statement. Some of these costs may be mitigated to the
extent that the reporting shell company or target is already preparing
disclosure documents, particularly Securities Act registration
statements, in connection with a business combination that would be
covered by proposed Rule 145a. For example, in a de-SPAC transaction,
the SPAC and/or target company may already be preparing a Schedule 14A,
14C, or TO, or a Form S-4 or F-4. Reporting shell companies and SPACs
also typically prepare Forms 8-K containing Form 10 disclosures that
are filed shortly after the business combination.
---------------------------------------------------------------------------

    \533\ See generally supra Section IX.C.2 discussion on costs of
increased liability.
---------------------------------------------------------------------------

b. Financial Statement Requirements in Business Combination
Transactions Involving Shell Companies
    Proposed Article 15 of Regulation S-X and related amendments aim to
align more closely the financial statement reporting requirements in
business combinations involving a shell company and a private operating
company with those in traditional initial public offerings. These
amendments may reduce the potential for regulatory arbitrage by private
companies that go public through a business combination with a shell
company rather than a traditional initial public offering. Furthermore,
the proposed disclosure and audit requirements (e.g., proposed Rule 15-
01(a)) may reduce information asymmetry surrounding shell company
business combinations, including de-SPAC transactions, which may in
turn benefit private operating companies going public by reducing the
cost of capital.\534\ The proposed rules and amendments that clarify
applicable definitions and streamline compliance processes (e.g., Rule
15-01(b), (c), (d), (e)), are expected to reduce ambiguity and
facilitate compliance.
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    \534\ See Michael Minnis, The Value of Financial Statement
Verification in Debt Financing: Evidence from Private U.S. Firms, 49
J. Acct. Research 457, 457-506 (2010). Using a large sample of
privately held U.S. firms, the author found that audited firms enjoy
a lower interest rate than unaudited firms, and that lenders place
more weight on audited financial information in setting the interest
rate. See also Mathieu Luypaert & Tom Van Caneghem, Can Auditors
Mitigate Information Asymmetry in M&As? An Empirical Analysis of the
Method of Payment in Belgian Transactions, 33 Auditing 57, 57-91
(2014). This study finds that audits can mitigate information
asymmetry about the target's value, reducing the need for a
contingent payment.
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    The proposed rules and amendments may allow investors to more
readily locate and process relevant information, reduce processing
costs, and increase their confidence in the reporting provided by
entities involved in these business combinations.\535\ In turn, the
proposed rules and amendments may help investors to more efficiently
make voting, redemption, and investment decisions. In addition, many of
the proposed rules and amendments would codify existing staff guidance
or financial reporting practices. Thus, to the extent that registrants
are already preparing statements and reports consistent with the
proposed rules and amendments, the incremental benefits and costs would
be limited. Below, we discuss the potential benefits and costs of each
individual item under proposed Rule 15-01 of Regulation S-X and the
other amendments.\536\
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    \535\ See supra note 508.
    \536\ See supra Section IV.B for additional regulatory baseline
information.
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1. Rule 15-01(a) Audit Requirements of Predecessor
    Proposed Rule 15-01(a) would align the level of audit assurance
required for the target private operating company in merger
transactions involving a shell company with the audit requirements for
an initial public offering of equity securities. The proposed rule
would codify existing staff guidance that financial statements of the
business, i.e., target private operating company, in a transaction
involving a shell company should be audited to the same extent as a
registrant in an initial public offering; that is, an examination of
the financial statements by an independent accountant in accordance
with the standards of the PCAOB for the purpose of expressing an
opinion thereon.
    Proposed Rule 15-01(a) should benefit investors by requiring
assurance over financial statements consistent with a traditional
IPO.\537\ To the extent

that audited financial statements may have more predictive power of
future cash flows, the proposed rule also may benefit shell companies
and target private operating companies by lowering their cost of
capital.\538\ The proposed amendment may, however, increase the
compliance costs (e.g., audit costs) of the business combination. To
the extent that target private operating companies are, in practice,
already including financial statements audited under PCAOB standards,
the above incremental benefits and costs likely would be limited.
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    \537\ See Phillip Lamoreaux, Does PCAOB Inspection Access
Improve Audit Quality? An Examination of Foreign Firms Listed in the
United States, 61 J. Acct. & Econ. 313, 313-337 (2016). The author
documented that PCAOB-inspected auditors, compared to auditors not
subject to PCAOB inspections, provide higher quality audits, which
are reflected by more going concern opinions, more reported material
weaknesses, and less earnings management.
    \538\ See Michael Minnis, The Value of Financial Statement
Verification in Debt Financing: Evidence from Private U.S. Firms, 49
J. Acct. Research 457, 457-506 (2010) (finding that audited
financial statements have more predictive power for future cash
flows, which may explain lower cost of capital as well as greater
reliance by lenders).
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2. Rule 15-01(b) Number of Years of Financial Statements
    Under proposed Rule 15-01(b), a shell company registrant would be
permitted to include in its Form S-4/F-4/proxy or information statement
two years of statements of comprehensive income, changes in
stockholders' equity, and cash flows for the private operating company
for all transactions involving an EGC shell company and a private
operating company that would qualify as an EGC, and this determination
would not be dependent on whether the shell company has filed or was
already required to file its annual report or not.
    For such transactions, registrants may benefit from reduced cost of
producing audited financial statements because this rule would
potentially reduce the number of years of financial statements required
from three years to two years. For those transactions, this proposed
rule would cause some information loss for investors. However, at least
two years' of statements of comprehensive income, changes in
stockholders' equity, and cash flows for the private operating company
would be provided, the same amount that would be required for an
initial public offering.
3. Rule 15-01(c) Age of Financial Statements of the Predecessor
    Proposed Rule 15-01(c) would provide that the age of financial
statements for a private operating company that would be the
predecessor to a shell company in a registration statement or proxy
statement would be based on whether the private operating company would
qualify as a smaller reporting company if it were filing its own
initial registration statement. Because we believe that this proposed
amendment would be consistent with existing practice, we do not expect
it to have significant economic effects for registrants or investors.
This proposed rule also should help maintain consistency in disclosure
requirements across the different routes of going-public, which may
reduce compliance uncertainty for registrants and their predecessors
and increase investor confidence.
4. Rule 15-01(d) Acquisitions of Businesses by a Shell Company
Registrant or Its Predecessor That Are Not or Will Not Be the
Predecessor
    Proposed Rule 15-01(d) would require application of Rules 3-05 or
8-04 (or Rule 3-14 as it relates to a real estate operation), the
Regulation S-X provisions related to financial statements of an
acquired business, to acquisitions of businesses by a shell company
registrant, or its predecessor, that are not or will not be the
predecessor to the registrant. Given our understanding that this
proposed amendment codifies current market practices, we believe that
the incremental benefits and costs should be limited.
    We also are proposing to amend Rule 1-02(w) of Regulation S-X to
require that the significance of the acquired business be calculated
using the private operating company's financial information as the
denominator instead of that of the shell company registrant. The
current use of the shell company registrant, which has nominal
activity, for the denominator results in limited to no sliding scale
for business acquisitions, including those made by the private
operating company that will be the predecessor to the shell company
because every acquisition would be significant and thus require
financial statements. Therefore, the proposed amendment may alleviate
registrants' compliance burden to the extent that it would not result
in disclosure related to insignificant acquisitions. Although, the
proposed amendment may reduce the information available to investors
about business acquisitions by the private operating company that will
be the predecessor to the shell company, it may also reduce investors'
information processing costs by focusing on financial statements of
acquired businesses that are significant rather than all acquired
businesses.
    This proposed amendment to Rule 11-01(d) may change the application
of Rule 11-01(b)(3) such that subsequent business acquisitions may be
tested against pro forma amounts that combine the SPAC and the private
operating company. This may result in fewer subsequent acquisitions
being significant because the denominator of the significance tests,
including the combined total assets of the private operating company
and SPACs, are larger than only the private company's total assets.
Accordingly, registrants' compliance burden would likely be reduced. We
also believe any potential costs to investors as a result of decreases
in disclosure may be mitigated by the fact that registrants must
otherwise disclose material information about the acquisition that is
necessary to make the required statements not misleading.
    Proposed Rule 15-01(d)(2) would require a shell company that omits
from a registration statement or proxy statement the financial
statements of a recently acquired business that is not or will not be
its predecessor pursuant to Rule 3-05(b)(4)(i) file those financial
statements in an Item 2.01(f) Form 8-K. The proposed amendment would
alleviate any ambiguity regarding the timing in which these financial
statements are required to be filed, which would facilitate compliance
for the registrant. This amendment also should help ensure that
investors receive predictable and timely disclosure about the acquired
business.
5. Rule 15-01(e) Financial Statements of a Shell Company Registrant
After the Combination With Predecessor
    Proposed Rule 15-01(e) would allow a registrant to exclude the pre-
acquisition financial statements of a shell company (including a SPAC)
for periods prior to the acquisition once the following conditions have
been met: (1) The financial statements of the shell company have been
filed for all required periods through the acquisition date, and (2)
the financial statements of the registrant include the period in which
the acquisition was consummated. The proposed rule could reduce
disclosure that may no longer be relevant or meaningful to investors
when the pre-business combination financial statements of the shell
company are included in previous filings and the historical financial
statements of the shell company likely are no longer representative of
the combined company. Thus, this proposed rule should reduce compliance
costs related to filing previous year financial statements of a shell
company. Investors may also benefit from the increased

efficiency in processing business combination filings.
6. Other Amendments
    We are proposing additional amendments to Regulation S-X, as well
as an amendment to Form 8-K.\539\ The proposed amendment to Rule 11-
01(d) would state that a SPAC is a business for purposes of the rule,
which may cause an issuer that is not a SPAC to be required to file
financial statements of the SPAC in a resale registration statement on
Form S-1. This proposed amendment may facilitate the compliance process
for companies engaging in an acquisition with a SPAC and alleviate
their compliance burden. Investors also would likely benefit from
having the financial statements of the SPAC, particularly when they
underpin adjustments to pro forma financial information in a
transaction when an operating company is the legal acquirer of a SPAC.
As a result of the proposed amendment, a registrant may incur
additional compliance costs if it is required to provide financial
statements of the SPAC in a resale registration statement. However, any
additional costs should be mitigated to the extent that financial
statements of the SPAC were previously prepared, audited, and filed
with the Commission.
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    \539\ See supra Section IV.B.6 for additional regulatory
baseline information.
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    The proposed revision to Item 2.01(f) of Form 8-K, which would
apply to all shell companies, clarifies that the information provided
in the Form 8-K should relate to the ``acquired business'' and not the
``registrant,'' as currently stated in the Form. The proposed amendment
is intended to eliminate any potential misunderstanding as to the
entity for which Item 2.01(f) disclosure is necessary. The increased
clarity may reduce registrants' compliance costs to the extent there is
currently any confusion. In turn, investors may also benefit from the
timely disclosure of information about ``acquired businesses'' due to
registrants' more consistent application of Item 2.01(f).
    We are also proposing amendments to Rules 3-01, 8-02, and 10-
01(a)(1) of Regulation S-X to clarify that the requirement of
``financial statements'' would apply to both the registrant and its
predecessors rather than only to the registrant alone, as the existing
rules may unintentionally imply for the balance sheet in Rules 3-01 and
8-02 and financial statements for Rule 10-01(a)(1). Because these
proposed amendments would codify existing financial reporting
practices, they should not impact registrants' compliance costs.
4. Enhanced Projections Disclosure (Amendments to Item 10(b) of
Regulation S-K)
    Item 10(b) of Regulation S-K sets forth the Commission's views on
important factors to be considered in formulating and disclosing
projections in certain filings with the Commission. The proposed
amendments would update this guidance.\540\ More specifically, the
proposed amendments would state that the guidelines also apply to
projections of future economic performance of persons other than the
registrant, such as the target company in a business combination
transaction, that are included in the registrant's filings. The
proposed amendments to Item 10(b) would also state that projections
that are not based on historical financial results or operational
history should be clearly distinguished from projected measures based
on historical financial results or operational history. In addition,
the proposed amendments would state that it generally would be
misleading to present projections that are based on historical
financial results or operational history without presenting such
historical financial measure or operational history with equal or
greater prominence. Finally, for projections based on a non-GAAP
measure, the proposed amendments to Item 10(b) would state that the
presentation should include a clear definition or explanation of the
non-GAAP measure, a description of the most closely related GAAP
measure, and an explanation why the non-GAAP measure was selected
instead of a GAAP measure. To the extent that registrants conform
projections included in Commission filings to some or all of the
proposed amendments to the guidance set forth in Item 10(b), investors
would have additional information to evaluate the reasonableness of the
projections and make more informed investment decisions. For example,
the proposals related to historical financial results or operational
history could inform investors about potential biases in assumptions
underlying different financial projections and help them more
efficiently process the underlying assumptions of the financial
projections in making their investment decisions.\541\ These benefits