On December 22, 2020, the staff of the Securities and Exchange Commission’s Division of Corporation Finance issued new guidance with disclosure considerations for special purpose acquisition companies (“SPACs”). The new guidance is reflected in CF Disclosure Guidance Topic No. 11 (“Topic No. 11”). SPACs, or “blank check companies,” become public reporting companies through initial public offerings (“IPOs”) and raise money for use in the acquisition of one or more operating companies. SPACs have been an increasingly popular structure and, in 2020, there have been close to 250 SPAC IPOs raising over $80 billion in gross proceeds.

The SEC’s new guidance follows earlier comments by then-Chairman Clayton, that the compensation and other interests that affect SPAC sponsors, directors, officers, and other affiliates (referred to in this alert collectively as “insiders”) should be clearly disclosed so that public investors understand their financial incentives and other potential conflicts, both at the time of the SPAC’s IPO and at the time of its business combination with an operating company. Topic No. 11 provides guidance on appropriate disclosure with respect to a number of potential types of conflicts of interest and highlights the importance of appropriate disclosure on the material potential conflicts of interests of various transaction participants, including insiders, underwriters and investors in private financings by the SPAC.

While not all SPACs will include disclosure with respect to each potential conflict addressed by the staff, Topic No. 11 provides a useful checklist that a SPAC should review when preparing its disclosure documents at the time of both its IPO and at the time of a potential business combination. The new guidance should be considered in anticipating comments from the SEC staff, mitigating litigation risk, and structuring transactions in the most optimal way. Topic No. 11 identifies the following areas where the staff expects to see clear and appropriately detailed disclosure with respect to these potential material conflicts.

Initial Public Offerings

  • Insiders’ existing fiduciary or contractual obligations to entities other than the SPAC, whether such obligations could present material conflicts, and how such conflicts would be addressed.
  • Potential for a business combination with a target company in which insiders have a pre-existing interest and how any such conflicts would be addressed.
  • Financial incentives of insiders to complete a business combination, including potential losses if a business combination is not completed.
  • Level of control that insiders will have over approval of a business combination.
  • Whether and how the SPAC may amend the terms of its governing documents to facilitate the completion of a business combination.
  • Whether and how the SPAC may extend the time it has to complete a business combination and whether shareholders may redeem their shares in connection with an extension.
  • Balanced disclosure regarding insiders’ past experience with SPAC transactions, including the outcomes of such transactions.

Insider Financial Incentives

  • Security ownership of insiders and how the securities held by the insiders differ from those sold in the IPO. If applicable, a detailed description of the terms of convertible securities held by the insiders.
  • How security ownership of insiders may create financial incentives for insiders to complete a business combination transaction, even if the transaction may not be in the best interest of other shareholders.
  • Compensation of insiders for services to the SPAC and whether any payments will be contingent on the completion of a business combination.

Potential Insider Conflicts in Connection with the Evaluation of a Business Combination

  • Detailed description of identification and evaluation of the target and negotiations regarding the business combination and the material terms thereof, in particular the nature and amount of consideration.
  • Material factors considered by the board of the SPAC in approving the business combination, including its evaluation of the interests of its insiders.
  • Insiders’ conflicts of interest in presenting the proposed transaction to the SPAC and the application of any SPAC policies to address such conflicts. Whether insiders have financial or other interests in the target operating company.
  • Material benefits to insiders from the transaction, including material compensation payments, return on initial investment and continuing relationship with combined company.
  • Insiders’ fully diluted ownership in combined company, including through exercise of warrants and conversion of convertible debt.

Additional Financings

  • Whether additional financing will be necessary to complete a proposed business combination and, if so, the terms of such financing, and any material interest of insiders. If the financing involves issuance of securities, a comparison of the price and terms of such securities with securities sold in the IPO.
  • Terms of any forward purchase agreement including the potential dilutive impact on other shareholders, and whether the commitment is irrevocable.
  • Terms of convertible securities and any material impact on the beneficial ownership of the combined company.

Potential Underwriter Conflicts

  • Fees that IPO underwriters will receive upon closing of the business combination.
  • Compensation for additional services provided by the underwriters and their affiliates.

Advice for Participants in SPACs

The above presents a high-level summary of certain of the questions that SPACs and their counsel should consider in preparing disclosures and evaluating the staff’s new guidance. Participants in SPAC transactions should familiarize themselves with Topic No. 11, not only in order to anticipate comments from the SEC staff and addressing litigation risk, but also to take into account when structuring SPAC IPOs and “de-SPAC” business combinations with targets. Over the last year, market considerations and the desire to attract long-term investors have pushed certain SPAC sponsors to more closely align their financial incentives with the interests of shareholders, including by creatively adjusting the terms of SPAC securities held by insiders. Topic No. 11 provides a useful reference point as the SPAC market continues to evolve and find its place in the broader capital markets and M&A landscape.

Proskauer’s attorneys advise clients in all stages of SPAC transactions, including IPOs, PIPEs, business combinations and beyond. Our team works across practice areas and regularly represents sponsors, private and public investors, underwriters, executives and operators, and target operating companies.

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Photo of Peter Castellon Peter Castellon

Peter represents issuers, underwriters and selling shareholders in connection with offerings of securities, including IPOs, follow-on and secondary offerings, block trades, rights offerings and offerings of convertible and exchangeable bonds.

Peter is active in bar association activities and has served as an officer…

Peter represents issuers, underwriters and selling shareholders in connection with offerings of securities, including IPOs, follow-on and secondary offerings, block trades, rights offerings and offerings of convertible and exchangeable bonds.

Peter is active in bar association activities and has served as an officer of several committees, including the IBA Capital Markets Forum, the International Securities Matters Subcommittee of the ABA Committee on the Federal Regulation of Securities and the ABA International Securities & Capital Markets Committee.

Peter has written several articles on securities law topics, including the following:

  • US Private Placements: When Rule 144A is unavailable, PLC, July, 2015.
  • SAS 72 letters: Seeking comfort, PLC, May, 2013.

  • Another way in, IFLR, March, 2012.

Before joining Proskauer, Peter was Deputy General Counsel for Citi and advised the Equity Capital Markets Division and Investment Banking Division. While at Citi, Peter worked on most of Citi’s ECM transactions in Europe, the Middle East and Africa.

Photo of Michael Choate Michael Choate

Michael Choate is a partner in the Corporate Department and is a member of the Capital Markets Group and both Real Estate Capital Markets and Private Equity Real Estate Groups. Michael’s practice is broad and includes a focus on transactional matters involving both…

Michael Choate is a partner in the Corporate Department and is a member of the Capital Markets Group and both Real Estate Capital Markets and Private Equity Real Estate Groups. Michael’s practice is broad and includes a focus on transactional matters involving both public and private offerings as well as private equity and joint venture transactions along with mergers and acquisitions, corporate governance issues and federal securities compliance matters.

Photo of James Gerkis James Gerkis

James P. Gerkis is a partner in the Corporate Department with extensive experience in sophisticated U.S. and global corporate transactions, including mergers & acquisitions, capital markets, venture capital, media, real estate and restructuring transactions.  He has represented a wide variety of financial institutions…

James P. Gerkis is a partner in the Corporate Department with extensive experience in sophisticated U.S. and global corporate transactions, including mergers & acquisitions, capital markets, venture capital, media, real estate and restructuring transactions.  He has represented a wide variety of financial institutions, Fortune 500 companies and growth companies.  James currently focuses on matters for clients in the technology, media and real estate industries.

Among other clients, James has represented iHeartMedia, Preferred Apartment Communities, Financial Guaranty Insurance Company, Oxford Analytica, Olshan Properties, the Creditors Committee in the chapter 11 cases of Westinghouse Electric Company, Lightstone Group, Neuberger Berman and Suburban Propane Partners.

James received his law degree from Columbia University School of Law in 1983, where he was a Harlan Fiske Stone Scholar and a Teaching Fellow.  He did his undergraduate work at Columbia College, where (having been admitted without finishing high school) he received a BA degree in Political Science in 1980.

James has made presentations at numerous industry and bar association conferences and has authored many articles on different legal topics.

James is the President of the Columbia University Club of New York, is active in other Columbia University alumni affairs and has been chosen to receive a 2018 Columbia University Alumni Medal.

James is on the Board of Directors of HABA-Hellenic American Association for Professionals in Finance.  James received the 2017 Attorney of the Year Award from The Hellenic Lawyers Association.

Photo of Steven L. Lichtenfeld Steven L. Lichtenfeld

Steven L. Lichtenfeld is co-head of our market-leading Real Estate Capital Markets and Real Estate Finance Groups and a founding member of our Private Equity Real Estate Group. He regularly advises real estate funds, REITs, sovereign wealth funds, institutional lenders, specialty lenders, hedge…

Steven L. Lichtenfeld is co-head of our market-leading Real Estate Capital Markets and Real Estate Finance Groups and a founding member of our Private Equity Real Estate Group. He regularly advises real estate funds, REITs, sovereign wealth funds, institutional lenders, specialty lenders, hedge funds, and pension advisors regarding public offerings and private placements of real estate-related debt and equity securities, real estate-related mergers and acquisitions, real estate preferred equity investments and joint ventures, real estate-related senior and mezzanine financings and other corporate, partnership and limited liability company matters.

Steven has been widely recognized as a driving force in the real estate capital markets and finance space during his more than thirty-five year career. He has garnered several prestigious accolades in this area, including receiving a coveted ranking from Chambers USA, which has described him as “a brilliant real estate attorney with experience in many asset classes.” Chambers has also described Steven as “highly analytical and highly strategic” and “encyclopedic in terms of his knowledge” in handling a broad spectrum of public and private debt offerings, M&A, joint venture and other corporate real estate matters. Steven is also recommended for Real Estate and REITs by Legal 500 United States and is consistently recognized as a leading real estate lawyer in Best Lawyers in America and Super Lawyers.

Photo of Matthew O'Loughlin Matthew O'Loughlin

Matthew O’Loughlin is a partner in the Corporate Department and is a member of the Mergers & Acquisitions Group. Matthew counsels clients on corporate, strategic and transactional matters, representing public and private companies, entrepreneurs, high-net worth families, investors, private equity groups and investment…

Matthew O’Loughlin is a partner in the Corporate Department and is a member of the Mergers & Acquisitions Group. Matthew counsels clients on corporate, strategic and transactional matters, representing public and private companies, entrepreneurs, high-net worth families, investors, private equity groups and investment banks. He acts as outside corporate counsel, advises boards of directors and assists companies with their day-to-day legal needs. This includes public and private securities offerings, mergers and acquisitions, joint ventures, and other strategic and complex transactions and liquidity events. He also advises clients on SEC reporting matters and corporate governance.

Matthew’s clients are principally in the life science/healthcare, food and beverage, health and wellness, consumer products, technology and entertainment industries. He also has particular experience in cross border transactions.

Photo of Ben Orlanski Ben Orlanski

Ben Orlanski is a partner in the Corporate Department and is a member of the Mergers & Acquisitions Group and the Capital Markets Group. Ben focuses on major corporate transactions and strategically solving critical business challenges. He has significant experience in securities and…

Ben Orlanski is a partner in the Corporate Department and is a member of the Mergers & Acquisitions Group and the Capital Markets Group. Ben focuses on major corporate transactions and strategically solving critical business challenges. He has significant experience in securities and public company representation; mergers and acquisitions; capital markets transactions; special committee, board of directors and general corporate representation; and corporate governance. His experience covers a wide range of industry sectors, including software-as-a-service, REITs, digital media, specialty manufacturing and consumer products.

Capital Formation and Securities

Ben has significant experience in managing, structuring and executing sophisticated securities and capital raising transactions. His approach reflects understanding of market operation, well-designed capital structure and the practical realities of the capital raising process. He represents public companies and investors in public offerings, registered direct transactions, self-tenders, warrant exchanges/flush transactions, recapitalizations, defensive strategies and secondary offerings. He also advises clients on corporate finance transactions for private businesses, ranging from venture capital and private placements to public offerings and debt restructurings.

Mergers and Acquisitions

Ben has completed scores of transactions representing buyers, sellers, investment bankers and financiers through all phases of the M&A process. He is actively involved in planning, structuring, negotiating and documenting strategic merger and acquisition transactions as well as dispositions of sophisticated enterprises.

General Counsel, Public Reporting and Strategic Advice

Ben acts as outside general counsel for numerous public and private companies, applying a business-like approach to produce practical legal solutions to both day-to-day and exceptional legal challenges. In representing his public clients, Ben has successfully guided the public reporting process for clients facing accounting and SEC challenges, proxy contests, cash flow issues, litigation, shareholder activism and strategic alternatives. He frequently advises on issues related to compliance with insider trading laws and major compliance challenges. He also represents boards of directors and special committees of public companies in special situations, including “interested” transactions, investigations, executive succession planning and sensitive corporate governance issues.

Photo of Antonio N. Piccirillo Antonio N. Piccirillo

Antonio N. Piccirillo is the head of the São Paulo office and a member of the Latin America Practice Group.

Antonio’s practice focuses principally on transactional and finance matters in Latin America. He has extensive experience in bank finance, securities law and corporate…

Antonio N. Piccirillo is the head of the São Paulo office and a member of the Latin America Practice Group.

Antonio’s practice focuses principally on transactional and finance matters in Latin America. He has extensive experience in bank finance, securities law and corporate governance (including Sarbanes-Oxley compliance), capital markets, project finance, debt restructurings (including tender offers, consent solicitations and exchange offers), securitizations and mergers & acquisitions.

While serving on the Fordham International Law Journal, Antonio authored “The Metamorphosis: Expected Changes in The Brazilian Debt-for-Nature Swap Process and Policy Implications,” and co-authored “A Citation Manual for European Community Materials.” In 2008, he authored a chapter titled, “Bridging the Gap – Recent SEC Initiatives to Ease Burdens on Foreign Private Issuers,” in International Business Transactions with Brazil.

Photo of Fabio Yamada Fabio Yamada

Fábio Yamada is a partner in the Latin America Practice Group. His practice focuses mainly on advisory, transactional and finance matters in Latin America. Fábio advises private equity and other alternative asset fund managers on a broad range of issues, including fund formations…

Fábio Yamada is a partner in the Latin America Practice Group. His practice focuses mainly on advisory, transactional and finance matters in Latin America. Fábio advises private equity and other alternative asset fund managers on a broad range of issues, including fund formations, co-investments and ongoing fund administrative matters. Fábio also advises institutional investors in investments in private investment funds and buy-side secondary transactions. Fábio has extensive experience in capital markets, banking, securitization and debt restructuring transactions. He also has represented acquirers and sellers in merger and acquisition transactions.

Fábio is actively involved in the private equity community in Brazil and frequently collaborates on projects with the Brazilian Private Equity and Venture Capital Association (ABVCAP) and its members.

Prior to joining Proskauer, Fábio worked as an international lawyer at Mayer, Brown, Rowe & Maw LLP. While in Brazil, he worked at the law firm of Machado, Meyer, Sendacz e Opice Advogados and at the legal departments of BankBoston (currently Itaú Unibanco), WestLB and NorChem (currently J.P. Morgan). In addition, Fábio was an invited member of the Legal Committee of the Brazilian Association of International Banks.

Photo of Frank Zarb Frank Zarb

Frank Zarb is a partner in our Corporate Department and a member of the Capital Markets Group, where he concentrates his practice on equity finance and a wide range of regulatory matters under U.S. federal securities laws.

He counsels public and private companies…

Frank Zarb is a partner in our Corporate Department and a member of the Capital Markets Group, where he concentrates his practice on equity finance and a wide range of regulatory matters under U.S. federal securities laws.

He counsels public and private companies, hedge funds and family offices, and market intermediaries and other financial institutions on a wide range of transactional and securities regulatory compliance matters including:

  • Equity investments and dispositions in public and private companies
  • Public company registration, disclosures and preparation of periodic reports
  • Tender offers, equity lines, proxy contests, SPACs, and other highly regulated transactions
  • Regulation M, Regulation SHO, Forms 13F and 13H, insider trading and other trading issues
  • Corporate governance and stock exchange listing standards
  • Federal and state proxy requirements as well as shareholder proposals and communications
  • Regulation of financial intermediaries, including trading of public and private equity, and complex and novel trading structures
  • Advocating with the SEC on behalf of a market intermediary related to back-office processing matters.

Frank’s practice is both domestic and international, beginning with his experience in senior positions with the Securities and Exchange Commission. As a member of the staff of the SEC’s Office of International Corporate Finance, Frank advised U.S. companies seeking to do business in the EU, Asia and the Middle East, as well as companies from those regions doing business in the U.S., or otherwise seeking to comply with the U.S. securities laws.  In the Office of Chief Counsel, he focused on federal proxy rules, and supervised a team of staff members that provided guidance in the course of proxy season.

Prior to joining the Firm, Frank was deputy general counsel/chief securities counsel for Bristol Myers Squibb Co. in a new position required by the SEC. Prior to joining Bristol-Myers, Frank was a corporate partner with Morgan, Lewis & Brockius.

Social Responsibility

Frank is a Trustee of the Gerald R. Ford Presidential Foundation, and he provides significant pro bono assistance to non-profit social service institutions in the Washington, D.C. area.

Photo of Louis Rambo Louis Rambo

Louis Rambo is a partner in the Corporate Department and a member of the Capital Markets Group. He focuses his practice on counseling public companies and their boards of directors on corporate governance, capital markets transactions, mergers and acquisitions, securities regulation, disclosure and…

Louis Rambo is a partner in the Corporate Department and a member of the Capital Markets Group. He focuses his practice on counseling public companies and their boards of directors on corporate governance, capital markets transactions, mergers and acquisitions, securities regulation, disclosure and shareholder activism. Prior to joining the Firm, Louis served as an attorney in the Division of Corporation Finance with the Securities and Exchange Commission.