Davis Polk & Wardwell Newsflash

Nasdaq Files Proposal to Allow Listing of SPACs

February 28, 2008

The Nasdaq Stock Market has filed a proposed rule change with the Securities and Exchange Commission that would permit special purpose acquisition companies, commonly referred to as “SPACs”, to list on the Nasdaq. SPACs are companies with little or no operations that conduct a public offering with the intention of using the proceeds to acquire or merge with an operating company. Until now, the American Stock Exchange has been the only national securities exchange to list SPACs.

SPACs seeking to list their securities on the Nasdaq would be subject to both the Nasdaq’s general initial listing requirements as well as the following additional criteria:

Noteworthy is the requirement that the SPAC use cash consideration equal to at least 80% of the value of the escrow account in completing its qualifying business combination. While SPACs typically agree that their initial business combination will have a fair market value equal to 80% of the value of the escrow account (but excluding deferred underwriting discounts, unlike under the proposed Nasdaq rule), they do not require that cash consideration be used. As a result, the more restrictive requirements under the Nasdaq rules would limit a SPAC’s flexibility in completing a business combination and may make listing on the Nasdaq less attractive to the SPAC.

The proposal is currently pending SEC approval. If the SEC approves the proposal as filed, it will be effective as of the filing date, February 21, 2008. It is possible, however, that the SEC will subject the proposal to a more lengthy publication and approval process making its effective date uncertain.

Davis Polk & Wardwell