Since January, the SEC has released a number of notable Compliance & Disclosure Interpretations updates.
Proxy Rules and Schedules 14A/14C
Section 126. Rule 14a-6
Revised Question 126.06 – This revised CDI rescinds prior guidance that the SEC staff will not object to the voluntary submission of Notice of Exempt Solicitation. According to the revised CDI, the SEC staff has become concerned about the widespread use of this notice to generate publicity and will now object to the voluntary submission of a Notice of Exempt Solicitation.
Revised Question 126.07 – Consistent with the new guidance under revised question 126.06, this CDI was revised to remove the parenthetical “whether voluntarily or to satisfy the requirements of Rule 14a-6(g)(1).”
Section 133. Rule 14a-13
New Question 133.02 – This new CDI indicates that the SEC “staff will not object if a registrant conducts its ‘broker search’ less than 20 business days before the record date, provided that the registrant reasonably believes that its proxy materials will be timely disseminated to beneficial owners and otherwise complies with Rule 14a-13.
New Question 182.01 – When security holders take corporate action by written consent without being solicited by the registrant, Exchange Act Rule 14c-2 requires the registrant to distribute an information statement to its security holders at least 20 calendar days prior to the earliest date on which such corporate action may be taken. This new CDI states that where the written consents were solicited by a dissident security holder without the registrant’s knowledge, the SEC staff will not object to the registrant’s failure to comply with the 20-calendar-day requirement as long as the registrant distributes the information statement as soon as practicable after it becomes aware of the written consents. Failure to comply with the 20-calendar-day requirement in Rule 14c-2 does not invalidate the corporate action because applicable state law or the registrant’s governing document determines when such action becomes effective.
Going Private Transactions, Exchange Act Rule 13e-3 and Schedule 13E-3
Section 112. Rule 13e-3(g)(2)
New Question 112.03 – This new CDI states that the Rule 13e-3(g)(2) exception is available as long as Section 12 registration and approval for listing on a national securities exchange (or authorization to be quoted in an inter-dealer quotation system) at the time of the transaction closing are express conditions to the Rule 13e-3 transaction, such conditions are disclosed, and all other conditions of the Rule 13e-3(g)(2) exception are satisfied.
New Question 112.04 – This new CDI indicates that Rule 13e-3 will generally not apply to transactions where there is an express non-waivable condition in the tender offer that the issuer (or affiliate of the issuer) would not purchase an amount of subject equity securities that would have a reasonable likelihood or purpose of producing a Rule 13e-3(a)(3)(ii) effect.
Section 212. Rule 13e-3(g)(2)
Revised Question 212.01 – Consistent with the new CDI 112.03, this revised CDI adds clarifying language that when it is not a condition of an exchange offer that new debentures be accepted for listing on a national securities exchange, the Rule 13e-3(g)(2) exception is not available.
Securities Act Sections
Section 134. Securities Act Section 4(a)(2)
Withdrew Question 134.02 – Guidance superseded by Rule 152
Section 139. Securities Act Section 5
Withdrew Question 139.08 – Guidance superseded by Rule 152
Withdrew Question 139.25 – Guidance superseded by Rule 152
Revised Question 139.27 – This revised CDI was updated to reference Rule 152(a)(1) rather than prior superseded guidance.
Revised Question 139.29 – The revised CDI indicates that in a registered exchange offer, the SEC staff will not object to the registration of an offer and sale of securities on Form S-4 after executing lock-up agreements (or agreements to tender) if:
- The accredited investors or qualified institutional investors who executed the lock-up agreements (or agreements to tender) will be offered and sold securities only in an offering made pursuant to a valid Securities Act exemption; and
- The securities registered on the Form S-4 will be offered and sold only to those security holders who did not execute lock-up agreements (or agreements to tender).
Revised Question 139.30 – The revised CDI indicates that in a negotiated third-party exchange offer, the SEC staff will not object to the registration of an offer and sale of securities on Form S-4 in a registered exchange offer after executing lock-up agreements (or agreements to tender) if:
- The target company insiders who executed the lock-up agreements (or agreements to tender) will be offered and sold securities only in an offering made pursuant to a valid Securities Act exemption; and
- The securities registered on the Form S-4 (or Form F-4) will be offered and sold only to those security holders who did not execute lock-up agreements (or agreements to tender).
Section 239. Securities Act Section 5
Revised Question 239.13 – Recognizing the legitimate business reasons for seeking lock-up agreements in a Rule 145(a) transaction, the staff has not objected to the registration of offers and sales where lock-up agreements have been signed in the following circumstances:
- The lock-up agreements involve only executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the target company (“target company insiders”);
- The persons signing the lock-up agreements collectively own less than 100% of the voting equity securities of the target company;
- votes will be solicited from security holders of the target company who have not signed the agreements if such votes are needed to approve the Rule 145(a) transaction under state or foreign law; and
- The acquiring company delivers a prospectus to all security holders of the target company entitled to vote on the Rule 145(a) transaction in accordance with its obligations under the Securities Act.
The revised CDI indicates that the SEC staff will not object to the subsequent registration of offers and sales of the acquiring company’s securities on Form S-4 where the target company insiders either (1) execute lock-up agreements and the conditions listed above are not satisfied or (2) deliver written consents approving the Rule 145(a) transaction, in each case, before the Form S-4 is filed, as long as:
- Target company insiders who executed lock-up agreements or delivered the written consents will be offered and sold securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption; and
- The securities registered on the Form S-4 will be offered and sold only to those security holders of the target company who did not execute lock-up agreements or deliver written consents approving the Rule 145(a) transaction.
Securities Act Rules
Section 141. Rule 147 – Intrastate offers and sales
Withdrew Question 141.06 – Guidance superseded by Rule 152
New Section 148. Rule 152
New Question 148.01 – The new CDI indicates that if an issuer engaged in an offering pursuant to Rule 506(c) of Regulation D and solicited various individuals through the general solicitations in that offering, the issuer can now sell to those individuals through an offering pursuant to Rule 506(b) of Regulation D assuming the issuer established a substantive relationship with such prospective purchasers prior to the commencement of the Rule 506(b) offering. Because the issuer solicited the prospective investors through the general solicitation in the prior Rule 506(c) offering, the issuer cannot rely on Rule 152(a)(1)(i).
New Question 148.02 – The new CDI states that the mere fact that a registration statement is effective does not, in and of itself, automatically raise integration concerns under Rule 152.
New Question 148.03 (revised and moved from Question 152.02) – If an issuer is unsuccessful in completing an offering as a takedown from an existing shelf registration statement, an issuer may complete the offering privately, provided that the issuer complies with the general principle of integration in Rule 152(a)(1).
Section 152. Rule 155 – Integration of Abandoned Offerings
Withdrew Question 152.01 – Guidance superseded by Rule 152
Revised and Moved Question 152.02 (moved to Question 148.03) – See the summary of new question 148.03 above
Withdrew Question 152.03 – Guidance superseded by Rule 152
Section 212. Rule 415 – Delayed or Continuous Offering and Sale of Securities
Withdrew Question 212.06 – Guidance superseded by Rule 152
Section 225. Form S-4
Revised Question 225.03 – A registrant files a Form S-4 registration statement in connection with a business combination transaction and also seeks to register for resale on the Form S-4 certain securities which had previously been offered and sold pursuant to an exemption from Section 5 to officers, directors, and affiliates of the target company in connection with the same business combination transaction. Those securities may be registered for resale on the Form S-4 because they were issued in connection with the same business combination transaction. The revised CDI clarifies that once the business combination transaction is completed, the registrant may file a post-effective amendment to the Form S-4 on a form for which it is eligible, for the purpose of maintaining an updated resale prospectus.
Section 255. Rule 501 – Definitions and Terms Used in Regulation D
Revised 255.06 – Rule 501(a)(8) accredits any entity in which all of the equity owners are accredited investors. In some cases, an equity owner is itself an entity rather than a natural person. If the owner-entity does not qualify on its own merits as an accredited investor, the new CDI indicates that an issuer can look through various forms of equity ownership to natural persons in determining accredited investor status.
Section 256. Rule 502 – General Conditions to be Met
Withdrew Question 256.01 – Guidance superseded by Rule 152
Withdrew Question 256.02 – Guidance superseded by Rule 152
Withdrew Question 256.34 – Guidance superseded by Rule 152
Section 260. Rule 506 - Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering
New Question 260.39 – The new CDI states that “Rule 506(c) does not specify the verification methods that an issuer must use, which provides flexibility to use methods that are appropriate given the facts and circumstances of each offering and each purchaser . . . Therefore, an issuer may use different verification methods in the same Rule 506(c) offering (including the methods specified in Rule 506(c)(2)(ii) or principles-based methods of verification) to verify the accredited investor status of different investors.”
Tender Offer Rules and Schedules
Section 101. General Questions
New Question 101.22 – Section 14(d) applies to any tender offer for a class of equity securities registered under Section 12 that could result in the bidder beneficially owning more than 5% of the subject securities, except for tender offers by “the issuer of such security.” This new CDI clarifies that this limited exception is not available for any affiliates of the issuer other than a 100%-owned subsidiary of the issuer.
Section 163. Rule 14e-2
New Question 163.02 – This new CDI clarifies that if the issuer is unaware of the existence of a mini-tender offer, the staff will not object to the issuer’s failure to comply with the 10 business day requirement of Rule 14e-2 so long as the issuer publishes, sends, or gives to security holders the required Rule 14e-2 statement as soon as possible after it becomes aware of the mini-tender offer.
Section 166. Rule 14e-5
New Question 166.02 – The new CDI states that when purchases or arrangements to purchase outside a Tier I cross border tender offer are made after the public announcement of the offer but before offering documents are disseminated, the Rule 14e-5(b)(10) exception is available for these outside purchases. This guidance also applies to the similar conditions set forth in Rule 14e-5(b)(11)(iv) and Rule 14e-5(b)(12)(i)(D).
New Question 166.03 – Rule 14e-5(b)(12)(i) permits an offeror (and its affiliates) and an affiliate of the offeror’s financial advisor to make purchases outside a tender offer, subject to certain conditions. Rule 14e-5(b)(12)(i)(G)(4) states that the purchases or arrangements to purchase subject securities by the affiliate of the financial advisor outside the tender offer may not be made to facilitate the tender offer. This new CDI states that such outside purchases are considered purchases by the offeror or its affiliates for purposes of Rule 14e-5(b)(12) and are not subject to the Rule 14e-5(b)(12)(G)(4) condition, but would be subject to the requirements of Rule 14e-5(b)(12), including Rule 14e-5(b)(12)(F), which requires that the tender offer price be increased to match any consideration paid outside of the tender offer that is greater than the tender offer price.
Regulation S-K
Section 217. Item 402(a) — Executive Compensation; General
Revised 217.01 – The revised CDI addresses when historical Item 402 compensation information is required for a spin-off.