November 25, 1998
The Securities and Exchange Commission recently proposed sweeping and already controversial changes to their securities offering regulations in a release so large it is being referred to as the "aircraft carrier." The SEC also proposed changes to their business combination regulations in a companion release. This memorandum summarizes the changes proposed in those two releases.
The SEC's proposed changes to their regulations for securities offerings consist of six major topics:
Registration Process Reforms. New forms would be prescribed for registration statements. Larger, seasoned issuers and issuers making offerings to well informed or sophisticated investors could control the timing of the effectiveness of their registration statements.
Offering Communications. Larger, seasoned issuers and issuers making offerings to well informed or sophisticated investors could communicate freely in any format at any time. Other issuers would still be subject to restrictions on pre-filing communications, but would have more guidance on their permitted timing and content.
Prospectus Delivery. Issuers would have to deliver preliminary prospectus information to investors before an investment decision is made, but would not have to deliver a final prospectus.
Underwriters' Due Diligence. Guidance is provided to underwriters as to due diligence procedures for certain accelerated offerings.
Integration of Private and Public Offerings. Increased flexibility is provided to issuers to change an unregistered private offering into a registered public offering, or vice versa.
Periodic Reporting. Issuers would be required to disclose more information in their periodic reports and do so more quickly. Persons signing periodic reports would have to make representations as to their accuracy.
The SEC's proposed changes to their regulations for business combinations, including tender offers, mergers, acquisitions and similar extraordinary transactions, consist of four major topics:
Communications in Business Combinations. All interested parties could freely communicate before the filing of a registration statement involving a takeover transaction, a proxy statement or a tender offer statement.
Commencement of Stock Tender Offers. Stock tender offers could commence upon the filing of a registration statement.
Disclosure Requirements for Business Combinations. Disclosure requirements and forms for issuer and third-party tender offers and going-private transactions would be integrated and consolidated.
Tender Offer Rules. Securityholders could tender their shares after completion of a tender offer during a subsequent offering period for two-tier transactions.
I. REGISTRATION PROCESS REFORMS
The proposals seek to apply the advantages of offering securities in the private and Rule 144A markets - timing and disclosure flexibility - to the public market. As a result, the SEC believes that more offerings will be registered. The proposals would create a three-tiered registration system for offerings consisting of Forms A, B and C. Form A would be for smaller or unseasoned companies. Form B would be for larger, seasoned issuers or offerings to well informed or sophisticated investors. Form C would be for business combinations or exchange offers.
A. Form B Offerings
Contents of Prospectus. The proposals would maintain the current disclosure requirements for information about the issuer while giving the issuer and underwriter more freedom to disclose information about the offering itself. The SEC has proposed two alternatives of its new Form B, which vary as to the extent itemized disclosure is required for information about the offering. Both would continue to require the issuer to incorporate by reference the current itemized information about the issuer from its periodic reports.
The first alternative would shift some itemized offering information disclosure requirements to materiality-based requirements. However, an issuer would be required to include certain "offering information" such as the amount of securities being offered, material changes in the issuer's affairs from the incorporated periodic reports, use of proceeds, underwriters' discounts and commissions, risk factors and material information about the terms of the securities.
The second alternative would continue to require all itemized offering information disclosure which is currently required by Form S-3.
Timing of Registration. Under the revised registration system, issuers would have more flexibility in timing the registration of Form B offerings. Form B registration statements would become effective at the issuer's discretion, either immediately upon filing or at whatever later date the issuer chooses. The SEC would not review these registration statements before the offering, and no SEC action would be required to make these registration statements effective. However, the registration statement would still have to become effective before the first sale.
Shelf Registrations. Form B would provide much the same flexibility to issuers as shelf registration on Form S-3 has provided. The SEC believes that Form B would largely eliminate the incentive for issuers to set up a shelf registration statement. However, issuers could still do shelf takedown-type offerings as follows:
Issuers could file preliminary information on Form B prior to an offering and either (1) make the Form B effective at that time and file the offering information in a post-effective amendment or (2) delay effectiveness of the Form B until the offering information is available.
Issuers would have to file the offering information disclosure as part of the effective registration statement before the first sale, as compared to the current requirement that the prospectus supplement be filed only within two business days after the pricing.
Offerings Eligible for Form B. An issuer would be eligible to register on Form B if the offering meets the requirements of any of the following categories:
Offerings by Larger, Seasoned Issuers. Form B would be available to larger issuers with a periodic reporting history, much like the current Form S-3. To qualify for this category, an issuer would need: (1) a one-year timely reporting history under the Securities Exchange Act and at least one filed annual report; (2) a prior registered offering of securities under the Securities Act; and (3) either (a) a public float of $75 million and an average daily trading volume of $1 million or (b) a public float of $250 million. Form S-3 currently requires a $75 million public float, with no trading volume requirements.
Offerings to QIBs. Offerings which otherwise would be made under Rule 144A could be registered on Form B. Registration would be advantageous for these offerings because securities fungible with securities listed or quoted on exchanges could be offered and the securities sold would be unrestricted. To qualify for use of this category: (1) the offering would have to be solely to "qualified institutional buyers," as defined in Rule 144A; and (2) the issuer would need a one-year timely reporting history under the Securities Exchange Act and at least one filed annual report. Although defined as QIBs, dealers and investment advisors would be excluded from Form B offerings because of the likelihood of indirect distribution to the public.
Offerings to Existing Securityholders. Form B would also extend to issuers, subject to certain transactional requirements, to register rights offerings, offerings pursuant to a dividend or interest reinvestment plan, offerings of common stock to existing common stockholders, offerings of securities upon exercise of outstanding transferable options or warrants or upon conversion of outstanding convertible securities.
Non-Convertible Investment Grade Securities. Offerings of non-convertible investment grade securities could be registered on Form B by issuers with a one-year timely reporting history under the Securities Exchange Act and at least one filed annual report.
Secondary Offerings. As proposed, issuers would not be able to register a secondary offering on Form B unless the offering meets the requirements of one or more of the above categories. Therefore, it would be more difficult for affiliates and others to register resales of control or restricted securities acquired pursuant to an employee benefit plan.
B. Form A Offerings
Contents and Eligibility. Form A would be the basic form for registration under the Securities Act. It would be available for any offering for which no other form is prescribed, such as initial public offerings and offerings by smaller issuers. Many of the offerings which issuers currently register on Forms S-1 and S-2 would be registered on Form A.
Proposed Form A would maintain all current itemized offering information disclosure requirements, but would allow more freedom for "seasoned" smaller issuers to rely on their periodic reports to disclose information about the issuer. In this context, a "seasoned" issuer must have a two-year reporting history under the Securities Exchange Act and either (1) a public float of $75 million or (2) two filed annual reports. A seasoned Form A issuer would incorporate into the prospectus and deliver, along with the prospectus, its latest Form 10-K and either deliver or include in the prospectus the information in Part I of its latest Form 10-Q.
Real Estate Entities. Real estate entities which currently use Form S-11 would use Form A, unless they meet the Form B or C eligibility requirements. The disclosure previously required by Form S-11 would be incorporated into Form A and amended to formalize certain SEC staff practices, including requiring disclosure of: (1) ratings assigned to any securities in which the registrant has invested, (3) cross default or cross collateralization provisions in mortgages, (4) information about subsidiaries, such as operating partnerships, and (5) occupancy rates as a percentage of rentable square footage or units. Also, Forms 10 and 10-K would be amended to codify the SEC staff practice of requiring disclosure of (1) operating and financing activities, (2) real estate and other investment activities and (3) real estate and operating data.
Timing of Registration. The proposals would continue to require issuers registering on Form A to file the registration statement before making their first offer. The SEC would continue to review all initial public offerings and to selectively review repeat offerings by smaller, unseasoned issuers. The proposals would, however, allow certain seasoned issuers to control the timing of the registration of their Form A offerings. In this context, an issuer is "seasoned" if it (1) has a one-year timely reporting history under the Securities Exchange Act and (2) either has a public float of $75 million or its most recent annual report incorporated in the Form A was fully reviewed by the SEC.
C. Form C Offerings
Form C would be used for business combination transactions and exchange offers. Much like the current Form S-4, Form C would:
Maintain itemized transactional disclosure;
Allow incorporation by reference of company disclosure, depending on the size and "seasoning" of the company;
Allow its prospectus to be used as the proxy or information statement for the transaction;
Be subject to SEC review; and
Become effective only after that review.
D. Other Proposals
Exxon Capital Transactions. Because of the speed and flexibility of the proposed registration system, the proposals would repeal the line of interpretive letters which had previously permitted issuers to sell certain securities in a private offering and shortly thereafter register an offering of substantially identical securities in exchange for the privately placed securities. This proposal would principally affect smaller issuers in offerings to non-QIBs, which would not be eligible for Form B.
Asset-Backed Securities. The SEC is soliciting comments in connection with its ongoing project to consider the development of disclosure and registration requirements specifically related to asset-backed securities.
II. OFFERING COMMUNICATIONS
A. Issuer Communications
The proposals would give issuers more freedom to communicate with investors during both the pre-filing period and any "waiting period" between filing and effectiveness, but would require filing of those written communications.
Form B Issuers. Issuers eligible to register on Form B, and others acting on their behalf, could communicate freely with investors (including by making offers) in any format at any time, regardless of whether the offering is imminent or ongoing. Under the proposal, dealers could make offers to buy, and issuers and underwriters could make offers to sell, before filing, and underwriters could market an issuer's securities before filing, even without the issuer's consent.
Any written information (including electronic communications) disclosed during the "offering period" (15 days before the first offer is made through the date that the offering is completed), except for factual business communications and limited notices of proposed offerings, would have to be filed with the SEC. If the written information includes "offering information," the entire written information would have to be filed as part of the registration statement if the offering information was not contained in the registration statement, but it would not have to be filed as part of the registration statement if the offering information was already disclosed in the registration statement.
Small or Unseasoned Issuers. Under the proposals, issuers not eligible to register on Form B would continue to be restricted in their pre-filing communications with investors. However, to alleviate confusion about what pre-filing communications are permissible, the proposals include a two-part communications safe harbor:
(1) An issuer, and others on its behalf, could freely communicate at any time more than 30 days before filing the registration statement, and
(2) During the 30-day period before filing, the proposals would permit (a) factual business communications and (b) forward-looking information disclosed by reporting issuers in accordance with past practice.
During any waiting period, the proposals would allow these issuers to freely make offers and disseminate offering information in any form. However, as with Form B issuers, any written sales materials distributed during the post-filing period would have to be filed with the SEC.
B. Analysts' Reports
The proposals also address analysts' reports. For Form B offerings, the proposals would allow analysts to publish research reports without any interruption due to the registered offering. For other offerings, the proposals include expanded safe harbors to make it easier for analysts to report about smaller, unseasoned companies. The proposals would also expand those safe harbors to address the distribution of research reports in connection with Regulation S and Rule 144A offerings.
III. PROSPECTUS DELIVERY
A. Primary Offerings
The proposals attempt to re-focus the prospectus delivery requirements on when the prospectus is needed most, before investors make an investment decision. The two-part proposal to accomplish this goal requires delivery of preliminary prospectus information and provides an exemption from the requirement to deliver a final prospectus.
Preliminary Prospectus Information. The proposals would require delivery of preliminary prospectus information as follows:
Form B Offerings. For Form B offerings, the SEC has proposed two alternatives, each requiring delivery of preliminary prospectus information to investors before they make their investment decision and filing this information prior to the first sale. The first proposal would require delivery of a term sheet, containing summary material terms of the securities. The second proposal would require delivery of a prospectus containing all offering information currently required in a Form S-3 short-form prospectus.
Offerings by Small or Unseasoned Issuers. Issuers not eligible for Form B would have to deliver a full prospectus. For initial public offerings, the prospectus would have to be delivered to investors seven days before the date of pricing in a firm commitment underwriting or seven days before the investor commits to purchase the securities in a best-efforts underwriting or direct issuer sale. For more seasoned issuers, the delivery would only have to be three days before that date.
Final Prospectus Delivery Exemption. The proposals would provide an exemption from the Securities Act requirement to deliver a final prospectus if issuers, brokers and dealers: (1) tell investors, by the time investors receive their confirmations of sale, where they can acquire the information which constitutes the final prospectus free of charge; and (2) comply with the preliminary prospectus information delivery requirement. This exemption would not apply to business combination transactions or exchange offers.
B. Secondary Offerings
Unlike current practice for exchange-listed companies, the proposed prospectus delivery requirements would also apply to registered secondary offerings made by selling securityholders.
C. Aftermarket Prospectus Delivery
The proposals would allow dealers to fulfill their aftermarket prospectus delivery requirements by notifying each investor where it may promptly obtain, free of charge, final prospectus information. This requirement would continue until 25 days (instead of the current 45 or 90 days) after the later of the effective date of the registration statement or the date the securities were offered to the public. This requirement would apply to all offerings, not just initial public offerings as under current rules.
IV. UNDERWRITERS' DUE DILIGENCE
In connection only with specified Form B offerings of equity and non-investment grade debt securities which are marketed and completed in fewer than five days, the proposals would set forth a list of circumstances to consider in determining whether an underwriter has met its due diligence burden in defending against Section 11 liability. The practices to be considered as positive factors in these expedited offerings would include:
(1) Reviewing the registration statement and conducting a reasonable inquiry into any fact or circumstance which would cause a reasonable person to question whether it contains a material untrue statement or omission;
(2) Discussing the information in the registration statement with at least the chief financial or accounting officer of the issuer, and obtaining a certification that he or she has examined the registration statement and it does not, to his or her knowledge, contain a material untrue statement or omission;
(3) Obtaining a cold comfort letter from the issuer's auditors;
(4) Obtaining an opinion from the issuer's counsel that nothing has caused it to believe that the registration statement contains a material "unfair" or untrue statement or omission;
(5) Employing its own counsel to opine that nothing has led it to believe that the registration statement contains a material untrue statement or omission; and
(6) Employing and consulting a research analyst which has followed the issuer or its industry for the last 6 months and has issued a report on the issuer or its industry within the last 12 months.
The proposals state that a court could consider a failure by an underwriter to perform the investigation required by item (1) to be dispositive. The other listed practices would not be mandatory, nor would doing all of the listed practices guarantee that a reasonable investigation had been performed.
V. INTEGRATION OF PRIVATE AND PUBLIC OFFERINGS
In an attempt to allow issuers greater flexibility to shift from making a public offering to making a private offering, or vice versa, once the offering has begun, the proposals would clarify and expand the integration safe harbor to address:
When a completed unregistered private offering would not be integrated with a later registered offering;
When an unregistered private offering which has been abandoned may be followed by a registered offering; and
When a registered offering which has been abandoned may be switched to an unregistered offering.
VI. PERIODIC REPORTING
The proposals would change the periodic reporting requirements under the Securities Exchange Act to provide greater investor protection by:
Requiring issuers to disclose risk factors in their periodic reports;
Creating liability for the financial statement and MD&A sections of quarterly reports to the same extent as currently exists for annual reports;
Requiring issuers to report annual and quarterly financial results on Form 8-K reports filed within 30 days after the end of each quarter and 60 days after the end of each year (or on or prior to the date of the earnings release, if earlier);
Requiring issuers to file Form 8-K reports for additional events, including material modifications to the rights of securityholders, departure of a CEO or CFO, material defaults on senior securities, certain auditor notifications and company name changes;
Accelerating due dates for reports on Form 8-K from the current 15 days to 5 days (1 day for reports of material defaults, certain auditor notifications and resignations of directors); and
Requiring principal executive officers and a majority of the board of directors of the issuer to sign most Securities Exchange Act filings, and to indicate that they have reviewed the disclosure and know of no untrue statement of a material fact or omission of a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.
In addition, the SEC will put greater emphasis on its review of Securities Exchange Act filings, in light of the de-emphasis of its review of Securities Act registration statements.
VII. COMMUNICATIONS IN BUSINESS COMBINATIONS
The proposals would eliminate many of the current restrictions on communications about an upcoming merger, tender offer or other business combination. The parties involved in a business combination would have to file with the SEC communications relating to the transaction beginning after the first announcement of the transaction.
A. Communications Under the Securities Act
By providing an exemption from the Securities Act registration requirements for persons making offers in connection with business combinations, the proposals would permit free pre-filing and post-filing communications in connection with a business combination. Because the proposed scheme would treat all communications related to the transaction as offers, pre-filing written communications relating to the transaction would be filed upon first use as pre-filing prospectus supplements. This requirement would even apply to pre-filing written communications in proxy contests, which are not considered offers under current rules.
B. Communications Under the Proxy Rules
Pre-Filing Proxy Solicitations. The proposals would permit solicitations before filing and delivering a written proxy statement under all circumstances, instead of only allowing those solicitations in connection with an election contest or in opposition to an earlier solicitation, invitation for tenders or certain other publicized activity.
"Test the Waters" Proxy Solicitations. The SEC is considering a broader exemption from the proxy rules which would eliminate the requirement to deliver a proxy statement after communicating with securityholders, so long as a proxy card or other authorization is not requested or sent. The SEC is also considering not requiring the filing of those written communications.
No Confidential Treatment of Merger Proxies. The proposals would harmonize the treatment of preliminary proxy statements with preliminary prospectuses and tender offer materials by eliminating the ability to obtain confidential treatment of merger proxies.
C. Communications Under the Tender Offer Rules
Bidders' Communications. The proposals would eliminate the obligation to commence or withdraw a cash tender offer within five business days of making a public announcement, as well as the requirement to promptly file a registration statement after the public announcement of a stock tender offer. While bidders could engage in free communications before commencement, the safe harbor would not include transmittal forms or tendering instructions. These rules would require the bidder to deliver a copy of its first written communication setting forth the identity of the target company and itself, the amount and class of securities sought and the price or range of prices offered to the target company and any other bidder for the same class of securities, which would expand the current requirement to deliver the tender offer statement and additional tender offer materials to those parties.
In lieu of the five business day rule and the requirement to promptly file a registration statement, bidders would file and disseminate the required information when first requesting tenders. To protect against bidders making tender offer announcements without the intent or ability to follow through, the proposals would make it unlawful to announce a tender offer without the intention of beginning and completing it, with the intention of manipulating the market price of the bidder or target or without a reasonable belief that the bidder will have the means to purchase the securities sought.
Targets' Communications. The proposals would give targets the same freedom to make pre-commencement communications as bidders. Targets making recommendations regarding an offer would not have to provide the currently required specified information to their securityholders until the bidder has filed its tender offer statement and commenced its offer, but targets would have to file pre-commencement communications on first use.
D. Alternatives to Free Communications
As alternatives to the free communications proposals, the SEC is considering:
Allowing transaction-related disclosure during a 48-hour period following the public announcement of a definitive merger agreement or takeover plan, and then requiring the companies to remain silent until filing; or
Permitting free communications for an unlimited period of time after the announcement of the transaction, so long as the parties observe a 30-day quiet period before filing.
VIII. COMMENCEMENT OF STOCK TENDER OFFERS
A. Early Commencement
The proposals would permit "early commencement" of third-party exchange offers. Stock tender offers could commence upon the filing of a registration statement, or on a later date selected by the bidder. Going-private and roll-up transactions, however, could still not commence before the effectiveness of the related registration statement. The proposed rule would allow a bidder to begin its exchange offer as soon as it (1) files its registration statement, (2) disseminates the prospectus and (3) files a tender offer statement. Unlike the current rules, the bidder would not have to wait for the registration statement to become effective. Securityholders could withdraw shares tendered at any time until purchase, and bidders could not purchase shares until the registration statement became effective. The proposal would exempt transactions involving tenders during the waiting period from the registration requirements of the Securities Act. The SEC believes the change would place exchange offers on a more equal footing with cash tender offers.
To further level the playing field between exchange offers and cash tender offers, the SEC is also considering the possibility of reviewing exchange offer filings on an expedited basis. In order to harmonize the proxy rules with the tender offer rules, the SEC is considering permitting proxy cards in connection with business combinations to be sent with a preliminary proxy statement/prospectus, rather than requiring that they accompany only a definitive proxy statement/final prospectus.
B. Disclosing Material Changes
Under the "early commencement" proposal, the bidder may already have disseminated the combined prospectus/tender offer statement before receiving staff comments. Thus, the proposals would require bidders using "early commencement" to disseminate supplements disclosing any material changes. If a supplement contained material information, the exchange offer would remain open at least: (1) five business days for a supplement containing a material change other than price, (2) ten business days for a supplement containing a change in price, the number of shares sought, the dealer's soliciting fee or another similarly significant change, (3) ten business days for a supplement included as part of a post-effective amendment and (4) 20 business days for a revised prospectus when the initial prospectus was materially deficient.
C. Exemption from Securities Act Requirements
The proposals would exempt from the Securities Act registration requirements transactions involving tenders during the "waiting period" when the early commencement requirements are complied with.
IX. DISCLOSURE REQUIREMENTS FOR BUSINESS COMBINATIONS
A. Regulation M-A and Schedule TO
Because the SEC believes that the different disclosure schedules for issuer tender offers, third-party tender offers and going-private transactions can be difficult to comply with, its proposals would include:
Integrating the disclosure items contained in the schedules relating to issuer and third-party tender offers, tender offer recommendations and going-private transactions into a new subpart of Regulation S-K called "Regulation M-A";
Combining the current schedules used for issuer and third-party tender offers into a new schedule called "Schedule TO"; and
Allowing a single filing to satisfy both the tender offer and going-private disclosure requirements.
In addition, to streamline the disclosures to security-holders in tender offer and going-private transactions, the rules would require that the document given to securityholders summarize the entire schedule, instead of specifying the items required to be summarized.
B. Disclosure Requirements
Plain English Summary Term Sheet. The proposals would require that issuer and third-party cash tender offer statements, cash merger proxy statements and going-private disclosure documents begin with a short "plain English" summary term sheet highlighting the most important features of the transaction.
Cash Merger and Tender Offer Disclosure. The proposals would alter the disclosure required in proxy statements for cash mergers and tender offers:
Financial statements and other information about the acquiror in a cash merger would be necessary only if material;
Information about the target in a cash merger would not be necessary if the acquiror's securityholders are not voting on the transaction; and
Information about the target would not be necessary if the target's securityholders are voting on whether to approve a merger and the consideration consists of acquiror securities exempt from Securities Act registration.
However, the proposals would not eliminate the requirement to provide financial statements and other information for the target if the acquiror's securityholders are voting on the transaction.
Financial Statements for Non-Reporting Targets. The rules would reduce the financial statement requirements when the target is a non-reporting company and the acquiror's securityholders are not voting on the transaction.
Elimination of Minimum Vote or Exchange Period. For those incorporating by reference, the proposals would eliminate the requirement in Form S-4 to deliver a prospectus at least 20 days before the vote or the expiration of the exchange offer.
X. TENDER OFFER RULES
A. Subsequent Offering Period
In third-party tender offers for all outstanding shares of a target in which the bidder intends to engage in a back-end merger, the proposals would permit securityholders to tender securities during a fixed ten business day period after the initial offer, called the "subsequent offering period." Securityholders would not have withdrawal rights during this period, and would be able to tender only after all conditions to the offer were satisfied or waived and the shares tendered to that point were accepted for purchase and promptly paid for. The subsequent offering period would be at the bidder's election, although the bidder would have to disclose in advance its intention to allow a subsequent offering period.
B. Financial Information for Bidders in Cash Tender Offers
Financial Statements. In order to provide specific guidance to bidders as to when their financial statements are not material in a cash tender offer (and therefore not required to be disclosed), the proposals would instruct that the bidder's financial statements are not material when: (1) only cash is offered; (2) there is no financing condition; and (3) either the bidder is a reporting company under the Securities Exchange Act, or the offer is for all outstanding securities of the target. If the financial statements of the bidder are material, the proposals reduce the current requirement to two years of historical financial statements.
Source of Funds. The proposals would expand the "Source of Funds" requirement in the tender offer and going-private rules to require disclosure of the specific sources of financing, any conditions to the financing and the bidder's ability to finance the offer if the primary source of financing falls through.
Pro Forma Financial Information in Two-Tier Transactions. The proposals would require pro forma and related financial information in two-tier transactions. The bidder would provide this information with the first-tier tender offer materials if cash is offered in the first tier and securities are used as consideration in the second tier.
C. Repurchases by Targets
A revised rule would clarify that an issuer must disclose repurchases of its securities only after a tender offer is made.
D. Delivery of Stockholder Lists
In order to harmonize the rules relating to the delivery of stockholder lists, a revised rule would incorporate a stockholder list requirement into the tender offer rules. A company electing to provide a bidder with a stockholder list (instead of mailing the bidder's materials) would have to disclose the most recent list of names, addresses and security positions of non-objecting beneficial owners (as well as record holders). Bidders would continue to disseminate tender offer material to record holders but would also have the option to send the material to non-objecting beneficial owners.
E. Prohibiting Purchases Outside an Offer
The proposals would prohibit, in connection with a tender offer for equity securities, a covered person from purchasing or arranging to purchase any subject securities or any related securities otherwise than as part of the offer. (Covered persons would include the offeror and its affiliates, the offeror's dealer managers and other advisors, and any person acting, directly or indirectly, in concert with them; and related securities would include securities which are immediately convertible into, exchangeable for, or exercisable for subject securities). The proposals would expand the exception which permits covered persons to convert, exchange or exercise related securities owned before the public announcement of the offer to expressly include options.
Purchases by or for Plans. The proposed rules would modify the current exception for the purchase of a target's securities for certain plans by permitting purchases of subject securities or related securities for any "plan" so long as an "agent independent of the issuer" makes the purchases.
Purchases During Odd-Lot Offers. The proposals would add a new exception permitting purchases during issuer odd-lot tender offers so long as the offer is directed solely to odd-lot securityholders and provides "all holders" and "best price" protections to tendering securityholders.
F. Safe Harbor for Forward Looking Information
The proposals would extend the safe harbor for forward looking information established by the Private Securities Reform Act to tender offers.
If you have any questions regarding this memorandum, please feel free to call any member of our corporate/securities practice group.
Copyright © 1999 Mayer, Brown & Platt. This Mayer, Brown & Platt article provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
