|
Release No. 33-7760 
Release No. 34-42055
Release No. IC-24107
Securities and Exchange Commission
Regulation of Takeovers and Security Holder Communications
Section II.B
Table of Contents
II. Discussion of New Regulatory Scheme
B. Communications Under the Securities Act
1. Securities Act Exemption and Filing Rules We are exercising our exemptive authority to create an exemption that
will permit more communications with security holders and the markets regarding
a planned business combination transaction.47 We find that free communications relating to business
combination transactions are in the public interest and consistent with
the protection of investors. Accordingly, we adopt new
Rules 165,
16648
and 42549 and amend
Rules 135 and
145.50 These new and amended rules
permit parties to communicate freely about a planned business combination
transaction before a registration statement is filed, as well as during
the waiting period and post-effective periods, so long as their written
communications used in connection with or relating to the transaction are
filed beginning with the first public announcement51 and ending with the close of
the proposed transaction.52
As noted in the Proposing Release, these communications are not excluded
from the definition of "offer" in the Securities Act,53 as no content restriction is
imposed on the communications.54 Instead, new
Rule 165 exempts persons making these
communications from Sections 5(b)(1) and (c) of the Securities Act.55
New
Rules 165 and
166 are available only for business combination transactions.
New
Rule 165 defines a business combination transaction as a transaction
specified in
Rule 145(a) or an exchange offer. Thus, either the proxy rules
or the tender offer rules must be applicable to the transaction. We have
added a preliminary note to
Rules 165 and
166 to state that the exemption
is not available to communications that may technically comply with the
rule, but have the primary purpose or effect of conditioning the market
for a capital-raising or resale transaction.56
2. Liability for Communications As proposed, both oral and written communications made in reliance on
the Securities Act exemption would be offers subject to Section 12(a)(2)
liability, based on the belief that this level of liability would adequately
protect investors without chilling communications.57 Approximately half the commenters
who addressed the issue agreed with the proposed liability standard, while
the others believed that this potential level of liability could have a
chilling effect on communications.
We are adopting the proposed regulatory scheme. To the extent that these
communications constitute offers, they currently would be subject to Section
12(a)(2) liability. As a result, we do not believe that the adopted rules
alter the current liability levels for these communications.58 In light of the extensive pre-filing
communications that are ongoing in the marketplace now with respect to business
combination transactions, we believe that a Section 12(a)(2) standard of
liability would not significantly chill communications.
Several commenters also indicated that the proposed Section 5(c) exemption
should not be conditioned on timely filing of all written communications.
Commenters were concerned that a failure to timely file a written communication
could result in a loss of protection under the exemption, resulting in a
Section 5 violation that would give security holders a right of rescission.
In proposing the filing requirement, we did not intend to provide security
holders with an automatic right of rescission if a communication is either
filed late or there is an unintentional failure to file. To clarify this
issue, we are revising the filing requirement in new
Rule 165 to state that
an immaterial or unintentional failure to file or delay in filing will not
result in a loss of the exemption from Section 5(b)(1) or (c), so long as
a good faith and reasonable attempt to file the written communication is
made and the communication is filed as soon as practicable after discovery
of the failure to file.59
3.
Rules 135 and
145 Currently,
Rule 135 provides that disclosure of certain limited information
in notice form will not be deemed an "offer" for purposes of Section 5 of
the Securities Act.60
A Rule 135 notice is typically made upon announcement of a proposed securities
offering before a registration statement is filed.61
Rule 145(b)(1) contains a similar
provision regarding the information in a stock merger that will not be deemed
a "prospectus" or "offer."62
We proposed several revisions to
Rules 135 and
145 in the Proposing Release
and the Securities Act Reform Release. In particular, we proposed moving
the substance of
Rule 145(b)(1) to
Rule 135, as both rules contain similar
provisions regarding the information that will not be deemed an offer. We
are adopting those revisions.63
In addition to the changes proposed, we asked whether
Rule 135 notices
should be filed. Although
Rule 135 does not currently require these notices
to be filed, in many cases the 135 notice would be the first written communication
relating to a proposed business combination transaction. We believe it is
important for this information to reach the marketplace promptly and on
a widespread basis. Generally, these notices are short documents (e.g.,
press release or other form of written notice of an intended offer). Currently,
the first press release or other written communication announcing a proposed
business combination transaction often is filed under cover of Form 8-K.64 In addition, under the new regulatory
scheme these communications would have to be filed under the proxy or tender
offer rules, if applicable. As a result, we do not believe that a filing
requirement for the first public communication regarding a business combination
will impose a significant burden.
We are adopting a filing requirement that encompasses
Rule 135 notices.
These notices must be filed under new
Rule 425 because they are written
communications relating to a proposed transaction. Even though we are requiring
these notices to be filed, our rules provide that they will not constitute
offers and therefore will not have Section 12(a)(2) prospectus liability.65 In addition, subsequent notices
or announcements made under
Rule 135 that do not contain new or different
information are not required to be filed. This approach is consistent with
the filing requirement under each of the three regulatory schemes.
4. Public Announcement Under the terms of the exemptions, written communications must be filed
beginning with the first public announcement of the business combination
transaction. Today we are adopting a specific definition of "public announcement"
that encompasses all communications that put the market on notice of a proposed
transaction. For purposes of determining when a filing obligation is incurred
under the exemptions, "public announcement" means any communication by a
party to the transaction, or any person authorized to act on a party's behalf,
that is reasonably designed to, or has the effect of, informing the public
or security holders in general about the transaction.66 We asked in the Proposing Release
whether the term "public announcement" should be defined, and if so, how
it should be defined. Although the commenters that responded favored a bright
line definition, they opposed a broad definition that could potentially
create difficulties in determining when a filing obligation is triggered.
We agree that a definition is necessary, but we believe that the definition
should be sufficiently broad to cover communications that are reasonably
designed to, or have the effect of, putting the markets or the security
holders on notice of a proposed transaction. We do not believe the definition
should be so narrow that the parties must actually intend to effect a broad
dissemination of the information.67
|
Footnotes
47 Section 28 of the Securities
Act [15 U.S.C. 77z-3] gives us authority to, by rule or regulation, conditionally
or unconditionally exempt any person, security or transaction, or any class
or classes of persons, securities or transactions from any provision of
this title or any rule or regulation issued under this title to the extent
that such exemption is necessary or appropriate in the public interest,
and is consistent with protection of investors.
48 We adopt proposed Securities
Act
Rules 165,
166 and 167 as new
Rules 165(b),
165(a) and
166, respectively.
These rules are limited to business combination transactions since the Securities
Act Reform Release proposals governing capital-raising transactions are
not being adopted at this time.
49 In the Securities Act
Reform Release, we proposed a requirement that all "free writing" materials
be filed as prospectus supplements in accordance with
Rule 425. In this
release, we adopt proposed
Rule 425(b) and
(c) as new
Rule 425(a) and
(b)
and limit the rule to business combination transactions. Proposed paragraph
(a) contained several exceptions from the filing requirement. We retain
the exceptions that are still applicable in
Rule 425(d).
50 See Part II.B.3
below discussing revised
Rules 135 and
145 in greater detail.
51 See Part II.B.4
below for the definition of public announcement.
52 See Part II.A.3
above discussing the types of written communications that must be filed.
Written communications relating to the transaction before the filing of
a registration statement are prospectuses that must be filed under
Rule 425. See new
Rule 165(a). After a registration statement is filed
(during what is called the "waiting period"), and after effectiveness of
the registration statement, written communications relating to the transaction
are prospectuses that must be filed under
Rule 425. See new
Rule 165(b). Communications filed under
Rule 425 do not need to be delivered
to security holders. This does not, however, change the prospectus delivery
requirements for the mandated prospectus that is part of the registration
statement, and any supplements either before or after the registration statement
is declared effective. These prospectuses and supplements would continue
to be delivered to security holders and filed under
Rule 424 [17 CFR 230.424]
instead of
Rule 425.
53 A communication that contains
no more information than that specified in
Rule 135 will not be an offer,
as is currently the case.
54 We note, however, that
a communication relating to an investment company that is permitted by the
new and amended rules generally would have omitted to state a fact necessary
in order to make the statements in the communication not materially misleading
unless the communication includes the information specified in Rule 34b-1
[17 CFR 270.34b-1] under the Investment Company Act of 1940 [17 U.S.C. 80a-1
et seq.]
55 New Rule
166 provides
that communications before the first public announcement of a transaction
will not be offers, so long as parties to the transaction take reasonable
steps to prevent further distribution or publication until the first public
announcement or the registration statement is filed.
56 For example, the exemption
would not be available where a non-reporting issuer conducts an exchange
offer primarily for the purposes of giving its investors freely tradable
securities and creating a public market in, or manipulating the market for,
those securities. Likewise, it would be inappropriate to rely on the exemptions
in effecting a merger of a public "shell" company to take a private company
public. These mergers commonly are used to develop a market for the merged
entity's securities, often as part of a scheme to manipulate the market
for those securities.
57 Of course, if a communication
contains material information, that information must be disclosed in the
registration statement that is declared effective. Therefore, the information
ultimately will be subject to Section 11 liability [15 U.S.C. 77k] as well.
58 In some cases, these communications
are filed and incorporated by reference into registration statements, and
as a result also are subject to Section 11 liability.
59 New
Rule 165(e). This
provision is similar to the good faith standard in Rule 508(a) of Regulation
D [17 CFR 230.508(a)]. Although an immaterial or unintentional failure to
file or delay in filing is a violation of the filing requirement, it would
not render the exemption unavailable. Factors to be considered in determining
whether a delay in filing is immaterial or unintentional include: the nature
of the information, the length of the delay, and the surrounding circumstances,
including whether a bona fide effort was made to file timely. If a written
communication is made late in the day and the offeror attempts to file it,
but experiences difficulty in filing electronically on EDGAR, and files
as soon as practicable after business hours or the following business day,
the exemption will continue to be available.
60 15 U.S.C. 77e.
Rule 135
generally permits prospective offerors to issue notices that include the
following information: (1) the name of the issuer; (2) the title, amount
and basic terms of the securities to be offered, the amount of the offering,
if any, by selling security holders, the anticipated time of the offering,
and a brief statement of the manner and purpose of the offering, without
naming the underwriters; and (3) any statement or legend required by state
law. Other limited information also is permitted under the rule for rights
offerings, exchange offers and offers to employees of the issuer or an affiliate.
61 Cash tender offers and
cash mergers do not involve the Securities Act, and thus no reliance on
Rule 135 is necessary.
62
Rule 145 is the rule that
applies the registration requirements to business combinations involving
security holder voting decisions.
Rule 145(b)(1) provides that written communications
containing only specified information about mergers and similar transactions
are not deemed offers or a prospectus. Rule 135(a)(4) contains a similar
provision for communications about exchange offers.
Rule 145(b)(2), which
provides that certain communications subject to the proxy rules are not
offers, is being rescinded as proposed.
63 Changes to
Rules 135 and
145 in the Securities Act Reform Release that were specifically tailored
to capital-raising transactions are not being adopted at this time.
64 17 CFR 249.308.
65 New
Rule 425(b).
66 New
Rule 165(f)(3). A
similar definition of "public announcement" is included in revised
Rules
13e-4(c) and
14d-2(b).
67 Of course, if the regulations
of the self-regulatory organization on which the securities are listed require
a public announcement of the transaction, that would constitute a public
announcement for purposes of the communications exemptions. |
