| Release No. 34-19988 July 21, 1983
|
 Table of Contents
|
I. BACKGROUND
The Securities and Exchange Commission is adopting amendments to Rule 13e-4 (the "Rule") under the Securities Exchange Act of 1934 (the "Act"). 1 These amendments were published for comment on November 17, 1982. 2
In August 1979, the Commission adopted the Rule and related Schedule 13E-4, which regulate cash tender offers and exchange offers by issuers for their equity securities. 3 The Rule and Schedule are patterned substantially on the regulatory scheme established by Sections 14(d) and 14(e) of the Act and the rules promulgated thereunder relating to third party tender offers. 4
One type of issuer tender offer is an offer to purchase the shares of security holders who own a specified number of shares that is less than one hundred ("Odd-lot Offer"). Generally, the purpose of an Odd-lot Offer is to reduce the disproportionately high costs to the issuer of servicing large numbers of small shareholder accounts and to enable those shareholders to dispose of their securities without incurring the brokerage fees that normally attend odd-lot transactions. In light of their limited purpose and the fact that they are not characterized by large premiums or significant market impact, Odd-lot Offers present minimal potential for fraud and manipulation.
As noted in the Proposing Release, the Commission currently grants exemptions from the Rule to permit issuers to make Odd-lot Offers without complying with the filing and dissemination requirements of the Rule. 5
In the majority of cases, however, the Commission has continued to require that such offers comply with the substantive provisions of the Rule. These provisions, contained generally in paragraph (f), require an issuer, among other things, to leave a tender offer open for a minimum period of time; 6 grant tendering security holders certain withdrawal rights; 7 pay any increase in consideration to holders whose securities have already been accepted for payment; 8 and refrain from purchasing the security that is the subject of the tender offer and certain related securities for ten business days after the date of termination of the tender offer. 9 In addition, Odd-lot Offers are subject to the general antifraud and anti-manipulative provisions of the federal securities laws. 10
In the Proposing Release, the Commission recommended amendments to the Rule to except Odd-lot Offers from the provisions of the Rule, including its filing, disclosure and substantive requirements. The amendments would have required that an issuer extend Odd-lot Offers to all beneficial and record holders of the specified number of shares as of a record date prior to the announcement of the Odd-lot Offer.
II. DISCUSSION
The Commission continues to believe generally that Odd-lot Offers do not require the substantive and procedural protections of the Rule, and has amended the Rule consistent with the proposal with certain modifications. 11 As more fully discussed in the Proposing Release, an odd-lot holders primary incentive to tender into an Odd-lot Offer is to avoid the brokerage fees normally charged for odd-lot transactions. Since Odd-lot Offers do not occur in contested situations and are not used as defensive tactics in response to third party tender offers, odd-lot holders are not pressured to act in haste, and there is little reason for odd-lot holders to withdraw securities previously tendered. In addition, the minimum time periods have little relevance in the context of an Odd-lot Offer.
Commentators unanimously endorsed the view that Odd-lot Offers do not present the potential for fraud or manipulative abuse addressed by the Rule, and supported excepting Odd-lot Offers from the application of the Rule. 12 Some commentators objected to the proposed requirement that Odd-lot Offers be extended to beneficial holders to qualify for an exception to the Rule. Of particular concern to many of these commentators was the requirement implicit in the Proposing Release that Odd-lot Offers be extended to participants in profit sharing plans, dividend reinvestment plans and other employee or shareholder benefit plans. They argued that reducing servicing costs to issuers and eliminating brokerage fees for shareholders are not relevant considerations in the context of such plans. Moreover, such plans are designed to encourage shareholders to continue to invest in a company, an objective that is inconsistent with the desire that underlies most Odd-lot Offers--to eliminate small shareholders accounts.
The Commission continues to believe that it is important to prevent unreasonable discrimination among holders of the class of securities subject to a tender offer, including an Odd-lot Offer. The requirement that Odd-lot Offers be extended to beneficial as well as record holders is designed to protect beneficial holders who might otherwise be excluded from the opportunity to participate in an Odd-lot Offer. Accordingly, the Commission has decided to retain the requirement that Odd-lot Offers excepted from the Rule be extended to beneficial as well as record holders. As suggested by some commentators, however, participants in employee or shareholder stock purchase plans will be excluded from this requirement. 13 Issuers that engage in an Odd-lot Offer excepted from the Rule will therefore not be required to extend such offers to participants in any such plan. 14
In addition, for the reasons articulated in the Proposing Release, the Commission has decided to retain in the Rule as adopted the requirement that an issuer making an Odd-lot Offer set a record date prior to announcement of the offer to determine the eligibility of a security holder to participate in the offer. 15
Finally, the Commission observed in the Proposing Release that, in a small number of situations, an Odd-lot Offer may also constitute a going private transaction subject to Rule 13e-3 under the Act. 16 The Commission determined, in adopting Rule 13e-3, that it was not necessary to subject tender offers covered by Rule 13e-4 to the 20 day pre-purchase dissemination requirement specified by Rule 13e-3 because Rule 13e-4 tender offers were subject to a similar protected period by operation of the withdrawal provisions of paragraph (f) of the Rule. 17
In the Proposing Release the Commission noted, however, that, as a consequence of excepting Odd-lot Offers from the operation of the Rule, Odd-lot Offers that are also Rule 13e-3 transactions would become subject to the 20 day pre-purchase dissemination requirement contained in paragraph (f)(1)(I)(A) of Rule 13e-3. Commentators were requested to consider whether it was appropriate to subject Odd-lot Offers that are Rule 13e-3 transactions to that provision. 18
The Commission has determined that it is not necessary to extend the delay period during which purchases cannot be effected beyond that previously afforded by the withdrawal provisions of paragraph (f) of Rule 13e-4. Thus, the Commission has decided to retain a 10 business day period for Odd-lot Offers excepted from the Rule that are also Rule 13e-3 transactions. The Commission has amended Rule 13e-3(f)(1) to provide that, in the case of Odd-lot Offers excepted from the Rule, the information required by Rule 13e-3 shall be disseminated in accordance with paragraph (e) of Rule 13e-4 no later than 10 business days prior to any purchases pursuant to the Odd-lot Offer. 19
III. REGULATORY FLEXIBILITY ACT CONSIDERATIONS
The Chairman of the Commission certified in connection with the Proposing Release that the proposed amendments to Rule 13e-4, if adopted, would not have a significant impact on a substantial number of small entities. None of the comments addressed the certification.
IV. EFFECTS ON COMPETITION AND OTHER FINDINGS
Section 23(a)(2) of the Act 20 requires the Commission, in adopting rules under the Act, to consider the anti-competitive effect of such rules, if any, and to balance any impact against the regulatory benefits gained in terms of furthering the purposes of the Act. The Commission has considered the amendments to Rules 13e-3 and 13e-4 in light of the standards cited in Section 23(a)(2) and believes, for the reasons stated herein, that adoption of the amendments will not impose any burden on competition not necessary or appropriate in furtherance of the Act.
The Commission finds, in accordance with the Administrative Procedure Act, 21 that the adoption of the amendments to Rules 13e-3 and 13e-4 relieve mandatory restrictions and are exemptive in nature. Accordingly, the foregoing action becomes effective immediately.
LIST OF SUBJECT IN 17 CFR 240
Reporting Requirements
Securities
V. STATUTORY BASIS AND TEXT OF RULE AMENDMENTS
The amendments to Rules 13e-3 and 13e-4 are adopted pursuant to Sections 3(b), 9(a)(6), 10(b), 13(e), 14(e) and 23(a) of the Act, 15 U.S.C. 78c(b), 78i(a), 78j(b), 78m(e), 78n(e) and 78w(a). In accordance with the foregoing, Part 240 of Chapter II of Title 17 of the Code of Federal Regulations is amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934
1. By amending §240.13e-3 by revising paragraph (f)(1)(i)(A) as follows:
§240.13e-3 Going private transactions by certain issuers or their affiliates.
* * * * *
(f) * * *
(1) * * *
(i) * * *
(A) In accordance with the provisions of any applicable federal or state law, but in no event later than 20 days prior to: any such purchase; any such vote, consent or authorization; or with respect to the distribution of information statements, the meeting date, or if corporate action is to be taken by means of the written authorization or consent of security holders, the earliest date on which corporate action may be taken: Provided, however, That if the purchase subject to this section is pursuant to a tender offer excepted from Rule 13e-4 by paragraph (g)(5) of Rule 13e-4, the information required by paragraph (e) of this section shall be disseminated in accordance with paragraph (e) of Rule 13e-4 no later than 10 business days prior to any purchase pursuant to such tender offer,
* * * * *
2. By amending §240.13e-4 by revising paragraph (f)(3)(i), deleting the word "or" at the end of paragraph (g)(4), adding a new paragraph (g)(5), and redesignating current paragraph (g)(5) as (g)(6), to read as follows: §240.13e-4 Tender offers by issuers.
* * * * *
(f) * * *
(3) * * *
(i) Accepting all securities tendered by persons who own, beneficially or of record, an aggregate of not more than a specified number which is less than one hundred shares of such security and who tender all their securities, before prorating securities tendered by others; or
* * * * *
(g) * * *
(5) Offers to purchase from security holders who own an aggregate of not more than a specified number of shares that is less than one hundred: Provided, however, That the offer is made to all record and beneficial holders (other than participants in an issuers plan, as that term is defined in Rule 10b-6(c)(4) under the Act §240.10b-6(c)(4), if the issuer elects not to extend the offer to such participants) who own that number of shares as of a specified date prior to the announcement of the offer; or
* * * * *
By the Commission.
1The Commission is also adopting a companion amendment to Rule 13e-3 under the Act.
2See Securities Exchange Act Release No. 34-19246 (November 17, 1982), 47 FR 53398 ("Proposing Release").
3See Securities Exchange Act Release No. 34-16112 (August 16, 1979), 44 FR 49406. The Rule was proposed for public comment in Securities Exchange Act Release No. 34-14234 (December 8, 1977), 42 FR 63066.
4See Rules 14d-1 through 14d-9 and 14e-1 through 14e-3, 17 CFR 240.14d-1-14d-9 and 240.14e-1-14e-3.
5Paragraph (c) of the Rule requires that the issuer making a tender offer file with the Commission ten copies of a Schedule 13E-4 in connection with its offer, while paragraph (d)(1)(iv) requires dissemination to all eligible participants of the information contained in the Schedule or a fair and adequate summary thereof.
In addition to a five percent limit on the number of shares to be purchased, the Division of Market Regulation, which administers the Rule, has required that an issuer making an Odd-lot Offer exempted from the Rule disseminate to shareholders a letter containing the following information:
a. the terms and purpose of the Odd-lot Offer;
b. instructions for obtaining, at the issuers expense, the information required by paragraph (d)(1)(iv) of the Rule; and
c. a letter of transmittal pursuant to which odd-lot holders may tender their securities.
617 CFR 240.13e-4(f)(1).
717 CFR 240.13e-4(f)(2).
817 CFR 240.13e-4(f)(4).
917 CFR 240.13e-4(f)(6).
10Sections 9(a), 10(b) and 14(e) of the Act and Section 17(a) of the Securities Act of 1933 prohibit the use of manipulative or deceptive acts or contrivances in connection with various securities transactions.
11The amendments also make a clarifying change to paragraph (f)(3)(i) of the Rule deleting reference to acceptance procedures in connection with Odd-lot Offers.
12Ten comments were received with respect to the proposed amendments. File No. S7-952 contains these public comment letters as well as a Summary of Comments prepared by the staff of the Commission.
13For purposes of this exclusion, the term "plan" will have the same definition as that term in Rule 10b-6 under the Act. See 17 CFR 240.10b-6(c)(4).
14An issuer would nevertheless be required to extend the Odd-lot Offer to any shares held independently of any such plan by a participant in the plan, and a participants plan shares would not be counted in determining whether the participants independently held shares were of a sufficiently small number to qualify for the Odd-lot Offer.
15An issuer that chooses not to use a record date in connection with an offer to odd-lot holders will not be prohibited from making that offer. Such an offer, however, will remain fully subject to the Rule and the issuer will be required either to obtain an exemption from the Rule or to comply fully with all provisions of the Rule. In addition, the amendments to the Rule will not affect the application of Section 23(c) of the Investment Company Act of 1940 and Rule 23c-1 promulgated thereunder, 17 CFR 270.23c-1, to closed-end investment companies that purchase for cash any securities of which they are the issuer.
One of the commentators recommended that the Commission amend Rules 10b-6 and 10b-13 to exempt Odd-lot Offers from the operation of those rules. The Commission has determined instead to allow the staff to consider requests for relief from such rules on a case-by-case basis.
16See Proposing Release, 47 FR at 53400, n.24.
17Paragraph (f) of Rule 13e-4 provides a 10 business day period during which purchases pursuant to the Rule cannot be effected.
18The commentators that addressed this question suggested that it was not appropriate to subject such offers to a 20 day pre-purchase dissemination period.
19In the case of an Odd-lot Offer that is also a Rule 13e-3 transaction, the Rule requires that the obligatory disclosure be disseminated to all shareholders, including those shareholders holding more than the number of shares specified by the Odd-lot Offer.
2015 U.S.C. 78w(a)(2).
215 U.S.C. 553(d).
 |