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Corp Fin Revamps a Slew of CDIs (Including Objecting to Voluntary Exempt Solicitations on Form PX14A6G)

Updated on 7 min read

Last Friday, Corp Fin revised nine CDIs, issued eight new CDIs – and withdrew ten CDIs. A huge shout out to Cooley’s Justin Kisner for the analysis of the CDIs below that are related to the proxy season and deals; the last group of changes listed in section D below are primarily a bunch of “integration” CDI withdrawals or revisions to bring Corp Fin’s interpretive guidance current with Rule 152:

A. Proxy Rules and Schedules 14A/14C

  • Section 126. Rule 14a-6

    Revised Question 126.06 – Staff will now object to a voluntary Notice of Exempt Solicitation.  As you may recall, under Exchange Act Rule 14a-6(g), shareholders owning more than $5 million of a company’s securities generally must file a Notice of Exempt Solicitation on EDGAR (Form PX14A6G) when soliciting shareholders on a topic without seeking to act as a proxy.  It was designed to address concerns that institutional investors and other large shareholders would conduct “secret” solicitations (i.e., if such shareholders are going to engage in solicitations, then the solicitations should be filed on EDGAR for all to see). 

    However, in recent years, these filings have primarily been used by smaller shareholders voluntarily to publicize their views on various proposals as EDGAR doesn’t restrict their use of these filings.  Registrants and practitioners have argued to the SEC for a couple of years now that these filings may be misleading when the filer doesn’t hold $5 million of securities.  Corp Fin now confirms the original intent of the rule – and makes clear with this CDI that it will object to voluntary submissions.

    It remains to be seen how the SEC intends to police voluntary submissions.  For example, the SEC frowns upon voluntary Schedule 13D-G filings – but there is no mechanism in place so that EDGAR prevents such filings.

    Revised Question 126.07 – Language updated to reflect Staff’s objection to voluntary exempt solicitation submissions.
  • Section 133. Rule 14a-13

    New Question 133.02 – Staff recognizes that the “broker search” may be completed in less than 20 business days prior to record date.  Corp Fin won’t 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.  No added interpretive requirements or conditions – registrants just need to otherwise comply with Rule 14a-13. 

    This guidance applies equally to the similar “broker search” requirement of Rule 14c-7(a)(3) with respect to information statements – and this revised CDI doesn’t differentiate between annual meetings or special meetings, including those for business combinations.

    We understand the SEC staff is communicating with the NYSE staff given NYSE Rule 402.05, which acknowledges Rule 14a-13’s 20-business day rule.  We expect that the NYSE will recognize this guidance from Corp Fin as that this is generally consistent with NYSE’s approach in the past.
  • Section 182. Rule 14c-2

    New Question 182.01 – Partial relief from 20-calendar day requirement to disseminate information statement.  Corp Fin confirms that Rule 14c-2 doesn’t delay or invalidate corporate action taken by written consent.  Effectiveness of such action is governed by state law or the registrant’s governing documents, not the 20-day information statement requirement.  As a result, Corp Fin confirms that where a dissident solicits consents without the registrant’s knowledge, the staff won’t object to noncompliance so long as the registrant distributes the information statement as soon as practicable after becoming aware of the written consents.

    B. Securities Act Sections
    • Section 139. Securities Act Section

      Revised Question 139.29 – Revised guidance to reduce interpretive asymmetry in lock-up treatment in business combinations.  Consistent with CDI 239.13, Corp Fin staff expands the scope of the lock-up guidance and permits subsequent registration of securities on Form S-4 (or Form F-4) 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 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).

      Revised Question 139.30 – Tracks revised CDI 139.29 and expands the scope of the lock-up guidance for third-party exchange offers.  Corp Fin will not object to the subsequent registration of securities on Form S-4 (or Form F-4) if:

      – The target company insiders who executed the lock-up agreements (or agreements to tender) will be offered and sold securities of the acquiring company only pursuant to a valid exemption; and
      – The securities registered on 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 – Expands the scope of the lock-up guidance for Rule 145(a) transactions.  Under the prior version of the CDI, target company insiders were required to deliver written consents for the parties to rely on the staff’s guidance permitting subsequent registration of the acquiror’s securities.  The revised CDI clarifies that either action is sufficient: target company insiders may execute lock-up agreements (even if the CDIs primary conditions are not satisfied) or deliver written consents approving the transaction, and the parties may still benefit from the guidance, so 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 pursuant to a valid exemption; and
      – The securities registered on Form S-4 (or Form F-4) will be offered and sold only to security holders who did not execute lock-up agreements or deliver written consents approving the business combination.

      C. Tender Offer Rules and Schedules
    • Section 166. Rule 14e-5
      New Question 166.02 – Expands Rule 14e-5 exception for purchases conducted outside a Tier I cross-border tender and after public announcement but before offering documents are disseminated.  A condition in Rule 14e-5(b)(10) is that the “offering documents furnished to U.S. holders [must] prominently disclose the possibility of any purchases, or arrangements to purchase, or the intent to make such purchases.” 

      This CDI makes clear that outside purchases post-public announcement and pre-dissemination are covered by the (b)(10) exception where such purchases are (i) allowed under the target’s home jurisdiction, (ii) the remaining conditions are satisfied, and (iii) the offering documents should disclose that such purchases have occurred and may continue during the offer.

      New Question 166.03 – Recognition of ‘agent-of-the-offeror’ purchases outside of a Tier II tender offer by affiliates of the offeror’s financial advisor.  Clarifies that purchases made outside a Tier II tender offer by an affiliate of the offeror’s financial advisor, when acting in an agent-of-the-offeror capacity, are treated as purchases by offeror or its affiliates under the Rule 14e-5(b)(12) exception.  As a result, such purchases may be made to facilitate the tender offer and are not subject to the (G)(4) prohibition, which Corp Fin views as applying only to purchases by financial advisor affiliates acting other than in an agent-of-the-offeror capacity. 

      Note that these purchases remain subject to the other conditions of Rule 14e-5(b)(12), including 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 (i.e., price-matching requirement in paragraph (F)).

D. The Other CDIs

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Portrait photo of Broc Romanek over dark background

Broc Romanek

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