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E. Early Commencement
us SEC - C&DI - Proxy Rules and Schedules
Question 1
Q: Revised Rule 14d-4(b) states that a registered exchange offer commences when a preliminary prospectus or a prospectus meeting the requirements of Section 10(a) of the Securities Act, including a letter of transmittal, is "delivered" to security holders. In a hostile transaction, if a bidder must make a request to the target under Rule 14d-5 in order to disseminate the offer to security holders, when does the exchange offer commence?
A: The offer will commence when the bidder: (i) files a registration statement containing all required information, including pricing information; (ii) files a Schedule TO; and (iii) begins dissemination of the offer by making a request under Rule 14d-5. The 20 business day period required by Rule 14e-1(a) begins on this date. Commencement is not delayed during the time periods provided under Rule 14d-5.
If the prospectus is not mailed to security holders on the date of commencement because the bidder must wait for a response from the target in accordance with Rule 14d-5, then bidders are encouraged to publish a summary advertisement notifying target security holders how they can obtain a copy of the prospectus (e.g., by calling a toll-free number). Bidders also may disseminate their offering materials to as many security holders as possible. For example, a bidder may provide copies of the prospectus to all known target security holders.
This interpretation would not apply to a negotiated transaction since the bidder in a negotiated transaction would generally not have to rely on Rule 14d-5 to disseminate the information. This interpretation applies whether or not the bidder is using "early commencement."
Question 2
Q: A preliminary prospectus used to commence an exchange offer early under Rule 162 must include the "red herring" legend required by Item 501(b)(10) of Regulation S-K. The sample legend provided in Item 501(b)(10)(iv) indicates that information in the prospectus is "not complete and may be changed." Is the sample legend in Item 501 appropriate for a prospectus used to commence an exchange offer early?
A: No. The language of the legend should be appropriately tailored to explain that the prospectus may be amended. The legend should not state that the prospectus is not complete or is otherwise subject to completion. The preliminary prospectus disseminated to security holders must contain all required information, including pricing information, in order to effectively "commence" the exchange offer. See Rule 14d-4(b). Information may not be omitted under Rules 430 or 430A. Therefore, the sample legend provided in Rule 501(b)(10)(iv) may be potentially confusing or misleading if it states that the prospectus is not complete or subject to completion.
The following is an example of a legend that may be used when an exchange offer is commenced early under Rule 162:
The information in this prospectus may change. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer is not permitted.
Question 3
NEW
Q: Although the requirement to deliver a final prospectus has been eliminated under Regulation M-A for exchange offers commenced before effectiveness of the registration statement, do bidders making these exchange offers still need to file a final prospectus, even if it means filing a Rule 424(b) prospectus for the sole purpose of removing the red herring language?
A: Yes. The discussion of early commencement at note 137 and surrounding text in the Regulation M-A adopting release explains that although Rule 162(b) eliminates the requirement to deliver a final prospectus, offerors still must file a final prospectus. The obligation to file a final prospectus is not satisfied by the filing of an amendment to the registration statement before effectiveness. Since no final prospectus is delivered, it is important for the public and the staff to be able to locate the final prospectus in a Rule 424(b)(3) filing.
Question 4
NEW
Q: May the "early commencement" exchange offer procedure be used for a debt restructuring?
A: Rule 162 permits the use of this procedure only for an exchange offer subject to Regulation 14D or Rule 13e-4. This is because the offer must be subject to all the disclosure and procedural requirements, including withdrawal rights, imposed by those regulations. Regulation 14D and Rule 13e-4 both apply to tenders for equity securities only. An exchange offer for convertible debt could qualify for "early commencement," assuming it met the other criteria for Regulation 14D or Rule 13e-4, because convertible debt is viewed as equity. See Section 3(a)(11) of the Exchange Act and Rule 3a11-1. An offer for non-convertible debt, however, could not qualify.
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