SEC Publishes Revised C&DI Related to Lock-Up Agreements in Business Combinations and New C&DIs Related to Tender Offers

On March 6, 2025, the U.S. Securities and Exchange Commission (SEC) published (1) a revised Compliance and Disclosure Interpretation (C&DI) regarding lock-up agreements in business combinations and (2) five new C&DIs regarding tender offers.

Securities Act Sections Revised Question 239.13 and Securities Act Forms Revised Question 225.10

Under the C&DIs, SEC staff has recognized that, for legitimate business reasons, in Rule 145(a) business combinations, an acquiring company may seek lock-up agreements from the target company’s management and principal security holders committing them to vote in favor of the transaction. The execution of these lock-up agreements may be viewed as investment decisions made before the transaction is presented to non-affiliated security holders for their vote. However, under the revised C&DIs, the SEC staff will not object to the registration of offers and sales where lock-up agreements have been signed when (1) the lockup agreements involve only target company insiders, (2) those executing the lock-up agreements collectively own less than 100% of the voting equity securities of the target company, (3) votes will be solicited from security holders of the target company who have not signed the agreements if such votes are needed to approve the business combination under state or foreign law, and (4) the acquiring company delivers a prospectus to all security holders of the target company entitled to vote on the business combination.

The previous versions of the C&DIs stated that SEC staff has objected to the subsequent registration on Form S-4 for any of the shareholders where the target company insiders who executed lock-up agreements also delivered written consents approving the business combination “because offers and sales have already been made and completed privately, and once begun privately, the transaction must end privately.”

According to the revised C&DIs, SEC staff will not object to the subsequent registration on Form S-4 where the target company insiders who executed lock-up agreements also delivered written consents approving the business combination, as long as (1) consenting target company insiders are offered and sold securities of the acquiring company only pursuant to a valid exemption and (2) the registered securities are offered and sold only to security holders who did not deliver written consents approving the business combination.

Tender Offer Rules and Schedules New Questions 101.17-21

Question 101.17 states that, “as a general rule,” an all-cash tender offer should remain open for a minimum of five business days from the date that the material change is first disclosed. However, a shorter time period may be adequate if disclosure and dissemination of the material change allows security holders sufficient time to consider such information and factor it into their decision whether to tender shares, withdraw shares already tendered, sell into the market or hold their shares.

Question 101.18 states that when an offeror commences an all-cash “partly financed” or “unfinanced” tender offer under Regulation 14D, and it discloses the lack of sufficient funds and committed financing in its offer to purchase, then the subsequent securing of committed financing necessary to fund the purchase of all securities sought in the offer constitutes a material change requiring prompt disclosure and dissemination of the disclosure to security holders in a manner reasonably designed to inform holders of the change.

Question 101.19 states that a tender offer is considered fully financed if the offeror has obtained a binding commitment letter from a lender to provide the funds necessary to purchase the maximum amount of securities sought in the offer. However, a tender offer is not considered fully financed if the offeror has only received a “highly confident” letter from a lender.

Question 101.20 describes a situation where an offeror in a cash tender offer for all securities of the subject class discloses in its offer to purchase that it has obtained a binding commitment letter from a lender to fund the purchase of all securities sought in the offer. The offeror also discloses the possibility that it may use alternative funding sources. The CD&I states that the offeror’s decision to then fund the purchase of all securities of the subject class using an alternative source of funds (or available cash) is not considered a material change; however, the offeror should consider updating the tender offer materials to reflect the substitution of the funding source (or the substitution of cash) and the material terms of the new funding source.

Question 101.21 describes a situation where an offeror in an all-cash tender offer subject to Regulation 14D discloses in its offer to purchase that it has obtained a binding commitment letter from a lender to provide the funds necessary to purchase all securities sought in the offer. The offeror conditions its purchase of the tendered securities on the actual receipt of the funds from the lender by the offer’s expiration. The CD&I states that when the offeror has a binding commitment letter from a lender and receives the expected funds, no material change in the information given to security holders has occurred because the lender has simply satisfied the funding condition by fulfilling its contractual obligation. If the lender does not fulfill its contractual obligation by providing the expected funds, but the offeror waives the funding condition because it is able to use an alternative source of funds to purchase all securities sought in the offer, then, consistent with Question 101.20, no material change has occurred. If the lender does not fulfill its contractual obligation by providing the expected funds, but the offeror waives the funding condition despite having no alternative funding source to purchase all securities, then the waiver would constitute a material change requiring prompt disclosure, the filing of an amendment to the Schedule TO and dissemination of the disclosure to security holders in a manner reasonably designed to inform holders of the change.