Edited by Robert Kohl and Hays Ellisen
SEC/CORPORATE SEC Issues New Compliance and Disclosure Interpretations On November 16, the Securities and Exchange Commission's Division of Corporation Finance issued two new Compliance and Disclosure Interpretations (C&DIs) with respect to Section 5 of the Securities Act of 1933 (Questions 139.29 and 139.30). The new C&DIs concentrate on whether, in the context of registered debt exchange offers and negotiated third-party share exchange offers, the issuer or acquirer, as the case may be, may enter into lock-up agreements with holders prior to filing a registration statement on Form S-4 for the exchange. The SEC acknowledged that there were legitimate business reasons for offerors to seek lock-up agreements in these situations.
If an issuer engages in a registered debt exchange offer, the SEC stated that the issuer may enter into lock-up agreements prior to filing a registration statement if: the signing noteholders are accredited investors and own less than 100% of the outstanding principal amount of the particular series of notes; a tender offer will be made to all holders of the particular series of notes; and all note holders will receive the same amount and form of consideration.
If a third-party acquirer engages in a negotiated share exchange offer, the SEC confirmed that the acquirer may enter into lock-up agreements prior to filing a registration statement if: the lock-up agreements only involve executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the securities; the signing holders own less than 100% of the securities; a tender offer will be made to holders of all securities; and all holders of securities will receive the same amount and form of consideration.
The SEC also replaced an existing C&DI with respect to Sections 13(d) and 13(g) of the Exchange Act and Regulation 13D-G (103.10). The new C&DI asserts that for purposes of calculating the 10-day period after the acquisition when a Schedule 13D must be filed, the day after the trade date (rather than the settlement date) should be counted as the first day of such period. The superseded C&DI stated that the 10-day period begins on the trade date.
Click here to view all C&DIs with respect to the Securities Act.
Click here to view all C&DIs with respect to Sections 13(d) and 13(g) of the Exchange Act and Regulation 13D-G.
LITIGATION SEC's First Regulation G Enforcement Action Results in Injunction, Civil Penalties The Securities and Exchange Commission's first action pursuant to Regulation G has resulted in settled charges against a technology firm and certain officers and employees who mischaracterized various expenses in order to meet earnings targets in 2004 and 2005.
Regulation G, which was enacted in 2003, applies whenever a company subject to periodic reporting requirements discloses any material information that includes financial measures that do not conform with generally accepted accounting practices (i.e., non-GAAP results). Such non-GAAP financial measures often exclude non-recurring, infrequent, or unusual expenses. Regulation G requires firms that employ such measurements to reconcile them with the most directly comparable GAAP treatments, and also prohibits companies from disseminating false or misleading non-GAAP reports.
The SEC charged that SafeNet, Inc. and individual officers and employees violated Regulation G by mischaracterizing certain expenses as non-recurring costs, improperly reducing other liabilities to bolster earnings, and failing to reconcile these adjustments with GAAP, thereby misleading investors and violating Regulation G. SafeNet continued to exclude approximately $4.6 million in expenses from its non-GAAP earnings statements, even after its auditor determined that such costs were required to be recognized in its GAAP results. In order to explain the disparity between GAAP and non-GAAP earnings, the company allegedly created false reconciliation categories that misrepresented these costs as non-recurring expenses.
SafeNet, Inc. and the individual defendants settled the charges by agreeing to pay penalties and to refrain from future violations. (SEC v. SafeNet, Inc., Civ. No. 09-117 (D.D.C. Nov. 12, 2009))
Delay in Seeking Restraining Order Prompts Denial of Relief A medical equipment company's request for a temporary restraining order to prohibit former employees from aiding its competitor was denied after the company waited four months to seek the restraint and failed to present evidence showing that further delay would result in irreparable injury.
Ride-Away Handicap Equipment Corporation asserted claims for breach of contract, tortious interference, and defamation against two of its former sales agents, who had non-competition agreements with Ride-Away, after the agents resigned and joined a competitor, Mobility Freedom, Inc. The former sales agents joined Mobility Freedom shortly after their resignations in late June and early July...