• The SEC issued two updated Compliance and Disclosure Interpretations (“C&DIs”) relating to the use of “lock-up” agreements and written consents in certain business combination transactions, reversing previous guidance on the topic.
• The SEC additionally issued five new C&DIs relating to tender offers.

On March 6, 2025, the staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC”) issued two updated Compliance and Disclosure Interpretations (“C&DIs”) relating to the use of “lock-up” agreements and written consents in certain business combination transactions, which reverses its previous guidance on the topic. In addition, the SEC issued five new C&DIs related to tender offers.

A summary of these updates is provided below, followed by the full text of the updated and new C&DIs, including links to markups showing revisions from the SEC.

RULE 145(A) C&DIS

Background

In business combination transactions involving target companies that have a majority stockholder, an acquiror often requests that such stockholder deliver a written consent immediately after the signing of the transaction agreement. This is known as a “sign-and-consent” structure, which has the advantage of eliminating the need to convene a stockholders meeting to approve the transaction. This accelerates the closing timeline and enhances the acquiror’s deal certainty as the deal cannot be disrupted by another potential acquirer once the stockholder vote is obtained. Absent a written consent, acquirors will seek voting agreements by which management and principal security holders commit to vote in favor of the transaction at the stockholders meeting, referred to as “lock-up agreements.”

In a 2008 C&DI, the SEC staff objected to sign-and-consent structures in transactions where the target stockholders were to receive stock consideration registered on a Form S-4. The staff’s rationale was that offers to purchase target company stock by buyers and sales of such stock by large stockholders had been consummated privately via the “sign-and-consent” structure, and “once begun privately, the transaction must end privately,” and thus the staff would object to the subsequent registration of stock on Form S-4.

Though the SEC staff had not formally updated its guidance, it had not recently enforced this portion of the C&DI, with several transactions occurring under the “sign-and-consent” and subsequent Form S-4 filing playbook with no objections from the SEC (review our practice note on “sign-and-consent” structures for more information).

Updated Guidance

In a significant departure from its 2008 guidance, the SEC updated the C&DI to align with its current practice of permitting subsequent registration of offers and sales of the acquiring company’s securities on Form S-4 (or Form F-4) when a “sign-and-consent” structure has been implemented, provided: (1) the insiders of the target company, who provided written consents, are offered and sold acquiring company securities only in an offering validly exempt from the Securities Act, and (2) the registered securities (on either Form S-4 or F-4) are offered and sold only to security holders who did not sign on to such written consent.

This means that the SEC staff will allow stock-for-stock mergers to proceed with a combination of exempt offerings for target company insiders who executed consents in favor of the transaction and a registered offering for other target company stockholders.

Where lock-up agreements have been signed instead, there are four conditions that must be satisfied in order to ensure the non-objection of SEC staff to the registration of offers and sales: 

• the lock-up agreement involves only “target company insiders” that are executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the target company;

• those signing the lock-up agreement own, in the aggregate, less than 100% of the target company’s voting equity securities;

• votes are solicited from the target company’s stockholders who have not signed lock-up agreements if such votes are required to approve the transaction under state or foreign law; and

• the acquiring company must deliver a prospectus to all target company security holders who are entitled to vote on the transaction.

This list of requirements builds on the pre-existing framework with key updates to the third element, clarifying that a vote is only required by the SEC if also required by state or foreign law and adding delivery of a prospectus as a new fourth requirement.

TENDER OFFER C&DIS

Background

The SEC expanded its Tender Offer Rules and Schedules guidance on March 6, 2025 with the release of five new C&DIs principally focused on clarifying the definition and treatment of material changes that may require disclosure.

New Guidance

Summaries of the new C&DIs are provided below:

• Question 101.17: The SEC acknowledges that its “general rule” requiring that all-cash tender offers remain open at least five business days following the initial disclosure date of material changes may not always be practical. In certain contexts, a shorter time frame may be acceptable, provided security holders have sufficient time to consider the material information disclosed when contemplating whether to tender, withdraw, sell or hold. The relative materiality of the information matters.

• Question 101.18: When an offeror announces a partly financed or unfinanced tender offer subject to Regulation 14D and discloses the lack of sufficient funds in its offer, the SEC considers the offeror’s subsequent securing of funding as a material change to the previously disclosed information, requiring the offeror to promptly disclose this change and disseminate the updated disclosure to security holders. In some cases, offerors should consider extending the offer to allow shareholders adequate time to consider the change. This C&DI applies to both third-party tender offers and issuer tender offers.

• Question 101.19: The SEC clarifies that binding commitment letters from lenders constitutes a fully financed transaction. However, “highly confident” letters from lenders are not viewed with the same binding effect and are not considered fully financed.

• Question 101.20: Where an offeror has received a binding commitment letter from a lender but discloses that it may purchase the securities via an alternative funding source, if the offeror does utilize the alternative funding (including cash), the SEC does not consider the funding substitution a material change requiring disclosure. However, the offeror should still consider whether the offer materials should be updated to reflect the change.

• Question 101.21: This C&DI contemplates a situation in which there is an all-cash tender offer subject to Regulation 14D, where the offeror obtains a binding commitment letter from a lender but conditions the purchase of the tendered shares on receiving the funds from the lender.

If the lender satisfies the contract and provides the funds, there is no disclosable material change.

If the lender does not meet its contractual obligation to fund, but the offeror waives the condition and utilizes alternative funding to purchase the tendered shares, the SEC does not consider this a material change.

Finally, if the lender does not fulfill its obligation, but the offeror waives the funding condition without any alternative funding source, the offeror’s waiver would constitute a material change requiring prompt disclosure and dissemination to security holders. Further, offerors should also consider whether the prompt payment requirement imposed by Rule 14e-1(c), which requires that an offeror promptly pay for tendered securities or return them, is capable of being satisfied.

This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.