United States: Liability Management: Is Now The Time To Rebalance Your Balance Sheet? Part 2

Non-cash Tender Offers

If an issuer does not have or want to use its available cash resources, an alternative to a cash tender is an exchange offer. In an exchange offer, the issuer offers to exchange a new debt or equity security for its outstanding debt or equity securities. For distressed issuers, an exchange offer may be the best non-bankruptcy restructuring option. Exchange offers enable an issuer to reduce interest payments or cash interest expense (by exchanging debt securities with a high rate for a lower one), reduce the principal amount of outstanding debt (in the case of a debt equity swap), manage its maturity dates (by exchanging debt securities that are coming due for debt securities with an extended maturity) and reduce or eliminate onerous covenants (if coupled with an exit consent). We discuss these alternatives below. Another benefit to conducting an exchange offer is that the issuer may "sweeten" the deal by providing a cash payment to the holder as an inducement to exchange. It is important for issuers to note that a cash tender may trigger disclosure obligations under the Exchange Act. An issuer may need to file a Form 8-K for a cash tender if, under Item 2.04, the tender may be considered an acceleration of a financial obligation.

Securities Act considerations

An exchange offer must comply with the tender offer rules. However, because an exchange offer involves the offer of new securities, it also must comply with, or be exempt from, the registration requirements of the Securities Act. For this reason, documentation for an exchange offer must be more detailed than that for a cash tender offer and must describe the terms of the new securities. In addition, because the exchange involves the offer of new securities, participants are liable under the antifraud protections of Section 11 of the Securities Act. To the extent an issuer engages a financial intermediary to assist with the solicitation of tenders, that entity may be subject to statutory underwriter liability and will conduct its own diligence review of the issuer and will require delivery of legal opinions and comfort letters.

An exchange offer may either be exempt from registration or registered with the SEC. An issuer may rely on the private placement exemptions provided under Section 4(2) of the Securities Act or the exemption provided by Section 3(a)(9) of the Securities Act. In addition, an exemption pursuant to Regulation S for offers and sales to non-U.S. persons may be available on a standalone basis or combined with other applicable securities exemptions.

An exchange offer may either be exempt from registration or registered with the SEC. An issuer may rely on the private placement exemptions provided under Section 4(2) of the Securities Act or the exemption provided by Section 3(a)(9) of the Securities Act. In addition, an exemption pursuant to Regulation S for offers and sales to non-U.S. persons may be available on a standalone basis or combined with other applicable securities exemptions.

Regulation M

As we discuss above with respect to cash tenders, an issuer must be mindful of Regulation M's prohibitions on bidding for, or purchasing, its securities when it is engaged in an offer. If the debt being exchanged is convertible 17 Attorney Advertisement into the issuer's equity securities, under certain circumstances, repurchases of convertible debt securities could be deemed a forced conversion and, therefore, a "distribution" of the underlying equity security for Regulation M purposes.

Private exchange offers

An exchange offer may be conducted as a private placement. Because the issuer must structure the exchange within the confines of Section 4(2), it may not engage in a "general solicitation" of its securityholders. In addition, any offerees must be "sophisticated investors." Typically, if an issuer is relying on Section 4(2) for its exchange, it will limit its offer only to QIBs as a precaution. To ensure that the offer restrictions are satisfied, an issuer often will "pre-certify" its holders to ensure that they meet the requirements (either QIB or accredited investor status). If the issuer has engaged a financial intermediary, this entity will identify debtholders and contact them in advance. Often, the financial intermediary will have certifications on file for the debtholder and verify its status, or it may obtain the requisite certification on the issuer's behalf. This typically can be accomplished by requiring that the holder sign a letter confirming its status. As with any other restructuring, an issuer must ensure that the transaction is permitted under the governing debt instrument, as well as under its other financial arrangements.

If an issuer conducts a private exchange, the newly issued securities will not be freely tradable, as they were issued pursuant to an exemption from registration. In the past, an issuer covenanted with the holders to register the securities issued in the exchange, either through a resale registration statement or via a registered exchange. In light of recent amendments to Rule 144 that shortened the holding period for restricted securities, holders may no longer require an issuer to register their securities issued in the exchange. Under the Rule 144 amendments, unaffiliated holders may sell their securities without restriction after a six-month holding period, provided the issuer is a reporting company and has current information. Whether registration rights are requested may depend on the type of security issued (for instance, holders exchanging equity for debt may want liquidity sooner than holders exchanging debt for debt). Rule 144(d)(3)(ii) provides that a holder of a security may tack the holding period of the underlying security to its holding period for an exchanged security in certain circumstances. Rule 144(d)(3)(ii) states: "If the securities sold were acquired from the issuer solely in exchange for other securities of the same issuer, the newly acquired securities shall be deemed to have been acquired at the same time as the securities surrendered for conversion or exchange, even if the securities surrendered were not convertible or exchangeable by their terms."

Section 3(a)(9) exchange offers

Another option is an exchange offer exempt pursuant to Section 3(a)(9). Section 3(a)(9) of the Securities Act applies to "any securities exchanged by the issuer with its existing securityholders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange." Section 3(a)(9) has five requirements:

Same issuer – the issuer of the old securities surrendered is the same as the issuer trying to effectuate an exchange of the new securities;

No additional consideration from the holder – the securityholder must not be asked to part with anything of value besides the outstanding security;

Offer only to existing holders – the exchange must be offered exclusively to the issuer's existing securityholders;

No remuneration for solicitation – the issuer must not pay any commission or remuneration for the solicitation of the exchange; and

Good faith – the exchange must be in good faith and not as a plan to avoid the registration requirements of the Securities Act.

Same issuer

Section 3(a)(9) exempts any securities exchanged by the issuer with "its" securityholders. The SEC has interpreted the word "its" to mean that the new securities being issued and the securities that are being surrendered must originate from a single issuer. While this concept may seem relatively straight forward, there are a number of scenarios that can complicate an identity of issuer analysis. The SEC has granted no-action relief in response to facts and circumstances that do not fit neatly within the "single issuer" requirement. For example, the SEC has granted no-action relief for an exchange of guaranteed debt securities of a subsidiary for the securities of the parent issuer guarantor.¹⁸ The SEC concluded that the exchange as a whole involved a single issuer. In its analysis, the SEC first held that as a matter of economic reality, the holders of the subsidiary's securities were in fact holders of the parent issuer's securities. Next, the SEC placed heavy emphasis on the relationship between the parent issuer and the subsidiary. The subsidiary was established by the parent issuer to issue securities and finance the activities of the parent issuer. The subsidiary had minimal assets and liabilities that were tied to the issuance of securities. "In economic reality, it is the [parent issuer's] financial position and business prospects and the value of the [parent issuer's] securities to be issued ... that will be of interest to investors in making their investment decisions."¹⁹

In another no-action letter, an issuer transferred its common stock to a trust.²⁰ The issuer wanted to execute an exchange whereby the trust would facilitate an exchange of old securities for new ones. The issue was whether the issuance by the trust, which is ostensibly a different issuer, would preclude the issuer from relying on Section 3(a)(9). The SEC found this exchange exempt under Section 3(a)(9), finding that the trust was a "special purpose entity established for the sole purpose of allowing ... investors to obtain the economic right in [a security]. The [trust] does not engage in any activities unrelated to this purpose and has no independent financial or economic activity."

These two no-action letters, which we discuss only for illustrative purposes, demonstrate that the SEC will look at the underlying economic reality when confronted with an identity of issuer question. There are a number of other no-action letters and other SEC guidance that provide additional interpretation in satisfying the conditions of Section 3(a)(9).²¹

No additional consideration from the holder

The term "exclusively" in Section 3(a)(9) refers to the consideration that securityholders are required to exchange. This excludes from the safe harbor of Section 3(a)(9) all exchange offers where the holder must give up anything other the than old securities. Conversely, an issuer relying on Section 3(a)(9) is free to include cash in what it gives to the securityholders.

Rule 149 under the Securities Act provides an exception to the no-cash payment rule "to effect an equitable adjustment, in respect of dividends or interest paid or payable on the securities involved in the exchange, as between such securityholder and other securityholders of the same class accepting the offer of exchange." An example of an equitable adjustment is when, due to the timing of interest payments and intra-securityholder sales (that is, sales not involving the issuer), one securityholder may get the benefit of an interest payment due to another securityholder. Should this be the case, the issuer may, in an exchange offer, require an unjustly enriched securityholder to reimburse the issuer for an extra interest payment. Section 3(a)(9) does permit an issuer to require the securityholders waive the right to receive an interest payment or other consideration accruing from a security.²²

Offer only to existing holders

Any exchange offer conducted in reliance on Section 3(a)(9) may be made only to existing holders. Though it appears simple, this requirement can sometimes be breached if an issuer is conducting a simultaneous offering of new securities for cash. In this case, the issuer must take care to keep the two offerings separate.

No remuneration for solicitation

Section 3(a)(9) expressly prohibits an issuer from paying a "commission or other remuneration ... directly or indirectly for soliciting such exchange." In conducting a "commission ... remuneration" analysis, it is important to consider:

• the relationship between the issuer and the person furnishing the services;
• the nature of the services performed; and
• the method of compensation for those services.

An issuer's officers, directors and employees may solicit participation provided that they were not hired for such purpose, have responsibilities other than soliciting participation and are not paid a bonus or special compensation for such solicitation.²³ Issuers also are permitted to engage third parties, such as financial advisers and investor relations firms, to assist in a Section 3(a)(9) exchange, however restrictions apply. The services provided by the third party must be "ministerial"²⁴ or "mechanical."²⁵ Any services not deemed mechanical must be "by [their] nature ancillary to the effective mechanical operation of the process of formulating a restructuring proposal in a work-out situation."²⁶ An issuer needs to be particularly mindful of firms, such as investor relations firms, that communicate with securityholders. Hiring a firm to communicate with securityholders could be construed as payment for solicitation. The SEC allows investor relations firms to participate in exchanges in a limited capacity. We discuss the role of a financial intermediary in Appendix B. Third parties assisting in an exchange are not permitted to make any recommendations to securityholders regarding the exchange offer,²⁷ though an investment bank may provide a fairness opinion in connection with an exchange provided it is not acting as a dealer manager and conducting solicitation activities.²⁸

Other considerations

Securities issued in a Section 3(a)(9) exchange may be subject to limitations on transfer because Section 3(a)(9) is a transactional exemption only. In a Section 3(a)(9) transaction, the newly issued securities are subject to the same restrictions on transferability, if any, of the original securities.²⁹ An issuer also needs to be cautious of having its exchange offer "integrated" with other securities offering conducted in close proximity to the exchange. In making a determination regarding integration, an issuer must apply the SEC's five factor integration test.³⁰

Registered exchange offers

If an issuer is unable to conduct a private exchange, or rely on Section 3(a)(9), it may instead conduct a registered exchange offer. As with a tender offer, additional Exchange Act rules will apply to exchanges of debt with equity characteristics, such as convertible debt. We discuss below the rules applicable to exchanges of equity securities.

The registration statement

A registered exchange offer must be registered on a Form S-4 registration statement (Form F-4 for foreign private issuers).³¹ It may be time consuming to prepare a registration statement, particularly if the issuer does not have the ability to incorporate by reference information from its Exchange Act filings. Also, unlike a Form S-3, a Form S-4 registration statement does not become effective automatically upon filing,³² and except to the limited extent described below, the exchange offer may not be commenced until the registration statement is declared effective. The SEC review process and uncertainty concerning timing may make a registered exchange offer a less desirable option for an issuer.

The registration statement must include descriptions of the securities being offered, the terms of the exchange offer, a description of the issuer and its business and risk factors. In addition, depending on the extent of the restructuring, the issuer may be required to provide pro forma financial information statements reflecting the affects of the exchange.

Early commencement activities

Rule 162 under the Securities Act provides some flexibility by allowing an issuer to elect "early commencement"of its exchange offer. Rule 162 permits solicitations of tenders in certain exchange offers before the registration statement is declared effective.³³ An issuer may begin the offering period prior to effectiveness (shortening the time after effectiveness that it must remain open), provided that no securities are actually exchanged/purchased until the registration statement is effective and the tender offer has expired in accordance with the tender offer rules. Rule 162 is available for exchange offers that comply with Rule 13e-4 and Regulation 14D. Early commencement of exchange offers for straight debt securities

In December 2008, Rule 162 was amended so that it might be available for exchange offers for straight debt securities provided that: (1) the offeror provides the same withdrawal rights as it would if the offering were for equity securities; (2) if a material change occurs in the information published, sent or given to the debtholders, the offeror disseminates information about the material change to the debtholders in compliance with Rule 13e-4; and (3) the offer is held open with withdrawal rights for the minimum periods specified in Rule 13e-4 and Regulation 14D. For exchange offers of straight debt securities, an issuer must decide whether the benefits of early commencement outweigh the ability to provide no or limited withdrawal rights, or to provide for an early tender option.

Consent solicitations

Often, an issuer may wish to solicit consents from its debtholders, whether on a standalone basis or coupled with a tender offer or exchange offer. The purpose of soliciting such a consent is to modify the terms of the debt security being tendered or exchanged. The first step is to undertake a review of the applicable indenture provisions to determine the consent requirements for amendments or waivers. In addition, amendments involving a significant change in the nature of the investment to the remaining holders may result in the remaining securities being deemed a "new security" which would have to be registered under the Securities Act or be subject to an exemption from registration.³⁴ There are a few limitations with respect to consents, in that under most indentures and under Section 316(b) of the Trust Indenture Act of 1939, consents cannot reduce principal or interest, amend the maturity date, change the form of payment or make other economic changes to the terms of the debt securities held by non-tendering debtholders.

Standalone consents

In certain situations, for example, in order to permit a potential transaction, such as an acquisition, reorganization or refinancing, an issuer may want to conduct a "standalone" consent solicitation as a means of amending restrictive covenants or events of default provisions under an existing indenture that otherwise would limit its ability to engage in the transaction. In the current environment, some issuers must modify indenture covenants that restrict or prohibit a restructuring of other debt in order to preserve "going concern" value and avoid bankruptcy. Because consenting holders will remain subject to the terms of the indenture as amended or waived, holders may be reluctant to agree to significant changes. Standalone consent solicitations typically remain open for a minimum of ten business days, although a supplemental indenture giving effect to the amendments or waivers sought may be executed and delivered as soon as the requisite consents from securityholders are obtained.

Exit consents

If an issuer would like to change significantly restrictive indenture provisions, a tender offer or exchange offer coupled with a consent solicitation can be an attractive option. "Exit consents" are different from standalone or ordinary consent solicitations because they are given by tendering or exchanging debtholders (who are about to give up the old securities) as opposed to continuing holders of the old debt securities. The tendering debtholders will be required to consent to the requested amendments as part of the tender of securities pursuant to the tender offer or exchange offer.

If the requisite percentage of holders (specified in the indenture) tender their securities, the issuer will be able to amend the terms of the indenture and bind all the holders. Exit consents can prove to be a useful incentive to participate in a tender or exchange offer and to address "holdout" problems. These amendments or waivers generally will not affect the tendering holders that receive cash or new securities upon the consummation of the offer.³⁵ However, the result of obtaining the requisite consents is that non-tendering holders will be bound by the changes. Accordingly, when an issuer announces that the requisite number of holders (for example a majority) has decided to participate in the tender offer or exchange offer, for all practical purposes the remaining debtholders must decide whether to tender/exchange, or be left with a debt obligation with significantly reduced protections.

Generally, a consent solicitation is not subject to any legal framework other than that applicable to tender offers and exchange offers. U.S. courts have viewed exit consents as permissible contract amendments governed by basic contract law principles.³⁶ The total consideration offered in a tender or exchange may include a consent payment available only to holders that tender on or prior to the consent deadline, typically ten business days after the commencement of the offer and consent solicitation (a tender offer or exchange offer must be kept open for 20 business days). Typically, the payment deadline also is the expiration time for withdrawal rights, unless such rights are required by statute to remain available longer.

In some instances, the modifications effected by the consent solicitation or exit consent may rise to the level of a modification for tax purposes. We discuss the consequences of such a determination above, under "Non-cash tenders – Tax consequences."

Tax considerations

An issuer that exchanges new debt for old debt will recognize ordinary COD income to the extent the adjusted issue price of the old debt exceeds the issue price of the new debt. A modification of existing debt will be treated as an exchange of such debt for new debt if the modification is "significant." Generally, modifications are significant if, among other things, (1) the yield changes by the greater of 25 basis points and 5% of the existing yield, (2) scheduled payments are materially deferred, (3) modified credit enhancements change payment expectations, or (4) the nature of the security changes (e.g., from debt to equity or from recourse to nonrecourse). By contrast, certain consent solicitations that seek to change "customary accounting or financial covenants" would not, in themselves, constitute significant modifications. For a discussion of certain exceptions to the recognition of COD income and relief from the AHYDO rules, see "Introduction—Tax considerations", above.

Assuming the exchange or modification constituted a recapitalization, such exchange or modification generally should not result in gain or loss to the debtholder. However, depending on the terms of the new debt relative to the old debt, certain tax consequences could follow. For example, if the principal amount of the new debt exceeded that of the old debt the holder could recognize gain equal to the fair market value of such excess. Exchanges and modifications also can create OID or, conversely, an amortizable premium, due to differences in the issue price of the new debt and the stated redemption price at maturity.

In each case, particular attention must be paid to terms of art like issue price, the meaning of which may vary depending on a number of factors. For example, if existing debt is publicly traded, the "issue price" of new debt issued (or constructively issued, in the case of a modification) in exchange for such debt is deemed the current market price. Given current economic conditions, debt exchanges or modifications will often result in COD income because the market prices of many existing debt securities are steeply discounted from their adjusted issue prices.

Other Exchanges

Debt equity swaps

A debt equity swap is another means of recalibrating an issuer's balance sheet. In a debt equity swap, the issuer exchanges already outstanding debt for newly issued equity securities. It is, in essence, an exchange offer. A debt equity swap may be executed with a bank lender, or it may be executed with holders of an issuer's debt securities. In fact, in recent years, it has become more common for a bank or other lender to engage in a debt equity swap rather than force a defaulting issuer into bankruptcy. Lenders often hope that they will receive a higher return on their investment by taking an equity position. The issuer, by changing its debt to equity ratio, benefits financially from the exchange, and may improve its ratings.

Securities law considerations

There are a number of considerations that an issuer must bear in mind in carrying out a debt equity swap. The issuer must be mindful that any exchange of securities must comply with the tender offer and exchange rules described above. If a lender extinguishes a bank line in exchange for equity, the issuance of the equity securities must comply with all applicable securities laws – namely it must either be registered or exempt from registration. In addition, an issuer needs to be mindful of the disclosure obligations that may be triggered by such an event, as it may constitute a material event.

Corporate governance and other considerations

The number of shares to be issued depends on the value of outstanding debt to be exchanged. An issuer seeking to engage in a debt equity swap must ensure that it has sufficient authorized capital available prior to commencing the exchange. If the issuer lacks sufficient authorized capital, it may be necessary to amend the issuer's certificate of incorporation to increase the share capital. This can often be a time consuming process since it entails seeking shareholder approval. An issuer also needs to determine the percentage of equity securities that may be issued; an issuance of over 20% of pre-transaction total shares outstanding may trigger national securities exchange limits,³⁷ and may require shareholder approval. Because the issuance of equity securities as part of a debt equity swap will be dilutive to existing holders, this may prove difficult.

Because the lender or debtholder will be effectively subordinating its position by giving up its creditor status, it may require a "sweetener" – this may come in the form of issuing preferred stock or convertible preferred stock, or issuing participating preferred. An issuer needs to consider carefully the terms of the security it will offer, including the class, voting rights and dividend.

Tax considerations

An issuer that engages in a debt equity swap will recognize ordinary COD income to the extent the adjusted issue price of the debt exceeds the market value of the equity it issues. We discuss certain exceptions to the recognition of COD income, including under the Recovery Act, above under "Introduction – Tax considerations." Similar to debt for debt exchanges, a debt for equity swap also should not result in gain or loss to the holder if the exchange constitutes a recapitalization. It should be noted market discount accrued on the exchanged debt will carryover to the equity.

Equity for equity exchanges

When an issuer tenders for its own equity securities, a number of considerations arise. First, an issuer must ensure that it is permitted to engage in the exchange under state law. Section 160(a)(1) of the Delaware General Corporation Law prohibits a corporation from purchasing its own stock if the entity's capital is impaired or if such purchase would impair capital.

In the context of an equity for equity exchange, an issuer must be mindful of its disclosure obligations under Regulation FD and the securities law antifraud provisions, particularly Rule 10b-5. Under Rule 10b-5 an issuer is prohibited from purchasing its stock when it is in possession of material nonpublic information. The same considerations that apply to a purchase of debt securities are applicable in this context. An issuer must determine whether the transaction itself constitutes material nonpublic information. An issuer also must determine whether it is in possession of other information, such as unreleased earnings or an unannounced acquisition, that must be disclosed prior to commencing an exchange. In addition, an issuer must comply with all tender offer rules when conducting an equity exchange. Sections 13(d), 13(e), 14(d), 14(e) and 14(f) all are applicable to an equity exchange.

An issuer also is required, as it is with an exchange of convertible debt, to file a Schedule TO with the SEC. An issuer must be cautious that its equity exchange does not inadvertently trigger the "going private" rules under Rule 13e-3 of the Exchange Act. These rules apply if any purchase of an issuer's equity securities is intended to cause the equity security of an issuer registered under Section 12(g) or Section 15(d) of the Exchange Act to be held by fewer than 300 persons. Rule 13e-3(g)(2) contains an exemption from the "going private" rules if the securityholders are offered or receive only an equity security that: (1) has substantially the same rights as that being tendered, including voting, dividends, redemption and liquidation rights (except that this requirement is deemed satisfied if non-affiliated holders are offered common stock), (2) is registered pursuant to Section 12 of the Exchange Act (or reports are required to be filed by the issuer pursuant to Section 15(d)), and (3) is listed on a national securities exchange or authorized to be quoted on Nasdaq (if the tendered security also was so listed or quoted).

If an equity exchange involves a "distribution" under Regulation M, the issuer is prohibited from making bids for, or purchasing, the offered security. These prohibitions will not apply to investment grade rated, nonconvertible preferred stock, however. These restrictions typically commence when the exchange offer materials are mailed and continue through the conclusion of the offer.

Liability Considerations

Restructuring transactions, whether redemptions, privately negotiated or open market purchases, or tender or exchange offers, involve the "purchase and sale of [a] security." Therefore, these transactions are subject to the general antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5. Section 10(b) of the Exchange Act is an implied cause of action covering all transactions in securities and all persons who use any manipulative or deceptive devices in connection with the purchase or sale of any securities. Rule 10b-5 covers substantially the same ground as Section 10(b) and prohibits, among other matters, the making of any untrue statement of a material fact or the omission of a material fact necessary to make the statements made not misleading. Under Rule 10b-5, the issuer, its directors, officers and employees, and its agents, including financial intermediaries retained by the issuer, may be held liable.

Tender and exchange offers are also subject to Section 14(e) of the Exchange Act and the rules promulgated thereunder. In addition to specific procedural requirements, Section 14(e) contains substantially identical prohibitions regarding material misstatements and omissions as Section 10(b) and Rule 10b-5.

If the exchange offer is registered under the Securities Act, participants, in addition to liabilities under the Exchange Act, will be subject to liability under the Securities Act, including Section 11 liability (with respect to registration statements) and Section 12 (with respect to the prospectuses and oral communications).³⁸ Financial intermediaries in particular may be subject to liability as "statutory underwriters" in connection with solicitations of participation in the exchange offer.³⁹ It is therefore customary for a dealer-manager, in order to avail itself of a due diligence defense to Securities Act liability, to engage in appropriate due diligence regarding the issuer and its operations, financial status and prospects as well as to receive legal opinions and comfort letters from the issuer's accountants. The diligence process also adds time and cost to the exchange offer.

Footnotes

18 See, SEC No-Action Letter Echo Bay Resources Inc., (May 18, 1998).

19 However, the SEC did not find a single identity of issuer between a subsidiary and its parent where the subsidiary had outstanding a class of debentures guaranteed by its parent and the subsidiary proposed to offer a new debenture in exchange for the guaranteed debenture that would not be guaranteed by its parent. See, SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Securities Act Sections (#125.05) (November 26, 2008), available at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm

20 See, SEC No-Action Letter, Grupo TMM, S.A. de C.V., (June 27, 2002).

21 See, SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Securities Act Sections, available at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm , See, SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Securities Act Rules, available at http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm , See, SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Exchange Act Sections, available at http://www.sec.gov/divisions/corpfin/guidance/exchangeactsections-interps.htm , and See, SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Exchange Act Rules, available at http://www.sec.gov/divisions/corpfin/guidance/exchangeactrulesinterpshtm .

22 See, SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Securities Act Sections (#125.04) (Nov. 26, 2008), available at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm .

23 See, SEC No-Action Letter, URS Corporation, (May 8, 1975).

24 See, SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Securities Act Sections (#125.03) (November 26, 2008), available at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm.

25 See, SEC No-Action Letter, Exxon Mobil Corp., (June 28, 2002).

26 SEC No-Action Letter, Seaman Furniture Co., Inc., (Oct. 10, 1989).

27 SEC No-Action Letter, Dean Witter & Co., Inc., (Nov. 21, 1974). See also, SEC No-Action Letter, Stokley-Van Camp, Inc., (Mar. 31, 1983).

28 See, SEC Telephone Interpretation No. 25 of Securities Act Sections (July 1997), http://sec.gov/interps/telephone/cftelinterps_securitesactsections.pdf .

29 See, e.g. SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Securities Act Sections (#125.08) (Nov. 26, 2008), available at http://www.sec.gov/divisions/corpfin/guidance/sasinterp.htm .

30 The five factor test requires that an issuer consider: whether the offerings are part of a single plan of financing; whether the offerings involved issuances of the same class of securities; whether the offerings were made at or about the same time; whether the same type of consideration is received; and whether the offerings were made for the same general purposes. See, SEC Release No. 33-4552 (Nov. 6, 1962).

31 Because Forms S-3 and F-3 are available only for offerings for cash, they are not available for an exchange offer.

32 This is a particular issue for "well known seasoned issuers" or "WKSIs," who may be used to automatic effectiveness of their registration statements.

33 Many market participants and commentators note that there remains a need to examine the registration requirements for exchange offers, particularly as they affect WKSIs. In particular, market participants have suggested that registration statements on Form S-4 filed by WKSIs become effective immediately upon filing. See,Letter from Securities Industry and Financial Markets Association to the Securities and Exchange Commission, dated January 27, 2009.

34 An attempt to revise key payment terms such as maturity, interest rate or type of interest paid may be considered an offer and sale of a "new security" under SEC interpretations, which would be treated as an exchange offer for securities law purposes. See, Bryant B. Edwards and Jon J. Bancone, "Modifying Debt Securities: The Search for the Elusive 'New Security' Doctrine," 47 BUS LAW, 571 (1992).

35 The effectiveness of the amendments and waivers is typically subject to the condition that the tendered securities have been accepted for payment or exchange pursuant to the offer.

36 See, e.g., Katz v. Oak Industries, 508 A. 2d 873 (Del. Ch. 1986).

37 We discuss these issues in Appendix A.

38 Cash tender offers are not registered under the Securities Act. Therefore, none of the participants, including financial intermediaries, will have Securities Act liabilities.

39 Section 2(a)(11) of the Securities Act defines "underwriter" broadly as: "Any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commission." (emphasis added)

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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