New SEC Guidance Regarding Social Media; Proposed Clarifications to Delaware Law for Mergers Following a Tender Offer; Change in SEC Notice Procedures for Granting Confidential Treatment Requests
The SEC Issues New Guidance on the Use of Social Media in Communicating with Potential Investors and Security Holders
Social media is becoming a desirable tool for companies to communicate with their shareholders and potential investors. Over the last few years, the Securities and Exchange Commission (“SEC”) has issued guidance on how SEC regulations apply to social media communications and other online publications. Following this trend, on April 21, 2014, the SEC issued new compliance and disclosure interpretations (“CD&Is”) making it easier for companies to use social media and comply with requirements concerning the content of communications regarding securities offerings, business combinations, proxy contests and tender offers.1 Specifically, the SEC, recognizing the character limitations of certain social media platforms, now allows some communications to include a link to required content instead of providing the full text all at once. The SEC also limited the extent to which a company will be responsible for subsequent forwarding or other dissemination of certain information over social media.
Hyperlinks to required legends and information in certain communications
Communications related to securities offerings, business combinations, proxy contests, and tender offers are governed by various SEC rules which impose restrictions and requirements on the content of such communications. The new CD&Is apply to the following types of communications:
- Offering announcements made under Rule 134 or free writing prospectuses made in reliance on Rule 433 of the Securities Act of 1933 (“Securities Act”) regarding securities offerings;
- Communications made under Rule 14a-12 of the 1934 Exchange Act (“Exchange Act”) related to proxy solicitations;
- Communications made under Rule 165 of the Securities Act relating to offers to sell securities in connection with a business combination transaction; and
- Communications made under Rules 13e-4(c), 14d-2(b), and 14d-9(a) of the Exchange Act prior to a commencement of a tender offer.
In each case, the SEC rules require that the communications be accompanied by certain cautionary legends and information. Until now, the legend requirements restricted the ability of companies to use popular social media tools such as Twitter because the required content would exceed the medium’s character limit. The new CD&Is allow companies to satisfy such legend and informational requirements by including an active hyperlink to the full text of the legend.
Specifically, the SEC states that it will not object to the use of a hyperlink to satisfy legend and other informational requirements if:
- The platform through which the communication is distributed has technical limitations on the number of characters or amount of text that may be included;
- Including the required legend or other information in the communication would exceed the character or text limit; and
- The communication contains a hyperlink to the required legend or other information and prominently conveys that important or required information is provided through the hyperlink.
If, however, the social media platform does allow the company to include the required information along with the other content of the communication, without exceeding the character limits, then the use of the hyperlink would not be appropriate.
Re-transmission of communications relating to securities offerings
The SEC also clarified that for communications made under Rule 134 or free writing prospectuses made in reliance on Rule 433 in connection with a securities offering, the re-transmission of a company’s communication (such as via a re-tweet) will not be attributed to the company if the communication meets the following requirements:
- The third party is neither an offering participant nor acting on behalf of the issuer or an offering participant.
- The issuer has no involvement in the retransmission beyond having initially prepared and distributed the communication in compliance with either Rule 134 or Rule 433 of the Securities Act.
Proceeding with caution
Although the new CD&Is make it easier to comply with the SEC rules regarding certain communications and disclosures, companies should continue to exercise caution in the use of their social media platforms and consider the following:
- Marketing teams and other divisions with access to social media tools need to understand and comply with SEC disclosure rules and when legends are required to be included in certain communications.
- The SEC did not specify how a company needs to “prominently convey” that there is important information behind the hyperlink. A company should at the very least include a concise statement in its communication that the link contains important information.
- The SEC did not specify whether the hyperlink needs to be included in the first tweet/post and also all subsequent tweets/post.
- Anti-fraud rules under Section 10(b) and Rule 10b-5 of the Exchange Act still apply to communications via electronic social media. Companies need to be careful that the statements they make via Twitter or other platforms are not misleading and provide adequate context.
- The CD&Is also benefits third parties who wish to instigate a proxy contest or tender offer, thus increasing the importance that companies monitor their social media presence.
- The SEC clearly had in mind prominent social media sites such as Twitter, Facebook and LinkedIn. Social media platforms that are significantly different from these models may not benefit from the SEC’s new guidance.
Proposed Changes to the Delaware General Corporation Law
The Delaware legislature is considering new amendments to the Delaware General Corporation Law (“DGCL”).2 The proposed changes include, among other things, a number of clarifications regarding mergers effected under the newly adopted Section 251(h) of the DGCL, which allows corporations to complete a merger following a tender offer without obtaining stockholder approval under certain conditions. If adopted, these amendments will become effective August 1, 2014 and will apply to merger agreements signed on or after August 1, 2014.
Changes in SEC Notice Procedures for Granting Confidential Treatment Requests
Companies that file with the SEC can request confidential treatment of certain information required to be included in publically filed documents. The SEC can then choose to grant, deny or comment upon these applications. In the past, the SEC has notified companies via telephone or writing if their application is granted without comment and the confidential treatment order is posted on EDGAR. On April 9th, the SEC announced that it would no longer provide separate notice in connection with issuing an order.3 Companies can determine whether their application has been granted without comment by checking on EDGAR. The SEC will continue to notify companies in writing if an application is denied or if the Staff requires clarification or revision before granting the request.
1 The new CD&Is are available here: http://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm
(Questions 110.01, 110.02, 164.02, 232.15 and 232.16).
2 The text of the proposed changes can be found here: http://legis.delaware.gov/LIS/lis147.nsf/vwLegislation/HB+329/$file/legis.html?open.
3 The SEC’s announcement can be found here: http://www.sec.gov/corpfin/announcement/cfannouncement-changes-to-procedures.html#.U21SGvldXHU.