This is an extract of our Corporate Takeovers document, which we sell as part of our Securities Regulation Outlines collection written by the top tier of Georgetown University Law Center students.
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Corporate Takeovers A. SS 13(d) of the Exchange Act i. SS 13(d) requires a filing by any person who becomes the beneficial owner of more than 5% of a class of equity securities registered pursuant to SS 12 or of certain other issuers (i.e., publicly held companies) a) The filing is a Schedule 13D
? There are a variety of EXEMPTIONS from the filing requirement under SS 13(d) (6) and Rule 13d-1
? Most relate to acquisitions where alternative regulatory schemes under the securities laws will apply
?????The most important exemption (not falling into the alternative regulation" category is the Creeping Acquisition
? Situations where the acquisition in question, together with all others made by the same person during the preceding 12 months, does not exceed 2% of the class. b) Rule 13d-3 provides that the proper test for beneficial ownership is whether the person in question directly or indirectly has either voting power or investment power over the securities in question.
?????Voting power included "the power to vote or direct the voting" of the securities.
? Investment power means the ability to dispose (or direct the disposition) of the securities in question.
? The definition also encompasses situations where, through options or warrants, the person has the right to acquire securities of the issuer. ii. SS 13(d) "requires a group that has acquired, directly or indirectly, beneficial ownership of more than 5% of a class of a registered equity security, to file a statement with the SEC, disclosing, inter alia, the identity of its members and the purpose of its acquisition." Wellman v. Dickinson (pg. 968) a) SS 13 (d)(3) states that "[w]hen two or more persons act as a partnership, limited partnership, or other group for the purposes of acquiring, holding, or disposing of securities of an issuer, such syndicate or group shall be deemed a 'person' for purposes of this subsection."
? Under SS 13(d)(3), a "group" is defined as an aggregation of persons or entities who "act . . . for the purposes of acquiring, holding or disposing of securities. . . ." Wellman v. Dickinson (pg. 968)
? "The statute contains no requirement . . . that the members be committed to acquisition, holding, or disposition on any specific set of terms." Wellman v. Dickinson (pg. 968)
? "[T]he touchstone of a group within the meaning of SS 13(d) is that the members combined in furtherance of a common objective." Wellman v. Dickinson (pg. 968) iii. Schedule 13D a) The filing required is the Schedule 13D, which is transmitted to the SEC, the relevant stock exchanges, and the issuer of the securities in question. b) Schedule 13D must disclose matters such as 1
The background and identity of the acquirer The source of funding The number of shares owned Any contracts or arrangements with respect to such shares The purpose of the acquirer, including any plans or proposals regarding possible exercise of control over the issuer c) The Schedule 13D must be filed within ten days of passing the 5% threshold d) Thereafter, amendments must be filed promptly whenever any "material changes" occur with respect to the original disclosures.
? Under Rule 13d-2, an acquisition or disposition of 1% or more of the class of securities in question is presumptively material
? Acquisitions or dispositions of less than that amount may or may not be material, depending upon the circumstances iv. SS 13(d) may be enforced by the SEC. a) In SEC v. First City Financial Corp., the court ordered $2.7 million in profits to be disgorged for a violation of SS 13(d). b) As a result of the Securities Enforcement Remedies Act of 1990, the SEC has authority to seek a civil penalty for a violation of SS 13(d). v. As far as private actions are concerned, virtually all courts permit equitable relief. a) Courts have been reluctant to order much beyond corrective disclosure and a short cooling off period for violations of SS 13(d) after the Supreme Court's decision in Rondeau v. Mosinee Paper Corp. (holding that an injunction barring the voting of the defendant's shares was impermissible for a violation of SS 13(d), since the traditional standards governing equitable relief - irreparable harm - had not been established) (pg. 972) vi. Passive Ownership Report a) SS 13(g) requires a filing along the lines of the Schedule 13D by persons who are 5%
? The reporting requirements under SS 13(g) (that is, a Schedule 13G) are much more lenient than those for SS 13(d). b) Under Rule 13d-1(b), the most important category of persons entitled to use the simplified filing procedures is the "passive" investor who acquired the stock in the ordinary course of business and without any intent to change or influence the control of the issuer.
? For these investors, only annual filings are required (except upon passing a 10%
ownership threshold or thereafter when such ownership increases or decreases by more than 5%.
??? ?If a person entitled to file on Schedule 13G changes his intentions, so that a "control person" comes into existence, he is precluded from acquiring any additional shares for ten days after filing Schedule 13D. B. SS 14(d) of the Exchange Act i. SS 14(d)(1) makes it unlawful to make a tender offer for the equity securities of any publicly held company if upon consummation the bidder would own more than 5% of the class in question UNLESS the bidder files and transmits to the target company a Schedule TO. 2
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