Securities Exchange Act of 1934
No Action, Interpretive and/or Exemptive Letter:
Issuer Exchange Offers Conducted for Compensatory Purposes
March 21, 2001
The Division of Corporation Finance is aware of issuers conducting exchange offers for employee stock options. These exchange offers are conducted to reprice the employees' options for compensatory purposes. The structure of these exchange offers is based upon the compensation policies and practices of the issuers. The new options or other securities offered in exchange for existing options could be registered under the Securities Act of 1933 (Securities Act), but generally are offered in reliance on an exemption from registration, typically Section 3(a)(9) of the Securities Act. These exchange offers as commonly structured are subject to the issuer tender offer rule, Rule 13e-4 under the Securities Exchange Act of 1934 (Exchange Act), if the issuer has a class of equity securities registered under Section 12 or is required to file reports under Section 15(d) of the Exchange Act.
Issuers conducting these exchange offers often want the ability to treat option holders differently in order to accomplish their compensation objectives. This raises compliance issues under Rules 13e-4(f)(8)(i) and (ii) (the all holders and best price rules). In response to requests to accommodate the compensation policies and practices of issuers conducting these exchange offers, the Commission has already granted a number of exemptions from Rules 13e-4(f)(8)(i) and (ii) on a case-by-case basis. See Lante Corporation (Feb. 9, 2001); Amazon.com, Inc. (Feb. 28, 2001); Digimarc Corporation (Mar. 16, 2001); and LookSmart Ltd. (Mar. 20, 2001). In order to reduce the burdens and costs to issuers that otherwise must seek individual exemptions, the Commission hereby grants an exemption from Rules 13e-4(f)(8)(i) and (ii) for exchange offers for employee stock options that meet the following conditions:
1. the issuer is eligible to use Form S-8, the options subject to the exchange offer were issued under an employee benefit plan as defined in Rule 405 under the Securities Act, and the securities offered in the exchange offer will be issued under such an employee benefit plan;
2. the exchange offer is conducted for compensatory purposes;
3. the issuer discloses in the offer to purchase the essential features and significance of the exchange offer, including risks that option holders should consider in deciding whether to accept the offer; and
4. except as exempted in this order, the issuer complies with Rule 13e-4.
This exemption eliminates the limitations that the all holders and best price rules place on issuers' ability to structure exchange offers in a manner consistent with their compensation policies and practices. The Division believes that these exchange offers do not present the same concerns caused by discriminatory treatment among security holders that Rules 13e-4(f)(8)(i) and (ii) were intended to address.
The foregoing exemption from Rule 13e-4(f)(8) is strictly limited to the circumstances described above. Issuers conducting these offers should consider the anti-fraud and anti-manipulation provisions of the federal securities laws, including Sections 10(b) and 14(e) of the Exchange Act and the rules thereunder. Responsibility for compliance with all applicable provisions of the federal securities laws rests with the issuers engaged in these transactions. The Division expresses no view with respect to any other questions that may arise in these transactions, including, but not limited to, the adequacy of disclosure in, and the applicability of any other federal or state laws to, these transactions.
For the Commission,
by the Division of Corporation Finance,
pursuant to delegated authority,
Mauri L. Osheroff
Division of Corporation Finance