Securities Law Challenges in Mergers and Acquisitions: Navigating Exemptions for Transfer or Issuance of Securities

A transfer of stock as part of the sale of a business in an M&A transaction is considered a securities offering under the Securities Act, as is the issuance of new stock to shareholders of another company in exchange for their shares of stock. Due to costliness and the complexities of registration requirements, issuers often seek an exemption from the Act.

Section 4(a)(2) exemption and Reg D safe harbors are the most common exemptions used for stock issued as part of a merger or acquisition. Reg D prohibits public solicitation and advertising and limits the ability to sell securities to nonaccredited purchasers. Also, the securities are restricted and subject to limitations on resale.

Penalties can be steep, and mistakes can be costly to the deal, so counsel must carefully consider securities law implications before structuring the transaction and closing the deal.

Listen as our authoritative panel examines the applicability of the Securities Act to a stock transfer or issuance that is part of an M&A deal. The panel will review how Regulation D applies in the M&A context and the requirements, the limitations of Reg D offerings, integration, required disclosures, and the limitations on general solicitation and advertising to target shareholders.

1. Spotting Securities Law Issues in the M&A Context (not always easy!)
2. Overview of US Securities Laws
   1. Securities Act of 1933
   2. Securities and Exchange Act of 1934
   3. General nature of securities regulation in this arena
3. Choosing Registration Exemptions for Common M&A Situations
   1. Section 4(a)(2) private offering exemption
   2. Regulation D Rule 506(b), including using non-accredited investors
   3. General Solicitation under Regulation D Rule 506(c)
   4. Navigating state “blue sky” laws
   5. Advising clients on appropriate disclosure documentation
4. M&A Advisor Regulation Due to Securities Law Consideration
   1. Understanding how investment bankers navigate this arena vs. business brokers to help clients avoid messy engagements
   2. The current state of federal law, including the SEC No Action Letter
   3. State law developments

The panel will review these and other key issues:

• When is there a sale of securities in the M&A context?
• What are the required disclosures for nonaccredited investors under Rule 502 in the M&A context?
• What challenges arise in the M&A context concerning soliciting target shareholders?