USA Law and Practice Contributed by: D. Scott Bennett, Nicholas A. Dorsey, Virginia M. Anderson and Ellen H. Park, Cravath, Swaine & Moore LLP
ity. Some of the more prominent digital trading platforms used for trading private securities in the USA include EquityZen, Forge Global and the Nasdaq Private Market. Tender offers are another, more structured option. Corporate repurchases, also known as share buybacks, are a type of tender offer in which a company offers to repurchase shares from its current stockholders. This type of tender offer can be advantageous to a growth company looking to provide liquidity to its employees or stockholders and buy back shares as a means of “cleaning up” its cap table, particularly if there is a large number of current (or former) employee stockholders who hold a small number of shares. Third-party investors may also conduct tender offers as a means to purchase equity from exist - ing stockholders. Company-facilitated third-par - ty tender offers have also become more preva - lent, particularly as companies seek to respond to existing stockholders’ desire to monetise on what is otherwise desirable private company stock. In the case of a company-facilitated third- party tender offer, the company may help pool interest from multiple existing and/or potential new investors in order to facilitate the third-party tender offer process. Regulatory Considerations Tender offers and secondary sales need to com - ply with US securities laws, in addition to any transfer restrictions imposed by the company itself. US securities law requires that all offers and sales of securities in the USA – including secondary sales by existing investors – be registered with the SEC, unless an exemption applies. The most
common exemptions for secondary sale trans - actions fall under Rule 144 and Section 4(a)(7) of the US Securities Act of 1933 (the “Securities Act” ) and “Section 4(1 1/2)” . Rule 144 provides a safe harbour that allows the public resale of restricted securities (securities obtained through unregistered offerings) and control securities (securities held by affiliates of a company) if the offering complies with certain conditions. Section 4(a)(7) is another codified exemption that allows for the private resale of securities specifically to accredited investors. “Section 4(1 1/2)” resales, unlike Rule 144 and Section 4(a)(7), are not codified within the US securities laws. However, “Section 4(1 1/2)” resales are a commonly used method developed within the US market to facilitate legally compli - ant resales of securities without formal registra - tion with the SEC. Private tender offers in the USA, whether initi - ated by the company or a third-party, must also adhere to several technical requirements under Section 14(e) of the Exchange Act, including: • that the offer stay open for at least 20 busi - ness days; • that the offeree make no material misstate - ments or omissions in the context of the tender offer; and • that prompt payment be made after the ten - der offer closes. “Tender offer” is not a defined term under US securities laws. Instead, it is a determination based on specific facts and circumstances, and takes into account fac - tors such as a solicitation for a substantial percentage of the company’s stock, as well as a fixed price and a limited duration offer.
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