KEY TAKEAWAYS

• On March 6, 2025, the Staff of the SEC (the “Staff”) changed its guidance regarding the use of “lock-up agreements” and written consents on Rule 145(a) transactions (i.e., certain mergers and other business combination transactions).[1]
• The Staff will no longer object to the registration of securities on Form S-4 (or Form F-4) where locked-up target company insiders deliver written consents approving the transaction before the registration statement is filed, subject to specific conditions.
• This represents a significant shift of the Staff’s prior position, which had been that the Staff would object to subsequent registration on Form S-4 (or Form F-4) if lock-up agreements and written consents had been delivered before filing (typically at the signing of the merger agreement).
• The updated guidance also requires that all security holders entitled to vote on the transaction receive a prospectus.

ANALYSIS

Background

In the context of business combination transactions covered by Rule 145(a) under the Securities Act of 1933, as amended (the “Securities Act”), the acquiring company typically seeks “lock-up agreements” from management and principal security holders of the target company committing them to vote in favor of the transaction. The execution of such agreements in a stock-for-stock merger may constitute an investment decision under the Securities Act, potentially triggering registration requirements. From a practitioner’s perspective, the Staff’s position was problematic because such insiders typically are involved in the transaction and highly knowledgeable about the parties and also because acquirors often want contractual assurance that those insiders will support the transaction in their capacity as stockholders.

Prior Guidance

Previously, the Staff had taken the position that if persons entering into lock-up agreements also delivered written consents approving the transaction before the registration statement on Form S‑4 (or Form F-4) was filed, the Staff would object to the subsequent registration. This objection was based on the rationale that offers and sales had “already been made and completed privately, and once begun privately, the transaction must end privately.”[2] In addition, prior to this update, the guidance did not expressly state that the prospectus be delivered to all security holders entitled to vote on the transaction.

Updated Position

The updated guidance, dated March 6, 2025, reflects a significant shift in the Staff’s approach. The Staff will now not object to the subsequent registration where target company insiders who entered into lock-up agreement have also delivered written consents, provided that:

1. such insiders will receive securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption; and
2. the securities registered on Form S-4 (or Form F-4) will be offered and sold only to those who did not deliver such written consents.

This change allows stock-for-stock mergers and similar transactions to proceed with a combination of exempt offerings (for insiders who provided consents) and registered offerings (for other security holders).

The update also adds a prospectus-delivery requirement to the list of conditions that must be met when lock-up agreements are used.

Conditions for No-Objection When Lock-Up Agreements Are Used

The Staff continues to recognize the legitimate business reasons for seeking lock-up agreements in Rule 145(a) transactions and will not object to the registration of offers and sales where lock-up agreements have been signed and the following four conditions are met, the fourth of which is entirely new:

• the lock-up agreements involve only “target company insiders;”[3]
• the locked-up persons collectively own less than 100% of the voting equity securities of the target company;
• votes will be solicited from security holders of the target company who have not signed lock-up agreements, if such votes are needed to approve the Rule 145(a) transaction under state or foreign law; and
• the acquiring company delivers a prospectus to all security holders of the target company entitled to vote on the Rule 145(a) transaction in accordance with its obligations under the Securities Act.

Practice Implications

This updated guidance provides greater flexibility for structuring business combination transactions covered by Rule 145(a) where target company insiders have provided lock-up agreements and written consents prior to the filing of the registration statement on Form S-4 (or Form F-4). Key practice considerations include:

1. Two-Track Offering Structure: Companies can now more confidently implement a two-track structure, with exempt offerings for insiders who provide lock-up agreements and written consents and registered offerings for other security holders.
2. Increased Deal Certainty and Timing Advantages: The updated guidance may provide increased deal certainty and enable shorter transaction timelines by allowing written consents from insiders to be obtained before a Form S-4 (or Form F-4) filing without jeopardizing the ability to register offers and sales to other security holders. This is particularly important in transactions where insiders collectively own a sufficient number of shares to approve the transaction and can act by written consent. Although a prospectus (and, if required, information statement) would still have to be delivered to non-consenting stockholders, the parties can avoid the time associated with holding a stockholders’ meeting. Moreover, from the acquiror’s perspective, it can reduce or effectively eliminate the risk of an interloper or other failure to obtain target stockholder approval.
3. Disclosure Requirements: The acquiror should ensure that the registration statement clearly discloses the two-track structure, including that insiders who delivered written consents will receive securities through an exempt offering.
4. Valid Exemption Required: The parties will need to carefully analyze and document the exemption being relied upon for the offers and sales to insiders who provided written consents, as this remains a condition for non-objection by the Staff.
5. Prospectus Delivery: The acquiring company must still deliver a prospectus to all security holders of the target company entitled to vote on the transaction, including those receiving securities in an exempt offering.

Conclusion

The Staff’s updated guidance provides welcome flexibility for structuring M&A transactions in accordance with Rule 145(a) where insiders have provided lock-up agreements and written consents in connection with the signing of the merger agreement and otherwise prior to the filing of a registration statement. Companies contemplating such transactions should work closely with legal counsel to ensure compliance with all applicable law, including the Securities Act, and rules, regulations and guidance, including that set forth in the updated C&DI Questions 225.10 and 239.13.

[1] SEC Compliance and Disclosure Interpretations, Questions 225.10 and 239.13, updated March 6, 2025.

[2] SEC C&DI Questions 225.10 and 239.13, dated November 26, 2008 (i.e., prior to March 6, 2025).

[3] The term “target company insiders” is defined in Questions 225.10 and 239.13 as executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the target company.