COMMENT LETTER TO: THE SECURITIES AND EXCHANGE COMMISSION FROM: SHAREHOLDER COMMUNICATIONS CORPORATION SUBJECT: ODD-LOT TENDER OFFERS BY ISSUERS: FILE NO. S7-12-96 DATE: May 23, 1996 Shareholder Communications Corporation ("SCC") applauds and supports the S.E.C.'s proposed amendment to rule 13e-4 (h)(5) governing Odd-lot Offers. Having assisted issuers in the structure and administration of more than 300 periodic and extended Odd-lot Offers over the past 15 years, SCC has had a special interest in the application of rule 13e-4 (h)(5). Since 1983, when rule 13e-4 (h)(5) relieved many restrictions for issuers, the constraints imposed by rules 10b-6 and 10b-13 forced many issuers to request no-action letters or exemptive relief before mailing Odd-lot Offers to their shareholders. SCC filed its own no-action requests seeking "blanket" relief for Odd-lot Offers, including a discussion of these and other rules, in 1986, in 1988 and, most recently, in 1996. SCC also assisted issuers over the last two years in the preparation of no-action requests for specific Odd-lot Offers including letters for Southwestern Bell, Rockwell International and General Motors. Each no-action request proved to be an expensive, time-consuming and repetitive activity, often slowing the simplified processes for which Rule 13e-4 (h)(5) was promulgated. For these reasons, we believe the proposed amendment and the rules 10b-6 and 10b-13 class exemptions will be particularly welcomed by issuing companies. Furthermore, if, by amending 13e-4 (h)(5), it is the intention of the S.E.C. to virtually eliminate the need to file for no-action relief on Odd-lot Offers, then we also encourage the S.E.C. to consider providing class relief on Section 5 and 14(d), as well as giving issuers an exemption from 15(a) and 15(b), since these rules are also typically addressed in every no-action request for Odd-lot Offers. We also wish to make the following comments: SCC has reviewed hundreds of share range profiles on behalf of its clients and prospective client issuers. We have noted that, historically, odd-lot shareholders of fewer than 100 shares, represented at least 50% of a given issuer's total number of registered shareholders owning, in the aggregate, less than 2% of that issuer's outstanding shares. On occasion, we have seen share range profiles of spinoff companies where 80% of the registered shareholders held fewer than 100 shares and owned, in the aggregate, less than 5% of the outstanding shares. In other examples, we have seen share range profiles in which 80% of the registered shareholders held fewer than 300 shares each and owned, again in the aggregate, less than 5% of the outstanding shares. We have further observed that in those instances where holders of less than 5% of the outstanding shares were eligible for an Odd-lot Offer, regardless of the ratio of odd-lot holders to the total number of registered shareholders (i.e., 80% versus 50% of the total shareholder universe being odd-lot holders) and regardless of the average value received for selling shares, the sale of shares received throughout the course of the Odd-lot Offer on the open market had no discernable affect on stock price. The logical inference is that as long as less than 5% of the outstanding shares participate in the Offer, the Offer will have de minimis impact on stock price and will satisfy the needs of small shareholders, whether the small shareholders own above or below 100 shares. Because of this phenomenom, many issuers have asked us if there was any reason that they could not make an "Odd-lot Offer" to holders of greater than 100 shares, especially in light of the large number of small shareholders in ranges above 100 shares owning less than 5% of their outstanding stock. The staff will note that most no-action letters on the subject of Odd-lot Offers recite the fact that no more than 5% of of an issuer's outstanding shares will be affected by the Odd-lot Offer. Some companies, in fact, have pointed out that the definition of an odd-lot as "fewer than 100 shares" appears arbitrary when you realize that a "round-lot" shareholder of 1,000 shares at $1 per share is, in most respects, the same as an odd-lot shareholder owning 20 shares of a $50 stock. In other words, the definition of an odd-lot shareholder could theoretically be redefined as the class of holders of a given company falling into a range of aggegated share ownership owning less than 5% of the outstanding shares. We wish to recommend to the commission that the definition of odd-lot be redefined or, alternatively, the proposed rule be amended to include those "small" shareholders falling into a range of holdings representing less than 5% of an issuer's outstanding shares. On a different but related issue, several issuers have asked SCC about offering a pure "round-up" program, in which small shareholders - whether they hold fewer than or greater than 100 shares - would not have the option to sell their shares but be given the opportunity to "round-up" to a specific round-lot of shares (100, 300, 500, etc.) through open market purchases. We have noted that The Equitable Companies offered such a pure "round-up" program to a group of odd-lot holders in the 21-99 share range, in recent years. Once again, we suggest that as long as less than 5% of the stock is affected, there would be no market impact for offering such a program. Our last comment relates to the potential for discrimination in the distribution of disclosure documents to small beneficial shareholders versus small registered shareholders of record, in connection with an Odd-lot Offer. It is our understanding and practice to ensure delivery of Odd-lot Offer disclosure documents to all eligible shareholders, regardless of the form of ownership, registered or beneficial, except for those small shareholders owning shares in plans which are excluded by the rule as defined in 13e-4 (h)(5). The language of the rule speaks of the Odd-lot Offer being made available to beneficial holders but does not specify whether that availability implies a "mailed" distribution of disclosure documents. We encourage the staff to clarify the methods by which disclosure should be made available to beneficial owners. We appreciate the steps the S.E.C. has already taken in easing restrictions for issuers on Odd-lot Offers. We also hope that our comments and information will be helpful in formulating the commission's final release. Please let me know if you have any questions or need further information. Sincerely, Ronald M. Boronkay Senior Vice President Shareholder Communications Corporation 17 State Street - 28th Floor New York NY 10004 (212) 805-7000