Securities Act Sections

Question: Securities Act Rule 415(a)(4) was amended in 2005 to permit an issuer to register an at-the-market offering of equity securities without identifying an underwriter in its registration statement and without a limitation on the amount of the offering. Did this amendment also change the Commission's interpretation, as set forth in Securities Act Release No. 6334 (Aug. 6, 1981), that “any market professional — a market maker, specialist, or ordinary broker-dealer — who purchases a registered security as principal from the registrant or who sells that security for the registrant as agent ordinarily would be deemed a statutory underwriter under Section 2[(a)](11) of the Securities Act even in the absence of a specific written agreement between the issuer and that market professional”?

Answer: No. [June 4, 2010]

Question: As a condition to not objecting to a registration statement for a so-called “Exxon Capital” exchange offer, the staff will ask the issuer to make representations about the absence of a distribution of the securities received in the exchange. Is there a particular form that these representations must take?

Answer: In a series of letters beginning with Exxon Capital Holdings Corporation (April 13, 1988), the staff expressed its view that when an issuer that has privately sold non-convertible debt or certain other securities to large, sophisticated investors, the issuer may subsequently register the exchange of those securities for substantially similar securities (an “Exchange Offer”), and the new securities (the “Exchange Securities”) may then be resold by most holders without further registration and without the delivery of a prospectus. A premise upon which this so-called “Exxon Capital” or “A/B” exchange is based is that the participants will not be engaged in a distribution of the registered securities, lest they be underwriters. As a condition to it not objecting to the registration of these offerings, the staff has requested that issuers make certain representations. See Morgan Stanley & Co., Inc. (June 5, 1991) and Shearman & Sterling (July 2, 1993). Over time, the staff has observed some variation in representations that are being provided. These representations need not follow any particular form so long as they address the following essential matters:

• The issuer has not entered into any arrangement or understanding with any person who will receive Exchange Securities in the Exchange Offer to distribute those securities following completion of the Offer. The issuer is not aware of any person that will participate in the Exchange Offer with a view to distribute the Exchange Securities.
• The issuer will disclose to each person participating in the Exchange Offer that if such participant acquires the Exchange Securities for the purpose of distributing them, such person:
  • Cannot rely on the staff’s interpretive position expressed in the Exxon Capital line of no-action letters, and
  • Must comply with the registration and prospectus delivery requirements of the Securities Act in order to resell Exchange Securities, and be identified as an underwriter in the prospectus.
• The issuer will include in the transmittal letter an acknowledgement to be executed by each person participating in the Exchange Offer that such participant does not intend to engage in a distribution of the Exchange Securities. In addition, the issuer will include in the transmittal letter an acknowledgement for each person that is a broker-dealer exchanging securities it acquired for its own account as a result of market-making activities or other trading activities that such broker-dealer will satisfy any prospectus delivery requirements in connection with any resale of Exchange Securities received pursuant to the Exchange Offer. The transmittal letter may also include a statement to the effect that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

In the Shearman & Sterling letter, the staff’s views were conditioned on the issuer making each person participating in the Exchange Offer aware that any broker-dealer acquiring Exchange Securities in exchange for securities it acquired for its own account as a result of market-making activities or other trading activities may be a statutory underwriter. If the representations clearly state the essential matters outlined above, the staff does not believe that this additional disclosure is necessary. Any person acquiring Exchange Securities with a view to distributing them must be identified as an underwriter in the prospectus and must comply with all applicable requirements. In addition, a broker-dealer acquiring Exchange Securities may be required to deliver a prospectus in connection with resales if it is relying on the exemption in Section 4(a)(3) of the Securities Act.

The staff believes that the representations may be provided either in the prospectus or in correspondence submitted in connection with the filing. [July 11, 2016]

Question: Are pooled employer plans (“PEPs”) eligible to claim the Section 3(a)(2) exemption for any interest or participation in a “single trust fund”?

Answer: The staff will not object if a PEP that meets the qualification requirements of ERISA and Section 401 of the Internal Revenue Code and otherwise meets the conditions of Section 3(a)(2) claims the Section 3(a)(2) exemption for any interest or participation in a “single trust fund” even though multiple, unrelated employers participate in the PEP. As with any plan that meets the exemption in Section 3(a)(2), the offers and sales of any securities in connection with the PEP are subject to the anti-fraud provisions of the Securities Act. See Section 17(c). In addition, the exclusion in Section 3(a)(2) for investments in employer securities would apply. Therefore, if a participating employer offers its own securities to its employees as an investment option in a PEP, the Section 3(a)(2) exemption would not be available for the plan interests offered to the employees of that employer. Please refer to Securities Act Forms CFI [126.45] regarding the availability of Form S-8 to register the offer and sale of an employer’s own securities and the plan interests in connection with a PEP at https://www.sec.gov/rules-regulations/staff-guidance/compliance-disclosure-interpretations/securities-act-forms. For the views of the staff of the Division of Investment Management regarding the application of section 3(c)(11) of the Investment Company Act of 1940 and rule 180 under the Securities Act to PEPs, see here.

203.02 A holding company reorganization is to be carried out pursuant to Section 251(g) of the Delaware General Corporation Law and would not trigger a shareholder vote or appraisal rights. The purpose of the reorganization is to obtain more favorable tax treatment for an acquisition transaction with a third party, and its consummation is a condition to closing the acquisition. When the reorganization is viewed together with the acquisition, the overall transaction changes the nature of the shareholders' investment. Thus, such reorganization may involve a “sale” or “offer to sell” for the purposes of Section 2(a)(3) and Rule 145. [Nov. 26, 2008]

203.03 An issuer eligible to use Form S-3 proposes to sell debt securities convertible into the common stock of an unaffiliated reporting company. The shares of common stock are restricted securities but may be resold freely in the public market under Rule 144. The registration statement for the offering need only cover the debt securities if the exemption provided by Section 4(1) is available for the sale of the common stock of the unaffiliated reporting company upon conversion of the debt securities. With respect to the information to be provided regarding the issuer of the underlying common stock, see the Morgan Stanley & Co., Incorporated no-action letter (June 24, 1996) issued by the Division. [Nov. 26, 2008]

203.04 Company A purchased approximately 52% of the outstanding common stock of Company B in a tender offer. Company A proposes to complete the acquisition by means of a reverse statutory merger whereby Company B will become an indirect wholly-owned subsidiary of Company A. The plan of merger provides that each remaining share of Company B's common stock will be exchanged for cash and a note to be issued by Company B. As soon as possible after the merger, a reorganization will be effected in which Company B will be liquidated, its assets distributed to approximately 50 indirect wholly-owned subsidiaries of Company A, and its liabilities (including the notes issued in connection with the merger) assumed by another wholly-owned subsidiary of Company A, New Company B, whose assets will consist of stock of the 50 operating subsidiaries. Because Company A already owns the requisite number of shares of Company B common stock to approve the merger, Company B will not solicit proxies in connection with the merger and therefore no commission or remuneration will be paid in connection with a solicitation. Shareholders will receive an information statement containing the information required to be provided by Regulation 14C and Rule 13e-3.

Since Company B will exist before and after the merger and will exchange notes with its own security holders, counsel took the position that Section 3(a)(9) would exempt the exchange from registration. Counsel also took the view that the assumption of the notes by New Company B in connection with the reorganization would not require registration under the Securities Act since such assumption did not constitute a “sale” or “offer to sell” as defined in Section 2(a)(3). Counsel's no-sale theory was based on the fact that the noteholders would neither exchange the notes for new notes nor give up any value, since they would not have relinquished any rights attached to the notes. Further, the terms of the notes permit substitution of a successor obligor. Finally, counsel argued that Rule 145 would be inapplicable to the reorganization, since noteholders will not vote on or consent to the reorganization or assumption of the notes by New Company B.

Counsel's position was premised on treating the merger and reorganization as discrete, independent transactions or, alternatively, as one transaction in which New Company B would be substantially similar to Company B and thereby be a successor issuer. The staff viewed the merger and reorganization as one transaction in which New Company B's corporate structure, operations and financial condition might differ materially from Company B's. Because the merger and reorganization may result in a substantial change, Company B and New Company B were viewed as different issuers for purposes of Section 3(a)(9). Furthermore, given the time proximity between the merger and reorganization, New Company B could be viewed as the issuer of the notes. Therefore, the notes were required to be registered prior to presenting the proposal at the special shareholder's meeting. [Nov. 26, 2008]

203.05 A letter to be sent to holders of limited partnership units in various oil and gas programs, for the purpose of determining their interest in converting the smaller programs into one new large program, may involve the offer of a security of the new program within the meaning of Sections 2(a)(3) and 5. Any such communication, if it is an offer, would either have to be registered under the Securities Act or exempt from Securities Act registration. For registered offerings, Rule 135 would permit a simple notice describing the purpose and terms of such an offering, but would not allow the solicitation of indications of interest. [Nov. 26, 2008]

203.06 Statutory mergers by means of security holders' vote are defined by Rule 145(a)(2), for purposes of Section 2(a)(3), as events of sale. The rule excludes from this definition mergers for the sole purpose of changing the issuer's state of incorporation. The exclusion itself is limited to migratory transactions occurring exclusively within the United States, from one state to another. Despite the rule's express domestic limitation, similar transactions changing a foreign issuer's domicile from one political subdivision of a country to another (such as reincorporation from one Canadian province to another) likewise should not be treated as a sale. However, if a non-U.S. corporation undertakes a merger to incorporate within the United States, the migratory transaction is an event of sale that must be registered with the Commission or exempt from registration. [Nov. 26, 2008]

218.02 Section 3(a)(2) provides an exemption for securities issued by states and political subdivisions or public instrumentalities thereof. The section also provides a specific exemption for certain tax-exempt industrial development bonds. Although not covered by the specific exemption, taxable industrial development bonds can qualify for the broader exemption as securities issued by states or public instrumentalities thereof. However, such taxable bond issues must also be examined to determine whether they give rise to separate securities of other persons within the meaning of Rule 131. Absent another exemption, registration of any such separate Rule 131 securities would be required. [Nov. 26, 2008]

218.03 A bank guarantee of an industrial development bond is exempt under Section 3(a)(2) as a security issued by a bank. The underlying industrial development bond, if tax-exempt, likewise would be exempt under Section 3(a)(2), either because it satisfies the specific requirements applicable to tax-exempt industrial development bonds or because it is a security guaranteed by a bank. [Nov. 26, 2008]

218.04 Participations in a banker's acceptance, offered and sold by a broker who holds the banker's acceptance, are separate securities which are not exempt as securities issued by a bank within the meaning of Section 3(a)(2). [Nov. 26, 2008]

218.05 The reference in Section 3(a)(2) to Section 103(c) of the Internal Revenue Code is out of date and should read Section 103(b). This reference is important in determining which kinds of tax exempt industrial revenue bonds are exempted from Securities Act registration by Section 3(a)(2). [Nov. 26, 2008]

219.02 Tracing of commercial paper proceeds to actual “current transactions” is not necessary under Section 3(a)(3) where the proceeds will be commingled with the issuer's general funds and such funds will be applied in part to current transactions equal in amount to the commercial paper proceeds. [Nov. 26, 2008]

225.02 An issuer wishes to solicit holders of outstanding debt securities to approve changes in certain indenture covenants. At the same time, the issuer will increase the interest rate. While this transaction may be deemed to involve the issuance of a new security if it represents a fundamental change in the nature of the investment, the issuance of the new security would be exempt under Section 3(a)(9) if all of the conditions of that provision were met. Since all of the outstanding debt securities were issued in registered public offerings, the new debt securities issued in exchange would not be “restricted” under Rule 144(a)(3). A new indenture would have to be qualified under the Trust Indenture Act of 1939 for the new debt securities. [Nov. 26, 2008]

225.03 Company A proposes to issue convertible preferred stock in exchange for its outstanding common stock. Holders of Company A's new convertible preferred stock will have the option two years after issuance of exchanging such shares into Company B's common stock. Section 3(a)(9) would be available for Company A's first exchange offer, assuming all the conditions of that exemption are complied with. Registration of the offer and sale of Company B's common stock would be required prior to the time at which the exchangeable preferred stock becomes exchangeable, absent an exemption from registration. [Nov. 26, 2008]

225.04 Company A agreed to buy 80% of Company B's common stock conditioned on the success of Company A's tender offer for Company B's outstanding convertible debentures. Company A hired investment bankers to solicit in connection with the tender offer, which failed. Company A then prepared to buy 85% of Company B's common stock, conditioned on the success of an exchange offer by Company B of cash and common stock for Company B's outstanding convertible debentures. No investment banker would be used to solicit the exchange. Under these facts and circumstances:

1. the earlier solicitation in connection with the tender offer would not taint the subsequent exchange; and
2. since Company B would not be merged into Company A, the “same issuer” requirement of Section 3(a)(9) would be met. [Nov. 26, 2008]

225.05 An issuer proposed that each share of its outstanding preferred stock would be exchanged for a new class of preferred stock. However, if a majority of holders voted in favor of the exchange, each share of outstanding preferred stock would be converted into the right to receive cash. The issuer instructed a broker-dealer to solicit security holders for acceptance of the cash-only proposal with a commission payable upon majority approval of that proposal. Section 3(a)(9) would not be available for the exchange offer since the solicitation for acceptances of the cash offer was deemed to constitute an indirect solicitation for the rejection of the exchange offer. [Nov. 26, 2008]

227.02 An issuer makes an offering of securities in reliance upon the Section 3(a)(11) exemption and permits purchasers to pay for their securities in installments. The question was raised whether such purchasers must satisfy the residency requirement of Section 3(a)(11) until the completion of their installment payments. If an installment payment represented a separate investment decision, the purchaser must be a resident at the time of that payment. On the other hand, if a purchaser was unconditionally committed to make the installment payment by the initial decision to invest, the purchaser need not remain a resident during the installment period. [Nov. 26, 2008]

227.03 An exchange offer would not be exempt under Section 3(a)(11) where it is necessary to make the offer to some joint holders of stock of the subject company who are non-residents of the state where the issuer is resident. [Nov. 26, 2008]

227.04 A new corporation would not be precluded from relying on Section 3(a)(11) for an offering simply because a significant part of its business would be interstate mail order. [Nov. 26, 2008]

227.05 A purchaser in an offering exempt from registration under Section 3(a)(11) intends to transfer the securities to the purchaser's IRA less than nine months after the offering. The IRA is administered by an out-of-state trustee. The residence of the trustee would not affect the availability of the intrastate exemption for the offering. [Nov. 26, 2008]

227.06 Sales of stock to promoters pursuant to Section 4(2) generally are not integrated with a subsequent intrastate offering exempt from registration pursuant to Section 3(a)(11). [Nov. 26, 2008]

234.02 Rule 506(b) sanctions the use of a representative who advises unsophisticated participants in the offering and thus furnishes the business sophistication required by Section 4(a)(2) that the participants lack personally. Because of the safe-harbor character of the rules and because no-action positions generally are unavailable under Section 4(a)(2), the Division will not express a view whether the use of a purchaser or offeree representative outside Rule 506(b) is an acceptable method to provide the sophistication requirement of Section 4(a)(2) as construed by the courts and the Commission. [March 12, 2025]

234.03 Sales of stock to promoters pursuant to Section 4(2) generally are not integrated with a subsequent intrastate offering exempt from registration pursuant to Section 3(a)(11). [Nov. 26, 2008]

235.02 The Section 4(3) exemption is not available to broker-dealers when engaged in market making activities with respect to the securities of affiliated issuers. When a broker-dealer makes a market in the securities of an affiliate, the broker-dealer must comply with the Securities Act's registration and prospectus delivery requirements. Affiliated broker-dealers may rely on Securities Act Rule 172 to satisfy their obligation to deliver a “market-making” prospectus. [Nov. 26, 2008]

239.02 A letter to be sent to holders of limited partnership units in various oil and gas programs, for the purpose of determining their interest in converting the smaller programs into one new large program, may involve the offer of a security of the new program within the meaning of Sections 2(a)(3) and 5. Any such communication, if it is an offer, would either have to be registered under the Securities Act or exempt from Securities Act registration. For registered offerings, Rule 135 would permit a simple notice describing the purpose and terms of such an offering, but would not allow the solicitation of indications of interest. [Nov. 26, 2008]

239.03 A typical non-qualified deferred compensation plan permits an employee to defer compensation over a set dollar amount. The employee will then either receive a fixed rate of return on the deferred monies or the employer may permit the employee to index the return on those monies off of a number of investment return alternatives. The debt owing to plan participants is analogous to investment notes, which typically are viewed as debt securities. The Division has not stated affirmatively, however, that all interest-only deferred compensation plans involve securities. Instead, the Division leaves that question for counsel's analysis of the facts and circumstances. To the extent that interests in a non-qualified deferred compensation plan are securities, registration would be required unless the offerings under the plan would qualify for an exemption, e.g., Section 4(2). Form S-8 would be available when an employer registers the offer and sale of interests in the deferred compensation plan under the Securities Act. The filing fee should be based on the amount of compensation being deferred, not on the ultimate investment return. As the “deferred compensation obligations” to be registered are obligations of the issuer/employer, not interests in the plan, the registration of the “deferred compensation obligations” would not result in a requirement that a deferred compensation plan file a Form 11-K with respect to those securities. Further, based on the unique terms of the “deferred compensation obligations” (both with respect to interest and maturity), compliance with the Trust Indenture Act of 1939 has not been required. [Nov. 26, 2008]

239.04 Statutory mergers by means of security holders' vote are defined by Rule 145(a)(2), for purposes of Section 2(a)(3), as events of sale. The rule excludes from this definition mergers for the sole purpose of changing the issuer's state of incorporation. The exclusion itself is limited to migratory transactions occurring exclusively within the United States, from one state to another. Despite the rule's express domestic limitation, the Division believes that similar transactions changing a foreign issuer's domicile from one political subdivision of a country to another (such as reincorporation from one Canadian province to another) likewise should not be treated as a sale. However, if a non-U.S. corporation undertakes a merger to incorporate within the United States, the migratory transaction is an event of sale that must be registered with the Commission or exempt from registration. [Nov. 26, 2008]

239.05 If its warrants are out of the money, an issuer does not have to keep the prospectus for the exercise of those warrants current. Of course, the prospectus must be amended at such time as the exercise of the warrants becomes in the money. No warrants may be exercised until the registrant has brought its prospectus covering such exercise current. [Nov. 26, 2008]

239.06 A registrant inquired whether an offering of shares under a stock purchase plan could be made by switching back and forth between: (1) shares acquired from the issuer registered under the Securities Act; and (2) shares acquired on the open market not registered under the Securities Act in reliance on the limited issuer involvement/no registration positions in Securities Act Release No. 4790 (Jul. 13, 1965) and Securities Act Release No. 5515 (Jul. 22, 1974). Because switching back and forth indicated too much issuer involvement to qualify for the limited issuer involvement exemption from registration, registration of all shares offered under the plan was required. [Nov. 26, 2008]

239.07 Warrants, and the shares issuable on their exercise, were registered. Now the warrants are being exchanged for warrants with a new expiration date and exercise price in reliance on Section 3(a)(9). The Division will not object if the original registration statement (updated to reflect the new terms through a post-effective amendment) is used in connection with the exercise of the new warrants. [Nov. 26, 2008]

239.08 An issuer may extend the exercise period for warrants and/or reduce the warrant exercise price through the filing and issuance of an appropriate Rule 424(b) prospectus supplement prior to the initial expiration date of the warrants. The issuer may not permit the exercise of such modified warrants, however, unless a current prospectus under Section 10(a)(3) with respect to the shares underlying the warrants is delivered. [Nov. 26, 2008]

239.09 A parent and its majority-owned subsidiary both have classes of securities registered under Section 12 of the Exchange Act. The parent wishes to make a public offering of convertible, exchangeable debentures. The debentures are immediately convertible into common stock of the parent, and exchangeable at the option of the parent into common stock of the subsidiary. The offer and sale of all three securities must be registered. [Nov. 26, 2008]

239.10 An issuer filed a Form S-3 registration statement for a secondary offering of common stock which is not yet effective. One of the selling shareholders wanted to do a short sale of common stock “against the box” and cover the short sale with registered shares after the effective date. The issuer was advised that the short sale could not be made before the registration statement becomes effective, because the shares underlying the short sale are deemed to be sold at the time such sale is made. There would, therefore, be a violation of Section 5 if the shares were effectively sold prior to the effective date. [Nov. 26, 2008]

239.11 The Liability Risk Retention Act of 1986 contains exemptions from the registration provisions of Section 5 of the Securities Act and Section 12 of the Exchange Act for interests in a “risk retention group.” A risk retention group is a corporation the primary activity of which is to assume and spread all or a portion of the liability exposure of its members, if certain conditions are met. In the absence of a formal no-action request, the Division staff declined to express any view as to whether the exemptions for interests in a risk retention group would extend to interests in a holding company for such group. The question has arisen because the exemption written into the statute is silent on that point. Ownership interests in a “risk retention group” are considered to be “securities” for purposes of Section 17 of the Securities Act and Section 10 of the Exchange Act, under the terms of The Liability Risk Retention Act of 1986. [Nov. 26, 2008]

239.12 In the King & Spalding no-action letter (Nov. 17, 1992) issued by the Division, the Division identified the conditions under which Securities Act registration would not be required for an issuer and/or its affiliates to operate a matching service to facilitate secondary resales of limited partnership interests of such issuer, including conditions relating to the Exchange Act reporting status of the issuer and the ways in which the matching service would operate. Other finite-life entities whose securities do not have an organized secondary market, such as certain real estate investment trusts or other entities that fall within the definition of partnership in Item 901(b) of Regulation S-K, similarly may operate a matching service if the conditions in the King & Spalding letter are met. [Nov. 26, 2008]

239.13 An acquiring company may seek a commitment from management and principal security holders of a target company to vote in favor of a Rule 145(a) transaction, frequently referred to as a “lock-up agreement.” The execution of a lock-up agreement may constitute an investment decision under the Securities Act. If so, the offer and sale of the acquiring company's securities would be made to persons who entered into those agreements before the Rule 145(a) transaction is presented to non-affiliated security holders for their vote.

Recognizing the legitimate business reasons for seeking lock-up agreements in the course of a Rule 145(a) transaction, the staff has not objected to the registration of offers and sales where lock-up agreements have been signed in the following circumstances:

• the lock-up agreements involve only executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the target company (“target company insiders”);
• the persons signing the lock-up agreements 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 the 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.

When lock-up agreements are executed before the filing of a registration statement and the conditions listed above are not satisfied, the subsequent registration of the Rule 145(a) transaction on Form S-4 (or Form F-4) is generally not permitted. However, the staff will not object to the subsequent registration of offers and sales of the acquiring company’s securities on Form S-4 (or Form F-4) where the target company insiders either (1) execute lock-up agreements and the conditions listed above are not satisfied or (2) deliver written consents approving the Rule 145(a) transaction, in each case, before the Form S-4 (or Form F-4) is filed, as long as:

• target company insiders who executed lock-up agreements or delivered the written consents will be offered and sold securities of the acquiring company only in an offering made pursuant to a valid Securities Act exemption; and
• the securities registered on the Form S-4 (or Form F-4) will be offered and sold only to those security holders of the target company who did not execute lock-up agreements or deliver written consents approving the Rule 145(a) transaction.

[January 23, 2026]

239.15 As a general matter, once an option becomes exercisable, an offer is made pursuant to Section 5. Further, if an option becomes exercisable within one year, it is deemed to be immediately exercisable. Therefore, a registration statement must be on file before the option is exercisable for the entire transaction to be a public offering. A later filing of the registration statement would convert a private offering into a public offering, which is inconsistent with Section 5. The only exception to this position is with respect to Form S-8, where shares underlying the options are permitted to be registered at any time before the option is exercised, without regard to when the option became exercisable. This departure from the analysis set forth above is based solely on a policy determination to treat Form S-8 issuances more liberally, based on the employer/employee relationship. [Nov. 26, 2008]

239.16 [withdrawn, September 22, 2016; see 139.33]

240.02 A Delaware limited partnership, with a foreign general partner, must provide the signature of an authorized U.S. representative of the general partner to satisfy the signature requirements for a Securities Act registration statement. [Nov. 26, 2008]