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SEC Issues New C&DIs on Representations in an Exxon Capital Exchange Offer
Practical Law Legal Update w-002-7771 (Approx. 4 pages)
SEC Issues New C&DIs on Representations in an Exxon Capital Exchange Offer
by Practical Law Corporate & Securities
| Published on 12 Jul 2016 • USA (National/Federal) |
The SEC's Division of Corporation Finance issued new compliance and disclosure interpretations (C&DIs) regarding issuer representations in an "Exxon Capital" or "A/B" exchange offer.
On July 11, 2016, the SEC's Division of Corporation Finance issued new compliance and disclosure interpretations (C&DIs) regarding the representations that an issuer must make to the SEC staff as a condition to the staff's not objecting to the registration statement filed in an "Exxon Capital" or "A/B" exchange offer.
New Question 111.02 and Question 125.13 identify that, in a series of letters beginning with Exxon Capital Holdings Corporation (April 13, 1988), the SEC 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, and the new securities may then be resold by most holders without further registration and without the delivery of a prospectus. One of the requirements for an Exxon Capital or A/B exchange offer is that the participants in the exchange offer are not engaged in a distribution of the registered securities, so that they can avoid being deemed underwriters. As a condition to it not objecting to the registration of these offerings, the SEC staff has requested that issuers make certain representations in a letter to the SEC's Division of Corporation Finance (see Morgan Stanley & Co. Incorporated, SEC No-Action Letter, (June 5, 1991) and Shearman & Sterling, SEC No-Action Letter, (July 2, 1993)). These representations need not follow any particular form so long as they address the following:
- 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 exchange 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 person acquires the exchange securities for the purpose of distributing them, such person:
- cannot rely on the SEC 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 must be identified as an underwriter in the prospectus.
- The issuer will include in the letter of transmittal relating to the exchange offer an acknowledgement:
- to be executed by each person participating in the exchange offer that such person does not intend to engage in a distribution of the exchange securities.
- 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 for any resale of exchange securities received in the exchange offer. The letter of transmittal may also include a statement 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.
The C&DIs note that, in the Shearman & Sterling letter, the SEC 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. However, the C&DIs state that, if the representations clearly state the essential matters outlined in the bullets above, the SEC staff does not believe that this additional disclosure is necessary.
The C&DIs state that:
- 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.
- 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.
In addition, the C&DIs state that the SEC staff believes that the representations may be provided either in the prospectus or in correspondence submitted with the filing.
To learn more about A/B exchange offers, see Practice Note, The Mechanics of A/B Exchange Offers.