Securities and Exchange Commission
Division of Corporation Finance

Current Issues and Rulemaking Projects

X. Significant No-Action and Interpretive Letters Through October 2000

NOVEMBER 14, 2000

A. Section 2(a)(1) of the Securities Act

Minnesota Mutual Companies, Inc. - November 24, 1999
The Division stated that it will not recommend enforcement action to the Commission if, following the adoption of a plan to provide benefits to Company members, Minnesota Mutual, a mutual insurance holding company, continues to issue membership interests without registration under the Securities Act or the Exchange Act. In reaching this position, the Division noted particularly counsel's representation that the regulation of Minnesota Mutual and its subsidiaries by the Minnesota Commissioner of Commerce remains as described in Minnesota Mutual's prior no-action request dated May 19, 1998.

American Stock Exchange - NASD - July 10, 1998
The Division expressed the view that the American Stock Exchange (the "Exchange") memberships, or "seats," described in the letter are not securities within the meaning of Section 2(a)(1) under the Securities Act. The Division also expressed the view that the described transaction, in which substantially all of the assets and liabilities of the Exchange would be transferred to a limited liability company in exchange for i) an interest in the limited liability company and ii) contractual obligations of the NASD under the agreement governing the transaction, would not involve a distribution of the securities issued by the limited liability company under Securities Act Rule 145(a)(3).

B. Sections 2(a)(3) and 5 of the Securities Act

American Bar Association July 25, 2000
The Division expressed the view that the automatic enrollment, as described below, of employees in a Section 423 employee stock purchase plan before the company's initial public offering would not involve the offer or sale of a security before effectiveness of the plan's Form S-8 registration statement.

The plan's initial offering period would begin upon effectiveness of this Form S-8, which would be filed following effectiveness of the company's initial public offering registration statement. Employee enrollment would take place earlier on an involuntary, automatic basis. This enrollment would provide for the maximum level of participation set by the plan and lump sum cash payment by the end of the offering period.

No offers would be made to employees, nor would any employee take any action regarding the plan, before the company files the Form S-8. After the plan's Form S-8 becomes effective, an employee would be able to elect participation at a lower percentage of compensation or switch to payroll deductions as the form of payment. The Division expressed the view that company solicitation or payroll deduction elections after effectiveness of the plan's Form S-8 would not violate Section 5.

First Mutual Savings Bank -October 8, 1999
The Division stated that it no longer responds to requests for no-action advice under Sections 2(a)(3) and 5 for holding company formations structured to occur without a vote of shareholders.

Vanderkam & Sanders -January 27, 1999    
Simplystocks.com -February 4, 1999
In each of these letters, the Division expressed the view that the issuance of securities in consideration of a person's registration or visit to an issuer's internet site would be an event of sale within the meaning of Section 2(a)(3), and would violate Section 5 of the Securities Act unless it were the subject of a registration statement or a valid exemption from registration.

C. Section 2(a)(10) of the Securities Act

Since 1997, the Division has issued a series of no-action letters enabling third-party providers to contract with underwriting firms for the recording and electronic transmission of roadshows to a limited audience selected by the managing or lead underwriter in connection with registered non-shelf offerings. In each request, counsel provided a legal opinion that the transmissions would not be "prospectuses" within the meaning of Section 2(a)(10) of the Securities Act. The Division responded that, without necessarily agreeing with that analysis, it would not recommend enforcement action if the parties proceeded as described in their letters. See Private Financial Network (March 12, 1997); Net Roadshow, Inc. (July 30, 1997); Bloomberg L. P. (October 27, 1997); Thomson Financial Services, Inc. (September 4, 1998); Activate. net Corporation (September 21, 1999). Conditions common to these letters include:

(1) an entire "live" roadshow, including any questions and answers from the audience, would be recorded after the filing of the registration statement for transmission on a real-time or subsequent basis; there would be no editing, except for "housekeeping"-type changes to eliminate dead airtime and to correct mistakes;

(2) the electronic roadshow would not be made widely available, but instead, access would be restricted by password to a limited audience of persons customarily invited by the underwriter to attend a "live" roadshow;

(3) any investor given password-restricted access to an electronic roadshow would only be able to view the presentation twice in connection with a particular offering (e. g., Private Financial Network ), or an unlimited number of times within a single 24-hour period (e. g., Bloomberg L. P.). In either case, a registration statement first would be filed;

(4) a copy of the prospectus in the registration statement would be delivered, either in paper or electronic format, to each viewer before or contemporaneously with obtaining access to the roadshow; viewers would be able to download and print any electronically delivered prospectus;

(5) viewers would agree not to copy, download or further distribute the roadshow transmission, and a visual statement or "crawl" would be included in each transmission to emphasize this prohibition;

(6) material developments occurring after the taping of the original, or "live," roadshow would be presented pursuant to a periodic textual crawl; and

(7) information provided in the electronic roadshow would not be inconsistent with the filed prospectus.

In 1998, the staff also issued a letter to Net Roadshow addressing the internet-based transmission of roadshows in Rule 144A deals. See Net Roadshow, Inc. (January 30, 1998), located in Section X.F. of this outline.

Most recently, in letters dated November 15, 1999, and February 9, 2000, the Division allowed Charles Schwab & Co., Inc., a broker-dealer firm, to make electronic roadshows transmitted in connection with firm-commitment, underwritten IPOs available to a segment of its retail customer base (as well as certain "independent" investment advisers), where Schwab is a member of the underwriting syndicate or selling group. Under the Schwab letters, however, the Division has clarified that: (1) there can only be one version of the "live" roadshow captured for electronic transmission to eligible investors; (2) the electronically transmitted roadshow cannot exclude any material information, such as earnings projections, intended to be included in any other presentation of the roadshow; and (3) the content of the electronic roadshow must be consistent with the content of the statutory prospectus relating to a particular IPO.

Given the increasing use of electronic roadshows evidenced by the letters described above, as well as the more general use of the Internet in securities offerings, the Commission has indicated that it wishes to consider rulemaking in these areas. Because of this, the staff has determined to cease issuance of no-action or interpretive letters focusing on electronic roadshows pending Commission action.

W. R. Hambrecht + Co. July 12, 2000
Wit Capital Corporation July 20, 2000
Bear, Stearns & Co., Inc. July 20, 2000

These interpretive letters address "live" online auctions in offerings registered under the Securities Act. The letters are discussed in detail in Section VIII. A. 6.

D. Section 3(a)(10) of the Securities Act

Food Lion, Inc. - January 13, 1999
The Division stated that it would not object if , based on counsel's opinion that the exemption from registration provided by Section 3(a)(10) is available, the described exchange of securities traded on the Nasdaq National Market were conducted as proposed.

In reaching its position, the Division noted the recent enactment of the Securities Litigation Uniform Standards Act of 1998 (105 P. L. 353, 112 Stat. 3227), which amended Section 18(b)(4)(C) of the Securities Act to include a reference to Section 3(a)(10). Section 18 of the Securities Act creates an exemption from state securities law registration requirements for "covered securities", and defines "covered security" to include any security listed on the Nasdaq National Market System. As amended, Section 18(b)(4)(C) removes securities that are otherwise covered securities from the definition if they are offered and sold in reliance on certain federal exemptions, including Section 3(a)(10). The Division expressed the view that, as a result of the amendment, state securities law provisions authorizing the approval of certain exchanges of securities may be used to perfect an exemptive claim under Section 3(a)(10) where the security is otherwise a "covered security". The Division stated that, because of this Congressional action, statements to the contrary in Staff Legal Bulletin No. 3, as published on July 25, 1997, are no longer valid.

The Division also addressed other questions raised with respect to the proposed exchange.

Maverick Networks -January 25, 1999
The Division expressed the view that an exemptive claim under Section 3(a)(10) for securities listed on the New York Stock Exchange, the American Stock Exchange, or the Nasdaq Market System in a transaction reviewed under Section 25142 of the California Corporations Code would not be impaired by Section 18(b) of the Securities Act. The Division noted that through the recent amendment to Section 18(b)(4)(C) of the Securities Act, such securities, which otherwise would be "covered securities" exempted by Section 18 from state securities law regulatory requirements, are removed from the definition of covered securities if they are offered and sold in reliance on Section 3(a)(10). As a result, the Division stated, state securities law provisions (such as the California provision at issue) authorizing the approval of certain exchanges of securities may again be used to perfect exemptive claims under Section 3(a)(10) with respect to securities that otherwise would be covered securities.

E. Section 5 of the Securities Act

NASD Regulation, Inc. - January 21, 2000
In a letter to NASD Regulation, Inc., dated January 21, 2000, the staff advised that persons who hold securities in blank check companies are probably underwriters of those securities. While the facts and circumstances are critical, Section 4(1) of the Securities Act may not be available for resales of these securities by promoters, affiliates, and their transferees, regardless of the length of time they may have held the securities. The design of the blank check companies is intended to allow these persons to introduce large quantities of securities into the public markets at the time of a business combination with an operating company. These sales are distributive in character, not the ordinary trading transactions Section 4(1) exempts. In addition, the staff expresses the view that resale transactions of these securities, where the initial distribution was not accomplished through registration and conformance with Rule 419 under the Securities Act, cannot be done under Rule 144 because a scheme to evade registration is involved making the provision unavailable. The staff also cautioned about the applicability of Rules 101 and 102 of Regulation M in these situations. As a final matter, the staff noted that Rule 701 would generally not be available to blank check companies.

Metropolitan Life Insurance Company -November 17, 1999
In a letter issued jointly with the Division of Market Regulation and the Division of Investment Management, the Division responded to several questions regarding the Company's proposed demutualization transaction, the Reorganization. In the Reorganization, Metropolitan Life would become a subsidiary of a newly-formed Holding Company. Policyholders' membership interests in Metropolitan Life would be extinguished, and Policyholders would receive cash, policy credits or be allocated Metropolitan Life common stock in exchange for their membership interests. The Metropolitan Life common stock would in turn be exchanged for an equal number of shares of Holding Company stock to be held through a Trust. Policyholders' allocated stock would be allocated beneficial Interests in the Trust equal to the number of shares of Holding Company common stock allocated to them. After one year, Policyholders may withdraw all their allocated shares of Holding Company common stock held in the Trust.

In its response, the Division stated, among other things, that:

1. it would not recommend enforcement action to the Commission if Metropolitan Life were to conduct the Reorganization without Securities Act registration, in reliance on the exemption provided by Section 3(a)(10);

2. it would not object if, after a registered initial public offering of Holding Company common stock, the Trust registers the Trust Interests on Exchange Act Form 8-A, including descriptions of the Interests, the common stock and the rights issued under the stockholder rights plan adopted by the Holding Company, and incorporating certain information from the Holding Company's Form 8-A for the common stock and rights;

3. it would not object if the Trust complies with Exchange Act Section 13(a) by filing financial statements of the Trust only, at the time of mailing dividends and other distributions to persons holding Trust beneficial interests. The financial statements will show distributions the Trust received and paid during the period ending on the financial statement date, and the Trust Shares and other assets held by the Trust on that date. The financial statements will be audited, and will be filed under cover of Form 10-K, in connection with the annual distribution of cash dividends. Filings made in connection with distributions will be on Form 8-K, and will include unaudited financial statements. The Trust will also file reports on Form 8-K if there is an event relating to the Trust that the Form requires;

4. it would not object if,

• only with respect to Trust Shares, and not with respect to any common stock acquired in open market purchases, neither the Trust, the Trustee, the Custodian of the Trust nor the Holding Company disseminates any proxy soliciting materials, annual and quarterly reports or information statements of the Holding Company to a Trust beneficiary in connection with a vote or consent of stockholders of the Holding Company, except in connection with a Beneficiary Consent Matter or upon request of any Trust beneficiary;
  
• the Trust, the Trustee, the Custodian of the Trust and the Holding Company follow the procedures described in the letter for the distribution of proxy soliciting materials, annual reports or information statements in connection with a Beneficiary Consent Matter (including the procedures that require mailing and other expenses to be reimbursed by a stockholder in certain circumstances, instead of following the reimbursement procedures outlined in Rule 14a-7 under the Exchange Act) (in reaching its position regarding compliance with Rule 14a-7 with respect to any solicitation of Trust beneficiaries, the Division particularly noted the Holding Company's representation that it will always elect to mail, rather than to provide a shareholder list, with respect to a Beneficiary Consent Matter);
  
• none of the Holding Company, the Trust, the Trustee or Custodian of the Trust inquires as to the beneficial ownership of the Trust Shares, pursuant to Rules 14a-13, 14b-2 and 14b-1 under the Exchange Act, respectively, in connection with such votes or consents of stockholders of the Holding Company, or provides information in connection with those inquiries, except in connection with a Beneficiary Consent Matter;

5. it will not object if Holding Company Board members provide Schedule 13D and Section 16(a) information as described in the request; and

6. it agrees that a withdrawal of Trust Shares from the Trust by a person holding Trust beneficial interests, after expiration of the one-year period, is not an event that requires Securities Act registration.

PetroSell.com, LLC - September 22, 1999
The Division agreed that it would not recommend enforcement action under Section 5 of the Securities Act for Internet auctions offering and selling whole interests in oil or gas properties exclusively to persons actively engaged in oil or gas exploration or production. Counsel opined that the auctions would not involve sales of securities within the meaning of Section 2(a)(1) of the statute.

Wit Capital- July 14, 1999
The Division, without concurring in counsel's analysis, agreed not to recommend enforcement action to the Commission under Section 5(a) or 5(b) against Wit Capital for its conduct of initial public offerings using the procedures described in Wit's request.

Under the procedures, Wit circulates an e-mail notice conforming to Rule 134 after posting a preliminary prospectus in a segregated area within Wit's web site. The segregated area in Wit's web site, the "cul de sac," separates information concerning the IPO from other information on Wit's web site. A person entering the cul de sac cannot link to other sites on the Internet, such as the issuer's web site. The cul de sac includes only a notice conforming to Rule 134, the preliminary prospectus, and information on Wit's general account and subscription procedures.

A person visiting the cul de sac who does not hold accounts with Wit must open the account before submitting an offer to buy shares in the IPO. A minimum of $2,000 must be deposited to open the account. The amount deposited is independent of the amount that may be required to purchase shares and remains in the control of the investor. Persons holding accounts who wish to participate in the offering may make offers to buy through the subscription documents included in the cul de sac. Offers to buy may specify the price the investor is willing to pay. Offers to buy that do not specify a price are treated as limit orders at the maximum estimated public offering price disclosed in the prospectus.

Approximately 48 hours before the anticipated effectiveness of the registration statement, Wit sends an e-mail notice requesting reaffirmation of the offers to buy. Persons who do not confirm their earlier offers will not receive allocations. The confirmation will be valid for a maximum of seven business days from this e-mail notice. A further reconfirmation will be required at any time the public offering price deviates from the estimate and at any time the preliminary prospectus is recirculated.

After the registration statement is effective and shortly before the IPO is priced using Rule 430A procedures, Wit will send an e-mail notice to each bidder stating that the offering is about to price and that unless the bidder withdraws the offer to buy within a brief period (the minimum is an hour), Wit may accept the offer. Notices of acceptance are sent to persons who have received allocations. The notice will be followed by a confirmation that satisfies Exchange Act Rule 10b-10 and the final prospectus required by Section 5(b)(2).

IPONET -July 26, 1996
With respect to public offerings, the Division addressed the application of Securities Act Rule 134 to an electronic coupon or card. The Division stated that the reference in Rule 134(d) to "an enclosed or attached coupon or card, or in some other manner" would be equally applicable to the acceptance of indications of interest via electronic coupon or card as well as paper coupon or card. In this regard, the Division noted the representation that Rule 134(d) 's other requirements will be satisfied in connection with the acceptance of such indications of interest.

The Division also addressed, in the electronic context, the definitions of "general solicitation" and "general advertising" under Securities Act Regulation D Rule 502(c). The Division took the position that the initial qualification of accredited or sophisticated investors by means of a generic questionnaire, followed by the subsequent posting of a notice of a private offering in a password-protected page of IPONET accessible only to IPONET members who previously qualified as accredited investors, would not involve any form of "general solicitation" or "general advertising" within the meaning of Rule 502(c).

In reaching this conclusion, the Division noted that (i) both the invitation to complete the questionnaire used to determine whether an investor is accredited or sophisticated and the questionnaire itself will be generic in nature and will not reference any specific transactions posted or to be posted on the password-protected page of IPONET; (ii) the password-protected page of IPONET will be available to a particular investor only after the supervisor of IPONET has made the determination that the particular potential investor is accredited or sophisticated; and (iii) a potential investor could purchase securities only in transactions that are posted on the password-protected page of IPONET after that investor's qualification with IPONET. In this regard, the Division stated that it took no position as to whether the information obtained by the supervisor is sufficient to form a reasonable basis for believing an investor to be accredited or sophisticated.

Real Goods Trading Corporation -June 24, 1996
The Division (as well as the Divisions of Investment Management and Market Regulation) addressed the Company's proposed trading system that would provide information about prospective buyers and sellers of Real Goods Trading's common stock. The Division took the position that the Real Goods Trading's activities in connection with the establishment and maintenance of the trading system would not require that offers or sales made through the trading system be registered under the Securities Act. The Division of Investment Management took the position that Real Goods Trading may engage in the activities specified without registering under the Investment Advisers Act. The Division of Market Regulation took the position that it would not recommend enforcement action under Exchange Act Section 5, 6 or 15 if Real Goods Trading operates the trading system in the manner specified without registration as a national securities exchange under Section 6 or as a broker-dealer under Section 15 of the Exchange Act.

In reaching these positions, the Divisions noted that (i) Real Goods Trading will provide specified notices regarding operation of and participation on the trading system that will be set forth or contained on the screens and/ or hard copy by which trading system information is provided; (ii) Real Goods Trading is an Exchange Act Section 12 registrant and will retain that status or, if it should cease to be a Section 12 registrant, otherwise undertake to make publicly available the information required by Exchange Act Section 13(a) in the same manner that buyers and sellers of Real Goods Trading's common stock will obtain access to the trading system (e. g., electronic mail, facsimile, mail, the Company's World-Wide Web site, etc.); (iii) Real Goods Trading will keep records of all quotes entered into the trading system and make those records available to the Commission and the Pacific Stock Exchange (or any other regulated market on which Real Goods Trading's securities are listed) upon reasonable request; (iv) Real Goods Trading's advertising will comply with specified representations; (v) neither Real Goods Trading nor any of its affiliates will use the trading system, directly or indirectly, to offer to buy or sell securities, except in compliance with the securities laws, including any applicable registration requirements (absent an available exemption therefrom); and (vi) neither Real Goods Trading nor any of its affiliates will (a) receive any compensation for creating or maintaining the trading system; (b) receive any compensation for the use of the trading system; (c) be involved in any purchase or sale negotiations arising from the trading system; (d) provide information regarding the advisability of buying or selling Real Goods Trading's common stock or any other securities; or (e) receive, transfer or hold funds or securities as an incident of operating the trading system.

F. Rules 144, 145, and 144A

Goldman Sachs - December 20, 1999
The Division agreed to the use of restricted or control securities under pre-paid forward contracts. In the arrangement, a holder of restricted or control securities currently eligible for sale under Rule 144 would lend the securities to its counterparty. The lender would file a notice on Form 144. The borrowing counterparty would then sell the maximum number of shares of the same class into the public market in a manner satisfying the brokerage transaction condition required by Rule 144(f) and defined in Rule 144(g). The Division agreed that the borrowed securities may then be treated as though they were not restricted or control securities. Securities delivered to the lender to close the contract would not be restricted securities within the meaning of Rule 144(a)(3).

bamboo.com - December 20, 1999
The Division stated that it would not recommend enforcement action to the Commission if the Company exchanges its common shares for its preferred shares paired with preferred shares of its wholly-owned Canadian subsidiary without Securities Act registration, in reliance on Section 3(a)(9). The Division also expressed the view that the holding period under Rule 144(d)(4)(ii) for the common shares exchanged may be the date the preferred shares of parent and subsidiary were acquired. In reaching both positions, the Division noted especially that the preferred shares of the subsidiary, which were inseparable from the parent's preferred shares, represented no right except the right to receive the common shares of its parent. The Division also noted that the exchange did not add to the number of equity owners of the parent.

Harmony Trading Corp.- November 22, 1999
After disagreeing with some of counsel's conclusions under Rule 144(d) and (k) and declining to express views on others, the Division expressed its concern over circumstances where, after a company is formed without either substantial capital or the prompt commencement of business, but in proximity to the company's efforts to have its securities traded in a public market, its closely-held securities are transferred to significant numbers of persons. In these circumstances, the Division suggested, resales of the transferred securities in claimed reliance on Rule 144 may involve evasive schemes to avoid registration under the Securities Act.

Juno Online Services, Inc. - November 17, 1999
A limited partnership agreement confers on the general partner the right to reconstitute the business of the partnership as a corporation. When the general partner exercises this authority, the limited partners who had given up the right to vote on the transaction recasting the business into a different organizational form may date their holding period under Rule 144(d) for the common stock of the successor corporation to the date of purchase and full payment for their limited partnership interests. The general partner who made the investment decision must date its holding period for the shares in the corporation to the date of the succession.

EarthWeb Inc.- August 20, 1999
Portfolio restricted securities held by a closely-held limited liability company are transferred in kind to its members ratably in accordance with the equity represented by their membership interests. As is the case with similar transfers by closely-held partnerships and corporations, the holding period under Rule 144(d) for the securities transferred to the members of the LLC will be the date of purchase and full payment by the LLC from the issuer.

Jevic Transportation, Inc.- April 20, 1999
Common equity securities of a single issuer that carry different voting rights are not "securities of the same class" for purposes of Rule 144(e), the rule's volume limitation.

Mandatorily Exchangeable Issuer Securities October 25, 1999
The Division addressed the eligibility of a security for resale under Rule 144A, where that security, itself eligible to be resold in reliance on Rule 144A(d)(3), is exchangeable at the issuer's election for securities of unrelated issuers. The securities of the unrelated person could be resold by the issuer of the overlying security in reliance on Section 4(1), either because they were not restricted securities within the meaning or Rule 144(a)(3) or because they could be sold in reliance on Rule 144(k). The Division expressed the view that, under the circumstances described, the overlying security would be eligible for resale under Rule 144A. The Division expressed no view on the application of the conversion premium test of Rule 144A(d)(3) to securities of this description.

Net Roadshow, Inc. - January 30, 1998
The Division stated that it would not recommend enforcement action if Net Roadshow transmits roadshows over its Internet web site solely to "qualified institutional buyers" (" QIBS") within the meaning of Securities Act Rule 144A(a)(1) on behalf of a QIB (or person acting on its behalf) that purchases securities from an issuer for resale to other QIBS under Rule 144A ("Seller").

The Division noted counsel's opinion that the activities described would be consistent with Rule 144A(d)(1) and conditioned its position on Net Roadshow's compliance with the following conditions in connection with each roadshow.

(1) Net Roadshow will deny access to its web site for viewing a particular roadshow (including any notice of the roadshow posted on Net Roadshow's web site) to all but:

(A) New Roadshow's or the Seller's employees or authorized agents for that roadshow; and

(B) the institutions for which the Seller has confirmed its reasonable belief regarding their QIB status.

(2) The confidential password assigned to QIBS for a particular roadshow will be unique to that roadshow, and will expire no later than the date the related offering terminates.

(3) Each Seller's confirmation to Net Roadshow will include the following:

(A) a representation that the Seller is a QIB;

(B) an adequate basis for the Seller's representation of its "reasonable belief" that:

(i) each entity to which the Seller has assigned a confidential password is a QIB; and
(ii) the offering to which the particular roadshow relates is not subject to Securities Act registration.

(4) Net Roadshow otherwise has no actual knowledge or reason to believe, that:

(A) the Seller is not a QIB;

(B) any of the entities to which the Seller has assigned a confidential password is not a QIB; or

(C) the securities offering to which a particular roadshow relates is subject to Securities Act registration.

(5) Net Roadshow is not an affiliate of any Seller or issuer of a security that is the subject of a particular roadshow.

Finally, the Division stated that the Commission or staff may reevaluate this no-action position in the future because regulatory responses to legal issues raised by technological developments may evolve.

Verio Inc. -May 25, 1999
The Division expressed the view that, once Verio has fully and unconditionally guaranteed a debt security of its wholly owned subsidiary, holders of warrants to purchase Verio common stock who pay the warrant exercise price by surrendering the guaranteed debt instrument may use their holding periods on the warrants and debt securities to calculate their holding periods for the common stock received on exercise. In reaching its position, the Division particularly noted that the addition of the Verio guarantee would allow Verio and its wholly owned subsidiary to be considered the same issuer for purposes of Rule 144(d)(3)(ii). The Division noted that warrant holders paying the exercise price with any consideration other than the guaranteed debt securities or other Verio securities would use the date of exercise of the warrant and payment of its exercise price as the beginning of the holding period for the Verio common stock received upon exercise. The Division stated that Amdahl Corp. (February 27, 1999) and American Telephone and Telegraph Company (May 1, 1999) no longer represent the Division's view on this issue.

CommScan, LLC - February 3, 1999
The Division expressed the view that sellers may rely on the Company's qualified institutional buyers list ("QIB List"), which would be published on an Internet web site accessible only by registered broker/ dealers, as a method for establishing a reasonable belief that a prospective purchaser is a "qualified institutional buyer" within the meaning of Rule 144A(a)(1) under the Securities Act. Information underlying inclusion of an entity in the QIB List must be as of a date within 16 months before the date of sale of securities in the case of a United States purchaser, and within 18 months before such date of sale for a foreign purchaser.

The Petersen Companies, Inc. - July 16, 1998
The Division expressed the view that the Rule 144(d) holding period for shares of Company common stock exchanged for limited liability company interests in Petersen Holdings, L.L.C. (" Petersen") began on October 1, 1997, the date of the exchange. The Division stated that the holding period could not "tack" to an earlier date because the agreement Petersen interest holders signed when Petersen was formed, granting the Company (in its capacity as Petersen's manager) the right to control all aspects of any initial public offering, did not expressly contemplate conversion from a limited liability company to corporate form in advance of a public offering of securities, with holders of Petersen units retaining no veto or other voting power with respect to the conversion. The Division referred specifically to Peapod, Inc. (Nov. 10, 1997).

Peapod, Inc. -November 10, 1997
The Division took the position that limited partners of a partnership and the shareholders of its corporate general partner could "tack," under Securities Act Rule 144(d), their holding periods for their limited partnership interests and shares, respectively, onto their holding periods for the shares of Peapod received in a conversion (and, in the case of the general partner's shareholders, the general partner's subsequent liquidation).

In the conversion,

• all the equity interests in the partnership were exchanged for Peapod shares;
  
• the partnership was dissolved; and
  
• all of the partnership's assets and liabilities were transferred to Peapod.

In reaching this conclusion, the Division noted in particular specified agreements and their contemplation of the partnership's conversion to corporate form in advance of, and to facilitate, the new corporation's public offering.

Rite Aid Corporation - October 20, 1997
The Division expressed the view that, where securities originally issued in a Securities Act Rule 145(a) transaction are transferred as gifts to third parties by a person Rule 145(c) deems an underwriter, the donees in the transfers who are not the issuer's affiliates may make unregistered public resales of the securities in the same manner and to the same extent as the donor.

Nextel Communications, Inc. - August 19, 1997
The Division stated that, where securities originally issued in a Securities Act Rule 145(a) transaction are privately sold by a person deemed an underwriter by Rule 145(c) (other than an affiliate of the issuer), an unaffiliated purchaser of the securities may make unregistered public resales of the securities to the same extent and in the same manner as the private seller.

First Bank System, Inc. - July 30, 1997
The Division stated that when an affiliate pledgor defaults on a loan that is collateralized by securities that are not "restricted" in the hands of the pledgor, and the pledgee bank forecloses on the pledge, the pledgee bank may sell those securities without regard to the holding period requirement of Securities Act Rule 144.

G. Rule 701

Morgan, Lewis & Bockius - November 3, 1999
The Division provided further guidance for issuers when transitioning from former Rule 701 to the new version. The Division expressed these views concerning the treatment of options:

• an issuer could rely on the grant date method for options granted in the 12 months before effectiveness of the revised rule up to the ceiling permitted under the old rule. Excess options -option grants over the ceiling in the old rule -could be considered against the available ceiling under the revised rule either when the excess options become exercisable or when they are actually exercised, whichever is most advantageous;
  
• the disclosure required by the revised rule where the $5 million ceiling is exceeded must be provided to investors a reasonable time before the exercise of options, even if those options were granted long before the rule revision; and
  
• the "clean slate" method is appropriate only if the available ceiling under the revised rule is not exceeded when offers and sales under the former rule are combined with sales under the revised rule.

Occidental Petroleum Corporation - August 3, 1999
The Division expressed the view that a private subsidiary of Occidental, a publicly reporting company, may use Rule 701 to offer or sell its securities to its employees.

American Bar Association - August 3, 1999
The Division stated that, subject to preliminary note 5 to Rule 701, a private subsidiary of a publicly reporting company may use Rule 701 to offer or sell its securities, including deferred compensation arrangements whether guaranteed or not guaranteed by the parent, to its employees, officers, directors, partners, trustees, consultants or advisors, or those of its parents or other majority-owned subsidiaries of its parent.

American Bar Association - August 3, 1999
With respect to issues of transition from the former Rule 701 to the new version, the Division expressed the view that the grant date method, the effective date method and the exercisable date method described, each appear to be appropriate ways of handling unexercisable options under the new provision. The Division also concurred with the view that options issued in reliance upon the prior version of Rule 701 regardless of their exercisability would not be subject to the new disclosure requirements at the time of the option grants.

H. Regulation S

Initial Public Offerings of U. S. Companies on EASDAQ July 27, 1999
The Division took the position that it would not recommend enforcement action if equity securities of non-reporting, U.S. companies are offered and sold in initial public offerings offshore pursuant to Regulation S in connection with a listing on EASDAQ without implementation of the stop-transfer and other provisions set forth under Rule 903(b)(3)(iii)(B) , Rule 903(b)(3)(iv) and Rule 904(b)(1)(ii). In reaching its position, the Division relied on counsel's opinion that the alternative restrictions and arrangements described in the request provide reasonable procedures to prevent public distribution of these equity securities in the United States. The Division also noted that U.S. firms are not permitted to participate in the EASDAQ market, either as brokers or market-makers, and that no EASDAQ trading screens will be placed in the United States.

Sales of Convertible Securities Under Regulation S August 26, 1998
The Division stated that it would not recommend enforcement action if convertible securities of U. S. reporting companies that are eligible for resale under Rule 144A and that are held in global certificated from (as either registered or bearer securities) by a depository for a book-entry clearance facility are offered and resold pursuant to Regulation S without implementation of the stop-transfer provisions or other procedures set forth under Rule 903(b)(3)(iii)(B)(4) of Regulation S, as long as certain procedures are followed during the applicable distribution compliance period. The Division stated that its view was limited to convertible securities offered or resold under Regulation S, and would not affect the applicability of Rule 903(b)(3)(iii)(B)(4) to any equity securities issued upon the conversion of the convertible securities during the distribution compliance period.

The Division also indicated that debt securities convertible into the equity securities of a person other than the issuer ("exchangeable" securities) would be considered convertible securities for Regulation S purposes.

I. Section 18(b)(4)(A) of the Securities Act

David M. Katz, Esq. - April 24, 1997
The Division addressed one of the definitions of "covered security" provided by Securities Act Section 18(b). Section 18(b)(4)(A) states that a security is a "covered security" as to a transaction that is exempt from Securities Act registration under Securities Act Section 4(1) or 4(3), provided that the issuer "files reports" with the Commission under Exchange Act Section 13 or 15(d). The Division stated that an issuer "files reports" for purposes of Section 18(b)(4)(A) if it has completed a registered initial public offering under the Securities Act, but has not yet been required to file any reports under Section 13 or 15(d).

J. Securities Act Forms

D'Ancona Attorneys - March 6, 2000
The Division addressed General Instruction A. 1(a)(5) to Form S-8, which makes Form S-8 available for the exercise of employee benefit plan options and the subsequent resale of the underlying securities by an employee's "family member" (as defined in the instruction) who has acquired the options from the employee through a gift or domestic relations order. The instruction defines "family member" to include "a trust in which these persons have more than fifty percent of the beneficial interest." For purposes of determining whether a trust satisfies this test, the Division has said that:

1. The phrase "these persons" includes the employee, as well as the persons who, with respect to the employee, have one of the family relationships otherwise specified in the instruction.

2. A remainder interest in such a trust is not considered a "beneficial interest" unless the person or persons with the remainder interest have the power, directly or indirectly, to exercise or share investment control over the trust.

3. A determination whether a trust meets the "more than fifty percent of the beneficial interest" test must be made at the time of the registered transaction, whether that transaction is an option exercise or the resale of the underlying security.

K. Section 12 of the Exchange Act

Kinkos, Inc. - November 30, 1999
The Division stated that it will not raise any objection if Kinkos does not comply with the registration requirements of Exchange Act Section 12(g) with respect to deferred share awards and stock options to be granted under Kinkos' employee stock incentive plan as proposed in the request. In reaching this position, the Division particularly noted that Kinkos will terminate any such award or option that does not automatically expire upon termination of a holder's employment for any reason. The position will remain in effect until the earlier of any Trigger Date (as defined in the request) and the date at which Kinkos otherwise becomes subject to the Exchange Act registration and/ or reporting requirements with respect to any class of its equity securities.

L. Proxy Rules

IBM - February 16, 2000
The Division declined to permit exclusion from the company's proxy materials, on Rule 14a-8(i)(4) (personal grievance/ benefit not shared by other shareholders) and Rule 14a-8(i)(7)(ordinary business) grounds, a proposal focusing on the policy implications of the company's conversion from a traditional, defined-benefit pension plan to a so-called "cash-balance" plan. With respect to the company's Rule 14a-8(i)(7) argument, the staff was persuaded that the widespread public debate on the significant social and corporate policy issues raised by conversion from defined-benefit to cash-balance retirement plans caused the subject-matter of this particular proposal to fall outside the realm of "ordinary business" matters subject to exclusion under Rule 14a-8(i)(7).

IBM - March 2, 2000
A different proponent requested that IBM's board establish a committee of outside directors to prepare a report on the potential impact on the company of pension-related proposals now under consideration by national policymakers, "including legislative proposals affecting cash balance pension plan conversions." In granting the company's request for no-action relief under Rule 14a-8(i)(7), the staff noted that the proposal appears directed at involving IBM in the political or legislative process relating to an aspect of IBM's operations (i. e., lobbying activities)."

The Coca-Cola Company - February 7, 2000
The Division was unable to concur in the company's arguments regarding the excludability, on Rule 14a-8(i)(7) and other grounds, of a proposal requesting that "the board adopt a policy of removing genetically engineered crops, organisms, or products thereof from all products sold or manufactured by Coca-Cola, where feasible, until long-term testing has shown that they are not harmful to humans, animals, and the environment, with the interim step of labeling and identifying these products, and report to the shareholders by August 2000." In the staff's view, the proposal raised significant policy issues transcending the company's ordinary business operations.

Johnson Controls, Inc. - October 26, 1999
The Division addressed whether a proposal recommending certain disclosure in the financial statements included in Johnson's Commission-prescribed documents could be omitted from Johnson's proxy material under Rule 14a-8(i)(7), as relating to Johnson's ordinary business operations. In expressing its view that the proposal could be omitted, the Division stated that it has determined that proposals requesting additional disclosures in Commission-prescribed documents should not be omitted under the "ordinary business" exclusion solely because they relate to the preparation and content of documents filed with or submitted to the Commission. This interpretive approach reverses the Division's prior approach to such proposals. Beginning with Johnson Controls, when evaluating such proposals the Division will consider whether the subject matter of the additional disclosure sought in a particular proposal involves a matter of ordinary business. Where it does, the Division believes the proposal may be excluded under Rule 14a-8(i)(7).

Chevron Corporation - March 4, 1999
The Division took the position that it would not recommend enforcement action if Chevron omitted a shareholder proposal requesting the board of directors to review and report on Chevron's code of business conduct under Rule 14a-8(i)(12)(ii). The Division noted that the current proposal, when viewed together with the proposals submitted in 1996 and 1997, all appear to focus on Chevron's operations in Nigeria. Furthermore, changing circumstances are not a consideration under Rule 14a-8(i)(12). On this basis, the Division continued to follow the precedent established by a prior staff no-action letter issued to Florida Progress Corporation on January 8, 1997.

General DataComm Industries, Inc. - December 9, 1998
The Division stated that it did not believe that General DataComm could rely on Rule 14a-8(i)(7) as a basis to exclude a shareholder proposal mandating a bylaw amendment on stock option repricing from its proxy materials. The Division noted that in view of the widespread public debate concerning option repricing and the increasing recognition that this issue raises significant policy issues, its view is that proposals relating to option repricing no longer can be considered matters relating to a registrant's ordinary business. This letter reverses a prior staff no-action letter issued to Shiva Corporation on March 10, 1998.

M. Section 16 Rules

General Motors Corporation May 19, 2000
The Division addressed the application of Exchange Act Rule 16b-3 to transactions occurring in the context of issuer exchange offers. In such an exchange offer, the disposition to the issuer of shares of one class of issuer stock would be eligible for exemption under Rule 16b-3(e). The acquisition from the issuer of shares of a different class of issuer stock would be eligible for exemption under Rule 16b-3(d).

In either case, the approval conditions of Rule 16b-3 may be satisfied at any time before the company's acceptance of the tendered shares and the issuance of shares of the other class, which may be after the date on which the exchange offer expires. Approval will satisfy the rule's specificity requirements if the issuer's board of directors or committee of non-employee directors adopts resolutions that:

• name each tendering officer or director,
  
• approve the disposition based on the specific number of shares tendered by each named person,
  
• approve the acquisition of shares of the other class based on the exchange ratio set forth in the exchange document, and
  
• state that the dispositions and acquisitions are subject to reduction by applying proration methodology to be applied uniformly to all participants (except odd lot holders) if the offer is oversubscribed, describing that methodology.

Baker Botts LLP July 13, 2000
The expiration of a put option more than six months following the date on which it was written would be the exempt closing of a derivative security position for the writer if no value is given in exchange for the expiration. The expiration would not be considered a sale by the writer, resulting from the decrease in a call equivalent position under Rule 16b-6(a), that could be matched under Rule 16b-6(c)(2) with another transaction by the writer. (The Division took the same position regarding expiration of call options in Sullivan & Cromwell (June 24, 1993).)

American Bar Association - October 15, 1999
The staff addressed the application of Rule 16b-3(c) to open market stock purchase plans that, under the standards of Securities Act Release No. 4790, are not required to be registered under Section 5 of the Securities Act. The Division said that the acquisition of issuer stock pursuant to accumulated payroll deductions under such a plan is a transaction with "an employee benefit plan sponsored by the issuer" for purposes of Rule 16b-3(a) where:

• the issuer deducts funds from compensation;
  
• deducted funds accumulate for a regular, specified interval no shorter than a pay period;
  
• accumulated funds are invested in issuer stock; and
  
• the open market plan restricts participation to employees of the issuer and its parents or subsidiaries who would be eligible to purchase securities of the issuer under a registration statement on Form S-8.

Such an acquisition is exempt under Rule 16b-3(c) if the open market plan meets the conditions of Rule 16b-3(b)(5), the definition of a Stock Purchase Plan. Because subsequent sales or transfers of the securities so acquired would be outside the plan, these transactions would not be exempt under Rule 16b-3. Acquisitions pursuant to additional voluntary contributions, although not exempt under Rule 16b-3, would not make the exemption unavailable for acquisitions pursuant to payroll deductions.

Select Sector SPDR Trust - May 6, 1999
In a joint letter with the Division of Investment Management, the Division addressed the application of Section 16(a) to shares issued by the Trust, a registered open-end management investment company, in its nine separate investment portfolios (the "Funds"). The Divisions stated that, having expressed in this letter and in PDR Services Corporation (December 14, 1998) their views as to whether insiders and five percent beneficial owners of exchange-traded products, such as the shares issued by the Funds, must file ownership reports under Sections 16(a) and 13(d), respectively, the Divisions will no longer respond to requests for no-action relief in this area unless the request presents a novel or unusual issue.

American Bar Association - February 10, 1999
The Division addressed the application of Exchange Act Rule 16b-3 to transactions occurring in the following contexts:

• A transaction in issuer securities by the issuer's officer or director with the issuer's majority-owned subsidiary (or an employee benefit plan sponsored by a majority-owned subsidiary) will be considered a transaction with the issuer for purposes of Rule 16b-3(a). However, the approval requirements of Rule 16b-3(d) and 16b-3(e) must be satisfied at the issuer--rather than the subsidiary--level.
   
• The following salary limitations implement "benefit or contribution limitations set forth in the Internal Revenue Code" for purposes of Rule 16b-3(b)(2): (a) the annual compensation limit in Internal Revenue Code Section 401(a)(17); and (b) the Internal Revenue Code Section 415 exclusion from taxable compensation of salary that has been deferred into a non-qualified plan. A supplemental plan that permits employer contributions that otherwise would have been made to the related qualified plan but for either of these limitations will be an Excess Benefit Plan.
   
• The following plans are not Excess Benefit Plans because the amount of issuer securities acquired will be determined based on the amount of salary the officer or director chooses to defer:
  • a non-qualified deferred contribution plan; and
    
  • a supplemental plan that provides an employer matching contribution based on the employee's deferral of salary into a non-qualified plan.
     
• Periodic acquisitions of phantom stock under a non-qualified deferred compensation plan or a supplemental plan that is not an Excess Benefit Plan that are exempted by Rule 16b-3(d) may be reported on an aggregate basis on Form 5.
   
• Rule 16b-3 is available to exempt an officer's or director's indirect interest in transactions, reportable by the officer or director, between the issuer and the following entities if the approving entity for purposes of Rules 16b-3(d) and 16b-3(e) knows (and the document evidencing approval specifies) the existence and extent of the officer's or director's indirect interest and that the approval is granted for purposes of Rule 16b-3:
  • a partnership or corporation;
    
  • a member of the officer's or director's immediate family; and
    
  • a trust.

Skadden, Arps, Slate, Meagher & Flom LLP  January 12, 1999
The Division addressed the application of Exchange Act Rule 16b-3 to transactions occurring in the context of corporate mergers.

Where the conversion or cancellation is simultaneous with or immediately before the related merger, each of the following transactions constitutes a disposition to the issuer of target equity securities eligible for exemption under Rule 16b-3(e), even if the acquiror pays the merger consideration directly to target equity security holders:

• the conversion of target nonderivative equity securities into acquiror equity securities, debt, cash or a combination of different forms of merger consideration; and
  
• the conversion of target derivative securities into acquiror derivative securities or acquiror nonderivative equity securities, or the cancellation of target derivative securities for cash.

The approval conditions of Rule 16b-3(e) may be satisfied only by the target. The acquisition of acquiror equity securities (including acquiror derivative securities) by officers and directors of the acquiror through the conversion of target equity securities in connection with a merger constitutes an acquisition from the acquiror eligible for exemption under Rule 16b-3(d). This position applies equally to employees and directors of the target who become officers and/ or directors of the acquiror before, or at the time of, the merger (" New Acquiror Insiders"). The approval conditions of Rule 16b-3(d) may be satisfied only by the acquiror.

In the case of both dispositions and acquisitions, the approval conditions of Rule 16b-3 may be satisfied at the same time as, or following, approval of the merger agreement by the respective issuer's board of directors, as long as they are satisfied before consummation of the merger. Guidance is provided as to the specificity required if approval is granted by the full board or a committee of two or more Non-Employee Directors. Approval of an acquisition may be granted before a New Acquiror Insider becomes an officer or director of the acquiror.

N. Regulation D

Mobile Biopsy, LLC - August 11, 1999
An issuer's communication to all physicians in North Carolina made with a view to sales of the issuer's securities would be a general solicitation within the meaning of Rule 502(c) under Securities Act Regulation D.

O. Trust Indenture Act of 1939

San Jacinto Holdings Inc. - April 14, 1999
Qualification of an indenture may not be made under the Trust Indenture Act of 1939 after the effective date of an application for qualification under Section 307 of the statute. The act generally does not admit post-effective qualification procedures.

MARCH 31, 2001

Sections 2(a)(3) and 5 of the Securities Act

Liberty Media Corporation February 7, 2001

The Division was unable to advise that it would not recommend enforcement action if the registrant redeemed its outstanding shares of tracking stock in exchange for shares of a subsidiary corporation holding the assets and liabilities the tracking stock was designed to track without registering the exchange under the Securities Act of 1933. The letter noted that this will be the Division's position going forward in similar situations involving the redemption of tracking stock of a parent company in exchange for shares of a subsidiary.