Morgan Stanley & Co. Inc. , (June 05, 1991)INQUIRY LETTERDAVIS POLK & WARDWELL 1 CHASE MANHATTAN PLAZA NEW YORK, N.Y. 10005 TELEPHONE(212) 530-4000 March 27, 1991
Associate Director and Chief Counsel Division of Corporate Finance Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549
In the past such registration rights have taken the form of an undertaking on the part of the issuer to file a shelf registration statement permitting securityholders to sell their restricted securities over a period of time which could be as long as three years, or a demand registration right which could be triggered at any time by the purchasers of the securities. Although such registration rights offer potential liquidity to buyers of privately placed securities, such securities remain restricted securities until they are sold pursuant to an effective registration statement -- which has the effect of limiting the potential group of institutional investors who for legal or policy reasons are unable to purchase restricted securities even with registration rights. If the registration rights granted to buyers can be satisfied by registering a security on Form S-4 and then exchanging such security for the privately placed security, there will be a broader market for the privately placed securities and significant cost savings to an issuer. Such cost savings will result from elimination, in many cases, of the obligation to maintain an "evergreen" shelf registration statement, and the potential savings on rate or price of the privately placed security resulting from its being acceptable to a wider range of investors since it would be a "restricted security" for only a limited time. The purpose of this letter, therefore, is to request confirmation that the holder of privately placed non-convertible debt or preferred stock securities (as more specifically defined below) acquired in one of the transactions described below (other than (i) a broker-dealer who purchases such securities directly from the issuer to resell pursuant to Rule 144A or any other available exemption under the 1933 Act, (ii) a person participating in the distribution of such securities or (iii) a person who is an affiliate of the issuer) who exchanges such securities for similar securities issued pursuant to an exchange offer registered under the 1933 Act and then resells the registered securities will be viewed by the Securities and Exchange Commission staff no differently than a non-affiliated purchaser of registered securities who purchases such securities in a registered primary offering of securities and, after completion of such registered offering, resells the securities. In each such case the resales of the registered securities may be effected without any further registration under the 1933 Act or the delivery of a prospectus. See American Council of Life Insurance, No-Action Letter - May 10, 1983. 1 Transactions
1. An issuer, directly or through an agent, sells Initial Securities on a private basis under Section 4(2) or pursuant to Regulation D of the 1933 Act. Such Initial Securities may be resold by the initial private placees pursuant to Rule 144A or any other available exemption under the 1933 Act. 4 2. Pursuant to Section 4(2) and Rule 144A, an issuer enters into a contract for the sale of Initial Securities to a broker-dealer (the "Purchaser"), who then resells such Initial Securities to private placees. Those transactions are exempt under Section 4(2) and Rule 144A. The private placees may resell such Initial Securities pursuant to Rule 144A or in reliance on any other available exemption under the 1933 Act. In connection with the sale of Initial Securities in either of the foregoing transactions, the issuer would agree to register new securities (the "Exchange Securities") similar to the Initial Securities purchased by the private placees on a Form S-4 registration statement. Depending on the issuers agreement with the private placees, the Form S-4 registration statement for the Exchange Securities may be filed immediately following completion of the sale of the Initial Securities to the private placees. Prior to effectiveness of the registration statement, the issuer would provide a supplemental letter to the staff (i) stating that the issuer is registering the exchange offer in reliance on the staff position enunciated in Exxon Capital Holdings Corporation (avail. April 13, 1989) (the "Exxon Capital Letter") and this letter and (ii) including a representation substantially to the following effect: The issuer has not entered into any arrangement or understanding with any person to distribute the securities to be received in the exchange offer and to the best of such issuers information and belief, each person participating in the exchange offer is acquiring the securities in its ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the securities to be received in the exchange offer. In this regard, the issuer will make each person participating in the exchange offer aware (through the exchange offer prospectus or otherwise) that if the exchange offer is being registered for the purpose of secondary resales, any securityholder using the exchange offer to participate in a distribution of the securities to be acquired in the registered exchange offer (1) could not rely on the staff position enunciated in Exxon Capital Holdings Corporation (avail. April 13, 1989) or similar letters and (2) must comply with registration and prospectus delivery requirements of the Securities Act of 1933 in connection with a secondary resale transaction. The issuer acknowledges that such a secondary resale transaction should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K. The issuer would also include in the transmittal letter or similar documentation to be executed by the exchange offeree in order to participate in the exchange offer a representation to the effect that by accepting the exchange offer, the exchange offeree represents to the issuer that it is not engaged in, and does not intend to engage in, a distribution of the Exchange Securities. The issuer would commence the exchange offer for the Initial Securities when the Form S-4 registration statement is declared effective by the Commission. The exchange offer would remain in effect for a limited time and would not require the issuer to maintain an "evergreen" registration statement. The exchange offer would be conducted by the issuer in compliance with the Securities Exchange Act of 1934 and any applicable rules and regulations thereunder. Prior Interpretative Letter
Conclusion
Very truly yours,
STAFF REPLY LETTERJune 5, 1991
DIVISION OF CORPORATION FINANCE
Incoming letter dated March 27, 1991
Because this position is based on the representations made to the Division in your letter, it should be noted that any different facts or conditions might require a different conclusion. Sincerely,
Deputy Chief Counsel 1In the American Council of Life Insurance no-action letter the Commission expressed the view that institutional investors generally should not be deemed "statutory underwriters" under Section 2(11) of the 1933 Act with respect to the purchase of large amounts of securities in a primary offering provided such securities are acquired in the ordinary course of business and such purchasers have no arrangement with any person to participate in the distribution of the securities. 2For purposes of this letter, a private placee is a person who has acquired the securities in the ordinary course of its business and has no arrangement with any person to participate in the distribution of such securities and any person who buys from such a person under Rule 144A or any other available exemption under the 1933 Act. 3"Initial Security" as used herein means any debt security, preferred stock or substantially similar security that is not convertible into or exchangeable for any equity security (other than preferred stock) as defined in Rule 405 of the General Rules and Regulations under the 1933 Act and includes any certificate of interest or participation in, or warrant or other right to subscribe for or purchase, with or without consideration, a debt security or preferred stock or substantially similar securities. As used herein, "preferred stock" means preferred stock that is rated as being in one of the four highest generic rating categories of a nationally recognized statistical rating organization (as defined in Rule 436(g)(2) of the General Rules and Regulations under the 1933 Act). 4In addition to a sale by an issuer for cash pursuant to Section 4(2) or Regulation D, an issuer may also privately place Initial Securities in connection with an exchange offer in which new securities are exchanged for Initial Securities on a private placement basis. |
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