SEC Staff Issues Legal Bulletin Regarding the Section 3(a)(10) Exemption
 
June 30, 2008
 

On June 18, 2008, the SEC staff issued Staff Legal Bulletin No. 3A (CF), which provides the Division of Corporation Finance's answers to questions that commonly arise in no-action requests by issuers that are unsure whether the Section 3(a)(10) exemption from the registration requirements of the Securities Act of 1933 is available. Section 3(a)(10) exempts exchange transactions where a court or other governmental authority approves the fairness of the terms and conditions of the exchange. The bulletin also provides guidance on the resale status of securities received in transactions exempt from registration pursuant to Section 3(a)(10) of the Securities Act.

The answers to these frequently asked questions by issuers include:

• The Division of Corporation Finance will not issue a no-action response after a fairness hearing has been held.
• If the applicable statute governing the fairness hearing requires security holders to vote on the transaction before the fairness hearing, the Division of Corporation Finance will not object to the vote before the fairness hearing, even though this means an investment decision is being made before the fairness hearing.
• When options, warrants, or other convertible securities are issued in the Section 3(a)(10) transaction, Section 3(a)(10) of the Securities Act does not exempt the exercise or conversion of these securities.
• If a government entity is approving the exchange, that entity must be authorized by statute to hold a hearing on the transaction and approve the fairness of the terms and conditions of the exchange. The statute must require the entity to conclude affirmatively that the exchange is fair to or in the best interests of the security holders participating in the exchange and the government entity must find the terms and conditions of the exchange to be both procedurally and substantively fair.
• The court or governmental entity must hold a hearing before approving the fairness of the terms and conditions of the exchange, the hearing must be open to everyone to whom the securities would be issued in the proposed exchange and the issuer must provide appropriate notice of the hearing in a timely manner.

To conform to the recent amendments to Rule 145 eliminating the presumptive underwriter provision in Rule 145(c), the legal bulletin also provides the Division of Corporation Finance's view that securities received in a Rule 145(a) transaction (not involving a shell company) that were exempt under Section 3(a)(10) may generally be resold by non-affiliates of the issuer without regard to Rule 144. Affiliates of the issuer may be able to resell the securities in accordance with the provisions of Rule 144.

http://www.sec.gov/interps/legal/cfslb3a.htm