SOURCE: §§ 259.5a to 259.501, inclusive, contained in Regulations, Securities and Exchange Commission, effective Sept. 11, 1946, 11 F.R. 177A-738, except as noted following provision affected. Subpart A-Forms for Registration and Annual Supplements § 259.5a Form U5A. Form prescribed for notification of registration under section 5 (a) of the act. § 259.5b Form U5B. Form and requirements as to filing registration statement under section 5 (b) of the act. § 259.5s Form U5S. Form and requirements as to filing annual supplements to registration statements. Subpart B-Forms for Applications and Declarations § 259.101 Form U-1. Form prescribed for certain applications and declarations pursuant to sections 6, 7, 9 (c) (3), 10, 12 (b), 12 (c), 12 (d), 12 (f) of the act, and applicable rules thereunder (17 CFR, Part 250). NOTE: Section 1 of Form U-1 was amended by Regulation, Securities and Exchange Commission, Dec. 18, 1946, 11 F.R. 14681. § 259.111 Notice. Commission form of notice regarding filing subject to Rule U-23 (17 CFR, 250.23). § 259.113. Form U-13-1. Application for approval of service companies. Subpart C-Forms For Statements and Reports § 259.206 Form U-6B-2. Form prescribed for notification of security issues exempt under section 6 (b) of the act but not the subject of an order of the Commission. § 259.212a Form U-12(I)-A. § 259.212b Form U-12(I)-B. Forms prescribed for reports required under section 12 (i) of the act. § 259.213 Form U-13E-1. Report by affiliated service companies and independent service companies. § 259.217a Form U-17-1. § 259.217b Form U-17-2. Forms prescribed for reports under section 17 (a) of the act, by officers and directors of registered holding companies. § 259.221 Form U-R-1. Form prescribed for solicitation in connection with reorganizations of registered holding companies or subsidiaries subject to Rule U-62. (17 CFR 250.62) Subpart D-Forms for Periodic Accounting Reports $259.313 Form U-13-60. Annual report by mutual and subsidiary service companies. (See uniform system of accounts for mutual and subsidiary service companies.) (17 CFR, Part 259) § 259.314 Form U-14-3. Form prescribed for filing annual accounting reports for companies subject to uniform system of accounts for public utility holding companies (17 CFR, Part 259). Subpart E-Forms for Statements and Reports from Nonregistered (Exempt) Companies 259.402 Form U-3A-2. Annual form prescribed for utility holding companies claiming exemption as intrastate or predominantly operating companies. § 259.403 Form U-3A3-1. Annual form prescribed for banks which are utility holding companies but claim exemption. Subpart F-Forms for Amendments § 259.501 Form U-A. Form prescribed for filing amendments. PART 261-INTERPRETATIVE RELEASES RELATING TO THE TRUST INDENTURE ACT OF 1939 AND GENERAL RULES AND REGULATIONS THEREUNDER 1 [ADDED] Sec. 261.16 Opinion of the General Counsel relating to application of section 310 (b) where trustee under one indenture is trustee under another indenture for securities of an affiliate of the obligor. 1 The interpretative opinions included in this part are opinions issued in the past for the guidance of the public by members of the Commission's staff (or in a few instances by the Commission) and heretofore made public pursuant to Commission authorization. The opinions are to be read as of the date of original publication and in the context of the rules, statutes and circumstances then existing. However, opinions or portions of opinions which are clearly obsolete have been omitted. Where rules referring to an opinion have been renumbered since the issuance of the opinion, the new designations are indicated in brackets. Sec. 261.30 Opinion of the Chief Counsel to the Corporation Finance Division relating to when-issued trading of securities the issuance of which is subject to approval by a Federal district court under Chapter X of the Bankruptcy Act. 261.31 Opinion of the Chief Counsel to the Corporation Finance Division relating to when-issued trading of securities the issuance of which has already been approved by a Federal district court under Chapter X of the Bankruptcy Act. AUTHORITY: §§ 261.16 to 261.31, inclusive, issued under sec. 319, 53 Stat. 1173; 15 U.S.C. 77sss. SOURCE: §§ 261.16 to 261.31, inclusive, contained in Interpretative Releases, Securities and Exchange Commission, Sept. 17, 1946, 11 F.R. 10989. Numbers and dates of releases are indicated in brackets following each section § 261.16 Opinion of the General Counsel relating to application of section 310 (b) where trustee under one indenture is trustee under another indenture for securities of an affiliate of the obligor. Some registration statements recently filed under the Securities Act of 1933 indicate that prospective indenture trustees are presently acting as trustees under indentures covering outstanding securities of affiliates of the registrants. In some cases, the affiliate is the parent of the registrant. In others, it may be a subsidiary of a common parent or a subsidiary of the registrant. I have been asked whether the dual capacity in which a prospective indenture trustee proposes to act would in such cases, result in a conflict of interest which would disqualify it under the Trust Indenture Act of 1939. Section 302 (a) (3) of the Act states that the national public interest and the interest of investors in debt securities are adversely affected when a trustee "* has any relationship to or connection with the obligor which * involves a material conflict with the interests of such investors." Clearly, conflicting interests may arise in instances where one company is trustee under indentures of both an obligor and the obligor's affiliate. The conflict might arise in drafting the indentures, during the lives of the indentures, or upon a default. In view of the Congressional statement above quoted the Congress might well have seen fit to include such conflicts within the prohibitions of the Act. However, it is apparent from the language of the Act and its legislative history that it was not intended to cover every possible conflict of interest. On the contrary, the Congress, after weighing the difficulties involved in such an effort, concluded that the wise course would be to establish "rules of thumb" prohibiting certain specific types of conflicting interests which have resulted in the greatest injury to investors. These types of conflicting interests are enumerated in section 310 (b) of the Act. This section requires that indentures shall contain provisions disqualifying an indenture trustee who has "any conflicting interest as hereinafter defined." It provides further that, for the purposes of the section, "an indenture trustee shall be deemed to have a conflicting interest if he has any one or more of nine specified relationships. In my opinion, the relationships specified in section 310 (b) were intended to be exclusive. Subsection (1) is the only portion of section 310 (b) which is of possible relevance to the type of dual trusteeship under consideration. That subsection provides that an indenture trustee shall be deemed to have a conflicting interest if "such trustee is trustee under another indenture under which any other securities of an obligor upon the indenture securities are outstanding." Section 303 (12) provides that the term "obligor", "when used with respect to any indenture security, means every person who is liable thereon." In view of this definition and the exclusive terms of section 310 (b), I am of the opinion that a person not liable on the indenture securities is not an obligor within the meaning of section 310 (b) (1) and, consequently, does not come within the prohibition of that subsection. There are instances, of course, in which a parent, subsidiary, or sister company of the obligor may also be an obligor within the meaning of section 310 (b) (1). For example, it may be such if it guarantees the securities of the obligor or, as the Supreme Court said in Consolidated Rock Products Co. v. du Bois, 312 U. S. 510 (1941), "Where a holding company directly intervenes in the management of its subsidiaries so as to treat them as mere departments of its own enterprise, it is responsible for the obligations of those subsidiaries incurred or arising during its management." However, apart from such instances and others in which the affiliate may properly be regarded as an obligor, it is my conclusion that an indenture trustee is not to be deemed to have a conflicting interest within the meaning of section 310 (b) (1) merely because it is trustee under another indenture under which there are outstanding securities of an affiliate of the obligor. This opinion is, of course, confined to the propriety of dual trusteeship under the terms of the Trust Indenture Act of 1939. No opinion is intended to be expressed concerning the possible application of other federal or state statutes, or of general principles of equity, which may forbid such trusteeship in instances not prohibited by the Act. [Trust Indenture Act Release No. 16, November 14, 1941] § 261.30 Opinion of the Chief Counsel to the Corporation Finance Division relating to when-issued trading of securities the issuance of which is subject to approval by a Federal district court under Chapter X of the Bankruptcy Act. NOTE: Because the name of the company involved is not deemed material at this time, it has been deleted from the opinion. You have requested my opinion as to the legality of trading on a when-issued basis in the new debentures and common stock contemplated by the plan of reorganization of # and * approved by the United States District Court for the Southern District of New York on August 26, 1944, pursuant to section 174 of Chapter X of the Bankruptcy Act. It is my understanding that the plan has not yet been finally confirmed by the court pursuant to section 221 of Chapter X. Before a confirmation order can be entered, it will, of course, be necessary for the plan to be accepted in writing by twothirds of each class of creditors of each corporation participating in the plan. I shall speak only of when-issued trading over the counter, because when-issued trading on a national securities exchange is subject to the Commission's Regulation X-12D3 under the Securities Exchange Act of 1934. Under that Act and Regulation registration of a security for when-issued trading on an exchange is subject to various conditions in addition to compliance with the Securities Act of 1933 and, in the case of a debt security, the Trust Indenture Act of 1939. It is my opinion that any sales or offers of sale of the new debentures or common stock made through the mails or in interstate commerce prior to final confirmation of a plan under section 221 of Chapter X would violate the registration and prospectus provisions of section 5 of the Securities Act of 1933. It is my opinion further that any sales or offers of sale of the new debentures made through the mails or in interstate commerce prior to qualification of an indenture with this Commission would violate the provisions of Section 306 of the Trust Indenture Act of 1939. Section 5 of the Securities Act of 1933 provides in substance that no person shall sell or offer any security through the mails or in interstate commerce unless a registration statement as to that security is in effect with this Commission and a specified form of prospectus is used. Section 306 of the Indenture Act of 1939 provides in substance that no person shall sell or offer to sell any bond or debenture or other debt security through the mails or in interstate commerce unless that security has been or is to be issued under a specified form of indenture which has been effectively qualified with this Commission. Section 264 of Chapter X of the Bankruptcy Act exempts from the registration and pro spectus provisions of Section 5 of the Securities Act of 1933 "any transaction in any security issued pursuant to a plan in exchange for securities of or claims against the debtor or partly in such exchange and partly for cash and/or property .." Section 3 (a) (10) of the Securities Act of 1933 exempts from the registration and prospectus provisions of Section 5 of that Act: "Any security which is issued in exchange for one or more bona fide outstanding securities, claims or property interests, or partly in such exchange and partly for cash, where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court, or by any official or agency of the United States, or by any State or Territorial banking or insurance commission or other governmental authority expressly authorized by law to grant such approval." Neither of these exemptions applies to the provisions of Section 306 of the Trust Indenture Act of 1939 requiring the qualification of an indenture in respect of any debt security. So far as the new common stock contemplated by the plan is concerned, it is my opinion that there will be no exemption under either section 264 of Chapter X of the Bankruptcy Act or section 3 (a) (10) of the Securities Act of 1933 until final confirmation of a plan pursuant to Section 221 of Chapter X. It seems clear that no security can be issued "pursuant to a plan," as required by section 264, prior to its confirmation under section 221. It seems clear also that the terms and conditions of the issuance and exchange of the new common stock cannot be said to have been "approved," as required by section 3 (a) (10), until entry of an order of confirmation by the court. As I have stated in an earlier opinion (Securities Act Release No. 3000), in which I considered the similar problem of the applicability of section 3 (a) (10) to a plan approved by this Commission pursuant to section 11 (e) of the Public Utility Holding Company Act of 1935 but not yet approved or enforced by a District Court, it is my opinion that the approval contemplated by section 3 (a) (10) is the total process of approval which is required by the particular statute relied upon to grant an exemption under that section. In the case of a reorganization under Chapter X of the Bankruptcy Act, the total process of approval required for the issuance of any security pursuant to a plan is final confirmation by the court under section 221. Neither approval of a plan by the court under section 174 nor preliminary appproval of a plan by this Commission under section 11 (f) of the Public Utility Holding Company Act of 1935 where a public utility holding company is involved, as in the present case completes the total process of approval required. What I have said thus far applies to the new debentures as well as the new stock. In addition, since the new debentures are subject to the Trust Indenture Act of 1939 as well as the Securities Act of 1933, and since neither the exemption in section 264 of Chapter X nor the exemption in section 3 (a) (10) of the Securities Act of 1933 applies to the Trust Indenture Act of 1939, a trust indenture for the new debentures will have to be effectively qualified with this Commission before there can be any when-issued trading in the new debentures. Consequently, any dealer who makes use of the mails or any means of interstate commerce to sell or offer to sell new debentures or common stock on a when-issued basis prior to confirmation of a plan by the court will violate section 5 of the Securities Act of 1933 and section 306 of the Trust Indenture Act of 1939, and any dealer who makes use of the mails or any means of interstate commerce to sell or offer to sell new debentures on a when-issued basis prior to qualification of an indenture will violate section 306 of the Trust Indenture Act of 1939. This applies also to any broker who, as a result of a solicitation of a customer's order, sells or offers to sell "when issued" on an agency basis. I might add that in my opinion the taking of an appeal from an ultimate District Court order of confirmation would have no effect upon any of the opinions here expressed unless the order of the lower court were stayed pending the appeal. [Trust Indenture Act Release No. 30, August 28, 1944] § 261.31 Opinion of the Chief Counsel to the Corporation Finance Division relating to when-issued trading of securities the issuance of which has already been approved by a Federal district court under Chapter X of the Bankruptcy Act. NOTE: Because the name of the company involved is not deemed material at this time, it has been deleted from the opinion. It has come to the attention of the Commission that a number of brokers and dealers are engaging or preparing to engage in when-issued trading in securities of which are to be issued pursuant to a plan of reorganization confirmed by the United States District Court for the Eastern District of Pennsylvania under Chapter X of the Bankruptcy Act. The securities in question are General Mortgage 6% Income Bonds with common stock attached. Although the court's confirmation of the plan exempts both bonds and stock from registration under the Securities Act of 1933, the bonds are not exempt from the necessity of qualifying an indenture under the Trust Indenture Act of 1939. No application for qualification of the indenture for these bonds has as yet been filed with the Commission. For the reasons stated in Securities Act Release No. 3011 (August 28, 1944), it is the view of the Commission that when-issued trading in these bonds cannot legally be undertaken until an application for qualification of the indenture has become effective under the Act. Moreover, written offers of bonds will be legal thereafter only if made by or accompanied or preceded by a written statement containing an analysis of certain of the indenture provisions as required by section 305 (c) of the Trust Indenture Act. Sales made in violation of the Trust Indenture Act will subject brokers or dealers to injunctive proceedings, criminal prosecution and other penalties imposed by law. [Trust Indenture Act Release No. 31, January 4, 1945] SOURCE: §§ 269.1 to 269.4, inclusive, contained in Regulations, Securities and Exchange Commission, effective Sept. 11, 1946, 11 FR. 177A-738. § 269.1 Form T-1. Form T-1 shall be used for statements of eligibility and qualification of corporations designated to act as trustees under trust indentures to be qualified pursuant to section 305 or 307 of the Trust Indenture Act of 1939. § 269.2 Form T-2. Form T-2 shall be used for statements of eligibility and qualification of individuals designated to act as trustees under trust indentures to be qualified pursuant to section 305 or 307 of the Trust Indenture Act of 1939. § 269.3 Form T-3. Form T-3 shall be used for applications for qualification of indentures pursuant to section 307 (a) of the Trust Indenture Act of 1939. 1 The descriptions given in this part are based upon the instructions as to the use of the forms, but in cases of doubt as to the proper form to be used, the instructions should be consulted. Copies of any of these forms and of instructions for their use may be obtained on request addressed to the Administrative Division of the Commission. . § 269.4 Form T-4. Form T-4 shall be used for applications for exemption filed pursuant to section 304 (c) of the Trust Indenture Act of 1939. PART 270-RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940 Sec. 270.17a-2 Exemption of certain purchase, sale or borrowing transactions. [Added] 270.17d-1 270.19-1 Applications regarding bonus, 270.23c-1 Repurchase of securities by closed- § 270.17a-2 Exemption of certain purchase, sale or borrowing transactions. (a) Section 17 (a) shall not apply to purchase, sale or borrowing transactions occurring in the usual course of business between affiliated persons of registered investment companies; Provided, That (1) the transactions involve notes, drafts, time payment contracts, bills of exchange, acceptances or other property of a commercial character rather than an investment character (2) the buyer or lender is a bank subject to examination or regulation by Federal Deposit Insurance Corporation or the Comptroller of the Currency and (3) the seller or borrower is engaged principally in the business of installment financing. (b) The basis and purpose of this section are to exempt certain transactions between affiliated persons of registered investment companies under specified conditions which will adequately protect investors and prevent unfair or unreasonable terms or overreaching. Further, the transactions exempted generally by the section would ordinarily meet the requirements for exemption by order under section 17 (b) of the act if application for exemption were filed, and it is believed that this section will preclude a multiplicity of proceedings arising from individual applications for exemption. (Secs. 6 (c), 17 (a), 38 (a), 54 Stat. 802, 815, 841; 15 U.S.C. 80a-6 (c), 80a-17 (a), 80a-37 (a)) [Rule N-17A-2, effective Dec. 3, 1946, 11 F.R. 14157] § 270.17d-1 Applications regarding bonus, profit-sharing and pension plans and arrangements. (a) No affiliated person of any registered investment company, or of any company controlled by any such registered company, shall participate in, or effect any transaction in connection with, any bonus, profit-sharing or pension plan or arrangement in which any such registered or controlled company is a participant unless an application regarding such plan or arrangement has been filed with the Commission and has become effective prior to the submission of such plan or arrangement to security holders for approval, or prior to the adoption thereof if not so submitted. (b) In passing upon such applications the Commission will consider: (1) Whether participation in the plan or arrangement by any such registered or controlled company is on a basis substantially different from or less advantageous than that of other participants therein; (2) Whether the provisions of the plan or arrangement are consistent with the policy and purposes set forth in section 1 (b) of the act; and (3) Whether the provisions of the plan or arrangement are in contravention of sections 18 or 23 (a) of the act or any other provisions of the act. (c) An application pursuant to this section shall become effective on the tenth day after filing unless on or before such tenth day the Commission orders & hearing thereon, and gives notice thereof to the applicant, for the purposes of determining whether or not the plan or arrangement meets the standards set forth in paragraph (b) of this section. After a hearing upon the application the Commission may enter an order approving the application, either as filed or subject to appropriate conditions, and specifying the date on which it shall become effective, or may enter an order disapproving the application. (Secs. 1 (b), 17 (d), 18, 23 (a), 38 (a), 54 Stat. 790, 816, 817, 825, 841; 15 U.S.C. 80a-1 (b), 80a-17 (d), 80a-18, 80a-23 (a), 80a-38 (a)) [Rule N-17D-1, effective Feb. 6, 1946, 11 F.R. 1461] |