Corp Fin has posted a new CDI regarding the use of Form S-4 in connection with so-called “Exxon Capital” exchanges. In an Exxon Capital exchange (Exxon Capital Holdings Corporation (April 13, 1988)), an issuer that has privately sold non-convertible debt (or certain other securities) to large, sophisticated investors subsequently registers the exchange of those securities for substantially similar securities; under Exxon Capital, most holders are then able to resell the new securities (Exchange Securities) without further registration and without delivery of a prospectus. The CDI indicates that the staff’s position is premised on participants’ not being “underwriters” engaged in a “distribution” of the registered securities. To support that premise, the staff has historically requested, as a condition of the staff’s no-action position, that issuers make certain representations about the absence of a distribution of the securities received in the exchange. In the CDI, the staff indicates that these representations (which may be provided either in the prospectus or in correspondence submitted in connection with the filing) do not need to follow any particular form so long as they address the following “essential matters”:

• “The issuer has not entered into any arrangement or understanding with any person who will receive Exchange Securities in the Exchange Offer to distribute those securities following completion of the Offer. The issuer is not aware of any person that will participate in the Exchange Offer with a view to distribute the Exchange Securities.
• “The issuer will disclose to each person participating in the Exchange Offer that if such participant acquires the Exchange Securities for the purpose of distributing them, such person:
  • Cannot rely on the staff’s interpretive position expressed in the Exxon Capital line of no-action letters, and
  • Must comply with the registration and prospectus delivery requirements of the Securities Act in order to resell Exchange Securities, and be identified as an underwriter in the prospectus.
• “The issuer will include in the transmittal letter an acknowledgement to be executed by each person participating in the Exchange Offer that such participant does not intend to engage in a distribution of the Exchange Securities. In addition, the issuer will include in the transmittal letter an acknowledgement for each person that is a broker-dealer exchanging securities it acquired for its own account as a result of market-making activities or other trading activities that such broker-dealer will satisfy any prospectus delivery requirements in connection with any resale of Exchange Securities received pursuant to the Exchange Offer. The transmittal letter may also include a statement to the effect that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an ‘underwriter’ within the meaning of the Securities Act.”

The CDI eliminates as unnecessary, assuming the representations required above, one condition that had been required in Shearman & Sterling (July 2, 1993), indicating that the issuer would no longer need to make “each person participating in the Exchange Offer aware that any broker-dealer acquiring Exchange Securities in exchange for securities it acquired for its own account as a result of market-making activities or other trading activities may be a statutory underwriter.” The staff also indicates that any person that acquires Exchange Securities with a view to their distribution must be identified as an underwriter in the prospectus and must comply with all applicable requirements. In addition, a broker-dealer acquiring Exchange Securities may be required to deliver a prospectus in connection with resales if it is relying on the exemption in Section 4(a)(3) of the Securities Act.

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