contract or arrangement, made in connection with any transaction specified in paragraph (a) of this section, with the issuer or with any affiliate of the issuer, or with any person who in connection with such transaction is acting as an underwriter of such securities, shall be deemed to an underwriter of such securities within the meaning of section 2(11) of the Act. This paragraph does not refer to arrangements limited to provision for the matching and combination of fractional interests in securities into whole interests, or the purchase and sale of such fractional interests, among security holders of the constituent corporation and to the sale on behalf of, and as agent for, such security holders of such number of fractional or whole interests as may be necessary to adjust for any remaining fractional interests after such matching.

(c) Any constituent corporation, or any person who is an affiliate of a constituent corporation at the time any transaction specified in paragraph (a) of this section, is submitted to a vote of the stockholders of such corporation, who acquires securities of the issuer in connection with such transaction with a view to the distribution thereof shall be deemed to be an underwriter of such securities within the meaning of section 2(11) of the Act. A transfer by a constituent corporation to its security holders of securities of the issuer upon a complete or partial liquidation shall not be deemed a distribution for the purpose of this paragraph.

(d) Notwithstanding the provisions of paragraph (c) of this section, a person specified therein shall not be deemed to be an underwriter nor to be engaged in a distribution with respect to securities acquired in any transaction specified in paragraph (a) of this section, which are sold by him in brokers' transactions within the meaning of section 4(4) of the Act, in accordance with the conditions and subject to the limitations specified in paragraph (e) of this section, if such person

(1) Does not directly or indirectly solicit or arrange for the solicitation of orders to buy in anticipation of or in connection with such brokers' transactions;

(2) Makes no payment in connection with the execution of such brokers' transactions to any person other than the broker; and

(3) Limits such brokers' transactions to a sale or series of sales which, together with all other sales of securities of the same class by such person or on his behalf within the preceding six months, will not exceed the following:

(i) If the security is traded only otherwise than on a securities exchange, approximately one percent of the shares or units of such security outstanding at the time of receipt by the broker of the order to execute such transactions, or

(ii) If the security is admitted to trading on a securities exchange, the lesser of approximately (a) one percent of the shares or units of such security outstanding at the time of receipt by the broker of the order to execute such transactions or (b) the largest aggregate reported volume of trading on securities exchanges during any one week within the four calendar weeks preceding the receipt of such order.

(e) For the purposes of paragraph (d) of this section:

(1) The term "brokers' transactions" in section 4 (4) of the Act shall be deemed to include transactions by a broker acting as agent for the account of the seller where (i) the broker performs no more than the usual and customary broker's functions, (ii) the broker does no more than execute an order or orders to sell as a broker and receives no more than the usual or customary broker's commissions, (iii) the broker does not solicit or arrange for the solicitation of orders to buy in anticipation of or in connection with such transactions and (iv) the broker is not aware of any circumstances indicating that his principal is failing to comply with the provisions of paragraph (d) of this section;

(2) The term "solicitation of such orders" in section 4(4) of the Act shall be deemed to include the solicitation of an order to buy a security, but shall not be deemed to include the solicitation of an order to sell a security;

(3) Where within the previous 60 days a dealer has made a written bid for a security or a written solicitation of an offer to sell such security, the term "solicitation" in section 4(4) shall not be deemed to include an inquiry regarding the dealer's bid or solicitation.

(f) For the purposes of this rule, the term “constituent corporation” means any corporation, other than the issuer, which is a party to any transaction specified in paragraph (a) of this section. The term "affiliate" means a person con

trolling, controlled by or under common control with a specified person.

[19 F.R. 7129, Nov. 3, 1954, as amended at 24 F.R. 5900, July 23, 1959; 30 F.R. 2022, Feb. 13, 1965]

§ 230.134 Communications not deemed a prospectus.

The term "prospectus" as defined in section 2(10) of the act shall not include a notice, circular, advertisement, letter, or other communication published or transmitted to any person after a registration statement has been filed if it contains only the statements required or permitted to be included therein by the following provisions of this section:

(a) Such communication may include any one or more of the following items of information, which need not follow the numerical sequence of this paragraph:

(1) The name of the issuer of the security;

(2) The full title of the security and the amount being offered;

(3) A brief indication of the general type of business of the issuer, limited to the following:

(i) In the case of a manufacturing company, the general type of manufacturing and the principal products or classes of products manufactured;

(ii) In the case of a public utility company, the general type of services rendered and a brief indication of the area served;

(iii) In the case of an investment company registered under the Investment Company Act of 1940, the company's classification and subclassification under that act, whether it is a balanced, specialized, bond, preferred stock or common stock fund and whether in the selection of investments emphasis is placed upon income or growth characteristics; and

(iv) In the case of any other type of company, a corresponding statement;

(4) The price of the security, or if the price is not known, the method of its determination or the probable price range as specified by the issuer or the managing underwriter;

(5) In the case of a debt security with a fixed (non-contingent) interest provision, the yield or, if the yield is not known, the probable yield range, as specified by the issuer or the managing underwriter;

(6) The name and address of the sender of the communication and the fact that he is participating, or expects to participate, in the distribution of the security;

(7) The names of the managing underwriters;

(8) The approximate date upon which it is anticipated the proposed sale to the public will commence;

(9) Whether, in the opinion of counsel, the security is a legal investment for savings banks, fiduciaries, insurance companies, or similar investors under the laws of any State or Territory or the District of Columbia;

(10) Whether, in the opinion of counsel, the security is exempt from specified taxes, or the extent to which the issuer has agreed to pay any tax with respect to the security or measured by the income therefrom;

(11) Whether the security is being offered through rights issued to security holders, and, if so, the class of securities the holders of which will be entitled to subscribe, the subscription ratio, the actual or proposed record date, the date upon which the rights were issued or are expected to be issued, the actual or anticipated date upon which they will expire, and the approximate subscription price, or any of the foregoing;

(12) Any statement or legend required by any state law or administrative authority.

(b) Except as provided in paragraph (c) of this section, every communication used pursuant to this section shall contain the following:

(1) If the registration statement has not yet become effective, the following statement:

A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This (communication) shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such

State.

(2) A statement whether the security is being offered in connection with a distribution by the issuer or by a security holder, or both, and whether the issue represents new financing or refunding or both; and

(3) The name and address of a person or persons from whom a written prospectus meeting the requirements of section 10 of the act may be obtained.

(c) Any of the statements or information specified in paragraph (b) of this section may, but need not, be contained in a communication: (i) Which does no more than state from whom a written prospectus meeting the requirements of Section 10 of the Act may be obtained, identify the security, state the price thereof and state by whom orders will be executed; or (ii) which is accompanied or preceded by a prospectus or a summary prospectus which meets the requirements of section 10 of the act at the date of such preliminary communication.

(d) A communication sent or delivered to any person pursuant to this rule which is accompanied or preceded by a prospectus which meets the requirements of section 10 of the act at the date of such communication, may solicit from the recipient of the communication an offer to buy the security or request the recipient to indicate, upon an enclosed or attached coupon or card, or in some other manner, whether he might be interested in the security, if the communication contains substantially the following statement:

No offer to buy the securities can be accepted and no part of the purchase price can be received until the registration statement has become effective, and any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time prior to notice of its acceptance given after the effective date. An indication of interest in response to this advertisement will involve no obligation or commitment of any kind.

Provided, That such statement need not be included in such a communication to a dealer if the communication refers to a prior communication to the dealer, with respect to the same security, in which the statement was included.

(Sec. 2, 48 Stat. 74, as amended; 15 U.S.C. 77b) [20 F.R. 6524, Sept. 3, 1955, as amended at 23 F.R. 184, Jan. 10, 1958]

§ 230.135 Notice of certain proposed offerings.

(a) For the purposes only of section 5 of the Act, the following notices sent by an issuer in accordance with the terms and conditions of this section shall not be deemed to offer any security for sale:

(1) A notice to any class of its security holders advising them that it pro

poses to issue to such security holders rights to subscribe to securities of such issuer;

(2) A notice to any class of security holders of such issuer or of another issuer advising them that it proposes to offer its securities to them in exchange for other securities presently held by such security holders; or

(3) A notice to its employees or to the employees of any affiliate advising them that it proposes to make an offering of its securities to such employees.

(b) Such notice shall be sent not more than 60 days prior to the proposed record date for determining the security holders entitled to subscribe to the securities or, if there is no such record date, not more than 60 days prior to the proposed date of the initial offering of the securities.

(c) The notice shall state that the offering will be made only by means of a prospectus which will be furnished to such security holders or employees, as the case may be, and shall contain no more than the following additional information:

(1) The name of the issuer; (2) The title of the securities proposed to be offered;

(3) In the case of a rights offering, the class of securities the holders of which will be entitled to subscribe to the securities proposed to be offered, the subscription ratio, the proposed record date, the approximate date upon which the rights are proposed to be issued, the proposed term or expiration date of the rights and the approximate subscription price, or any of the foregoing;

(4) In the case of an exchange offering, the name of the issuer and the title of the securities to be surrendered in exchange for the securities to be offered, the basis upon which the exchange is proposed to be made and the period during which the exchange may be made, or any of the foregoing;

(5) In the case of an offering to employees, the name of the employer and class or classes of employees to whom the securities are proposed to be offered, the offering price or basis of the offering and the period during which the offering is to be made, or any of the foregoing; and

(6) Any statement or legend required by State law or administrative authority. [24 F.R. 5117, June 23, 1959]

§ 230.136 Definition of certain terms in relation to assessable stock.

(a) An "offer", "offer to sell", or "offer for sale" of securities shall be deemed to be made to the holders of assessable stock of a corporation when such corporation shall give notice of an assessment to the holders of such assessable stock. A "sale" shall be deemed to occur when a stockholder shall pay or agree to pay all or any part of such an assessment.

(b) The term "transactions by any person other than an issuer, underwriter or dealer" in section 4(1) of the Act shall not be deemed to include the offering or sale of assessable stock, at public auction or otherwise, upon the failure of the holder of such stock to pay an assessment levied thereon by the issuer, where the offer or sale is made for the purpose of realizing the amount of the assessment and any of the proceeds of such sale are to be received by the issuer. However, any person whose functions are limited to acting as auctioneer at such an auction sale shall not be deemed to be an underwriter of the securities offered or sold at the auction sale. Any person who acquires assessable stock at any such public auction or other sale with a view to the distribution thereof shall be deemed to be an underwriter of such assessable stock.

(c) The term "assessable stock" means stock which is subject to resale by the issuer pursuant to statute or otherwise in the event of a failure of the holder of such stock to pay any assessment levied thereon.

[24 F.R. 6386, Aug. 8, 1959]

§ 230.140 Definition of "Distribution" in section 2(11) for certain transactions.

A person, the chief part of whose business consists of the purchase of the securities of one issuer, or of two or more affiliated issuers, and the sale of its own securities, including the levying of assessments on its assessable stock and the resale of such stock upon the failure of the holder thereof to pay any assessment levied thereon, to furnish the proceeds with which to acquire the securities of such issuer or affiliated issuers, is to be regarded as engaged in the distribution of the securities of such issuer or affiliated issuers within the meaning of section 2(11) of the Act.

[24 F.R. 6386, Aug. 8, 1959]

§ 230.141

Definition of "commission from an underwriter or dealer not in excess of the usual and customary distributors' or sellers' commissions" in section 2(11), for certain transactions.

(a) The term "commission" in section 2(11) of the act shall include such remuneration, commonly known as a spread, as may be received by a distributor or dealer as a consequence of reselling securities bought from an underwriter or dealer at a price below the offering price of such securities, where such resales afford the distributor or dealer a margin of profit not in excess of what is usual and customary in such transactions.

(b) The term "commission from an underwriter or dealer" in section 2(11) of the act shall include commissions paid by an underwriter or dealer directly or indirectly controlling or controlled by, or under direct or indirect common contol with the issuer.

(c) The term "usual and customary distributors' or sellers' commission" in section 2(11) of the act shall mean a commission or remuneration, commonly known as a spread, paid to or received by any person selling securities either for his own account or for the account of others, which is not in excess of the amount usual and customary in the distribution and sale of issues of similar type and size; and not in excess of the amount allowed to other persons, if any, for comparable service in the distribution of the particular issue; but such term shall not include amounts paid to any person whose function is the management of the distribution of all or a substantial part of the particular issue, or who performs the functions normally performed by an underwriter or underwriting syndicate.

[2 F.R. 1076, May 6, 1937]

§ 230.142 Definition of “participates” and “participation,” as used in section 2(11), in relation to certain transactions.

(a) The terms "participates" and "participation" in section 2(11) (48 Stat. 74, 48 Stat. 905; 15 U.S.C. 77b) shall not include the interest of a person (1) who is not in privity of contract with the issuer nor directly or indirectly controlling, controlled by, or under common control with, the issuer, and (2) who has no association with any principal underwriter of the securities being distributed, and (3) whose function in the distri

bution is confined to an undertaking to purchase all or some specified proportion of the securities remaining unsold after the lapse of some specified period of time, and (4) who purchases such securities for investment and not with a view to distribution.

(b) As used in this section:

(1) The term "issuer" shall have the meaning defined in section 2(4) (48 Stat. 74, 48 Stat. 905; 15 U.S.C. 77b) and in the last sentence of section 2(11).

(2) The term "association" shall include a relationship between two persons under which one:

(i) Is directly or indirectly controlling, controlled by, or under common control with, the other, or

(ii) Has, in common with the other, one or more partners, officers, directors, trustees, branch managers, or other persons occupying a similar status or performing similar functions, or

(iii) Has a participation, direct or indirect, in the profits of the other, or has a financial stake, by debtor-creditor relationship, stock ownership, contract or otherwise, in the income or business of the other.

(3) The term "principal underwriter" shall have the meaning defined in § 230.405.

[3 F.R. 3015, Dec. 16, 1938]

CROSS REFERENCE: For interpretative release applicable to § 230.142, see No. 1862 in tabulation, Part 231, of this chapter. § 230.143 Definition of "has

pur

chased", "sells for", "participates", and “participation”, as used in section 2(11), in relation to certain transactions of foreign governments for war purposes.

The terms "has purchased", "sells for", "participates", and "participation", in section 2(11) (48 Stat. 74, 48 Stat. 905; 15 U.S.C. 77b), shall not be deemed to apply to any action of a foreign government in acquiring, for war purposes and by or in anticipation of the exercise of war powers, from any person subject to its jurisdiction securities of a person organized under the laws of the United States or any State or Territory, or in disposing of such securities with a view to their distribution by underwriters in the United States, notwithstanding the fact that the price to be paid to such foreign government upon the disposition of such securities by it may be measured by or may be in direct or indirect rela

tion to such price as may be realized by the underwriters.

[6 F.R. 2052, Apr. 22, 1941]

§ 230.149 Definition of “exchanged” in section 3(a) (9), for certain transactions.

The term "exchanged" in section 3(a) (9) (sec. 202 (c), 48 Stat. 906; 15 U.S.C. 77c(9)) shall be deemed to include the issuance of a security in consideration of the surrender, by the existing security holders of the issuer, of outstanding securities of the issuer, notwithstanding the fact that the surrender of the outstanding securities may be required by the terms of the plans of exchange to be accompanied by such payment in cash by the security holder as may be necessary to effect an equitable adjustment, in respect of dividends or interest paid or payable on the securities involved in the exchange, as between such security holder and other security holders of the same class accepting the offer of exchange.

[2 F.R. 1382, July 7, 1937]

§ 230.150 Definition of "commission or other remuneration" in section 3 (a) (9), for certain transactions. The term "commission or other remuneration" in section 3(a) (9) of the act shall not include payments made by the issuer, directly or indirectly, to its security holders in connection with an exchange of securities for outstanding securities, when such payments are part of the terms of the offer of exchange. [2 F.R. 1076, May 6, 1937]

§ 230.151 Definition of certain terms used in section 4(2) of the Act. The term "transactions by an issuer not involving any public offering" as used in section 4(2) of the Act, shall be deemed to include the offer or sale by a small business investment company, licensed under the Small Business Investment Act of 1958, of its capital stock to a small business concern pursuant to the provisions of section 304 (c) of such Act, provided that—

(a) The offer or sale is made only in connection with the providing of capital to the small business concern by the small business investment company;

(b) The amount of capital stock so offered or sold does not exceed the amount which the small business concern has the right to acquire, with respect to the