to obtain their first shares of an issuer's cases. by making optional cash payments. securities directly from the issuer. The Individual investors may be attracted to STA Letter has been issued in the DRS!'Ps because they often provide a context of a continuing review of Rule relatively convenient and inexpensive mechanism to accumulate shares of 10b-6, and is published to provide particular issuers through the automati<;, notice of the exemption's availability. regular reinvestment of dividends and, jn For further information, contact the many cases, through optional cash payments. Office of Trading Practices (for matters These programs also are favored by issuers · regarding Rule 10b-6), at (202) 942- because. among other things, they can 07.72, and the Office of ChiefCounsel provide a relatively economical mechanism (for matters regarding broker-dealer for raising capital, whi.le simultaneously registration), at (202) 942-0073, improving shareholder relations and broadening and stabilizing the issuer's Market Division of Regulation, shareholder base. Approximately 1.000 Securities and Exchange Commission. issuers currently offer some form ofDRSPP 450 Fifth Street, NW., Washington, DC The earliest DRSPPs were dividend · 20549. reinvestment plans ("DRPs"). in which Mru:Saret H. l\kfarl<>.nd. participlltion was limited to the iss:~r;r's Deputy Secretory shareholders, and ·through which additional shares could 'be purchased only with December 1. 1994. reinvested dividends. Since the first DRP was Mr. Michael). Foley, President. introduced in the late-1960s, there has'been The Securities Transfer Association, Inc .. considerable evolution in these programs. · P.O.. Box 5067. Hazlet. Nf 07730--50£).7 The greatest changes have been in the· Re: Dividend ·Reinvestment and Stock categories of persons that are permitted to Purchase Plans. participate inDRSPPs, and in the ability of Dear Mr•. Foley: To clarify .issues raised participants to accumulate issuers' shares bv under Rule lOb-£ ("Rule 1Gb-£" or "Rule") 1 making optional cash purchases as well as · under fhe Securities Exchange Act of 1934 through dividend reinvestment. ('"Exchange Act") 2 by dividend reinvestment Today,.many issuers no longer limit and stockpurchase plans ("BRSPPs"}, the participation in their DRSPPs to shareholders Commission has determined to .grant an . or employees. Rather, variqus issuers have exemption from !he Ru1e to certain issuers extended DRSP.P participation to, among ("Issuers"), !heir affiliated purchasers others, retirees, outside directors, ("Affiliated Purchasers"), as defined in consultants, suppliers, franchisees, paragraph (cj(6) of the Rule,a and the agents independent contl:actors, family members of of the Issuers' DRSPPs ("DRSPPs Agents"} the above, as well as credit card holders and during distributions of the Issuers' shares of other customers. 'M:or-eover, ·some issuers common stock pursuant to the Issuers' permit participation in their DRSPf's DRSPPs. This letter also addresses the following an mitial·cash payment. rather ap,plication of Sections 15(a) and 17 A of the than requiting prior sharer~wnership. Exchange Act • to DRSPPs. The discussion of Further, '"s Tt!'lted above, ammy .DRSPPs :allow Sections 15(a) and 17A pertains to all shares to he-purchased with•optional cash DRSPPs. It applies both to "plans," as payments as well as reim:esied di:11idends. [Reiea~ NM. 33-7114; 34--35041} defined in paragraph {c)(4) of Rule 10h--6' n. Rule 10IJ.....5 59 FR 12/08/94 and to non"traditional DRSPPs, which are the .aute 10b--6 ror subject oftheexemption from Rule 10b-fi Rule 10b....fi is an anti-manipulation rule Certain Dividend Reinvestmem and •discussed below. that, suiliect to certain exceptions, .prohibits Swek ~u,chase ~s persons who are 'engaged in ·a distribution of sec uri ties from bidding for·or purchasing, or Dpwmber 1, 1994. A DRSPP is a program offered by a inducing others to purchase, such securities, Pursmmt to delegated authoriiy, on corporation or dosed·end fund that allows any securitv-ofthe same 'Class and series as December!, 1994, the Division of participants to accumulate shares of ;m the distributed securities, or afi31 security that Market Regulation issued the attached issuer's common stock directly from the is immediately'con:vertible irlto or letter to The Securities Transfer issuer by reinvesting dividends and. in many exchangeable :for or any tight to acquire such Association {"STA Letter") .granting a distributed securiti,es faoHectively '"related securities"), until they have completed their exemption from rule lOb-S under '17 CFR 24U.10b-5. 2 15 U.S.C. §§ 78a et seq. participation in the distribution. The Rule is 1934, the Securities Exchange Act·of '17 CFR 240.10b-5'(c)(6). C.-Bm·raliy, an affiliated intended to prevent those persons subject to certain conditions. ·to purchaser includes ar. y person acting in concert participating in a distribution of securities facilitate the availability of certain with the issuer or other person making the from artificially ccmditioning rhe market for dh·idend reinvestment and stock distribution; an affitime who dirflct!y or indirectly the offered securities in order to facllit<'tte 1he controls purch.ases by the issuAr or other persnn. or distribution, and to protect thll integritty of purchase p"lans ("DRSPPs") to investors. whose purchases are controlled by or under The STA Letter is significant because the securities trading market as an common control with the issuer or other person: a independent pricing mechanism. many issuers no longer will need to seek broker·dealer affiliate: and a non-hrokor-dealer Paragraph rel ofRule 10b-6 provides that individual exemptions from Rule 100-6 investment discretion of sr!curitieshy:an issuer or a subsidiary:of letter alsn addresses issues·concerning with msp<>ct to the purchase or sale of securities. thf: issuerto·emfiloyees or shareholders.of broker-dealer registrati·on under Section 4 15 U.S.C. §§ 7So and ?Sq-1. respectively. the issuer or·its·subsidiaries, or to a trostee 15(;r) of the Exr.hange Act. "17 CFR 240.10ir-6fcl(4). A plan inclndes "any or other person acquiring such ·securities for The STA Letter is consistent w.ilh bonus. profit-sharing. p"nsion. retirement. thrift. the account of such employees or Rule 10lr-6 granted s.aving$. incentive. stor.k p:archase. stock ovvnership. shareholders pnrsuant to a .plan -£ further provides that a bid for or secnrities, by the Issuer or any Affiliated board of directors or chief financial officer pt:rchase of any security made or effected by Purchaser of the Issuer, subject to the that the issuer's need to raise additional or for a plan shell be deemed to be a following terms and conditions: capital has ch.anged, or that there is another purchase by the issuer unless the bid is valid reason for such change, such as action A. mdr!e. or the purchase is effected, by an Plan Administration by a state or federal regulatory agency "agent independent of the issuer," as that 1. DRSPP Agent recommending or requiring a change in the knn is defined in paragraph (a)(6) of Rule The Issuer shall appoint an independent capital structure of the Issuer or of one of its JOb-18.' agent {i.e.: the DRSPP Agent) to execute major operating subsidiaries. \Vl:en an issuer expands its DRSPP to transactions on behalf of the DRSPP and its If securities are purchased directly from · allow partk! ?at ion Ly persons other than its participants. For purposes of this exemption, the Issuer, the Issuer and its Affiliated Prnnlovet•s or shareholders or those of its the DRSPP Agent must be a registered broker­ Purchasers cannot purchase the common sulisi:emption letters were \!!Sed to notify iodependent of the !ssuer and that is selected general public to participate in its DRSPP, i;sucrs of oiher )f$Ues raised by D}\SPPs, by the DRSPP Agent to execute su<;h however, sales efforts relating to the DRSPP i;·;duding at:Uvitics by ;ssuers that may raise transactions. The Issuer may perform only must be consistent witi1the solicil DRSPP Agent to bid for or purchase ha;~ed E. Notice Requirement mmket more than once in any 12 month the ls'>uer's common stock during a period. Tlw issuer cannot exercise su<.;h right Any Issu~;r that relies on the exemption di5tributicn of such security pursuant to the granted herein shall provide a written notice hsuer's DRSPP, and to permit the DRSPP {"Notice"} to the Director of the Division. Agent to bid for or purchase the Issuer's '' Eg., :here c:an be no rBquirement that purchaS('s The Notice must identify the Issuer and '"mrnun stock pursuant to the DRSPP during for assets. proposes to make a public offering of To avoid both the potential 'for sales securities to. be registered under the F Record Maintenance.and I?roduciion practice abuse or loss of im1estors' funds and Securities Act and that the offering will be The Issuer shall maintain ·the following securities, Issuers operating DRSPPs either made only by means ofa prospectus and may information for a.period ofat leastlwo years must limittheir activities as described 'below include no more information than that which from the date ofthe.event,.which must be or register as a·hroker-dea:ler;12 is allowed under the ntle.16 Thus, typically, provideii,prompt1y to the Division upon its such a communication would include, in request: A. Solicitation addition to the mandatory .information 1. the dates and substance oi any materials Under the·conditions set forth below, the described: {1)The title, amount, and basic distributed :in connection with fhe·DRSPP; Issuer .may inform 'the general public :throngh terms of the securities proposed to be offered 2. the number of.persons participating in announcements, newspaper advertisements, in the DRSPP; (2) the anticipated time of the the DRSP.P.on.a menthly basis; circulars, notices. and investor fairs about its offering; (3) the manner and purpose of the 3. the vO:lume of securities·puFchased fur securities or the securities of:the 1ssuer's · offering; and (4) any statement or legend the DR~ by the DRSPP Agent, on a weeldy subsidiary available through the DRSPP. In required by state or foreign law or basis, or, if shares are:purchased less addition, an Issuer may inform those administrative authority. frequently. the number.o'f shares _purchased prospective participants with whom the As required by Rules 134 and 135 under on a monthly basis;.and Issuer has a pre-existing, continuing the Securities.Act, recommendations, 4. a notation of any period that the Issuer relationship that encompasses the receipt of predictions, and, unless accompanied by a is engaged in any other distribution,of written communications·by existing means of prospectus, applications or enrollment forms, common stock forpur:poses of Rule 10b-6. communication (e.g .. including the may not 00 included in any materials. Unless·otherwise extended by the 'Division, solicitation with a bill, annualreport, or Furthermore, the Issuer and its associated this ·record maintenance and production payroll stub). 1 a The Issuer, however, may not persons may not engage in oral solicitation of requirement will expire on December 31, use an agent·other than a registered broker· potential DRSPP participants. Associated 1995. dealer or bank to solicit participation in the persons (e.g., partners, officers, directors. or DRSPP on its behalf. employees) of the Issuer. however. m<>:y IV. Interpreta:!ion ofSection 15(aJ The.information contained in any respond orally to inquiries initiated by The staff•of the Division is.of the view that solicitation ·material may include no more potential participants. provided that the certain activities in which Jssuers, their than that allowed, nor less than·that required content of the response is limited to Affili~:~ted'Purchasers, and DRSPP Agents under Rule 1:)4 under the Securities Act of information provided in the registration engage in connectionwithDRSPPs raise 193'3 ("Securities Act") (i.e., tombstone statement, prospectus, or other offering issues under Section 15(a).11 Therefore, in advertisements").14 Thus, typically. materials document. 17 addition to granting the foregoing class may include: (1) The Issuer's name; (2)·the B. Fees and Expenses exemption from Rule !Oh-'6. this letter also Issuer's type of business; {3) the type of clarifies the application of those provisions security being offered in the DRSPP (i.e., The Issuer may not receive or collect for of the:Exclmnge Acttrrdroth traditional and common or preferred stock); (4) the price of itselftransaction-based compensation, but may charge DRSPP participants fees that are non~traditional DR:SPPs. the security or the method ,of price reasonably related ·to actual administrative When-an issuer induces or attempts to determination; and (5) information on how costs the cost to print and mail induce the,purchase.or sale of,its securities, and where a prospectus may oo obtained. (e.g., brochures or authorization forms). In receives compensation based on securities If a Tegistnrtion statement for the securities addition, all costs to be paid by DRSPP transactions, or holds and.maintains the to be offered under theDRSPP has not vet participantsmustbe·disclosed prior to funds, securities, and accounts oi DRSPP been filed under the Securities Act, the enrollment. participants, it may·he required to register as information contained in any a broker-dealer urrder Section 15 of the communication, pursuant to Rule '135 under C. Participants' Funds and Sec11rities Exchange Act. Broker•dea.ler registration As discussed .in Section m.A.2 .. the !ssuor minimizes the DRSPP participant's exposure lZ l5l!UilfS that on\v sell their OWn SecUrities (i.e., must limit its activities to clerical and to the risks typically associated with:the trea9ury stockl. but do r.ot purchase and arrange for ministerial functions. execution,of orders, and the handHng '!lnd the sales of such securities, and do not otherwise The Issuer may receive optional cash placement•of'funds and securities with effect transactions in securities for investors. would investments .from participants. provided that others. For example, the Commission's continue to be·excluded from the broker-dealer the Issuer transmits promptly 18 oil funds to financial responsibility rules are designed to registration ·requirements of Section l5(a) of the be used to purchase shares of its common provide safeguards with respect to customer Exchange Act. Furthermore. associated parsons of stock to a. segregated escrow account r~ at a funds and securities held by registered Issuers would not be required.to register as broker­ dealers provided that they meet the requirements of bank or to the DRSPP Agent. broker-dealers, by providing accountability Rule 3&4-1 under the Exchange Act, 17 CFR Funds must be returned to the DRSPP for those funds aml·securities, and requiring 240.3<14-1. Associated persons (eog., partners, participant if securities have not been officers, directors. or emPiovees! who are purchased: (a) within 35 days of receipt of 1 1 Section 15(a) oT the Exchange Act generally participating in the sale of s"ecurities through a optional cash payments:"" or (h) within :lO provides that a "broker" or "dealer" who uses the DRSPP, may qualify for the safe harbor if they meet the requirements of subparagraphs (a) (1)-(3) of mails or any means of interstate commerce to effect 15 17 CFR 230.1:15. transactions in, or to induce or attempt to induce Rule 3a4-1 {!he associated person must not be 1"17 CFR 230.135. the purchase or sale of, any security must register subject to a statutory disqualification. cannot 11 with the Commission. unle5ll an exemption applies. · receive transaction-based compensation. and must See Rule 3a4-1(a)(4l(iiil. discussed supra at Section 3(a)(4) ofthe Exchange Act defines a not be an associated pe:-son of a broker-dealer et the note 12. "broker" as any person.who is in the business of , time of. participation) and either: (a) restrict their '"For purposes of :his letter. "transmit promptly" effecting transactions in securities.for the account ·participation to offers and sales of securities shall mean by the opening of business on the next of others. A ':dealer" under Section 3(a)(5) is invoLving employee dividend reinvestment or stock business dav if the funds are received before noon. defined as any person engaged in the business of purchase plans, pursuant to Rule 3a4-1 (a)(4){i)(DJ: and by noon of the neX1 business day if the funds buying and selling securities for its own account, or {b) restrict their activities to delivering and are received after noon. whether through a broker or otherwise. A number preparing written materials. giving limited '"The escrow. account must be held for the of factors are considered in determining whether a responses to inquiries initiated by prospective benefit of the participants. and cannot be subject to person'is a broker..cdealer,.including the type and participants,.or perform ministerial and clerical any liens. any creditor claims.mrl!ny other t;laims basis for any ·compensation received, the extent to work .. pursuant to Rule 3a4-1(a)(4)(iii). against the Issuer. ·Furthermore, 'the escrow account wliich•the person holds the funds.and securities of n Such prospective participants would include cannot be subject to bankmptcy proce<>dings if the others, the extent of contact with the,public, and shareholders, employees, customers, and other Issuer files for bankruptcy ur.der federal or state whethenhe person .is "engaged in the business;" as persons with a pre-existing relationship-with the law. that term is used in the·abeve definitions. Issuers issuer. such as independent contractors. 2°The Division of lnvf'!1'position taken in laws to, the proposed transactions. Lucky Stores, in which the staff advised plans to hold optional cash payments for no more than 30 Sincerely, days. · Brandon Becker ••ts U.S.C. § 76c{a)(25). A ••transfer agent" is Director. defined as any person who. on behalf of an issuer of securities or on its own behalf as an issuer of (FR D~. 94-30127 Filed 12-7-94; S:45 am) securities, engages in the countersigning of such I!ILUNG CODE 0010..01--M securities, monitoring of the issuance of suqh securities.with a view to preventing unauthorized issuance, registering the transfer of such securities, exchanging or converting such securities, or 2415 U.S.C. §§78i(a)(2J and 78j(b), and 17CFR transferring record o\.vnership of securities by 240.10b-5, respectively. bookkeeping entry without physical issuance of securities certificates. 2215 U.S.C. § 71lq-l(c). 23 Securities Exchange Act Release Nos. 35036 and 35Q40 (December 1. 1994).