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TITLE 11–BANKRUPTCY

CHAPTER 11– REORGANIZATION

Sub Chapter III – Postconfirmation Matters

Sec. 1145. Exemption from securities laws

     (a) Except with respect to an entity that is an underwriter as 
defined in subsection (b) of this section, section 5 of the Securities 
Act of 1933 and any State or local law requiring registration for offer 
or sale of a security or registration or licensing of an issuer of, 
underwriter of, or broker or dealer in, a security do not apply to--
        (1) the offer or sale under a plan of a security of the debtor, 
    of an affiliate participating in a joint plan with the debtor, or of 
    a successor to the debtor under the plan--
            (A) in exchange for a claim against, an interest in, or a 
        claim for an administrative expense in the case concerning, the 
        debtor or such affiliate; or
            (B) principally in such exchange and partly for cash or 
        property;

        (2) the offer of a security through any warrant, option, right 
    to subscribe, or conversion privilege that was sold in the manner 
    specified in paragraph (1) of this subsection, or the sale of a 
    security upon the exercise of such a warrant, option, right, or 
    privilege;
        (3) the offer or sale, other than under a plan, of a security of 
    an issuer other than the debtor or an affiliate, if--
            (A) such security was owned by the debtor on the date of the 
        filing of the petition;
            (B) the issuer of such security is--
                (i) required to file reports under section 13 or 15(d) 
            of the Securities Exchange Act of 1934; and
                (ii) in compliance with the disclosure and reporting 
            provision of such applicable section; and

            (C) such offer or sale is of securities that do not exceed--
                (i) during the two-year period immediately following the 
            date of the filing of the petition, four percent of the 
            securities of such class outstanding on such date; and
                (ii) during any 180-day period following such two-year 
            period, one percent of the securities outstanding at the 
            beginning of such 180-day period; or

        (4) a transaction by a stockbroker in a security that is 
    executed after a transaction of a kind specified in paragraph (1) or 
    (2) of this subsection in such security and before the expiration of 
    40 days after the first date on which such security was bona fide 
    offered to the public by the issuer or by or through an underwriter, 
    if such stockbroker provides, at the time of or before such 
    transaction by such stockbroker, a disclosure statement approved 
    under section 1125 of this title, and, if the court orders, 
    information supplementing such disclosure statement.

    (b)(1) Except as provided in paragraph (2) of this subsection and 
except with respect to ordinary trading transactions of an entity that 
is not an issuer, an entity is an underwriter under section 2(11) of the 
Securities Act of 1933,\1\ if such entity--
---------------------------------------------------------------------------
    \1\ See References in Text note below.
---------------------------------------------------------------------------
        (A) purchases a claim against, interest in, or claim for an 
    administrative expense in the case concerning, the debtor, if such 
    purchase is with a view to distribution of any security received or 
    to be received in exchange for such a claim or interest;
        (B) offers to sell securities offered or sold under the plan for 
    the holders of such securities;
        (C) offers to buy securities offered or sold under the plan from 
    the holders of such securities, if such offer to buy is--
            (i) with a view to distribution of such securities; and
            (ii) under an agreement made in connection with the plan, 
        with the consummation of the plan, or with the offer or sale of 
        securities under the plan; or

        (D) is an issuer, as used in such section 2(11), with respect to 
    such securities.

    (2) An entity is not an underwriter under section 2(11) of the 
Securities Act of 1933 \1\ or under paragraph (1) of this subsection 
with respect to an agreement that provides only for--
        (A)(i) the matching or combining of fractional interests in 
    securities offered or sold under the plan into whole interests; or
        (ii) the purchase or sale of such fractional interests from or 
    to entities receiving such fractional interests under the plan; or
        (B) the purchase or sale for such entities of such fractional or 
    whole interests as are necessary to adjust for any remaining 
    fractional interests after such matching.

    (3) An entity other than an entity of the kind specified in 
paragraph (1) of this subsection is not an underwriter under section 
2(11) of the Securities Act of 1933 \1\ with respect to any securities 
offered or sold to such entity in the manner specified in subsection 
(a)(1) of this section.
    (c) An offer or sale of securities of the kind and in the manner 
specified under subsection (a)(1) of this section is deemed to be a 
public offering.
    (d) The Trust Indenture Act of 1939 does not apply to a note issued 
under the plan that matures not later than one year after the effective 
date of the plan.

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2639; Pub. L. 98-353, title III, 
Sec. 516, July 10, 1984, 98 Stat. 387; Pub. L. 103-394, title V, 
Sec. 501(d)(33), Oct. 22, 1994, 108 Stat. 4146.)


                      Historical and Revision Notes

                         legislative statements

    Section 1145 of the House amendment deletes a provision contained in 
section 1145(a)(1) of the House bill in favor of a more adequate 
provision contained in section 364(f) of the House amendment. In 
addition, section 1145(d) has been added to indicate that the Trust 
Indenture Act [15 U.S.C. 77aaa et seq.] does not apply to a commercial 
note issued under a plan, if the note matures not later than 1 year 
after the effective date of the plan. Some commercial notes receive such 
an exemption under 304(a)(4) of the Trust Indenture Act of 1939 (15 
U.S.C. Sec. 77ddd(a)(4)) and others may receive protection by 
incorporation by reference into the Trust Indenture Act of securities 
exempt under section 3a(3), (7), (9), or (10) of the Securities Act of 
1933 [15 U.S.C. 77c(a)(3), (7), (9), (10)].
    In light of the amendments made to the Securities Act of 1933 [15 
U.S.C. 77a et seq.] in title III of the House amendment to H.R. 8200, a 
specific exemption from the Trust Indenture Act [15 U.S.C. 77aaa et 
seq.] is required in order to create certainty regarding plans of 
reorganization. Section 1145(d) is not intended to imply that commercial 
notes issued under a plan that matures more than 1 year after the 
effective date of the plan are automatically covered by the Trust 
Indenture Act of 1939 since such notes may fall within another exemption 
thereto.
    One other point with respect to Section 1145 deserves comment. 
Section 1145(a)(3) grants a debtor in possession or trustee in chapter 
11 an extremely narrow portfolio security exemption from section 5 of 
the Securities Act of 1933 [15 U.S.C. 77e] or any comparable State law. 
The provision was considered by Congress and adopted after much study. 
The exemption is reasonable and is more restrictive than comparable 
provisions under the Securities Act [15 U.S.C. 77a et seq.] relating to 
the estates of decedents. Subsequent to passage of H.R. 8200 by the 
House of Representatives, the Securities and Exchange Commission 
promulgated Rule 148 to treat with this problem under existing law. 
Members of Congress received opinions from attorneys indicating 
dissatisfaction with the Commission's rule although the rule has been 
amended, the ultimate limitation of 1 percent promulgated by the 
Commission is wholly unacceptable.
    The Commission rule would permit a trustee or debtor in possession 
to distribute securities at the rate of 1 percent every 6 months. 
Section 1145(a)(3) permits the trustee to distribute 4 percent of the 
securities during the 2-year period immediately following the date of 
the filing of the petition. In addition, the security must be of a 
reporting company under section 13 of the Securities and Exchange Act of 
1934 [15 U.S.C. 78m], and must be in compliance with all applicable 
requirements for the continuing of trading in the security on the date 
that the trustee offers or sells the security.
    With these safeguards the trustee or debtor in possession should be 
able to distribute 4 percent of the securities of a class at any time 
during the 2-year period immediately following the date of the filing of 
the petition in the interests of expediting bankruptcy administration. 
The same rationale that applies in expeditiously terminating decedents' 
estates applies no less to an estate under title 11.


                        senate report no. 95-989

    This section, derived from similar provisions found in sections 264, 
393, and 518 of the Bankruptcy Act [sections 664, 793, and 918 of former 
title 11], provides a limited exemption from the securities laws for 
securities issued under a plan of reorganization and for certain other 
securities. Subsection (a) exempts from the requirements of section 5 of 
the Securities Act of 1933 [15 U.S.C. 77e] and from any State or local 
law requiring registration or licensing of an issuer of, underwriter of, 
or broker or dealer in, a security, the offer or sale of certain 
securities.
    Paragraph (1) of subsection (a) exempts the offer or sale under 
section 364 of any security that is not an equity security or 
convertible into an equity security. This paragraph is designed to 
facilitate the issuance of certificates of indebtedness, and should be 
read in light of the amendment made in section 306 of title III to 
section 3(a)(7) of the 1933 act [15 U.S.C. 77c(a)(7)].
    Paragraph (2) of subsection (a) exempts the offer or sale of any 
security of the debtor, a successor to the debtor, or an affiliate in a 
joint plan, distributed under a plan if such security is exchanged in 
principal part for securities of the debtor or for allowed claims or 
administrative expenses. This exemption is carried over from present 
law, except as to administrative claims, but is limited to prevent 
distribution of securities to other than claim holders or equity 
security holders of the debtor or the estate.
    Paragraph (3) of subsection (a) exempts the offer or sale of any 
security that arises from the exercise of a subscription right or from 
the exercise of a conversion privilege when such subscription right or 
conversion privilege was issued under a plan. This exemption is 
necessary in order to enhance the marketability of subscription rights 
or conversion privileges, including warrants, offered or sold under a 
plan. This is present law.
    Paragraph (4) of subsection (a) exempts sales of portfolio 
securities, excluding securities of the debtor or its affiliate, owned 
by the debtor on the date of the filing of the petition. The purpose of 
this exemption is to allow the debtor or trustee to sell or distribute, 
without allowing manipulation schemes, restricted portfolio securities 
held or acquired by the debtor. Subparagraph (B) of section 1145(a)(4) 
limits the exemption to securities of a company that is required to file 
reports under section 13 of the Securities Act [15 U.S.C. 78m] and that 
is in compliance with all requirements for the continuance of trading 
those securities. This limitation effectively prevents selling into the 
market ``cats and dogs'' of a nonreporting company. Subparagraph (C) 
places a limitation on the amount of restricted securities that may be 
distributed. During the case, the trustee may sell up to 4 percent of 
each class of restricted securities at any time during the first 2 years 
and 1 percent during any 180-day period thereafter. This relaxation of 
the resale rules for debtors in holding restricted securities is similar 
to but less extensive than the relaxation in SEC Rule 114(c)(3)(v) for 
the estates of deceased holders of securities.
    Paragraph (5) contains an exemption for brokers and dealers 
(stockbrokers, as defined in title 11) akin to the exemption provided by 
section 4(3)(A) of the Securities Act of 1933 [15 U.S.C. 77d(3)(A)]. 
Instead of being required to supply a prospectus, however, the 
stockbroker is required to supply the approved disclosure statement, and 
if the court orders, information supplementing the disclosure statement. 
Under present law, the stockholder is not required to supply anything.
    Subsection (b) is new. The subsection should be read in light of the 
amendment in section 306 of title III to the 1933 act [15 U.S.C. 
77c(a)(7), (9), (10)]. It specifies the standards under which a 
creditor, equity security holder, or other entity acquiring securities 
under the plan may resell them. The Securities Act places limitations on 
sales by underwriters. This subsection defines who is an underwriter, 
and thus restricted, and who is free to resell. Paragraph (1) enumerates 
real underwriters that participate in a classical underwriting. A person 
is an underwriter if he purchases a claim against, interest in, or claim 
for an administrative expense in the case concerning, the debtor, with a 
view to distribution or interest. This provision covers the purchase of 
a certificate of indebtedness issued under proposed 11 U.S.C. 364 and 
purchased from the debtor, if the purchase of the certificate was with a 
view to distribution.
    A person is also an underwriter if he offers to sell securities 
offered or sold under the plan for the holders of such securities, or 
offers to buy securities offered or sold under the plan from the holders 
of such securities, if the offer to buy is with a view to distribution 
of the securities and under an agreement made in connection with the 
plan, with the consummation of the plan or with the offer or sale of 
securities under the plan. Finally, a person is an underwriter if he is 
an issuer, as used in section 2(11) of the Securities Act of 1933 [15 
U.S.C. 77b(11)].
    Paragraph (2) of subsection (b) exempts from the definition of 
underwriter any entity to the extent that any agreement that would bring 
the entity under the definition in paragraph (1) provides only for the 
matching combination of fractional interests in the covered securities 
or the purchase or sale of fractional interests. This paragraph and 
paragraph (1) are modeled after former rule 133 of the Securities and 
Exchange Commission.
    Paragraph (3) specifies that if an entity is not an underwriter 
under the provisions of paragraph (1), as limited by paragraph (2), then 
the entity is not an underwriter for the purposes of the Securities Act 
of 1933 [15 U.S.C. 77a et seq.] with respect to the covered securities, 
that is, those offered or sold in an exempt transaction specified in 
subsection (a)(2). This makes clear that the current definition of 
underwriter in section 2(11) of the Securities Act of 1933 [15 U.S.C. 
77b(11)] does not apply to such a creditor. The definition in that 
section technically applies to any person that purchases securities with 
``a view to distribution.'' If literally applied, it would prevent any 
creditor in a bankruptcy case from selling securities received without 
filing a registration statement or finding another exemption.
    Subsection (b) is a first run transaction exemption and does not 
exempt a creditor that, for example, some years later becomes an 
underwriter by reacquiring securities originally issued under a plan.
    Subsection (c) makes an offer or sale of securities under the plan 
in an exempt transaction (as specified in subsection (a)(2)) a public 
offering, in order to prevent characterization of the distribution as a 
``private placement'' which would result in restrictions, under rule 144 
of the SEC, on the resale of the securities.

                       References in Text

    Section 5 of the Securities Act of 1933, referred to in subsec. (a), 
is classified to section 77e of Title 15, Commerce and Trade.
    Sections 13 and 15(d) of the Securities Exchange Act of 1934, 
referred to in subsec. (a)(3)(B)(i), are classified to sections 78m and 
78o(d), respectively, of Title 15, Commerce and Trade.
    Section 2(11) of the Securities Act of 1933, referred to in subsec. 
(b), was redesignated section 2(a)(11) of the Act by Pub. L. 104-290, 
title I, Sec. 106(a)(1), Oct. 11, 1996, 110 Stat. 3424, and is 
classified to section 77b(a)(11) of Title 15, Commerce and Trade.
    The Trust Indenture Act of 1939, referred to in subsec. (d), is 
title III of act May 27, 1933, ch. 38, as added Aug. 3, 1939, ch. 411, 
53 Stat. 1149, as amended, which is classified generally to subchapter 
III (Sec. 77aaa et seq.) of chapter 2A of Title 15, Commerce and Trade. 
For complete classification of this Act to the Code, see section 77aaa 
of Title 15 and Tables.


                               Amendments

    1994--Subsec. (a). Pub. L. 103-394, Sec. 501(d)(33)(A), in 
introductory provisions struck out ``(15 U.S.C. 77e)'' after ``Act of 
1933'' and substituted ``do not apply'' for ``does not apply'' and in 
par. (3)(B)(i) struck out ``(15 U.S.C. 78m or 78o(d))'' after ``Act of 
1934''.
    Subsec. (b)(1). Pub. L. 103-394, Sec. 501(d)(33)(B), struck out 
``(15 U.S.C. 77b(11))'' after ``Act of 1933''.
    Subsec. (d). Pub. L. 103-394, Sec. 501(d)(33)(C), struck out ``(15 
U.S.C. 77aaa et seq.)'' after ``Act of 1939''.
    1984--Subsec. (a)(3)(B)(i). Pub. L. 98-353, Sec. 516(a)(1), inserted 
``or 15(d)'' after ``13'', and ``or 78o(d)'' after ``78m''.
    Subsec. (a)(3)(B)(ii). Pub. L. 98-353, Sec. 516(a)(2), amended cl. 
(ii) generally. Prior to amendment, cl. (ii) read as follows: ``in 
compliance with all applicable requirements for the continuance of 
trading in such security on the date of such offer or sale; and''.
    Subsec. (a)(4). Pub. L. 98-353, Sec. 516(a)(3), substituted 
``stockbroker'' for ``stockholder'' in two places.
    Subsec. (b)(1). Pub. L. 98-353, Sec. 516(b)(1), inserted ``and 
except with respect to ordinary trading transactions of an entity that 
is not an issuer''.
    Subsec. (b)(1)(C). Pub. L. 98-353, Sec. 516(b)(2), substituted 
``from'' for ``for''.
    Subsec. (b)(2)(A)(i). Pub. L. 98-353, Sec. 516(b)(3), substituted 
``or combining'' for ``combination''.
    Subsec. (b)(2)(A)(ii). Pub. L. 98-353, Sec. 516(b)(4), substituted 
``from or to'' for ``among''.
    Subsec. (d). Pub. L. 98-353, Sec. 516(c), struck out ``commercial'' 
before ``note''.


                    Effective Date of 1994 Amendment

    Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not 
applicable with respect to cases commenced under this title before Oct. 
22, 1994, see section 702 of Pub. L. 103-394, set out as a note under 
section 101 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-353 effective with respect to cases filed 90 
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out 
as a note under section 101 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 364, 901 of this title.



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