[Federal Register Volume 64, Number 217 (Wednesday, November 10, 1999)]
[Rules and Regulations]
[Pages 61382-61408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28354]
[[Page 61381]]
_______________________________________________________________________
Part II
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Part 200 et al.
Cross-Border Tender and Exchange Offers, Business Combinations and
Rights Offerings; Final Rule
Regulation of Takeovers and Security Holder Communications; Final Rule
Federal Register / Vol. 64, No. 217 / Wednesday, November 10, 1999 /
Rules and Regulations
[[Page 61382]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 230, 239, 240, 249 and 260
[Release Nos. 33-7759, 34-42054; 39-2378, International Series Release
No. 1208; File No. S7-29-98]
RIN 3235-AD97
Cross-Border Tender and Exchange Offers, Business Combinations
and Rights Offerings
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission today is adopting
tender offer and Securities Act registration exemptive rules for cross-
border tender and exchange offers, business combinations, and rights
offerings relating to the securities of foreign companies. The purpose
of the exemptions is to facilitate U.S. investor participation in these
types of transactions.
EFFECTIVE DATE: January 24, 2000, except Secs. 200.30-1(e)(16) and
200.30-3(a)(68) will be effective November 10, 1999.
FOR FURTHER INFORMATION CONTACT: Dennis O. Garris, Chief, or Laura
Badian, Special Counsel, Office of Mergers and Acquisitions, Division
of Corporation Finance at (202) 942-2920; James Brigagliano, Florence
Harmon, Irene Halpin, or Michael Trocchio, Office of Risk Management
and Control, Division of Market Regulation, at (202) 942-0772; at
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC. 20549.
SUPPLEMENTARY INFORMATION: We are adopting new Rules 800, 801 and 802
under the Securities Act of 1933 (``Securities Act''),\1\ Rule 4d-10
under the Trust Indenture Act of 1939 (``Trust Indenture Act''),\2\
revisions to Form F-X and Rule 144 under the Securities Act,\3\
revisions to Rules 13e-3, 13e-4, 14d-1, 14d-9, and 14e-2 \4\ under the
Securities Exchange Act of 1934 (``Exchange Act''),\5\ portions of new
Rule 14e-5 \6\ under the Exchange Act, and Rules 30-1 and 30-3 \7\ of
the Commission's Rules Delegating Authority to the Directors of the
Division of Corporation Finance and Market Regulation, respectively. We
are also adopting new Form CB under the Securities Act and the Exchange
Act.
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\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 77aaa et seq.
\3\ 17 CFR 239.42 and 17 CFR 230.144.
\4\ 17 CFR 240.13e-3, 240.13e-4, 240.14d-1, 240.14d-9 and
240.14e-2.
\5\ 15 U.S.C. 78a et seq.
\6\ The portion of the text of new Rule 14e-5 (formerly Rule
10b-13) that is being adopted today is contained in a separate
release that updates and simplifies the rules and regulations
applicable to takeover transactions. See Regulation of Takeovers and
Security Holder Communications, Securities Act Release No. 7760
(October 22, 1999) (``Regulation M-A Release'').
\7\ 17 CFR 200.30-1 and 200.30-3.
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Table of Contents
I. Executive Summary
A. Summary of Amendments
B. Changes from the 1998 Proposals
II. Discussion
A. The Tier I Exemption
1. U.S. Ownership Limitation
2. Disclosure and Dissemination--Form CB
3. Equal Treatment
a. Cash Alternative
b. Blue Sky Exemption
c. Loan Notes
4. Rule 13e-3 Exemption
5. Sections 13(d), 13(f) and 13(g)
B. The Tier II Exemption
C. Other Rules Governing Tender Offers
1. Rule 14e-5 (Former Rule 10b-13)
a. Tier I Offers
b. Market Making by ``Connected
Exempt Market Makers'' and
Connected Exempt Principal Traders
2. Regulation M
D. Exemption from the Securities Act for Exchange Offers,
Business Combinations, and Rights Offerings
1. Summary
2. Eligibility Conditions
a. U.S. Ownership Limitation
b. Equal Treatment
c. Transfer Restrictions
d. Additional Requirements for Rights Offerings
e. Offeror Eligibility Requirements
f. Informational Requirements
g. Trust Indenture Act Exemption
E. Investment Companies
F. Determination of U.S. Ownership
1. Definition of U.S. Holder
2. Exclusion of Holdings of More Than 10 Percent
3. Determination of Eligibility by Persons Other Than the Issuer
G. Internet Disclosure
1. General Approach
2. Offshore Tender and Exchange Offers, Rights Offerings and
Business Combinations on the Internet
3. U.S. Exempt Component
4. Domestic Issuers
III. Paperwork Reduction Act
IV. Cost-Benefit Analysis
V. Findings and Considerations
A. Effect on Competition/Exchange Act Section 23(a)
B. Promotion of Efficiency, Competition and Capital Formation
C. Exemptive Authority Findings
D. Delegated Authority
VI. Summary of Final Regulatory Flexibility Analysis
VII. Statutory Basis and Text of Amendments
Appendix A--Form CB Tender Offer/Rights Offering Notification Form
I. Executive Summary
A. Summary of Amendments
U.S. security holders are often excluded from tender and exchange
offers, business combinations and rights offerings involving foreign
private issuers. It is very common for bidders to exclude U.S. security
holders from these transactions to avoid the application of the U.S.
securities laws, particularly when U.S. security holders own a small
amount of the securities of the foreign private issuer.\8\ When bidders
exclude U.S. security holders from tender or exchange offers, they deny
U.S. security holders the opportunity to receive a premium for their
securities and to participate in an investment opportunity. Similarly,
when issuers exclude U.S. security holders from participation in rights
offerings, U.S. security holders lose the opportunity to purchase
shares at a possible discount from market price. U.S. investors must
react to these transactions, which may significantly affect their
existing investment in the foreign private issuer, without the
disclosure or other protections afforded by U.S. or foreign law.
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\8\ As we noted in the proposing release, Cross-Border Tender
Offers, Business Combinations and Rights Offerings, Securities Act
Release No. 7611 (November 13, 1998) (63 FR 69136) (Section II.A.),
because a large percentage of foreign companies have only a small
number of U.S. security holders, it is quite common for bidders for
the securities of those foreign companies to exclude U.S. holders.
For example, based on a sample of 31 tender offers compiled in 1997
by the U.K. Takeover Panel (the entity that regulates tender offers
in the United Kingdom), when the U.S. ownership of the target was
less than 15% (30 offers), the bidders excluded U.S. persons in all
of the offers. When the U.S. ownership was more significant, such as
38% (one offer), the bidders included U.S. persons. In the 30 offers
that excluded U.S. persons, the ownership percentage was as follows:
In 27 offers, U.S. persons held less than 5%; in the remaining three
offers, U.S. persons held 7%, 8% and 10-15%, respectively.
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Today, the Commission is adopting exemptive rules that are intended
to encourage issuers and bidders to extend tender and exchange offers,
rights offerings and business combinations to the U.S. security holders
of foreign private issuers. The purpose of the exemptions adopted today
is to allow U.S. holders to participate on an equal basis with foreign
security holders. In the past, some jurisdictions have permitted
exclusion of U.S. holders despite domestic requirements to treat all
holders equally on the basis that it would be impracticable to require
the bidder to include U.S. holders. The rules adopted today are
intended to
[[Page 61383]]
eliminate the need for such disadvantageous treatment of U.S.
investors.
The exemptions balance the need to provide U.S. security holders
with the protections of the U.S. securities laws against the need to
promote the inclusion of U.S. security holders in these types of cross-
border transactions. The specific exemptions are:
Tender offers for the securities of foreign private
issuers will be exempt from most provisions of the Exchange Act and
rules governing tender offers \9\ when U.S. security holders hold 10
percent or less of the subject securities. In addition to bidders, the
subject company, or any officer, director or other person who otherwise
would have an obligation to file Schedule 14D-9 also may rely on the
exemption. We refer to this exemptive relief in this release as the
``Tier I'' exemption.
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\9\ 15 U.S.C. 78m(e) and 78n(d); 17 CFR 240.13e-3, 240.13e-4,
240.14d-1 to 240.14d-10, 240.14e-1 and 240.14e-2.
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When U.S. security holders hold 40 percent or less of the
class of securities of the foreign private issuer sought in the offer,
limited tender offer exemptive relief will be available to bidders to
eliminate frequent areas of conflict between U.S. and foreign
regulatory requirements. We refer to this exemptive relief in this
release as the ``Tier II'' exemption. The Tier II exemption represents
a codification of current exemptive and interpretive positions.
Under new Securities Act exemptive Rule 801, equity
securities issued in rights offerings by foreign private issuers will
be exempt from the registration requirements of the Securities Act, if
U.S. security holders own 10 percent or less of the issuer's securities
that are the subject of the rights offering.
Under new Securities Act exemptive Rule 802, securities
issued in exchange offers for foreign private issuers' securities and
securities issued in business combinations involving foreign private
issuers will be exempt from the registration requirements of the
Securities Act and the qualification requirements of the Trust
Indenture Act, if U.S. security holders hold 10 percent or less of the
subject class of securities.
Tender offers for the securities of foreign private
issuers will be exempt from new Rule 14e-5 \10\ (formerly Rule 10b-13)
of the Exchange Act, which prohibits a bidder from purchasing
securities otherwise than pursuant to the tender offer. This exemption
will allow purchases outside the tender offer during the offer when
U.S. security holders hold 10 percent or less of the subject
securities.
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\10\ Rule 10b-13 was revised and redesignated as new Rule 14e-5
in the Regulation M-A Release, supra note 6.
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The U.S. anti-fraud and anti-manipulation rules and civil liability
provisions will, however, continue to apply to these transactions.
Certain commenters believed that this liability will remain a hurdle to
including U.S. security holders, particularly in view of the amount of
litigation in the United States and the ability of subject companies to
institute litigation as a defensive measure. However, in a transaction
eligible for the exemptions adopted today, many of the disclosure and
procedural protections of the federal securities laws will not be
available. Therefore, it is necessary that the anti-fraud provisions
continue to provide a basic level of protection for U.S. security
holders participating in these transactions. The application of these
provisions, however, may be different in the context of foreign
disclosure requirements and practices. The Commission considers the
information that is required to be disclosed by a form or schedule
generally to be important in investment decisions. However, the
omission of the information called for by U.S. forms in the context of
foreign disclosure requirements and practices would not necessarily
violate the U.S. disclosure requirements. An antifraud action could be
brought by the Commission and investors if the omitted information is
material in the context of the transaction and the disclosure provided
is misleading as a result of the omission of the information.
In addition to the above exemptions, we are adopting amendments to
the Commission's general organization rules. These amendments delegate
to the Directors of the Divisions of Corporation Finance and Market
Regulation authority to exempt tender offers from specific tender offer
requirements. The delegation of authority is intended to conserve
Commission resources by permitting the staff to review and act on
exemptive applications under sections 14(d) and 36(a) \11\ of the
Exchange Act when appropriate. Nevertheless, the staff may submit
matters to the Commission for consideration as it deems appropriate. In
addition, under section 4A(b) \12\ of the Exchange Act, the Commission
retains discretionary authority to review, upon its own initiative or
upon application by a party adversely affected, any exemption granted
or denied by the Division pursuant to delegated authority.\13\
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\11\ 15 U.S.C. 78mm(a).
\12\ 15 U.S.C. 78d-1(b).
\13\ Information concerning the filing of exemptive relief
applications can be found in Release No. 34-39624; Rule 0-12 under
the Exchange Act (17 CFR 240.0-12).
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B. Changes From the 1998 Proposals
The rules adopted today differ from those contained in the November
1998 proposing release \14\ in significant respects. These
modifications are being made in response to comments we received on the
proposals.\15\ The following is a list of the most important changes
from the proposals:
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\14\ See the proposing release, supra note 8. Similar exemptions
were originally proposed in International Tender and Exchange
Offers, Securities Act Release No. 6897 (June 5, 1991) (56 FR 27582)
and Cross-Border Rights Offers, Securities Act Release No. 6896
(June 4, 1991) (56 FR 27564).
\15\ We received 19 letters of comment on the 1998 proposals.
Those letters can be obtained for public inspection and copying by
requesting File No. S7-29-98 through our public reference room in
Washington DC. Electronically submitted comments are available on
our Internet web site (http:/www.sec.gov).
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Offerors may offer cash to U.S. persons and securities to
non-U.S. persons in a Tier I tender offer without violating the equal
treatment requirements of that exemption.
The Tier II exemption has been revised to harmonize it
with the amendments to the tender offer rules (``Regulation M-A'') that
also are being adopted today in a separate release.\16\
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\16\ Regulation M--A Release, supra note 6.
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The U.S. ownership limitations for the exemptions from the
Securities Act registration requirements for exchange offers, business
combinations and rights offerings have been increased from five to 10
percent.
Securities held by all persons owning 10 percent or more
of the outstanding securities, as well as the securities held by the
offeror, are excluded from the calculation of the percentage of the
class held by U.S. owners, rather than securities owned by just foreign
10 percent holders, as proposed.
Securities purchased in a rights offering conducted under
Rule 801 will only be restricted to the extent that the securities held
by the U.S. holder at the time of the offering were restricted.
We have modified the method of determining U.S. ownership.
An offeror must ``look through'' the record ownership of certain
brokers, dealers, banks or nominees holding securities of the subject
company for the accounts of their customers to determine the percentage
of the securities held in nominee accounts that have U.S. addresses. We
are adopting, with minor
[[Page 61384]]
changes, the proposal that a third-party bidder in an unsolicited or
``hostile'' tender offer may rely upon a presumption that the U.S.
ownership percentage limitations of the Tier I, Tier II and Rule 802
exemptions are not exceeded based on the relative level of trading
volume in the United States. We are not adopting the proposed
rebuttable presumption that persons holding through ADR facilities are
U.S. holders.
In order to provide a level playing field in the case of
competing offers, we have provided that if an offeror commences a
tender offer or a business combination during an ongoing tender offer
or business combination for securities of the same class that is the
subject of its offer, the second offeror will be eligible to use the
same exemption (Tier I, Tier II, or Rule 802) as the prior offeror, so
long as all the conditions of the exemption, other than the limitation
on U.S. ownership, are satisfied by the second offeror. In light of
this change, we are not adopting the proposal that if an offeror
commences an offer during an ongoing tender or exchange offer for
securities of the same class that is the subject of its offer, the
offeror could calculate the percentage of subject securities held by
U.S. holders as of the same date used by the initial offeror.
We provide guidance regarding when bidders can provide
information on the Internet about offshore tender and exchange offers
without triggering U.S. requirements.
The Tier I and Tier II tender offer exemptions are
available if the subject company is a closed-end investment company
that is registered under the Investment Company Act of 1940 (the
``Investment Company Act'').\17\ As proposed, the Tier I and Tier II
tender offer exemptions would not have been available if the subject
company was any type of investment company registered or required to be
registered under the Investment Company Act.
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\17\ 15 U.S.C. 80a-1 et seq.
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The registration exemptions for rights offerings, business
combinations and exchange offers provided by Rules 801 and 802 are
available for securities issued by closed-end investment companies that
are registered under the Investment Company Act. As proposed, Rules 801
and 802 would not have been available for securities issued by any type
of investment company, whether foreign or domestic, that is registered
or required to be registered under the Investment Company Act.
II. Discussion
A. The Tier I Exemption
Under the Tier I exemption adopted today, eligible issuer and
third-party tender offers will not be subject to Rules 13e-3, 13e-4,
Regulation 14D or Rules 14e-1 and 14e-2. These provisions contain
disclosure, filing, dissemination, minimum offering period, withdrawal
rights and proration requirements that are intended to provide security
holders with equal treatment and adequate time and information to make
a decision whether to tender into the offer. The Tier I exemption
provides that tender offers for the securities of foreign private
issuers are exempt from these U.S. tender offer requirements, so long
as:
U.S. security holders hold 10 percent or less of the
class of securities sought in the tender offer;
In the case of an offer that otherwise would be subject
to Rule 13e-4 or Regulation 14D under the Exchange Act, bidders
submit, rather than file, an English language translation of the
offering materials to the Commission under cover of Form CB and, in
the case of a foreign offeror, file a consent to service on Form F-
X;
U.S. security holders participate in the offer on terms
at least as favorable as those offered to any other holders; and
Bidders provide U.S. security holders with the tender
offer circular or other offering documents, in English, on a
comparable basis to that provided to other security holders.
The exemption is available to U.S. and foreign bidders. The domicile or
reporting status of the bidder is not relevant. Instead of complying
with the U.S. tender offer rules, a bidder taking advantage of the
exemption will comply with any applicable rules of the foreign subject
company's home jurisdiction or exchange.
1. U.S. Ownership Limitation
We are adopting, as proposed, 10 percent as the maximum level of
ownership by U.S. security holders that a subject company can have and
be eligible for the Tier I exemption.\18\ Under the proposals, we
solicited comment on whether to increase the 10 percent limitation for
U.S. ownership to 15 or 20 percent. Commenters on the proposals largely
favored adopting a higher eligibility percentage. We have decided,
however, that 10 percent is an appropriate level of U.S. ownership for
exclusive reliance on home jurisdiction requirements. At and below that
level of U.S. ownership, broad-based exemptions are necessary to
encourage inclusion of U.S. security holders.\19\ We believe that U.S.
holders' interests are best served by being able to participate in,
rather than being excluded from, the tender offer, even though they do
not receive the full protections of the U.S. tender offer rules. Above
the 10 percent level of U.S. ownership, more tailored relief of the
type permitted by the new Tier II exemption would address conflicting
regulatory mandates and offering practices.
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\18\ See Section II.F. infra for a discussion of how U.S.
ownership is determined.
\19\ See the proposing release, supra note 8, at note 15.
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We also believe that it is appropriate to set the Tier I and
Securities Act registration exemption limit on U.S. ownership at the
same percentage to level the playing field for stock and cash tender
offers. As discussed below, we have decided to raise the ownership
level for the Securities Act exemption from five to 10 percent. As a
result, an exchange offer would be exempt both from the tender offer
and Securities Act registration requirements if U.S. security holders
hold 10 percent or less of the subject company's securities.
In order to provide a level playing field in the case of competing
offers, we also believe it is appropriate to provide that if a bidder
commences a tender offer or a business combination during an ongoing
tender offer or business combination for securities of the same class
that is the subject of its offer, the second bidder will be eligible to
use the same exemption (Tier I, Tier II, or Rule 802) as the prior
offeror provided that all the conditions of the exemption, other than
the limitation on U.S. ownership, are satisfied by the second bidder.
Thus, if the initial bidder relies on the Tier I exemption to make a
tender offer, a subsequent competing bidder would not be subject to the
10 percent ownership limitation condition of the Tier I exemption. As a
result, the second bidder will not be disadvantaged by any movement of
securities into the United States following the announcement of the
initial offer.
Neither the Tier I nor the Tier II tender offer exemption is
available for any transaction or series of transactions that
technically complies with the exemption but is part of a plan or scheme
to evade the tender offer provisions of the Exchange Act.\20\ For
example, if an initial offer is commenced solely as a pretext for
making a subsequent offer automatically eligible for the exemption, the
Tier I exemption would not be available.
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\20\ See Instruction 4 to paragraphs (h)(8) and (i) to revised
Rule 13e-4 and Instruction 5 to paragraphs (c) and (d) of revised
Rule 14d-1.
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[[Page 61385]]
2. Disclosure and Dissemination--Form CB
We are adopting, as proposed, the requirement that a bidder or
issuer relying on the Tier I exemption submit any offering materials
prepared under foreign law to the Commission for notice purposes only,
under cover of Form CB.\21\
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\21\ The subject company, or any officer, director or other
person who otherwise would have an obligation to file a Schedule
14D-9, may satisfy that obligation by submitting the recommendation
to the Commission on Form CB.
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The requirement to submit a Form CB only applies if the tender
offer would have been subject to Regulation 14D or Rule 13e-4, but for
the Tier I exemption. If the tender offer would have been subject only
to section 14(e) and Regulation 14E, the offering document and any
recommendation do not need to be submitted to the Commission because
the current regulations do not require a filing in connection with
those offers.\22\ The materials submitted under cover of Form CB will
not be deemed filed with the Commission. Therefore, the person
submitting the materials will not be subject to the express liability
provisions of Section 18 of the Exchange Act.\23\
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\22\ Financial statements submitted under cover of new Form CB
that comply with the accounting requirements of the filer's home
jurisdiction need not be reconciled to U.S. generally accepted
accounting principles, regardless of whether the Form CB is
submitted in connection with a Tier I exempt offer or under new Rule
801 or 802.
\23\ 15 U.S.C. 78r.
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Form CB must be received by the Commission no later than the next
business day after the publication or dissemination of the offering
circular or disclosure document being filed under cover of Form CB.
Thus, filing persons will have one extra day from the date the offering
circular or disclosure document is first published, sent or given to
security holders to submit the offering circular or disclosure document
to the Commission. If the bidder is a foreign company, it must also
file a Form F-X with the Commission at the same time as the submission
of the Form CB to appoint an agent for service in the United States.
Form F-X, which was adopted in 1991, has been modified to reflect its
use in connection with the submission of a Form CB.
A number of commenters argued that Forms CB and F-X would be too
burdensome and would discourage offerors from relying on the
exemptions. We believe, however, that our interest in monitoring the
availability of the exemptions and ensuring that U.S. security holders
have access to these documents through their public availability and
meaningful recourse for fraudulent statements in the documents justify
the minimal burdens of preparing these forms. We will not require the
payment of a filing fee with the submission of a Form CB or the filing
of a Form F-X.
We are adopting, as proposed, the requirement that offerors
disseminate any tender offer circular or other informational document
to U.S. security holders in English on a comparable basis to that
provided to security holders in the foreign subject company's home
jurisdiction. If the foreign subject company's home jurisdiction
permits dissemination solely by publication, the offeror likewise will
publish the offering materials simultaneously in the United States,
although it may in addition mail the materials directly to U.S.
holders. If the materials are disseminated by publication, the offeror
must publish the materials in a manner reasonably calculated to inform
U.S. investors of the offer.\24\
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\24\ Cf. Exchange Act Rule 14d-4(b) [17 CFR 240.14d-4(b)].
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3. Equal Treatment
Offerors relying on the Tier I exemption must permit U.S. security
holders to participate in the offer on terms at least as favorable as
those offered to any other holders of the subject securities, subject
to certain exceptions for exchange offers, as discussed below. In
addition, equal treatment requires that the procedural terms of the
tender offer, that is, duration, pro rationing, and withdrawal rights,
must be the same for all security holders.\25\
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\25\ The fact that a foreign security trades in the United
States in the form of an American Depositary Receipt (ADR), and the
ADR depositary requires holders to provide it with instructions to
tender into the offer a reasonable time before the close of the
offer, or imposes fees in connection with the tender, would not
contravene this condition.
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a. Cash Alternative
The proposals would have required as a condition to the Tier I
exemption that U.S. security holders be offered the same amount and
form of payment, including securities if offered elsewhere. We
solicited comments on whether the exemption should permit U.S. security
holders to be offered only cash, even if non-U.S. security holders are
offered consideration consisting at least partly of securities.
Commenters generally believed that we should permit cash-only
consideration to be paid to U.S. security holders to avoid the
exclusion of U.S. security holders from cross-border tender offers. We
agree. As adopted, U.S. holders may be offered only cash, but the
bidder must have a reasonable basis to believe that the cash is
substantially equivalent to the value of the securities and any cash or
other consideration offered to non-U.S. holders.\26\
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\26\ Revised Rules 13e-4(h)(8)(ii)(C) and 14d-1(c)(iii). The
determination should be made at the commencement of the offer. The
amount of cash consideration must be adjusted during the term of the
offer only if the bidder no longer has a reasonable basis to believe
the cash is substantially equivalent to the value of the securities
offered to non-U.S. holders, for example, if the bidder increase the
offer price.
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To assure that U.S. security holders receive substantially
equivalent value for their securities, if the offered security is not a
``margin security'' within the meaning of Regulation T,\27\ the offeror
must provide upon the request of the Commission or a U.S. security
holder an opinion from an independent expert stating that the cash-only
consideration is substantially equivalent to the securities and any
cash offered outside the United States.\28\ If the offered security is
a ``margin security'' within the meaning of Regulation T, an opinion
would not be required.\29\ Instead, the offeror must undertake to
provide any U.S. holder or the Commission staff upon request
information on recent trading prices of the offeror's securities.
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\27\ (12 CFR 220.2). The definition of a ``margin security'' in
Regulation T, which is issued by the Board of Governors of the
Federal Reserve System pursuant to the Exchange Act, inlcudes
``foreign margin stock.'' Foreign margin stock'' comprises both
securities on the Federal Reserve Board's List of Foreign Margin
Stocks and those deemed to have a ``ready market'' for net capital
purposes under Rule 15c3-1 (17 CFR 240.15c3-1) under the Exchange
Act. All stocks that appear on the Financial Times/Standard & Poor's
World Actuaries Indices (FR/S&P Indices) are effectively treated as
having a ``ready market'' for net capital purposes. See Securities
Credit Transactions; Borrowing by Brokers and Dealers, 63 FR 2806
(January 16, 1998) at II.B.2.
\28\ The opinion would address only the relative values of the
cash and non-cash consideration offered to investors for the subject
securities. The opinion would not need to address the fairness of
either form of consideration in relation to the value of the subject
securities.
\29\ We believe that securities that are ``margin securities''
under Regulation T would be sufficiently liquid so that a U.S.
investor should be able to ascertain the market value of the offered
securities.
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The American Bar Association objected to requiring a valuation
opinion because it would raise significantly the cost to issuers and
bidders and consequently discourage them from including U.S. security
holders in a tender offer.\30\ We believe, however, that an offeror
seeking to use this exception to avoid issuing securities to U.S.
holders would not find this requirement excessively burdensome,
particularly when the
[[Page 61386]]
opinion is required only when the offered security is not a ``margin
security'' within the meaning of Regulation T. On the other hand, an
independent opinion would provide reasonable assurance that U.S.
security holders are receiving equivalent value to that offered to non-
U.S. holders.
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\30\ See comment letter dated March 2, 1999, supra note 15.
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In many cases, foreign jurisdictions will not allow the bidder to
offer U.S. holders cash when that option is not provided in all other
jurisdictions. In addition, the bidder may not have sufficient cash to
fund such an offer. Some bidders have used a ``vendor placement,'' in
which U.S. holders agree to appoint an independent agent to receive the
securities offered in an exchange offer and sell them immediately into
an existing offshore trading market for those securities. The agent
would then remit the proceeds, minus expenses, to the U.S. holders. The
staff has granted no-action relief under the Securities Act
registration requirements and the equal treatment requirement of Rule
14d-10 to qualifying vendor placements.\31\ That procedure will
continue to be available under appropriate circumstances.
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\31\ See the staff no-action letters TABCORP Holdings Limited
(Aug. 27, 1999), Durban Roodepoot Deep, Limited (Feb 23, 1999), and
AMP Limited (Sept. 17, 1998).
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b. Blue Sky Exemption
If the offeror has determined to offer securities to all U.S.
holders on the basis of the new Rule 802 exemption, the offeror may
exclude subject company security holders residing in any state that
does not provide an exemption from registration or qualification under
the state blue sky law. Similarly, if the offeror registers securities
under the Securities Act, the offeror may exclude subject company
security holders residing in any state that refuses to register or
qualify the offer and sale of securities in that state after a good
faith effort by the offeror.
In both cases, however, the offeror must offer those security
holders cash consideration instead of excluding them, if it has offered
cash consideration to security holders in another state or in a
jurisdiction outside the United States. The offeror must offer the cash
consideration only if it is offering a cash-only alternative
consideration--not merely a partial cash/partial securities form of
consideration.
c. Loan Notes
Finally, we are adopting, as proposed, the exception to the equal
treatment requirement providing that the offeror does not need to offer
a ``loan note'' alternative to U.S. security holders. Loan notes,
common in the United Kingdom, are short-term notes that may be redeemed
in whole or in part for cash at par on any interest date in the future.
The purpose of the loan notes is the deferral of the recognition of
income and capital gains on the sale of securities under foreign tax
laws. Since this tax benefit is not available to U.S. security holders,
a bidder would not need to offer loan notes to U.S. security holders.
4. Rule 13e-3 Exemption
We are adopting, as proposed, the exemption from the Commission's
going private disclosure requirements under Rule 13e-3 for transactions
eligible for the Tier I exemption. Rule 13e-3 mandates the filing of a
Schedule 13E-3.
Schedule 13E-3 requires disclosure about the fairness to unaffiliated
security holders of the transaction that may cause an equity security
to lose its public trading market. As we noted in the proposing
release, we believe this exemption is appropriate because it may not be
practical to impose Rule 13e-3 procedural, disclosure and filing
requirements when there are no other U.S. requirements, including
dissemination and disclosure requirements. Rule 13e-3 will continue to
apply to offers subject to the Tier II exemptions.
5. Sections 13(d), 13(f) and 13(g)
The rules adopted today would not affect the beneficial ownership
reporting requirements of Sections 13(d), 13(f) and 13(g) of the
Exchange Act.\32\ We solicited comment on whether those provisions
should apply to non-U.S. persons owning securities in foreign private
issuers. We also solicited comment on whether these rules should apply
only if U.S. ownership exceeded a certain percentage. Two commenters
believed that these rules should not apply where the security holder
bought the shares of a foreign private issuer on a foreign market.
These commenters pointed to evidence of uneven compliance with those
requirements in that situation as evidence that the scope of the
Exchange Act's beneficial ownership disclosure requirements are not
widely understood outside the United States. The American Bar
Association, on the other hand, submitted a comment letter that urged
that the beneficial ownership reporting requirements continue to apply.
The ABA did not believe that the application of these requirements to
offshore purchases of foreign securities presents a serious compliance
problem or that the current approach is an impediment to cross-border
transactions.\33\
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\32\ 15 U.S.C. 78m(d), 78m(g), and 78m(f).
\33\ Supra note 30.
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We believe that the need for disclosure of the ownership and
control of reporting companies trading in our markets, domestic and
foreign, justifies any burdens related to filing reports under those
rules.
B. The Tier II Exemption
Commenters generally supported the proposed scope and conditions of
the Tier II exemption, under which offerors would be entitled to
limited relief from the U.S. tender offer rules to minimize conflicts
with foreign regulatory schemes. This relief will be available for both
issuer and third party tender offers when the subject company is a
foreign private issuer and U.S. ownership is no greater than 40
percent. The offeror must comply with the remaining tender offer
provisions, including the procedural, disclosure, and filing
requirements of the Williams Act. Because the offeror would file a
Schedule TO,\34\ a Form CB or F-X is not required. We are adopting the
Tier II exemption with some modifications from the 1998 proposals,
because some of the relief contained in the 1998 proposals is no longer
necessary due to the amendments adopted today in the Regulation M-A
Release.
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\34\ Schedules 13E-4 and 14D-1, the schedules previously used
for issuer and third-party tender offers, respectively, have been
combined into new Schedule TO in the Regulation M-A Release, supra
note 6.
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First, as with Tier I, in order to provide a level playing field in
the case of competing offers, if the initial offeror relies on the Tier
II exemption to make a tender offer, a subsequent competing bidder
would not be subject to the 40 percent ownership limitation condition
of the Tier II exemption.
Second, the proposal that a cross-border tender offer would
commence only upon mailing or publishing the offer rather than upon
announcement is no longer necessary. In the Regulation M-A Release, we
have repealed the requirement that a cash tender offer commence or be
withdrawn within five business days of announcement. Instead, an offer
commences once the bidder disseminates transmittal forms or discloses
instructions on how to tender into an offer.\35\ Only then is the
bidder required to file the Schedule TO. Therefore, separate relief for
foreign offers is not necessary.
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\35\ Revised Rule 14d-2.
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Third, the proposal that a bidder could terminate withdrawal rights
in a cross-border tender offer once all
[[Page 61387]]
conditions were satisfied and keep the offer open for acceptances only
is also not necessary. The Regulation M-A Release adopted a similar
proposal to allow third-party bidders to provide at their election for
a ``subsequent offering period'' without withdrawal rights and made it
applicable to both domestic and foreign transactions.\36\ Regulation M-
A provides, in part, that bidders that include a subsequent offering
period must promptly pay for tendered securities and announce the
approximate number and percentage of outstanding securities that were
deposited by the close of the initial offering period no later than
9:00 a.m. Eastern time on the next business day after the scheduled
expiration date of the initial offering period and immediately begin
the subsequent offering period. We have clarified that bidders relying
on the Tier II exemption will satisfy the foregoing requirements if the
bidder pays for tendered securities and makes the announcement in
accordance with the law or practice of the bidder's home jurisdiction
and the subsequent offering period commences immediately following such
announcement.\37\ The bidder would not have to extend withdrawal rights
during the period between the close of the offer and the commencement
of the subsequent offering period. Otherwise, separate relief for
foreign offers is not necessary.
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\36\ The text of new Rule 14d-11 is contained in the Regulation
M-A Release, supra note 6.
\37\ Revised Rule 14d-1(d)(2)(v).
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We are adopting the Tier II provisions relating to the All-Holders/
Best Price provisions,\38\ notice of extensions,\39\ prompt
payment,\40\ and the interpretation regarding a waiver or reduction of
minimum conditions as proposed. Under our interpretation on changes to
the minimum condition, we will not object if bidders meeting the
requirements for the Tier II exemption reduce or waive the minimum
acceptance condition without extending withdrawal rights during the
remainder of the offer (unless an extension is required by Rule 14e-1),
if the following conditions are met:
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\38\ Revised Rules 13e-4(i)(2)(i), 13e-4(i)(2)(ii), 14d-
1(d)(2)(i), and 14d-1(d)(2)(ii). A bidder may make one offer to U.S.
holders and another only to non-U.S. holders if the offer to U.S.
holders is made on terms at least as favorable as those offered any
other holder of the same class of securities that is the subject of
the tender offers. A bidder may also offer loan notes solely to non-
U.S. holders.
The exception to the equal treatment condition of the Tier I
exemption for cash only consideration adopted today would not apply
to Tier II offers. The staff will continue to consider requests for
that type of relief on a case-by-case basis. See Amendments to
Tender Offer Rules: All-Holders and Best-Price, Exchange Act Release
No. 23421 (July 7, 1986), [51 FR 25973] at Section III.B.3.
Likewise, vendor placement arrangements will be considered on a
case-by-case basis.
\39\ Revised Rules 13e-4(i)(2)(iii) and 14d-1(d)(2)(iii) (Notice
of extensions may be made in accordance with the requirements of the
home jurisdiction law or practice).
\40\ Revised Rules 13e-4(i)( 2)(iv) and 14d-1(d)(2)(iv) (Payment
made in accordance with the requirements of the home jurisdiction
law or practice will satisfy the prompt payment requirements of Rule
14e-1(c)).
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The bidder must announce that it may reduce the minimum
condition five business days prior to the time that it reduces the
condition. A statement at the commencement of the offer that the
bidder may reduce the minimum condition is insufficient;
The bidder must disseminate this announcement through a
press release and other methods reasonably designed to inform U.S.
security holders, which could include placing an advertisement in a
newspaper of national circulation in the United States;
The press release must state the exact percentage to
which the acceptance condition may be reduced and state that a
reduction is possible. The bidder must declare its actual intentions
once it is required to do so under the regulations of the home
jurisdiction;
During this five-day period, security holders who have
tendered their shares in the offer will have withdrawal rights;
This announcement must contain language advising
security holders to withdraw their tenders immediately if their
willingness to tender into the offer would be affected by a
reduction of the minimum acceptance condition;
The procedure for reducing the minimum condition must
be described in the offering document; and
The bidder must hold the offer open for acceptances for
at least five business days after the revision or waiver of the
minimum acceptance condition.
Apparently because the Tier II proposals were codifications of
exemptive and interpretive positions that we currently apply in cross-
border acquisitions, they did not result in significant comment. To the
extent that an offeror needs additional relief from that provided in
Tier II, the staff, pursuant to delegated authority, will consider
applications for exemptions on a case-by-case basis.\41\
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\41\ The offeror would need to submit a written application
requesting relief, along with a discussion of the basis for the
request. If the request relates to an issuer tender offer, the
request should be directed to the Office of Risk Management and
Control in the Commission's Division of Market Regulation and the
Office of Mergers and Acquisitions in the Commission's Division of
Corporation Finance. If the request relates to a third party tender
offer, the request should be directed to the Office of Mergers and
Acquisitions.
The application must comply with the requirements of Rule 0-12
under the Exchange Act. When U.S. ownership is greater than 40
percent, the staff will consider relief on a case-by-case basis only
when there is a direct conflict between the U.S. laws and practice
and those of the home jurisdiction. Any relief would be limited to
what is necessary to accommodate conflicts between the regulatory
schemes and practices.
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C. Other Rules Governing Tender Offers
1. Rule 14e-5 (Former Rule 10b-13)
We are adopting two new exceptions to new Rule 14e-5. In the
proposing release, we proposed to amend then Rule 10b-13 under the
Exchange Act to facilitate the inclusion of U.S. security holders in
tender offers for foreign securities by adding two exceptions for
cross-border offers.\42\ We are adopting both of the proposed
exceptions, the exception for Tier I offers and the exception to permit
``connected exempt market makers'' and ``connected exempt principal
traders,'' as defined by the U.K. City Code on Takeovers and Mergers
(City Code),\43\ to continue their U.K. market making activities during
cross-border offers that are subject to the City Code.
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\42\ After a comprehensive review of Rule 10b-13, including its
application in the context of offers for U.S. issuers, we revised
Rule 10b-13 and redesignated it as new Rule 14e-5. The text of the
new rule is found in the Regulation M-A Release, supra note 6.
\43\ The City Code on Takeovers and Mergers and the Rules
Governing Substantial Acquisition of Shares (Fifth Edition, Dec. 12,
1996). The City Code states general principles for the regulation of
takeovers conducted in the United Kingdom and the Republic of
Ireland.
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Rule 14e-5 prohibits, in connection with a tender offer for equity
securities, a covered person from purchasing or arranging to purchase
any subject securities or any related securities except as part of the
tender offer. The rule protects investors by preventing an offeror from
extending greater or different consideration to some security holders
by offering to purchase their shares outside the offer, while other
security holders are limited to the offer's terms. The rule applies to:
The offeror and its affiliates; the offeror's dealer-manager and its
affiliates; any advisor to the offeror, dealer-manager or their
affiliates, whose compensation is dependent on the completion of the
offer; and any person acting, directly or indirectly, in concert with
any of the other covered persons in connection with any purchase or
arrangement to purchase any subject securities or any related
securities.
Many foreign jurisdictions do not expressly prohibit an offeror
from purchasing or arranging to purchase the subject security outside
the terms of the offer. As noted in the proposing release, a strict
application of Rule 14e-5 in some cases could disadvantage U.S.
security holders where the offeror decides not to extend the offer in
the United States because of the rule's restrictions. In that
circumstance,
[[Page 61388]]
flexible application of Rule 14e-5 is necessary and appropriate to
encourage offerors for the securities of foreign private issuers to
extend their offers to U.S. security holders. We believe the two
exceptions we are adopting strike the proper balance between the
investor protection goals of Rule 14e-5 and the interests of U.S.
investors in being included in tender offers.
a. Tier I Offers
We are adopting, substantially as proposed, an exception for
purchases or arrangements to purchase made outside, but during the time
of, a Tier I tender offer. For tender offers that are substantially
foreign in character, such as Tier I offers, we suggested in the
proposing release that allowing U.S. security holders to participate in
these offers outweighs the benefits derived from applying Rule 14e-5 to
such offers. Commenters agreed with this evaluation.
This exception is based primarily on a number of exemptions from
Rule 10b-13 to accommodate cross-border tender offers. This limited
exception for Tier I tender offers largely represents a codification of
the conditions contained in the exemptions previously granted by the
Commission. The exception, however, being limited to Tier I offers,
only extends to offers where U.S. persons hold of record 10 percent or
less of the class of securities sought in the offer.
The exception requires that: The tender offer is an excepted Tier I
offer; \44\ the offering documents furnished to U.S. holders
prominently disclose the possibility of any purchases, or arrangements
to purchase, or the intent to make such purchases; the offering
documents disclose the manner in which any information about any such
purchases or arrangements to purchase will be disclosed; the offeror
discloses information in the United States about any such purchases or
arrangements to purchase in a manner comparable to the disclosure made
in the home jurisdiction, as defined in Sec. 240.13e-4(i)(3); and the
purchases comply with the applicable tender offer laws and regulations
of the home jurisdiction. Although not proposed, we are including a
requirement that the offering documents disclose the manner in which
any information about any such purchases or arrangements to purchase
will be disclosed. This additional requirement ensures that security
holders will know how to obtain the information that this exception
requires to be disclosed.
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\44\ Excepted by either revised Rule 13e-4(h)(8) or revised Rule
14d-1(c).
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Consistent with the proposed rule, we are not limiting the
exception to purchases that are made outside the United States. Under
the new exception for Tier I offers, offerors may purchase subject
securities, subject to the conditions noted above, in transactions in
the United States that otherwise would be prohibited under Rule 14e-
5.\45\ Under the requirement that the offeror disclose information in
the United States about any such purchases or arrangements to purchase
in a manner comparable to the disclosure made in the home jurisdiction,
we expect that such disclosure will be provided in English.
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\45\ Of course, broker-dealers that solicit tenders from U.S.
persons would be required to register as broker-dealers under
Section 15 of the Exchange Act (15 U.S.C. 78o), absent an available
exemption.
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We did not propose, and we are not adopting, an exception to Rule
14e-5 for Tier II offers because of the greater U.S. interest in those
offers. Despite comments to the contrary, we believe that we should
continue to review requests for relief from Rule 14e-5 for offers other
than Tier I eligible offers on a case-by-case basis. In that context,
we will consider factors such as proportional ownership of U.S.
security holders of the subject security in relation to the total
number of shares outstanding and to the public float; whether the offer
will be for ``any-and-all'' shares or will involve prorationing;
whether the offered consideration will be cash or securities; whether
the offer will be subject to a foreign jurisdiction's laws, rules, or
principles governing the conduct of tender offers that provide
protections comparable to Rule 14e-5; and whether the principal trading
market for the subject security is outside the United States.\46\
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\46\ As noted in the proposing release, this approach would
comport with the Commission's action in a recent cross-border offer
involving a U.K. target company with substantial U.S. ownership. See
proposing release, supra note 8, at n. 92 and accompanying text.
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In our view, this exception will simplify the procedural
requirements for foreign tender offers and further promote the
extension of such offers to U.S. security holders, without compromising
the investor protections of the rule.
b. Market Making by ``Connected Exempt Market Makers'' and ``Connected
Exempt Principal Traders''
We are adopting the exception for ``connected exempt market
makers'' and ``connected exempt principal traders'' \47\ as proposed.
Based upon our experience with U.K. regulatory requirements for tender
offers, we recognize that there is sufficient regulatory oversight of
purchases by connected exempt market makers and connected exempt
principal traders in the United Kingdom to permit them an exception.
Commenters supported this exception.
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\47\ Under the City Code, connected exempt market makers and
connected exempt principal traders are market makers or principal
traders that are affiliated with the bidder's advisors (Eligible
Traders).
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The exception permits purchases or arrangements to purchase if: The
purchase or arrangement to purchase is effected by a connected exempt
market maker or a connected exempt principal trader, as those terms are
used in the City Code; the issuer of the subject security is a foreign
private issuer; the tender offer is subject to the City Code; the
connected exempt market maker or the connected exempt principal trader
complies with the applicable provisions of the City Code; and the
tender offer documents disclose the identity of the connected exempt
market maker or the connected exempt principal trader and disclose, or
describe how U.S. security holders can obtain information regarding
market making or principal purchases by such market maker or principal
trader to the extent that this information is required to be made
public in the United Kingdom.\48\
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\48\ This exception is based on a limited class exemption under
Rule 10b-13 to permit ``connected exempt market makers'' and
``connected exempt principal traders'' to continue their U.K. market
making activities during a cross-border offer that is subject to the
City Code. See Exemption under Rule 10b-13 for Certain Principal
Trading and Market Making Activities dated June 29, 1998 (Eligible
Trader Class Exemption). Without Rule 10b-13 relief, Eligible
Traders would have been forced to withdraw from trading in U.K.
target securities, with possible adverse consequences for the
liquidity of those securities. This limited class exemption
recognized the information barrier and other requirements contained
in the City Code that Eligible Traders must satisfy to be exempt
from the City Code's ``acting in concert'' provisions. This
exemption required the Eligible Trader to comply with specified
disclosure and recordkeeping requirements, and the Eligible Trader
is prohibited from making purchases in the United States, which are
consistent with conditions contained in other Rule 10b-13 exemptions
granted in the cross-border context.
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As was proposed, this exception is not limited to Tier I tender
offers. The exception applies to offerors or anyone acting on behalf of
offerors (such as advisors and other nominees or brokers).
2. Regulation M
We are not changing Regulation M in this release. We did not
propose any changes to Regulation M for cross-border exchange offers,
whether qualifying for the registration exemption under Rule 802 or the
Tier I or Tier II exceptions from the U.S. tender offer
[[Page 61389]]
provisions, or for cross-border rights offerings qualifying for the
registration exception under proposed Rule 801. In the proposing
release, we asked whether exemptions from various rules under
Regulation M are necessary to accommodate cross-border rights offerings
or exchange offers conducted pursuant to Rules 801 or 802. Several
commenters thought that an exception from Regulation M is appropriate
in such instances.
We still are uncertain whether such changes are necessary despite
the comments because there continues to be a lack of requests for
relief in these contexts. We still believe we should evaluate the need
for exemptions from Regulation M after we gain experience with the
Regulation's operation in the context of those offerings. We will,
however, carefully consider commenters' suggestions for an exception
from Regulation M, and determine if we should propose such an
exception.
D. Exemption From the Securities Act for Exchange Offers, Business
Combinations, and Rights Offerings
1. Summary
The rules adopted today also provide exemptions from Securities Act
registration requirements for securities issued to U.S. security
holders of a foreign private issuer in exchange offers, business
combinations, and rights offerings. These exemptions are being adopted
as Rule 801 for rights offerings and Rule 802 for business combinations
and exchange offers. Rule 800 provides common definitions for both
rules. The exemptions are available only if the subject company (or the
issuer in an issuer tender offer or rights offering) is a foreign
private issuer and U.S. security holders hold no more than 10 percent
of the subject securities.\49\
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\49\ As we stated in the proposing release, the exemptions
adopted today under new Rules 801 and 802 are non-exclusive. An
issuer making an offering in reliance on either of the rules may
claim any other available exemption under the Securities Act.
Securities issued under new Rules 801 or 802 would not be integrated
with any other exempt offerings by the issuer. General Notes 5-7 to
new Rules 800, 801, and 802.
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The exemptions are not available for any transaction or series of
transactions that technically complies with the exemptions but is part
of a plan or scheme to evade the registration provisions of the
Securities Act.\50\ For example, if the exchange offer or rights
offering is a sham conducted solely as a pretext for distributing
securities in the United States, the exemptions would not be
available.\51\
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\50\ See General Note 2 to new Rules 800, 801, and 802.
\51\ Therefore, a foreign company could not, for example,
conduct a rights offering under Rule 801 that is targeted at the
U.S. holders. If the offeror does not have a bona fide expectation
that non-U.S. holders would participate in the offering to a similar
extent as U.S. holders, the pro rata nature of the offering would be
a sham. Another example would be when an initial offer is commenced
solely as a pretext for making a subsequent offer automatically
eligible for the exemptions.
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2. Eligibility Conditions
a. U.S. Ownership Limitation
As adopted, exchange offers, business combinations, and rights
offerings will be exempt from registration under the Securities Act if
U.S. security holders own 10 percent or less of the foreign private
issuer's securities that are the subject of the offer. Based on the
suggestions of commenters, we have increased the U.S. ownership limit
from five to 10 percent. When U.S. security holders own 10 percent or
less of the issuer, U.S. participation is generally not necessary for
the success of the offering. Therefore, it is quite common for offerors
to exclude U.S. security holders below this level.\52\ Commenters
unanimously indicated that an increase was necessary to facilitate
including U.S. persons in these transactions. Commenters' suggestions
ranged from 10 to 30 percent.
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\52\ See note 8, supra.
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We do not believe it is necessary to increase the level above 10
percent for exchange offers. It is common for offerors to include U.S.
security holders above that level, since they are usually necessary for
the success of the offer.\53\ Because a rights offering may be used as
a financing device, we considered keeping the threshold for rights
offerings at five percent. However, exclusion of U.S. holders in rights
offerings is common even with much higher U.S. ownership levels.\54\
U.S. participation is rarely viewed as necessary for the success of the
offer, since from an issuer's viewpoint, the fewer shares sold to
existing security holders at a discount, the better. For that reason,
the goal of facilitating U.S. participation in foreign rights offerings
would be significantly undermined by the proposed lower U.S. ownership
ceiling of five percent. This is particularly true in light of our
decision to modify the method for calculation of U.S. holdings to make
the test reflect U.S. beneficial, rather than merely record, ownership.
However, we do not believe that the ownership threshold should be
increased above 10 percent for rights offerings because it is our view
that the benefits obtained by providing U.S. security holders with the
protections of the Securities Act at ownership levels above 10 percent
outweigh the benefits that would be obtained by raising the ownership
threshold in order to provide incentives for foreign private issuers to
include U.S. security holders above the 10 percent level.
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\53\ Although comprehensive statistics on transactions that
exclude U.S. investors is not available, a significant number of
transactions with greater than 10 percent U.S. ownership are
extended to U.S. holders. For example, U.S. holders owned more than
ten percent of the subject class of securities in 31 of the 54
requests for exemptive relief received by the Commission between
1990 and 1998.
\54\ Between 1994 and 1998, 78 rights offerings were made to
U.S. shareholders holding American or Global depositary receipts
held by the Bank of New York. In 30 of the rights offerings (39%),
U.S. shareholders were excluded entirely. In the remaining 48
offerings (61%), the Bank of New York sold the rights and provided
shareholders with the cash, after costs. A significant number of
these offerings had U.S. holders who held more than five percent of
the securities at issue. See the letter from Emmet, Marvin & Martin,
LLP dated February 17, 1999, supra note 15. Costs borne by U.S.
shareholders in these cases include transaction fees, ADR cash
distribution or issuance fees, and potential liquidity costs if the
foreign market is small.
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Some commenters suggested that we adopt an exemption from both the
Securities Act and tender offer provisions if the subject company has
less than 300 U.S. holders, regardless of the percentage of the foreign
private issuer's securities owned by those investors. We do not believe
that it is necessary or appropriate to exempt an offering of securities
to up to 300 U.S. investors from the Securities Act registration
requirements, in what may be a predominantly U.S. transaction, based
solely on the foreign status of the subject company. U.S. investors in
cross-border exchange offers should be provided with the protections of
Securities Act registration, unless application of those provisions
likely would result in the exclusion of U.S. holders from the
transaction. Where U.S. participation is not incidental to the
transaction, those requirements should continue to apply. With respect
to the tender offer provisions, offers involving less than 300 U.S.
holders are likely to be subject only to Regulation 14E, not the filing
and procedural requirements of Regulation 14D, and thus will not need
exemptive relief beyond that adopted today.
As with the tender offer exemptions, in order to provide a level
playing field in the case of competing offers, the rules adopted today
provide that if a bidder commences a tender offer or a business
combination during an ongoing tender offer or business combination made
[[Page 61390]]
pursuant to Rule 802 for securities of the same class subject to its
offer, the second bidder will be eligible to use Rule 802 so long as
all the conditions of the exemption, other than the limitation on U.S.
ownership, are satisfied. Thus if the initial bidder relies on the Rule
802 exemption to make a tender offer, a subsequent competing bidder
would not be subject to the 10 percent ownership limitation condition
of the Rule 802 exemption. We do not believe it appropriate to provide,
however, that if the initial bidder relied on the Tier I exemption but
did not also rely on the Rule 802 exemption, a subsequent competing
bidder may use the Rule 802 exemption without regard to the ownership
limitation condition. As a policy matter, when relief is not necessary
to ensure that competing offers are subject to the same regulatory
requirements, we believe it is more important to limit relief from the
Securities Act registration requirements to situations where it can be
verified that U.S. security holders own 10 percent or less of the
subject class of securities.\55\
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\55\ In this situation, the subsequent bidder commencing an
exchange offer or business combination will be entitled to calculate
the percentage of U.S. ownership 30 days before commencement of its
offer. See Section II.F.1. infra. Assuming that the subsequent offer
is commenced within 30 days of the announcement of the initial Tier
I offer, the subsequent bidder would not be disadvantaged by any
movement of securities into the United States following that
announcement when calculating the percentage of U.S. ownership of
the subject securities for purposes of eligibility under new Rule
802.
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b. Equal Treatment
The terms and conditions of the offer must be at least as favorable
for U.S. security holders as foreign holders. Rules 801 and 802 provide
exceptions to the equal treatment requirement similar to the Tier I
exemption with respect to state blue-sky requirements.
c. Transfer Restrictions
The new exemptions restrict the transferability of the securities
acquired in an exempt transaction. To the extent that the subject
securities are ``restricted securities'' under Rule 144 in the hands of
a U.S. investor prior to the Rule 801 or 802 transaction, securities
acquired by that investor in the Rule 801 or 802 transaction will be
``restricted securities.'' \56\ Conversely, if the securities that are
the subject of the transaction made pursuant to Rule 801 or 802 are
unrestricted, then securities acquired in the transaction will be
unrestricted. In the latter case, the securities would be freely
tradable by non-affiliate security holders, so long as they are not
participating in the offer under circumstances in which they could be
deemed statutory underwriters.\57\
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\56\ See General Note 8 to new Rules 800-802. Under Securities
Act Rule 144(d), the holding period for the restricted securities
issued in the Rule 801 or 802 transaction will depend on the nature
of the transaction. Investors in issuer exchange offers not
involving an additional cash investment will be able to ``tack'' the
holding period for the tendered restricted security to the holding
period for the new security, and thus would calculate the holding
period from the time it originally acquired the tendered security
from the issuer or an affiliate. The holding periods for restricted
securities received in a rights offering or third-party exchange
offer, however, would begin with the issuance of those securities in
the Rule 801 or 802 transaction.
\57\ See Section 2(a)(11) of the Securities Act, 15 U.S.C.
77b(11).
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In the case of a rights offering under Rule 801, the proportion of
restricted to unrestricted securities will be determined as of the
record date that determines the allocation of rights among security
holders. In the case of an exchange offer or business combination, the
proportion will be based upon the securities tendered or exchanged by
the holders.
We proposed this approach for transfer restrictions only with
respect to Rule 802 for exchange offers. In contrast, the Rule 801
exemption for rights offerings proposed in 1998 would have required
that all securities purchased upon the exercise of the rights be
restricted within the meaning of Rule 144. We are persuaded by the
large number of commenters who argued that it was not necessary to
require unaffiliated U.S. security holders to accept restricted
securities in rights offerings where they currently hold unrestricted
securities. However, we think it is appropriate to require that
security holders receive restricted securities in the transaction if
they held restricted securities before the transaction. Otherwise, a
rights offering or exchange offer could be used as a pretext for
creating a large pool of freely tradable securities in the hands of
investors who previously held only restricted securities. This
restriction, along with the requirement that the offer be made to all
holders on a pro rata basis, and that U.S. ownership in the subject
company's securities be limited to 10 percent, should minimize the
potential that Rules 801 and 802 will be misused as a means to conduct
illegal distributions in the United States. Moreover, securities issued
in a rights offering or exchange offer to affiliates of the issuer
would not be freely tradable.\58\
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\58\ Under Rule 144(e)(1) (17 CFR 230.144(e)(1)), affiliates of
the issuer are subject to volume restrictions on the resale of their
securities.
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d. Additional Requirements for Rights Offerings
Rule 801, as adopted today, is available only for rights offerings
of equity securities made on a pro rata basis to existing security
holders of the same class, including holders of ADRs evidencing those
securities. Under Rule 800, the term ``equity security'' does not
include convertible securities, warrants, rights, or options.\59\ Rule
801 is limited to the offer of securities of the same class of
securities as those held by the offerees, because the offerees already
have made the decision to invest in that class.
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\59\ New Rule 800(b).
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Rule 801 requires that the rights granted to U.S. security holders
not be transferable except offshore in accordance with Regulation
S.\60\ Certain commenters believed that restricting the transferability
of the rights would put U.S. security holders at a disadvantage to non-
U.S. security holders who could transfer the rights. However, we
believe this restriction is appropriate to assure that foreign private
issuers do not extend the offerings to new investors in the United
States and that a market not develop in the United States for the
rights without adequate disclosure regarding the issuer.
---------------------------------------------------------------------------
\60\ 17 CFR 230.901 through 230.905.
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e. Offeror Eligibility Requirements
As adopted, Rule 801 requires that the offeror be a foreign private
issuer. It does not impose any other offeror eligibility requirements.
Where U.S. participation is only incidental to the offering, no other
offeror eligibility criteria are necessary. Investors are already
familiar with the issuer and the security. The commenters concurred
that imposition of additional criteria would only diminish the
effectiveness of the exemption by narrowing its scope and causing U.S.
security holders to continue to be excluded.
As adopted, Rule 802 does not contain any limitations based on the
domicile or reporting status of the offeror. Any offeror can use Rule
802 regardless of whether it is a U.S. company or a foreign private
issuer and regardless of whether it is a reporting company. The subject
company, however, must be a foreign private issuer. Requiring a U.S.
bidder for the securities of a foreign subject company to register the
U.S. portion of an exchange offer would place the U.S. bidder,
particularly a non-reporting U.S. company, at a competitive
disadvantage to a foreign bidder for the same company. In the case of a
business combination where there is no surviving
[[Page 61391]]
acquiror and the issuer is the successor company to all participating
companies, all participants in the business combination must be foreign
private issuers.
Finally, neither Rule 801 nor 802 impose a dollar limitation on the
value of securities that may be sold to U.S. investors in an exempt
transaction. The American Bar Association commented that a dollar
limitation appears to be too arbitrary given the different sizes of
companies and the fluctuating market value of securities being
offered.\61\ We agree.
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\61\ Supra note 30.
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f. Informational Requirements
Rules 801 and 802 do not mandate that specific information be sent
to U.S. security holders. Instead, when any document, notice or other
information is provided to offerees, copies (translated into English)
must be provided to U.S. security holders in a similar manner. The
documents must include a legend regarding the foreign nature of the
transaction and the issuer's disclosure practices. The legend also must
state that investors may have difficulty in enforcing rights against
the issuer and its officers and directors. Some commenters noted that
imposing a requirement for a legend on the cover page was unnecessarily
burdensome and could discourage offerors from extending offers to U.S.
security holders.\62\ To address these concerns, the legend need not be
placed on the cover page; rather, it need only be placed in a prominent
position in the document.
---------------------------------------------------------------------------
\62\ See letter from Sullivan & Cromwell dated February 12,
1999, supra note 15 and the letter from the American Bar Association
dated March 2, 1999, supra note 30.
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Rules 801 and 802 both require that the offeror provide the notice
or offering document to U.S. security holders in English at the same
time it provides the information to offshore offerees. We proposed that
offerors be required to deliver rights offering materials to U.S.
investors, even if those materials were only published overseas. In
contrast, exchange offer materials would not be required to be
delivered if not delivered in the home jurisdiction. We are persuaded
by those commenters who indicated that offerors will not be inclined to
avail themselves of Rules 801 or 802 if burdensome documentation and
dissemination requirements are imposed by the U.S. rules and who were
of the view that U.S. security holders should be provided with
information on the same basis as that provided to offerees in other
jurisdictions. As noted above, exclusion of U.S. holders in rights
offerings is common even at high U.S. ownership levels. U.S.
participation is rarely viewed as necessary for the success of the
offer, and U.S. investors may thereby be deprived of the opportunity to
acquire shares at attractive prices, resulting in their positions being
diluted. Requiring the offeror to mail rights offering materials to
U.S. security holders might create an additional incentive for offerors
to exclude U.S. security holders from participating in the rights
offering. In order to encourage foreign private issuers to include U.S.
security holders in rights offerings, the rules adopted today provide
that for both rights offerings and exchange offers, the offeror must
disseminate any informational documents to U.S. holders, in English, on
at least a comparable basis to that provided to security holders in the
offeror's home jurisdiction. If the offeror disseminates by publication
in its home jurisdiction, the offeror must publish the information in
the United States in a manner reasonably calculated to inform U.S.
holders of the offer. Of course, the offeror may mail to U.S. security
holders in any event.
We are adopting, as proposed, the requirement that an offeror
submit a notification to the Commission on new Form CB. A foreign
company also must file a Form F-X at the same time it submits the Form
CB to appoint an agent for service of process in the United States. The
new form will include as an attachment a copy of any document, notice
or other information disseminated to U.S. offerees.
g. Trust Indenture Act Exemption
We are adopting, as proposed, a new rule under section 304(d) of
the Trust Indenture Act that would exempt any debt security issued
pursuant to Rule 802 under the Securities Act from having to comply
with the provisions of the Trust Indenture Act. Therefore, the rules
adopted today will permit offerors to offer debt securities in an
exchange offer or business combination without complying with the
provisions of the Trust Indenture Act. As one commenter noted, a
failure to provide relief under the Trust Indenture Act would
essentially undermine the usefulness of the other relief in the case of
debt securities.\63\ Accordingly, we believe that the benefits to be
obtained by U.S. investors by providing exemptions under the Trust
Indenture Act when debt securities are issued pursuant to a Rule 802
exemption justify not providing U.S. investors with the protections of
the Trust Indenture Act in these types of transactions.
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\63\ Id.
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E. Investment Companies
As proposed, Rules 801 and 802 would not have been available for
securities issued by an investment company, whether foreign or
domestic, that is registered or required to be registered under the
Investment Company Act. The proposal excluded foreign investment
companies from these exemptions because the Investment Company Act
generally prohibits foreign investment companies from publicly offering
their securities in the United States or to U.S. persons.\64\ Domestic
investment companies were excluded because, unlike other issuers,
investment companies that are registered or required to be registered
under the Investment Company Act generally must register the securities
that they offer or sell outside the United States.\65\ The proposing
release noted, however, that a closed-end investment company that is
registered under the Investment Company Act, like other non-investment
company issuers, may be able to rely on the safe harbor provided by
Regulation S under the Securities Act to issue securities abroad
without registering those securities under the Securities Act.\66\ We
requested comment whether Rule 802 should be available to registered
closed-end investment companies.
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\64\ See proposing release, supra note 8, at note 126 and
accompanying text.
\65\ See id. at note 127 and accompanying text.
\66\ See id. at note 127.
---------------------------------------------------------------------------
In response to commenters' suggestions, both Rules 801 and 802, as
adopted, are available for securities issued by closed-end investment
companies that are registered under the Investment Company Act. We
believe that this result is consistent with the Commission's previous
decision to permit closed-end investment companies to rely on the
Regulation S safe harbor to issue unregistered securities abroad.\67\
These rules, however, are not available to any other type of investment
company, whether foreign or domestic, that is registered or required to
be registered under the Investment Company Act.\68\
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\67\ See Offshore Offers and Sales, Securities Act Release No.
6863 (April 24, 1990) (55 FR 18306), at notes 151-53 and
accompanying text.
\68\ As explained in the proposing release, both foreign and
domestic issuers that are excepted from the definition of
``investment company'' under the Investment Company Act would be
permitted to use these exemptions, so long as reliance on the
exemptions is consistent with their unregistered status under the
Investment Company Act. See proposing release, supra note 8, at
notes 128-29 and accompanying text.
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[[Page 61392]]
As proposed, the Tier I and Tier II tender offer exemptions also
would not have been available if the subject company was an investment
company registered or required to be registered under the Investment
Company Act. As adopted these exemptions are available if the subject
company is a closed-end investment company registered under the
Investment Company Act.\69\ Consistent with the Commission's
application of Regulation S and the exemptions in Rules 801 and 802,
the Tier I and Tier II tender offer exemptions as adopted are available
if the subject company is a closed-end investment company registered
under the Investment Company Act.
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\69\ See supra note 67 and accompanying text. One commenter
suggested generally that these exemptions be made available whenever
the subject company is a foreign investment company. Because we have
not received any requests for relief in connection with a tender
offer for a foreign investment company, we have not expanded the
Tier I or Tier II exemptions to cover subject companies that are
foreign open-end investment companies.
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F. Determination of U.S. Ownership
1. Definition of U.S. Holder
Today's amendments revise the method for determining the amount of
securities held by U.S. holders from that included in the 1998
proposals. The amount owned by U.S. holders is important under both the
Tier I and II tender offer exemptions. It is also important in
determining the availability of the Securities Act exemptions under
Rules 801 and 802. Relief in each case is conditioned, at least in
part, on the percentage of the subject company's securities held by
U.S. security holders not exceeding a specified threshold.
The proposed approach was based on the definition of ``foreign
private issuer,'' \70\ which at the time was based solely on record,
not beneficial ownership. We recently amended that definition to
require companies claiming foreign private issuer status to look
through certain bank, broker-dealer and other nominees to determine the
residence of the nominee's client accounts.\71\ We likewise are
adopting that modified approach for the purpose of determining the
amount of securities held by U.S. holders under the new exemptive
rules. Like the revised foreign private issuer definition, the starting
point is Rule 12g3-2(a) under the Exchange Act.\72\ Rule 12g3-2(a)
follows the definition of ``securities held of record'' in Rule 12g5-1,
but requires the offeror to ``look through'' the record ownership of
brokers, dealers, banks or nominees appearing on the issuers' books or
those of transfer agents, depositaries, or others acting on the
issuer's behalf. If those record owners hold securities for the
accounts of customers, the issuer must determine the residency of those
customers. This method of calculation more closely reflects the
beneficial ownership of the issuer's securities.
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\70\ Exchange Act Rule 3b-4 (17 CFR 240.3b-4).
\71\ International Disclosure Standards, Exchange Act Release
No. 41936 (September 28, 1999), 64 FR 53900.
\72\ 17 CFR 240.12g3-2(a).
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We have limited the application of the ``look through'' provisions
of Rule 12g3-2(a) to securities held of record (1) in the United
States, (2) in the issuer's home jurisdiction, and (3) in the primary
trading market for the issuer's securities if different from the
issuer's home jurisdiction. These jurisdictions should cover most of
the trading volume for the issuer's securities, and searches in these
jurisdictions are likely to yield the greatest number of U.S.
beneficial owners. This modification to the Rule 12g3-2(a) approach
should reduce the burden on foreign companies while still producing a
reasonably accurate picture of the size of the U.S. ownership of the
foreign issuer.\73\
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\73\ For example, a German foreign private issuer traded solely
on the Frankfurt Stock Exchange would have to query banks and
broker-dealers that are either registered owners with the company or
appear on participant lists of depositaries and that are based in
Germany or the United States. The issuer would request information
on the number of shares held by customer accounts that reflect a
U.S. address for the customer.
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Some commenters pointed out that it is not always possible for
issuers to obtain information about separate customer accounts, as
required by Rule 12g3-2(a). Brokers, dealers, banks or other nominees
may be unwilling or unable to provide information about their customer
accounts. We note, however, that the duty to inquire about separate
customer accounts already exists for issuers deciding whether the
reporting exemption in Rule 12g3-2(a) is available. In addition, the
offeror would not be asking nominees to provide the number of U.S.
security holders or the names of those security holders, but only the
aggregate amount of the nominee's holdings that are represented by U.S.
accounts. Thus, the offeror would not have to ask the nominees for
information regarding possible 10 percent holders. If after reasonable
inquiry, however, the offeror is unable to obtain information about the
nominee's customer accounts, including cases where the nominee's charge
for supplying this information would be unreasonable, the offeror may
rely on a presumption that the customer accounts are held in the
nominee's principal place of business.\74\
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\74\ Because it will be difficult for third-party offerors in an
unsolicited or ``hostile'' tender offer to ascertain whether the
exemption is available without information on the subject company's
U.S. ownership, we are adopting the proposed presumption that the
U.S. ownership percentage limitations are not exceeded based on the
relative level of trading volume in the United States. See Section
II.F.3. infra.
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Also similar to the revised approach under the foreign private
issuer definition, issuers and offerors must take into account
information regarding U.S. ownership derived from beneficial ownership
reports that are provided to the issuer or filed publicly in the United
States or in the home jurisdiction, as well as beneficial ownership
information that otherwise is provided to the issuer or offeror.
We recognize that by focusing on beneficial ownership rather than
record ownership, we have made it more difficult to stay below the
relevant ownership ceilings and thus have limited the applicability of
the exemptive rules. Indeed, that is one reason why we increased the
U.S. ownership threshold under Rules 801 and 802 to 10 percent.
Nevertheless, we believe that it is critical that the exemptive rules
function based upon a fair assessment of the U.S. participation in the
offering. Reliance on record ownership would result in applicability of
the exemption when actual U.S. investor interest, and therefore their
importance to the success of the transaction, far exceeds the stated
ceilings.
We are not adopting as part of the final rules a proposed
rebuttable presumption (also proposed for the purposes of the foreign
private issuer definition) that if a foreign private issuer's
securities trade in the U.S. markets in the form of ADRs, the
securities deposited in the ADR program are held solely by U.S.
residents. Commenters on the foreign private issuer proposal pointed
out that, for a number of reasons, non-U.S. security holders may choose
to hold securities in ADR form. It appears that issuers will not rely
on the presumption and will feel the need to query ADR depositaries
regarding the owners of ADRs. Therefore, we have eliminated the
presumption from these rule revisions as well.\75\ Issuers will thus
have to
[[Page 61393]]
examine the participant lists of ADR depositaries and query home
country or U.S. broker-dealer or bank nominees appearing on those lists
to ascertain the amount of ADRs held by U.S. investors.
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\75\ The revisions from the proposal do not affect the treatment
of bearer securities in determining U.S. ownership. Since neither a
U.S. residence nor the name of an offshore nominee will appear on
the records of the issuer for the holder of the bearer securities,
these securities will not be treated as being held by U.S.
residents, unless the offeror knows or has reason to know that these
securities are held by U.S. residents.
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We have revised the time period for calculating the percentage of
U.S. ownership from the proposal. As proposed, the calculation would
have been made at the commencement of the offer. Based on commenters'
suggestions, we revised the proposal to include a 30 day ``look back''
period to accommodate the offeror's or issuer's planning process. As
revised, the offeror would make the calculation of U.S. ownership 30
days before the commencement of the tender offer. Or, in the case of a
business combination such as a merger where the securities are issued
by the acquiring company, the calculation will be based on U.S.
ownership of the company to be acquired 30 days before the commencement
of the solicitation for the merger. In business combinations such as an
amalgamation, where the securities are issued by a successor company to
all participating companies, the calculation would be made based on
U.S. holder information available 30 days before commencement, but
applied on a pro forma basis as if measured immediately after
completion of the business combination.
We are not adopting the proposal that if a bidder commences an
offer during an ongoing tender or exchange offer for securities of the
same class subject to its offer, the bidder could calculate the
percentage of subject securities held by U.S. holders as of the same
date used by the initial bidder. We believe that this proposal is
unnecessary because the rules adopted today provide that if a bidder
commences a tender offer or a business combination during an ongoing
tender offer or business combination for securities of the same class
subject to its offer, the second bidder will be eligible to use the
same exemption as the prior bidder (Tier I, Tier II, or Rule 802) so
long as all the conditions of the exemption, other than the limitation
on U.S. ownership, are satisfied by the second bidder. In addition, if
the bidder chooses to rely on a different exemption from the initial
bidder, the bidder will be entitled to calculate the percentage of U.S.
ownership 30 days before commencement of its tender offer or
commencement of the solicitation for the merger. Accordingly, the
subsequent bidder should not be disadvantaged by any movement of
securities into the United States following the announcement of the
initial bid.\76\
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\76\ See note 55, supra.
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The issuer must include securities underlying ADRs in determining
the amount of securities outstanding of the class that is the subject
of the offer, as well as the amount of the subject class of securities
held by U.S. holders. On the other hand, other types of securities that
are convertible into or exchangeable for subject securities, such as
warrants, options, and convertible securities, would not be taken into
account in calculating U.S. ownership.
2. Exclusion of Holdings of More Than 10 Percent
We proposed that offerors exclude securities held by non-U.S.
security holders of more that 10 percent of the class from the
calculation of the U.S. ownership percentage. We requested comment
regarding whether it would be appropriate to exclude securities held by
affiliates, whether held outside the United States or in the United
States, from both elements of the calculation, thus focusing only on
the percent of the company's total world-wide non-affiliated float held
in the United States. Many commenters objected to excluding only non-
U.S. 10 percent holders. Commenters argued that since many foreign
private issuers have one or more significant security holders--indeed,
many are controlled by founding families--their exclusion from the
calculation could severely limit the availability of the exemptions.
Several commenters suggested that a better approach would be to
exclude large or institutional U.S. security holders, as well as
foreign 10 percent holders. One commenter suggested excluding the
securities of the bidder, regardless of the amount. Commenters argued
that large U.S. security holders do not need the protections of the
securities laws and could easily go overseas to participate in the
transaction or participate on a private placement basis. Absent
exemptive relief, bidders would extend the offer only to the larger,
and exclude the smaller, U.S. security holders (assuming U.S.
institutional investor participation would not trigger U.S. all-holders
requirements).
For these reasons, we are persuaded by the commenters that large
U.S. holders likewise should be excluded from the calculation of U.S.
ownership. Similarly, exclusion of securities held by a bidder or
bidding group will provide greater assurance of an accurate assessment
of the significance to the offer of the participation by U.S. public
investors.
Because the 10 percent holders are viewed as affiliates for
purposes of calculating U.S. ownership, they presumably would be
treated as affiliates for purposes of Rule 144 \77\ as well . They
would therefore be subject to limitations on the amount of securities
received in the offer that they could resell. Treating these securities
as control shares should minimize the potential that, in cases where
there are a significant number of shares held by a relatively few U.S.
holders, the Securities Act exemptions for cross-border rights
offerings and exchange offers under Rules 801 and 802 will be misused
as a means to conduct illegal distributions in the United States.
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\77\ 17 CFR 230.144.
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3. Determination of Eligibility by Persons Other Than the Issuer
As we noted in the November 1998 release, the principal
disadvantage of using a U.S. ownership threshold as a condition for the
applicability of the exemptions is that it will be difficult for third-
party offerors to ascertain whether the exemption is available without
information on the subject company's U.S. ownership.\78\ It will be
even more difficult for persons other than the issuer to obtain
information from nominees, including information on 10% holders, as
required under the modified approach adopted today.\79\ We are
adopting, with minor changes, the proposal that a third-party bidder in
an unsolicited or ``hostile'' \80\ tender offer may rely upon a
presumption that the U.S. ownership percentage limitations
[[Page 61394]]
of the Tier I,\81\ Tier II \82\ and Rule 802 exemptions are not
exceeded unless:
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\78\ Exemptions for transactions like issuer tender offers or
rights offerings do not pose this problem. An issuer can and must
examine its own records and those of transfer agents and
depositaries acting on its behalf to obtain the necessary
information regarding U.S. ownership of its own securities.
\79\ This concern is eliminated if the hostile bidder commences
its offer after a prior competing tender offer or a business
combination for securities of the same class subject to its offer
and chooses to rely on the same exemption as the prior offeror
because, as previously noted, the second bidder will be eligible to
use the same exemption (Tier I, Tier II, or Rule 802) as the prior
offeror, provided that all the conditions of the exemption, other
than the limitation on U.S. ownership, are satisfied by the second
bidder. A presumption remains necessary, however, when the hostile
bidder either makes the initial offer or is the subsequent bidder
but chooses to rely on a different exemption from that used by a
prior offeror.
\80\ New Rule 802(c)(1) and Instruction 3.i. to revised Rules
14d-1(c) and (d) make the presumption inapplicable to offers ``made
pursuant to an agreement'' with the issuer. The agreement need not
be written.
\81\ See revised Rules 13e-4(h)(8) and Rule 14d-1(c).
\82\ See revised Rules 13e-4(i) and 14d-1(d).
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(1) The aggregate trading volume of the subject class of securities
on all national securities exchanges in the United States, on the
Nasdaq market or on the OTC market, as reported to the NASD, over the
12-calendar-month period ending 30 days before commencement of the
offer, exceeds 10 percent in the case of Tier I offers and Rule 802,
and 40 percent in the case of Tier II offers, of the worldwide
aggregate trading volume of that class of securities over the same
period;
(2) The most recent annual report or other informational form filed
or submitted by the issuer or security holders to securities regulators
in its home jurisdiction or elsewhere (including with the Commission)
indicates that U.S. holdings exceed the applicable threshold; \83\ or
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\83\ If U.S. ownership of more than 10 percent is reported in
public filings with the Commission or a foreign regulator, such as
Schedule 13D or 13G, we would take the position that the bidder has
reason to know the level of U.S. ownership exceeds 10 percent.
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(3) The bidder knows or has reason to know from other sources that
the level of U.S. ownership of the subject class exceeds the
thresholds.
As to whether the foreign subject company is a foreign private
issuer, the bidder can rely on the exemptions if the issuer of the
subject securities files reports with the Commission under the foreign
integrated disclosure system \84\ or has claimed an exemption from
reporting under Exchange Act Rule 12g3-2(b),\85\ unless the bidder
knows the foreign subject company is not a foreign private issuer.
---------------------------------------------------------------------------
\84\ This includes Form 20-F and 6-K, which are available only
to foreign private issuers.
\85\ 17 CFR 240.12g3-2(b).
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One commenter believed that the presumption should be available for
both hostile and negotiated transactions. The commenter was concerned
that takeover situations are often fluid and that hostile offers often
turn friendly shortly after commencement of the tender offer. We
believe, however, that application of the exemption should turn on an
accurate assessment of U.S. ownership whenever possible. A bidder in a
negotiated transaction would be able to arrange to get this information
from the subject company as part of the acquisition agreement. We
believe that the presumption should be available only when there is no
assurance that the issuer will obtain and provide the offeror with
current information about U.S. ownership. If information on U.S.
ownership can be obtained, that information should determine whether
the exemptions are available, rather than a presumption based on
trading activity. For this reason, notwithstanding the views of some
commenters, an issuer, affiliate, or friendly bidder could not rely
upon the presumption.
Even if the above presumption is not available, the bidder may
nevertheless rely on the exemption if it can demonstrate that U.S.
ownership is in fact less than the relevant threshold or, in the case
of competing bids, if the bidder chooses to rely on the same exemption
(Tier I, Tier II, or Rule 802) as that used by a prior offeror.\86\
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\86\ For example, if a hostile bidder makes a tender offer in
reliance on the Tier I exemption, the hostile bidder may rely on the
presumption. If the hostile bid is then followed by a subsequent
bid, whether by the issuer, an affiliate, or a hostile or friendly
third-party bidder, the subsequent bidder also may use the Tier I
exemption so long as the subsequent bidder satisfies all of the
conditions of the Tier I exemption other than the ownership
limitation condition. If, however, the subsequent bidder wishes to
rely upon new Rule 802 to make an exchange offer or business
combination, the subsequent bidder will have to satisfy the
ownership limitation condition of Rule 802 as well as its other
conditions even though both Rule 802 and the Tier I exemption each
use a 10% ownership threshold. In this situation, if the subsequent
bidder is a hostile bidder, it may use the presumption discussed
above if all of the conditions of the presumption are satisfied to
commence a Rule 802 offer in response to the initial Tier I or Tier
II offer. Even if the above presumption is not available, the bidder
may nevertheless rely on the Rule 802 exemption if it can
demonstrate that U.S. ownership is in fact less than the relevant
threshold. The bidder will be entitled to calculate the percentage
of U.S. ownership 30 days before commencement of its exchange offer
or commencement of the solicitation for the merger.
Another example would be where a third-party bidder in a
negotiated transaction desires to make an exchange offer or business
combination in reliance on the Section 802 exemption. The third
party bidder would not be entitled to rely on the presumption
because it is not a hostile party. If, after calculating the
percentage of the issuer's securities held by U.S. holders, the
friendly party commences an exchange offer or business combination
in reliance on the Section 802 exemption, then a subsequent offeror
also may rely on the Section 802 exemption so long as all of the
conditions of such exemption, other than the ownership limitation
condition, are satisfied.
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G. Internet Disclosure
There is no limitation under the exemptive provisions adopted today
on the use of the Internet to publish offering materials and other
information about the cross-border transaction.\87\ However, when
materials are required to be disseminated directly to U.S. holders (for
example, in a Tier II offer subject to Regulation 14D or when materials
are mailed in the home country in a Tier I offer), Internet
dissemination of the offering materials would not, without more,
constitute adequate dissemination under the new exemptive rules.\88\ If
an offeror publishes in its home country, posting the materials on its
web site would not constitute adequate publication in the United
States. Electronic dissemination could satisfy a dissemination
requirement only if conducted in a manner consistent with the guidance
provided in our 1995 release on electronic dissemination, including the
requirement to obtain the U.S. holder's consent to receive the mandated
materials by electronic means or other evidence of delivery.\89\
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\87\ The Internet materials would be filed or submitted with, or
as an amendment to, the Schedule TO or the Form CB, when applicable.
\88\ See Section II.D.2. of the Regulation M-A Release, supra
note 6.
\89\ See Electronic Dissemination, Securities Act Release No.
7233 (Oct. 6, 1995) (60 FR 53458).
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In response to the request of several commenters, we are providing
guidance on whether materials relating to offshore tender and exchange
offers could be posted on the Internet without triggering U.S. tender
offer and securities registration requirements with respect to that
offer. We note that the exemptions adopted today are intended to
facilitate the inclusion of U.S. investors in cross-border
transactions, not to provide a means to avoid U.S. jurisdiction.
However, U.S. investors would benefit from timely and reliable
information about foreign corporate actions, even if they are not able
to participate in the transactions.
1. General Approach
The posting of information on a web site may constitute an offer of
securities for purposes of the U.S. securities laws. We recently
published our views clarifying when the posting of materials on
Internet web sites would not be considered an offer or soliciting
activity in the United States for purposes of the registration
requirements of the federal securities laws (the ``1998 Internet
Release'').\90\ In the 1998 Internet Release, we expressed the view
that offering materials posted on a web site would not be viewed as an
offer, general solicitation or directed selling efforts in the United
States, so long as the offeror implements precautionary measures that
are reasonably designed to ensure that the Internet offer is not
targeted to persons in the United States or to U.S. persons. The 1998
Internet Release stated that when an offeror prominently discloses that
the offer is being made to countries other than the United States and
implements adequate measures
[[Page 61395]]
reasonably designed to guard against sales to persons in the United
States or to U.S. persons in an offshore Internet offer, we will not
view the offer as targeted to persons in the United States or to U.S.
persons and thus will not treat it as occurring in the United States
for Securities Act registration purposes.
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\90\ Statement of the Commission Regarding Use of Internet Web
Sites to Offer Securities, Securities Act Release No. 7516 (March
23, 1998) (63 FR 14806).
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Offshore rights offerings fall squarely within the guidance set
forth in that release. As a general matter, an offeror conducting a
tender or exchange offer also may rely on the guidance in the 1998
Internet release. This discussion provides additional guidance as to
what constitutes adequate precautions to prevent participation by
persons in the United States or U.S. persons in the context of these
types of offshore transactions. What constitutes adequate measures
depends on all the facts and circumstances of any particular situation.
These procedures are not exclusive; other procedures that suffice to
guard against sales to persons in the United States or to U.S. persons
also can be used to demonstrate that the offer is not targeted at the
United States.
2. Offshore Tender and Exchange Offers, Rights Offerings and Business
Combinations on the Internet
Posting materials relating to tender and exchange offers and rights
offerings on the web site of the offeror or subject company, or a third
party, presents special problems not present in the context of public
underwritten offerings. U.S. holders of the subject securities already
are familiar with the subject company and its securities and are more
likely to be alerted immediately to the posting of offering materials.
Investors may either monitor the target's web site or employ a search
service to alert it to any materials posted on the Internet relating to
that company. Also, because of their existing investment in those
securities, U.S. investors are more likely to have an incentive to find
indirect means to participate in the offer, even though the materials
state that the offer is not being made in the United States. As a
result, offerors using a web site to publicize their offer should take
special care that it is not used as a means to induce indirect
participation by U.S. holders of those securities.
One way in which the offeror could take special care to prevent
sales to U.S. holders would be, in responding to inquiries and
processing letters of transmittal, to obtain adequate information to
determine whether the holder is a person in the United States or a U.S.
person. Another example of such special care would be if the offeror
obtains representations by the investor, or anyone tendering on the
investor's behalf, that the investor is not a person in the United
States or a U.S. person. Similarly, in disseminating the cash or
securities consideration to tendering investors, special care should be
taken to avoid mailing into the United States.
Despite the use of disclaimers and the implementation of
precautionary measures against accepting tenders or the exercise of
rights from the United States, a web site posting could be viewed as an
offer in the United States if the content of the web page clearly is
designed to induce U.S. investors to find an indirect means to
participate in the offer through offshore nominees or other means.
Offerors cannot accomplish indirectly what they purport not to be doing
directly.
In many cases, even though the offer materials disseminated outside
the United States state that the offer is not being made in the United
States, the bidder will allow U.S. institutional investors to
participate either under Regulation S for offers and sales taking place
outside the United States, or as a private or limited placement under
section 4(2) or other exemption from registration.\91\ In the 1998
release, we concluded that a posting of offering materials on a web
site was not necessarily offering activity in the United States, even
though the web site is accessible by investors in the United States.
This conclusion was premised on the implementation of measures both to
prevent the targeting of U.S. investors and to prevent actual sales to
persons in the United States or to U.S. persons in the offshore offer.
A web site that is accessible in the United States cannot be used to
entice U.S. investors to participate in the offering offshore.
Accordingly, reliance on Regulation S to allow participation by U.S.
persons offshore would not be appropriate with respect to tender or
exchange offers posted on an unrestricted web site.
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\91\ Exchange offers for securities subject to section 14(d) of
the Exchange Act could not be made in the United States on a private
offering basis, consistent with the all-holders provisions of Rule
14d-10.
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Business combinations present different issues from tender or
exchange offers because participation by U.S. holders is not voluntary.
In order to attempt to avoid U.S. jurisdiction, offerors often do not
provide U.S. investors an opportunity to vote on the transaction. It is
neither practicable nor desirable to treat U.S. holders differently
from other security holders when their company is merged out of
existence. No special precautions should be taken to prevent U.S.
holders from receiving the merger consideration in a business
combination involving a foreign company merely because the proxy
statement/prospectus was posted on a web site available in the United
States.
3. U.S. Exempt Component
The 1998 Internet Release recognized that a simultaneous private
offering in the United States could accompany the offshore Internet
offering.\92\ In that case, special precautions must be instituted to
assure that the Internet offering is not used as a general solicitation
to find qualified investors in the private offering. A general
solicitation for participants in a private offering is inconsistent
with the requirements of section 4(2) of the Securities Act \93\ as
well as Regulation D.\94\ Likewise, to the extent an offeror conducting
an offshore exchange offer or rights offering on the Internet wishes to
extend that offer to persons in the United States on a private offering
basis, means must be in place to provide reasonable assurance that the
web site is not used to solicit U.S. investors for the private U.S.
offering. Measures to assure that the U.S. participants did not learn
about the offering from the web site could include:
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\92\ See note 90 supra, at Section IV.A.2.
\93\ 15 U.S.C. 77d.
\94\ 17 CFR 230.501 through 17 CFR 230.508.
---------------------------------------------------------------------------
Not placing U.S. investors that respond to the offshore
Internet offering in the U.S. private offering;
Extending the U.S. offer only to U.S. investors who were
solicited before, or independently from, the posting of offering
materials on the Internet;
Using separate contact persons for the Internet
solicitation from that for the U.S. offering; and
Not referring to the private U.S. offering in the web site
materials, except to the extent mandated by foreign law.
These measures are not exclusive. Other procedures that suffice to
guard against sales to persons in the United States or to U.S. persons
also can be used to demonstrate that the web site is not used to
solicit U.S. investors for the private U.S. offering.
4. Domestic Issuers
In the 1998 Internet release, we expressed special concerns with
U.S. companies' use of the Internet to conduct a purportedly offshore
Internet offer. We stated that a domestic company could not use a web
site to disseminate the offering materials, unless access to that site
was limited to non-U.S. persons. This position was based on the
potential for abuse when a U.S. company purports to rely on
[[Page 61396]]
Regulation S to conduct an offering of its securities solely offshore,
and on our approach under Regulation S to put offshore unregistered
offerings by domestic companies on the same regulatory footing as
private placements.
In light of the exemptive relief adopted today, we believe that
there will be very limited circumstances where a U.S. bidder would have
a reason to exclude U.S. holders of the foreign subject company from an
exchange or tender offer for that company. At a minimum, any U.S.
offeror purporting to extend an Internet tender or exchange offer
solely to non-U.S. investors should likewise limit access to the web
site to non-U.S. persons.
III. Paperwork Reduction Act
Our staff submitted the amendments as proposed to the Office of
Management and Budget (``OMB'') for review in accordance with the
Paperwork Reduction Act of 1995 (``PRA'').\95\ The title to the
affected information collection is ``Form CB'' and revised ``Form F-
X''. An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number. This collection of information has been
assigned OMB Control Nos. 3235-0518 and 3235-0379.
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\95\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
The rules and rule amendments exempt from the tender offer and
registration rules cross-border tender offers, exchange offers, rights
offerings and business combinations when U.S. ownership of the foreign
private issuer is not significant. The purpose of these exemptions is
to facilitate the ability of offerors to include U.S. security holders
of foreign private issuers in these types of transactions. The rules
and rule amendments are intended to reduce the regulations applicable
to some cross-border transactions and therefore are expected to reduce
the existing collection of information requirements. The amendments
will eliminate certain existing reporting requirements for entities
conducting an exempt tender or exchange offer. Specifically, in a
tender offer that qualifies under the Tier 1 exemption, the acquiror
will not need to comply with Schedule TO. Further, in an exchange
offer, business combination or rights offer for foreign private
issuers' securities, when U.S. security holders hold 10 percent or less
of the subject securities, an acquiror will not need to file a
registration statement registering the securities being issued.
Rules 13e-4(h)(8)(iii)(B) and 14d-1(c)(3)(i) require bidders to
disseminate any informational documents to U.S. holders in English.
This may require some bidders to translate documents. We estimate that
it costs approximately $.30 per word to translate an information
document into English. However, we cannot estimate with certainty how
many information documents will be filed, how many will need to be
translated into English, or how long such documents will be.
Rules 801(a)(4)(i) and 802(a)(3)(i) under the Securities Act and
Rules 13e-4(h)(8)(iii)(A), 14d-1(c)(3)(iii) under the Exchange Act
require that an entity conducting an exempt tender or rights offer in
connection with a cross-border transaction pursuant to the exemptions
submit Form CB. Similarly, revised Rule 14d-9 requires that the company
that is the subject of an exempt third party tender offer, or any
officer, director or other person who otherwise would have an
obligation to file Schedule 14D-9, will be exempt from such obligation
if such person submits Form CB. The collection of information will be
necessary so that we can determine whether the transaction meets the
eligibility requirements of the exemptive rules. We also have to
collect information to assure that information about the transaction
will be publicly available. Security holders will thus have the
opportunity to make informed investment decisions, particularly since
the transactions relate to potential changes in control.
Form CB is a cover sheet that incorporates the offering documents
sent to security holders pursuant to the requirements of the country in
which the issuer is incorporated. Form CB also requires disclosure of
the identity of the entity conducting the tender or rights offer. Form
CB must be submitted to the Commission on the business day following
the date the offering documents are published or disseminated to
security holders in the home jurisdiction.
Form CB also requires that a non-U.S. entity must file a consent to
service of process on Form F-X. Form F-X is used by certain non-U.S.
entities to appoint an agent for service of process in the United
States. The revisions to Form F-X add non-U.S. entities submitting a
Form CB to the list of entities currently required to file Form F-X.
This collection of information is necessary to provide investors with
information concerning the U.S. person designated as agent for service
of process.
For the tender and exchange offer exemptions, domestic and foreign
entities wishing to engage in cross-border transactions or that are the
target of a tender offer will likely be the respondents to the
collection of information requirement. With respect to rights
offerings, the likely respondents will be foreign private issuers
conducting rights offerings. We have no data to help us determine how
many entities will actually rely on the exemptions, because reliance on
the exemptions is voluntary. As noted in the proposed release, we
estimated that 824 Forms CB will be filed each year under the rules
adopted today. We estimate that it will impose an estimated burden of 2
hours for a total burden of 1648 hours. We estimate that half of the
entities submitting Form CB will be foreign entities that will be
required to file Forms F-X (412) each year under the adopted rules.
Form F-X currently is estimated to impose an estimated burden of 2
hours for a total burden of 824 hours.
The changes that have been made to the proposed rules do not affect
our estimate of the number of entities that will file a Form CB for
tender offers in reliance on the Tier I exemption or pursuant to an
exemption from registration under Rules 801 and 802. Rules 801 and 802
use a ten percent threshold for U.S. ownership rather than the five
percent threshold that was originally proposed. We also have excluded
securities held by 10% U.S. holders and bidders from the calculation of
U.S. ownership. We believe that any increase in the number of entities
that will file a Form CB pursuant to Rules 801 and 802 because of these
changes will be offset at least partially by the change in the method
of calculation of U.S. ownership, which requires offerors to ``look
through'' the record ownership of brokers, dealers, banks or nominees
holding securities for the accounts of their customers.
Neither we nor OMB received any comments in response to our request
for comment regarding the information collection obligation.
IV. Cost-Benefit Analysis
U.S. residents holding securities in foreign private issuers are
often excluded from tender offers and rights offerings for the foreign
private issuers' securities because of conflicts between U.S. and
foreign regulation of these offers. As a result, U.S. security holders
of foreign private issuers are unable to benefit fully from any premium
offered in a tender offer or are unable to purchase additional
securities at a discount in a rights offering.
The rules and rule amendments adopted today exempt cross-border
tender offers from the tender offer rules
[[Page 61397]]
(the ``Tier I exemption'') and exchange offers, rights offerings and
business combinations from Securities Act registration requirements
when U.S. security holders hold 10 percent or less of the subject
securities. When the U.S. ownership in the foreign private issuer does
not exceed 40 percent, the proposal also includes exemptions from
certain of the tender offer rules (the ``Tier II exemption'').
The purpose of these exemptions is to facilitate U.S. security
holder participation in these types of transactions by removing
regulatory barriers. The rules and rule amendments are intended to
reduce the tender offer and registration requirements for cross-border
transactions. We expect the exemptions to reduce the costs and burdens
of extending these types of offers to U.S. security holders. U.S.
security holders of foreign private issuers will benefit by being able
to participate in these types of transactions. The consideration paid
in a tender or exchange offer, merger or similar transaction typically
reflects a premium to tendering security holders.\96\ U.S. security
holders who are excluded from tender or exchange offers may be
subjected to a risk that the consideration they may receive in a back-
end merger or business combination may not be equivalent to the
consideration being paid in the tender or exchange offer. In addition,
the market for the securities that are the subject of the tender or
exchange offer may not be liquid enough to permit investors to buy or
sell securities at comparable prices. In rights offerings, U.S.
security holders who are excluded from participation lack the
opportunity to purchase the issuer's securities at a discount.\97\ The
commenters agreed that the rules would serve to facilitate U.S.
investor participation in these transactions.
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\96\ Of the 403 tender offers for foreign companies by foreign
bidders recorded by Securities Data Corporation in 1998, Securities
Data Corporation reports an average premium of over 42% for 215
transactions, measured from four weeks prior to the first bid. If
the premium is measured from the price one day before the bid, the
average premium drops to 38%.
For the period 1971 to 1991, the average historical merger
premium was over 23% as reported in G.W. Schwert, ``Markup Pricing
in Mergers and Acquisitions,'' Journal of Financial Economics, 41
(1996). The premium is measured from four weeks prior to the first
bid. Excluding this period, the premium remains over 10%.
\97\ Supra note 54.
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Entities relying on the Tier I exemption will benefit from the
rules because they will not need to comply with the procedural and
filing requirements of the tender offer rules. Specifically, an
acquiror will not need to file Schedule TO. In lieu of these forms, an
acquiror will submit to the Commission Form CB, which is significantly
less burdensome.\98\ Also, a non-U.S. acquiror will file a Form F-X
contemporaneously with the Form CB to appoint an agent for service of
process in the United States. A number of commenters argued that Forms
CB and F-X will be too burdensome and will discourage offerors from
relying on the exemptions. We believe, however, that our interest in
monitoring the availability of the exemptions and ensuring that U.S.
security holders have access to these documents through their public
availability justify the minimal burdens of preparing these forms or
any increased risk of suit from making service of process and assertion
of U.S. jurisdiction marginally easier.
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\98\ See Section II.A.2. supra for a description of the Form CB.
See note 99, infra, for information regarding the estimated burden
associated with Form CB as compared to the current reporting
requirements.
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In response to comments, the rules we adopt today permit offerors
relying on the Tier I exemption to offer only cash to U.S. holders,
even if securities are offered to foreign investors. Offerors offering
a cash-only alternative to U.S. security holders, however, must obtain
an opinion from an independent third party stating that the cash being
offered to U.S. security holders is substantially equivalent to the
value of the securities being offered to foreign security holders,
unless the offeror's securities are ``margin securities'' within the
meaning of Regulation T. In the latter case, the offeror need only
provide information on recent trading prices of the offeror's
securities in lieu of an opinion.
Similarly, entities relying on Rules 801 or 802 in connection with
a rights offer or exchange offer will benefit from the rules because
they will not need to comply with the Securities Act registration
requirements. Specifically, an issuer will not need to file the
registration forms, including Forms S-1, S-2, S-3, S-4, F-1, F-2, F-3
and F-4. Instead of these forms, an issuer will submit Form CB and, if
the issuer is a non-U.S. entity, file Form F-X, which as discussed
above are significantly less burdensome.
We estimate that Form CB and Form F-X will take substantially less
time to prepare than Schedule TO or a registration statement.\99\ In
addition, we believe it takes a lesser degree of professional skill,
including that of securities lawyers and accountants, to prepare a Form
CB and Form F-X than to prepare a Schedule TO or a registration
statement. In some cases, the professional skills required will include
the ability to translate from a foreign language into English.
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\99\ For purposes of the Paperwork Reduction Act, we estimate
that Forms CB and F-X will impose an estimated burden of two hours
per Form. This contrasts with Schedule TO which has an estimated
burden of 586 hours per form, and Forms S-1, S-2, S-3, S-4, F-1, F-
2, F-3 and F-4 which have an estimated burden of 1,239, 470, 397,
1,233, 1,868, 1,397, 166, and 1,308 hours per form, respectively.
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Entities relying on the Tier I and Tier II exemptions will also
benefit from the proposals because they will not need to comply with
all of the procedural requirements of the tender offer rules.\100\ For
example, in the Tier I exemption, an acquiror will be exempt from all
of the procedural requirements of the U.S. tender offer rules,
including those relating to the duration of the offer and withdrawal
rights.
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\100\ We cannot quantify the cost savings that will result from
not imposing the procedural requirements of the tender offer rules
because we do not know how many companies will use the exemption or
how much compliance with these particular aspects of the tender
offer rules from which an exemption is granted would cost.
Commenters did not provide us with any such data.
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In the Tier II exemption, an acquiror will receive limited relief
from the Commission's tender offer rules. The Tier II exemption
provides relief from the U.S. tender offer rules that are common
impediments to extending offers to U.S. security holders. However, an
acquiror relying on the Tier II exemption will have to comply with the
remaining tender offer provisions. These provisions include, among
others, the following: (1) Keeping the offer open 20 business days; (2)
filing a Schedule TO; (3) disseminating the offering documents; and (4)
offering withdrawal rights. Although compliance with these requirements
may impose costs to cross-border tender offers, compliance will still
be less burdensome than satisfying all the U.S. tender offer
requirements or applying to the Commission for exemptive relief.
The transfer restrictions that we adopt today provide that to the
extent the securities that are the subject of an exchange offer,
business combination or rights offering are ``restricted securities''
under Rule 144 in the hands of the U.S. investor, then securities
acquired by that investor in the transaction will be ``restricted
securities.'' The transfer restrictions are the same as we proposed
with respect to exchange offers and business combinations but are less
restrictive than those proposed for rights offerings. We had proposed
that securities received in a rights offering pursuant to Rule 801 be
restricted whether or not the securities that are subject to the
offering were restricted. We are persuaded by the large number
[[Page 61398]]
of commenters who argued that requiring unaffiliated U.S. security
holders to accept restricted securities when they currently hold
unrestricted securities is not necessary nor desirable.
The rules we adopt today base the method of calculation of the
amount of the subject securities held by U.S. holders on the method of
calculation used in Rule 12g3-2(a) under the Exchange Act. That method
more closely reflects the beneficial ownership of the issuer's
securities. Rule 12g3-2(a) requires the offeror to ``look through'' the
record ownership of brokers, dealers, banks or nominees holding
securities for the accounts of their customers to determine the
residency of those customers. Offerors also must take into account
information regarding U.S. ownership derived from beneficial ownership
reports that are provided to the issuer or filed publicly, whether in
the United States or other countries, as well as information that
otherwise is provided to the issuer or offeror.
Several commenters on the proposed release and the international
disclosure standards proposing release suggested that using a
beneficial ownership test would create a substantial burden for
companies that trade in many different markets, and that widely-held
companies would have to invest significant effort and expense in
determining beneficial ownership in many jurisdictions where the
likelihood of finding U.S. owners is small. In order to address these
concerns, we have limited the application of the ``look through''
provisions of Rule 12g3-2(a) to voting securities held of record (1) in
the United States, (2) in the issuer's home jurisdiction, and (3) in
the primary trading market for the issuer's securities if different
from the issuer's home jurisdiction. These jurisdictions should cover
most of the trading volume for the issuer's securities, and searches in
these jurisdictions are likely to yield the greatest number of U.S.
beneficial owners. This modification to the test should reduce the
burden on foreign companies while still producing a reasonably accurate
picture of whether U.S. ownership exceeds the specified thresholds.
Some commenters pointed out that it is not always possible for
issuers to obtain information about separate customer accounts, as
required by Rule 12g3-2(a). As noted in the discussion above, we have
minimized this burden. In any event, if after reasonable inquiry, the
offeror is unable to obtain information about the nominee's customer
accounts, including when the nominee's fees would be unreasonable, the
offeror may rely on a presumption that the customer accounts are held
in the nominee's principal place of business.
No specific data was provided in response to the Commission's
request in the proposing release regarding the costs and benefits
associated with today's amendments. We have anecdotal information
regarding numerous transactions that have excluded U.S. security
holders. The commenters also agreed that these exclusionary offers are
common practice. Because offerors do not file documents with the
Commission when U.S. security holders are excluded, we cannot calculate
the number of cross-border transactions that have excluded U.S.
security holders with certainty. Further, if the transaction is a
tender offer for securities that are not registered under section 12 of
the Exchange Act, and is subject only to Regulation 14E, there is no
filing obligation. Therefore, we are unable to estimate the number of
entities that will take advantage of the exemptions. While we are
unable to determine how many U.S. security holders will benefit from
the rules by being able to participate in cross-border tender, exchange
and rights offerings, we believe that the rules will benefit U.S.
security holders by removing regulatory barriers to including U.S.
security holders in these types of offers. The commenters agreed.
V. Findings and Considerations
A. Effect on Competition/Exchange Act Section 23(a)
Section 23(a) of the Exchange Act \101\ requires us, in adopting
rules under the Exchange Act, to consider the impact any rule would
have on competition. We cannot adopt any rule that would impose a
burden on competition not necessary or appropriate in the public
interest. We did not receive any information on the impact of increased
competition for capital for domestic companies as a result of an
increase in securities offered into the United States by foreign
companies or as to whether the benefit to U.S. investors will offset
the cost of any such increased competition for capital. Because the
rules we adopt today are designed to allow U.S. investors to
participate in the full benefits of security ownership that they are
currently denied when U.S. ownership of the foreign private issuer is
relatively small, we do not believe the relative cost will be large.
Exempting foreign tender, exchange and rights offers from certain
federal securities laws may have a competitive effect on U.S. issuers,
who remain subject to all federal securities laws. We believe these
effects are justified in order to benefit U.S. shareholders in foreign
companies. Therefore, our view is that any anticompetitive effects of
the rules adopted today for cross-border tender and exchange offers,
business combinations and rights offerings are necessary or appropriate
in the public interest.
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\101\ 15 U.S.C. 78w(a).
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B. Promotion of Efficiency, Competition and Capital Formation
Section 2(b) \102\ of the Securities Act and Section 3(f) \103\ of
the Exchange Act, as amended by the National Securities Markets
Improvement Act of 1996,\104\ provide that whenever the Commission is
engaged in rulemaking and is required to consider or determine whether
an action is necessary or appropriate in the public interest, the
Commission also shall consider, in addition to the protection of
investors, whether the action will promote efficiency, competition and
capital formation. For the reasons stated above, we believe the rules
will facilitate a variety of cross-border transactions, thereby
enhancing the efficiency of global competition for capital.
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\102\ 15 U.S.C. 77b(b).
\103\ 15 U.S.C. 78c(f).
\104\ Pub. L. No. 104-290, section 106, 110 Stat. 3416 (1996).
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C. Exemptive Authority Findings
We find that it is appropriate, in the public interest and
consistent with the protection of investors, as well as the purposes
fairly intended by the Trust Indenture Act: (i) To exempt eligible
tender offers from certain provisions of the Exchange Act and the rules
thereunder relating to tender offers, as described in this release,
(ii) to exempt eligible tender and exchange offers, business
combinations and rights offerings from the registration provisions of
the Securities Act, as described in this release, (iii) to exempt
eligible exchange offers or business combinations from the Trust
Indenture Act, as described in this release, and (iv) to amend the
Commission's general organization rules in order to delegate to the
Directors of the Divisions of Corporation Finance and Market Regulation
authority to exempt tender offers from specific tender offer
requirements.
We make these findings based on the reasons described in the
release. In particular, we believe that U.S. investors will benefit by
the exemptions because they will facilitate the inclusion of U.S.
investors in cross-border tender and
[[Page 61399]]
exchange offers, business combinations and rights offerings. Our use of
exemptive authority will enable U.S. holders to have the opportunity to
receive a premium for their securities in a tender or exchange offer
and to participate in investment opportunities on an equal basis with
foreign security holders. Similarly, the rules will enable U.S.
security holders to have the opportunity to purchase shares at a
possible discount from market price in cross-border rights offerings.
Moreover, investors will still receive the protections of the antifraud
provisions of the federal securities laws.
D. Delegated Authority
The Commission also finds, in accordance with section 553(d) of the
Administrative Procedure Act,\105\ that the delegation of exemptive
authority in this release relates to agency organization, procedure, or
practice. Accordingly, the delegation is effective upon publication.
---------------------------------------------------------------------------
\105\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------
VI. Summary of Final Regulatory Flexibility Analysis
A Final Regulatory Flexibility Analysis (``FRFA'') has been
prepared in accordance with 5 U.S.C. 604 regarding the rules being
adopted today. The analysis notes that the adopted rules are intended
primarily to facilitate tender and rights offerings for securities of
foreign private issuers held by U.S. residents. The resulting reduction
in the expense, time and effort of making such offerings will benefit
U.S. security holders. These persons normally are excluded from such
offerings. Entities that wish to extend these offers to U.S. security
holders also will benefit because it will be cheaper for them to comply
with U.S. securities laws and easier to make offers to U.S. security
holders.
The adopted rules are limited to tender offers and exchange offers
for the securities of foreign private issuers. But both foreign and
domestic bidders, whatever their size, are eligible to use these
exemptions. Only foreign private issuers are eligible to use the
exemption for rights offerings. Small entities can rely on the adopted
tender and exchange offer exemptions on the same basis as larger
entities, so long as they meet the conditions for relying on them.
We know of approximately 836 Exchange Act reporting companies that
are not investment companies that currently satisfy the definition of
``small business'' under Rule 0-10. There are approximately 320
investment companies that satisfy the ``small business'' definition. We
have no data to determine how many reporting or non-reporting small
businesses may actually rely on the rules, or may otherwise be affected
by the rules. However, we believe that the rules will result in a
substantial savings to entities (both small and large) that qualify for
the exemptions. Qualifying entities under the Tier I and Securities Act
exemptions will not have to comply with the tender offer and
registration requirements of the U.S. securities laws.
The FRFA notes that the adopted rules will eliminate certain
existing reporting requirements for entities conducting an exempt
tender or exchange offer. Specifically, an acquiror under Tier I will
not need to file Schedule TO. Further, in a rights or exchange offer,
an acquiror will not need to register the securities being issued. In
place of these filing obligations, an acquiror relying on the new
exemptions will submit, rather than file, Form CB. Form CB is merely a
cover sheet that incorporates the offering documents sent to security
holders pursuant to the requirements of the country in which the issuer
is incorporated. Also, a non-U.S. acquiror will file a Form F-X
contemporaneously with the Form CB to appoint an agent for service of
process in the United States. We believe Form CB and Form F-X are
significantly less burdensome to prepare than a Schedule TO or a
registration statement.
As stated in the analysis, we considered several alternatives to
the rules adopted today, including:
The Commission considered requiring that offerors deliver
rights offering materials to U.S. investors, even if those materials
were only published overseas, as proposed. In order to encourage
foreign private issuers to include U.S. security holders in rights
offerings, the rules adopted today provide that for both rights
offerings and exchange offers, the offeror must disseminate any
informational documents to U.S. holders, in English, on a comparable
basis to that provided to security holders in the offeror's home
jurisdiction. If the offeror disseminates by publication in its home
jurisdiction, the offeror must publish the information in the United
States in a manner reasonably calculated to inform U.S. holders of the
offer. We were persuaded by those commenters who indicated that
offerors will not be inclined to avail themselves of Rules 801 or 802
if burdensome documentation and dissemination requirements are imposed
by the U.S. rules. This will minimize the burden on offerors in rights
offerings, including small businesses.
The Commission considered whether to require a valuation
opinion in all cases where an offeror chooses to offer U.S. security
holders cash in lieu of the securities, cash and other consideration
offered to non-U.S. security holders in reliance on the Tier I
exemption. We decided to only require a valuation opinion where the
offered securities are not ``margin securities'' within the meaning of
Regulation T in order to minimize the burden on offerors, including
small businesses.
The Commission considered whether to use a beneficial
ownership test in determining U.S. ownership. In reviewing the method
of determining U.S. ownership, we were persuaded by those commenters
that suggested that a beneficial ownership test would create a
substantial burden for companies that trade in many different markets,
and that widely-held companies would have to invest significant effort
and expense in determining beneficial ownership in many jurisdictions
where the likelihood of finding U.S. owners is small. In order to
address these concerns, we limited the application of the ``look
through'' provisions of Rule 12g3-2(a) to voting securities held of
record (1) in the United States, (2) in the issuer's home jurisdiction,
and (3) in the primary trading market for the issuer's securities if
different from the issuer's home jurisdiction. This modification to the
test should reduce the burden on companies, including small businesses,
while still producing a reasonably accurate picture of whether U.S.
ownership exceeds the specified thresholds.
The Commission considered permitting registration of
securities issued in rights offering and exchange offers to be based on
home country documents. However, the Commission determined not to
repropose a home-country based registration system because the
disclosure and accounting standards of foreign jurisdictions are not
always consistent with the level of prospectus disclosure expected in a
registered offer under the Securities Act. Further, a registration-
based exemption would lead to a periodic reporting obligation that
small entities might find burdensome.
The analysis also indicates that the rules and forms being adopted
today do not duplicate or conflict with any existing federal rule
provisions.
We requested but received no comments on the Initial Regulatory
Flexibility Analysis prepared in connection with the proposing release.
A copy of the FRFA may be obtained by
[[Page 61400]]
contacting Laura Badian, in the Office of Mergers and Acquisitions,
Division of Corporation Finance, Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC. 20549, at (202) 942-2920.
VII. Statutory Basis and Text of Amendments
We are adopting these revisions pursuant to sections 3(b), 7, 8,
10, 19 and 28 of the Securities Act, sections 12, 13, 14, 23 and 36 of
the Exchange Act, and section 304 of the Trust Indenture Act.
List of Subjects
17 CFR Part 200
Authority delegations (Government agencies).
17 CFR Parts 230, 239, 240, 249 and 260
Reporting and recordkeeping requirements, Securities.
Final Rule
In accordance with the foregoing, we are amending Title 17, Chapter
II of the Code of Federal Regulations as follows:
PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS
1. The authority citation for part 200 continues to read in part as
follows:
Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 78mm, 79t,
77sss, 80a-37, 80b-11, unless otherwise noted.
* * * * *
2. By amending Sec. 200.30-1 by adding paragraph (e)(16) to read as
follows:
Sec. 200.30-1 Delegation of authority to Director of Division of
Corporation Finance.
* * * * *
(e) * * *
(16) To grant requests for exemptions from:
(i) Tender offer provisions of sections 13(e) and 14(d)(1) through
14(d)(7) of the Act (15 U.S.C. 78m(e) and 78n(d)(1) through 78n(d)(7)),
Rule 13e-3 (Sec. 240.13e-3 of this chapter) and Rule 13e-4
(Sec. 240.13e-4 of this chapter), Regulation 14D (Secs. 240.14d-1
through 240.14d-11 of this chapter) and Schedules 13E-3, TO, and 14D-9
(Secs. 240.13e-100, 240.14d-100 and 240.14d-101 of this chapter)
thereunder, pursuant to Sections 14(d)(5), 14(d)(8)(C) and 36(a) of the
Act (15 U.S.C. 78n(d)(5), 78(d)(8)(C), and 78mm(a)); and
(ii) The tender offer provisions of Rules 14e-1, 14e-2 and 14e-5 of
Regulation 14E (Secs. 240.14e-1, 240.14e-2 and 240.14e-5 of this
chapter) pursuant to section 36(a) of the Act (15 U.S.C. 78mm(a)).
* * * * *
3. By amending Sec. 200.30-3 by adding paragraph (a)(68) to read as
follows:
Sec. 200.30-3 Delegation of authority to Director of Division of
Market Regulation.
* * * * *
(a) * * *
(68) Pursuant to Section 36(a) of the Act, 15 U.S.C. 78mm(a), to
grant requests for exemptions from the tender offer provisions of Rule
14e-1 of Regulation 14E (Sec. 240.14e-1 of this chapter).
* * * * *
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
4. The authority citation for part 230 continues to read in part as
follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77r, 77s, 77sss,
78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-24, 80a-
28, 80-29, 80a-30, and 80a-37, unless otherwise noted.
* * * * *
5. By amending Sec. 230.144 as follows:
a. By removing the word ``and'' at the end of paragraph (a)(3)(iv),
b. Removing the period and adding in its place ``;'' at the end of
paragraph (a)(3)(v), and
c. Adding paragraphs (a)(3)(vi) and (vii) to read as follows:
Sec. 230.144 Persons deemed not to be engaged in a distribution and
therefore not underwriters.
* * * * *
(a) * * *
(3) * * *
(vi) Securities acquired in a transaction made under Sec. 230.801
to the same extent and proportion that the securities held by the
security holder of the class with respect to which the rights offering
was made were as of the record date for the rights offering
``restricted securities'' within the meaning of this paragraph (a)(3);
and
(vii) Securities acquired in a transaction made under Sec. 230.802
to the same extent and proportion that the securities that were
tendered or exchanged in the exchange offer or business combination
were ``restricted securities'' within the meaning of this paragraph
(a)(3).
* * * * *
6. By adding Secs. 230.800 through 230.802 and an undesignated
center heading to read as follows:
Exemptions for Cross-Border Rights Offerings, Exchange Offers and
Business Combinations
General Notes to Secs. 230.800, 230.801 and 230.802
1. Sections 230.801 and 230.802 relate only to the applicability
of the registration provisions of the Act (15 U.S.C. 77e) and not to
the applicability of the anti-fraud, civil liability or other
provisions of the federal securities laws.
2. The exemptions provided by Sec. 230.801 and Sec. 230.802 are
not available for any securities transaction or series of
transactions that technically complies with Sec. 230.801 and
Sec. 230.802 but are part of a plan or scheme to evade the
registration provisions of the Act.
3. An issuer who relies on Sec. 230.801 or an offeror who relies
on Sec. 230.802 must still comply with the securities registration
or broker-dealer registration requirements of the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.) and any other
applicable provisions of the federal securities laws.
4. An issuer who relies on Sec. 230.801 or an offeror who relies
on Sec. 230.802 must still comply with any applicable state laws
relating to the offer and sale of securities.
5. Attempted compliance with Sec. 230.801 or Sec. 230.802 does
not act as an exclusive election; an issuer making an offer or sale
of securities in reliance on Sec. 230.801 or Sec. 230.802 may also
rely on any other applicable exemption from the registration
requirements of the Act.
6. Section 230.801 and Sec. 230.802 provide exemptions only for
the issuer of the securities and not for any affiliate of that
issuer or for any other person for resales of the issuer's
securities. These sections provide exemptions only for the
transaction in which the issuer or other person offers or sells the
securities, not for the securities themselves. Securities acquired
in a Sec. 230.801 or Sec. 230.802 transaction may be resold in the
United States only if they are registered under the Act or an
exemption from registration is available.
7. Unregistered offers and sales made outside the United States
will not affect contemporaneous offers and sales made in compliance
with Sec. 230.801 or Sec. 230.802. A transaction that complies with
Sec. 230.801 or Sec. 230.802 will not be integrated with offerings
exempt under other provisions of the Act, even if both transactions
occur at the same time.
8. Securities acquired in a rights offering under Sec. 230.801
are ``restricted securities'' within the meaning of
Sec. 230.144(a)(3) to the same extent and proportion that the
securities held by the security holder as of the record date for the
rights offering were restricted securities. Likewise, securities
acquired in an exchange offer or business combination subject to
Sec. 230.802 are ``restricted securities'' within the meaning of
Sec. 230.144(a)(3) to the same extent and proportion that the
securities tendered or exchanged by the security holder in that
transaction were restricted securities.
9. Section 230.801 does not apply to a rights offering by an
investment company registered or required to be registered under the
Investment Company Act of 1940 (15
[[Page 61401]]
U.S.C. 80a-1 et seq.), other than a registered closed-end investment
company. Section 230.802 does not apply to exchange offers or
business combinations by an investment company registered or
required to be registered under the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.), other than a registered closed-end
investment company.
Sec. 230.800 Definitions for Secs. 230.800, 230.801 and 230.802.
The following definitions apply in Secs. 230.800, 230.801 and
230.802.
(a) Business combination. Business combination means a statutory
amalgamation, merger, arrangement or other reorganization requiring the
vote of security holders of one or more of the participating companies.
It also includes a statutory short form merger that does not require a
vote of security holders.
(b) Equity security. Equity security means the same as in
Sec. 240.3a11-1 of this chapter, but for purposes of this section only
does not include:
(1) Any debt security that is convertible into an equity security,
with or without consideration;
(2) Any debt security that includes a warrant or right to subscribe
to or purchase an equity security;
(3) Any such warrant or right; or
(4) Any put, call, straddle, or other option or privilege that
gives the holder the option of buying or selling a security but does
not require the holder to do so.
(c) Exchange offer. Exchange offer means a tender offer in which
securities are issued as consideration.
(d) Foreign private issuer. Foreign private issuer means the same
as in Sec. 230.405 of Regulation C.
(e) Foreign subject company. Foreign subject company means any
foreign private issuer whose securities are the subject of the exchange
offer or business combination.
(f) Home jurisdiction. Home jurisdiction means both the
jurisdiction of the foreign subject company's (or in the case of a
rights offering, the foreign private issuer's) incorporation,
organization or chartering and the principal foreign market where the
foreign subject company's (or in the case of a rights offering, the
issuer's) securities are listed or quoted.
(g) Rights offering. Rights offering means offers and sales for
cash of equity securities where:
(1) The issuer grants the existing security holders of a particular
class of equity securities (including holders of depositary receipts
evidencing those securities) the right to purchase or subscribe for
additional securities of that class; and
(2) The number of additional shares an existing security holder may
purchase initially is in proportion to the number of securities he or
she holds of record on the record date for the rights offering. If an
existing security holder holds depositary receipts, the proportion must
be calculated as if the underlying securities were held directly.
(h) U.S. holder. U.S. holder means any security holder resident in
the United States. To determine the percentage of outstanding
securities held by U.S. holders:
(1) Calculate percentage of outstanding securities held by U.S.
holders as of the record date for a rights offering, or 30 days before
the commencement of an exchange offer or the solicitation for a
business combination.
(2) Include securities underlying American Depositary Shares
convertible or exchangeable into the securities that are the subject of
the tender offer when calculating the number of subject securities
outstanding, as well as the number held by U.S. holders. Exclude from
the calculations other types of securities that are convertible or
exchangeable into the securities that are the subject of the exchange
offer, business combination or rights offering, such as warrants,
options and convertible securities. Exclude from those calculations
securities held by persons who hold more than 10 percent of the subject
securities in an exchange offer, business combination or rights
offering, or that are held by the offeror in an exchange offer or
business combination;
(3) Use the method of calculating record ownership in Rule 12g3-
2(a) under the Exchange Act (Sec. 240.12g3-2(a) of this chapter),
except that your inquiry as to the amount of securities represented by
accounts of customers resident in the United States may be limited to
brokers, dealers, banks and other nominees located in the United
States, the subject company's jurisdiction of incorporation or that of
each participant in a business combination, and the jurisdiction that
is the primary trading market for the subject securities, if different
from the subject company's jurisdiction of incorporation;
(4) If, after reasonable inquiry, you are unable to obtain
information about the amount of securities represented by accounts of
customers resident in the United States, you may assume, for purposes
of this provision, that the customers are residents of the jurisdiction
in which the nominee has its principal place of business.
(5) Count securities as owned by U.S. holders when publicly filed
reports of beneficial ownership or information that is otherwise
provided to you indicates that the securities are held by U.S.
residents.
(i) United States. United States means the United States of
America, its territories and possessions, any State of the United
States, and the District of Columbia.
Sec. 230.801 Exemption in connection with a rights offering.
A rights offering is exempt from the provisions of Section 5 of the
Act (15 U.S.C. 77e), so long as the following conditions are satisfied:
(a) Conditions.--(1) Eligibility of issuer. The issuer is a foreign
private issuer on the date the securities are first offered to U.S.
holders.
(2) Limitation on U.S. ownership. U.S. holders hold no more than 10
percent of the outstanding class of securities that is the subject of
the rights offering (as determined under the definition of ``U.S.
holder'' in Sec. 230.800(h)).
(3) Equal treatment. The issuer permits U.S. holders to participate
in the rights offering on terms at least as favorable as those offered
the other holders of the securities that are the subject of the offer.
The issuer need not, however, extend the rights offering to security
holders in those states or jurisdictions that require registration or
qualification.
(4) Informational documents. (i) If the issuer publishes or
otherwise disseminates an informational document to the holders of the
securities in connection with the rights offering, the issuer must
furnish that informational document, including any amendments thereto,
in English, to the Commission on Form CB (Sec. 239.800 of this chapter)
by the first business day after publication or dissemination. If the
issuer is a foreign company, it must also file a Form F-X (Sec. 239.42
of this chapter) with the Commission at the same time as the submission
of Form CB to appoint an agent for service in the United States.
(ii) The issuer must disseminate any informational document to U.S.
holders, including any amendments thereto, in English, on a comparable
basis to that provided to security holders in the home jurisdiction.
(iii) If the issuer disseminates by publication in its home
jurisdiction, the issuer must publish the information in the United
States in a manner reasonably calculated to inform U.S. holders of the
offer.
(5) Eligibility of securities. The securities offered in the rights
offering are equity securities of the same class as the securities held
by the offerees in the
[[Page 61402]]
United States directly or through American Depositary Receipts.
(6) Limitation on transferability of rights. The terms of the
rights prohibit transfers of the rights by U.S. holders except in
accordance with Regulation S (Sec. 230.901 through Sec. 230.905).
(b) Legends. The following legend or an equivalent statement in
clear, plain language, to the extent applicable, appears on the cover
page or other prominent portion of any informational document the
issuer disseminates to U.S. holders:
This rights offering is made for the securities of a foreign
company. The offer is subject to the disclosure requirements of a
foreign country that are different from those of the United States.
Financial statements included in the document, if any, have been
prepared in accordance with foreign accounting standards that may
not be comparable to the financial statements of United States
companies.
It may be difficult for you to enforce your rights and any claim
you may have arising under the federal securities laws, since the
issuer is located in a foreign country, and some or all of its
officers and directors may be residents of a foreign country. You
may not be able to sue the foreign company or its officers or
directors in a foreign court for violations of the U.S. securities
laws. It may be difficult to compel a foreign company and its
affiliates to subject themselves to a U.S. court's judgment.
Sec. 230.802 Exemption for offerings in connection with an exchange
offer or business combination for the securities of foreign private
issuers.
Offers and sales in any exchange offer for a class of securities of
a foreign private issuer, or in any exchange of securities for the
securities of a foreign private issuer in any business combination, are
exempt from the provisions of section 5 of the Act (15 U.S.C. 77e), if
they satisfy the following conditions:
(a) Conditions to be met.--(1) Limitation on U.S. ownership. Except
in the case of an exchange offer or business combination that is
commenced during the pendency of a prior exchange offer or business
combination made in reliance on this paragraph, U.S. holders of the
foreign subject company must hold no more than 10 percent of the
securities that are the subject of the exchange offer or business
combination (as determined under the definition of ``U.S. holder'' in
Sec. 230.800(h)). In the case of a business combination in which the
securities are to be issued by a successor registrant, U.S. holders may
hold no more than 10 percent of the class of securities of the
successor registrant, as if measured immediately after completion of
the business combination.
(2) Equal treatment. The issuer must permit U.S. holders to
participate in the exchange offer or business combination on terms at
least as favorable as those offered any other holder of the subject
securities. The issuer, however, need not extend the offer to security
holders in those states or jurisdictions that require registration or
qualification, except that the issuer must offer the same cash
alternative to security holders in any such state that it has offered
to security holders in any other state or jurisdiction.
(3) Informational documents. (i) If the issuer publishes or
otherwise disseminates an informational document to the holders of the
subject securities in connection with the exchange offer or business
combination, the issuer must furnish that informational document,
including any amendments thereto, in English, to the Commission on Form
CB (Sec. 239.800 of this chapter) by the first business day after
publication or dissemination. If the bidder is a foreign company, it
must also file a Form F-X (Sec. 239.42 of this chapter) with the
Commission at the same time as the submission of Form CB to appoint an
agent for service in the United States.
(ii) The issuer must disseminate any informational document to U.S.
holders, including any amendments thereto, in English, on a comparable
basis to that provided to security holders in the foreign subject
company's home jurisdiction.
(iii) If the issuer disseminates by publication in its home
jurisdiction, the issuer must publish the information in the United
States in a manner reasonably calculated to inform U.S. holders of the
offer.
(b) Legends. The following legend or an equivalent statement in
clear, plain language, to the extent applicable, must be included on
the cover page or other prominent portion of any informational document
the offeror publishes or disseminates to U.S. holders:
This exchange offer or business combination is made for the
securities of a foreign company. The offer is subject to disclosure
requirements of a foreign country that are different from those of
the United States. Financial statements included in the document, if
any, have been prepared in accordance with foreign accounting
standards that may not be comparable to the financial statements of
United States companies.
It may be difficult for you to enforce your rights and any claim
you may have arising under the federal securities laws, since the
issuer is located in a foreign country, and some or all of its
officers and directors may be residents of a foreign country. You
may not be able to sue a foreign company or its officers or
directors in a foreign court for violations of the U.S. securities
laws. It may be difficult to compel a foreign company and its
affiliates to subject themselves to a U.S. court's judgment.
You should be aware that the issuer may purchase securities
otherwise than under the exchange offer, such as in open market or
privately negotiated purchases.
(c) Presumption for certain offers. For exchange offers conducted
by persons other than the issuer of the subject securities or its
affiliates, the issuer of the subject securities will be presumed to be
a foreign private issuer and U.S. holders will be presumed to hold 10
percent or less of the outstanding subject securities, unless:
(1) The exchange offer is made pursuant to an agreement with the
issuer of the subject securities;
(2) The aggregate trading volume of the subject class of securities
on all national securities exchanges in the United States, on the
Nasdaq market or on the OTC market, as reported to the NASD, over the
12-calendar-month period ending 30 days before commencement of the
offer, exceeds 10 percent of the worldwide aggregate trading volume of
that class of securities over the same period;
(3) The most recent annual report or annual information filed or
submitted by the issuer with securities regulators of the home
jurisdiction or with the Commission indicates that U.S. holders hold
more than 10 percent of the outstanding subject class of securities; or
(4) The offeror knows, or has reason to know, that U.S. ownership
exceeds 10 percent of the subject securities.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
7. The authority citation for part 239 continues to read, in part,
as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77sss, 78c,
78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j,
79l, 79m, 79n, 79q, 79t, 80a-8, 80a-24, 80a-29, 80a-30 and 80a-37,
unless otherwise noted.
* * * * *
8. By amending Sec. 239.42 as follows:
a. By revising the section heading;
b. At the end of paragraph (e), removing the word ``and'';
c. At the end of paragraph (f), removing the period and adding ``;
and''; and
d. By adding paragraph (g).
The revisions to Sec. 239.42 read as follows:
[[Page 61403]]
Sec. 239.42 Form F-X, for appointment of agent for service of process
and undertaking for issuers registering securities on Form F-8, F-9, F-
10, or F-80 (Secs. 239.38, 239.39, 239.40, or 239.41 of this chapter)
or registering securities or filing periodic reports on Form 40-F
(Sec. 249.240f of this chapter), or by any issuer or other non-U.S.
person filing tender offer documents on Schedule 13E-4F, 14D-1F or 14D-
9F (Secs. 240.13e-102, 240.14d-102 or 240.14d-103 of this chapter), by
any non-U.S. person acting as trustee with respect to securities
registered on Form F-7 (Sec. 239.37 of this chapter), F-8, F-9, F-10,
F-80 or SB-2 (Sec. 239.10 of this chapter), or by a Canadian issuer
qualifying an offering statement pursuant to Regulation A (Sec. 230.251
et seq.) on Form 1-A (Sec. 239.90 of this chapter), or registering
securities on Form SB-2, or by any non-U.S. issuer providing Form CB to
the Commission in connection with a tender offer, rights offering or
business combination.
* * * * *
(g) By any non-U.S. issuer providing Form CB to the Commission in
connection with a tender offer, rights offering or business
combination.
Sec. 239.42 (Form F-X) [amended]
8a. By amending Form F-X (referenced in Sec. 239.42 of this
chapter) General Instruction 1 by adding paragraph (g) and revising
Item II.F.(b) to read as follows:
[Note: Form F-X does not and this amendment will not appear in
the Code of Federal Regulations.]
Form F-X
General Instructions
1. Form F-X must be filed with the Commission:
* * * * *
(g) by any non-U.S. issuer providing Form CB to the Commission
in connection with a tender offer, rights offering or business
combination.
* * * * *
II. * * *
F. * * *
(b) The use of Form F-8, Form F-80 or Form CB stipulates and agrees
to appoint a successor agent for service of process and file an amended
Form F-X if the Filer discharges the Agent or the Agent is unwilling or
unable to accept service on behalf of the Filer at any time until six
years have elapsed following the effective date of the latest amendment
to such Form F-8, Form F-80 or Form CB;
* * * * *
9. By adding Sec. 239.800 and Form CB to read as follows:
Sec. 239.800 Form CB, report of sales of securities in connection with
an exchange offer or a rights offering.
This Form is used to report sales of securities in connection with
a rights offering in reliance upon Sec. 230.801 of this chapter and to
report sales of securities in connection with an exchange offer or
business combination in reliance upon Sec. 230.802 of this chapter.
Note: Form CB does not appear in the Code of Federal
Regulations. Form CB is attached as Appendix A.
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
10. The authority citation for part 240 continues to read in part
as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77eee,
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d 78f, 78i, 78j, 78j-1, 78k, 78k-
1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d),
78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and
80b-11, unless otherwise noted.
* * * * *
11. By amending Sec. 240.13e-3 by adding paragraph (g)(6) to read
as follows:
Sec. 240.13e-3 Going private transactions by certain issuers or their
affiliates.
* * * * *
(g) Exceptions. * * *
* * * * *
(6) Any tender offer or business combination made in compliance
with Sec. 230.802 of this chapter, Sec. 240.13e-4(h)(8) or
Sec. 240.14d-1(c).
12. By amending Sec. 240.13e-4 as follows:
a. By removing the word ``or'' at the end of paragraph (h)(7);
b. Redesignating paragraph (h)(8) as (h)(9); and to
c. Adding new paragraphs (h)(8) and (i) to read as follows:
Sec. 240.13e-4 Tender offers by issuers.
* * * * *
(h) * * *
(8) Cross-border tender offers (Tier I). Any issuer tender offer
(including any exchange offer) where the issuer is a foreign private
issuer as defined in Sec. 240.3b-4 if the following conditions are
satisfied.
(i) Except in the case of an issuer tender offer which is commenced
during the pendency of a tender offer made by a third party in reliance
on Sec. 240.14d-1(c), U.S. holders do not hold more than 10 percent of
the class of securities sought in the offer (as determined under
Instruction 2 to paragraph (h)(8) and paragraph (i) of this section);
and
(ii) The issuer or affiliate must permit U.S. holders to
participate in the offer on terms at least as favorable as those
offered any other holder of the same class of securities that is the
subject of the offer; however:
(A) Registered exchange offers. If the issuer or affiliate offers
securities registered under the Securities Act of 1933 (15 U.S.C. 77a
et seq.), the issuer or affiliate need not extend the offer to security
holders in those states or jurisdictions that prohibit the offer or
sale of the securities after the issuer or affiliate has made a good
faith effort to register or qualify the offer and sale of securities in
that state or jurisdiction, except that the issuer or affiliate must
offer the same cash alternative to security holders in any such state
or jurisdiction that it has offered to security holders in any other
state or jurisdiction.
(B) Exempt exchange offers. If the issuer or affiliate offers
securities exempt from registration under Sec. 230.802 of this chapter,
the issuer or affiliate need not extend the offer to security holders
in those states or jurisdictions that require registration or
qualification, except that the issuer or affiliate must offer the same
cash alternative to security holders in any such state or jurisdiction
that it has offered to security holders in any other state or
jurisdiction.
(C) Cash only consideration. The issuer or affiliate may offer U.S.
holders cash only consideration for the tender of the subject
securities, notwithstanding the fact that the issuer or affiliate is
offering security holders outside the United States a consideration
that consists in whole or in part of securities of the issuer or
affiliate, if the issuer or affiliate has a reasonable basis for
believing that the amount of cash is substantially equivalent to the
value of the consideration offered to non-U.S. holders, and either of
the following conditions are satisfied:
(1) The offered security is a ``margin security'' within the
meaning of Regulation T (12 CFR 220.2) and the issuer or affiliate
undertakes to provide, upon the request of any U.S. holder or the
Commission staff, the closing price and daily trading volume of the
security on the principal trading market for the security as of the
last trading day of each of the six months preceding the announcement
of the offer and each of the trading days thereafter; or
(2) If the offered security is not a ``margin security'' within the
meaning of Regulation T (12 CFR 220.2), the issuer or affiliate
undertakes to provide, upon the request of any U.S. holder or the
Commission staff, an opinion of an independent expert stating that the
cash consideration offered to U.S. holders is substantially equivalent
to the value of
[[Page 61404]]
the consideration offered security holders outside the United States.
(D) Disparate tax treatment. If the issuer or affiliate offers
``loan notes'' solely to offer sellers tax advantages not available in
the United States and these notes are neither listed on any organized
securities market nor registered under the Securities Act of 1933 (15
U.S.C. 77a et seq.), the loan notes need not be offered to U.S.
holders.
(iii) Informational documents. (A) If the issuer or affiliate
publishes or otherwise disseminates an informational document to the
holders of the securities in connection with the issuer tender offer
(including any exchange offer), the issuer or affiliate must furnish
that informational document, including any amendments thereto, in
English, to the Commission on Form CB (Sec. 249.480 of this chapter) by
the first business day after publication or dissemination. If the
issuer or affiliate is a foreign company, it must also file a Form F-X
(Sec. 239.42 of this chapter) with the Commission at the same time as
the submission of Form CB to appoint an agent for service in the United
States.
(B) The issuer or affiliate must disseminate any informational
document to U.S. holders, including any amendments thereto, in English,
on a comparable basis to that provided to security holders in the home
jurisdiction.
(C) If the issuer or affiliate disseminates by publication in its
home jurisdiction, the issuer or affiliate must publish the information
in the United States in a manner reasonably calculated to inform U.S.
holders of the offer.
(iv) An investment company registered or required to be registered
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.),
other than a registered closed-end investment company, may not use this
paragraph (h)(8); or
* * * * *
(i) Cross-border tender offers (Tier II). Any issuer tender offer
(including any exchange offer) that meets the conditions in paragraph
(i)(1) of this section shall be entitled to the exemptive relief
specified in paragraph (i)(2) of this section provided that such issuer
tender offer complies with all the requirements of this section other
than those for which an exemption has been specifically provided in
paragraph (i)(2) of this section:
(1) Conditions. (i) The issuer is a foreign private issuer as
defined in Sec. 240.3b-4 and is not an investment company registered or
required to be registered under the Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.), other than a registered closed-end investment
company; and
(ii) Except in the case of an issuer tender offer which is
commenced during the pendency of a tender offer made by a third party
in reliance on Sec. 240.14d-1(d), U.S. holders do not hold more than 40
percent of the class of securities sought in the offer (as determined
under Instruction 2 to paragraphs (h)(8) and (i) of this section).
(2) Exemptions. The issuer tender offer shall comply with all
requirements of this section other than the following:
(i) Equal treatment--loan notes. If the issuer or affiliate offers
loan notes solely to offer sellers tax advantages not available in the
United States and these notes are neither listed on any organized
securities market nor registered under the Securities Act (15 U.S.C.
77a et seq.), the loan notes need not be offered to U.S. holders,
notwithstanding paragraph (f)(8) and (h)(9) of this section.
(ii) Equal treatment--separate U.S. and foreign offers.
Notwithstanding the provisions of paragraph (f)(8) of this section, an
issuer or affiliate conducting an issuer tender offer meeting the
conditions of paragraph (i)(1) of this section may separate the offer
into two offers: One offer made only to U.S. holders and another offer
made only to non-U.S. holders. The offer to U.S. holders must be made
on terms at least as favorable as those offered any other holder of the
same class of securities that is the subject of the tender offer.
(iii) Notice of extensions. Notice of extensions made in accordance
with the requirements of the home jurisdiction law or practice will
satisfy the requirements of Sec. 240.14e-1(d).
(iv) Prompt payment. Payment made in accordance with the
requirements of the home jurisdiction law or practice will satisfy the
requirements of Sec. 240.14e-1(c).
Instructions to paragraph (h)(8) and (i) of this section:
1. Home jurisdiction means both the jurisdiction of the issuer's
incorporation, organization or chartering and the principal foreign
market where the issuer's securities are listed or quoted.
2. U.S. holder means any security holder resident in the United
States. To determine the percentage of outstanding securities held
by U.S. holders:
i. Calculate the U.S. ownership as of 30 days before the
commencement of the issuer tender offer;
ii. Include securities underlying American Depositary Shares
convertible or exchangeable into the securities that are the subject
of the tender offer when calculating the number of subject
securities outstanding, as well as the number held by U.S. holders.
Exclude from the calculations other types of securities that are
convertible or exchangeable into the securities that are the subject
of the tender offer, such as warrants, options and convertible
securities. Exclude from those calculations securities held by
persons who hold more than 10 percent of the subject securities;
iii. Use the method of calculating record ownership in
Sec. 240.12g3-2(a), except that your inquiry as to the amount of
securities represented by accounts of customers resident in the
United States may be limited to brokers, dealers, banks and other
nominees located in the United States, your jurisdiction of
incorporation, and the jurisdiction that is the primary trading
market for the subject securities, if different than your
jurisdiction of incorporation;
iv. If, after reasonable inquiry, you are unable to obtain
information about the amount of securities represented by accounts
of customers resident in the United States, you may assume, for
purposes of this definition, that the customers are residents of the
jurisdiction in which the nominee has its principal place of
business; and
v. Count securities as beneficially owned by residents of the
United States as reported on reports of beneficial ownership that
are provided to you or publicly filed and based on information
otherwise provided to you.
3. United States. United States means the United States of
America, its territories and possessions, any State of the United
States, and the District of Columbia.
4. The exemptions provided by paragraphs (h)(8) and (i) of this
section are not available for any securities transaction or series
of transactions that technically complies with paragraph (h)(8) or
(i) of this section but are part of a plan or scheme to evade the
provisions of this section.
13. By amending Sec. 240.14d-1 as follows:
a. By redesignating paragraphs (c), (d), (e), and (f) as paragraphs
(e), (f), (g) and (h);
b. Removing the reference to ``Sec. 240.14d-1(c)'' in newly
redesignated paragraph (f) and adding in its place ``Sec. 240.14d-1(e);
and
c. Adding new paragraphs (c) and (d) and Instructions thereto to
read as follows:
Sec. 240.14d-1 Scope of and definitions applicable to Regulations 14D
and 14E.
* * * * *
(c) Tier I. Any tender offer for the securities of a foreign
private issuer as defined in Sec. 240.3b-4 is exempt from the
requirements of sections 14(d)(1) through 14(d)(7) of the Act (15
U.S.C. 78n(d)(1) through 78n(d)(7)), Regulation 14D (Sec. 240.14d-1
through Sec. 240.14d-10) and Schedules TO (Sec. 240.14d-100) and 14D-9
(Sec. 240.14d-101) thereunder, and Sec. 240.14e-1 and Sec. 240.14e-2 of
Regulation 14E under the Act if the following conditions are satisfied:
(1) U.S. ownership limitation. Except in the case of a tender offer
which is
[[Page 61405]]
commenced during the pendency of a tender offer made by a prior bidder
in reliance on this paragraph or Sec. 240.13e-4(h)(8), U.S. holders do
not hold more than 10 percent of the class of securities sought in the
offer (as determined under Instruction 2 to paragraphs (c) and (d) of
this section).
(2) Equal treatment. The bidder must permit U.S. holders to
participate in the offer on terms at least as favorable as those
offered any other holder of the same class of securities that is the
subject of the tender offer; however:
(i) Registered exchange offers. If the bidder offers securities
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.),
the bidder need not extend the offer to security holders in those
states or jurisdictions that prohibit the offer or sale of the
securities after the bidder has made a good faith effort to register or
qualify the offer and sale of securities in that state or jurisdiction,
except that the bidder must offer the same cash alternative to security
holders in any such state or jurisdiction that it has offered to
security holders in any other state or jurisdiction.
(ii) Exempt exchange offers. If the bidder offers securities exempt
from registration under Sec. 230.802 of this chapter, the bidder need
not extend the offer to security holders in those states or
jurisdictions that require registration or qualification, except that
the bidder must offer the same cash alternative to security holders in
any such state or jurisdiction that it has offered to security holders
in any other state or jurisdiction.
(iii) Cash only consideration. The bidder may offer U.S. holders
only a cash consideration for the tender of the subject securities,
notwithstanding the fact that the bidder is offering security holders
outside the United States a consideration that consists in whole or in
part of securities of the bidder, so long as the bidder has a
reasonable basis for believing that the amount of cash is substantially
equivalent to the value of the consideration offered to non-U.S.
holders, and either of the following conditions are satisfied:
(A) The offered security is a ``margin security'' within the
meaning of Regulation T (12 CFR 220.2) and the issuer undertakes to
provide, upon the request of any U.S. holder or the Commission staff,
the closing price and daily trading volume of the security on the
principal trading market for the security as of the last trading day of
each of the six months preceding the announcement of the offer and each
of the trading days thereafter; or
(B) If the offered security is not a ``margin security'' within the
meaning of Regulation T (12 CFR 220.2) the issuer undertakes to
provide, upon the request of any U.S. holder or the Commission staff,
an opinion of an independent expert stating that the cash consideration
offered to U.S. holders is substantially equivalent to the value of the
consideration offered security holders outside the United States.
(iv) Disparate tax treatment. If the bidder offers loan notes
solely to offer sellers tax advantages not available in the United
States and these notes are neither listed on any organized securities
market nor registered under the Securities Act of 1933 (15 U.S.C. 77a
et seq.), the loan notes need not be offered to U.S. holders.
(3) Informational documents. (i) The bidder must disseminate any
informational document to U.S. holders, including any amendments
thereto, in English, on a comparable basis to that provided to security
holders in the home jurisdiction.
(ii) If the bidder disseminates by publication in its home
jurisdiction, the bidder must publish the information in the United
States in a manner reasonably calculated to inform U.S. holders of the
offer.
(iii) In the case of tender offers for securities described in
section 14(d)(1) of the Act (15 U.S.C. 78n(d)(1)), if the bidder
publishes or otherwise disseminates an informational document to the
holders of the securities in connection with the tender offer, the
bidder must furnish that informational document, including any
amendments thereto, in English, to the Commission on Form CB
(Sec. 249.480 of this chapter) by the first business day after
publication or dissemination. If the bidder is a foreign company, it
must also file a Form F-X (Sec. 239.42 of this chapter) with the
Commission at the same time as the submission of Form CB to appoint an
agent for service in the United States.
(4) Investment companies. The issuer of the securities that are the
subject of the tender offer is not an investment company registered or
required to be registered under the Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.), other than a registered closed-end investment
company.
(d) Tier II. A person conducting a tender offer (including any
exchange offer) that meets the conditions in paragraph (d)(1) of this
section shall be entitled to the exemptive relief specified in
paragraph (d)(2) of this section provided that such tender offer
complies with all the requirements of this section other than those for
which an exemption has been specifically provided in paragraph (d)(2)
of this section:
(1) Conditions. (i) The subject company is a foreign private issuer
as defined in Sec. 240.3b-4 and is not an investment company registered
or required to be registered under the Investment Company Act of 1940
(15 U.S.C. 80a-1 et seq.), other than a registered closed-end
investment company;
(ii) Except in the case of a tender offer which is commenced during
the pendency of a tender offer made by a prior bidder in reliance on
this paragraph or Sec. 240.13e-4(i), U.S. holders do not hold more than
40 percent of the class of securities sought in the offer (as
determined under Instruction 2 to paragraphs (c) and (d) of this
section); and
(iii) The bidder complies with all applicable U.S. tender offer
laws and regulations, other than those for which an exemption has been
provided for in paragraph (d)(2) of this section.
(2) Exemptions.--(i) Equal treatment--loan notes. If the bidder
offers loan notes solely to offer sellers tax advantages not available
in the United States and these notes are neither listed on any
organized securities market nor registered under the Securities Act of
1933 (15 U.S.C. 77a et seq.), the loan notes need not be offered to
U.S. holders, notwithstanding Sec. 240.14d-10.
(ii) Equal treatment--separate U.S. and foreign offers.
Notwithstanding the provisions of Sec. 240.14d-10, a bidder conducting
a tender offer meeting the conditions of paragraph (d)(1) of this
section may separate the offer into two offers: one offer made only to
U.S. holders and another offer made only to non-U.S. holders. The offer
to U.S. holders must be made on terms at least as favorable as those
offered any other holder of the same class of securities that is the
subject of the tender offers.
(iii) Notice of extensions. Notice of extensions made in accordance
with the requirements of the home jurisdiction law or practice will
satisfy the requirements of Sec. 240.14e-1(d).
(iv) Prompt payment. Payment made in accordance with the
requirements of the home jurisdiction law or practice will satisfy the
requirements of Sec. 240.14e-1(c).
(v) Subsequent offering period/Withdrawal rights. A bidder will
satisfy the announcement and prompt payment requirements of
Sec. 240.14d-11(d), if the bidder announces the results of the tender
offer, including the approximate number of securities deposited to
date, and pays for tendered securities in accordance with the
requirements of the
[[Page 61406]]
home jurisdiction law or practice and the subsequent offering period
commences immediately following such announcement. Notwithstanding
section 14(d)(5) of the Act (15 U.S.C. 78n(d)(5)), the bidder need not
extend withdrawal rights following the close of the offer and prior to
the commencement of the subsequent offering period.
Instructions to paragraphs (c) and (d):
1. Home jurisdiction means both the jurisdiction of the subject
company's incorporation, organization or chartering and the
principal foreign market where the subject company's securities are
listed or quoted.
2. U.S. holder means any security holder resident in the United
States. Except as otherwise provided in Instruction 3 below, to
determine the percentage of outstanding securities held by U.S.
holders:
i. Calculate the U.S. ownership as of 30 days before the
commencement of the tender offer;
ii. Include securities underlying American Depositary Shares
convertible or exchangeable into the securities that are the subject
of the tender offer when calculating the number of subject
securities outstanding, as well as the number held by U.S. holders.
Exclude from the calculations other types of securities that are
convertible or exchangeable into the securities that are the subject
of the tender offer, such as warrants, options and convertible
securities. Exclude from those calculations securities held by
persons who hold more than 10 percent of the subject securities, or
that are held by the bidder;
iii. Use the method of calculating record ownership in Rule
12g3-2(a) under the Act (Sec. 240.12g3-2(a) of this chapter), except
that your inquiry as to the amount of securities represented by
accounts of customers resident in the United States may be limited
to brokers, dealers, banks and other nominees located in the United
States, the subject company's jurisdiction of incorporation or that
of each participant in a business combination, and the jurisdiction
that is the primary trading market for the subject securities, if
different than the subject company's jurisdiction of incorporation;
iv. If, after reasonable inquiry, you are unable to obtain
information about the amount of securities represented by accounts
of customers resident in the United States, you may assume, for
purposes of this definition, that the customers are residents of the
jurisdiction in which the nominee has its principal place of
business; and
v. Count securities as beneficially owned by residents of the
United States as reported on reports of beneficial ownership that
are provided to you or publicly filed and based on information
otherwise provided to you.
3. In a tender offer by a bidder other than an affiliate of the
issuer of the subject securities, the issuer of the subject
securities will be presumed to be a foreign private issuer and U.S.
holders will be presumed to hold 10 percent or less (40 percent or
less in the case of 14d-1(d)) of such outstanding securities,
unless:
i. The tender offer is made pursuant to an agreement with the
issuer of the subject securities;
ii. The aggregate trading volume of the subject class of
securities on all national securities exchanges in the United
States, on the Nasdaq market, or on the OTC market, as reported to
the NASD, over the 12-calendar-month period ending 30 days before
commencement of the offer, exceeds 10 percent (40 percent in the
case of 14d-1(d)) of the worldwide aggregate trading volume of that
class of securities over the same period;
iii. The most recent annual report or annual information filed
or submitted by the issuer with securities regulators of the home
jurisdiction or with the Commission indicates that U.S. holders hold
more than 10 percent (40 percent in the case of 14d-1(d)) of the
outstanding subject class of securities; or
iv. The bidder knows or has reason to know that the level of
U.S. ownership exceeds 10 percent (40 percent in the case of 14d-
1(d)) of such securities.
4. United States. United States means the United States of
America, its territories and possessions, any State of the United
States, and the District of Columbia.
5. The exemptions provided by paragraphs (c) and (d) of this
section are not available for any securities transaction or series
of transactions that technically complies with paragraph (c) or (d)
of this section but are part of a plan or scheme to evade the
provisions of Regulations 14D or 14E.
* * * * *
14. By amending Sec. 240.14d-9 by revising the introductory text of
paragraph (d)(2) and adding paragraph (d)(2)(iii) to read as follows:
Sec. 240.14d-9 Recommendation or solicitation by the subject company
and others.
* * * * *
(d) * * *
* * * * *
(2) Notwithstanding paragraph (d)(1) of this section, this section
shall not apply to the following persons:
* * * * *
(iii) Any person specified in paragraph (d)(1) of this section if:
(A) The subject company is the subject of a tender offer conducted
under Sec. 240.14d-1(c);
(B) Any person specified in paragraph (d)(1) of this section
furnishes to the Commission on Form CB (Sec. 249.480 of this chapter)
the entire informational document it publishes or otherwise
disseminates to holders of the class of securities in connection with
the tender offer no later than the next business day after publication
or dissemination;
(C) Any person specified in paragraph (d)(1) of this section
disseminates any informational document to U.S. holders, including any
amendments thereto, in English, on a comparable basis to that provided
to security holders in the issuer's home jurisdiction; and
(D) Any person specified in paragraph (d)(1) of this section
disseminates by publication in its home jurisdiction, such person must
publish the information in the United States in a manner reasonably
calculated to inform U.S. security holders of the offer.
* * * * *
15. By amending Sec. 240.14e-2 by adding paragraph (d) to read as
follows:
Sec. 240.14e-2 Position of subject company with respect to a tender
offer.
* * * * *
(d) Exemption for cross-border tender offers. The subject company
shall be exempt from this section with respect to a tender offer
conducted under Sec. 240.14d-1(c).
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
16. The authority citation for part 249 continues to read in part
as follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *
17. By adding Subpart E, Sec. 249.480 and Form CB to read as
follows:
Subpart E--Forms for Statements Made in Connection With Exempt
Tender Offers
Sec. 249.480 Form CB, tender offer statement in connection with a
tender offer for a foreign private issuer.
This form is used to report an issuer tender offer conducted in
compliance with Sec. 240.13e-4(h)(8) of this chapter and a third-party
tender offer conducted in compliance with Sec. 240.14d-1(c) of this
chapter. This report also is used by a subject company pursuant to
Sec. 240.14e-2(d) of this chapter.
Note: Form CB does not appear in the Code of Federal
Regulations. Form CB is attached as Appendix A.
PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF
1939
18. The authority citation for part 260 continues to read as
follows:
Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-3,
80b-4, and 80b-11.
19. By adding Sec. 260.4d-10 to read as follows:
Sec. 260.4d-10 Exemption for securities issued pursuant to
Sec. 230.802 of this chapter.
Any debt security, whether or not issued under an indenture, is
exempt from the Act if made in compliance with Sec. 230.802 of this
chapter.
By the Commission.
[[Page 61407]]
Dated: October 22, 1999.
Margaret H. McFarland,
Deputy Secretary.
Appendix A--Form CB
Note: Form CB does not appear in the Code of Federal
Regulations.
Securities and Exchange Commission
Washington, D.C. 20549
Form CB--Tender Offer/Rights Offering Notification Form
(Amendment No. ____)
Please place an X in the box(es) to designate the appropriate
rule provision(s) relied upon to file this Form:
Securities Act Rule 801 (Rights Offering) {time}
Securities Act Rule 802 (Exchange Offer) {time}
Exchange Act Rule 13e-4(h)(8) (Issuer Tender Offer) {time}
Exchange Act Rule 14d-1(c) (Third Party Tender Offer) {time}
Exchange Act Rule 14e-2(d) (Subject Company Response) {time}
----------------------------------------------------------------------
(Name of Subject Company)
----------------------------------------------------------------------
(Translation of Subject Company's Name into English (if applicable))
----------------------------------------------------------------------
(Jurisdiction of Subject Company's Incorporation or Organization)
----------------------------------------------------------------------
(Name of Person(s) Furnishing Form)
----------------------------------------------------------------------
(Title of Class of Subject Securities)
----------------------------------------------------------------------
(CUSIP Number of Class of Securities (if applicable))
----------------------------------------------------------------------
(Name, Address (including zip code) and Telephone Number (including
area code) of Person(s) Authorized to Receive Notices and
Communications on Behalf of Subject Company)
----------------------------------------------------------------------
(Date Tender Offer/Rights Offering Commenced)
*An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it
displays a currently valid control number. Any member of the public
may direct to the Commission any comments concerning the accuracy of
this burden estimate and any suggestions for reducing this burden.
This collection of information has been reviewed by OMB in
accordance with the clearance requirements of 44 U.S.C. 3507.
General Instructions
I. Eligibility Requirements for Use of Form CB
A. Use this Form to furnish information pursuant to Rules 13e-
4(h)(8), 14d-1(c) and 14e-2(d) under the Securities Exchange Act of
1934 (``Exchange Act''), and Rules 801 and 802 under the Securities
Act of 1933 (``Securities Act'').
Instructions
1. For the purposes of this Form, the term ``subject company''
means the issuer of the securities in a rights offering and the
company whose securities are sought in a tender offer.
2. For the purposes of this Form, the term ``tender offer''
includes both cash and securities tender offers.
B. The information and documents furnished on this Form are not
deemed ``filed'' with the Commission or otherwise subject to the
liabilities of Section 18 of the Exchange Act.
II. Instructions for Submitting Form
A. You must furnish five copies of this Form and any amendment
to the Form (see Part I, Item 1.(b)), including all exhibits and any
other paper or document furnished as part of the Form, to the
Commission at its principal office. Each copy must be bound, stapled
or otherwise compiled in one or more parts, without stiff covers.
The binding must be made on the side or stitching margin in such
manner as to leave the reading matter legible.
B. The persons specified in Part IV may manually sign the
original and at least one copy of this Form and any amendments. You
must conform any unsigned copies. Typed signatures are acceptable so
long as manually signed copies are retained by the filing person for
five years.
C. You must furnish this Form to the Commission no later than
the next business day after the disclosure documents submitted with
this Form are published or otherwise disseminated in the subject
company's home jurisdiction.
D. In addition to any internal numbering you may include,
sequentially number the manually signed original of the Form and any
amendments by handwritten, typed, printed or other legible form of
notation from the first page of the document through the last page
of the document and any exhibits or attachments. Further, you must
set forth the total number of pages contained in a numbered original
on the first page of the document.
III. Special Instructions for Complying With Form CB
Under Sections 3(b), 7, 8, 10, 19 and 28 of the Securities Act
of 1933, and Sections 12, 13, 14, 23 and 36 of the Exchange Act of
1934 and the rules and regulations adopted under those Sections, the
Commission is authorized to solicit the information required to be
supplied by this form by certain entities conducting a tender offer,
rights offer or business combination for the securities of certain
issuers.
Disclosure of the information specified in this form is
mandatory. We will use the information for the primary purposes of
assuring that the offeror is entitled to use the Form and that
investors have information about the transaction to enable them to
make informed investment decisions. We will make this Form a matter
of public record. Therefore, any information given will be available
for inspection by any member of the public.
Because of the public nature of the information, the Commission
can use it for a variety of purposes. These purposes include
referral to other governmental authorities or securities self-
regulatory organizations for investigatory purposes or in connection
with litigation involving the Federal securities laws or other
civil, criminal or regulatory statutes or provisions.
Part I--Information Sent to Security Holders
Item 1. Home Jurisdiction Documents
(a) You must attach to this Form the entire disclosure document
or documents, including any amendments thereto, in English, that you
have delivered to holders of securities or published in the subject
company's home jurisdiction that are required to be disseminated to
U.S. security holders or published in the United States. The Form
need not include any documents incorporated by reference into those
disclosure document(s) and not published or distributed to holders
of securities.
(b) Furnish any amendment to a furnished document or documents
to the Commission under cover of this Form. Indicate on the cover
page the number of the amendment.
Item 2. Informational Legends
You may need to include legends on the outside cover page of any
offering document(s) used in the transaction. See Rules 801(b) and
802(b).
Note to Item 2. If you deliver the home jurisdiction document(s)
through an electronic medium, the required legends must be presented
in a manner reasonably calculated to draw attention to them.
Part II--Information Not Required To Be Sent to Security Holders
The exhibits specified below must be furnished as part of the
Form, but need not be sent to security holders unless sent to
security holders in the home jurisdiction. Letter or number all
exhibits for convenient reference.
(1) Furnish to the Commission any reports or information (in
English or an English summary thereof) that, in accordance with the
requirements of the home jurisdiction, must be made publicly
available in connection with the transaction but need not be
disseminated to security holders.
(2) Furnish copies of any documents incorporated by reference
into the home jurisdiction document(s).
(3) If any name is signed to this Form under a power of
attorney, furnish manually signed copies of the power of attorney.
Part III--Consent to Service of Process
(1) When this Form is furnished to the Commission, the person
furnishing this Form (if a non-U.S. person) must also file with the
Commission a written irrevocable consent and power of attorney on
Form F-X.
(2) Promptly communicate any change in the name or address of an
agent for service to the Commission by amendment of the Form F-X.
Part IV--Signatures
(1) Each person (or its authorized representative) on whose
behalf the Form is submitted must sign the Form. If a person's
authorized representative signs, and the authorized representative
is someone other than an executive officer or general partner,
provide evidence of the representative's authority with the Form.
[[Page 61408]]
(2) Type or print the name and any title of each person who
signs the Form beneath his or her signature.
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true,
complete and correct.
(Signature)------------------------------------------------------------
(Name and Title)-------------------------------------------------------
(Date)-----------------------------------------------------------------
[FR Doc. 99-28354 Filed 11-9-99; 8:45 am]
BILLING CODE 8010-01-P
