[Federal Register Volume 61, Number 203 (Friday, October 18, 1996)]
[Proposed Rules]
[Pages 54518-54528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26562]
Federal Register / Vol. 61, No. 203 / Friday, October 18, 1996 /
Proposed Rules
[[Page 54518]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230 and 240
[Release Nos. 33-7356; 34-37803; File No. S7-26-96; International
Series Release No. 1022]
RIN 3235-AG85
Offshore Press Conferences, Meetings With Company Representatives
Conducted Offshore and Press Related Materials Released Offshore
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (the ``Commission'') is
publishing for comment proposed safe harbors designed to facilitate
U.S. press access to offshore press activities. The safe harbors would
clarify the conditions under which journalists may be provided with
access to offshore press conferences, offshore meetings and press
materials released offshore, where a present or proposed offering of
securities or tender offer is discussed, without violating the
provisions of section 5 of the Securities Act, or the procedural
requirements of the tender offer rules promulgated under the Williams
Act.
DATES: Comments should be received on or before December 17, 1996.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., Stop 6-9, Washington, D.C. 20549. Comment letters also may be
submitted electronically to the following electronic mail address:
rule-comment@sec.gov. Comment letters should refer to File No. S7-26-
96; this file number should be included in the subject line if
electronic mail is used. All comment letters received will be available
for public inspection and copying in the Commission's public reference
room, 450 Fifth Street, N.W., Washington, D.C. 20549. Electronically
submitted comment letters will be posted on the Commission's Internet
Web site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Luise M. Welby, Office of
International Corporate Finance, Division of Corporation Finance, at
(202) 942-2990.
SUPPLEMENTARY INFORMATION: The Commission is publishing for comment a
proposed rule 1 that would establish a safe harbor whereby an
issuer, selling security holder, or their representatives, would not be
deemed to have made an ``offer'' for the purposes of Section 5 2
of the Securities Act of 1933 (the ``Securities Act''), by virtue of
providing any journalist, whether foreign or domestic, with access to
press conferences held outside the United States, to meetings with
issuer or selling security holder representatives conducted outside the
United States, or to press related materials released outside the
United States, at or in which a present or proposed offering of
securities is discussed. Likewise, the Commission proposes amending
existing rules 3 to make clear that providing such access would
not be deemed ``directed selling efforts'' within the meaning of
Regulation S 4 under the Securities Act, or a ``general
solicitation'' within the meaning of Regulation D 5 under the
Securities Act. In addition, a bidder for securities of a foreign
private issuer, as well as the subject company, their representatives,
or any other person specified in Rule 14d-9(d) 6 under the
Securities Exchange Act of 1934 (the ``Exchange Act''), will not be
subject to the filing and procedural requirements of Regulations 14D
and 14E 7 under the Exchange Act, by virtue of providing any
journalist, whether foreign or domestic, with access to its press
conferences held outside the United States, to meetings with its
representatives conducted outside the United States, or to press
related materials released outside the United States, at or in which a
present or proposed tender offer is discussed.
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\1\ Proposed Rule 135e.
\2\ 15 U.S.C. 77e.
\3\ Proposed amendments to Rule 502(c) of Regulation D (17 CFR
230.502(c)) and Rule 902(b) of Regulation S (17 CFR 230.902(b)).
\4\ 17 CFR 230.901-230.904 and Preliminary Notes.
\5\ 17 CFR 230.501-230.508 and Preliminary Notes.
\6\ 17 CFR 240.14d-9(d). See infra n.29.
\7\ 17 CFR 240.14d-1--240.14d-10; 17 CFR 240.14e-1--240.14e-2.
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I. Background
In today's global securities markets, corporate transactions
involving securities (whether public offerings, acquisitions, exchange
offers or tender offers) are increasingly newsworthy events, regardless
of where in the world these transactions are taking place. The U.S.
financial press, and foreign publications with a general circulation in
the United States, often provide news coverage of these transactions,
even if the transaction does not involve U.S. companies and will not
take place in the United States. In addition, in some foreign
countries, companies offering securities, or soliciting tenders of
securities, commonly conduct press conferences, issue press releases,
and meet with members of the press when offering securities or
conducting a tender offer. As contrasted with the traditional and
permitted offering process in the United States which does not freely
allow such activities to occur, these activities are not only permitted
by foreign regulatory regimes, but in fact often are an integral part
of the offering or tender offer process in some foreign jurisdictions.
The Commission has been made aware for a number of years that
journalists for publications with a significant U.S. circulation
(whether the publication is U.S.-based or foreign-based) have had
difficulty obtaining direct access to offshore press conferences,
offshore meetings with company representatives and press materials
released offshore where a present or proposed offering of securities or
tender offer is discussed. These journalists have been told by company
representatives that their access to these events or materials is
restricted because of uncertainty whether such access would result in a
violation of the U.S. federal regulatory requirements for offerings of
securities or tender offers.
The Commission has been sensitive to the concerns of journalists
for publications with U.S. circulation that they not be denied access
to the same information made available to journalists for foreign
publications with minimal or no U.S. circulation when covering offshore
offerings or tender offers and has provided prior guidance in this
area. The Commission and staff already have taken a number of actions,
both through rulemaking and interpretations, to address the problem of
press access to information about offerings of securities by foreign
companies,8 including specific guidance in Regulation S stating
that such contacts do not raise Securities Act registration concerns
under certain circumstances.9 Similarly, the
[[Page 54519]]
Commission staff has emphasized that U.S. press coverage of tender
offers for the securities of foreign companies does not trigger the
procedural requirements of the Williams Act.10
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\8\ See generally Securities Act Rules 135 (notice given by an
issuer that it proposes to make a registered public offering of
securities) and 135c (notice by an issuer that it proposes to make,
is making, or has made an offering of securities not registered or
required to be registered under the Securities Act), 17 CFR 230.135
and 230.135c.
\9\ Preliminary Note 7 to Regulation S specifically states that:
``Nothing in these rules precludes access by journalists for
publications with a general circulation in the United States to
offshore press conferences, press releases and meetings with company
press spokespersons in which an offshore offering or tender offer is
discussed, provided that the information is made available to the
foreign and United States press generally and is not intended to
induce purchases of securities by persons in the United States or
tenders of securities by United States holders in the case of
exchange offers.'' Supra n.4.
\10\ See Reuters Holding plc, SEC No-Action Letter (publicly
available March 6, 1990), stating: ``* * * the Commission's rules
are not intended to limit or interfere with news stories or other
bona fide journalistic activities, or otherwise hinder the flow of
normal corporate news. Access by American journalists or non-U.S.
journalists whose reports are disseminated in the U.S. to offshore
press conferences, press releases and company press spokesmen in
which an offshore tender offer is discussed need not be limited
where the information is made available to the foreign and U.S.
press generally and is not intended to induce participation in the
offer by U.S. holders.''
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Despite the previous efforts by the Commission and its staff to
clarify this area, the Commission has been informed that U.S.
journalists, and foreign journalists for publications or other news
services with a general circulation in the United States, continue to
be excluded from offshore press conferences and offshore meetings with
representatives, and denied access to press related materials released
offshore. Foreign issuers involved in global offerings with a public or
private U.S. tranche continue to be concerned that contacts with
journalists for publications with a general circulation in the United
States could constitute ``gun jumping'' and thus improper offers under
the Securities Act,11 or a general solicitation in violation of a
private offering exemption. Even where no U.S. offering is
contemplated, foreign issuers conducting large newsworthy offshore
offerings of securities in accordance with local offering practices
also deny such journalists access to offshore meetings, news
conferences and press materials due to concern that allowing such
access would violate the prohibition on directed selling efforts under
Regulation S. In addition, a foreign company that is either the bidder
for the securities of another foreign company, or the subject of a
present or proposed tender offer itself, may deny such journalists
access to the same activities or materials due to concerns regarding
triggering the filing and procedural requirements of the Williams Act.
The Commission has been advised that continued concerns focus on
uncertainty regarding the applicability of the language in previous
Commission guidance that the provision of the access not be ``intended
to induce'' participation in the offer by persons in the United States.
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\11\ See Report of the Task Force on Disclosure Simplification
to the Securities and Exchange Commission (March 5, 1996), at 33.
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The U.S. Congress also has been aware of this continued exclusion
and has expressed its concern through the legislative process. Recently
passed legislation directs the Commission to adopt rules to address the
applicability of the Securities Act to the issue of foreign press
conferences and foreign press releases.12
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\12\ H.R. 3005, the National Securities Markets Improvements Act
of 1996, which was recently passed by the Congress and is awaiting
the signature of the President, recognizes this problem and directs
the Commission to conduct rulemaking to clarify the status under the
Securities Act of offshore press activity.
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In response to the concerns expressed by the press and the recently
passed legislation, the Commission reiterates its previously expressed
view that the U.S. federal securities laws do not require that
journalists for publications with U.S. circulation be excluded from
offshore press conferences, meetings, or other press coverage
concerning offshore offerings or tender offers. The Commission believes
that such access currently is provided for legitimate journalistic
purposes consistent with traditional international practices, not to
circumvent the U.S. federal securities laws. Moreover, in the
Commission's view, the imposition of such a requirement would be
meaningless in many instances in terms of investor protection, since
denying access to journalists for publications with U.S. circulation
does not prevent such journalists from indirectly receiving the
information disseminated to the foreign press. Rather, the receipt of
such information is merely delayed, thereby unnecessarily competitively
disadvantaging the journalist denied direct access to the information.
The proposed safe harbors are intended to reflect existing offering
practices in certain foreign countries and level the playing field
between U.S. and foreign journalists with respect to these practices,
although the proposed rule does not require that press activities be
limited to countries where such press activities are a traditional part
of the offering process.
Moreover, the proposed safe harbors also would allow U.S. companies
to avail themselves of local offering practices when conducting an
offshore offering, or a tender offer for the securities of a foreign
company. The Commission preliminarily believes that U.S. companies
conducting offerings in foreign countries, or soliciting tenders of the
securities of foreign companies, should be able to conduct the offshore
portion of their offering or tender offer in the same manner as foreign
issuers--i.e., in accordance with local practice, such as by holding
press conferences or meetings with the press, or by issuing press
releases that discuss the offering or tender offer--without running
afoul of U.S. securities regulations. Otherwise, U.S. issuers may be
unfairly disadvantaged in their ability to raise capital in other
countries, or to acquire the securities of foreign companies.
The proposed rules are intended to provide greater assurance to
companies that such access does not implicate the procedural and filing
provisions of the federal securities laws. The new rule, and amendment
of existing rules, should eliminate perceived grounds for the exclusion
of U.S. journalists, or journalists for foreign publications and other
news services with a general circulation in the United States, from
access to foreign press conferences, offshore meetings with
representatives, or press related materials released offshore. The safe
harbors proposed today address only the regulatory filing and
disclosure requirements of Section 5 of the Securities Act and the
Williams Act,13 but not the antifraud, civil liability, or other
provisions of the federal securities laws with respect to material
misstatements or omissions in the press communications, whether oral or
written.
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\13\ If a proposed transaction potentially could implicate both
the Securities Act and the Williams Act (for example, an exchange
offer), the provisions of the Securities Act safe harbor would be
available for relief under the Securities Act, and the tender offer
safe harbor would provide relief with respect to the Williams Act,
assuming that all the conditions of the respective safe harbors are
satisfied.
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The proposed safe harbors are intended to address a specific
identified problem--to remove obstacles faced by journalists for
publications with U.S. circulation in obtaining access to offshore
press activities. The Commission recognizes that the proposed safe
harbor is broad in application because it applies to press activities
in any foreign country and can be utilized by any issuer conducting
some portion of its offering offshore. This release includes specific
questions about the appropriate scope of the proposed safe
harbors.14 These proposals, however, do not attempt to address, or
to suggest a framework for addressing, broader policy questions, such
as how publicity during the offering process should be regulated
generally or the U.S. regulatory implications of the dissemination of
information concerning present or proposed offerings or tender offers
using electronic media such as the Internet in the international
environment. The Commission's Securities Act Concept
[[Page 54520]]
Release issued in July 1996 15 raises a number of questions, and
presents a variety of approaches, to dealing with some of these issues
in the context of an overall framework.
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\14\ See infra p. 14-16, and p. 24-27.
\15\ Securities Act Rel. 7314 (July 25, 1996) [61 FR 40044 (July
31, 1996)].
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II. Proposals
A. Securities Act Safe Harbor
Under the proposed Securities Act safe harbor, an issuer, selling
security holder, or their representatives, would not be deemed to have
(i) made an offer for purposes of Section 5; (ii) engaged in a general
solicitation or general advertising within the meaning of Regulation D;
or (iii) engaged in ``directed selling efforts'' within the meaning of
Regulation S, by allowing journalists access to offshore press
conferences, meetings with issuer or selling security holder
representatives conducted offshore, or press related materials released
offshore, where or in which a present or proposed offering of
securities is discussed, provided certain conditions are met. As
described below, these four conditions require that the press activity
be conducted offshore, at least part of the offering be conducted
outside the United States, that the access also be provided to foreign
press, not just the U.S. press, and that any written materials to which
journalists are provided access under the safe harbor that are related
to certain offerings likely to have significant U.S. investor interest
contain a cautionary legend and do not attach any form of purchase
order or coupon that could be returned to express interest in the
offering.
As noted above, the safe harbor relates solely to the applicability
of the registration requirements of Section 5 of the Securities Act and
does not limit in any way the scope or applicability of the antifraud
or other provisions of the federal securities laws, including Sections
12(a)(2) and 17(a) of the Securities Act, relating to both oral and
written material misstatements and omissions in the offer and sale of
securities.
1. Use of an Objective Test
Prior Commission and staff guidance concerning foreign press
activities has stated that such activities generally do not raise
concerns provided that they are not undertaken for the purpose of
inducing purchases of securities by persons in the United
States.16 As stated above, the Commission understands that this
``intent'' standard is considered by issuers and their counsel to be
too subjective and causes many issuers to continue to feel
uncomfortable about admitting journalists for publications with a
general circulation in the United States to offshore press activities.
It also is the Commission's understanding that offshore press
conferences, meetings with representatives conducted offshore, and the
release of press related materials offshore, are conducted today based
on local practices and for legitimate business purposes--not to induce
participation in the offering by persons in the United States without
the protections of the U.S. federal securities laws. Consistent with
this background and to increase the utility of the safe harbor, the
Commission is proposing a purely objective test--no intent or similar
subjective elements are included. In the event that abusive practices
designed to evade the investor protection mandate of the federal
securities laws develop under the proposed safe harbor, the Commission
will revisit some or all portions of the rules as appropriate.
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\16\ See supra n.9 and n.10.
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Comment is requested as to whether this lack of an ``intent''
requirement is appropriate, or whether a subjective standard should
continue to apply. If a subjective standard is appropriate, should the
same ``inducement'' standard be retained, or would a different
subjective standard be more appropriate? Would the absence of an intent
element permit conduct that, while in technical compliance with the
safe harbor, nevertheless is inconsistent with the purposes of the
Securities Act? Conversely, if an intent element were included as a
condition of the safe harbor, would issuers continue to exclude U.S.
press?
2. Coverage of the Safe Harbor
The proposed Securities Act safe harbor would apply to the
definition of ``offer'' for the purposes of Section 5, the concept of
``directed selling efforts'' under Rule 902(b) of Regulation S, and
``general solicitation'' under Rule 502(c) of Regulation D.
Consequently, the safe harbor would be available in each of the
following situations:
An offshore offering that will include a registered U.S.
tranche;
An offshore offering that will not include any U.S.
offering (whether registered or exempt); and
An offshore offering that will include a U.S. tranche not
registered in reliance upon the Section 4(2) private placement
exemption or any other available Securities Act exemption.
The Commission proposes to make the safe harbor available for each of
these situations based on the Commission's understanding that offshore
press activities traditionally have occurred in each of these cases and
journalists for publications with a circulation in the United States
have been excluded due to perceived problems with Commission rules.
Thus, the safe harbor would not be available for an offering
exclusively in the United States, because similar press activities in
the United States have been viewed as inconsistent with offering
practices in the United States due to, among other things, a concern
that these press activities may be used to ``condition the market.''
Comment is requested whether the proposed application of the safe
harbor in each of the situations enumerated above is appropriate. For
example, is it appropriate, as proposed, to provide protections for
these activities when a U.S. private placement is planned? Are there
types of offerings, such as initial public offerings, that should be
excluded from the safe harbor? Are there any other contexts not covered
by the proposed safe harbor in which the proposed safe harbor should be
applied? Should the safe harbor apply to press activities, whether
offshore or in the United States, in connection with offerings
exclusively in the United States? Do U.S.-only offerings have unique
characteristics that would make these press activities inappropriate?
As currently proposed, all domestic and foreign issuers conducting
offshore offerings would be eligible for the safe harbor, regardless of
the type of issuer, and whether it files periodic reports under the
Exchange Act with the Commission. The Commission preliminarily believes
that ``issuer'' limitations of this kind would be inconsistent with the
purposes of the proposed safe harbor and would not further investor
protection. Restricting the access of U.S. journalists to offshore
press activities of specified classes of issuers would not appear to
prevent the information from reaching U.S. persons--it merely delays
the receipt and places U.S. journalists at a competitive disadvantage.
Comment is requested, however, whether issuer eligibility requirements
should be imposed. First, as discussed above, the safe harbors would be
available to domestic issuers conducting offerings that include an
offshore tranche so that domestic and foreign issuers would be on equal
footing in seeking capital offshore. Is it appropriate to include
domestic issuers, or would their inclusion raise concerns that these
issuers might be more likely to use offshore press activities to evade
important investor protections provided by the federal securities laws?
[[Page 54521]]
Assuming domestic issuers are included, should different
eligibility standards apply to domestic issuers than to foreign
issuers? For example, should only large multinational domestic
companies be covered, or should smaller companies be eligible as well?
Would it be appropriate to limit the safe harbor for domestic companies
to those eligible to use Form S-3 for a primary common stock offering
based on, among other things, an assumption that their activities are
followed by the press? Should the threshold be higher than the current
Form S-3 eligibility requirements? Should any distinction depend on
whether the domestic issuer will be conducting any portion of the
offering in the United States, and if so, how?
Comment also is requested whether there are classes of issuers,
whether foreign or domestic, that should not be eligible for the safe
harbor. For example, are there classes of issuers who lack legitimate
(i.e., non-market conditioning) reasons to inform the press of their
offering activities due to their small size or lack of press following?
Should historically ``problematic'' types of issuers (e.g.,
partnerships, blank check companies or penny stock issuers) be excluded
from the proposed rule?
The Commission also proposes that the safe harbor be available for
selling security holders as well as issuers. The Commission staff has
been informed that governments conducting privatizations, or holding
companies conducting demergers, often avail themselves of local
offering practices when offering securities as selling security
holders. Comment is requested whether selling security holders should
be able to avail themselves of the safe harbor.
In addition, the Commission does not propose limiting relief to
press conferences or meetings held only by the issuer or a selling
security holder, or press related materials released by either of them.
Rather, the proposed safe harbor also would cover any of such
activities conducted by representatives of the issuer or the selling
security holder, such as underwriters and public relations firms. The
Commission preliminarily believes that the safe harbor should be
available to issuers and selling security holders that use agents and
other advisers to conduct their press related activities; on the other
hand, there does not appear to be any need to extend the safe harbor to
press related activities of persons with no relationship to the issuer.
Comment is requested as to the appropriateness of the applicability of
the safe harbor to activities conducted by entities or individuals
other than the issuer or the selling security holder. Should the
Commission specifically define who or what parties would constitute
``representatives'' of the issuer or the selling security holder?
Should such definition be inclusionary or exclusionary in nature?
The Commission is not proposing a definition of ``journalist'' as
part of the proposed safe harbor. It is expected that the term
``journalist'' would be broadly interpreted to cover reporters and
other representatives of news services. Comment is requested whether
the Commission should include a definition of the term ``journalist''
as part of the proposed safe harbor, and if so, according to what
criteria.
The Commission also does not propose limiting the safe harbor to
journalists for publications with a specified minimum U.S. circulation
or to any particular news medium. In the Commission's view, journalists
for smaller publications, newsletters and other services should benefit
from the safe harbor as well. Is this view appropriate, or should the
safe harbor be limited to large international news organizations only?
If the latter approach is used, should the rule define ``international
news organization,'' and if so, how?
The Commission is concerned, however, that the safe harbor be
available only for legitimate meetings with, or releases to, members of
the press. Therefore, the safe harbor would not cover paid
advertisements.17 Should the Commission define ``paid
advertisements'' or provide further interpretive guidance on the
ability to utilize wire services that the issuer pays to run its press
releases and other news items? Also, the Commission would not consider
analysts' reports to come within the new safe harbor--analysts' reports
would continue to be governed by the existing Securities Act research
report rules, such as Rules 138 and 139.18 The benefit of the safe
harbor to issuers or selling security holders with respect to oral or
written communications to journalists would not become unavailable,
however, merely because nonjournalists attend the press conferences or
meetings, or have access to the press related materials.
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\17\ For similar statements previously made by the Commission
regarding paid advertisements, see the definition of ``directed
selling efforts'' under Regulation S, stating that directed selling
efforts would include the ``placement of an advertisement in a
publication with a general circulation in the United States that
refers to the offering of securities being made in reliance upon
this Regulation S.'' 17 CFR 230.902(b)(1). See also Offshore Offers
and Sales, Securities Act Rel. 6863 (April 24, 1990) [55 FR 18306
(May 2, 1990)], stating that the prohibition in Regulation S against
``directed selling efforts'' would preclude, among other things,
activities such as ``placing advertisements with radio and
television stations broadcasting into the United States or in
publications with a general circulation in the United States, which
discuss the offering or are otherwise intended to condition, or
could reasonably be expected to condition, the market for the
securities purportedly being offered abroad.''
\18\ 17 CFR 230.138 and 230.139.
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The proposed rule would not restrict the content of the information
that may be discussed during the press related activities. The
Commission preliminarily is concerned that such a restriction would
limit the ability of issuers to use the safe harbor or that U.S.
journalists may continue to be excluded from offshore press activities
where the issuer expects the content to exceed the scope of the rule.
Comment is requested whether the proposed safe harbor should limit the
information that may be discussed at the press conference or meeting.
Further, should the information set forth in any written press related
materials released under the safe harbor be restricted (e.g., similar
to the restrictions in Rules 135 or 135c under the Securities Act)?
Should the rule limit the type or nature of written materials that may
be distributed to the press under the safe harbor (e.g., press
releases, prospectuses, sales literature)?
3. Conditions To Minimize Possibility of Abuse
The Commission is concerned that, in the future, issuers may
attempt to use the new procedural protections of the safe harbor to
circumvent important Securities Act protections. Consequently, the
proposed safe harbor includes certain conditions that may minimize the
possibility of abuse. Comment is requested generally whether there is a
different approach that would accomplish the Commission's stated
objectives consistent with investor protection.
a. Press Activity Must Take Place Offshore. Under the proposed safe
harbor, the press conference or meeting with issuer or selling security
holder representatives to which access is provided to journalists must
be conducted outside the United States, and any press related materials
to which access is provided to journalists must be released outside the
United States. The proposed safe harbor is intended to be a narrow
statement regarding whether the procedural and filing requirements
under the U.S. federal securities laws are triggered by allowing
journalists for publications with U.S. circulation access to certain
offshore press
[[Page 54522]]
activities, recognizing that foreign offering practices differ from the
U.S. offering practices currently permitted under the U.S. federal
securities laws.19 Comment is requested whether this narrow
approach is appropriate. Should it matter under the proposed safe
harbor where the press activity takes place? Should U.S. and foreign
issuers be able to conduct press activity in the United States without
triggering the procedural and filing requirements of the federal
securities laws? If extended to cover press activity in the United
States, should the applicability depend on the type of offering
(registered or exempt), the type of security to be offered (e.g., debt
or equity), or the type or size of issuer of the securities to be
offered (e.g., foreign or domestic, Exchange Act reporting or
nonreporting, eligible for Form S-3/F-3), or otherwise? Under each
scenario, commenters are requested to address what liability standard
should apply to any statements made or written materials released
within the United States, and whether any written materials released in
the United States should be required to be filed with the Commission.
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\19\ Under the U.S. federal securities laws, unless exempted, no
written or oral offers of securities may be made prior to filing a
registration statement with the Commission. After filing, oral
offers may be made, but written offers may only be made through the
delivery to a prospective investor of a document containing the
information mandated by Section 10 of the Securities Act.
Consequently, press conferences conducted by issuers or their
representatives in the United States or press releases released by
issuers or their representatives in the United States prior to or
during the registration process in which a present or proposed
offering of securities is discussed may violate the U.S. federal
securities laws.
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With respect to written press related materials, the condition that
the access take place offshore would require that the journalist
receive such material at an offshore address. Thus, for example,
materials sent by facsimile or electronic mail to an offshore address
would satisfy this condition; materials sent to a U.S. address would
not. Comment is requested whether this distinction is appropriate or
necessary.
The Commission recognizes that the evolution of communications
technology increasingly has blurred geographic boundaries. Is it
appropriate to require that U.S. journalists travel offshore or
maintain foreign offices in order to have access to issuer press
activities in compliance with this condition, particularly where the
information eventually may be disseminated in the United States? How
should follow-up conversations be treated when a U.S. journalist
attends offshore press activities and returns to the United States?
Should the rule provide guidance on whether follow-up activities can
take place with one participant in a communication being physically
located in the United States? Should the rule contain geographical
restrictions at all, or, alternatively, should the rule require that
only part of the press activity take place offshore (e.g., a
``conference call'' press conference originating offshore at which U.S.
journalists within the geographic boundaries of the United States
participate)? Is there any particular potential for abuse from press
activities with all or part of the activity physically located in the
United States? Is potential for abuse eliminated or reduced by
requiring the activity to take place offshore?
b. Offshore Offering. The Commission is proposing as a condition to
the safe harbor that the offering cannot be conducted solely in the
United States. In this way, issuers cannot claim the protections of the
safe harbor for offshore press activities where there is no offshore
nexus or apparent reason for conducting offshore press activities. As
currently proposed, if any portion of the offering is offshore, this
condition would be satisfied. Comment is requested whether the
Commission should require as a condition of the safe harbor that a
minimum amount of the offering take place offshore, and whether such
requirement should include a quantifiable standard or not. It is the
Commission's understanding that some global offerings do not have
separately identifiable tranches, or that such tranches may not be
identified until after the offshore press activity takes place.
Consequently, at the time of the offshore press activity, the issuer or
selling security holder may not know how much of the offering
ultimately will be conducted in the United States, if any. This
potential uncertainty in advance of the offering as to whether the
standard would be met may make it more difficult for issuers to rely on
the safe harbor, thus limiting its utility.
Comment is sought on whether the Commission should require that a
certain amount of the offering be conducted outside the United States,
e.g., a ``minimal'' amount of the offering, a ``majority'' of the
offering, or a ``substantial'' amount of the offering. Should the
portion to be conducted outside the United States be quantified (e.g.,
10%, 25%, 50%, or some other percentage), and if so, how should such
standard be defined (e.g., as a percentage of the total offering, as a
percentage of the issuer's outstanding securities, or otherwise)?
Should the same standard apply to all issuers, or should the standard
differ depending on whether, for example, the issuer is a foreign or
domestic issuer, Exchange Act reporting or nonreporting, eligible for
Form S-3/F-3, or otherwise? Should the standard depend on the type of
offering (registered or exempt), or the type of security to be offered
(e.g., debt or equity)?
c. Access Provided to Both U.S. and Foreign Journalists. As noted,
the purpose of the proposed rule is to remove uncertainties that impede
the ability of issuers and selling security holders to allow U.S.
journalists, and journalists for foreign publications or other news
services with a general circulation in the United States, the same
access to press conferences, press materials and meetings with
representatives that non-U.S. journalists have. The safe harbor is not
designed as a means for issuers and other offering participants to
channel widespread publicity regarding the offering exclusively into
the United States. To limit the rule's ability to be used in this
manner, the proposed rule requires that ``access is provided to both
U.S. and foreign journalists,'' i.e., that whatever is made available
to U.S. journalists also must be made available to foreign journalists.
For example, an issuer would not qualify for the safe harbor if it held
an offshore press conference and only allowed U.S. journalists to
attend. Comment is requested whether this requirement is appropriate or
necessary for investor protection. Are there any circumstances where
excluding all or certain non-U.S. journalists would be consistent with
the purposes of the proposed safe harbor? Assuming that press activity
takes place offshore and subsequently is reported in the United States,
does requiring that foreign journalists have ``access'' provide
additional investor protections? Should the status of the issuer (e.g.,
foreign or domestic, Exchange Act reporting or nonreporting, eligible
for Form S-3/F-3) affect the applicability or interpretation of this
condition? Should the type of offering, or the type of security to be
offered, matter?
The focus of this provision of the proposed rule is on the access--
not whether in fact any foreign journalists attend the offshore press
conference or meeting with representatives, or receive the press
related materials. The Commission preliminarily believes that it may be
burdensome to require that foreign journalists actually take part since
their attendance or receipt of materials likely is beyond the issuer's
control. Comment is requested whether this approach is appropriate.
With respect to meetings with the issuer, selling security holder, or
their
[[Page 54523]]
representatives, under the proposed safe harbor, the ability to request
a meeting must not be limited to U.S. journalists. In this regard, the
Commission staff has been informed that, in some countries, ``one-on-
one'' presentations are commonly conducted during the offering process
and as part of the offering process. Thus, this requirement would not
prohibit ``one-on-one'' presentations to a U.S. journalist, so long as
``one-on-one'' meetings also are made available to foreign journalists.
The Commission staff also has been informed that some ``one-on-
one'' presentations are granted to a journalist on an ``exclusive''
basis. Therefore, it is conceivable that an issuer or its
representatives might only conduct a single ``one-on-one'' interview.
The Commission does not intend for this requirement to prevent
journalists for publications with a general circulation in the United
States from competing for such exclusive interviews.
The Commission preliminarily believes, however, that exclusive
``one-on-one'' presentations to purely domestic publications in the
absence of any other press contact during the offering may be
indicative of a scheme to channel publicity regarding the offering into
the United States, rather than for legitimate journalistic purposes,
and therefore, are not covered by the proposed safe harbor. However, if
prior to or subsequent to the exclusive ``one-on-one,'' the issuer or
its representatives conducts a press conference complying with the
requirements of the proposed safe harbor, i.e., both U.S. and foreign
journalists are allowed access, then this requirement will be deemed
satisfied with respect to the exclusive ``one-on-one'' to a purely
domestic publication as well.
Comment is requested whether this interpretation regarding
exclusives is appropriate or necessary for investor protection. Are
exclusive ``one-on-one'' meetings with purely domestic publications
potentially indicative of an improper scheme to channel publicity into
the United States? Is any potential for abuse lessened by requiring
other press activities to which foreign journalists have access? Would
it be too burdensome on issuers to require that other press activities
beyond an exclusive ``one-on-one'' meeting take place, thereby leading
issuers to deny exclusives to journalists with a general circulation in
the United States? Is the potential for abuse any greater than if a
foreign journalist, or a journalist for a news service with both
foreign and domestic circulation, conducts an exclusive ``one-on-one''
meeting and the U.S. press reports the same information secondhand?
Should exclusive ``one-on-one'' meetings be covered by the safe harbor
at all?
d. Written Materials Requirements. With regard to any written
materials released to U.S. journalists under the safe harbor, the
Commission is concerned that such written materials be released to
journalists for legitimate press purposes, and not for the purpose of
offering securities in the United States without the protections of the
federal securities laws, or conditioning the market in the United
States for the securities to be offered. In certain offers where there
is likely to be a significant interest in the offering by U.S.
investors, the Commission is proposing additional procedural safeguards
for written materials in order to alert U.S. investors that these
materials are not to be considered an offer of securities for sale in
the United States, and that when and if an offer is made in the United
States, the appropriate required disclosure will be disseminated at
that time.
As proposed, where the written materials released under the
proposed safe harbor discuss (i) any offering of the securities of a
domestic issuer (whether registered or exempt or conducted wholly
offshore), or (ii) any offering of the securities of any foreign
private issuer 20 where part of the offering is or will be
conducted in the United States (whether registered or exempt), the
following ``Written Materials Requirements'' must be satisfied:
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\20\ ``Foreign private issuer'' is defined in Securities Act
Rule 405. Under the rule, a foreign private issuer is any foreign
issuer other than a foreign government except an issuer meeting the
following conditions: (1) more than 50 percent of the outstanding
voting securities of such issuer are held of record either directly
or through voting trust certificates or depositary receipts by
residents of the United States; and (2) any of the following: (i)
the majority of the executive officers or directors are United
States citizens or residents, (ii) more than 50 percent of the
assets of the issuer are located in the United States, or (iii) the
business of the issuer is administered principally in the United
States. 17 CFR 230.405.
---------------------------------------------------------------------------
The materials must include the following information:
21
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\21\ The statements required under the proposed Written
Materials Requirements are similar to information currently required
under other Commission rules. See Securities Act Rule 254
(solicitation of interest document for use prior to an offering
statement) and Securities Act Rule 135c (notice by an issuer that it
proposes to make, is making, or has made an offering of securities
not registered or required to be registered under the Securities
Act), 17 CFR 230.254 and 230.135c.
---------------------------------------------------------------------------
A statement that the materials are not an offer of
securities for sale in the United States;
A statement that the securities may not be offered or
sold in the United States absent registration or an exemption from
registration, that any public offering of securities to be made in the
United States will be made by means of a prospectus that may be
obtained from the issuer or selling security holder and that will
contain detailed information about the company and management, as well
as financial statements;
A statement that no money, securities or other
consideration is being solicited, and, if sent in response by a U.S.
resident, will not be accepted;
If the issuer or selling security holder intends to
register any part of the present or proposed offering in the United
States, a statement regarding this intention; and
The issuer or selling security holder cannot attach to, or
otherwise make a part of, the written materials any form of purchase
order or coupon that could be returned indicating interest in the
offering.
Comment is requested as to whether the addition of the Written
Materials Requirements, in whole or in part, will be effective in
deterring the use of the written materials for the purpose of
conditioning the market in the United States for the securities to be
offered, and if not, why not. Do written materials present more danger
of market conditioning than oral statements reported by the press, and
if so, why? To what extent do issuers conducting offshore press
activities disseminate written materials? In addition, are each of the
Written Materials Requirements necessary and appropriate for their
stated purpose? Will the Written Materials Requirements unnecessarily
deter reliance on the safe harbor by issuers and selling security
holders? Are there alternative or additional procedural or substantive
requirements that could or should be imposed on written materials
released offshore, and if so, what kind? Should the Written Materials
Requirements be imposed on all offerings by domestic issuers, and all
offerings by foreign issuers that will include a U.S. tranche, or
should the applicability depend upon some other criteria, such as,
among others, the type of offering (registered or exempt), the type of
security to be issued (e.g., debt or equity), or the type of issuer of
the securities to be offered (e.g., foreign or domestic, Exchange Act
reporting or nonreporting, eligible for Form S-3/F-3)? Should a
different definition of a foreign issuer be used rather than the
current definition of ``foreign private issuer,'' as defined in Rule
405 under the Securities Act? 22
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\22\ See supra n.20.
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The Commission does not currently believe that it is necessary to
impose the
[[Page 54524]]
Written Materials Requirements on wholly offshore offerings of the
securities of foreign issuers since these offerings would appear to be
of less significant interest to U.S. investors, and therefore, foreign
issuers would be less likely to release written materials offshore for
the purpose of conditioning the U.S. market for the securities to be
offered. Comment is requested whether there are some wholly offshore
offerings by foreign issuers that would appear more likely to be of
significant interest to U.S. investors, and thus, possibly should
require the additional protections of the Written Materials
Requirements. For example, should the Written Materials Requirements be
imposed on wholly offshore offerings of the securities of foreign
issuers with a ``substantial U.S. market interest'' (as currently
defined in Regulation S) 23 in the class of securities to be
offered or sold (or, in the case of an exchange offer, the securities
to be tendered) at the time of the offering? Would any other
distinction be more appropriate?
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\23\ Under Rule 902(n) of Regulation S, with respect to a class
of an issuer's equity securities, ``substantial U.S. market
interest'' is defined as: (i) The securities exchanges and inter-
dealer quotation systems in the United States in the aggregate
constituted the single largest market for such class of securities
in the shorter of the issuer's prior fiscal year or the period since
the issuer's incorporation; or (ii) 20 percent or more of all
trading in such class of securities took place in, on or through the
facilities of securities exchanges and inter-dealer quotation
systems in the United States and less than 55 percent of such
trading took place in, on or through the facilities of securities
markets of a single foreign country in the shorter of the issuer's
prior fiscal year or the period since the issuer's incorporation.
With respect to an issuer's debt securities, ``substantial U.S.
market interest'' is defined as: (i) Its debt securities and the
securities described in 230.903(c)(4)(1) and (ii) (i.e., certain
non-participating preferred stock and asset-backed securities), in
the aggregate, are held of record by 300 or more U.S. persons; (ii)
$1 billion or more of: The principal amount outstanding of its debt
securities, the greater of liquidation preference or par value of
its securities described in 230.903(c)(4)(i) (i.e., certain non-
participating preferred stock), and the principal amount or
principal balance of its securities described in 230.903(c)(4)(ii)
(i.e., certain asset-backed securities), in the aggregate, is held
of record by U.S. persons; and (iii) 20 percent or more of: the
principal amount outstanding of its debt securities, the greater of
liquidation preference or par value of its securities described in
230.903(c)(4)(i) (i.e., certain non-participating preferred stock),
and the principal amount or principal balance of its securities
described in 230.903(c)(4)(ii) (i.e., certain asset-backed
securities), in the aggregate, is held of record by U.S. persons. 17
CFR 230.902(n).
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Should the Written Materials Requirements be imposed on all written
materials released under the safe harbor, or just certain types--e.g.,
press releases, prospectuses, sales literature? Should it matter for
the purposes of imposing the Written Materials Requirements whether the
written materials are released at an offshore press conference or some
other type of offshore meeting with issuer or selling security holder
representatives, or just pursuant to a press release issued offshore
without a press conference or other meeting?
The Commission intends that written materials released to the press
under the safe harbor be for legitimate press purposes, not for the
purpose of offering securities in the United States without the
protections of the federal securities laws. For this reason, the
Commission currently proposes prohibiting the issuer or selling
security holder from attaching to, or otherwise making a part of, the
written materials any form of purchase order or coupon that could be
returned indicating interest in the offering. Comment is requested
whether this prohibition is appropriate and accomplishes this stated
objective. Would any other alternative approach, such as prohibiting
the acceptance of purchase orders at the press conference or meeting,
be more appropriate? Should this limitation only apply where the offer
will be extended into the United States?
While the Commission does not intend to interfere with customary
news coverage of offshore offerings, previous Commission guidance has
made clear that the press activities should not be intended to generate
buying interest (``condition the market'') in the United States for any
securities offered or to be offered. Where the issuer or selling
security holder intends to register part or all of the offering in the
United States, the Commission is concerned that they might conduct
prefiling offering activities offshore, including releasing written
materials outside the registration process to the U.S. press, for the
sole purpose of conditioning the market in the United States for those
securities. Consequently, where an issuer, whether foreign or domestic,
or a selling security holder intends to file a registration statement
with the Commission registering any part of the offering, the
Commission requests comment as to whether there should be a requirement
in that context that the registration statement for the offering be
filed as a precondition to reliance on the proposed safe harbor. If a
prefiling of the registration statement is required, should such
registration statement be required to contain all information required
to be included in a preliminary prospectus under Section 10(a) 24
of the Securities Act, or would a simplified registration statement be
sufficient, with the normal, full information regarding the issuer and
the offering filed by amendment as the offering proceeds? Would such a
prefiling requirement lead issuers or selling security holders to
exclude U.S. press because they might not believe that the benefits of
allowing access to U.S. press outweigh whatever burden is imposed by a
prefiling requirement?
---------------------------------------------------------------------------
\24\ 15 U.S.C. 77j(a).
---------------------------------------------------------------------------
The Commission also is considering whether any written materials
covered by the safe harbor should be required to be filed with the
Commission. The Commission currently does not believe that a filing
requirement is appropriate because it would appear to impose a burden
that might deter otherwise appropriate access for U.S. press. Comment
is requested whether the Commission's belief is correct, and whether
any written materials should be required to be filed with the
Commission, and if so, according to what criteria: whether the offering
is being conducted in the United States (either registered or exempt),
the type of issuer (e.g., foreign or domestic, Exchange Act reporting
or nonreporting), type of offering (debt or equity), or otherwise. If
the materials are to be filed with the Commission, how should they be
treated for liability purposes? If any part of the offering is to be
registered in the United States, would such materials be filed as part
of the registration statement, as part of the Section 10(a) prospectus,
both, or neither? Should the written materials be treated in the same
manner as ``Test the Waters'' materials under Regulation A? 25 If
not registering, should these written materials nevertheless be
required to be filed, and should such decision depend on whether the
issuer is a reporting company? If required to be filed, should the
written materials be filed on Form 8-K, or merely furnished to the
Commission similar to the treatment of Form 6-Ks and materials
furnished under Rule 12g3-2(b) by foreign private issuers? 26
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\25\ Written solicitation of interest materials submitted to the
Commission and otherwise in compliance with Securities Act Rule 254
[17 CFR 230.254] are not deemed to be a prospectus as defined in
Section 2(10) of the Securities Act. Such materials, however, are
subject to the antifraud provisions of the federal securities laws.
\26\ Information ``furnished'' to the Commission under cover of
Form 6-K or pursuant to Rule 12g3-2(b) is not deemed to be ``filed''
with the Commission or otherwise subject to the liabilities of
Section 18 of the Exchange Act. See Exchange Act Rules 13a-16 [17
CFR 240.13a-16] and 12g3-2(b)(4) [17 CFR 240.12g3-2(b)(4)].
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B. Tender Offer Safe Harbor
The Commission also is proposing to address concerns about access
to foreign press conferences and press materials in
[[Page 54525]]
the tender offer area.27 This goal would be accomplished by
amending Rule 14d-1 28 under the Exchange Act to make clear that a
bidder for securities of a foreign private issuer, as well as the
foreign target company, either of their representatives, and any other
person who may have a filing obligation under the Williams Act,29
would not be deemed to have triggered the filing and procedural
requirements of the Williams Act by virtue of providing U.S. or foreign
journalists access to offshore press conferences, offshore meetings
with their representatives, and press related materials released
offshore, at or in which a present or proposed tender offer of
securities is discussed.
---------------------------------------------------------------------------
\27\ Although the recent legislation directs rulemaking only
with respect to the Securities Act (see supra n.12 and accompanying
text), the Commission stated in its testimony on the Senate bill
(which contained a provision regarding press activity in the tender
offer area) that the tender offer question also should be addressed
through rulemaking. See Testimony of Arthur Levitt, Chairman, U.S.
Securities and Exchange Commission, Concerning S. 1815, the
``Securities Investment Promotion Act of 1996,'' Before the
Committee on Banking, Housing, and Urban Affairs of the U.S. Senate
(June 5, 1996). In addition, the Commission staff previously has
provided guidance in the tender offer area. See supra n.10.
\28\ 17 CFR 240.14d-1.
\29\ See Exchange Act Rule 14d-9(d) [17 CFR 240.14d-9],
specifying that, subject to certain exclusions, the filing and
transmittal requirements of the rule apply to the following persons:
(i) The subject company, any director, officer, employee, affiliate
or subsidiary of the subject company; (ii) Any record holder or
beneficial owner of any security issued by the subject company, by
the bidder, or by any affiliate of either the subject company or the
bidder; and (iii) Any person who makes a solicitation or
recommendation to security holders on behalf of any of the foregoing
or on behalf of the bidder other than by means of a solicitation or
recommendation to security holders which has been filed with the
Commission pursuant to [Rule 14d-9] or Rule 14d-3 (17 CFR 240.14d-
3).
---------------------------------------------------------------------------
As explained more fully below, the safe harbor would be available
to a U.S. or foreign bidder for the securities of a foreign private
issuer target company, but not for the securities of a domestic issuer.
Thus, for example, a bidder or its representatives could hold a foreign
news conference to announce a tender offer for a foreign private issuer
and would not, on that basis, trigger the requirements for formal
commencement of the offer within five business days as required by Rule
14d-2(b),30 and the requirement under Rule 14d-10 to extend the
offer to all holders of the target company's securities.31
Similarly, when the target company is both a reporting issuer and a
foreign private issuer, the target company and its representatives
would not incur an obligation to file a Tender Offer Solicitation/
Recommendation Statement on Schedule 14D-9 by virtue of granting the
U.S. press access to an offshore news conference where the tender offer
is addressed. The safe harbor, however, would not affect the
applicability of the antifraud prohibition of Section 14(e) 32 of
the Exchange Act, as well as the prohibition against trading on
material nonpublic information regarding a tender offer contained in
Rule 14e-3 33 under the Exchange Act.
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\30\ 17 CFR 240.14d-2(b).
\31\ 17 CFR 240.14d-10.
\32\ 15 U.S.C. 78n(e).
\33\ 17 CFR 240.14e-3.
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The Commission recognizes that, even in the absence of the proposed
safe harbor, press coverage of the announcement of a tender offer for
the securities of a foreign private issuer often results in U.S.
holders of the foreign target company's securities selling their
securities into the open market. To the extent that large amounts of
U.S. holders were to engage in market sales, bidders may have a reduced
incentive to comply with the procedural and filing requirements of the
Williams Act and formally extend the offer to U.S. holders in
compliance with U.S. law. Particularly in the case of foreign private
issuers that have significant U.S. ownership, have securities
registered under Section 12 of the Exchange Act, and are listed on a
U.S. exchange or actively traded in the United States in the over-the-
counter market, the proposed safe harbor could, in effect, allow
persons seeking shares of these companies to ``commence'' a tender
offer by engaging in press activities without implicating the
procedural protections of the Williams Act and Regulation 14D (although
the antifraud prohibition of Section 14(e) would continue to apply).
Recognizing that journalists for publications with a general
circulation in the United States often indirectly receive information
from offshore press activity, would allowing direct access as permitted
by the proposed safe harbor affect this market dynamic, and if so, how?
The Commission requests comment whether these potential effects of the
proposed rule would be appropriate in light of the purposes of the U.S.
tender offer regulations.
Should other procedural requirements be imposed? Alternatively,
should the safe harbor exempt all press activity (by any U.S. or
foreign bidder) with regard to a foreign target company, regardless of
whether the press activity is conducted in the United States or
offshore, from triggering the procedural requirements of the tender
offer rules? Should the Commission instead address this issue in the
context of broader rulemaking on foreign tender offers?
1. Coverage of the Safe Harbor
The principal intended benefit of the safe harbor would be to
prevent application of the U.S. tender offer rules where the bidder is
not yet prepared to proceed with the offer or does not intend to extend
the offer to U.S. holders of the target's shares. Accordingly, once an
offer has commenced with the filing of documents under Regulation 14D
with the Commission, the Commission currently proposes that the safe
harbor would no longer be available.
The Commission also proposes limiting the availability of the safe
harbor only to tender offers or proposed tender offers for the
securities of foreign companies. The safe harbor would not be available
for tender offers by foreign private issuers for the securities of
domestic companies because there appears to be no need in that case to
accommodate foreign offering practices.
In the interest of consistent application of Commission rules
applicable to offshore regulatory issues, the Commission proposes using
the current definition of ``foreign private issuer,'' as defined in
Exchange Act Rule 3b-4,34 for purposes of the tender offer safe
harbor. Comment is solicited as to whether a different (either broader
or narrower) definition should be used for the purposes of the safe
harbor. For example, would the primary market for the target company's
securities be a more appropriate focus? If so, how should the primary
market be determined? Should the ``substantial U.S. market interest''
35 standard be used? Should the standard depend upon the
percentage of the target company's securities held by U.S. holders or
whether the target company is eligible for the use of Form F-3?
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\34\ The term ``foreign private issuer'' as defined in Rule 3b-4
[17 CFR 240.3b-4] is the same as defined under Securities Act Rule
405. See supra n.20 for the current definition.
\35\ See supra n.23 for the current definition under the
Securities Act of ``substantial U.S. market interest.''
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All bidders, whether U.S. or foreign, their representatives, and
any other person who may incur a filing obligation under the Williams
Act,36 may avail themselves of the proposed safe harbor as long as
the tender offer is for securities of a foreign private issuer. Where
the tender offer is or will be for the securities of a foreign issuer,
the Commission believes that all such
[[Page 54526]]
parties should be able to conduct their activities in a manner
consistent with local offering practices, although the proposed safe
harbor does not include a requirement that the press activity be
consistent with local practice. Comment is requested whether any
limitations should be imposed, and if so, based upon what criteria.
Should the status of the bidder (e.g., foreign or domestic, Exchange
Act reporting or nonreporting, eligible for Form S-3/F-3), or the
status of the present or proposed tender offer (e.g., intend to comply,
or are complying, with the Williams Act; intend to, or will be required
to, register the offer under the Securities Act) matter? Likewise, the
Commission proposes that foreign companies that are the subject of the
tender offer or proposed tender offer also may claim the protections of
the safe harbor. Should the subject company be able to use the safe
harbor, and if not, why not? If extended to either the bidder or the
subject company, must the safe harbor be extended to both, and if not,
why not? Should, as proposed, the other persons specified in Rule 14d-
9(d) (such as officers, directors, and shareholders) be permitted to
avail themselves of the safe harbor, and if not, why not?
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\36\ See supra n.29 for the definition of those other persons
who may incur a filing obligation under the Williams Act.
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2. Conditions
The proposed safe harbor for tender offers, like the proposed
Securities Act safe harbor described above, will be subject to the
conditions that access be provided to both U.S. and foreign
journalists, that written materials proposed to be covered by the
tender offer safe harbor include a legend similar to that proposed
under the Written Materials Requirements of the Securities Act safe
harbor in circumstances where there is likely to be significant
interest in the tender offer by U.S. investors, and that no means to
tender securities, or coupons that could be returned to indicate
interest in the tender offer, be provided as part of, or attached to,
any press related materials. Comment is requested as to whether some or
all areas of the proposed tender offer safe harbor should function, or
be interpreted, differently from the Securities Act safe harbor. Any
such areas should be identified and an explanation of the difference in
treatment, and the bases therefor, provided.
As proposed, where the present or proposed tender offer discussed
in the written materials released under the proposed tender offer safe
harbor is for equity securities registered under Section 12 37 of
the Exchange Act, the Commission is proposing that such written
materials released by the bidder or its representatives under the safe
harbor be required to satisfy the following ``Tender Offer Written
Materials Requirements'':
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\37\ 15 U.S.C. 78l.
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The materials must include the following information:
A statement that the materials are not an extension of
a tender offer in the United States for a class of equity securities of
the subject company;
A statement that no money, securities or other
consideration is being solicited at this time, and, if sent in response
by a U.S. resident, will not be accepted;
If the bidder intends to extend a tender offer in the
United States at some future time for a class of equity securities of
the subject company, a statement regarding this intention and that the
procedural and filing requirements of the Williams Act will be
satisfied at that time; and
No means to tender securities, or coupons that could be
returned to indicate interest in the tender offer, may be provided as
part of, or attached to, any press related materials.
Comment is requested as to whether the addition of the Tender Offer
Written Materials Requirements, in whole or in part, will be effective
in deterring the use of the written materials for the purpose of
conducting a tender offer in the United States without compliance with
the procedural and filing requirements of the Williams Act, and if not,
why not. In addition, are each of the Tender Offer Written Materials
Requirements necessary and appropriate for their stated purpose? Will
the Tender Offer Written Materials Requirements unnecessarily deter
reliance on the safe harbor by bidders and their representatives? Are
there alternative or additional procedural or substantive requirements
that could or should be imposed on written materials released offshore,
and if so, what kind? Should the Tender Offer Written Materials
Requirements, or some variation thereof, be imposed on written
materials released under the tender offer safe harbor by parties other
than the bidder and its representatives, such as the subject company or
any other person who may incur a filing obligation under the Williams
Act?
The Commission proposes requiring the Tender Offer Written
Materials Requirements only on written materials that discuss a present
or proposed tender offer for equity securities registered under Section
12 of the Exchange Act, because no mandated disclosure document would
be required to be filed with the Commission unless the target's equity
securities are registered under Section 12. Comment is requested
whether this distinction is appropriate. Should the Tender Offer
Written Materials Requirements be limited to offers for Section 12
equity securities only if the bidder intends to extend the offer to
U.S. holders in compliance with the procedural and filing requirements
of the Williams Act?
The Commission also is considering whether any written materials
covered by the safe harbor should be required to be filed with the
Commission. Comment is requested whether a filing requirement should be
imposed (particularly where there is a ``substantial U.S. market
interest'' 38 in the securities of the target company), and if so,
according to what criteria, when, and with what legal effect. Should
written materials only be required to be filed with the Commission when
the tender offer is or will be extended to U.S. holders in compliance
with the procedural and filing requirements of the Williams Act?
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\38\ See supra n.23.
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III. Request for Comment
Any interested persons wishing to submit written comments on the
proposed safe harbor for offshore press conferences, meetings with
issuer representatives conducted offshore, or press releases or other
related material released offshore, as well as on other matters that
might have an impact on the proposals contained herein, are requested
to do so by submitting them in triplicate to Jonathan G. Katz,
Secretary, U.S. Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. Comment letters also may be submitted
electronically to the following electronic mail address: comment@sec.gov. Comments are requested on the impact of the proposals
on issuers, investors, and others. Comments should specifically address
any possible effects on investor protection resulting from the proposed
safe harbors. The Commission also requests comment on whether the
proposed rules, if adopted, would have an adverse impact on competition
that is neither necessary nor appropriate in furthering the purposes of
the Exchange Act. Comments will be considered by the Commission in
complying with its responsibilities under Section 23(a) 39 of the
Exchange Act. Comment letters should refer to File No. S7-26-96; this
file number should be included in the
[[Page 54527]]
subject line if electronic mail is used. All comment letters received
will be available for public inspection and copying in the Commission's
Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549.
Electronically submitted comment letters will be posted on the
Commission's Internet Web site (http://www.sec.gov).
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\39\ 15 U.S.C. 78w(a).
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IV. Cost-Benefit Analysis
To assist the Commission in its evaluation of the costs and
benefits that may result from the proposals, commenters are requested
to provide views and empirical data relating to any costs and benefits
associated with these proposals.
V. Summary of the Initial Regulatory Flexibility Analysis
The Commission has prepared an Initial Regulatory Flexibility
Analysis (``IRFA''), pursuant to the requirements of the Regulatory
Flexibility Act,40 regarding the proposed rules. The IRFA notes
that the proposed rules are intended to provide companies with greater
certainty in determining when journalists, both foreign and domestic,
may access offshore press conferences, meetings with company
representatives conducted offshore, or press releases or other related
material released offshore, without violating the U.S. federal
securities laws. Other than the proposed Written Materials Requirements
which the Commission does not consider unduly burdensome on small
businesses, the proposed rules would not impose any new reporting,
recordkeeping or compliance requirements on any entities. No
alternatives to the proposed rules consistent with their objectives and
the Commission's statutory authority were found.
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\40\ 5 U.S.C. 603.
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In general, the proposed rules under the Securities Act are not
limited to foreign private issuers, but instead provide a safe harbor
for all issuers, irrespective of size, conducting offshore press
conferences, meetings with company representatives conducted offshore,
or releasing press releases or other related materials offshore. In
addition, while the proposed rule under the Exchange Act is limited to
tender offers for the securities of foreign private issuers only, both
foreign and domestic bidders, irrespective of size, are eligible under
this safe harbor, subject to the same conditions.
The term ``small business,'' as used in reference to a registrant
for purposes of the Regulatory Flexibility Act, is defined by Rule 157
41 under the Securities Act as an issuer that, on the last day of
its most recent fiscal year, had total assets of $5 million or less and
is engaged or proposing to engage in small business financing. An
issuer is considered to be engaged in small business financing if it is
conducting or proposes to conduct an offering of securities which does
not exceed the $5 million dollar limitation prescribed by Section 3(b)
of the Securities Act. When used with reference to an issuer other than
an investment company, the term also is defined in Rule 0-10 42 of
the Exchange Act as an issuer that, on the last day of its most recent
fiscal year, had total assets of $5 million or less. When used with
respect to an investment company, the term is defined under Rule 0-10
as an investment company with net assets of $50 million or less as of
the end of its most recent fiscal year.
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\41\ 17 CFR 230.157.
\42\ 17 CFR 240.0-10.
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Small entities meeting these definitions would be able to rely on
the proposed safe harbor on the same basis as larger entities, provided
that they meet the same conditions for relying on it. The Commission is
aware of approximately 1100 Exchange Act reporting companies that
currently satisfy the definition of ``small business'' under Rule 0-10.
There is no reliable way of determining, however, how many small
businesses may become subject to Commission registration and reporting
obligations in the future. Further, the Commission has no data that
would assist it in determining how many small businesses may actually
rely on the proposed safe harbor, or may otherwise be impacted by the
rule proposals. The Commission solicits comments regarding how to
estimate the number of small businesses that may rely on the safe
harbor or otherwise be affected by these proposals together with data
or assumptions to support such an approach.
Comments are encouraged on any aspect of this analysis. A copy of
the analysis may be obtained by contacting Luise M. Welby, Office of
International Corporate Finance, Division of Corporation Finance, Mail
Stop 3-9, 450 Fifth Street, N.W., Washington, D.C. 20549.
VI. Statutory Basis for Rules
The amendments to the Securities Act rules and Regulation S are
being proposed pursuant to Sections 3, 4, 5 and 19 of the Securities
Act, as amended.43 The amendment to the Exchange Act rule is being
proposed pursuant to Sections 14(d), 14(e) and 23(a) of the Exchange
Act.44
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\43\ 15 U.S.C. 77c, 77d, 77e and 77s.
\44\ 15 U.S.C. 78n(d), 78n(e), and 78w.
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List of Subjects in 17 CFR Parts 230 and 240
Reporting and recordkeeping requirements, Securities.
Text of the Proposals
In accordance with the foregoing, title 17, chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
1. The authority citation for part 230 continues to read in part as
follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30,
and 80a-37, unless otherwise noted.
* * * * *
2. By adding Sec. 230.135e to read as follows:
Sec. 230.135e Offshore press conferences, meetings with issuer
representatives conducted offshore, and press related materials
released offshore.
(a) For the purposes only of Section 5 of the Act [15 U.S.C. 77e],
an issuer, selling security holder, or their representatives, will not
be deemed to offer any security for sale by virtue of providing any
journalist with access to its press conferences held outside of the
United States, to meetings with issuer or selling security holder
representatives conducted outside of the United States, or to written
press related materials released outside the United States, at or in
which a present or proposed offering of securities is discussed, if:
(1) The present or proposed offering is not being, or to be,
conducted solely in the United States;
(2) Access is provided to both U.S. and foreign journalists; and
(3) Any written press related materials pertaining to transactions
in which any of the securities will be or are being offered in the
United States, or where the issuer of the securities to be or being
offered is not a foreign government or a foreign private issuer, as
defined in Sec. 230.405, satisfy the requirements of paragraph (b) of
this section.
(b) Any written press related materials specified in paragraph
(a)(3) of this section must:
(1) State that the written press related materials are not an offer
of securities for sale in the United States, that securities may not be
offered or sold in
[[Page 54528]]
the United States absent registration or an exemption from
registration, that any public offering of securities to be made in the
United States will be made by means of a prospectus that may be
obtained from the issuer or the selling security holder and that will
contain detailed information about the company and management, as well
as financial statements;
(2) State that no money, securities or other consideration is being
solicited, and, if sent in response by a U.S. resident, will not be
accepted;
(3) If the issuer or selling security holder intends to register
any part of the present or proposed offering in the United States,
include a statement regarding this intention; and
(4) Not include any purchase order, or coupon that could be
returned indicating interest in the offering, as part of, or attached
to, the written press related materials.
Sec. 230.502 [Amended]
3. By amending Sec. 230.502 to remove the period at the end of
paragraph (c) and add the following: ``; Provided further, that, if the
requirements of Sec. 230.135e are satisfied, providing any journalist
with access to press conferences held outside of the United States, to
meetings with issuer or selling security holder representatives
conducted outside of the United States, or to written press related
materials released outside the United States, at or in which a present
or proposed offering of securities is discussed, will not be deemed to
constitute general solicitation or general advertising for purposes of
this section.''
* * * * *
4. By removing Preliminary Note 7 and redesignating Preliminary
Note 8 as Preliminary Note 7 following the undesignated heading
``Regulation S'' and before Sec. 230.901.
5. By amending Sec. 230.902 to add paragraph (b)(8) to read as
follows:
Sec. 230.902 Definitions.
* * * * *
(b) Directed Selling Efforts.* * *
(8) Notwithstanding paragraph (b)(1) of this section, providing any
journalist with access to press conferences held outside of the United
States, to meetings with issuer or selling security holder
representatives conducted outside of the United States, or to written
press related materials released outside the United States, at or in
which a present or proposed offering of securities is discussed, will
not be deemed ``directed selling efforts'' if the requirements of
Sec. 230.135e are satisfied.
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
6. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78k, 78k-1, 78l, 78m,
78n, 78o, 78p, 78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-
23, 80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
7. By amending Sec. 240.14d-1 by redesignating paragraphs (c) and
(d) as paragraphs (d) and (e), and adding paragraph (c) to read as
follows:
Sec. 240.14d-1 Scope of and definitions applicable to regulations 14D
and 14E.
* * * * *
(c) Notwithstanding paragraph (a) of this section, the requirements
imposed by sections 14(d)(1) through 14(d)(7) of the Act [15 U.S.C.
78n(d)(1) through 78n(d)(7)], Regulation 14D promulgated thereunder
(Secs. 240.14d-1 through 240.14d-10), and Secs. 240.14e-1 and 240.14e-2
shall not apply by virtue of the fact that a bidder for the securities
of a foreign private issuer, as defined in Sec. 240.3b-4, the subject
company of such a tender offer, their representatives, or any other
person specified in Sec. 240.14d-9(d), provides any journalist with
access to its press conferences held outside of the United States, to
meetings with its representatives conducted outside of the United
States, or to written press related materials released outside the
United States, at or in which a present or proposed tender offer is
discussed, if:
(1) Access is provided to both U.S. and foreign journalists; and
(2) With respect to any written press related materials released by
the bidder or its representatives that discuss a present or proposed
tender offer for equity securities registered under section 12 of the
Act [15 U.S.C. 78l], the written press related materials must state
that these written press related materials are not an extension of a
tender offer in the United States for a class of equity securities of
the subject company, that no money, securities or other consideration
is being solicited at this time, and, if sent in response by a U.S.
resident, will not be accepted. If the bidder intends to extend such
tender offer in the United States at some future time, a statement
regarding this intention, and that the procedural and filing
requirements of the Williams Act will be satisfied at that time, also
must be included in these written press related materials. No means to
tender securities, or coupons that could be returned to indicate
interest in the tender offer, may be provided as part of, or attached
to, these written press related materials.
* * * * *
Dated: October 10, 1996.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-26562 Filed 10-17-96; 8:45 am]
BILLING CODE 8010-01-P
