[Federal Register Volume 63, Number 37 (Wednesday, February 25, 1998)]
[Rules and Regulations]
[Pages 9632-9647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4458]



[[Page 9631]]

_______________________________________________________________________

Part II





Securities and Exchange Commission





_______________________________________________________________________



17 CFR Parts 228, et al.



Offshore Offers and Sales; Final Rule



Registration of Securities on Form S-8; Proposed Rule



Publication or Submission of Quotations Without Specified Information; 
Proposed Rule

  Federal Register / Vol. 63, No. 37 / Wednesday, February 25, 1998 / 
Rules and Regulations  

[[Page 9632]]



SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 249

[Release No. 33-7505; 34-39668; File No. S7-8-97; International Series 
Release No. 1118]
RIN 3235-AG34


Offshore Offers and Sales

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission is adopting amendments 
to the Regulation S safe harbor procedures for offshore sales of equity 
securities of U.S. issuers and the reporting requirements applicable to 
those transactions. The amendments are designed to stop abusive 
practices in connection with offerings of equity securities purportedly 
made in reliance on Regulation S.

EFFECTIVE DATES: April 27, 1998 except Secs. 249.308, 249.308a, 
249.308b, 249.310 and 249.310b (the amendments to Forms 8-K, 10-Q, 10-
QSB, 10-K and 10-KSB) will become effective on January 1, 1999.

FOR FURTHER INFORMATION CONTACT: Felicia H. Kung, Office of 
International Corporate Finance, Division of Corporation Finance, at 
(202) 942-2990.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (the 
``Commission'') is adopting amendments to Rule 903\1\ of Regulation 
S,\2\ the issuer safe harbor under the Securities Act of 1933\3\ for 
offshore offerings of securities, to address abusive practices that 
have developed. The amendments apply to the offshore sales of equity 
securities of domestic issuers. The Commission is also adopting 
amendments to Rule 144(a)(3)\4\ and a new Rule 905\5\ that classify 
these equity securities as ``restricted securities,'' as defined in 
Rule 144 under the Securities Act. In addition, Rule 905 makes clear 
that offshore resales under Rule 904\6\ of restricted equity securities 
of domestic issuers will not alter the status of these securities as 
restricted securities after the resale. The Commission also is 
replacing the current requirement that reporting issuers file a Form 8-
K to disclose Regulation S sales of equity securities within 15 days of 
the transaction with a requirement that these sales be reported on 
Forms 10-Q, 10-QSB, 10-K or 10-KSB, as appropriate. In addition to 
these changes, the Commission is adopting other technical amendments to 
Regulation S to make the rule clearer and more concise.
---------------------------------------------------------------------------

    \1\ 17 CFR 230.903.
    \2\ 17 CFR 230.901-230.905 and Preliminary Notes.
    \3\ 15 U.S.C. 77a et seq.
    \4\ 17 CFR 230.144(a)(3).
    \5\ 17 CFR 230.905.
    \6\ 17 CFR 230.904.
---------------------------------------------------------------------------

I. Executive Summary

    The Commission adopted Regulation S in 1990 as a safe harbor from 
the registration requirements of the Securities Act for offshore offers 
and sales of securities. Although the regulation has proved successful 
for many types of offerings, abuses in connection with sales of 
domestic equity securities have been common.
    Regulation S has been used as a means of perpetrating fraudulent 
and manipulative schemes, especially schemes involving the securities 
of thinly capitalized or ``microcap'' companies. These types of 
securities are particularly vulnerable to fraud and manipulation 
because little information about them is available to investors.
    The Commission is seeking to enhance investor protection with 
respect to microcap securities through various initiatives, including 
amendments to Regulation S. The changes to the regulation adopted today 
should prevent further abuses of this rule, but also allow continued 
reliance on Regulation S in legitimate offshore offerings.
    The Regulation S amendments adopted today are as follows:
     Equity securities placed offshore by domestic issuers 
under Regulation S will be classified as ``restricted securities'' 
within the meaning of Rule 144, so that resales without registration or 
an exemption from registration will be restricted; \7\
---------------------------------------------------------------------------

    \7\ Rule 905, which classifies these securities as 
``restricted,'' will not be applied retroactively. See infra Section 
III.C.3.
---------------------------------------------------------------------------

     To avoid confusion between the holding period for 
``restricted securities'' under Rule 144 and the ``restricted period'' 
under Regulation S, the term ``restricted period'' will be renamed the 
``distribution compliance period'';
     The distribution compliance period for these securities 
will be lengthened from 40 days to one year;
     Certification, legending and other requirements, which 
currently are applicable only to sales of equity securities by non-
reporting issuers, will be imposed on these equity securities;
     As a means to alert purchasers of these equity securities 
to potential restrictions on hedging their positions in these 
securities, purchasers will be required to agree that their hedging 
transactions with respect to such securities will be conducted in 
compliance with the Securities Act, such as Rule 144 thereunder; and
     Offshore resales under Rule 901 \8\ or 904 of equity 
securities of domestic issuers that are ``restricted securities,'' as 
defined in Rule 144, will not affect the restricted status of these 
securities.
---------------------------------------------------------------------------

    \8\ 17 CFR 230.901.
---------------------------------------------------------------------------

    The amendments are substantially as proposed with some important 
differences. To avoid undue interference with offshore offering 
practices of foreign companies, the amendments will apply to the equity 
securities of U.S. issuers, but not to the equity securities of foreign 
issuers. The distribution compliance period applicable to issuers and 
distributors under Rule 903 will be extended to one year, rather than 
the proposed two years, to align Regulation S more precisely with the 
Rule 144 resale restrictions. In addition, promissory notes will not be 
prohibited in Regulation S transactions; rather, the notes must satisfy 
certain conditions set forth in Rule 144 before the purchaser can 
resell pursuant to that rule. These conditions should ensure that 
promissory notes are not used as a means to distribute securities into 
the United States. This refined approach will still forestall abuses 
related to the use of promissory notes in Regulation S transactions. 
Finally, the change from Form 8-K reporting to quarterly reporting will 
be delayed to allow the Commission staff to monitor developments under 
the amended rule.

II. Background of Proposals and Commenters' Concerns

    The Commission has acted to stem abuses of Regulation S by issuers, 
affiliates and others involved in the distribution process who were 
using Regulation S as a guise for distributing securities into the U.S. 
markets without the protections to investors of registration of the 
securities under the Securities Act. The Commission first stated its 
position about these abuses in a June 1995 interpretive release that 
described certain problematic practices under Regulation S.\9\ The 
Commission also has instituted enforcement proceedings against 
participants in abusive Regulation S transactions.\10\
---------------------------------------------------------------------------

    \9\ Securities Act Release No. 7190 (June 27, 1995) [60 FR 35663 
(July 10, 1995)] (the ``Interpretive Release'').
    \10\ See SEC v. Schiffer, Litigation Release No, 15435 (Aug. 7, 
1997); In re GFL Ultra Fund Ltd., Securities Act Release No. 7423 
(June 18, 1997); SEC v. PanWorld Minerals Int'l, Inc., Litigation 
Release No. 15380 (June 2, 1997); SEC v. Members Service Corp., 
Litigation Release No. 15371 (May 22, 1997); SEC v. Rosenfeld, 
Litigation Release No. 15274 (Mar. 5, 1997); United States v. Sung 
and Feher, Litigation Release No. 14901 (May 6, 1996); In re 
Candie's Inc., Securities Act Release No. 7263 (Feb. 21, 1996); SEC 
v. Scorpion Technologies, Inc., Litigation Release No. 14814 (Feb. 
9, 1996); SEC v. Sarivola; Litigation Release No. 14704 (Oct. 31, 
1995); SEC v. EnvirOmint Holdings, Inc., Litigation Release No. 
14683 (Oct. 6, 1995); SEC v. Softpoint, Inc., Litigation Release No. 
14480 (Apr. 27, 1995); SEC v. Rehtorik, Litigation Release No. 13975 
(Feb. 23, 1994); SEC v. Westdon Holding & Inv., Inc., Litigation 
Release No. 13263 (June 5, 1992).

---------------------------------------------------------------------------

[[Page 9633]]

    As a result of the continuation of certain of these abusive 
practices and in response to the comment letters received on the 
Interpretive Release, the Commission on February 20, 1997, proposed new 
restrictions to Regulation S to stop these abusive practices for 
placements of equity securities by domestic companies.\11\ In addition, 
the Commission proposed to make these restrictions apply to foreign 
companies where the principal trading market for their securities is in 
the United States because of concerns that abusive practices might 
develop in the future. The Commission proposed to classify these equity 
securities of domestic and foreign companies placed offshore under 
Regulation S as ``restricted securities'' within the meaning of Rule 
144, and to revise the applicable offering restrictions to ensure that 
these equity securities could not be sold or resold to U.S. persons 
(unless pursuant to registration or an exemption).\12\
---------------------------------------------------------------------------

    \11\ Securities Act Release No. 7392 (Feb. 20, 1997) [62 FR 9258 
(Feb. 28, 1997)] (the ``Proposing Release'').
    \12\ The Commission proposed to revise the offering restrictions 
imposed by Regulation S by: (1) Aligning the Regulation S restricted 
period for these equity securities with the Rule 144 holding periods 
by lengthening the restricted period from 40 days or one year, as 
applicable, to two years; (2) by imposing certification, legending 
and other requirements; (3) by requiring purchasers of these 
securities to agree not to engage in hedging transactions unless the 
transactions comply with the Securities Act; (4) by prohibiting the 
use of promissory notes to pay for these securities; and (5) by 
clarifying that offshore resales of equity securities that are 
``restricted securities,'' as defined in Rule 144, will not ``wash 
off'' the restricted status of these securities.
---------------------------------------------------------------------------

    The comments on the proposals were mixed.\13\ A number of 
commenters supported the proposed amendments as necessary and 
appropriate to curb abusive practices and to facilitate legitimate 
offshore capital raising by U.S. companies. Others believed the 
proposals would severely restrict the ability of U.S. companies to 
access alternative offshore sources of capital. Several commenters 
objected to the extension of the revisions in the rule to foreign 
private issuers that have their principal market in the United States. 
These commenters urged that the application of the new resale 
restrictions, including the legending and stop transfer requirements, 
would be inconsistent with the requirements of offshore trading markets 
and public offering practices.
---------------------------------------------------------------------------

    \13\ The 47 comment letters received are available for 
inspection and copying in the Commission's public reference room. 
Refer to file number S7-8-97. The twelve comment letters that were 
submitted via electronic mail may be viewed at the Commission's web 
site: http://www.sec.gov.
---------------------------------------------------------------------------

III. Amendments Adopted Today

A. Scope of the Amendments

1. Will Not Apply to Foreign Issuers for Which the United States Is the 
Principal Market
    Although abusive practices under Regulation S have not been evident 
in offerings by foreign issuers, the Commission was concerned that 
abusive practices might develop in the future since the economic 
incentives for indirect distributions and resales into the United 
States are the same for equity offerings of both domestic companies and 
foreign companies where the principal market for their securities is in 
the United States.\14\ Therefore, the Commission proposed that the 
Regulation S changes would treat these offerings similarly both with 
respect to the new Regulation S requirements, as well as the 
``restricted securities'' classification under Rule 144.
---------------------------------------------------------------------------

    \14\ The Commission proposed defining ``principal market in the 
United States'' for a security as when more than 50% 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 in the shorter of the issuer's prior 
fiscal year or the period since the issuer's incorporation. This 
definition differs from the ``substantial U.S. market interest'' 
test that is used to determine whether a foreign issuer qualifies 
for less restrictive treatment under Category 1 of Rule 903. See 
Proposing Release at Section II.
---------------------------------------------------------------------------

    The commenters strongly opposed this approach. They pointed out 
that subjecting foreign issuer securities to these restrictions was 
unnecessary in light of the absence of abuses with respect to those 
securities. They also asserted that there should be no presumption that 
a foreign issuer offering securities overseas is doing so to avoid the 
registration and disclosure requirements of the U.S. federal securities 
laws, even when it has a substantial trading market for its securities 
in the United States. Moreover, in the view of some these commenters, 
there is no reason to assume that indirect unregistered distributions 
into the United States will occur when these foreign issuers' 
securities are sold offshore.
    The commenters also noted that if equity securities issued by these 
foreign companies are deemed restricted securities, the issuers in 
essence would be applying to their offshore offerings many of the 
standard practices used in U.S. private placements. The certification 
and purchaser agreement requirements would impose a significant burden 
on foreign issuers that wish to conduct public offerings in their home 
jurisdictions. In addition, many foreign stock exchanges will not 
permit trading of legended securities. The commenters asserted that the 
legending and stop transfer restrictions, as well as to a lesser extent 
the disclosure and certification requirements that would be imposed by 
the rule, would impede both public offerings and trading in those 
securities on offshore public markets that do not accept legended stock 
for trading.\15\ As a result, the classification of foreign equity 
securities as ``restricted'' could create a strong disincentive for 
foreign companies to list their securities on U.S. markets.
---------------------------------------------------------------------------

    \15\ A number of commenters also noted that the 50% threshold 
for determining the principal market as being in the United States 
that was proposed by the Commission was too low and would make the 
restrictions applicable to a large number of foreign issuers. One 
commenter noted that even if the standard were 100% of the reported 
trading volume, 10% of the foreign companies listed in the United 
States are traded solely in the United States and would be subject 
to the new requirements. See generally, ``U.S. Investors Look Across 
the Atlantic,'' The Washington Post, Aug. 31, 1997, at H2 (because 
of U.S. investor interest in foreign stocks, the New York Stock 
Exchange may be the principal market for many leading European 
companies).
---------------------------------------------------------------------------

    While the Commission remains concerned with the potential for 
abuse, it has determined not to extend, at this time, the new 
requirements to the securities of foreign private issuers, regardless 
of the relative size of their U.S. markets to their worldwide 
trading.\16\ The Commission agrees that absent a showing of abuse, 
imposing significant new restrictions on the offshore offering 
practices of foreign companies is not warranted. However, the 
Commission will monitor practices in this area, and will revisit the 
issue if abuses occur. Meanwhile, purchasers of these securities are 
reminded that Regulation S does not provide a safe harbor for resales 
of securities into the United States, and any resales must be made 
pursuant to a registration statement or an exemption from the 
Securities Act. Regardless of the foreign issuer's compliance with the 
Regulation

[[Page 9634]]

S requirements, purchasers cannot purchase securities and resell them 
into the United States under circumstances in which they would be 
deemed statutory underwriters unless they register those resales.\17\
---------------------------------------------------------------------------

    \16\ The Commission currently is considering other alternatives 
to prevent fraudulent practices that may occur in connection with 
the securities of foreign issuers. See Securities Exchange Act 
Release No. 34-39670 (Feb. 17, 1998).
    \17\ See Interpretive Release at n. 17; Proposing Release at n. 
41.
---------------------------------------------------------------------------

2. Will Apply to Public Offerings
    Several commenters expressed the view that the proposed 
restrictions, including the designation of equity securities issued 
under Regulation S as restricted securities, were inconsistent with 
offshore public offering practices and the requirements of foreign 
trading markets. These commenters urged the Commission to adopt a 
distinction based on whether there was or will be a public trading 
market for the securities offshore following the offer, or whether the 
offering was subject to a foreign regulatory scheme governing public 
offerings.
    Since most of the concerns in this respect were raised with regard 
to the extension of the requirements to foreign private issuers, those 
concerns are substantially addressed by the Commission's decision to 
limit the applicability of the new restrictions to domestic issuers. As 
discussed below,\18\ the Commission believes that offering practices 
can be adopted to allow the new restrictions to be applied in the 
context of a public offering by domestic issuers, including share 
acquisitions. The existence of an offshore trading market would not 
eliminate the potential for abuse; for example, an offering could be 
made at a discount to purchasers offshore who may engage in an illegal 
distribution back into the United States. The Commission also is 
concerned that otherwise limited distributions to a small group of 
offshore investors easily could be structured as underwritten public 
offerings to avoid any additional restrictions on resales by those 
investors back into the United States. Accordingly, the amendments do 
not incorporate a distinction based upon whether a public trading 
market for the securities exists offshore, or whether the securities 
were issued in a public offering.
---------------------------------------------------------------------------

    \18\ See infra Section III. C. 1.
---------------------------------------------------------------------------

3. Will Apply to All Equity Securities of Domestic Companies, including 
Convertible Securities
    Consistent with the proposal, the new procedures and restrictions 
and the ``restricted securities'' classification will apply only to 
offerings of equity securities. Rule 405 of Regulation C under the 
Securities Act defines the term ``equity security'' to include stock, 
securities convertible or exchangeable into stock, warrants, options, 
rights to purchase stock, and other types of equity-related 
securities.\19\ The Commission is not applying the new restrictions to 
offerings of straight debt securities because the nature of the trading 
markets for debt securities appears not to have facilitated similar 
abusive practices. However, the new restrictions will apply to 
offerings of convertible debt securities because Regulation S abuses 
have involved the use of convertible or exchangeable securities and 
warrants.\20\
---------------------------------------------------------------------------

    \19\ 17 CFR 230.405. Under the amendments adopted today, non-
participating preferred stock and asset-backed securities would 
continue to be treated in the same manner as debt securities for 
purposes of the Regulation S safe harbors and the restricted 
security classification. See Rule 902(a)[17 CFR 230.902(a)], 
(formally Rule 903(c)(4)).
    \20\ See ``Pirates' Play?'', BARRON'S Jan. 7, 1997, at 17.
---------------------------------------------------------------------------

    Commenters addressing the issue of whether the restrictions should 
apply to convertible securities urged the Commission to adopt the 
approach incorporated into Rule 144A. Under that approach, a 
convertible security is not treated as the same class as the underlying 
equity security if it has a conversion premium exceeding a specified 
percentage threshold over the market price of the underlying securities 
at the time of issuance.\21\ If this approach were used in Regulation 
S, convertible securities with a sufficient conversion premium would 
not be subject to the new restrictions applicable to equity.
---------------------------------------------------------------------------

    \21\ See Rule 144A(d)(3)(i) [17 CFR 230.144A(d)(3)(i)]. See also 
Securities Act Release No. 6862 (Apr. 23, 1990) [55 FR 17933 (April 
30, 1990)] at nn.25 and 26 for a discussion of how the conversion or 
exercise premium is determined for purposes of Rule 144A.
---------------------------------------------------------------------------

    The new rules and restrictions will apply to all equity securities 
of U.S. issuers, including exchangeable or convertible securities and 
warrants, without regard to the conversion or exercise premium or other 
factors. It is clear that these securities can and have been used in 
abusive transactions. The potential for abuse exists whenever a 
domestic issuer can create offshore, in a transaction not subject to 
the registration provisions of the U.S. securities laws, pools of 
equity securities that appear to be immediately tradeable back into the 
United States because of their unrestricted status. The Commission is 
reluctant to specify a conversion premium and thus possibly be viewed 
as condoning abusive practices in securities set above that threshold. 
In any event, given the volatility of the markets for the types of 
small capitalization companies in which the Commission has witnessed 
abuses, it would be difficult to set an appropriate threshold for all 
types of issuers. Finally, as discussed below, even with application of 
the new restrictions to convertible securities, the Commission does not 
believe that Regulation S will eliminate the use of these securities as 
a means to lower a U.S. issuer's cost of capital. Many issuers do not 
need to rely on Regulation S with respect to their sales of convertible 
securities because they can use Form S-3 to register the securities.
4. Will Apply to Securities in Employee Benefit Plans
    Equity securities offered and sold to non-U.S. resident employees 
through an employee benefit plan governed by foreign law have not been 
subject to a distribution compliance period regardless of the domicile 
of the issuer or U.S. market interest in its securities. Since new Rule 
905 would extend to all equity securities of domestic issuers, however, 
the proposals would classify those equity securities as restricted 
securities within the meaning of Rule 144 when issued to the employee.
    Several commenters believed that it was inappropriate to require 
non-U.S. resident employees to accept restricted securities pursuant to 
their employee benefit plans. To the extent reporting U.S. issuers 
believe it is necessary to give their non-U.S. resident employees 
immediate access to the U.S. public markets in order to sell the 
security, Form S-8, which is effective immediately upon filing, is 
available to permit the issuer to register the securities on a 
streamlined basis. Consequently, the Commission has determined to apply 
Rule 905 to these securities as proposed.

B. Distribution Compliance Periods

    As explained in greater detail in the Proposing Release,\22\ the 
issuer safe harbor distinguishes three categories of securities 
offerings, based upon factors such as the jurisdiction of incorporation 
of the company whose securities are being sold, the company's reporting 
status under the Securities Exchange Act of 1934 (``Exchange 
Act''),\23\ and the degree of U.S. market interest in the issuer's 
securities.\24\ The Commission proposed shifting U.S. reporting 
companies to ``Category 3'' and

[[Page 9635]]

lengthening the distribution compliance period applicable to domestic 
equity securities. The effect of the proposals would have been to 
lengthen the distribution compliance period for U.S. reporting 
companies from 40 days to two years. Issuers previously subject to 
Category 3 for their equity offerings--non-reporting domestic issuers 
and foreign issuers with a significant U.S. market interest for their 
securities--would have had their distribution compliance period 
extended from one to two years. During this period, issuers, 
distributors, and their affiliates would have been required to comply 
with the documentation and disclosure requirements imposed by Rule 903, 
and any offers and sales during this period could not be made to a U.S. 
person and still qualify for the safe harbor. In response to concerns 
raised by commenters, the Commission is adopting a modified version of 
these proposals.
---------------------------------------------------------------------------

    \22\ See Proposing Release at Section II.
    \23\ 15 U.S.C. 78a et seq.
    \24\ See discussion at nn. 13-16 of the Proposing Release.
---------------------------------------------------------------------------

    In addition, to further avoid confusion between the requirements 
applicable to issuers and distributors as a condition to perfecting 
their Rule 903 safe harbor and the Rule 144 safe harbor applicable to 
resales of the securities into the United States by the purchasers of 
those securities, the restricted period has been renamed the 
``distribution compliance period.'' This should clarify that the 
availability of the safe harbor to the issuer and distributors has no 
bearing on whether purchasers of Regulation S securities may be acting 
as statutory underwriters if they purchase with a view to reselling 
into the U.S. markets.
1. Extension of the Distribution Compliance Period
    A distribution compliance period is required for Category 2 and 
Category 3 offerings under the issuer safe harbors because there is a 
greater likelihood that the securities will flow back into the United 
States. The purpose of the distribution compliance period is to ensure 
that during the offering period and the subsequent aftermarket trading 
that takes place offshore, the persons relying on the safe harbor--
issuers, distributors and their affiliates--are not engaged in an 
unregistered, non-exempt distribution into the United States capital 
markets.\25\ In addition to the prohibition against selling to U.S. 
persons during the distribution compliance period, these persons are 
subject to special requirements designed to provide assurance that the 
securities will come to rest offshore.
---------------------------------------------------------------------------

    \25\ See Securities Act Release No. 6863 (Apr. 24, 1990)[55 FR 
18306 (May 2, 1990)] the ``Adopting Release'') at Section III.B.
---------------------------------------------------------------------------

    The Commission proposed the two-year distribution compliance period 
to make the restrictions on issuers and distributors consistent with 
the Rule 144 holding periods applicable to purchasers of the Regulation 
S securities under new Rule 905 and the amendments to Rule 144. The 
commenters generally agreed that the current 40-day distribution 
compliance period was insufficient to protect against use of an 
offshore offering to make an indirect offering into the United States, 
at least with respect to equity securities of domestic issuers. Some 
commenters argued, however, that the two-year period was not necessary 
and that a 90-day period, like that originally proposed when Regulation 
S was first formulated, would be sufficient.\26\
---------------------------------------------------------------------------

    \26\ The longer distribution compliance periods also extend the 
time during which the issuer and distributors could not engage in 
directed selling efforts in the United States. See Adopting Release 
at Sectio`n III.B.1.b One commenter expressed concern that the two-
year distribution compliance period places an unworkable ``black-
out'' restriction on publication of research regarding the issuer's 
securities.
---------------------------------------------------------------------------

    Consideration was given to eliminating the distribution compliance 
period altogether, on the premise that since the equity securities 
issued under Regulation S could not be sold back into the U.S. markets 
for a period of two years unless sold in a manner consistent with the 
Rule 144 requirements, the additional requirements of the distribution 
compliance period were unnecessary. However, the documentation, 
disclosure and certification requirements linked to the distribution 
compliance period, as well as the prohibition against offers and sales 
to a U.S. person during the distribution compliance period, provide 
important additional protections and assurance that, at least from the 
perspective of the distribution participants, the securities have come 
to rest offshore. Extending those requirements for a period of time 
after the closing of the offering is necessary, particularly with 
respect to distributors of those securities who may immediately make a 
market for the securities offshore. The purposes of the protections 
would be defeated if the requirements are applied only to the initial 
purchasers.
    The Commission has decided to extend the distribution compliance 
period substantially beyond 40 days to one year. The expiration of the 
one-year period will coincide with the period when limited resales may 
begin under Rule 144. At that point, the distribution compliance period 
is unnecessary. A two-year distribution compliance period, as 
originally proposed, could be confusing to apply because the 
distribution compliance period under Regulation S would cover a longer 
period than the holding period under Rule 144.
2. Offering Restrictions
    Category 2 and Category 3 of Rule 903 require that ``offering 
restrictions'' \27\ be implemented during the distribution compliance 
period. For offerings classified as Category 3, these offering 
restrictions include agreements by distributors that the securities 
will only be sold in accordance with the Securities Act or Regulation 
S, and a requirement for disclosure in all offering materials to the 
same effect. The amendments adopted today do not affect these 
requirements other than to:
---------------------------------------------------------------------------

    \27\ The term ``offering restrictions,'' as amended, is defined 
in Rule 902(g) [17 CFR 230.902(g)].
---------------------------------------------------------------------------

     Lengthen the period during which they must be implemented, 
as a result of the lengthening of the distribution compliance period; 
and
     Require that additional language be provided in the 
mandated agreements and on the securities themselves, so that 
purchasers have notice that hedging transactions not in compliance with 
the Securities Act are prohibited.
3. Purchaser Agreements and Certifications
    Category 3 imposes additional requirements not included in Category 
2 relating to purchaser certifications and agreements. Those 
requirements will be imposed on equity offerings of domestic reporting 
companies for the first time under the amendments. In addition, the 
issuer and distributors will be subject to the additional requirements 
for a longer period, as a result of the longer distribution compliance 
period.
    In keeping with a more restrictive approach to the types of 
Regulation S offerings where the Commission has observed the greatest 
potential for abuse, the Commission is adopting amendments that will 
require purchasers of equity securities in Category 3 offerings to 
agree to resell the securities, or to engage in hedging transactions, 
only in accordance with the registration or exemptive provisions of the 
Securities Act, or in accordance with Regulation S.\28\ This agreement 
by

[[Page 9636]]

purchasers of the covered equity securities should help ensure that 
purchasers have notice of the resale restrictions applicable to the 
securities.
---------------------------------------------------------------------------

    \28\ Issuers, however, would be free to require purchasers to 
agree not to engage in any hedging transactions, even if the 
transaction would be consistent with the Securities Act. The 
amendments do not impose any new restrictions on hedging practices. 
The Commission is considering proposed restrictions on hedging under 
Rule 144 that, if adopted, would be in addition to those currently 
applicable to restricted securities transactions under that rule. 
See Securities Act Release No. 7391 (Feb. 20, 1997) [62 FR 9246 
(Feb. 28, 1997)] (``Rule 144 Proposing Release'') (discusses current 
and proposed restrictions on hedging restricted securities).
---------------------------------------------------------------------------

    Purchasers of domestic equity securities of reporting companies 
also will now be required to certify that they are not U.S. persons and 
are not acquiring the securities for the account or benefit of a U.S. 
person, or that they are U.S. persons who purchased securities in a 
transaction that did not require registration under the Securities Act. 
This certification procedure should make it clear to all parties 
involved in the Regulation S offering that the rule may not be used to 
circumvent the registration requirements of the Securities Act. This 
should prevent some of the ``sham'' transactions described in the 
Interpretive Release where issuers or distributors ``park'' securities 
offshore with affiliates or shell entities that are actually owned by 
U.S. persons.
4. Legending and Stop Transfer Requirements
    Under the amendments, Category 3 will now require all domestic 
issuers of equity securities to place a legend on the securities sold 
offshore under Regulation S. This legend will advise that transfer of 
such securities is prohibited other than in accordance with Regulation 
S, pursuant to registration under the Securities Act, or pursuant to an 
available exemption from registration. The legend requirement will 
provide notice to any subsequent purchasers of the resale restrictions 
applicable to the securities. Legending equity securities of domestic 
reporting issuers until the expiration of the current 40-day 
distribution compliance period appears to be a common practice under 
Regulation S. The extension of the express legending requirement to 
reporting companies, when limited to domestic issuers, should not 
impose a different or new burden. In addition, as proposed, the current 
legending requirement is being amended, so that purchasers are aware 
that hedging transactions may not be conducted except in compliance 
with the Securities Act.
    Category 3 also requires an issuer, by contract or a provision in 
its bylaws, articles, charter or comparable document, to refuse to 
register any transfer of securities unless made in accordance with the 
registration or exemptive provisions of the Securities Act, or in 
accordance with Regulation S. This requirement imposes on issuers a 
monitoring role similar to that which is often imposed in connection 
with unregistered private placements. In light of the abuses in this 
area, domestic reporting issuers should be held more accountable for 
compliance in these offerings.
    Commenters were concerned that these procedures--which have existed 
under Category 3 since before the adoption of Regulation S \29\ and now 
are merely being extended to a broader class of issuers--are 
inconsistent with public offering practices and that imposing these 
requirements will prevent the issuer from engaging in offshore public 
offerings or listings. Since these concerns were raised principally 
with respect to foreign issuers, they have been addressed by the 
decision not to extend Category 3 to reporting foreign issuers that 
have their principal market in the United States.\30\ With respect to 
domestic issuers, although these requirements will not be complied with 
easily in an offshore public offering, the need to develop mechanisms 
to prevent abuse is clear. Absent measures like those required in 
Category 3, the Commission is concerned that abusive practices will 
continue.\31\ Domestic reporting companies that find it too cumbersome 
to take advantage of the Regulation S safe harbor when conducting a 
public offering would simply register under the Securities Act or 
resort to other exempt offerings.
---------------------------------------------------------------------------

    \29\ See e.g., InfraRed Associates, Inc., SEC No-Action Letter 
(Sept. 13, 1985).
    \30\ The Category 3 requirements, other than legending, already 
apply to equity offerings by non-reporting foreign issuers where 
there is a substantial U.S. market interest in the security. The 
amendments do not affect this aspect of Rule 903.
    \31\ As the Commission noted in the Proposing Release:
    Regulation S does not require, and the Commission is not 
proposing, that the legend contain specific language to describe 
these restrictions. Issuers and distributors should prepare such 
legends in a form that conveys to holders the restricted nature of 
the securities and that they can only be resold under Regulation S, 
pursuant to registration under the Act, or under an exemption. Nor 
is the legend requirement intended to require that securities sold 
under Category 3 be in certificated form. Issuers whose securities 
are in uncertificated form may satisfy the legend requirement by any 
means which puts holders and subsequent purchasers on notice of the 
applicable resale restrictions.
    Proposing Release at Section III.B.4. Depending on the 
circumstances, the following alternatives, among others, may be 
sufficient to put holders on notice and prevent a public 
distribution into the United States: Notices of the restrictions to 
investors on the confirmation or allotment telex, use of global 
securities held in a depository, and restrictions on trading in the 
United States through the use of restricted CUSIP numbers.
---------------------------------------------------------------------------

C. New Rule 905--Restricted Securities

    Because some of the abusive practices under Regulation S have 
involved activities by persons other than issuers, distributors and 
their affiliates (investors who purchase Regulation S securities with a 
view to distributing those securities into the U.S. markets at the end 
of the 40-day distribution compliance period), the Commission believes 
that it is appropriate to clarify the legal obligations of purchasers 
of securities under Regulation S. The Commission proposed new Rule 905, 
and amendments to Rule 144(a)(3), to classify covered equity securities 
(of both reporting and non-reporting issuers) placed offshore under 
Regulation S as ``restricted securities'' within the meaning of Rule 
144. By expressly defining these Regulation S securities as falling 
within the definition of ``restricted securities'' under the Rule 144 
resale safe harbor, purchasers of those securities are provided with 
clear guidance regarding when and how those securities may be resold in 
the United States without registration under the Securities Act.
    Several commenters believed that subjecting offshore purchasers of 
Regulation S securities to the Rule 144 holding periods would impair 
liquidity in those securities to such an extent that the safe harbor 
would no longer provide an alternative source of capital for U.S. 
companies. Instead, U.S. issuers would either have to register the 
offering or rely on a separate exemption, such as Regulation D or 
Section 4(2) under the Securities Act for private offerings.
1. Advantages of Regulation S
    Notwithstanding the concerns raised by commenters, the Commission 
believes Regulation S will continue to offer significant advantages 
over the private offering exemptions. U.S. issuers can sell securities 
offshore without regard to the sophistication or number of purchasers 
in the offering or the size of the offering. Similarly, unlike Rules 
505 and 506 of Regulation D, Regulation S does not contain specific 
information requirements. In addition, Regulation S permits issuers and 
distributors to advertise an offering offshore (consistent with the 
prohibition against directed selling efforts and the offshore 
transaction requirements) in a manner that would not be consistent with 
the prohibition against general solicitation in a private placement in 
the United States. Like the private offering exemptions, Regulation S 
will continue to afford U.S. issuers a means to sell

[[Page 9637]]

securities without the potential delay and ``market overhang'' caused 
by registering equity securities under the Securities Act.
    Purchasers will continue to have several sources of liquidity in 
addition to reliance on Rule 144. Offshore purchasers can continue to 
rely upon the Rule 904 safe harbor for offshore resales. They can also 
resell in the United States pursuant to exemptions other than Rule 144, 
including Rule 144A. Finally, and perhaps most importantly, it is 
possible that purchasers in Regulation S offerings could insist upon 
registration rights as do purchasers in private placements under 
Section 4(2) or Regulation D as a means of obtaining liquidity in the 
U.S. markets.\32\ Particularly in the case of reporting companies, a 
Regulation S offering coupled with on demand registration rights 
provides an issuer with ready access to foreign capital while according 
purchasers access to U.S. markets for liquidity.\33\
---------------------------------------------------------------------------

    \32\ Form S-3 [17 CFR 239.13] is generally available for these 
types of resale registration statements, even for companies that do 
not meet the public float requirement for primary offerings under 
Form S-3, if the securities are listed on a U.S. securities exchange 
or quoted in the Nasdaq Stock Market.
    \33\ The Commission proposed to amend Rule 903 to make clear 
that registered or exempt sales to U.S. persons during the 
distribution compliance period would not impair reliance on 
Regulation S. Language instead has been added to Preliminary Note 5 
to make clear that registered offers and sales to U.S. persons, or 
offers and sales made pursuant to an exemption such as Rule 144A, 
are permitted during the distribution compliance period without 
jeopardizing the issuer's reliance on Regulation S for the offshore 
offers and sales.
---------------------------------------------------------------------------

2. Resales of Restricted Securities
    Rule 905 also addresses the resale of restricted securities under 
Rule 904. Rule 905 clarifies that the resale of restricted securities 
offshore under Rule 904 does not ``wash off'' the restricted status of 
those securities to allow them to be freely resold into the United 
States by the purchaser. Several commenters argued that it was 
impossible to keep track of the restricted status of securities trading 
in offshore securities markets. With the widespread adoption of 
uncertificated securities and rules of offshore markets that prohibit 
the listing of legended securities, these commenters observed that the 
approach simply was not practicable.
    By not extending Rule 905 to securities of foreign private issuers, 
the principal concerns of the commenters in this respect should be 
addressed.\34\ Although some commenters have expressed concern that the 
certification and legending requirements may hinder free trading on 
offshore securities markets, without these requirements the potential 
for easy evasion of Rule 144's resale limitations for domestic equity 
securities is high. Absent the mandatory certification and legending 
requirements, the purchaser would not be on notice that it is subject 
to any restrictions on the resale of those securities into the United 
States.\35\ It is possible that some markets can accommodate such 
securities, or may adapt to accommodate them in the future. 
Consequently, the Commission is adopting Rule 905 as proposed for 
domestic equity securities.
---------------------------------------------------------------------------

    \34\ For example, because of its limited scope there should be 
no basis for a concern that Rule 905 could restrict the ability of a 
foreign security that was privately placed in the United States to 
be sold back into its home market offshore in a Rule 904 or Rule 
144A transaction.
    \35\ The Commission is adopting the proposed amendment to Rule 
144(e)(3)(vii) that codifies the Commission staff's informal 
position that restricted securities resold offshore pursuant to 
Regulation S need not be included in the amount of securities that 
have been resold pursuant to Rule 144 for the purposes of the volume 
limitations of Rule 144(e).
---------------------------------------------------------------------------

3. Retroactive Application of Rule 905
    Rule 905 will not be applied retroactively to classify domestic 
equity securities previously sold under Regulation S as restricted 
securities under Rule 144. However, the provision of Rule 905 that 
codifies the Commission's interpretive position that resales offshore 
do not ``wash off'' restrictions will apply to offerings taking place 
before the effective date. This position was stated in the Interpretive 
Release and reiterated in the Regulation S Proposing Release.

D. Promissory Notes

    Under the proposal, Regulation S would have prohibited the use of 
promissory notes or other executory obligations as payment for domestic 
equity securities. The proposal was designed to address abuses where 
the offshore purchaser used a promissory note to pay all or a portion 
of the purchase price of the securities. In some cases, the notes were 
secured only by the Regulation S securities; in other cases, the notes 
were unsecured. Some notes provided recourse to the buyer if the note 
was not repaid; others did not. Purchasers have resold the securities 
into the U.S. markets upon expiration of the 40-day distribution 
compliance period and used the proceeds of the resale to repay the 
note. Under such an arrangement, the issuer and purchaser clearly 
expect a U.S. resale to provide the funds necessary to repay the note; 
in economic substance, the issuer is raising funds from the U.S. public 
markets.
    Rather than exclude such transactions from the coverage of the safe 
harbor, some commenters recommended that the Commission adopt the 
alternative approach suggested in the Proposing Release--that is, to 
toll the holding period under Rule 144 until certain conditions are 
satisfied, similar to the tolling approach taken under Rule 144 with 
respect to promissory notes and other similar obligations. The 
Commission has decided to adopt this approach because it is persuaded 
that this approach will address concerns about the use of promissory 
notes to raise funds in the U.S. markets, since the securities 
purchased pursuant to Regulation S will be fully paid for before the 
securities can be resold into the U.S. markets pursuant to Rule 144. In 
that case, the resale of the securities into the U.S. markets under 
Rule 144 would not be used to raise funds to repay the promissory note. 
Under the approach adopted, promissory notes or similar obligations or 
contracts can be accepted as payment to purchase domestic equity 
securities under Regulation S. The holding period will not begin to run 
for the purchaser, however, unless the following conditions are 
satisfied: The promissory note, obligation or contract provides for 
full recourse against the purchaser of the securities, and is secured 
by collateral (other than the securities purchased) having a fair 
market value at least equal to the purchase price of the securities 
purchased. In addition, after the holding period requirement has been 
satisfied, the promissory note, obligation or contract must be paid in 
full before the resale of the securities under Rule 144. This ensures 
that the funds obtained through the Rule 144 resales will not be used 
to pay off the promissory note.

E. Reporting of Regulation S Transactions

    As a result of amendments adopted by the Commission in October 
1996,\36\ sales of equity securities by domestic issuers under 
Regulation S are required to be reported on Form 8-K within 15 days of 
occurrence. All other unregistered sales of equity securities by 
domestic issuers (e.g., private placements) must be reported quarterly 
in the issuer's Form 10-Q and in its Form 10-K (for the last fiscal 
quarter). At the time the Commission adopted the Form 8-K 15-day 
reporting requirement, the Commission stated that if it extended the 
distribution compliance period for sales of equity securities under

[[Page 9638]]

Regulation S, it would consider revising the reporting requirement.
---------------------------------------------------------------------------

    \36\ Exchange Act Release No. 37801 (Oct. 10, 1996) [61 FR 54506 
(Oct. 18, 1996)].
---------------------------------------------------------------------------

    The commenters generally favored dropping the Form 8-K requirement, 
although some thought that the Form 8-K report was important to stop 
abuses, and provided timely notice to shareholders and the markets of a 
material development concerning the issuer. Since equity securities 
sold under Regulation S will now be deemed restricted securities and 
thus cannot enter the U.S. public markets any faster than securities 
issued in an exempt private placement, the benefits of expedited Form 
8-K reporting is minimal. Accordingly, the Form 8-K filing requirement 
is being eliminated, and these sales will be reported on Forms 10-Q, 
10-QSB, 10-K or 10-KSB, as applicable.\37\
---------------------------------------------------------------------------

    \37\ The Commission is not, however, amending Item 701 of 
Regulation S-K [17 CFR 229.701] and Regulation S-B [17 CFR 228.701] 
to remove the reference to Form 8-K as proposed. To the extent an 
issuer chooses voluntarily to report an unregistered sale of 
securities on Form 8-K, in addition to Forms 10-Q, 10-QSB, 10-K or 
10-KSB, the information required by Item 701 must be provided.
---------------------------------------------------------------------------

    The Commission has determined to delay the effectiveness of this 
amendment, however, to allow the Commission staff to monitor closely 
developments under the amended Regulation S safe harbor procedures 
during a transition period. Accordingly, the Form 8-K report will not 
be required for any Regulation S sales occurring after January 1, 1999.
    Following the October 1996 adoption of the Form 8-K reporting 
requirement, the Commission staff received inquiries regarding the need 
to report on Form 8-K unregistered sales of equity securities by U.S. 
companies to their non-U.S. resident employees pursuant to employee 
benefit plans. To the extent that the sales qualify for Category 1 
treatment under Rule 903 of Regulation S, issuers may report the sales 
on an aggregated basis on the Form 10-Q, rather than on a current basis 
on Form 8-K, prior to January 1, 1999.

F. Technical and Clarifying Revisions

    As proposed, the Commission is adopting non-substantive technical 
and clarifying revisions to Regulation S to make the rule more concise 
and understandable. The principal changes include:
     Revising the captions of the three sections of the Rule 
903 issuer safe harbor to refer to them as commonly known: ``Category 
1,'' ``Category 2'' and ``Category 3'';
     Revising the Rule 903 issuer safe harbor to state clearly 
for each category what procedures are to be followed and what 
securities are eligible for each category;
     Combining some definitions within Rule 902, the definition 
section of Regulation S, and moving certain definitions to the Rule 903 
safe harbor to make the rule easier to read and understand;
     Updating the list of ``designated offshore securities 
markets'' in Rule 902;
     If the same terms are already defined elsewhere in the 
Commission's rules and regulations, deleting those definitions from 
Rule 902 and adding cross-references to the definitions contained 
elsewhere; and
     Generally editing the language in the rule to make it more 
understandable.

IV. Certain Findings

    Section 23(a) of the Exchange Act \38\ requires the Commission to 
consider any anti-competitive effects of any rules it adopts thereunder 
and the reasons for its determination that any burden on competition 
imposed by such rules is necessary or appropriate to further the 
purposes of the Exchange Act. Furthermore, Section 2 \39\ of the 
Securities Act and Section 3 \40\ of the Exchange Act, as amended by 
the National Securities Markets Improvement Act of 1996,\41\ 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.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78w(a).
    \39\ 15 U.S.C. 77b.
    \40\ 15 U.S.C. 78c.
    \41\ Pub. L. 104-290, Section 106, 110 Stat. 3416 (1996).
---------------------------------------------------------------------------

    The Commission has considered the amendments discussed in this 
release in light of the comments received in response to the Proposing 
Release and the standards in Section 23(a) of the Exchange Act.\42\ The 
Commission adopted Regulation S in 1990 to provide a safe harbor from 
the registration requirements of the Securities Act for offshore offers 
and sales of securities. Since the adoption of Regulation S, the 
Commission has become aware of abuses of this rule in connection with 
sales of domestic equity securities. The Commission is adopting the 
amendments to prevent further abuses of this rule.
---------------------------------------------------------------------------

    \42\ The finding required by Section 23(a) of the Exchange Act 
only relates to amendments under the Exchange Act, such as 
amendments to Forms 8-K and 10-Q, and not to amendments under the 
Securities Act. In general, the Exchange Act amendments, by easing 
the Form 8-K reporting requirements, should not affect competition.
---------------------------------------------------------------------------

    In compliance with Section 2 of the Securities Act, which requires 
the Commission to consider whether the action will promote competition, 
it is important to note that the amendments will impose certain burdens 
on purchasers of equity securities issued by domestic companies, as 
well as on the issuers themselves, that may place domestic issuers at a 
competitive disadvantage in raising funds through Regulation S 
transactions as compared to foreign issuers. For example, purchasers of 
domestic equity securities sold pursuant to Regulation S may have to 
wait a longer period of time before they can publicly resell the 
securities into the United States. In addition, these purchasers will 
have to provide certification that they are not U.S. persons that may 
result in additional recordkeeping burdens on issuers and distributors 
who must maintain records of this compliance. Of course, any U.S. law 
applicable only to U.S. issuers will have some competitive effect on 
domestic issuers compared to foreign issuers. However, the Commission 
believes that such restrictions are necessary to deter abuses of the 
rule. Because abusive practices under Regulation S primarily have 
involved domestic companies, the Commission believes that it is not 
necessary at this time to apply additional restrictions on sales of 
equity securities by foreign issuers.
    Although the amendments will impose certain burdens on both 
purchasers and issuers of equity securities issued by domestic 
companies, the Commission anticipates that the overall effect of the 
amendments will be to enhance efficient capital formation. By deterring 
abusive market practices, the amendments will protect investors and 
promote capital formation by enhancing investors' confidence in the 
integrity of Regulation S offerings.
    The Commission is adopting amendments to relax the requirements to 
report unregistered sales of equity securities made pursuant to 
Regulation S. Such sales will now be reported on a delayed basis on 
Forms 10-Q, 10-QSB, 10-K and 10-KSB, rather than Form 8-K. However, 
investors will continue to have sufficient information regarding 
changes in outstanding securities of public companies. These amendments 
could decrease Form 8-K filing burdens for some reporting issuers, 
although the new requirements to report unregistered equity sales on a 
quarterly basis could result in an offsetting increase in reporting.

[[Page 9639]]

Nonetheless, the Commission believes the amendments will promote 
efficiency and capital formation, and will not unnecessarily burden 
competition.

V. Cost-Benefit Analysis

    The Commission adopted Regulation S to enhance access to offshore 
securities markets for both foreign and domestic issuers. Regulation S 
provides a safe harbor from the registration requirements of the 
Securities Act for offshore offers and sales of securities. In spite of 
the overall success of this rule, Regulation S has been abused with 
respect to sales of equity securities by domestic issuers. Abuses have 
occurred in which these securities have inappropriately been 
distributed back into the United States after the Regulation S 
transaction in violation of U.S. laws and regulations. As a result of 
these abuses, fraudulent schemes involving millions of dollars have 
been perpetrated through the use of Regulation S.
    The amendments to Regulation S will prevent further abusive 
practices under this rule, and will protect investors and promote 
capital formation by enhancing the integrity of the securities markets. 
At the same time, the amendments will permit continued reliance on 
Regulation S for legitimate offshore offerings.
    The amendments will impose restrictions on purchasers of equity 
securities of U.S. issuers, as well as on the issuers themselves, that 
may make it more costly for such issuers to raise funds through 
Regulation S placements. For instance, some purchasers may now have to 
wait a longer period of time before they can publicly resell the 
securities into the United States. In addition, the amendments will 
require purchasers of domestic equity securities sold under Regulation 
S to provide certification that they are not U.S. persons. This may 
impose additional recordkeeping burdens on issuers and distributors 
that must maintain records of such compliance, which could make 
Regulation S sales of their equity securities more costly for these 
issuers. However, the Commission believes that these restrictions are 
needed to prevent abusive practices that have occurred under Regulation 
S. By deterring abusive market practices, the amendments will protect 
investors and promote capital formation by enhancing investors' 
confidence in the integrity of the securities markets.
    Based on a review by Commission staff of Form 8-Ks filed by issuers 
to report equity sales made under Regulation S, the Commission 
estimates that approximately 500 Exchange Act reporting companies 
conduct approximately 550 sales pursuant to Regulation S each year and 
that over $5 billion in equity sales will be affected by the 
amendments. The total number of companies affected by the amendments is 
not known because non-reporting companies are not required to file Form 
8-K and the Form 8-K reporting requirement only applies to sales of 
equity securities under Regulation S.
    Although the new requirements, such as the purchaser certifications 
and purchaser and distributor agreements, may increase costs to 
issuers, the Commission believes that the increase will be negligible. 
According to an informal survey taken by Commission staff of attorneys 
in private practice whose clients could be expected to rely on these 
safe harbors, domestic issuers that sell equity securities under 
Regulation S already comply with the certification and legending 
requirements of Category 3 as a matter of common practice. No new costs 
will be imposed on domestic issuers as a result of formally extending 
the Category 3 requirements to sales of equity securities by domestic 
issuers. The new requirements with respect to hedging transactions 
under Regulation S are expected to have a negligible impact on costs 
because the amendments will only require issuers to add an additional 
sentence with respect to hedging on the securities, and in the 
purchaser agreements. Private practitioners surveyed by the Commission 
staff have indicated that the increased costs as a result of the 
amendments with respect to hedging are insignificant.
    The amendments to Forms 8-K, 10-Q, 10-QSB, 10-K and 10-KSB relax 
the requirements to report unregistered sales of equity securities by 
delaying the reporting of the unregistered sale. The sufficiency of the 
information provided to investors about unregistered offerings made by 
public companies should not be affected. However, the Commission 
believes the reduction in burdens and costs will be negligible. As a 
result of these amendments, information on unregistered offerings 
(include private placements and Regulation S offerings) during a given 
time period will now be available to investors in one filing.
    The Commission is amending Regulation S to clarify the legal 
obligations of purchasers of securities under that rule. Some of the 
abuses under Regulation S have involved activities by persons other 
than issuers, distributors and their affiliates--investors who 
purchased with a view to distributing the securities into the U.S. 
markets at the end of the distribution compliance period. The 
Commission is attempting to address this abuse by defining these 
securities as ``restricted securities'' under the Rule 144 resale safe 
harbor. However, the Commission does not believe that this 
classification will be unduly burdensome for purchasers in Regulation S 
offerings. The holding periods under Rule 144 were shortened \43\ at 
the same time that the Regulation S amendments were proposed, and some 
purchasers of securities sold under Regulation S may be able to demand 
registration rights. If a purchaser decides to resell the securities 
under the Rule 144 safe harbor, the Commission does not believe that 
the requirement to file a Form 144 under those circumstances will be 
unduly burdensome, especially given the benefits of resale under that 
safe harbor. The Commission estimates that this amendment will result 
in approximately 750 additional filings on Form 144 per year, and an 
increase of approximately 1,500 hours per year in total annual 
reporting and recordkeeping burdens.\44\ The Commission estimates that 
the total increase in costs as a result of this amendment will be 
approximately $45,000 per year.\45\
---------------------------------------------------------------------------

    \43\ Securities Act Release No. 7390 (Feb. 20, 1997) [62 FR 9242 
(Feb. 28, 1997)]
    \44\ See Proposing Release at Section IX.
    \45\ This estimate assumes that each Form 144 filing requires 
two hours of preparation at a cost of $60 per filing.
---------------------------------------------------------------------------

    Restricted shares normally must be sold at a discount relative to 
the price of shares that are freely tradable in the public markets. The 
size of that price discount reflects, at least in part, the 
compensation buyers of shares receive for giving up the ability to 
readily sell the shares immediately in the public market. The size of 
the price discount is affected by a variety of factors including how 
long the restricted shares must be held before they can be sold in the 
public markets. Discounts are likely to increase with the length of the 
distribution compliance period. Therefore, the Commission expects 
discounts on Regulation S securities to increase as a result of the 
increase in the minimum distribution compliance period from 40 days to 
one year. However, it is difficult to determine how large that increase 
is likely to be, and no commenters provided any empirical data in this 
regard. The Commission's Office of Economic Analysis' study of recent 
sales of Regulation S shares indicates that they were sold at an 
average discount of approximately 22%. Studies that have measured price 
discounts of shares subject to the longer Rule 144 restricted periods 
found that the discounts

[[Page 9640]]

averaged about 20% in the 1980-1987 period according to one study, and 
34% in the 1981-1988 period according to another study.\46\ The average 
price discount of more recent sales of shares subject to Rule 144 may 
be smaller because the restricted periods were shortened by one 
year.\47\
---------------------------------------------------------------------------

    \46\ See Michael Hertzel and Richard L. Smith, Market Discounts 
and Shareholder Gains for Placing Equity Privately, J. OF FIN., June 
1993; William L. Silver, Discounts on Restricted Stock: The Impact 
of Illiquidity on Stock Prices, FIN. ANALYSTS J., July-Aug. 1991.
    \47\ See Securities Act Release No. 7390, supra note 43.
---------------------------------------------------------------------------

VI. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis (``FRFA'') has been 
prepared in accordance with the Regulatory Flexibility Act \48\ with 
respect to the amendments.
---------------------------------------------------------------------------

    \48\ 5 U.S.C. 604.
---------------------------------------------------------------------------

A. The Need for and Objectives of the Amendments to Regulation S

    The amendments to Regulation S are designed to stop abuses under 
Regulation S in which domestic issuers conduct offshore placements of 
their securities under Regulation S that result in indirect 
distributions of these securities into the U.S. markets without the 
protection of registration under the Securities Act.

B. Summary of Significant Issues Raised by the Public Comments

    The Commission requested comment with respect to the Initial 
Regulatory Flexibility Analysis (``IRFA'') prepared in connection with 
the Proposing Release, but did not receive any comments that 
specifically addressed the IRFA.

C. Description and Estimate of the Number of Small Entities That the 
Amendments Will Affect

    These amendments will affect persons that are small entities, as 
defined by the Commission's rules, but only in the same manner as 
larger entities. The Commission is aware of approximately 1100 Exchange 
Act reporting companies that currently satisfy the definition of 
``small business'' under Rule 0-10 \49\ of the Exchange Act. While the 
Commission sought comment on the number of non-reporting issuers that 
may be affected by the proposed changes, commenters did not provide any 
additional data on such number. However, there is no reliable way of 
determining how many non-reporting companies may be subject to 
Regulation S. Furthermore, there is no reliable way of determining how 
many small businesses may become subject to the Commission's 
registration and reporting obligations in the future.
---------------------------------------------------------------------------

    \49\ 17 CFR 240.0-10.
---------------------------------------------------------------------------

    Based on a review by Commission staff of a sample of the Form 8-Ks 
filed with the Commission to report Regulation S equity sales,\50\ 
approximately 500 Exchange Act reporting companies conduct 
approximately 550 sales pursuant to Regulation S each year, and will be 
affected by the amendments. The Commission estimates that over 160 of 
these reporting companies would meet the Regulatory Flexibility Act 
definition of small business. However, the Commission has only been 
receiving data regarding offshore placements of equity securities under 
Regulation S since November 18, 1996, and does not have any long-term 
data that would enable the Commission to develop precise estimates of 
the number of small businesses that may actually rely on Regulation S, 
or that may otherwise be affected by the amendments. Commenters did not 
provide any additional quantitative data in that regard. In addition, 
the Form 8-K reporting requirement only applies to sales of equity 
securities by domestic reporting issuers, and does not apply at all to 
non-reporting companies. As a result, the total number of small 
entities that conduct sales under Regulation S will exceed the numbers 
referenced above.
---------------------------------------------------------------------------

    \50\ Since November 18, 1996, sales of equity securities by 
domestic issuers under Regulation S are required to be reported on 
Form 8-K within 15 days of occurrence. This reporting requirement 
does not apply to any issuer who is not subject to the periodic 
reporting requirements under the Exchange Act, and generally does 
not apply to foreign issuers. See Exchange Act Release No. 37801, 
supra note 36.
---------------------------------------------------------------------------

D. Description of the Projected Reporting, Recordkeeping and Other 
Compliance Requirements of the Amendments

    Regulation S is being amended to include new reporting, 
recordkeeping and other compliance requirements. In general, compliance 
with the new reporting and other compliance requirements will require 
the professional skills of attorneys and paralegals specializing in 
securities or corporate law. The Commission is lengthening the 
distribution compliance period during which persons relying on the 
Regulation S safe harbor may not sell to U.S. persons and must 
institute certain precautionary measures against such sales. The 
Commission also is classifying these securities as ``restricted 
securities'' within the meaning of Rule 144. As a result, purchasers of 
these securities may resell these securities under the Rule 144 safe 
harbor, and would be required to comply with the conditions of that 
safe harbor, including the Rule 144 holding periods. These amendments 
may reduce incentives to conduct equity placements under Regulation S 
due to a perceived reduction in the liquidity of these securities 
absent registration under the Securities Act or a valid exemption.
    The amendments will impose on reporting domestic issuers 
certification, legending and other requirements that previously only 
applied to sales of equity securities by non-reporting issuers. These 
requirements are intended to assure that participants in the 
distribution, as well as the purchasers, are aware of the restricted 
nature of these securities. The amendments will expand the current 
purchaser and distributor agreement requirements to require that 
purchasers and distributors agree not to engage in hedging transactions 
with respect to these securities unless the transaction complies with 
the Securities Act,\51\ and will ensure that participants in the 
Regulation S offerings are aware of and comply with these restrictions.
---------------------------------------------------------------------------

    \51\ No new restrictions on hedging practices are being imposed 
as a result of the amendments. See supra note 28.
---------------------------------------------------------------------------

    Because equity securities of domestic issuers placed under 
Regulation S will be treated as ``restricted securities'' under Rule 
144, the holding period will be tolled for securities purchased with a 
promissory note unless certain conditions under Rule 144 are satisfied. 
These amendments are designed to address abuses involving hedging 
transactions and the use of promissory notes that result in indirect 
distributions of securities into the U.S. markets without the 
protection of registration. These additional purchaser requirements 
could increase recordkeeping and compliance burdens. However, they are 
expected to have an indirect impact on small U.S. businesses because, 
in most cases, the purchasers of securities sold under Regulation S 
would be non-U.S. persons.
    The new amendments to Regulation S also will clarify that offshore 
resales under Rule 904 of equity securities of domestic issuers that 
are ``restricted securities,'' as defined in Rule 144, will not affect 
the restricted status of those securities. These changes clarify the 
requirement that holders of restricted securities may not remove the 
restrictions by selling the securities offshore.

[[Page 9641]]

    The amendments to Forms 8-K, 10-Q, 10-QSB, 10-K and 10-KSB will 
relax the requirements to report unregistered sales of equity 
securities by delaying the reporting of the unregistered sale. However, 
the sufficiency of the information provided to investors regarding 
changes in outstanding securities of public companies should not be 
affected. The amendments to Forms 8-K, 10-QSB and 10-KSB will affect 
small entities, as defined by the Commission's rules. The Commission 
expects that the amendments will reduce Form 8-K filing burdens for 
some reporting companies that qualify as small businesses. However, as 
a result of the requirement to report unregistered sales of equity 
securities on Forms 10-Q, 10-QSB, 10-K and 10-KSB, there will be an 
offsetting increase in reporting with no net effect on overall 
reporting burden.

E. Description of Steps Taken To Minimize Effect on Small Entities and 
Consideration of Alternative Approaches

    All of the amendments are being imposed on all domestic issuers. 
Small businesses will be able to obtain the protections of Regulation S 
on the same basis as larger entities. The Commission considered and 
rejected several alternatives to the amendments applicable to small 
businesses because it believes that the alternative approaches would 
not be consistent with the Commission's statutory mandate of investor 
protection. One alternative would be to establish differing compliance 
or reporting requirements or timetables that take into account the 
resources available to small entities. This alternative would not be 
consistent with the intent of the amendments to forestall abusive 
practices under Regulation S, especially because some of the abuses 
have involved the securities of small issuers.
    Another alternative would be to clarify, consolidate or simplify 
the amendments with respect to small businesses. It would be difficult 
to further clarify, consolidate or simplify the amendments and 
concurrently prevent abuses under Regulation S. The Commission believes 
the amendments impose the minimum requirements necessary to prevent 
further abuses under Regulation S.
    In addition to these alternatives, the Commission has considered 
establishing separate requirements for small businesses that are based 
on performance rather than design standards. However, in the context of 
providing a safe harbor from the Commission's registration requirements 
for offshore offerings, the adoption of performance standards would be 
inconsistent with the Commission's statutory mandate to require full 
and fair disclosure of material information to investors, in compliance 
with the federal securities laws, and would not provide the kind of 
legal certainty that practitioners seek in a safe harbor rule.
    Finally, the Commission has considered exempting small businesses 
from coverage of the amendments. However, the amendments are intended 
to address abusive practices that have occurred under Regulation S, 
including abuses that have involved the securities of small issuers, 
such that further distinctions between companies based on size would 
not be appropriate.
    The Commission believes that by adopting the amendments, it is 
balancing its objective of preventing abuses under Regulation S with 
its statutory mandate of maximizing investor protection in a manner 
that is more appropriate than other alternatives.
    Although the amendments to Regulation S may affect the ability of 
some small businesses to access offshore capital, the amendments should 
be sufficient to curb abusive practices under Regulation S without 
entirely foreclosing the offshore market for unregistered offshore 
offerings of equity securities by domestic issuers. Moreover, the 
recent adoption of shortened holding periods under Rule 144 should help 
reduce any negative effect on small businesses.

VII. Paperwork Reduction Act

    As set forth in the Proposing Release, the amendments to Regulation 
S could affect changes to collections of information within the meaning 
of the Paperwork Reduction Act of 1995 (``PRA'').\52\ As a result of 
these amendments, equity securities of domestic issuers that are issued 
offshore under Regulation S will be deemed ``restricted securities'' as 
defined in Rule 144 under the Securities Act. Purchasers of these 
securities, and any subsequent purchasers, could resell these 
securities into the U.S. markets according to the conditions of Rule 
144. These conditions include the requirement that these purchasers 
file a notice of proposed sale on Form 144 that discloses information 
about the issuer of the securities, the seller, the securities to be 
sold and the proposed manner of sale. In addition, the amendments to 
Forms 8-K, 10-Q, 10-QSB, 10-K and 10-KSB will relax the reporting 
requirements pertaining to unregistered sales of equity securities by 
delaying the reporting of the unregistered sale. Regulation S issuers 
will no longer have the burden of filing Form 8-K to report 
unregistered sales of equity securities. However, as a result of the 
requirement to report unregistered sales of equity securities on Forms 
10-Q, 10-QSB, 10-K and 10-KSB, there will be an offsetting increase in 
reporting burden, with no net effect on the reporting burden relating 
to these Forms.
---------------------------------------------------------------------------

    \52\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    Under the proposed amendments, reporting foreign issuers with their 
primary market in the United States would have been subject to 
additional collections of information. Several commenters objected to 
this aspect of the proposals. As a result, the amendments as adopted do 
not apply to these foreign issuers, and the overall paperwork burden is 
somewhat reduced.
    Regulation S provides a safe harbor from registration that is 
available on a voluntary basis to issuers and other parties. However, 
if an issuer or other person chooses to rely on the Regulation S safe 
harbor, it is required to provide the applicable collections of 
information. To the extent the required collections of information are 
filed with the Commission, such as Form 144 and the Exchange Act 
periodic reports, they will not be kept confidential.
    The collection of information requirements affected by the 
amendments were submitted to OMB for review and were approved by OMB, 
which assigned the following control numbers: Form 144, control number 
3235-0101; Form 8-K, control number 3235-0060; Form 10-K, control 
number 3235-0063; Form 10-Q, control number 3235-0070; Form 10-QSB, 
control number 3235-0416; and Form 10-KSB, control number 3235-0420. 
The collection of information requirements are in accordance with 
Section 3507 \53\ of the PRA. An agency may not conduct or sponsor, and 
a person is not required to respond to, a collection of information 
unless the agency displays a valid OMB control number. The descriptions 
and estimated burdens for the collection of information requirements 
were set forth in the Proposing Release.
---------------------------------------------------------------------------

    \53\ 44 U.S.C. 3507.
---------------------------------------------------------------------------

VIII. Statutory Bases

    The amendments to Regulation S are adopted pursuant to Sections 5 
and 19 of the Securities Act, as amended, and the amendments to Rule 
144 are adopted pursuant to sections 2(a)(11), 4, 5 and 19 of the 
Securities Act, as

[[Page 9642]]

amended.\1\ The amendments to Forms 8-K, 10-QSB, 10-Q, 10-KSB, and 10-K 
are adopted pursuant to sections 3(b), 4A, 12, 13, 15, and 23 of the 
Securities Exchange Act.\2\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 77b(a)(11), 77d, 77e and 77s.
    \2\ 15 U.S.C. 78c(b), 78d-1, 78l, 78m, 78o and 78v.
---------------------------------------------------------------------------

List of Subjects in 17 CFR Parts 230 and 249

    Reporting and recordkeeping requirements, Securities.

Text of the Amendments

    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is 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-24, 80a-29, 
80a-30, and 80a-37, unless otherwise noted.
* * * * *
    2. Section 230.144 is amended by revising paragraphs (a)(3) and 
(e)(3)(vii) to read as follows:


Sec. 230.144  Persons deemed not to be engaged in a distribution and 
therefore not underwriters.

* * * * *
    (a) * * *
    (3) The term restricted securities means:
    (i) Securities acquired directly or indirectly from the issuer, or 
from an affiliate of the issuer, in a transaction or chain of 
transactions not involving any public offering;
    (ii) Securities acquired from the issuer that are subject to the 
resale limitations of Sec. 230.502(d) under Regulation D or 
Sec. 230.701(c);
    (iii) Securities acquired in a transaction or chain of transactions 
meeting the requirements of Sec. 230.144A;
    (iv) Securities acquired from the issuer in a transaction subject 
to the conditions of Regulation CE (Sec. 230.1001); and
    (v) Equity securities of domestic issuers acquired in a transaction 
or chain of transactions subject to the conditions of Sec. 230.901 or 
Sec. 230.903 under Regulation S (Sec. 230.901 through Sec. 230.905, and 
Preliminary Notes).
* * * * *
    (e) * * *
    (3) * * *
    (vii) The following sales of securities need not be included in 
determining the amount of securities sold in reliance upon this 
section: securities sold pursuant to an effective registration 
statement under the Act; securities sold pursuant to an exemption 
provided by Regulation A (Sec. 230.251 through Sec. 230.263) under the 
Act; securities sold in a transaction exempt pursuant to Section 4 of 
the Act (15 U.S.C. 77d) and not involving any public offering; and 
securities sold offshore pursuant to Regulation S (Sec. 230.901 through 
Sec. 230.905, and Preliminary Notes) under the Act.
* * * * *
    3. Preliminary Note 5 to Regulation S (Sec. 230.901 through 
Sec. 230.905) is amended by adding a sentence at the end of the note to 
read as follows:

Regulation S--Rules Governing Offers and Sales Made Outside the United 
States Without Registration Under the Securities Act of 1933

Preliminary Notes

* * * * *
    5. * * * The availability of the Regulation S safe harbor to 
offers and sales that occur outside of the United States will not be 
affected by the subsequent offer and sale of these securities into 
the United States or to U.S. persons during the distribution 
compliance period, as long as the subsequent offer and sale are made 
pursuant to registration or an exemption therefrom under the Act.
* * * * *
    4. Section 230.902 is revised to read as follows:


Sec. 230.902  Definitions.

    As used in Regulation S, the following terms shall have the 
meanings indicated.
    (a) Debt securities. ``Debt securities'' of an issuer is defined to 
mean any security other than an equity security as defined in 
Sec. 230.405, as well as the following:
    (1) Non-participatory preferred stock, which is defined as non-
convertible capital stock, the holders of which are entitled to a 
preference in payment of dividends and in distribution of assets on 
liquidation, dissolution, or winding up of the issuer, but are not 
entitled to participate in residual earnings or assets of the issuer; 
and
    (2) Asset-backed securities, which are securities of a type that 
either:
    (i) Represent an ownership interest in a pool of discrete assets, 
or certificates of interest or participation in such assets (including 
any rights designed to assure servicing, or the receipt or timeliness 
of receipt by holders of such assets, or certificates of interest or 
participation in such assets, of amounts payable thereunder), provided 
that the assets are not generated or originated between the issuer of 
the security and its affiliates; or
    (ii) Are secured by one or more assets or certificates of interest 
or participation in such assets, and the securities, by their terms, 
provide for payments of principal and interest (if any) in relation to 
payments or reasonable projections of payments on assets meeting the 
requirements of paragraph (a)(2)(i) of this section, or certificates of 
interest or participations in assets meeting such requirements.
    (iii) For purposes of paragraph (a)(2) of this section, the term 
``assets'' means securities, installment sales, accounts receivable, 
notes, leases or other contracts, or other assets that by their terms 
convert into cash over a finite period of time.
    (b) Designated offshore securities market. ``Designated offshore 
securities market'' means:
    (1) The Eurobond market, as regulated by the International 
Securities Market Association; the Alberta Stock Exchange; the 
Amsterdam Stock Exchange; the Australian Stock Exchange Limited; the 
Bermuda Stock Exchange; the Bourse de Bruxelles; the Copenhagen Stock 
Exchange; the European Association of Securities Dealers Automated 
Quotation; the Frankfurt Stock Exchange; the Helsinki Stock Exchange; 
The Stock Exchange of Hong Kong Limited; the Irish Stock Exchange; the 
Istanbul Stock Exchange; the Johannesburg Stock Exchange; the London 
Stock Exchange; the Bourse de Luxembourg; the Mexico Stock Exchange; 
the Borsa Valori di Milan; the Montreal Stock Exchange; the Oslo Stock 
Exchange; the Bourse de Paris; the Stock Exchange of Singapore Ltd.; 
the Stockholm Stock Exchange; the Tokyo Stock Exchange; the Toronto 
Stock Exchange; the Vancouver Stock Exchange; the Warsaw Stock Exchange 
and the Zurich Stock Exchange; and
    (2) Any foreign securities exchange or non-exchange market 
designated by the Commission. Attributes to be considered in 
determining whether to designate an offshore securities market, among 
others, include:
    (i) Organization under foreign law;
    (ii) Association with a generally recognized community of brokers, 
dealers, banks, or other professional intermediaries with an 
established operating history;
    (iii) Oversight by a governmental or self-regulatory body;
    (iv) Oversight standards set by an existing body of law;
    (v) Reporting of securities transactions on a regular basis to a 
governmental or self-regulatory body;

[[Page 9643]]

    (vi) A system for exchange of price quotations through common 
communications media; and
    (vii) An organized clearance and settlement system.
    (c) Directed selling efforts. (1) ``Directed selling efforts'' 
means any activity undertaken for the purpose of, or that could 
reasonably be expected to have the effect of, conditioning the market 
in the United States for any of the securities being offered in 
reliance on this Regulation S (Sec. 230.901 through Sec. 230.905, and 
Preliminary Notes). Such activity includes placing 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.
    (2) Publication ``with a general circulation in the United 
States'':
    (i) Is defined as any publication that is printed primarily for 
distribution in the United States, or has had, during the preceding 
twelve months, an average circulation in the United States of 15,000 or 
more copies per issue; and
    (ii) Will encompass only the U.S. edition of any publication 
printing a separate U.S. edition if the publication, without 
considering its U.S. edition, would not constitute a publication with a 
general circulation in the United States.
    (3) The following are not ``directed selling efforts'':
    (i) Placing an advertisement required to be published under U.S. or 
foreign law, or under rules or regulations of a U.S. or foreign 
regulatory or self-regulatory authority, provided the advertisement 
contains no more information than legally required and includes a 
statement to the effect that the securities have not been registered 
under the Act and may not be offered or sold in the United States (or 
to a U.S. person, if the advertisement relates to an offering under 
Category 2 or 3 (paragraph (b)(2) or (b)(3)) in Sec. 230.903) absent 
registration or an applicable exemption from the registration 
requirements;
    (ii) Contact with persons excluded from the definition of ``U.S. 
person'' pursuant to paragraph (k)(2)(vi) of this section or persons 
holding accounts excluded from the definition of ``U.S. person'' 
pursuant to paragraph (k)(2)(i) of this section, solely in their 
capacities as holders of such accounts;
    (iii) A tombstone advertisement in any publication with a general 
circulation in the United States, provided:
    (A) The publication has less than 20% of its circulation, 
calculated by aggregating the circulation of its U.S. and comparable 
non-U.S. editions, in the United States;
    (B) Such advertisement contains a legend to the effect that the 
securities have not been registered under the Act and may not be 
offered or sold in the United States (or to a U.S. person, if the 
advertisement relates to an offering under Category 2 or 3 (paragraph 
(b)(2) or (b)(3)) in Sec. 230.903) absent registration or an applicable 
exemption from the registration requirements; and
    (C) Such advertisement contains no more information than:
    (1) The issuer's name;
    (2) The amount and title of the securities being sold;
    (3) A brief indication of the issuer's general type of business;
    (4) The price of the securities;
    (5) The yield of the securities, if debt securities with a fixed 
(non-contingent) interest provision;
    (6) The name and address of the person placing the advertisement, 
and whether such person is participating in the distribution;
    (7) The names of the managing underwriters;
    (8) The dates, if any, upon which the sales commenced and 
concluded;
    (9) Whether the securities are offered or were offered by rights 
issued to security holders and, if so, the class of securities that are 
entitled or were entitled to subscribe, the subscription ratio, the 
record date, the dates (if any) upon which the rights were issued and 
expired, and the subscription price; and
    (10) Any legend required by law or any foreign or U.S. regulatory 
or self-regulatory authority;
    (iv) Bona fide visits to real estate, plants or other facilities 
located in the United States and tours thereof conducted for a 
prospective investor by an issuer, a distributor, any of their 
respective affiliates or a person acting on behalf of any of the 
foregoing;
    (v) Distribution in the United States of a foreign broker-dealer's 
quotations by a third-party system that distributes such quotations 
primarily in foreign countries if:
    (A) Securities transactions cannot be executed between foreign 
broker-dealers and persons in the United States through the system; and
    (B) The issuer, distributors, their respective affiliates, persons 
acting on behalf of any of the foregoing, foreign broker-dealers and 
other participants in the system do not initiate contacts with U.S. 
persons or persons within the United States, beyond those contacts 
exempted under Sec. 240.15a-6 of this chapter; and
    (vi) Publication by an issuer of a notice in accordance with 
Sec. 230.135 or Sec. 230.135c.
    (vii) Providing any journalist with access to press conferences 
held outside of the United States, to meetings with the issuer or 
selling security holder representatives conducted outside 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 the requirements of Sec. 230.135e are 
satisfied.
    (d) Distributor. ``Distributor'' means any underwriter, dealer, or 
other person who participates, pursuant to a contractual arrangement, 
in the distribution of the securities offered or sold in reliance on 
this Regulation S (Sec. 230.901 through Sec. 230.905, and Preliminary 
Notes).
    (e) Domestic issuer/Foreign issuer. ``Domestic issuer'' means any 
issuer other than a ``foreign government'' or ``foreign private 
issuer'' (both as defined in Sec. 230.405). ``Foreign issuer'' means 
any issuer other than a ``domestic issuer.''
    (f) Distribution compliance period. ``Distribution compliance 
period'' means a period that begins when the securities were first 
offered to persons other than distributors in reliance upon this 
Regulation S (Sec. 230.901 through Sec. 230.905, and Preliminary Notes) 
or the date of closing of the offering, whichever is later, and 
continues until the end of the period of time specified in the relevant 
provision of Sec. 230.903, except that:
    (1) All offers and sales by a distributor of an unsold allotment or 
subscription shall be deemed to be made during the distribution 
compliance period;
    (2) In a continuous offering, the distribution compliance period 
shall commence upon completion of the distribution, as determined and 
certified by the managing underwriter or person performing similar 
functions;
    (3) In a continuous offering of non-convertible debt securities 
offered and sold in identifiable tranches, the distribution compliance 
period for securities in a tranche shall commence upon completion of 
the distribution of such tranche, as determined and certified by the 
managing underwriter or person performing similar functions; and
    (4) That in a continuous offering of securities to be acquired upon 
the exercise of warrants, the distribution compliance period shall 
commence upon completion of the distribution of the warrants, as 
determined and certified by the managing underwriter or person 
performing similar functions, if requirements of Sec. 230.903(b)(5) are 
satisfied.

[[Page 9644]]

    (g) Offering restrictions. ``Offering restrictions'' means:
    (1) Each distributor agrees in writing:
    (i) That all offers and sales of the securities prior to the 
expiration of the distribution compliance period specified in Category 
2 or 3 (paragraph (b)(2) or (b)(3)) in Sec. 230.903, as applicable, 
shall be made only in accordance with the provisions of Sec. 230.903 or 
Sec. 230.904; pursuant to registration of the securities under the Act; 
or pursuant to an available exemption from the registration 
requirements of the Act; and
    (ii) For offers and sales of equity securities of domestic issuers, 
not to engage in hedging transactions with regard to such securities 
prior to the expiration of the distribution compliance period specified 
in Category 2 or 3 (paragraph (b)(2) or (b)(3)) in Sec. 230.903, as 
applicable, unless in compliance with the Act; and
    (2) All offering materials and documents (other than press 
releases) used in connection with offers and sales of the securities 
prior to the expiration of the distribution compliance period specified 
in Category 2 or 3 (paragraph (b)(2) or (b)(3)) in Sec. 230.903, as 
applicable, shall include statements to the effect that the securities 
have not been registered under the Act and may not be offered or sold 
in the United States or to U.S. persons (other than distributors) 
unless the securities are registered under the Act, or an exemption 
from the registration requirements of the Act is available. For offers 
and sales of equity securities of domestic issuers, such offering 
materials and documents also must state that hedging transactions 
involving those securities may not be conducted unless in compliance 
with the Act. Such statements shall appear:
    (i) On the cover or inside cover page of any prospectus or offering 
circular used in connection with the offer or sale of the securities;
    (ii) In the underwriting section of any prospectus or offering 
circular used in connection with the offer or sale of the securities; 
and
    (iii) In any advertisement made or issued by the issuer, any 
distributor, any of their respective affiliates, or any person acting 
on behalf of any of the foregoing. Such statements may appear in 
summary form on prospectus cover pages and in advertisements.
    (h) Offshore transaction. (1) An offer or sale of securities is 
made in an ``offshore transaction'' if:
    (i) The offer is not made to a person in the United States; and
    (ii) Either:
    (A) At the time the buy order is originated, the buyer is outside 
the United States, or the seller and any person acting on its behalf 
reasonably believe that the buyer is outside the United States; or
    (B) For purposes of:
    (1) Section 230.903, the transaction is executed in, on or through 
a physical trading floor of an established foreign securities exchange 
that is located outside the United States; or
    (2) Section 230.904, the transaction is executed in, on or through 
the facilities of a designated offshore securities market described in 
paragraph (b) of this section, and neither the seller nor any person 
acting on its behalf knows that the transaction has been pre-arranged 
with a buyer in the United States.
    (2) Notwithstanding paragraph (h)(1) of this section, offers and 
sales of securities specifically targeted at identifiable groups of 
U.S. citizens abroad, such as members of the U.S. armed forces serving 
overseas, shall not be deemed to be made in ``offshore transactions.''
    (3) Notwithstanding paragraph (h)(1) of this section, offers and 
sales of securities to persons excluded from the definition of ``U.S. 
person'' pursuant to paragraph (k)(2)(vi) of this section or persons 
holding accounts excluded from the definition of ``U.S. person'' 
pursuant to paragraph (k)(2)(i) of this section, solely in their 
capacities as holders of such accounts, shall be deemed to be made in 
``offshore transactions.''
    (i) Reporting issuer. ``Reporting issuer'' means an issuer other 
than an investment company registered or required to register under the 
1940 Act that:
    (1) Has a class of securities registered pursuant to Section 12(b) 
or 12(g) of the Exchange Act (15 U.S.C. 78l(b) or 78l(g)) or is 
required to file reports pursuant to Section 15(d) of the Exchange Act 
(15 U.S.C. 78o(d)); and
    (2) Has filed all the material required to be filed pursuant to 
Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d)) 
for a period of at least twelve months immediately preceding the offer 
or sale of securities made in reliance upon this Regulation S 
(Sec. 230.901 through Sec. 230.905, and Preliminary Notes) (or for such 
shorter period that the issuer was required to file such material).
    (j) Substantial U.S. market interest. (1) ``Substantial U.S. market 
interest'' with respect to a class of an issuer's equity securities 
means:
    (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.
    (2) ``Substantial U.S. market interest'' with respect to an 
issuer's debt securities means:
    (i) Its debt securities, in the aggregate, are held of record (as 
that term is defined in Sec. 240.12g5-1 of this chapter and used for 
purposes of paragraph (j)(2) of this section) 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 Sec. 230.902(a)(1), and the principal 
amount or principal balance of its securities described in 
Sec. 230.902(a)(2), 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 Sec. 230.902(a)(1), and the principal 
amount or principal balance of its securities described in 
Sec. 230.902(a)(2), in the aggregate, is held of record by U.S. 
persons.
    (3) Notwithstanding paragraph (j)(2) of this section, substantial 
U.S. market interest with respect to an issuer's debt securities is 
calculated without reference to securities that qualify for the 
exemption provided by Section 3(a)(3) of the Act (15 U.S.C. 77c(a)(3)).
    (k) U.S. person. (1) ``U.S. person'' means:
    (i) Any natural person resident in the United States;
    (ii) Any partnership or corporation organized or incorporated under 
the laws of the United States;
    (iii) Any estate of which any executor or administrator is a U.S. 
person;
    (iv) Any trust of which any trustee is a U.S. person;
    (v) Any agency or branch of a foreign entity located in the United 
States;
    (vi) Any non-discretionary account or similar account (other than 
an estate or trust) held by a dealer or other fiduciary for the benefit 
or account of a U.S. person;
    (vii) Any discretionary account or similar account (other than an 
estate or trust) held by a dealer or other fiduciary

[[Page 9645]]

organized, incorporated, or (if an individual) resident in the United 
States; and
    (viii) Any partnership or corporation if:
    (A) Organized or incorporated under the laws of any foreign 
jurisdiction; and
    (B) Formed by a U.S. person principally for the purpose of 
investing in securities not registered under the Act, unless it is 
organized or incorporated, and owned, by accredited investors (as 
defined in Sec. 230.501(a)) who are not natural persons, estates or 
trusts.
    (2) The following are not ``U.S. persons'':
    (i) Any discretionary account or similar account (other than an 
estate or trust) held for the benefit or account of a non-U.S. person 
by a dealer or other professional fiduciary organized, incorporated, or 
(if an individual) resident in the United States;
    (ii) Any estate of which any professional fiduciary acting as 
executor or administrator is a U.S. person if:
    (A) An executor or administrator of the estate who is not a U.S. 
person has sole or shared investment discretion with respect to the 
assets of the estate; and
    (B) The estate is governed by foreign law;
    (iii) Any trust of which any professional fiduciary acting as 
trustee is a U.S. person, if a trustee who is not a U.S. person has 
sole or shared investment discretion with respect to the trust assets, 
and no beneficiary of the trust (and no settlor if the trust is 
revocable) is a U.S. person;
    (iv) An employee benefit plan established and administered in 
accordance with the law of a country other than the United States and 
customary practices and documentation of such country;
    (v) Any agency or branch of a U.S. person located outside the 
United States if:
    (A) The agency or branch operates for valid business reasons; and
    (B) The agency or branch is engaged in the business of insurance or 
banking and is subject to substantive insurance or banking regulation, 
respectively, in the jurisdiction where located; and
    (vi) The International Monetary Fund, the International Bank for 
Reconstruction and Development, the Inter-American Development Bank, 
the Asian Development Bank, the African Development Bank, the United 
Nations, and their agencies, affiliates and pension plans, and any 
other similar international organizations, their agencies, affiliates 
and pension plans.
    (l) 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. Section 230.903 is revised to read as follows:


Sec. 230.903  Offers or sales of securities by the issuer, a 
distributor, any of their respective affiliates, or any person acting 
on behalf of any of the foregoing; conditions relating to specific 
securities.

    (a) An offer or sale of securities by the issuer, a distributor, 
any of their respective affiliates, or any person acting on behalf of 
any of the foregoing, shall be deemed to occur outside the United 
States within the meaning of Sec. 230.901 if:
    (1) The offer or sale is made in an offshore transaction;
    (2) No directed selling efforts are made in the United States by 
the issuer, a distributor, any of their respective affiliates, or any 
person acting on behalf of any of the foregoing; and
    (3) The conditions of paragraph (b) of this section, as applicable, 
are satisfied.
    (b) Additional Conditions. (1) Category 1. No conditions other than 
those set forth in Sec. 230.903(a) apply to securities in this 
category. Securities are eligible for this category if:
    (i) The securities are issued by a foreign issuer that reasonably 
believes at the commencement of the offering that:
    (A) There is no substantial U.S. market interest in the class of 
securities to be offered or sold (if equity securities are offered or 
sold);
    (B) There is no substantial U.S. market interest in its debt 
securities (if debt securities are offered or sold);
    (C) There is no substantial U.S. market interest in the securities 
to be purchased upon exercise (if warrants are offered or sold); and
    (D) There is no substantial U.S. market interest in either the 
convertible securities or the underlying securities (if convertible 
securities are offered or sold);
    (ii) The securities are offered and sold in an overseas directed 
offering, which means:
    (A) An offering of securities of a foreign issuer that is directed 
into a single country other than the United States to the residents 
thereof and that is made in accordance with the local laws and 
customary practices and documentation of such country; or
    (B) An offering of non-convertible debt securities of a domestic 
issuer that is directed into a single country other than the United 
States to the residents thereof and that is made in accordance with the 
local laws and customary practices and documentation of such country, 
provided that the principal and interest of the securities (or par 
value, as applicable) are denominated in a currency other than U.S. 
dollars and such securities are neither convertible into U.S. dollar-
denominated securities nor linked to U.S. dollars (other than through 
related currency or interest rate swap transactions that are commercial 
in nature) in a manner that in effect converts the securities to U.S. 
dollar-denominated securities.
    (iii) The securities are backed by the full faith and credit of a 
foreign government; or
    (iv) The securities are offered and sold to employees of the issuer 
or its affiliates pursuant to an employee benefit plan established and 
administered in accordance with the law of a country other than the 
United States, and customary practices and documentation of such 
country, provided that:
    (A) The securities are issued in compensatory circumstances for 
bona fide services rendered to the issuer or its affiliates in 
connection with their businesses and such services are not rendered in 
connection with the offer or sale of securities in a capital-raising 
transaction;
    (B) Any interests in the plan are not transferable other than by 
will or the laws of descent or distribution;
    (C) The issuer takes reasonable steps to preclude the offer and 
sale of interests in the plan or securities under the plan to U.S. 
residents other than employees on temporary assignment in the United 
States; and
    (D) Documentation used in connection with any offer pursuant to the 
plan contains a statement that the securities have not been registered 
under the Act and may not be offered or sold in the United States 
unless registered or an exemption from registration is available.
    (2) Category 2. The following conditions apply to securities that 
are not eligible for Category 1 (paragraph (b)(1)) of this section and 
that are equity securities of a reporting foreign issuer, or debt 
securities of a reporting issuer or of a non-reporting foreign issuer.
    (i) Offering restrictions are implemented;
    (ii) The offer or sale, if made prior to the expiration of a 40-day 
distribution compliance period, is not made to a U.S. person or for the 
account or benefit of a U.S. person (other than a distributor); and
    (iii) Each distributor selling securities to a distributor, a 
dealer, as defined in section 2(a)(12) of the Act (15 U.S.C. 
77b(a)(12)), or a person receiving a

[[Page 9646]]

selling concession, fee or other remuneration in respect of the 
securities sold, prior to the expiration of a 40-day distribution 
compliance period, sends a confirmation or other notice to the 
purchaser stating that the purchaser is subject to the same 
restrictions on offers and sales that apply to a distributor.
    (3) Category 3. The following conditions apply to securities that 
are not eligible for Category 1 or 2 (paragraph (b)(1) or (b)(2)) of 
this section:
    (i) Offering restrictions are implemented;
    (ii) In the case of debt securities:
    (A) The offer or sale, if made prior to the expiration of a 40-day 
distribution compliance period, is not made to a U.S. person or for the 
account or benefit of a U.S. person (other than a distributor); and
    (B) The securities are represented upon issuance by a temporary 
global security which is not exchangeable for definitive securities 
until the expiration of the 40-day distribution compliance period and, 
for persons other than distributors, until certification of beneficial 
ownership of the securities by a non-U.S. person or a U.S. person who 
purchased securities in a transaction that did not require registration 
under the Act;
    (iii) In the case of equity securities:
    (A) The offer or sale, if made prior to the expiration of a one-
year distribution compliance period, is not made to a U.S. person or 
for the account or benefit of a U.S. person (other than a distributor); 
and
    (B) The offer or sale, if made prior to the expiration of a one-
year distribution compliance period, is made pursuant to the following 
conditions:
    (1) The purchaser of the securities (other than a distributor) 
certifies that it is not a U.S. person and is not acquiring the 
securities for the account or benefit of any U.S. person or is a U.S. 
person who purchased securities in a transaction that did not require 
registration under the Act;
    (2) The purchaser of the securities agrees to resell such 
securities only in accordance with the provisions of this Regulation S 
(Sec. 230.901 through Sec. 230.905, and Preliminary Notes), pursuant to 
registration under the Act, or pursuant to an available exemption from 
registration; and agrees not to engage in hedging transactions with 
regard to such securities unless in compliance with the Act;
    (3) The securities of a domestic issuer contain a legend to the 
effect that transfer is prohibited except in accordance with the 
provisions of this Regulation S (Sec. 230.901 through Sec. 230.905, and 
Preliminary Notes), pursuant to registration under the Act, or pursuant 
to an available exemption from registration; and that hedging 
transactions involving those securities may not be conducted unless in 
compliance with the Act;
    (4) The issuer is required, either by contract or a provision in 
its bylaws, articles, charter or comparable document, to refuse to 
register any transfer of the securities not made in accordance with the 
provisions of this Regulation S (Sec. 230.901 through Sec. 230.905, and 
Preliminary Notes), pursuant to registration under the Act, or pursuant 
to an available exemption from registration; provided, however, that if 
the securities are in bearer form or foreign law prevents the issuer of 
the securities from refusing to register securities transfers, other 
reasonable procedures (such as a legend described in paragraph 
(b)(3)(iii)(B)(3) of this section) are implemented to prevent any 
transfer of the securities not made in accordance with the provisions 
of this Regulation S; and
    (iv) Each distributor selling securities to a distributor, a dealer 
(as defined in section 2(a)(12) of the Act (15 U.S.C. 77b(a)(12)), or a 
person receiving a selling concession, fee or other remuneration, prior 
to the expiration of a 40-day distribution compliance period in the 
case of debt securities, or a one-year distribution compliance period 
in the case of equity securities, sends a confirmation or other notice 
to the purchaser stating that the purchaser is subject to the same 
restrictions on offers and sales that apply to a distributor.
    (4) Guaranteed securities. Notwithstanding paragraphs (b)(1) 
through (b)(3) of this section, in offerings of debt securities fully 
and unconditionally guaranteed as to principal and interest by the 
parent of the issuer of the debt securities, only the requirements of 
paragraph (b) of this section that are applicable to the offer and sale 
of the guarantee must be satisfied with respect to the offer and sale 
of the guaranteed debt securities.
    (5) Warrants. An offer or sale of warrants under Category 2 or 3 
(paragraph (b)(2) or (b)(3)) of this section also must comply with the 
following requirements:
    (i) Each warrant must bear a legend stating that the warrant and 
the securities to be issued upon its exercise have not been registered 
under the Act and that the warrant may not be exercised by or on behalf 
of any U.S. person unless registered under the Act or an exemption from 
such registration is available;
    (ii) Each person exercising a warrant is required to give:
    (A) Written certification that it is not a U.S. person and the 
warrant is not being exercised on behalf of a U.S. person; or
    (B) A written opinion of counsel to the effect that the warrant and 
the securities delivered upon exercise thereof have been registered 
under the Act or are exempt from registration thereunder; and
    (iii) Procedures are implemented to ensure that the warrant may not 
be exercised within the United States, and that the securities may not 
be delivered within the United States upon exercise, other than in 
offerings deemed to meet the definition of ``offshore transaction'' 
pursuant to Sec. 230.902(h), unless registered under the Act or an 
exemption from such registration is available.
    6. Section 230.904 is revised to read as follows:


Sec. 230.904.  Offshore resales.

    (a) An offer or sale of securities by any person other than the 
issuer, a distributor, any of their respective affiliates (except any 
officer or director who is an affiliate solely by virtue of holding 
such position), or any person acting on behalf of any of the foregoing, 
shall be deemed to occur outside the United States within the meaning 
of Sec. 230.901 if:
    (1) The offer or sale are made in an offshore transaction;
    (2) No directed selling efforts are made in the United States by 
the seller, an affiliate, or any person acting on their behalf; and
    (3) The conditions of paragraph (b) of this section, if applicable, 
are satisfied.
    (b) Additional conditions. (1) Resales by dealers and persons 
receiving selling concessions. In the case of an offer or sale of 
securities prior to the expiration of the distribution compliance 
period specified in Category 2 or 3 (paragraph (b)(2) or (b)(3)) of 
Sec. 230.903, as applicable, by a dealer, as defined in Section 
2(a)(12) of the Act (15 U.S.C. 77b(a)(12)), or a person receiving a 
selling concession, fee or other remuneration in respect of the 
securities offered or sold:
    (i) Neither the seller nor any person acting on its behalf knows 
that the offeree or buyer of the securities is a U.S. person; and
    (ii) If the seller or any person acting on the seller's behalf 
knows that the purchaser is a dealer, as defined in Section 2(a)(12) of 
the Act (15 U.S.C. 77b(a)(12)), or is a person receiving a selling 
concession, fee or other remuneration in respect of the securities

[[Page 9647]]

sold, the seller or a person acting on the seller's behalf sends to the 
purchaser a confirmation or other notice stating that the securities 
may be offered and sold during the distribution compliance period only 
in accordance with the provisions of this Regulation S (Sec. 230.901 
through Sec. 230.905, and Preliminary Notes); pursuant to registration 
of the securities under the Act; or pursuant to an available exemption 
from the registration requirements of the Act.
    (2) Resales by certain affiliates. In the case of an offer or sale 
of securities by an officer or director of the issuer or a distributor, 
who is an affiliate of the issuer or distributor solely by virtue of 
holding such position, no selling concession, fee or other remuneration 
is paid in connection with such offer or sale other than the usual and 
customary broker's commission that would be received by a person 
executing such transaction as agent.
    7. By adding Sec. 230.905 to read as follows:


Sec. 230.905  Resale limitations.

    Equity securities of domestic issuers acquired from the issuer, a 
distributor, or any of their respective affiliates in a transaction 
subject to the conditions of Sec. 230.901 or Sec. 230.903 are deemed to 
be ``restricted securities'' as defined in Sec. 230.144. Resales of any 
of such restricted securities by the offshore purchaser must be made in 
accordance with this Regulation S (Sec. 230.901 through Sec. 230.905, 
and Preliminary Notes), the registration requirements of the Act or an 
exemption therefrom. Any ``restricted securities,'' as defined in 
Sec. 230.144, that are equity securities of a domestic issuer will 
continue to be deemed to be restricted securities, notwithstanding that 
they were acquired in a resale transaction made pursuant to 
Sec. 230.901 or Sec. 230.904.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    8. The authority citation for part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;

* * * * *
    9. By amending Form 8-K (referenced in Sec. 249.308) by removing 
the last sentence of General Instruction B.1. and Item 9.

(Note: The text of Form 8-K does not, and this amendment will not, 
appear in the Code of Federal Regulations.)

    10. By amending Form 10-Q (referenced in Sec. 249.308a) by revising 
paragraph (c) of Item 2 of Part II prior to the Instruction to read as 
follows:

(Note: The text of Form 10-Q does not, and these amendments will 
not, appear in the Code of Federal Regulations.)

Form 10-Q

* * * * *
Part II
* * * * *
    Item 2. Changes in Securities and Use of Proceeds.
* * * * *
    (c) Furnish the information required by Item 701 of Regulation S-K 
(Sec. 229.701 of this chapter) as to all equity securities of the 
registrant sold by the registrant during the period covered by the 
report that were not registered under the Securities Act.
* * * * *
    11. By amending Form 10-QSB (referenced in Sec. 249.308b) by 
revising paragraph (c) to Item 2 of Part II prior to the Instruction to 
read as follows:

(Note: The text of Form 10-QSB does not, and these amendments will 
not, appear in the Code of Federal Regulations.)

Form 10-QSB

* * * * *
Part II
* * * * *
    Item 2. Changes in Securities and Use of Proceeds.
* * * * *
    (c) Furnish the information required by Item 701 of Regulation S-B 
(Sec. 228.701 of this chapter) as to all equity securities of the 
registrant sold by the registrant during the period covered by the 
report that were not registered under the Securities Act.
* * * * *
    12. By amending Form 10-K (referenced in Sec. 249.310) by revising 
paragraph (a) of Item 5 of Part II to read as follows:

(Note: The text of Form 10-K does not, and these amendments will 
not, appear in the Code of Federal Regulations.)

Form 10-K

* * * * *
Part II
* * * * *
    Item 5. Market for Registrant's Common Equity and Related 
Stockholder Matters.
    (a) Furnish the information required by Item 201 of Regulation S-K 
(Sec. 229.201 of this chapter) and Item 701 of Regulation S-K 
(Sec. 229.701 of this chapter) as to all equity securities of the 
registrant sold by the registrant during the period covered by the 
report that were not registered under the Securities Act. If the Item 
701 information previously has been included in a Quarterly Report on 
Form 10-Q or 10-QSB (Sec. 249.308a or 249.308b of this chapter), 
however, it need not be furnished.
* * * * *
    13. By amending Form 10-KSB (referenced in Sec. 249.310b) by 
revising paragraph (a) of Item 5 of Part II to read as follows:

(Note: The text of Form 10-KSB does not, and these amendments will 
not, appear in the Code of Federal Regulations.)

Form 10-KSB

* * * * *
Part II
    Item 5. Market for Common Equity and Related Stockholder Matters.
    (a) Furnish the information required by Item 201 of Regulation S-B 
and Item 701 of Regulation S-B as to all equity securities of the 
registrant sold by the registrant during the period covered by the 
report that were not registered under the Securities Act. If the Item 
701 information previously has been included in a Quarterly Report on 
Form 10-Q or 10-QSB, however, it need not be furnished.
    Dated: February 17, 1998.
* * * * *
    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-4458 Filed 2-24-98; 8:45 am]
BILLING CODE 8010-01-U