[Federal Register Volume 63, Number 240 (Tuesday, December 15, 1998)]
[Proposed Rules]
[Pages 69136-69163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31007]



[[Page 69135]]

_______________________________________________________________________

Part II





Securities and Exchange Commission





_______________________________________________________________________



17 CFR Parts 200, 230, 239, 240, 249, and 260



Cross-Border Tender Offers, Business Combinations, and Rights 
Offerings; Proposed Rule

  Federal Register / Vol. 63, No. 240 / Tuesday, December 15, 1998 / 
Proposed Rules  

[[Page 69136]]



SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 230, 239, 240, 249, and 260

[Release Nos. 33-7611, 34-40678; International Series Release No. 1171; 
File No. S7-29-98]
RIN 3235-AD97


Cross-Border Tender Offers, Business Combinations and Rights 
Offerings

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rules.

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SUMMARY: The Securities and Exchange Commission (the ``Commission'') 
today is proposing tender offer and Securities Act registration 
exemptive rules for cross-border tender offers, business combinations, 
and rights offerings. We are proposing these exemptions to facilitate 
the participation in these types of transactions by U.S. holders of the 
securities of foreign companies.

DATES: Comments should be received on or before February 16, 1999.

ADDRESSES: Please send three copies of your comments to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, 
N.W., Washington, D.C. 20549. You may also submit your comments 
electronically at the following E-mail address: [email protected]. 
All comment letters should refer to File No. S7-29-98; this file number 
should be included in the subject line if E-mail is used. Comment 
letters can be inspected and copied in our public reference room at 450 
Fifth Street, N.W., Washington, D.C. We will post electronically 
submitted comments on our Internet Web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Laurie L. Green, Special Counsel or 
Christina Chalk, Special Counsel, Office of Mergers and Acquisitions, 
Division of Corporation Finance at (202) 942-2920; Nancy J. Sanow, 
Senior Special Counsel, or Margaret A. Smith, Attorney-Advisor, Office 
of Risk Management and Control, Division of Market Regulation, at (202) 
942-0772; at Securities and Exchange Commission, 450 Fifth Street, 
N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: We are proposing new Rules 800, 801 and 802 
under the Securities Act of 1933 (``Securities Act''),\1\ and Rule 4d-
10 under the Trust Indenture Act of 1939 (``Trust Indenture Act''),\2\ 
revisions to Form F-X and Rule 144 under the Securities Act,\3\ 
revisions to Rules 10b-13, 13e-3, 13e-4, 14d-1, 14d-2, 14d-7, 14d-10, 
14e-1 and 14e-2 \4\ under the Securities Exchange Act of 1934 
(``Exchange Act'') \5\ and Rules 30-1 and 30-3 \6\ of the Commission's 
Rules Delegating Authority to the Directors of the Division of 
Corporation Finance and Market Regulation, respectively. We are also 
publishing for comment a new Form CB under the Securities Act and the 
Exchange Act.
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 77aaa et seq.
    \3\ 17 CFR 239.42 and 17 CFR 230.144.
    \4\ 17 CFR 240.10b-13, 240.13e-3, 240.13e-4, 240.14d-1, 240.14d-
2, 240.14d-7, 240.14d-10, 240.14e-1 and 240.14e-2.
    \5\ 15 U.S.C. 78a et seq.
    \6\ 17 CFR 200.30-1 and 200.30-5.
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Table of Contents

I. Executive Summary
II. Discussion
    A. Background
    1. Reasons for Proposals
    2. Prior Commission Action to Facilitate Inclusion of U.S. 
Security Holders in Cross-Border Tender Offers, Business 
Combinations and Rights Offerings
    3. The Current Proposals
    B. Proposed Tier I Exemption
    1. U.S. Ownership Limitation
    2. Disclosure and Dissemination--Proposed Form CB
    3. Equal Treatment
    C. Proposed Tier II Exemption
    1. Conditions for the Exemption
    2. Scope of Tier II Exemptive Relief
    a. Commencement of an Offer
    b. Withdrawals Rights
    c. All Holders/Best Price
    d. Notice of Extensions
    e. Prompt Payment for or Return of Tendered Securities
    f. Reduction of Minimum Condition
    D. Other Rules Governing Tender Offers
    1. Rule 10b-13
    2. Regulation M
    E. Exemption from the Securities Act for Exchange Offers, 
Business Combinations, and Rights Offerings
    1. Summary
    2. Eligibility Conditions
    a. Transactional Eligibility Requirements
    i. Common Requirements for Exchange Offers, Business 
Combinations and Rights Offerings
    (a) U.S. Ownership Limitation
    (b) Equal Treatment
    (c) Transfer Restrictions
    ii. Additional Requirements for Rights Offerings
    b. Offeror Eligibility Requirements
    i. Exchange Offers/Business Combinations
    ii. Rights Offerings
    c. Information Requirements
    d. Rule 802 Eligible Securities--Trust Indenture Act Exemption
    F. Effect of Reliance on Rule 801 or 802 on the Availability of 
Other Exemptions
    G. Unavailability of Rules 801 and 802 and the Tender Offer 
Exemptions for Investment Companies
    H. Determination of U.S. Ownership
    1. Definition of U.S. Holder
    2. Exclusion of Foreign Security Holders Holding More Than 10 
Percent
    3. Determination of Eligibility by Persons Other Than the Issuer
III. Cost-benefit Analysis
IV. Summary of Initial Regulatory Flexibility Analysis
V. Paperwork Reduction Act
VI. Request for Comments
VII. Statutory Basis of Proposals Text of Proposals

I. Executive Summary

    In today's global market, it is very common for U.S. persons to 
hold securities of foreign companies. Foreign offerors, however, often 
exclude U.S. security holders from tender offers,\7\ exchange 
offers,\8\ rights offerings and business combinations \9\ involving the 
securities of a foreign company. Offerors often exclude U.S. security 
holders due to conflicts between the U.S. regulation and the regulation 
of the home jurisdiction or the perceived burdens of complying with 
multiple regulatory regimes. U.S. security holders, therefore, often 
are unable to receive any benefits offered in these types of 
transactions.
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    \7\ For purposes of this release, the term ``tender offer'' 
includes tender offers where either cash or stock is issued in the 
offer.
    \8\ For purposes of this release, the term ``exchange offer'' 
means a tender offer where stock is issued in the offer.
    \9\ For purposes of this release, the term ``business 
combination'' means a statutory amalgamation, merger, arrangement or 
other reorganization requiring the vote of security holders of one 
or more of the participating companies. It also includes a statutory 
short form or ``squeeze out'' merger that does not require a vote of 
security holders.
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    Today, we are proposing exemptions \10\ to encourage issuers and 
bidders to extend tender offers, rights offerings and business 
combinations to the U.S. security holders of foreign private 
issuers.\11\ The proposed exemptions balance the need to provide U.S. 
security holders with the protections of the U.S. securities laws 
against the need to promote the inclusion of U.S. security holders in 
these types of cross-border transactions. The specific exemptions are:
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    \10\ The Commission has also recently proposed significant 
revisions to the tender offer regulations. These revisions would 
update and simplify the rules and regulations applicable to takeover 
transactions. Regulation of Takeovers and Security Holder 
Communications, Securities Act Release No. 7607 (November 3, 1998).
    \11\ ``Foreign private issuer'' is defined in Rule 3b-4 under 
the Exchange Act and Rule 405 under the Securities Act [17 CFR 
240.3b-4(c) and 230.405].
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     First, certain tender offers for the securities of foreign 
private issuers would be exempt from the provisions of the Exchange Act 
and rules thereunder governing tender offers.\12\ Bidders could

[[Page 69137]]

use the exemption when U.S. security holders hold of record 10 percent 
or less of the subject securities. We refer to this exemptive relief in 
this release as the ``Tier I'' exemption.
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    \12\ 15 U.S.C. 78m(e) and 78n(d); 17 CFR 240.13e-4, 14d-1 to 
14d-10, 14e-1 and 14e-2.
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     Second, when U.S. security holders own more than 10 
percent of the class of securities sought in the offer, limited tender 
offer exemptive relief would be available to eliminate frequent areas 
of conflict between U.S. and foreign regulatory requirements. Bidders 
could rely on this exemptive relief when the record holdings of U.S. 
security holders do not exceed 40 percent of the subject class. We 
refer to this exemptive relief in this release as the ``Tier II'' 
exemption. The relief proposed under the Tier II exemption represents a 
codification of current Commission exemptive and interpretive 
positions.
     Third, under proposed Securities Act exemptive Rule 801, 
securities issued in certain rights offerings by foreign private 
issuers would be exempt from the registration requirements of the 
Securities Act. A foreign private issuer could rely on the exemption 
when U.S. security holders hold of record five percent or less of the 
issuer's securities that are the subject of the rights offering.
     Fourth, under proposed Securities Act exemptive Rule 802, 
securities issued in exchange offers for foreign private issuers' 
securities would be exempt from the registration requirements of the 
Securities Act of 1933 (the ``Securities Act'') \13\ and the 
qualification requirements of the Trust Indenture Act of 1939 (the 
``Trust Indenture Act'').\14\ Securities issued in certain business 
combinations involving foreign private issuers would also be exempt. 
Offerors could rely on these exemptions when U.S. security holders hold 
of record five percent or less of the subject class of securities.
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    \13\ 15 U.S.C. 77a et seq.
    \14\ 15 U.S.C. 77aaa et seq.
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     Fifth, tender offers for the securities of foreign private 
issuers would be exempt from Rule 10b-13 under the Exchange Act. Under 
certain circumstances, this exemption would allow purchases outside the 
tender offer during the offer. This exemption would be available when 
U.S. security holders hold of record 10 percent or less of the subject 
securities.

The U.S. anti-fraud and anti-manipulation rules would, however, 
continue to apply to these transactions.
    In addition to the above exemptions, we are proposing amendments to 
the Commission's general organization rules. These amendments would 
delegate to the Directors of the Divisions of Corporation Finance and 
Market Regulation authority to exempt certain tender offers from 
specific tender offer requirements.

II. Discussion

A. Background

1. Reasons for Proposals
    Generally, if a bidder wants to acquire a foreign private issuer, 
it must comply with the securities or takeover laws of the target 
company's home jurisdiction. If the target has U.S. security holders, 
the bidder must also comply with U.S. securities laws. Bidders often 
simply exclude U.S. holders from the opportunity to participate in the 
transaction to avoid the application of U.S. laws.15
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    \15\ Because a large percentage of foreign companies have only a 
small number of U.S. security holders, it is quite common for 
bidders for the securities of those foreign companies to exclude 
U.S. holders. For example, based on a sample of 31 tender offers 
compiled in 1997 by the U.K. Takeover Panel (the entity that 
regulates tendered offers in the United Kingdom), when the U.S. 
ownership of the target was less than 15% (30 offers), the bidders 
excluded U.S. persons in all of the offers. When the U.S. ownership 
was more significant, such as 38% (one offer), the bidders included 
U.S. persons. In the 30 offers that excluded U.S. persons, the 
ownership percentage was as follows: in 27 offers, U.S. persons held 
less than 5%; in the remaining three offers, U.S. persons held 7%, 
8% and 10-15%, respectively.
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    The same is true of exchange offers and business combinations. 
Foreign offerors often are unwilling to register securities under the 
Securities Act when the amount of holdings in the United States is 
relatively small. Further, they are unwilling to incur a continuous 
reporting obligation under the Exchange Act as a result of registration 
under the Securities Act. These concerns are also significant 
deterrents to extending rights offerings to U.S. holders.
    When bidders exclude U.S. security holders from tender or exchange 
offers, they deny U.S. security holders the opportunity to receive a 
premium for their shares and to participate in an investment 
opportunity. Similarly, when issuers exclude U.S. security holders from 
participation in rights offerings, U.S. security holders lose that 
opportunity to purchase shares at a possible discount from market 
price.
    Nevertheless, these transactions may affect the interests of U.S. 
security holders. For example, market activity in the target company's 
stock after announcement of a tender offer may affect the price of the 
stock. Even though U.S. security holders cannot participate in the 
tender offer, they must react to the event by deciding whether to sell, 
hold, or buy additional securities. They must make this decision 
without the benefit of information required by either U.S. or foreign 
securities regulation. Indeed, to avoid triggering registration, filing 
and disclosure requirements under U.S. securities laws, bidders and 
issuers will often take affirmative steps to prevent their 
informational and offering materials from being transmitted to U.S. 
holders. Thus, U.S. holders receive information about extraordinary 
transactions affecting their interests only indirectly (for example, 
through the financial press) and often after a significant delay.
2. Prior Commission Action to Facilitate Inclusion of U.S. Security 
Holders in Cross-Border Tender Offers, Business Combinations and Rights 
Offerings
    On June 6, 1990, we published a concept release seeking comment on 
a suggested conceptual approach to U.S. regulation of international 
tender and exchange offers. We sought to encourage bidders for foreign 
companies to extend these offers to U.S. security holders.16 
After reviewing the public comments,17 we published releases 
in June 1991, proposing exemptive rules, registration forms and 
schedules, and the issuance of an exemptive order for tender offers 
subject to the U.K. City Code on Takeovers and Mergers (the ``City 
Code''),18 that would implement the concept release with 
respect to cross-border tender and exchange offers.19 We 
also proposed new exemptive rules with respect to cross-border rights 
offerings to address similar concerns regarding the common practice of 
excluding U.S. security holders (together, the ``1991 
proposals'').20
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    \16\ Concept Release on Multinational Tender and Exchange 
offers, Securities Act Release No. 6866 (June 6, 1990) [55 FR 
23751].
    \17\ The Commission received 31 letters of comment on the 
concept release. Those letters and a summary of the comments can be 
obtained for public inspection and copying by requesting File No. 
S7-10-90 through our public reference room in Washington, D.C.
    \18\ The City Code on Takeovers and Mergers and the Rules 
Governing Substantial Acquisition of Shares (Fifth Edition, Dec. 12, 
1996) (the ``City Code''). The City Code states general principles 
for the regulation of takeovers conducted in the United Kingdom and 
the Republic of Ireland.
    \19\ International Tender and Exchange Offers, Securities Act 
Release No. 6897 (June 5, 1991) [56 FR 27582].
    \20\ Cross-Border Rights Offers, Securities Act Release No. 6896 
(June 4, 1991) [56 FR 27564].
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    The commenters generally supported the 1991 proposals. They 
indicated that when U.S. security holders have already invested in a 
foreign private issuer's securities, the benefits of having the 
opportunity to tender their securities in a tender offer at a premium 
price or purchase additional securities in a rights offering, often at 
a discount,

[[Page 69138]]

outweigh the detriments of not receiving the full protections offered 
by U.S. securities laws.21
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    \21\ The Commission received a total of 52 comment letters on 
the two 1991 proposals. Those letters and a summary of the comments 
can be obtained for public inspection and copying by requesting File 
No. S7-17-91 and File No. S7-18-91 at our public reference room in 
Washington, D.C.
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3. The Current Proposals
    Encouraging bidders to include U.S. security holders in 
multinational offers for the securities of foreign private issuers is 
even more important in today's global market than in 1991 because of 
the broader ownership of foreign securities by U.S. security holders 
22 and the increase in both the number and dollar value of 
cross-border transactions since 1991.23 Since the last time 
we proposed regulatory relief, we know that many tender offers have 
excluded U.S. security holders.24 Similarly, foreign private 
issuers continue to cash out U.S. security holders in rights 
offerings.25
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    \22\ U.S. ownership in foreign companies increased from $158.8 
billion in 1991 to $558.9 billion in 1996. Federal Reservice 
Statistical Release, Flow of Funds Accounts of the United States, 
March 14, 1997. The number of foreign companies reporting under the 
Exchange Act has more than doubled since 1991 (439), with over 1,100 
foreign companies reporting as of June 1998.
    \23\ The number of cross-border mergers and acquisitions in 
Europe increased from 1,434 in 1991 to 1,648 in 1997. The dollar 
value of such transactions increased from $40.4 billion in 1991 to 
$136.9 billion in 1997. Mergers & Acquisitions, March/April 1998.
    \24\ See, e.g., John Labatt Ltd. v. Onex Corp., 890 F. Supp. 235 
(S.D.N.Y. 1995) (Court held that the failure to extend the offer to 
U.S. security holders did not violate U.S. securities laws. The U.S. 
ownership in the target was approximately 12%). Two of the 10 
largest tneder offers completed in 1996 excluded U.S. holders: 
Central & South West's offer for Seeboard PLC (tender offer price 
represented a 20% premium to the share price) and General Public 
Utilities' offer for Midlands Electricity PLC (tender offer price 
represented a 14.3% premium to the share parice). Mergers & 
Acquisitions, March/April 1997. See also Note 15 (discussing other 
tender offers that excluded U.S. security holders).
    \25\ Based on information received from the follwoing depositary 
banks, investors holding American Depositary Receipts (``ADRs'') 
through the Bank of New york were cashed out in 29 of the 37 rights 
offerings from 1994 to 1996. Investors holding ADRs through Morgan 
Guaranty Trust Company of New York received cash in lieu of rights 
in 23 of the 24 rights offerings. Of the 23, six of the offers 
permitted qualified U.S. institutional buyers to participate in the 
rights offerings.
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    Today we propose, with significant modifications, exemptive rules 
and forms similarly proposed in 1991. We modified the 1991 proposals 
based upon our experience with cross-border tender offers, rights 
offerings, and business combinations. Since that time, we have granted 
relief on a case-by-case basis.26
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    \26\ Since 1990, bidders in 54 transactions sought exemptive 
relief from the staff to facilitate including U.S. shareholders. 
Twenty of those transactions would have been eligible for the Tier I 
exemption proposed today and 31 would have been eligible to use the 
Tier II exemption. Three of these transactions would have been 
ineligible for either Tier I or Tier II exemptions, since U.S. 
persons held more than 40% of the securities sought in the offer. 
Thus, based on transactions that were open to U.S. holders, on 
average, the Tier II exemption could have been invoked approximately 
four times a year since 1990.
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    We also make some of these proposals today because recent 
legislative action granted us general exemptive authority under the 
Securities Act and the Exchange Act.27 This authority 
provides greater flexibility to address these issues in a meaningful 
fashion.
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    \27\ See National Securities market Improvement Act of 1996, 104 
Pub. L. No. 290, 110 Stat. 3416 (1996) (the ``National Securities 
Markets Improvement Act'').
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    We have competing concerns. While we want to encourage bidders to 
include U.S. security holders, we would like to extend the protections 
of the U.S. federal securities laws to investors. The ramifications to 
a bidder could be significant. Making an offer to U.S. holders of 
foreign securities ordinarily may trigger: (i) disclosure and filing 
obligations under the Securities Act and the Exchange Act, and (ii) 
corresponding rights and protections for the U.S. security holders that 
are (iii) enforceable in a U.S. court (e.g., Section 11 of the 
Securities Act). The proposed exemptions would balance these competing 
concerns by focusing relief in the areas where U.S. ownership is 
smallest or where there is a direct conflict between U.S. and foreign 
regulations.
    The proposed rule changes, however, do not affect the rights and 
claims of U.S. security holders arising under the anti-fraud and anti-
manipulation provisions of the federal securities laws. For example, if 
a foreign private issuer uses one of the proposed exemptions to make an 
offer to a U.S. security holder that includes a material 
misrepresentation or omission, that U.S. security holder would have a 
cause of action under the anti-fraud provisions. It may be difficult, 
however, for a security holder to enforce any judgments under the U.S. 
federal securities laws against the foreign private issuer whose 
assets, senior management and directors may be located in a foreign 
country. We think the benefit of allowing U.S. security holders to 
participate in multinational offers outweighs any possible diminution 
in protection U.S. security holders would have under the federal 
securities laws.
    U.S. security holders would still have the full anti-fraud 
protection of Section 14(e). For example, the Tier I exemption for 
certain tender offers includes an exemption from all provisions of Rule 
14e-1. The specific requirements of Rule 14e-1 are prophylactic in 
nature, as ``means reasonably designed to prevent'' fraudulent or 
deceptive acts.28 Notwithstanding the exemption, the anti-
fraud protections under Section 14(e) of the Exchange Act still 
apply.29 Accordingly, although Tier I exempts bidders from 
the specific duration, notice, and payment requirements of Rule 14e-1, 
a bidder who, for example, fails to provide any notice to U.S. holders 
that it has extended the duration of any offer and materially increased 
the amount of the consideration, or that it may fail to pay the 
consideration for an unreasonably long time period could violate the 
anti-fraud provisions including Section 14(e).
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    \28\ 17 CFR 240.14e-1.
    \29\ Section 14(e), 15 U.S.C. 78n(e), provides in part:
    It shall be unlawful for any person to make any untrue statement 
of a material fact or omit to state any material fact necessary in 
order to make the statements made, in light of the circumstances 
under which they are made, not misleading, or to engage in any 
fraudulent, deceptive, or manipulative acts or practices, in 
connection with any tender offer.
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    The proposed exemptions require that U.S. security holders be 
treated at least as favorably as foreign security holders in the 
transaction.30 The exemptions would not be available if only 
U.S. security holders were permitted to participate in the transaction. 
This minimizes the possibility that the exemptions would be used solely 
as a means to create a market for the offeror's securities in the 
United States. It also minimizes the risk that a bidder could buy out 
only the U.S. security holders in a tender offer without complying with 
the U.S. security laws.
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    \30\ See proposed Rules 801(a)(3); 802(a)(2); 13e-4(h)(8)(i); 
and 14d-1(c)(1).
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    Q1. In proposing these exemptive rules, we are seeking comment on 
whether the underlying premise that this approach is in the interest of 
investors is still valid. For example, have Commission rulemaking and 
informal initiatives in the last decade to facilitate cross-border 
offerings and acquisitions rendered the proposed exemptive relief 
unnecessary or inappropriate? Does the opportunity for U.S. security 
holders to participate in multinational tender offers justify the 
proposed use of the exemptive authority and possible diminished 
protection of U.S. securities laws?
    The proposals are intended to facilitate inclusion of U.S. security 
holders in offshore transactions, rather than provide means to avoid 
U.S.

[[Page 69139]]

jurisdiction. Nevertheless, we are considering whether to provide 
guidance regarding when U.S. security holders can be provided 
information about the offshore transaction without triggering U.S. 
requirements. Specifically, if a bidder could use the Internet to 
disseminate materials relating to an offshore tender offer without 
causing U.S. tender offer requirements to apply to that offer, U.S. 
security holders might obtain more timely and reliable information 
about the offer and its effect on their investment, even though they 
may not be permitted to participate in the offer.\31\ We, of course, 
would be concerned that posting offshore tender offer materials on the 
Internet could amount to a solicitation of U.S. security holders, that 
in effect urges them to find indirect means to participate in the 
tender offer.
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    \31\ We recently gave written guidance with respect to 
registration requirements under the federal securities laws. 
Statement of the Commission Regarding Use of Internet Websites, 
Securities Act Release No. 7516 (March 23, 1998) [63 FR 14806].
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    Q2. We request comment on whether materials relating to offshore 
tender offers could be posted on the Internet without triggering U.S. 
tender offer requirements with respect to that offer. Would these 
postings be helpful in providing U.S. security holders with timely 
information concerning extraordinary transactions affecting their 
holdings? If so, what conditions should attach to dissemination of 
offshore tender offer materials over the Internet?

B. Proposed Tier I Exemption

    Under the proposed Tier I exemption, eligible tender offers would 
not be subject to Rules 13e-3, 13e-4, Regulation 14D or Rules 14e-1 and 
14e-2.\32\ These provisions contain disclosure, filing, dissemination, 
minimum offering period, withdrawal rights and proration requirements 
that are intended to provide security holders with equal treatment and 
adequate time and information to make a decision whether to tender into 
the offer. Under the proposed Tier I exemption, tender offers for the 
securities of foreign private issuers are exempt from these U.S. tender 
offer requirements, so long as:
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    \32\ Rules 13e-3, 13e-4, 14d-1 through 14d-10 and 14e-1 and 14e-
2, 17 CFR 240.13e-3, 240.13e-4, 240.14d-1 through 240.14d-10 and 
240.14e-1 and 240.14e-2.
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      U.S. security holders of record hold 10 percent or less 
of the class of securities sought in the tender offer;
      In the case of a class of securities subject to Rule 13e-
4 or Regulation 14D under the Exchange Act, bidders submit, rather than 
file, an English language translation of the offering materials to the 
Commission under cover of Form CB and file a consent to service on Form 
F-X;
      U.S. security holders participate in the offer on terms 
at least as favorable as those offered to any other holders, including 
price, type of consideration and choice among different alternatives 
being offered; and
      Bidders provide U.S. security holders with the tender 
offer circular or other offering document, in English, on a comparable 
basis as provided to other security holders.

The exemption would be available to U.S. and foreign bidders. The 
domicile or reporting status of the bidder is not relevant. Instead of 
complying with the U.S. tender offer rules, a bidder taking advantage 
of the Tier I exemption would comply with any applicable rules of the 
foreign target company's home jurisdiction or exchange.
1. U.S. Ownership Limitation
    The Tier I tender offer exemption is substantially similar to the 
exemption for cash tender offers contained in the 1991 proposals. Like 
in the 1991 proposals, we propose 10 percent as the maximum level of 
ownership by U.S. security holders that a target company can have and 
be eligible for the exemption.\33\ Under the 1991 proposals, we 
solicited comment on whether to increase the 10 percent limitation for 
U.S. ownership to 15 or 20 percent.
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    \33\ See Section II.H, infra, for a discussion of how U.S. 
ownership is determined.
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    Commenters on the 1991 proposals largely favored adopting a higher 
eligibility percentage. As proposed, however, we preliminarily have 
decided that 10 percent is an appropriate level of U.S. ownership for 
exclusive reliance on home jurisdiction requirements. At and below that 
level of U.S. ownership, broad-based exemptions may be necessary to 
encourage inclusion of U.S. security holders. Above that level, more 
tailored relief of the type envisioned by Tier II to address 
conflicting regulatory mandates and offering practices appears to be 
sufficient, based on our experience in granting exemptive relief for 
those offers. When U.S. ownership does not exceed 10 percent of the 
target securities, we believe that U.S. holders' interests are best 
served by being able to participate in, rather than being excluded 
from, the tender offer, even though they do not receive the full 
protections of the U.S. tender offer rules.
    Q3. We seek comments on the appropriateness of the 10 percent 
limitation on U.S. ownership. Should the threshold be higher, for 
example 20 percent, or lower, such as five percent? If the threshold 
were higher, would the Tier II exemption be necessary?
2. Disclosure and Dissemination--Proposed Form CB
    A bidder relying on the Tier I exemption must submit any offer 
materials prepared under foreign law to the Commission for notice 
purposes only, under the cover of proposed Form CB. Also, if the target 
company, or any officer, director or other person provides a 
recommendation with respect to the offer, they may satisfy their 
disclosure obligations under Rules 14e-2 and 14d-9 by submitting the 
recommendation to the Commission on Form CB. If the tender offer is 
subject only to Section 14(e) and Regulation 14E, the offering document 
would not need to be submitted to the Commission, since the current 
regulations do not require a filing in connection with those offers. 
The materials submitted under cover of Form CB would not be deemed 
filed with the Commission. Therefore, the person submitting the 
materials would not be subject to the express liability provisions of 
Section 18 of the Exchange Act.\34\
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    \34\ 15 U.S.C. 78r.
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    Form CB must be received by the Commission no later than the next 
business day after the tender offer is commenced. A number of 
countries, such as the United Kingdom, provide that an offer commences 
when the offering document is first physically sent to security 
holders. A number of commenters on the 1991 proposals expressed concern 
that it would be difficult to submit documents to the Commission 
contemporaneously with the publication or mailing of documents 
overseas. Thus, offerors and targets will have one extra day from the 
date the offering circular or disclosure document is first published, 
sent or given to security holders to submit the offering circular or 
disclosure document to the Commission under the cover of Form CB. If 
the bidder is a foreign company, it must also file a Form F-X with the 
Commission contemporaneously with the submission of the Form CB.\35\
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    \35\ Form F-X is used by certain non-U.S. companies to appoint 
an agent for service in the United States.
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    Offerors must disseminate any tender offer circular or other 
informational document to U.S. security holders in English on a 
comparable basis as provided to security holders in the foreign target 
company's home jurisdiction. If the foreign target company's home 
jurisdiction permits

[[Page 69140]]

dissemination solely by publication, the offeror must likewise publish 
the offering materials simultaneously in the United States.
    As now proposed, eligible Tier I transactions also would be exempt 
from the Commission's going private disclosure requirements under Rule 
13e-3.\36\ Rule 13e-3 mandates the filing of a Schedule 13E-3. Schedule 
13E-3 requires disclosure about the fairness to unaffiliated security 
holders of the transaction that may cause an equity security to lose 
its public trading market. Those disclosure requirements would, 
however, remain applicable to offers subject to the Tier II exemption.
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    \36\ 17 CFR 240.13e-3.
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    Rule 13e-3 disclosure is important in assessing the fairness of a 
going private transaction. However, it may not be practical to impose 
Rule 13e-3 procedural, disclosure and filing requirements when there 
are no other U.S. requirements, including disclosure requirements about 
the background, terms or conditions of an offer. For Tier I offers, the 
home jurisdiction would establish the basic disclosure and 
dissemination requirements applicable to the offer. In a predominantly 
foreign transaction, compliance with Rule 13e-3 has been problematic 
when the affiliated transaction would not be subject to challenge under 
home country law solely on the basis of lack of fairness. In these 
transactions, the staff has permitted modified disclosure that focuses 
on how the board of directors arrived at their determination to 
purchase the interests of unaffiliated security holders at the offering 
price rather than requiring a fairness determination.\37\
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    \37\ See In the Matter of Procordia Aktiebolag and Aktiebolaget 
Volvo, Securities Exchange Act Release No. 27671 (Feb. 2, 1990)(7.9% 
U.S. record holders); In the Matter of Incentive AB and Gambro AB, 
Securities Exchange Act Release No. 36793 (Jan. 31, 1996)(1.89% U.S. 
record holders).
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    The proposed rules would not affect the beneficial ownership 
reporting requirements of Sections 13(d), 13(f) and 13(g) of the 
Exchange Act, because the need for disclosure of the ownership and 
control of reporting companies, domestic and foreign, outweighs any 
burdens related to filing reports under those rules.\38\
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    \38\ 15 U.S.C. 78m(d), 78m(g), and 78m(f).
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    Q4. Should Sections 13(d), 13(f) and 13(g) apply to non-U.S. 
persons owning securities in foreign private issuers? Should these 
rules apply only if U.S. record ownership exceeds a certain percentage, 
such as 5 or 10 percent?
    As noted, the anti-fraud and anti-manipulation provisions contained 
in the Exchange Act also would continue to apply.\39\ In 1991 a number 
of commenters expressed concern that if the anti-fraud provisions 
continue to apply, bidders will not extend the offer to U.S. security 
holders. We nevertheless continue to believe that the anti-fraud and 
anti-manipulation rules are necessary for the protection of U.S. 
security holders.
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    \39\ For example, Sections 10(b) and 14(e) of the Exchange Act, 
15 U.S.C. 78(b) and 78n(e), and Rules 10b-5 and 14e-3 thereunder, 17 
CFR 240.10b-5, and 240.14e-3 would continue to apply.
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3. Equal Treatment
    Offerors relying on the Tier I exemption must permit U.S. security 
holders to participate in the offer on terms at least as favorable as 
those offered to any other security holders of the subject securities. 
This requirement would mandate that U.S. security holders be offered 
the same amount and form of payment, including securities if offered 
elsewhere. Also, the procedural terms of the tender offer, that is, 
duration and withdrawal rights, must be the same for all security 
holders.
    Q5. We request comments on whether the tender offer exemptive rules 
should permit U.S. security holders to be offered cash consideration 
only, even if securities are offered to non-U.S. security holders. If 
bidders can offer a cash-only alternative to U.S. security holders, 
should we impose protections to ensure that U.S. security holders are 
receiving equivalent value for their securities? Similarly, we are 
aware that as a practical matter, holders of American Depositary Shares 
(``ADSs'') may have a shorter time period in which to tender. Would the 
requirement that the procedural terms of the tender offer be the same 
for all holders prevent reliance on the exemption when the subject 
securities are held in ADS form in the United States?
    An exception to this equal treatment requirement would provide that 
if the transaction is exempt from registration under the Securities 
Act, the offeror may exclude target company security holders residing 
in any state that does not provide an exemption from registration.\40\ 
Similarly, if the offeror registers securities under the Securities 
Act, the offeror may exclude target company security holders residing 
in any state that refuses to register or qualify the offer and sale of 
securities in that state after a good faith effort by the offeror.
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    \40\ In some cases, securities issued under proposed Rules 801 
and 802 may be subject to state registration requirements. Rights 
offerings under proposed Rule 801 are less likely to pose conflicts 
with state securities laws. The securities laws of many states 
contain a provision patterned after Section 402(14) of the Uniform 
Securities Act exempting from registration securities offerings to 
existing security holders of the issuer. Exemptions from state law 
registration requirements for securities offered through exchange 
offers, such as those covered by proposed Rule 802, are much more 
rare.
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    In both cases, however, the offeror must offer those security 
holders cash consideration instead of excluding them, if it has offered 
cash consideration to security holders in another state or in a 
jurisdiction outside the United States. The offeror must offer the cash 
consideration only if it previously offered a cash-only alternative 
consideration--not merely a partial cash alternative consideration.
    Another exception to the equal treatment requirement would provide 
that the offeror does not need to offer a ``loan note'' alternative to 
U.S. security holders. It is quite common in the United Kingdom for a 
bidder in a cash tender offer to extend a loan note option to the 
target company's security holders instead of paying cash. This 
procedure allows target security holders to receive a short-term note, 
which may be redeemed in whole or in part for cash at par on any 
interest date in the future.\41\ This exception would be available when 
the purpose of the loan notes is the deferral of the recognition of 
income and capital gains on the sale of securities and such a deferral 
is not available to U.S. security holders. Also, the offeror cannot 
list the loan notes on any exchange or organized securities market, or 
register them under the Securities Act and still qualify for the Tier I 
exemption.
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    \41\ ``Loan notes'' generally are unsecured short-term debt 
obligations, which are guaranteed as to principal and interest by a 
bank and permit the holder to require all or any part of the 
principal amount of the loan notes to be repaid at par together with 
any accrued interest on any interest payment date. Under U.K. tax 
laws, a security holder who receives loan notes and does not own 
more than five percent of the outstanding shares of the target 
company would not be subject to a capital gains tax to the extent 
the security holder receives loan notes. A U.S. security holder, on 
the other hand, would be subject to a capital gains tax under the 
Internal Revenue Code, since the security holder would not be 
accorded special treatment under the installment sales method of 
income recognition. I.R.C 453(k)(2)(A).
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    The Tier I exemption contemplates that the bidder may have to 
comply with more than one jurisdiction's regulations.\42\ The 
chartering jurisdiction may mandate more protections or disclosure than 
the principal foreign market. If the bidder cannot or does not wish to 
extend these additional protections or disclosure to

[[Page 69141]]

U.S. security holders, under today's proposals, the bidder would not 
have Tier I exemptive relief. The bidder, therefore, would need to seek 
relief from the Commission in order to extend the tender offer to U.S. 
security holders without complying fully with Exchange Act tender offer 
requirements. The bidder would need to submit a written request for 
exemptive relief to the Commission. In determining whether to grant 
relief, we would consider whether the additional protections or 
disclosures are necessary, under the particular facts and circumstances 
of the transaction, to protect the interests of U.S. security holders.
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    \42\ Commenters on the 1991 proposals raised concerns that a 
home country may have no regulatory safeguards. They suggested that 
in those instances, it would be fair to require the U.S. offer to 
comply with the regulatory structure of the target company's 
principal foreign market.
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C. Proposed Tier II Exemption

1. Conditions for the Exemption
    Under the Tier II offer exemption, bidders would be entitled to 
limited relief from the U.S. tender offer rules to minimize conflicts 
with the foreign regulatory schemes. A bidder may rely upon the Tier II 
exemption if:
     The target company is a foreign private issuer; and
     U.S. security holders do not hold of record more than 40 
percent of the securities sought in the offer.

The exemption would be available to U.S. and foreign bidders. The 
domicile or reporting status of the bidder is not relevant.
    We preliminarily believe that there should be a ceiling on the 
maximum percentage of U.S. security holders of the subject class to 
ensure that when U.S. ownership is significant, the full protections of 
the U.S. tender offer rules apply. When U.S. ownership exceeds 40 
percent, it is unlikely that the offer would exclude U.S. security 
holders. We will consider relief on a case-by-case basis when there is 
a direct conflict between the U.S. laws and practice and those of the 
home jurisdiction. Any relief would be limited to what is necessary to 
accommodate conflicts between the regulatory schemes and practices.\43\
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    \43\ See In the Matter of Trinity Acquisition PLC, Exchange Act 
Release No. 40246 (July 22, 1998) (U.S. persons held 45.46% of the 
target's securities); In the Matter of GE Capital Corp., Exchange 
Act Release No. 38888 (July 30, 1997) (U.S. persons held 58.27% of 
the target's securities). Because of the significant U.S. ownership 
interest in the target companies, the relief was narrowly tailored 
to accommodate direct conflicts between U.S. and U.K. law or 
practice and to allow the offers to proceed in a manner that did not 
impair the interests of U.S. persons.
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    In no event will the Division exempt application of the anti-fraud 
and anti-manipulation provisions, including Section 14(e).\44\ Section 
14(e) provides that it is unlawful for a person to make a material 
untrue statement, or material omission, or to engage in fraudulent, 
deceptive, or manipulative acts in connection with any tender offer. 
Receipt of an exemption from the bright-line prophylactic requirements 
of Rule 14e-1 \45\ does not obviate the need to comply with the anti-
fraud and anti-manipulation requirements, including those contained in 
Section 14(e). Thus, for example, while an exemption from the 
requirement under Rule 14e-1(b) \46\, which provides a bright-line 
threshold of ten days notice if the offeror increases or decreases the 
consideration offered, may be appropriate, the anti-fraud provisions 
may require notice of material changes in an offer.
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    \44\ 15 U.S.C. 78n(e)
    \45\ 17 CFR 240.14e-1.
    \46\ 17 CFR 240.14e-1(b).
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    The areas of exemptive relief under Tier II have been identified by 
bidders as common impediments to extending offers into the United 
States in past requests for exemptive relief.\47\ They include:
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    \47\ We granted relief in the following transactions based on 
common conflicts between foreign and U.S. regulatory schemes:
    AUSTRALIA: Australian National Indus. Ltd.; Palmer Tube Mills 
Ltd., SEC No-Action Letter (Aug. 30, 1994).
    CANADA: Varity Corp., SEC No-Action Letter (Oct. 15, 1991).
    FRANCE: Rhone-Poulenc S.A., SEC No-Action Letter (July 8, 1993); 
Pechiney Privatization, SEC No-Action Letter (Dec. 6, 1995).
    IRELAND: In the Matter of Den norske stats oljeselskap a.s. and 
Statoil (U.K.) Ltd., Exchange Act Release No. 36379 (Oct. 17, 1995).
    SWEDEN: In the Matter of Pharmacia & Upjohn, Inc., Pharmacia 
Aktiebolag and The Uphohn Co, Exchange Act Release No. 36240A (Sept. 
27, 1995); In the Matter of Incentive AB and Gambro AB, Exchange Act 
Release No. 36793 (Jan. 31, 1996).
    SWITZERLAND: Ciba Specialty Chemicals Holding Inc., SEC No-
Action Letter (Feb. 18, 1997).
    UNITED KINGDOM: Pacificorp, Exchange Act Release No. 38776 (June 
25, 1997); In the Matter of Amersham International PLC and Nycomed 
ASA, Exchange Act Release No. 38797 (July 1, 1997).
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    (1) an offer is deemed to commence upon mailing or publication 
pursuant to the home jurisdiction's requirements rather than upon 
announcement;
    (2) a bidder may terminate withdrawal rights before the expiration 
of the offer if it has met all conditions to the offer and satisfied 
all duration requirements of the U.S. tender offer rules;
    (3) a bidder may divide the offer into two separate offers having 
the same terms in which the U.S. offer would comply with the U.S. 
regulatory scheme and the non-U.S. offer would comply with the home 
jurisdiction rules, excluding U.S. security holders from the foreign 
offer and limiting the U.S. offer to U.S. security holders;
    (4) whether the bidder meets the requirements for prompt payment 
for, or return of, tendered securities will depend on home jurisdiction 
requirements and practice; and
    (5) bidders may announce extensions of the offer in accordance with 
the practices of the home jurisdiction, rather than before the 
commencement of trading on the next business day as required by the 
U.S. rules.

In Section II.C.2, we discuss each aspect of the proposed Tier II 
exemption in more detail. We also provide guidance on a bidder's 
ability to reduce the minimum tender condition without extending the 
offer if certain conditions are met.
    Q6. We request comments on the scope of the proposed relief and the 
conditions proposed in the Tier II exemption. Are there any other areas 
where relief should be granted? Are there areas of relief proposed that 
should not be granted? Should there be more conditions attached? For 
example, should a foreign bidder relying on the Tier II exemption be 
required, as proposed, to File a Form F-X appointing an agent for 
service of process in the United States?
    If relief beyond the proposed Tier II exemption is necessary, the 
Commission staff would consider requests on an expedited basis under 
the proposed delegated authority. In such a case, the bidder would need 
to submit a written application requesting relief, along with a 
discussion of the basis for the request.\48\ The application must 
comply with the requirements of Rule 0-12 under the Exchange Act.
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    \48\ If the request relates to an issuer tender offer, the 
request should be directed to the Office of Risk Management and 
Control in the Commission's Division of Market Regulation or the 
Office of Mergers and Acquisitions in the Commission's Division of 
Corporation Finance. If the request relates to a third party tender 
offer, the request should be directed to the Officer of Mergers and 
Acquisitions.
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    The Tier II exemption would be available regardless of the home 
jurisdiction of the foreign subject company.\49\ By creating an 
approach

[[Page 69142]]

that is not country-specific, U.S. security holders will have the 
greatest opportunity to participate in offers for foreign companies 
without regard to national boundaries. Because the Tier II exemptive 
relief is limited, it is not necessary to determine whether the tender 
offer rules and practices of a particular jurisdiction are adequate. 
Also, a bidder need not demonstrate that there is an actual conflict 
between U.S. tender offer rules and rules of the home jurisdiction in 
order to rely on the Tier II exemption. The offers relying upon the 
proposed exemption would still be subject to any disclosure, filing, 
and most of the procedural and equal treatment requirements of the U.S. 
tender offer rules that would otherwise apply to the offer, as well as 
the going private disclosure and procedural requirements of Rule 13e-3. 
Further, the exemption requires that certain conditions be met to 
ensure an adequate level of investor protection while at the same time 
removing common impediments to including U.S. security holders in 
foreign tender offers. Consistent with the broader approach of the 
proposed Tier II exemption, the exemptive relief would be available to 
both issuer \50\ and third-party offers.
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    \49\ The proposed Tier II exemption differs from the 1991 
proposals. The 1991 proposals granted relief through an order that 
was limited to third-party tender offers for the securities of U.K. 
target companies subject to the City Code (the ``U.K. Exemptive 
Order''). The U.K. Exemptive Order would have allowed the bidder to 
proceed on the basis of U.K. offering documents without complying 
with U.S. disclosure requirements, and would have allowed tender 
offers to proceed simultaneously in the United Kingdom and the 
United States on the same terms and in accordance with both the 
Williams Act and the City Code. The Tier II offer exemption is 
modeled after the accommodations reflected in the U.K. Exemptive 
Order. However, because of the extensive ownership by U.S. persons 
of securities of foreign issuers from jurisdictions other than the 
United Kingdom, and our experience in granting accommodations for 
offers based on regulatory schemes in other jurisdictions, the Tier 
II offer exemption would not be limited to offers governed by the 
City Code.
    \50\ The U.K. Exemptive Order would have covered only third-
party offers, since the City Code does not govern issuer tender 
offers.
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    Q7. We request comments on whether the non-country specific 
exemption is appropriate.
    Q8. Is the Tier II exemption necessary at all since, based on 
transactions filed with us, it appears that there will be relatively 
few offers for the securities of foreign private issuers that will be 
ineligible for the Tier I exemption if the proposed 10 percent (or 
possibly higher) threshold is adopted? Instead, should we continue our 
current practice of granting relief on a case-by-case basis, but in an 
expedited manner pursuant to the proposed delegated authority 
provision?
    For tender offers conducted under Canadian law, an additional 
option exists. The rules under the Multijurisdictional Disclosure 
System (``MJDS'') with Canada permit bidders for the securities of 
Canadian foreign private issuers to conduct cash tender offers and 
exchange offers in the United States on the basis of Canadian 
regulations and disclosure standards.\51\ Eligibility is subject to 
certain conditions, including that U.S. record ownership of the subject 
class may not exceed 40 percent. Thus, a bidder for the securities of a 
Canadian foreign private issuer could proceed under the MJDS or the 
rules proposed today, depending on the level of U.S. ownership of the 
target securities.
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    \51\ Multijurisdictional Disclosure and Modifications to the 
Current Registration and Reporting System for Canadian Issuers, 
Exchange Act Release No. 29354 (June 13, 1991) [56 FR 30036].
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    The Tier II exemption would not allow the offer to proceed on the 
basis of the home country disclosure documents. The 1991 proposals were 
based on our finding that the disclosure standards applicable to cash 
tender offers in the United Kingdom were similar to those imposed by 
the U.S. tender offer rules. We have not, and could not, make this 
finding with respect to each jurisdiction that would be covered by the 
Tier II exemption. In addition, there appears to be little need for 
this relief, since we have not been required to grant exemptive relief 
with respect to the disclosure requirements of Schedule 14D-1. Bidders 
typically do not need regulatory relief when the target's home 
jurisdiction simply requires more disclosure than our rules, or vice 
versa. We believe that we can resolve problems caused by conflicts 
between the different disclosure standards of different jurisdictions 
on a case-by-case basis, through our comment process. Compliance with 
U.S. disclosure requirements also is appropriate in light of the relief 
proposed for Tier I offers; only offers for foreign private issuers 
with more than 10 percent of their shares held in the United States 
would be subject to our disclosure standards.
    Q9. Are there particular disclosure items under Schedule 14D-1 or 
other tender offer rules that should be the subject of exemptive 
relief? For example, should offers conducted pursuant to the Tier II 
exemption remain, as proposed, subject to the Commission's going 
private disclosure requirements?
    The proposed exemption also does not provide relief from the U.S. 
dissemination standards.\52\ This requirement is appropriate since the 
dissemination of information does not appear to impose significant 
burdens.
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    \52\ Rules 13e-4(e), 14d-4, 14d-9 and 14e-2, 17 CFR 240.13e-
4(e), 240.14d-4, 240.14d-9 and 240.14e-2.
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    Q10. Are there aspects of the U.S. dissemination requirements that 
create conflicts with foreign requirements or practice or are otherwise 
unduly burdensome in the case of predominantly foreign offers?
    Q11. We request comments on whether the 40 percent threshold is 
appropriate. Is a 30 percent threshold more appropriate? Should an 
offer for any foreign private issuer be excluded from the Tier II 
exemption whenever the primary trading market for the subject security 
is in the United States?
2. Scope of Tier II Exemptive Relief
    a. Commencement of an offer. The U.S. tender offer rules applicable 
to third-party cash offers for registered equity securities require a 
bidder to file with the Commission and to disseminate a mandated 
disclosure document within five business days of a public announcement 
of the significant terms of the offer.\53\ Some foreign jurisdictions, 
however, require a bidder to publicly announce its intention to make a 
tender offer even though the bidder is not yet prepared to commence the 
offer.\54\ In addition, the subject company triggers an obligation to 
file a Schedule 14D-9 by making an announcement that could be deemed to 
be a recommendation or solicitation with respect to the offer.\55\
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    \53\ Rule 14d-2(b), 17 CFR 240.14d-2(b).
    \54\ Under U.K. law, once a bidder forms a firm intention to 
make an offer, the bidder must make a detailed announcement of the 
terms of its offer. See City Code, Rule 2.2(a). The bidder must then 
mail the offer document within 28 days of that announcement. See 
City Code, Rule 30.1.
    \55\ Rule 14d-9, 17 CFR 240.14d-9.
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    The proposed exemption provides that an offer would commence only 
upon mailing or publishing the offer, even if the bidder makes a public 
announcement that would otherwise trigger the commencement requirements 
under the U.S. tender offer rules, as long as the announcement:
    (1) Is required by home jurisdiction law or practice;
    (2) Contains no information beyond the requirements of the home 
jurisdiction law or practice;
    (3) If disseminated in written form in the United States, contains 
a legend noting that the offer will not commence until the bidder mails 
or publishes the offering document, which may not occur for a specified 
period, as permitted by the home jurisdiction; and
    (4) Any offer documents are mailed no later than 30 days following 
the announcement or the bidder makes a public announcement if it 
decides not to commence the offer.

In addition, anyone making such an announcement would not be making a 
solicitation or recommendation with respect to the offer within the 
meaning of Rule 14d-9. Requirements (1), (2) and (4) were contemplated 
in the 1991 proposed U.K. Exemptive Order. Requirement (3) was not 
contemplated in the 1991 proposed U.K. Exemptive Order.

[[Page 69143]]

    Including the legend on the announcement when disseminated into the 
United States will ensure that U.S. investors are aware that 
commencement of the offer may be delayed. The 30-day maximum time limit 
for mailing the offer documents will ensure that there is not a 
significant delay in mailing the materials. This requirement is 
consistent with the U.K. requirement that the materials be mailed 
within 28 days of the announcement.\56\
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    \56\ We recently adopted a safe harbor under the tender offer 
rules. The safe harbor provides that a bidder or target company does 
not trigger the disclosure or filing requirements of the tender 
offer rules by granting representatives of the press access to 
offshore press conferences or meetings with management, or to press 
releases and other materials, even though a proposed tender offer is 
discussed at those meetings or in the materials. A bidder or target 
company would not need to satisfy the requirements imposed by the 
Tier II exemption to avoid triggering Rule 14d-2(b) or 14d-9 as a 
result of these types of offshore press activities. Bidders will 
have to rely on the Tier II exemption only when the announcement of 
the offer is disseminated in a manner inconsistent with the 
requirements of the offshore press safe harbor, for example, by 
publishing the announcement in the United States. Rule 14d-1(c), 17 
CFR 240.14d-1(c).
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    Q12. We request comment on whether it is necessary to require that 
offers commence within 30 days of announcement. Is a different time 
period more appropriate? Further, would the proposed legend concerning 
the delay in commencement add meaningful protection for U.S. investors?
    b. Withdrawal Rights. Under U.S. law, the bidder must permit 
tendering security holders to withdraw shares throughout the term of 
the offer, including any extension, and even following the close of the 
offer if the bidder has not accepted the tendered securities for 
payment within 40 days after the commencement of the offer.\57\ As 
highlighted in previous Commission exemptive orders and the 1991 
proposed U.K. Exemptive Order, U.S. withdrawal rights may conflict with 
withdrawal rights available to security holders in other jurisdictions.
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    \57\ Exchange Act Section 14(d)(5), 15 U.S.C. 78d(5); Rule 14d-
7, 17 CFR 240.14d-7.
---------------------------------------------------------------------------

    Under the U.K. City Code, for example, the bidder must provide 
security holders the right to withdraw previously tendered shares only 
if an offer does not become ``unconditional as to acceptances'' within 
21 days after the first closing date of the initial offer.\58\ The City 
Code also requires that an offer remain open for at least 14 days after 
going unconditional as to acceptances and that shares be immediately 
purchased once the offer goes wholly unconditional.\59\ Allowing 
withdrawal rights after the offer has received the required level of 
acceptances would jeopardize the regulatory policy embodied in the City 
Code that offers may not proceed unless the bidder obtains control in 
the offer.
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    \58\ City Code, Rule 34. An offer typically becomes 
``unconditional as to acceptances'' when the bidder receives enough 
tendered securities that (when combined with the securities already 
owned or purchased) constitute more than 50% of the aggregate number 
of the target company's outstanding shares. See City Code, Rule 10.
    \59\ City Code, Rule 31.4. An offer normally becomes ``wholly 
unconditional'' once all conditions to the offer have been 
satisfied.
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    Since 1991, the Commission has consistently granted relief from the 
U.S. withdrawal rights requirements in U.K. offers during the mandatory 
extensions following the offer going wholly unconditional. Withdrawal 
rights are less important at this stage in the offer, because shares 
could have been purchased by the bidder at that time under U.S. law 
(i.e., when all conditions have been met). U.S. law does not require 
the bidder to extend the offer after obtaining its minimum acceptance 
level.
    Under the Tier II exemption proposed today, the bidder could 
terminate withdrawal rights before the expiration of the offer if the 
offer is for all outstanding shares \60\ and if the bidder:
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    \60\ If we permitted this relief in a partial offer, security 
holders who tendered prior to the termination of withdrawal rights 
would be prorated on a different basis than those who tender after 
the termination of withdrawal rights. Because we are requiring that 
security holders who tender prior to the termination of withdrawal 
rights be paid promptly upon that termination, a bidder would not 
know at the time of purchase the amount of tenders that would come 
in after the termination of withdrawal rights. Consequently, the 
bidder would need to prorate security holders differently depending 
on when they tendered.
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    (1) Satisfies or waives all conditions to the offer;
    (2) Satisfies all minimum time periods;
    (3) Extends withdrawal rights during all minimum time periods;
    (4) Accepts and promptly pays for all previously tendered 
securities; and
    (5) Immediately accepts and promptly pays for all securities 
tendered thereafter.\61\
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    \61\ This position would also apply in situations such as 
Swedish transactions where withdrawal rights are terminated for a 
ten-day period during which the bidder determines whether the 
minimum condition has been satisfied. See, e.g., In the Matter of 
Incentive AB and Gambro AB, Exchange Act Release No. 36793 (Jan. 31, 
1996). The Commission has granted exemption relief in those 
situation, since all conditions (other than the minimum tender 
condition) and minimum time periods have been satisfied prior to 
terminating withdrawal rights. If the bidder determines that the 
minimum tender condition is not satisfied and extends the offer 
instead of returning the tendered shares, withdrawal rights must be 
extended during this additional offering period.

If the bidder satisfies all these conditions, and if it has previously 
advised U.S. security holders of the possibility of early termination, 
the bidder may terminate withdrawal rights even if a previously 
announced voluntary extension of the initial offering period has not 
expired.\62\
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    \62\ See, e.g., In re Central and South West Corp. and Houston 
Indus., Exchange Act Release No. 36285 (Sept. 27, 1995).
---------------------------------------------------------------------------

    This exemption provides relief from the requirement that withdrawal 
rights be extended throughout the term of the offer and the requirement 
that withdrawal rights be provided if the securities have not been 
accepted for payment within 40 days after commencement of the offer.
    Q13. Should bidders be permitted to terminate withdrawal rights 
earlier than the satisfaction of certain conditions, such as before 
governmental regulatory approval? Should we consider requests for this 
relief on a case-by-case basis rather than incorporating it into the 
Tier II exemption?
    c. All-holders/best price. The U.S. rules require that a bidder 
open the tender offer to all security holders and that the 
consideration paid to any security holder be as high as the 
consideration paid to any other security holder (the ``all-holders/best 
price rule'').\63\ The Commission has issued exemptive relief from this 
requirement to permit a bidder to divide its offer into two separate 
offers. The U.S. offer would comply with the U.S. regulatory scheme and 
the non-U.S. offer would comply with the home jurisdiction rules. The 
bidder would exclude U.S. security holders from the foreign offer and 
limit the U.S. offer to U.S. security holders.\64\ We have also granted 
relief when bidders have offered a ``loan note'' alternative (a form of 
installment payment common in U.K. offers) only to U.K. security 
holders and not to U.S. security holders.\65\ The loan notes provide 
certain U.K. tax benefits that are not applicable to U.S. security 
holders. Therefore, it is not necessary to offer U.S. security holders 
that alternative. The proposed Tier II exemption would extend both 
kinds of relief to all offers eligible for the exemption.
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    \63\ Rule 14d-10, 17 CFR 240.14d-10.
    \64\ See, e.g., In the Matter of Incentive AB and Gambro AB, 
Exchange Act Release No. 36793 (Jan. 31, 1996).
    \65\ See, e.g., In re Central and South West Corp. and Houston 
Indus., Exchange Act Release No. 36285 (Sept. 27, 1995).
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    The proposed Tier II exemption would not address the situation 
where the bidder seeks to offer cash-only consideration to U.S. 
security holders to avoid registering the exchange offer under the 
Securities Act. This would include the device of ``vendor

[[Page 69144]]

placements,'' where U.S. security holders receive a cash payment that 
is funded by the sale into the market overseas of any securities 
received in the offer.\66\ In adopting the all-holders rule, we 
contemplated that, under appropriate circumstances, we would grant 
requests for relief in connection with exchange offers by foreign 
bidders.\67\ This relief would permit U.S. security holders to receive 
cash, rather than the bidder's securities which would trigger the 
registration requirements of the Securities Act. We have demonstrated 
in numerous registered exchange offers, both negotiated and hostile, 
that the registration requirements of the Securities Act are not an 
insurmountable obstacle to meeting foreign time schedules. Moreover, 
relief may be unnecessary because foreign regulators may not permit 
bidders to offer U.S. security holders cash-only consideration when 
that consideration is not offered to all holders. We will continue to 
address these kinds of relief on a case-by-case basis.
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    \66\ See, e.g., Oldcastle, Inc., SEC No-Action Letter (July 3, 
1986).
    \67\ Amendments to Tender Offer Rules--All-Holders and Best 
Price, Securities Act Release No. 6653 (July 11, 1986) [51 FR 
25873].
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    Q14. We request comments on whether the Tier II exemption should 
include relief permitting a bidder to offer cash, rather than 
securities, to U.S. security holders. Would the need to treat U.S. 
security holders differently be greatly diminished if we adopt proposed 
Rule 802?
    d. Notice of extensions. Under the U.S. tender offer rules, all 
tender offers must remain open for a minimum of 20 business days, 
subject to mandatory extensions for changes in the terms of the 
offer.\68\ Today's proposals do not provide relief from the duration 
and extension requirements. We are not aware of jurisdictions where the 
U.S. duration and extension periods conflict with those of the home 
jurisdiction. Some home jurisdiction regulations permit a shorter time 
period.\69\ But in our experience, those home jurisdiction rules do not 
prohibit the bidder from keeping the offer open or extending the offer 
for a longer period of time.
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    \68\ Rule 14e-1 (a) and (b), 17 CFR 240.14e-1 (a) and (b).
    \69\ For example, French regulations require that the offer be 
held open for 20 French business days, which may differ from U.S. 
business days. General Regulations of the Paris Bourse by the 
Conseil des Bourses de Valeurs, Article 5-2-10 (1996). U.K. 
regulations require that the offer be held open for 21 calendar 
days. City Code, Rule 31.1.
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    Q15. Is there a need for relief from the minimum offering and 
extension period requirements of the U.S. tender offer provisions?
    Under the U.S. tender offer rules, if a bidder determines to extend 
an offer beyond a scheduled expiration date it must publish a notice of 
the extension by the beginning of the next business day.\70\ The 
proposed Tier II exemption would permit bidders to announce extensions 
of the offer in accordance with the practices of the home jurisdiction, 
rather than prior to the commencement of trading on the next business 
day as required by U.S. rules. We are aware of situations when the U.S. 
rules conflict with those of the home jurisdiction, such as when the 
tabulation process requires more time for the bidder to decide whether 
to extend an offer.\71\
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    \70\ Rule 14e-1(d), 17 CFR 240.14e-1(d).
    \71\ We have granted exemptive relief to Swedish offers where, 
due to market practice in the jurisdiction, it is impracticable to 
announce an extension for up to 10 days following the expiration of 
the offer. During that period, shareholders do not have withdrawal 
rights. See In re Pharmacia & Upjohn, Inc., Pharmacia Aktiebolag and 
the Upjohn Co., Exchange Act Release No. 36240A (Sept. 27, 1995); In 
the Matter of Incentive AB and Gambro AB, Exchange Act Release No. 
36793 (Jan. 31, 1996).
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    e. Prompt payment for or return of tendered securities. After 
expiration of an offer, U.S. tender offer rules require an offeror to 
promptly pay for, or return, tendered securities.\72\ This ``prompt'' 
payment standard is satisfied if payment is made in accordance with 
normal settlement periods. Under T+3 settlement requirements, that 
period is now three trading days in the United States.\73\ In the 
United Kingdom, for example, once the bidder is allowed to purchase 
tendered securities, payment must be made within 14 calendar days.\74\ 
We have granted relief from the prompt payment rule in many exemptive 
orders.\75\ The Tier II exemption would make promptly payment relief 
available so long as the bidder pays for the securities in accordance 
with the home country's requirements.
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    \72\ Rule 14e-1(c), 17 CFR 240.14e-1(c).
    \73\ Rule 15c6-1(a), 17 CFR 240.15c6-1(a).
    \74\ City Code, Rule 31.8.
    \75\ See, e.g., In the Matter of Texas Utilities and The Energy 
Group PLC, Exchange Act Release No. 39810 (March 27, 1998).
---------------------------------------------------------------------------

    f. Reduction of minimum condition. The U.S. rules require that at 
least five business days remain in an offer following the waiver of the 
minimum tender condition. This permits investors to learn of, and react 
to, this material change to the offer.\76\ The concern is that certain 
security holders may want to withdraw if the bidder lowers the minimum 
condition, while others may want to tender into the offer.
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    \76\ Interpretive Release Relating to Tender Offer Rules, 
Exchange Act Release No. 24296 (Apr. 3, 1987), [52 FR 11458].
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    In the United Kingdom, it is common for the bidder to reduce the 
minimum condition from 90 to 51 percent, once all other conditions to 
the offer are satisfied, and immediately purchase the tendered 
securities. Under the City Code, the offer then must remain open for 14 
days (the ``Subsequent Offering Period''). During the Subsequent 
Offering Period, the offer is open for acceptances, but not 
withdrawals.\77\ Bidders anticipate that during the Subsequent Offering 
Period, sufficient tenders will come in to satisfy the 90 percent 
minimum condition. The 90 percent minimum condition is important to 
achieve because that is the amount required to conduct a compulsory 
acquisition.
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    \77\ See Section II.C.2.b for a discussion of the permissibility 
of terminating withdrawal rights during the Subsequent Offering 
Period.
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    Purchasing securities immediately after the reduction or waiver of 
the minimum condition is inconsistent with the U.S. tender offer 
requirements. To address this conflict, we have permitted a bidder in a 
cross-border tender offer to reserve the right to reduce the 90 percent 
condition and announce this reservation by press release and 
advertisement in a U.S. newspaper of national circulation at least five 
business days before any reduction.\78\ Since bidders must disclose 
that they are reserving the right to reduce the minimum condition five 
days before they reduce it, security holders have sufficient time to 
withdraw their securities. Those security holders wishing to tender 
into the offer once the minimum condition is lowered will be able to 
tender during the Subsequent Offering Period.\79\ Bidders believe this 
relief is necessary because they will not know before the expiration 
date whether to reduce the minimum condition, since many holders do not 
tender until the last day of the offer. They would only reduce the 
minimum condition if the number of tenders on such date is close to the 
90 percent level and they believe they will get to the 90 percent level 
during the Subsequent Offering Period.
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    \78\ See In the Matter of Pacificorp and The Energy Group, 
Exchange Act Release No. 38776 (June 25, 1997).
    \79\ Since the U.S. rules do not contemplate a Subsequent 
Offering Period, this relief should not be appropriate in a domestic 
transaction.
---------------------------------------------------------------------------

    We will not object if bidders meeting the requirements for the Tier 
II exemption reduce or waive the minimum acceptance condition without 
extending withdrawal rights during the remainder of the offer (unless 
an

[[Page 69145]]

extension is required by Rule 14e-1), if the following conditions are 
met:
     The bidder must announce that it may reduce the minimum 
condition five business days prior to the time that it reduces the 
condition. A statement at the commencement of the offer that the bidder 
may reduce the minimum condition is insufficient;
     The bidder must disseminate this announcement through a 
press release and other methods reasonably designed to inform U.S. 
security holders, which could include placing an advertisement in a 
newspaper of national circulation in the United States;
     The press release must state the exact percentage to which 
the acceptance condition may be reduced and state that a reduction is 
possible. The bidder must declare its actual intentions once it is 
required to do so under the regulations of the home jurisdiction;
     During this five-day period, security holders who have 
tendered their shares in the offer will have withdrawal rights;
     This announcement must contain language advising security 
holders to withdraw their tenders immediately if their willingness to 
tender into the offer would be affected by a reduction of the minimum 
acceptance condition;
     The procedure for reducing the minimum condition must be 
described in the offering document; and
     The bidder must hold the offer open for acceptances for at 
least five business days after the satisfaction of the minimum 
acceptance condition.

D. Other Rules Governing Tender Offers

1. Rule 10b-13
    We are proposing to amend Rule 10b-13 under the Exchange Act to 
facilitate the inclusion of U.S. security holders in tender offers for 
foreign securities.\80\ Rule 10b-13 prohibits a person who is making a 
tender or exchange offer from purchasing or arranging to purchase, 
directly or indirectly, the security that is the subject of the offer 
(or any security that is immediately convertible into or exchangeable 
for the subject security) otherwise than pursuant to the offer.\81\ The 
rule's prohibitions apply from the time of public announcement of the 
offer until the time the bidder is required, pursuant to the offer's 
terms, either to accept or reject the tendered securities. Rule 10b-13 
protects investors by preventing a bidder from extending greater or 
different consideration to some security holders by offering to 
purchase their shares outside the offer, while other security holders 
are limited to the offer's terms.\82\ The rule applies to the bidder, 
whether the bidder is the issuer or a third party, the bidder's 
affiliates, and the offer's dealer manager.\83\
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    \80\ The Commission recently commenced a comprehensive review of 
Rule 10b-13, including its application in the context of offers for 
U.S. issuers. In connection with this review, we recently proposed 
revising Rule 10b-13 and redesignating it as Rule 14e-5. Securities 
Act Release No. 7607 (November 3, 1998). If those proposals are 
adopted, any changes made to Rule 10b-13 to accommodate cross border 
transactions will be incorporated into Rule 14e-5.
    \81\ 17 CFR 240.10b-13.
    \82\See International Tender and Exchange Offers, Securities Act 
Release No. 6897 (June 5, 1991) [56 FR 27582, 27597].
    \83\ See, e.g., Offer for Smith New Court PLC (July 26, 1995).
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    Many foreign jurisdictions do not expressly prohibit a bidder from 
purchasing or arranging to purchase the subject security outside the 
terms of the offer. A number of these jurisdictions, however, do 
require that the bidder provide consideration to tendering security 
holders that is equivalent to the higher of the offer price and the 
highest price paid to any person whose securities were purchased 
outside the terms of the offer.\84\ This means that tendering security 
holders will receive the benefit of any higher prices paid for 
securities outside the offer. In contrast, Rule 10b-13 is premised in 
part on the view that because of the time value of money, persons whose 
shares are purchased before payment is made in the offer receive a 
consideration different from that received by tendering security 
holders, even if they receive the same per share price.\85\ 
Nevertheless, the requirement that bidders pay in the offer the highest 
price paid for shares purchased outside the offer is similar to the 
requirement in Rules 14d-7 and 13e-4(f)(4) under the Exchange Act that 
the highest consideration paid to any security holder pursuant to a 
tender offer be paid to all security holders that tender into the 
offer.
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    \84\ See, e.g., City Code Rules 6.1 and 6.2; see also Ontario 
Securities Act Secs. 97(1), 97(2), 97(3); Ontario Securites 
Commission Policy Statement 9.3.
    \85\ See Brief of the Securities and Exchange Commission, Amicus 
Curiae, Texaco Inv. v. Pennzoil Inc. (Tex. Sup. Ct. July 22, 1987).
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    A strict application of Rule 10b-13 in some cases could 
disadvantage U.S. security holders. For example, a bidder may decide to 
exclude U.S. security holders from the offer when Rule 10b-13 would (1) 
preclude purchases outside the offer; and (2) the participation of U.S. 
security holders is not necessary to the success of the offer. In that 
circumstance, flexible application of Rule 10b-13 is necessary and 
appropriate to encourage bidders for the securities of foreign private 
issuers to extend their offers to U.S. security holders. At the same 
time, any relief extended to foreign tender offers should be limited to 
circumstances that do not undermine the investor protection goals of 
Rule 10b-13.
    We have some experience in balancing these objectives. We issued an 
exemption from Rule 10b-13 in 1991 for tender or exchange offers 
relying on the MJDS with Canada.\86\ That exemption recognizes that 
Canadian procedures applicable to tender offers afford a large measure 
of the protections provided by Rule 10b-13.\87\ Additionally, in the 
1991 proposals, we sought comment on whether we should provide an 
exemption from Rule 10b-13 to bidders of foreign securities when 
certain conditions are satisfied. Although the 1991 proposals were not 
adopted, the Commission has granted a number of exemptions from Rule 
10b-13 to accommodate cross-border tender offers. These exemptions were 
subject to provisions pertaining to recordkeeping and compliance with 
applicable tender offer laws or regulations, as well as the conditions 
suggested in the 1991 proposals that:
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    \86\ Order of Exemption from Provisions of Rules 10b-6 and 10b-
13 Under the Securities Exchange Act of 1934 for Canadian 
Multijurisdictional Disclosure System, Securities Exchange Act 
Release No. 29355 (June 21, 1991).
    \87\ Id.
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    (1) The U.S. offering documents prominently disclose the 
possibility of any purchases or arrangements to purchase the subject 
security (or certain related securities), or the intent to make such 
purchases, otherwise than pursuant to the terms of the tender offer;
    (2) The bidder discloses in the United States information regarding 
such purchases to the extent such disclosure is made pursuant to the 
home jurisdiction's rules governing tender offers; and
    (3) Such purchases are made outside the United States.\88\
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    \88\ See, e.g., Incentive A.B. Offer for Gambro A.B. (February 
1, 1996). Additionally, we have granted Rule 10b-13 exemptions to 
permit concurrent U.S. and offshore tender offers. See, e.g., 
Pechiney Privatization (Dec. 6, 1995).
---------------------------------------------------------------------------

    For tender or exchange offers that are substantially foreign in 
character, we preliminarily believe that allowing U.S. security holders 
to participate in these offers outweighs the benefits derived from 
applying Rule 10b-13 to such offers. Commenters on the 1991 proposals 
supported this view. They stated that relief from Rule 10b-13 is 
appropriate for tender offers that are essentially foreign in 
character, especially if any such exemption is consistent with the 
relevant laws, rules, and practices of the foreign jurisdiction

[[Page 69146]]

governing the offer.\89\ Based on our experience in granting exemptions 
under Rule 10b-13 in the context of foreign tender offers, we believe 
that relief from Rule 10b-13 would be appropriate within the context of 
the two-tiered structure proposed in this release to accommodate cross-
border offers.
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    \89\See comment letters and a summary of the comments in File 
No. S7-18-91 at our public reference room in Washington, D.C.
---------------------------------------------------------------------------

    We propose to amend Rule 10b-13 to include an exception for Tier I 
tender or exchange offers, subject to the conditions that:
    (1) The U.S. offering documents disclose prominently the 
possibility of any purchases, or arrangements to purchase, or the 
intent to make such purchases otherwise than pursuant to the terms of 
the tender or exchange offer;
    (2) The bidder discloses information in the United States regarding 
such purchases in the United States in a manner comparable to 
disclosure made in the home jurisdiction; and
    (3) The purchases comply with the applicable tender offer laws and 
regulations of the home jurisdiction.
    This proposed limited exception under Rule 10b-13 for Tier I tender 
offers largely represents a codification of the conditions contained in 
the exemptions previously granted by the Commission. The exception, 
however, would be limited to offers where U.S. persons held of record 
10 percent or less of the class of securities sought in the offer.
    Unlike in the 1991 proposed exemption, we are not proposing to 
limit the exception to purchases that are made outside the United 
States. Under the new proposals, in Tier I offers bidders could 
purchase target securities, subject to the conditions noted above, in 
transactions in the United States that otherwise would be prohibited 
under Rule 10b-13.\90\
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    \90\ Of course, broker-dealers that solicit tenders from U.S. 
persons would be required to register as broker-dealers under 
Section 15 of the Exchange Act, absent an available exemption.
---------------------------------------------------------------------------

    We are not proposing an exception to Rule 10b-13 for Tier II offers 
because of the greater U.S. interest in those offers. We believe that 
we should continue to review requests for relief from Rule 10b-13 for 
offers other than Tier I-eligible offers on a case-by-case basis.\91\ 
In that context, we will consider factors such as proportional 
ownership of U.S. security holders of the target security in relation 
to the total number of shares outstanding and to the public float; 
whether the offer will be for ``any-and-all'' shares or will involve 
prorationing; whether the offered consideration will be cash or 
securities; whether the offer will be subject to a foreign 
jurisdiction's laws, rules, or principles governing the conduct of 
tender offers that provide protections comparable to Rule 10b-13; and 
whether the principal trading market for the target security is outside 
the United States. This approach would comport with the Commission's 
action in a recent cross-border offer involving a U.K. target company 
with substantial U.S. ownership.\92\
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    \91\ Rule 10b-13 exemption requests should be directed to the 
Office of Risk Management and Control in the Commission's Division 
of Market Regulation, at (202) 942-0772.
    \92\ See In the Matter of Trinity Acquisition PLC, Exchange Act 
Release No. 40246 (July 22, 1998). In that offer, U.S. record and 
beneficial ownership in the target's securities was estimated at 
45.46%. Despite the high level of U.S. ownership, the Commission 
granted a Rule 10b-13 exemption based on the following factors: the 
transaction was governed by the City Code, which requires that the 
offer's consideration be increased to the level of any higher price 
that is paid for purchases of the target's securities outside the 
offer and does not permit the offer to be withdrawn, except in 
limited circumstances; the offer was an all cash, any-and-all offer, 
thus no risk of proration existed; and the principal trading market 
for the target securities clearly was the London Stock Exchange. 
Also, the time value of money must be considered in the Rule 10b-13 
context because those shareholders paid outside the offer receive 
consideration sooner than those who tender. This transaction, 
however, did not involve a substantial difference in the time value 
of money for purchases outside the offer. Other Rule 10b-13 concerns 
were not an issue because of the above protections against such 
abuses in the City Code.
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    In our view, the proposed exception to Rule 10b-13 will simplify 
the procedural requirements for foreign tender or exchange offers and 
further promote the extension of such offers to U.S. security holders, 
without compromising the investor protections of Rule 10b-13.
    Q16. We solicit comments on the proposed exemption for Tier I 
offers generally, and whether:
    (1) As suggested in the 1991 proposal, relief from Rule 10b-13 
should be granted only for purchases made outside the United States;
    (2) The exception should be subject to an express requirement that 
either the governing tender offer statute or rules contain, or the 
offer itself provides for, a provision that if the price paid to 
security holders outside the offer is higher than the tender offer 
price, the higher price will be offered to all security holders;
    (3) The exception should be limited to offers for all outstanding 
securities, on the basis that shares purchased outside a partial offer 
would not be subject to prorationing and therefore may be made on terms 
materially different from shares purchased in the offer;
    (4) The exception should be limited to cash tender offers, on the 
basis that purchases outside an exchange offer would be made for a form 
of consideration that may be materially different from the offer's 
consideration; and
    (5) The exception should be limited to offers for the securities of 
foreign private issuers with no more than 10% U.S. holders of record, 
or permit a higher percentage of U.S. record holders, e.g., 20%, 30% or 
40%. If the level of permissible U.S. ownership is increased, should 
the exception contain additional conditions, such as limiting its 
availability to all cash, any-and-all offers; requiring the offer to 
comply with foreign tender offer rules providing protections comparable 
to Rule 10b-13; and/or requiring that the principal market for the 
security be outside the United States?
    We recently granted a limited class exemption under Rule 10b-13 to 
permit ``connected exempt market makers'' and ``connected exempt 
principal traders,'' as defined by the City Code, to continue their 
U.K. market making activities during a cross-border offer that is 
subject to the City Code.\93\ Under the City Code, connected exempt 
market makers and connected exempt principal traders are market makers 
or principal traders that are affiliated with the bidder's advisors 
(Eligible Traders). Without Rule 10b-13 relief, Eligible Traders would 
be forced to withdraw from trading in U.K. target securities, with 
possible adverse consequences for the liquidity of those securities. 
This limited class exemption recognizes the information barrier and 
other requirements contained in the City Code that Eligible Traders 
must satisfy to be exempt from the City Code's ``acting in concert'' 
provisions.\94\ To rely on this exemption, the Eligible Trader must 
comply with specified disclosure and recordkeeping requirements and is 
prohibited from making purchases in the United States, which are 
consistent with conditions contained in other Rule

[[Page 69147]]

10b-13 exemptions granted in the cross-border context.
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    \93\ See Exemption under Rule 10b-13 for Certain Principal 
Trading and Market Making Activities, dated June 29, 1998 (Eligible 
Trader Class Exemption). If the activities of Eligible Traders were 
in connection with a Tier I offer, where U.S. persons held of record 
10 percent or less of the class of securities sought in the offer, 
the proposed Tier I exception to Rule 20b-13 also would be 
applicable. Prior to the issuance of the Eligible Trader Class 
Exemption, the Commission granted Rule 10b-13 relief to U.K. market 
markers or principal traders on a case-by-case basis. See, e.g., 
SunGard Data Systems, Inc. Offer for Rolfe & Nolan PLC (March 4, 
1998); Doncasters PLC Offer for Triplex Lloyd PLC (March 11, 1998).
    \94\ See City Code Rule 38; Panel Statement 1997/11 dated 
October 16, 1997.
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    We propose to codify this class exemption. The proposed Rule 10b-13 
amendment for Eligible Traders would not be limited to offers where 
U.S. record ownership is 10 percent or less of the class of securities 
sought in the offer. It also applies to offers where U.S. record 
ownership exceeds 10 percent, but is not greater than 40 percent. The 
proposed amendment, however, would not provide relief under Rule 10b-13 
to bidders or anyone acting on behalf of bidders (such as advisors and 
other nominees or brokers).
    The proposed amendment for Eligible Traders is subject to the 
following conditions:
    (1) The issuer of the target security is a ``foreign private 
issuer,'' as defined in Rule 3b-4(c) under the Exchange Act;
    (2) The tender or exchange offer is subject to the City Code;
    (3) The Eligible Trader is a ``connected exempt market maker'' or 
``connected exempt principal trader,'' as those terms are used in the 
City Code;
    (4) The Eligible Trader complies with the applicable provisions of 
the City Code; and
    (5) The offering documents disclose the identity of the Eligible 
Trader and describe how U.S. security holders can obtain information 
regarding an Eligible Trader's market making or principal purchases to 
the extent such information is required to be made public under the 
City Code.
    Q17. We solicit comments on the proposed exception for U.K. 
Eligible Traders, including whether this exception should be available 
during any offer for a U.K. target or limited, e.g., to Tier I offers.
    Q18. Is it necessary to include the condition requiring that U.S. 
holders be able to obtain information regarding Eligible Traders' 
purchases to the extent such information is required to be made public 
in the United Kingdom?
    Q19. Additionally, we seek comments on whether it is appropriate to 
exclude from Rule 10b-13's application transactions by any market 
makers, including U.S. market makers, that are subject to restrictions 
similar to those imposed by the City Code. Should Rule 10b-13 
incorporate the connected market maker concepts of the City Code and 
provide an exclusion where there is an information barrier between the 
dealer-manager and the affiliated market maker, and public disclosure 
is made during the offer of the total amount of shares purchased in 
market making transactions and of the highest price paid for those 
shares?
2. Regulation M
    In December 1996, the Commission adopted Regulation M.\95\ 
Regulation M imposes trading restrictions on issuers and broker-dealers 
participating in exchange offers or rights offerings that are 
``distributions,'' generally from the day offering materials are 
disseminated until the end of the distribution.\96\ At this time, we 
are not proposing an exemption to Regulation M for cross-border 
exchange offers, whether qualifying for the registration exemption 
under proposed Rule 802 or the proposed Tier I or Tier II exemptions 
from the U.S. tender offer provisions, or for cross-border rights 
offerings qualifying for the registration exemption under proposed Rule 
801. We preliminarily believe we should evaluate the need for 
exemptions from Regulation M after we gain experience with the 
Regulation's operation in the context of those offerings. To date we 
have had very limited experience with the application of Regulation M 
to exchange offers for foreign equity securities or rights offerings 
involving foreign securities. The limited number of requests for relief 
in these contexts suggests that Regulation M may not be an impediment 
to these kinds of transactions and that exemptions from its provisions 
may be unnecessary.\97\
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    \95\ Anti-manipulation Rules Concerning Securities Offerings, 
Securities Exchange Act Release No. 38067 (January 3, 1997) [62 FR 
520].
    \96\ The term ``distribution'' is defined in 17 CFR 242.100. 
Where the portion of an exchange offer or rights offering made in 
the United States does not constitute a ``distribution'' (e.g., 
where it does not satisfy the ``magnitude of the offering'' or 
``special selling efforts and selling methods'' prongs of the 
definition), it is not subject to Regulation M.
    \97\ For example, the trading restrictions in Rule 101 of 
Regulation M, which apply to underwriters and other broker-dealers, 
do not apply to actively traded securities, as defined in 17 CFR 
242.100.
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    Q20. Are exemptions from various rules under Regulation M necessary 
to accommodate cross-border rights offerings or exchange offers 
conducted pursuant to proposed Rules 801 or 802? Commenters should 
provide reasons why such exemptions would be necessary and the scope of 
any conditions that should be imposed.

E. Exemption from the Securities Act for Exchange Offers, Business 
Combinations, and Rights Offerings

1. Summary
    Today's proposals also provide exemptions from Securities Act 
registration requirements for securities issued to U.S. security 
holders of a foreign private issuer in exchange offers, business 
combinations, and rights offerings. These exemptions are being proposed 
as Rule 801 for rights offerings and Rule 802 for business combinations 
and exchange offers. The exemptions are available only if the target 
company (or the issuer in an issuer tender offer or rights offering) is 
a foreign private issuer and U.S. security holders hold of record no 
more than five percent of the subject securities. The exemptions 
proposed today differ from the 1991 proposals in that they no longer 
impose a dollar limitation on the amount of securities to be issued. In 
addition, there are no proposals to permit registration of such 
offerings based on home country disclosure.\98\
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    \98\ The 1991 proposals provided a dual approach: (1) a 
registration exemption pursuant to Section 3(b) of the Securities 
Act for an issuer's securities offered with respect to the foreign 
target company's securities, provided that the aggregate dollar 
value of the securities offered in the United States did not exceed 
$5 million; and (2) registration on the basis of home jurisdiction 
disclosure documents, if U.S. residents held five percent or less of 
the foreign target company's securities before the offer commenced.
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    Since the issuance of the 1991 proposals, we have facilitated the 
inclusion of U.S. security holders in exchange offers, business 
combinations and rights offerings by reviewing registration statements 
concerning these transactions on an expedited basis and by permitting 
certain accommodations when necessary and prudent for the protection of 
U.S. security holders. Nevertheless, U.S. security holders continue to 
be excluded from these offerings.\99\ An exemption from the 
registration requirements appears necessary to ensure that U.S. 
security holders can participate fully in these offers for foreign 
companies. An exemption is particularly necessary when the percentage 
of shares held in the United States is small.
---------------------------------------------------------------------------

    \99\ See Notes 15, 24 and 25, supra.
---------------------------------------------------------------------------

    Based on our experience in reviewing registered exchange offers, 
business combinations, and rights offerings involving foreign 
registrants, however, we have determined not to propose a home-country 
based registration system. The disclosure and accounting standards of 
foreign jurisdictions are not always consistent with the level of 
prospectus disclosure required in a registered offering under the 
Securities Act. Instead, we believe that any accommodation under the 
Securities Act should be limited to circumstances when the proportional 
U.S. interest in the transaction is insignificant, and U.S. 
participation is not essential to its success. In those situations, 
extending the transaction to U.S. security holders is unlikely to be an 
attempt to raise capital or develop a market for the offeror's 
securities in the United States.

[[Page 69148]]

Rather, U.S. investors would benefit by participating in what is 
otherwise an offshore transaction. Our preliminary view is that these 
exemptions would be appropriate and in the public interest, because 
they would promote including U.S. security holders in exchange offers, 
rights offerings and business combinations.
    When the percentage of U.S. ownership is significant, registration 
of the exchange offer, business combination or rights offer under U.S. 
disclosure and accounting standards is both appropriate and, in 
virtually all instances, cost effective and feasible. When the 
percentage of U.S. ownership is not significant, it is appropriate to 
exempt these offers from the registration requirements, conditioned on 
satisfaction of minimal offeror and transactional requirements. 
Although companies conduct rights offerings to raise capital, full 
prospectus disclosure may be less necessary because the offerees should 
already be familiar with the issuer and the securities being offered. 
In any event, the fact that a company must offer the securities only to 
existing security holders on a pro rata basis and the requirement that 
the rights may not be transferred in the United States should ensure 
that the offering will not serve as a means to develop a U.S. market 
interest.
    Q21. Comment is solicited as to whether these Securities Act 
exemptions are necessary and appropriate. Should the other proposals 
proceed without the proposed Securities Act exemptions?
    The proposed exemptions are not available for any transaction or 
series of transactions that technically complies with the exemptions 
but is part of a plan or scheme to evade the registration provisions of 
the Securities Act.\100\ For example, if the exchange offer or rights 
offering is a sham, the exemptions would not be available.
---------------------------------------------------------------------------

    \100\ See General Note 2 to proposed Rules 800, 801 and 802.
---------------------------------------------------------------------------

2. Eligibility Conditions
    a. Transactional eligibility requirements. i. Common requirements 
for exchange offers, business combinations and rights offerings. (a) 
U.S. ownership limitation. Under today's proposals, exchange offers, 
business combinations, and rights offerings would be exempt from 
registration under the Securities Act, so long as U.S. security holders 
own of record five percent or less of the foreign company's securities 
that are the subject of the offer.\101\ When U.S. security holders own 
five percent or less of the issuer, U.S. participation is generally not 
necessary for the success of the offer.
---------------------------------------------------------------------------

    \101\ A number of commenters on the 1991 proposals urged the 
Commission to adopt a higher percentage to broaden the offers that 
could be registered based on home country disclosure requirements. 
Under the current proposals, these offers would be conducted on an 
exempt, rather than a registered, basis. For that reason, we have 
determined not to propose a higher U.S. ownership threshold.
---------------------------------------------------------------------------

    Q22. Comment is requested on whether five percent is the 
appropriate threshold. Would an exemption set at 10 percent or as low 
as one percent be appropriate and consistent with the protection of 
investors? Is the five percent threshold too low for small businesses 
whose offerings are small? Is it too high for large companies, whose 
offerings are correspondingly large?
    Unlike the 1991 proposals, we have not based today's proposal on an 
absolute dollar limit. The $5 million threshold we proposed in 1991 
reflected the maximum dollar offering that the Commission could exempt 
under Section 3(b) of the Securities Act. With the recent addition of 
general exemptive authority under Section 28 of the Securities Act, we 
have greater flexibility to base the exemptions on a higher dollar 
ceiling, the percentage of outstanding securities held in the United 
States, or other relevant factors.\102\ A number of commenters on the 
1991 proposals urged us to use any new authority to increase the 
permitted amount of securities offered under the proposal. They argued 
that $5 million was too low to make the proposed exemptions meaningful.
---------------------------------------------------------------------------

    \102\ See Note 27, supra.
---------------------------------------------------------------------------

    We are proposing not to limit the scope of the exemptions by a 
dollar amount because we believe limiting the exemptions to 
transactions with no more than five percent U.S. participation 
effectively eliminates the risk that the exemptions will be abused. 
Without a dollar limitation, however, the exemptions could result in a 
significant amount of securities entering the U.S. public markets and 
affecting a large number of investors without registration. The larger 
the target company, the greater the potential impact of such an 
offering on U.S. security holders. For these reasons, we are 
considering imposing a dollar limitation as well as the percentage 
limitation.
    Q23. Should Rules 801 and 802 be limited by a dollar ceiling of $5, 
$10 or $20 million? Should an issuer be allowed to issue up to, for 
example, $5, $10 or $15 million regardless of the amount of U.S. 
holdings? Should the test be in the alternative, for example, $10 
million or five percent U.S. holdings, whichever is higher? Or lower?
    (b) Equal treatment. The terms and conditions of the offer must be 
the same for U.S. and foreign security holders, subject to certain 
exceptions similar to the Tier I exemption under the tender offer 
provisions.
    (c) Transfer Restrictions. Proposed Rules 801 and 802 impose 
certain restrictions on the transferability of the securities that an 
acquiror may issue in exchange offers or business combinations or the 
equity securities that may be purchased pursuant to Rule 801 upon the 
exercise of the rights. We preliminarily believe that the securities 
that may be purchased upon the exercise of the rights should be 
restricted within the meaning of Rule 144.\103\ This restriction will 
help ensure that foreign companies will not use rights offerings to 
create a market in the United States.
---------------------------------------------------------------------------

    \103\ See General Note 9 to Proposed Rules 800-802.
---------------------------------------------------------------------------

    If the securities that are the subject of the transaction made 
pursuant to Rule 802 are ``restricted securities'' under Rule 144, then 
securities acquired in the transaction will be ``restricted 
securities.'' \104\ Conversely, if the securities that are the subject 
of the transaction made pursuant to Rule 802 are unrestricted, then 
securities acquired in the transaction will be unrestricted. In the 
latter case, the securities would be freely tradable by non-affiliate 
security holders, so long as they are not participating in the offer 
under circumstances in which they could be deemed statutory 
underwriters. Particularly in the case of exchange offers, requiring 
unaffiliated U.S. security holders to accept restricted securities in 
exchange for their unrestricted securities, seems unjustified. The fact 
that no more than five percent of the subject company's securities may 
be held in the United States should minimize the potential that Rule 
802 will be misused as a means to conduct distributions in the United 
States, and should eliminate the need to classify securities issued 
under Rule 802 as restricted securities.
---------------------------------------------------------------------------

    \104\ See General Note 9 to Proposed Rules 800-802.
---------------------------------------------------------------------------

    Q24. We request comments on whether the potential for abuse, 
including an unregistered distribution of the acquiror's securities, 
should require that all securities issued under Rule 802 be deemed 
restricted securities

[[Page 69149]]

for purposes of Rule 144 under the Securities Act.
    Q25. Will making Rule 801 securities restricted impose monitoring 
and other procedural obligations that will deter reliance on the rule? 
For example, will the fact that the foreign issuer may have to 
establish a separate restricted American Depositary Receipt (``ADR'') 
facility and monitor withdrawals from that facility deter reliance on 
the exemption?
    ii. Additional requirements for rights offerings. As with the 1991 
proposals, Rule 801 as proposed today would be available only for 
rights offerings of equity securities made on a pro rata basis to 
existing security holders of the same class, including holders of ADRs 
evidencing those securities. Foreign companies generally make rights 
offerings only with respect to outstanding equity securities of the 
same class. We propose to limit Rule 801 to the offer of securities of 
the same class of securities as those held by the offerees, because the 
offerees already have made the decision to invest in that class.\105\
---------------------------------------------------------------------------

    \105\ Proposed Rule 800. As proposed, the term ``equity 
securities'' does not include convertible securities, warrants, 
rights, or options.
---------------------------------------------------------------------------

    Proposed Rule 801 would be available only for all-cash transactions 
and would additionally require that the rights granted to U.S. security 
holders not be transferable except offshore in accordance with 
Regulation S.\106\ The rights offering exemption being proposed today 
is not intended to permit foreign private issuers to extend offerings 
to new investors in the United States.
---------------------------------------------------------------------------

    \106\ 17 CFR 230.901 through 230.905.
---------------------------------------------------------------------------

    Q26. We request comments on whether this limitation on 
transferability is appropriate.
    b. Offeror eligibility requirements. i. Exchange offers/business 
combinations. Like the 1991 proposals, Rule 802 as proposed does not 
contain any limitations based on the domicile or reporting status of 
the offeror. Any offeror can use proposed Rule 802 regardless of 
whether it is a U.S. company or a foreign private issuer and regardless 
of whether it is a reporting company. The target company, however, must 
be a foreign private issuer. Limiting the exemption to foreign private 
issuers would require a U.S. bidder for the securities of a foreign 
target to register the U.S. portion of an exchange offer. This would 
place a U.S. bidder, particularly a non-reporting U.S. company, at a 
competitive disadvantage to a foreign bidder for the same company.
    Q27. Is it appropriate or necessary to allow U.S. companies, 
including reporting companies eligible to use the Form S-3 short form 
registration statement, to rely on the exemption? Should Rule 802 be 
available to a domestic company only when there is a competing bid for 
the target's securities?
    We are considering adopting offeror eligibility requirements to 
address the concern that start-up companies would use Rule 802 to issue 
a significant amount of securities in the United States without 
complying with the registration requirements of the Securities Act.
    Q28. Should an offeror seeking to rely on Rule 802 have to be a 
reporting company under Section 13(a) or 15(d) of the Exchange Act 
\107\ at the time the exchange offer or business combination is first 
offered to U.S. security holders?
---------------------------------------------------------------------------

    \107\ 15 U.S.C. 78m(a) and 79o(d).
---------------------------------------------------------------------------

    Q29. Should we impose a minimum reporting history, either as an 
Exchange Act reporting company or as a listed company on a recognized 
foreign securities exchange or market?
    Q30. Should we require that either the target security, the 
security to be issued, or both, be listed on an established U.S. or 
foreign securities exchange and have a minimum public float such as $50 
million, $100 million or $150 million? This may ensure U.S. security 
holders a degree of liquidity if they are unwilling to accept the 
consideration offered in the exchange offer or business combination and 
would prefer to sell the investment into the public markets.
    ii. Rights offerings. Proposed Rule 801 requires that the offeror 
be a foreign private issuer. It does not impose any other issuer 
eligibility requirements. As originally proposed in 1991, Rule 801 
contained additional offeror eligibility requirements, including that 
the offeror satisfy certain information and listing requirements.\108\ 
The Commission intended those proposed offeror eligibility 
requirements, in part, to prevent start-up companies or insubstantial 
issuers from using the exemption to raise capital in the United States 
without complying with Securities Act registration requirements. The 
requirements also were intended to assure that information about the 
offeror would be publicly available to investors in the United States, 
including at a minimum, information the issuer makes public in its home 
country.
---------------------------------------------------------------------------

    \108\ As proposed in 1991, Rule 801 would have been available to 
foreign private issuers filing reports with the Commission pursuant 
to Sections 13(a) or 15(d) of the Exchange Act which were current 
with respect to the filing obligations at the time of the offering. 
It also would have been available to foreign private issuers exempt 
from the requirements of Section 12(g) of the Exchange Act pursuant 
to Rule 12g3-2(b), if the offeror had a class of equity securities 
listed or quoted on at least one designated offshore securities 
market, was in compliance with the listing requirements applicable 
to those securities and, in addition, either (a) had maintained such 
listing or quotation continuously for 36 months immediately prior to 
the commencement date of the offering, or (b) had a public float in 
the listed securities of not less than $75 million. These same 
eligibility criteria applied to the proposed registration form.
---------------------------------------------------------------------------

    We believe that investor protection should be served by 
facilitating U.S. security holders' participation in a rights offering 
for securities of any foreign private issuer with which the investor is 
already familiar, without narrowing those offerings with additional 
offeror criteria. The anti-fraud and other civil liability provisions 
of the federal securities laws will apply and should provide protection 
with regard to the disclosure investors receive in such offerings.
    Q31. We solicit comments on whether it is appropriate or necessary 
to retain any or all of the offeror eligibility requirements that the 
Commission originally proposed in 1991 in connection with Rule 801. If 
so, is it appropriate to provide for a size-of-issuer test as an 
alternative to requiring a three-year listing history on a designated 
foreign market for determining the eligibility of non-reporting 
issuers?
    Q32. Should the alternative test be based on the offeror's public 
float, as previously proposed, or on its net assets, net worth, or on 
average daily trading volume?
    Q33. Should the previously proposed minimum public float of $75 
million be reduced, for instance, to $50 million, or be raised to $100 
million or $150 million?
    Q34. Is it appropriate or necessary to limit the exemption to 
reporting companies?
    c. Informational requirements. Rules 801 and 802 would not mandate 
that specific information, including offering circulars, be sent to 
U.S. security holders. Instead, when any document, notice or other 
information is provided to offerers, copies (translated into English) 
must be provided to U.S. security holders. If, instead of delivering 
documents to offerees outside the United States, the offeror publishes 
information regarding the offering outside the United States, then the 
offeror may satisfy the information dissemination requirement by 
delivering written copies of the publication or advertisement (in 
English) to U.S. offerees. Because U.S. publication of the exempt offer 
creates the potential for stimulating a U.S. market interest in the 
offeree's

[[Page 69150]]

securities, we are proposing to require actual delivery of the offering 
materials to U.S. holders in rights offerings. \109\ Because it is a 
common practice in this country to publish exchange offers, however, we 
are requiring publication rather than actual delivery for transactions 
exempt under proposed Rule 802. Proposed Rules 801 and 802 both require 
that the offeror must provide the notice or offering document to U.S. 
security holders at the same time it provides the information to 
offshore offerees.
---------------------------------------------------------------------------

    \109\ See Proposed Rule 801(a)(4)(iii).
---------------------------------------------------------------------------

    Q35. Should issuers relying on Rules 801 and 802 be required to 
prepare and physically deliver some form of prospectus or offering 
circular? In the absence of such a document, should the issuer be 
required to deliver its latest annual report containing audited 
financial statements?
    To enable us to monitor the operation of the exemptions, Rules 801 
and 802 as proposed also would require that an offeror submit a 
notification to the Commission on proposed new Form CB. The new form 
will include as an attachment a copy of any document, notice or other 
information mailed to U.S. offerees. A foreign company must 
contemporaneously file a Form F-X when it submits the Form CB.\110\ The 
exemptions would also require that a legend be included in the offering 
document or notice stating that the offer is being conducted pursuant 
to home jurisdiction disclosure requirements, and that those 
requirements may differ from the U.S. disclosure requirements, 
including financial statement requirements.
---------------------------------------------------------------------------

    \110\ Form F-X is used by certain non-U.S. companies to appoint 
an agent for service of process in the United States.
---------------------------------------------------------------------------

    Q36. Is this notification submission necessary, and, if so, should 
the notification, as proposed, attach a copy of any disclosure 
documents required to be filed or delivered pursuant to the home 
jurisdiction regulatory requirements?
    Q37. Should bidders relying on the Tier I exemption for cash tender 
offers be required to include a legend on the offering materials 
similar to the legend proposed for rights offerings and exchange 
offers?
    d. Rule 802 Eligible Securities--Trust Indenture Act exemption. We 
are not proposing any restrictions on the type of securities that an 
issuer could offer in reliance on proposed Rule 802.\111\ Therefore, 
the rules proposed today will permit offerors to offer debt securities 
in an exchange offer or business combination for the subject company's 
equity or debt securities. The issuance of debt securities ordinarily 
requires qualification of an indenture under the Trust Indenture Act, 
unless the debt securities are exempt from the qualification 
requirements pursuant to Section 304 under that Act.\112\
---------------------------------------------------------------------------

    \111\ This is similar to the 1991 proposals.
    \112\ 15 U.S.C. 77ddd.
---------------------------------------------------------------------------

    Qualification of an indenture assures the debtholders of the 
services of an independent trustee having certain qualifications and 
lacking conflicts of interest. The Trust Indenture Act deems a 
qualified indenture to automatically include certain protective 
covenants.\113\ These mandatory protective covenants give important 
rights to the debtholders. For example, debtholders have the right to 
sue individually for the payment of principal and interest.\114\ 
Further, these provisions give certain powers to the trustee and 
prohibit certain actions by the trustee, including the preferential 
collection of certain claims owed to the trustee by the obligor in the 
event of default.\115\ The rules under the Trust Indenture Act require 
the filing of a Form T-1, which is the statement of eligibility and 
qualification of the trustee, and the trust indenture itself.\116\
---------------------------------------------------------------------------

    \113\ Section 318(c) of the Trust Indenture Act, 15 U.S.C. 
77rrr(c). Every qualified indenture is deemed to automatically 
include Sections 310 through 318(a) of the Trust Indenture Act.
    \114\ Section 316(b) of the Trust Indenture Act, 15 U.S.C. 
77ppp(b).
    \115\ Section 311 of the Trust Indenture Act, 15 U.S.C. 77kkk.
    \116\ 17 CFR 260.5a-1.
---------------------------------------------------------------------------

    We are again proposing under Section 304(d) of the Trust Indenture 
Act \117\ a new rule that would exempt any debt security issued 
pursuant to proposed Rule 802 under the Securities Act from having to 
comply with the provisions of the Trust Indenture Act. We believe that 
enforcing the statutory requirement that debt securities be issued 
pursuant to a qualified indenture under the Trust Indenture Act is 
unnecessary when 95 percent or more of the subject securities are 
outside the United States and many U.S. investors could lose the chance 
to participate in these offerings. Therefore, for the same reasons we 
believe it is appropriate to exempt exchange offers meeting the 
requirements of Rule 802 from the registration requirements of the 
Securities Act, we also believe that an exemption from the Trust 
Indenture Act is appropriate and consistent with investor protection.
---------------------------------------------------------------------------

    \117\ 115 U.S.C. 77ddd(d). Section 304(d) gives the Commission 
by rule or order, the authority to exempt conditionally or 
unconditionally any indenture from one or more provisions of the 
Trust Indenture Act. The Commission may employ this exemptive 
authority ``if and to the extent that such exemption is necessary or 
appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended'' by the 
Trust Indenture Act.
---------------------------------------------------------------------------

    The exchange of debt securities will not be integrated with any 
other offerings by the offeror. This means it would not affect the 
availability of the Trust Indenture Act exemption with regard to the 
issuance of other debt securities.
    Q38. Is the proposed unconditional exemption from the requirements 
of the Trust Indenture Act for any debt security issued pursuant to 
Rule 802 necessary or appropriate in the public interest and consistent 
with investor protection and the purposes of that Act? Would it be more 
appropriate to exempt transactions from the procedural requirements of 
the Trust Indenture Act, such as filing the Form T-1, but still require 
that the debt securities be issued pursuant to an indenture containing 
some or all of the mandatory protective covenants discussed above? If 
so, which protective covenants should be preserved?

F. Effect of Reliance on Rule 801 or 802 on the Availability of Other 
Exemptions

    The exemptions contemplated under proposed Rules 801 and 802 are 
non-exclusive.\118\ An issuer making an offering in reliance on either 
of the proposed rules may claim any other available exemption under the 
Securities Act. Securities issued under Rule 801 or Rule 802 would not 
be integrated with any other exempt offerings by the issuer.\119\ For 
example, security holders who are offered and sold securities in 
accordance with Rule 801 or Rule 802 would not be counted in the 
calculation of the number of purchasers in a subsequent Regulation D 
offering by the issuer.\120\ Similarly, the amount of securities 
offered in the Rule 801 or Rule 802 transaction would not be included 
in the aggregate offering price of any subsequent Regulation D 
offerings by the offeror.\121\ Also, information submitted to the 
Commission pursuant to the requirements of Rules 801 or Rule 802, or 
disseminated to investors under those rules would not constitute a 
``general solicitation'' within the meaning of Regulation D or 
``directed selling efforts'' within the meaning of Regulation S.
---------------------------------------------------------------------------

    \118\ See General Note 5 to proposed Rules 800-802.
    \119\ See Preliminary Note 7 to Regulation D, 17 CFR 230.501 
through 230.508.
    \120\ See Regulation D, 17 CFR 230.505 through 230.506.
    \121\ See Regulation D, 17 CFR 230.504 through 230.505.
---------------------------------------------------------------------------

    The proposed rules relate only to the application of Section 5 of 
the Securities

[[Page 69151]]

Act. They have no effect on the anti-fraud or anti-manipulation 
provisions of the federal securities laws or provisions of state law 
relating to the offer and sale of securities.\122\ However, the civil 
liability provisions that relate only to registered offerings, such as 
Section 11 of the Securities Act,\123\ would not apply to these 
transactions because they would be exempt from registration.
---------------------------------------------------------------------------

    \122\ See General Notes 1, 3 and 4 to proposed Rules 800-802.
    \123\ 15 U.S.C. 77k.
---------------------------------------------------------------------------

    In addition, offerings exempt under proposed Rules 801 or 802 would 
not trigger a continuous reporting obligation under Section 15(d) of 
the Exchange Act. Nor would reliance on Rules 801 or 802 disqualify the 
issuer from the existing Rule 12g3-2(b)\124\ exemption for foreign 
private issuers from the registration and reporting requirements of 
Section 12(g) of the Exchange Act, unless the acquired company was a 
reporting company.
---------------------------------------------------------------------------

    \124\ 17 CFR 240.12g3-2(b).
---------------------------------------------------------------------------

    Q39. We request comment on whether a foreign private issuer should 
be precluded from relying on the Rule 12g3-2(b) exemption following an 
offering under Rule 801 or 802, given that the Rule 12g3-2(b) exemption 
is intended for issuers that do not access the U.S. capital markets in 
any significant fashion. Should the issuer become ineligible for the 
Rule 12g3-2(b) exemption if the Rule 801 or 802 offering exceeds $10 
million or some other dollar threshold? Should the same ineligibility 
result if the foreign private issuer has more than 500 holders of 
record in the United States after the Rule 801 or 802 offering is 
completed?

G. Unavailability of Rules 801 and 802 and the Tender Offer Exemptions 
for Investment Companies

    Proposed Rules 801 and 802 would not be available for securities 
issued by an investment company, whether foreign or domestic, that is 
registered or required to be registered under the Investment Company 
Act of 1940 (the ``Investment Company Act'').\125\ We have excluded 
foreign investment companies from the proposed exemptions because the 
Investment Company Act prohibits foreign investment companies from 
publicly offering securities in the United States or to U.S. 
persons.\126\ We excluded domestic investment companies because, unlike 
other issuers, an investment company that is registered or required to 
be registered under the Investment Company Act generally must register 
the securities that it offers or sells outside the United States.\127\
---------------------------------------------------------------------------

    \125\ 15 U.S.C. 80a-1 et seq. This is similar to the 1991 
proposals.
    \126\ 15 U.S.C. 80a-7(d). Section 7(d) prohibits a foreign 
investment company from using U.S. jurisdictional means to offer its 
securities publicly, or to U.S. persons, unless the Commission 
issues an exemptive order permitting the company to register under 
the Investment Company Act. Id. A tender offer, exchange offer, 
business combination, or rights offering by a foreign investment 
company may constitute a public offering.
    \127\ See Offshore Offers and Sales, Securities Act Release No. 
6779 (June 10, 1988) (53 FR 22661 (June 17, 1988)), at nn. 73-75 and 
accompanying text; Offshore Offers and Sales, Securities Act Release 
No. 6863 (April 24, 1990) (55 FR 18306 (May 2, 1990)), at nn. 151-53 
and accompanying text. A closed-end investment company that is 
registered under the Investment Company Act, however, like other 
non-investment company issuers, may be able to issue securities 
abroad without registering those securities under the Securities 
Act. See id.
---------------------------------------------------------------------------

    Q40. Should Rule 802 be available to a closed-end investment 
company that is registered under the Investment Company Act?
    We believe this exclusion is appropriate for some foreign private 
issuers that meet the definition of ``investment company'' contained in 
Section 3(a) of the Investment Company Act but have not registered with 
the Commission under that Act. Both foreign and domestic issuers that 
are excepted from the definition of ``investment company'' under the 
Investment Company Act, however, would be permitted to use the 
exemptions, so long as reliance on the exemptions is consistent with 
their unregistered status under the Investment Company Act.\128\ For 
example, a foreign private issuer that can offer its securities 
publicly in the United States in reliance on a rule, such as Rule 3a-6 
under the Investment Company Act, or pursuant to an individual 
exemptive order under the Investment Company Act, may use Rule 801 to 
make a rights offering in the United States or Rule 802 to make an 
exchange offer or enter into a business combination in the United 
States.\129\
---------------------------------------------------------------------------

    \128\ Issuers relying on section 3(c)(1) or 3(c)(7) of the 
Investment Company Act (15 USC 80a-3(c)(1) and 15 U.S.C. 80a-
3(c)(7)) for an exception from the definition of ``investment 
company'' may not offer securities publicly in the United States. 
Reliance on Rule 801 or 802 by these issuers thus would be 
inconsistent with their unregistered status under the Investment 
Company Act.
    \129\ Rule 3a-6, 17 CFR 270.3a-6, generally excepts foreign 
banks and insurance companies from the definition of ``investment 
company'' under the Investment Company Act. See Exception from the 
Definition of Investment Company for Foreign Banks and Foreign 
Insurance Companies, Investment Company Act Release No. 18381 (Oct. 
29, 1991) [56 FR 56294] (adopting Rule 3a-6 and rescinding Rule 6c-9 
under the Investment Company Act). The Rule permits these entities 
to sell their securities publicly in the United States without first 
registering as investment companies. Foreign banks and insurance 
companies relying on Rule 3a-6 to make a public offering of their 
securities in the United States, as well as certain of their holding 
companies and finance subsidiaries relying on Rules 3a-1 and 3a-5, 
respectively, generally are required by Rule 489 under the 
Securities Act to file a Form F-N with the Commission.
---------------------------------------------------------------------------

    Similar to Rules 801 and 802, the Tier I and Tier II tender offer 
exemptions will not be available if the target company is an investment 
company registered or required to be registered under the Investment 
Company Act. The Commission has not received requests for relief in 
connection with a tender offer for a foreign investment company. To 
keep the proposed exemptions as narrow as possible to address conflicts 
between U.S. and foreign law, the tender offer exemptions would not 
extend to tender offers for foreign investment companies.
    Q41. Should these exemptions be available when the target company 
is a foreign investment company?

H. Determination of U.S. Ownership

1. Definition of U.S. Holder
    The term U.S. holder is based on shareholder residence. The term is 
important under both the Tier I and II exemptions. It is also important 
in determining the availability of the proposed Securities Act 
exemptions for cross-border rights offerings and exchange offers under 
Rules 801 and 802. Relief in each case is conditioned, at least in 
part, on the percentage of the target company's securities held by U.S. 
security holders not exceeding a specified threshold.\130\ The 
calculation of the target company's U.S. security holders would be made 
at the commencement of the tender offer, rights offering or exchange 
offer. In the case of a business combination such as a merger where the 
securities are issued by the acquiring company, the calculation will be 
based on U.S. ownership of the company to be acquired at the 
commencement of the solicitation for the merger. In business 
combinations such as an amalgamation, where the securities are issued 
by a successor company to all participating companies, the calculation 
would be

[[Page 69152]]

made as if measured immediately after completion of the business 
combination. In the latter situation, all participants in the business 
combination must be foreign private issuers.
---------------------------------------------------------------------------

    \130\ In measuring the percentage of the class of securities 
held by U.S. holders, securities of that class underlying securities 
convertible into or exchangeable for securities of such class will 
be included in the calculation. See Rule 13d-3(d). Securities 
represented by ADRs, or other forms of depositary receipts, such as 
Global Depositary Receipts (``GDRs''), likewise, will be included. 
In calculating the percentage of outstanding securities of the class 
held in the United States, shares represented by ADRs will be 
included in both the numerator and the denominator, treating the 
ordinary shares held in the United States (represented by ADRs) and 
ordinary shares not represented by ADRs (wherever held) as a single 
class, as is currently the practice. American Depositary Receipts, 
Exchange Act Release No. 29226 (May 23, 1991) [56 FR 24420].
---------------------------------------------------------------------------

    The term U.S. holder was defined in the 1991 proposals as any 
person whose address appears on the records of the issuer of the 
subject securities, or of any voting trustee, depositary, share 
transfer agent, or any person acting in a similar capacity on behalf of 
the issuer of the subject securities, as being located in the United 
States.\131\ The proposed definition of U.S. holder was derived from 
the definition of ``foreign private issuer'' under the Exchange 
Act.\132\ The definition of U.S. holder does not turn on the residence 
of the beneficial owner of the securities, nor is there a requirement 
to identify beneficial owners in order to determine their residence.
---------------------------------------------------------------------------

    \131\ See also the Foreign Disclosure Proposing Release, infra 
Note 138, MJDS, supra Note 51, and Cross Border Rights Offer 
Release, supra Note 20, which used the same definition of U.S. 
holder.
    \132\ Rule 3b-4, 17 CFR 240.3b-4 (number of shareholders 
resident in the United States determined by looking to how a 
holder's address appears on the records of the issuer or 
depositary). See also Instruction A.2. to Schedule 14D-1F.
---------------------------------------------------------------------------

    Q42. Given the potential significance of U.S. beneficial ownership, 
we solicit comments on whether a beneficial holder test should be 
included if the bidder or issuer knows the percentage of U.S. 
beneficial owners or can access that information without unreasonable 
effort or expense. For example, should an issuer be required to 
determine the amount held by a foreign broker-dealer as nominee for 
U.S. accounts?
    Several commenters asked us to clarify the definition of U.S. 
holder with respect to depositaries and ADR and other depositary 
receipt facilities. For securities registered in the name of a nominee 
of a depositary maintaining a book entry system, such as Cede & Co., 
nominee for The Depository Trust Company, the issuer or third party may 
rely on how the participants' names appear on the records of the 
depositary. This approach would be consistent with the determination of 
``record holder'' under Section 12(g) of the Exchange Act.\133\ An ADR, 
Global Depositary Receipt (``GDR'') or other depositary facility 
likewise will not be treated as the record holder of the ADRs.\134\ 
Shares deposited in an ADR depositary will be presumed to be held 
solely by U.S. residents in determining the percentage of shares held 
by U.S. security holders. If the issuer receives information to the 
contrary from the depositary, it may rely on that information in 
calculating U.S. security holders.\135\
---------------------------------------------------------------------------

    \133\ See, e.g., Techne Corp., SEC No-Action Letter (Sept. 20, 
1988); CFAC REMIC Trust 1989-A, SEC No-Action Letter (Mar. 30, 
1990). See also Rule 12g5-1, 17 CFR 240.12g5-1 (treating all 
accounts held by a particular broker-dealer, bank, or custodian as 
one record holder).
    \134\ Cf., Rule 12g5-1(b), 17 CFR 240.12g5-1(b).
    \135\ Hostile bidders often will not be in a position to obtain 
residency information from a depositary transfer agent, or other 
persons acting on the issuer's behalf. We are proposing to provide 
third parties with certain presumptions based on trading volume to 
address this problem. See Section II.H.3. below.
---------------------------------------------------------------------------

    Q43. Should we treat all holders of ADRs as U.S. residents of the 
underlying foreign securities only when the ADR facility is 
unsponsored?
    A number of commenters also expressed concern as to the treatment 
of bearer securities in determining U.S. ownership. Since a U.S. 
residence will not appear on the records of the issuer for the holder 
of bearer securities, these securities will not be treated as being 
held by U.S. residents, unless the offeror knows or has reason to know 
that these securities are held by U.S. residents.
2. Exclusion of Foreign Security Holders Holding More Than 10 Percent
    We are concerned that foreign private issuers could have a 
significant majority of their shares held by controlling non-U.S. 
shareholders. As a result, U.S. holders could represent a significantly 
greater percentage of the company's non-affiliated public float. For 
example, a foreign company with an 80 percent non-U.S. shareholder 
could have up to 25 percent of its non-affiliated public float owned by 
U.S. holders and still qualify under Rules 801 and 802 if the 
calculation were based upon the total amount of securities outstanding. 
For that reason, shares held by non-U.S. holders of more that 10 
percent of the class are not included in the calculation of the U.S. 
ownership percentage. The exclusion is limited to non-U.S. affiliates 
to prevent reliance on the exemptive rules when the company is 
controlled by a U.S. holder with, for example, 80 percent of the 
shares.
    Q44. Would it be appropriate to exclude affiliated shares, whether 
held outside the United States or in the United States, from both 
elements of the calculation, thus focusing only on the percent of the 
company's total world-wide non-affiliated float held in the United 
States? Is 10 percent the appropriate level of ownership for excluding 
a holder's shares from the calculation? Should shares held by an 
acquiror or by the issuer's senior management also be excluded? Are 
foreign companies with significant U.S. ownership by affiliates as 
likely to exclude U.S. holders from participation in exchange and 
rights offerings?
3. Determination of Eligibility by Persons Other Than the Issuer
    The principal disadvantage of using a U.S. ownership threshold as a 
condition for the applicability of the Exchange Act tender offer 
exemptions and the Securities Act registration exemptions for exchange 
offers and business combinations is that it will be difficult for 
third-party bidders to ascertain whether the exemption is available 
without information on the subject company's U.S. ownership.\136\
---------------------------------------------------------------------------

    \136\ Exemptions for transactions like issuer tender offers or 
rights offerings do not pose this problem. An issuer can and must 
examine its own records and those of transfer agents and 
depositaries acting on its behalf to obtain the necessary 
information regarding U.S. ownership of its own securities.
---------------------------------------------------------------------------

    The 1991 proposals permitted a bidder seeking to acquire securities 
of a foreign subject company that is a reporting company or furnishes 
information to the Commission under Rule 12g3-2(b) to rely upon the 
disclosure contained in the target company's filings regarding the 
extent to which their securities are held by U.S. security holders. We 
proposed this approach based on other proposed rules that would have 
required foreign private issuers to disclose their U.S. ownership on an 
annual basis.\137\ Further, as originally proposed, if a foreign 
subject company was not a reporting company under the Exchange Act and 
did not submit reports pursuant to Rule 12g3-2(b), an offeror or issuer 
could presume that the U.S. ownership did not exceed the ceiling 
amount, unless it had actual knowledge to the contrary. Those rules 
were never adopted and are not being reproposed today.
---------------------------------------------------------------------------

    \137\ Proposed Amendment to Regulation S-K, Form 20-F, Proposed 
Form 40-F and Rule 12g3-2; Proposed New Forms for Furnishing 
Materials Pursuant to Rule 12g3-2(b), Securities Act Release No. 
6898 (June 6, 1991) [56 FR 27612].
---------------------------------------------------------------------------

    Under the current proposals, a third-party bidder in a hostile 
tender offer will be entitled to a presumption that the percentage 
threshold requirements of the Tier I, Tier II and Rule 802 exemptions 
are not exceeded unless:
    (1) the aggregate trading volume of the subject class of securities 
on national securities exchanges in the United States, on the Nasdaq 
Stock Market or on the OTC market, as reported to the NASD, exceeds 10 
percent in the case of Tier I offers, 40 percent in the case of Tier II 
offers, or 5 percent in the case of Rule 802, of the worldwide 
aggregate trading volume of that class of securities over the 12-
calendar-month period prior to commencement of the offer;

[[Page 69153]]

    (2) the most recent annual report or other informational form filed 
or submitted by the issuer to securities regulators in its home 
jurisdiction or elsewhere (including with the Commission) indicates 
that U.S. holdings exceed the applicable threshold; or (3) the bidder 
knows or has reason to know from other sources that the level of U.S. 
ownership of the subject class exceeds the thresholds.\138\

    \138\ If U.S. ownership of more than 5 percent is reported in 
public filings with the Commissin, such as Schedule 13G, we would 
take the positio that the bidder has reason to know the level of 
U.S. ownership exceeds 5 percent.
---------------------------------------------------------------------------

This presumption is not available in negotiated transactions, since the 
bidder in a negotiated transaction would be able to get this 
information from the target company.
    As to whether the foreign subject company is a foreign private 
issuer, the bidder could rely on the exemptions if the issuer of the 
subject securities files reports with the Commission under the foreign 
integrated disclosure system \139\ or has claimed an exemption from 
reporting under Exchange Act Rule 12g3-2(b), unless the bidder knows 
the foreign subject company is not a foreign private issuer.\140\ Even 
if the above presumptions are not available, the bidder may 
nevertheless rely on the exemption if it can demonstrate that U.S. 
ownership is less than the relevant threshold.
---------------------------------------------------------------------------

    \139\ This includes Form 20-F and 6-K, which are available only 
to foreign private issuers. Conversely, if a foreign issuer is 
reporting on the Commission's forms for domestic issuers, the bidder 
would have reason to believe it is not a foreign private issuer.
    \140\ See General Instruction I.A.5 to Schedule 14D-1F, 17 CFR 
240.14d-102.
---------------------------------------------------------------------------

    Subsequent changes or movements in the number of shares held by 
U.S. security holders after the offer commences would be irrelevant to 
the availability of the exemptions proposed today. In addition, an 
issuer or a third-party bidder instituting a subsequent competing offer 
could use the same information as to U.S. holdings as the initial 
third-party bidder or issuer to calculate the percentage of securities 
held by U.S. security holders. An interim filing disclosing a 
disqualifying level of U.S. ownership in the United States would not 
disqualify the second offer.
    Q45. Should the presumption be available in negotiated 
transactions? Should a bidder that has entered into a negotiated 
transaction with the issuer after a prior hostile bidder has commenced 
a tender offer be able to use the presumption?

III Cost-Benefit Analysis

    U.S. residents holding stock in foreign private issuers are often 
excluded from tender offers \141\ and rights offerings for the foreign 
private issuers' securities because of conflicts between U.S. and 
foreign regulation of these offers. As a result, U.S. security holders 
of foreign private issuers are unable to benefit from any premium 
offered in a tender offer \142\ or are unable to purchase additional 
securities at a discount in a rights offering.
---------------------------------------------------------------------------

    \141\ The term ``tender offer'' includes both cash tender offers 
and exchange offers. The term ``exchange offer'' means a tender 
offer where securities are being issued as consideration.
    \142\ See supra, Note 24.
---------------------------------------------------------------------------

    We know of numerous tender offers that have excluded U.S. security 
holders. For example, based on a random sample of 31 tender offers out 
of a total of 171 tender offer or merger proposals handled by the U.K. 
Takeover Panel (the entity that regulates tender offers in the U.K.) in 
1997, when the U.S. ownership of the target was less than 15 percent 
(30 offers), bidders excluded U.S. security holders. When the U.S. 
ownership was significant, such as 38 percent (one offer), the bidder 
included U.S. security holders. Similarly, in rights offerings, foreign 
private issuers routinely issue cash in lieu of rights to U.S. security 
holders.\143\
---------------------------------------------------------------------------

    \143\ Investors holding ADRs through Bank of New YOrk received 
cash in lieu of rights in 29 of the 37 rights offerings from 1994 to 
1996. Investors holding ADRs through Morgan Guaranty Trust Company 
of New York also were frequently cashed out in rights offerings. In 
1996, these investors received cash in lieu of rights in 23 of the 
24 rights offers. In four of such cases, however, the proceeds were 
too small to distribute. Of the 23, six of the offers permitted 
qualified institutional buyers to participate in the rights 
offerings.
---------------------------------------------------------------------------

    The proposed rules and rule amendments would exempt from the tender 
offer and registration rules cross-border tender offers, exchange 
offers, rights offerings and business combinations when U.S. ownership 
of the foreign company is not significant (i.e., 10 percent for tender 
offers (the ``Tier I exemption'') and five percent for exchange offers, 
rights offerings and business combinations). When the U.S. ownership in 
the foreign company exceeds 10 percent, but is not greater than 40 
percent, the proposal also includes exemptions from certain of the 
Commission's tender offer rules (the ``Tier II exemption'').
    The purpose of these exemptions is to facilitate including U.S. 
security holders of foreign companies in these types of transactions by 
removing regulatory barriers. The proposed rules and rule amendments 
are intended to reduce the registration requirements of cross-border 
transactions. We expect the exemptions to reduce the costs and burdens 
of extending these types of offers to U.S. security holders. U.S. 
security holders of foreign companies will benefit by being able to 
participate in these types of transactions.
    Entities relying on the Tier I exemption would benefit from the 
proposed rules because they would not need to comply with the 
procedural and filing requirements of the tender offer rules. 
Specifically, an acquiror would not need to file Schedules 13E-4 or 
14D-1. In lieu of these forms, an acquiror would submit to the 
Commission Form CB, which is significantly less burdensome.\144\ Also, 
a non-U.S. acquiror would file a Form F-X contemporaneously with the 
Form CB.\145\
---------------------------------------------------------------------------

    \144\ See Section V., infra, for a description of the Form CB.
    \145\ Form F-X is used by certain non-U.S. entities to appoint 
an agent for service of process in the United States.
---------------------------------------------------------------------------

    Similarly, entities relying on Rules 801 or 802 in connection with 
a rights offer or exchange offer would benefit from the proposed rules 
because they would not need to comply with the registration 
requirements of the federal securities laws. Specifically, an issuer 
would not need to file the registration forms, including Forms S-1, S-
2, S-3, S-4, F-1, F-2, F-3 and F-4. Instead of these forms, an issuer 
would submit to the Commission Form CB and Form F-X (if the issuer is a 
non-U.S. entity), which, as discussed above, are significantly less 
burdensome.
    Entities relying on the Tier I and Tier II exemptions would also 
benefit from the proposals because they would not need to comply with 
all of the procedural requirements of the Commission's tender offer 
rules.\146\ For example, in the Tier I exemption, an acquiror would be 
exempt from all of the procedural requirements of the U.S. tender offer 
rules including those relating to the duration of the offer and 
withdrawal rights.
---------------------------------------------------------------------------

    \146\ We cannot quantify the cost savings that would result from 
not imposing the Commission's procedural requirements.
---------------------------------------------------------------------------

    In the Tier II exemption, an acquiror would receive certain limited 
relief from the Commission's tender offer rules, including withdrawal 
rights. The Tier II exemption provides relief from the U.S. tender 
offer rules that are common impediments to extending offers to U.S. 
security holders. However, an acquiror relying on the Tier II exemption 
would have to comply with the remaining tender offer provisions. These 
provisions include, among others, the following: (1) Keeping the offer 
open 20

[[Page 69154]]

business days; (2) filing a Schedule 13E-4 or 14D-1, as applicable; (3) 
disseminating the offering documents; and (4) offering withdrawal 
rights until the offer goes wholly unconditional. Although complying 
with these additional requirements may impose additional costs to 
cross-border tender offers, compliance would still be less burdensome 
than satisfying all the U.S. tender offer requirements. Because each 
foreign country's laws are different, we do not know the extent to 
which these additional requirements may conflict with foreign law. Thus 
we are unable to estimate the incremental cost, if any, of complying 
with these requirements.
    No specific data was provided in response to the Commission's 
original request in 1991 regarding the costs and benefits associated 
with the proposed amendments. We have information regarding several 
transactions that have excluded U.S. security holders. But since 
offerors do not file documents with the Commission when U.S. security 
holders are excluded, we do not have access to comprehensive data on 
the number of cross-border transactions that have excluded U.S. 
security holders. Further, if the transaction is a tender offer for 
securities that are not registered under Section 12 of the Exchange 
Act, and is subject only to Regulation 14E, there is no filing 
obligation. Therefore, we are unable to estimate the number of entities 
that will take advantage of the proposed exemptions. While we are 
unable to determine how many U.S. security holders will benefit from 
the proposed rules by being able to participate in cross-border tender, 
exchange and rights offerings, we believe that the proposed rules will 
benefit U.S. security holders by removing regulatory burdens to 
including U.S. security holders in these types of offers. To evaluate 
fully the benefits and costs associated with the proposed adoption of 
new Securities Act Rules 801 and 802, and Form CB, Trust Indenture Act 
Rule 4d-10, revisions to Securities Act Rule 144 and Form F-X, and 
revisions Exchange Act Rules 10b-13, 13e-4, 14d-1, 14e-1 and 14e-2, and 
Rule 30-1 of the Commission's Rules of Practice and Investigation, we 
request commenters to provide views and data as to the costs and 
benefits associated with these proposals. Specifically, we request data 
as to the number of entities who have excluded U.S. security holders 
due to conflicts between the U.S. and foreign regulation and how many 
entities would be eligible to take advantage of the exemptions. We ask 
that foreign regulators, foreign private issuers, their counsel and 
auditors provide views and data as to the costs and benefits associated 
with multijurisdictional tender offers under current law as compared to 
the costs and benefits under the proposed system.
    Section 23(a) of the Exchange Act \147\ requires us, in adopting 
rules under the Exchange Act, to consider the impact any rule would 
have on competition. We can not adopt any rule that would impose a 
burden on competition not necessary or appropriate in the public 
interest. Our preliminary view is that the proposed rules for cross-
border rights offerings, exchange offers, and tender offers would not 
have any anticompetitive effects. In fact, we believe the proposed 
rules will facilitate a variety of cross border transactions, thereby 
enhancing the efficiency of global competition for capital. We seek 
information on the impact of increased competition for capital for 
domestic companies as a result of an increase in securities offered 
into the United States by foreign companies. Also, to what extent would 
the benefit to U.S. investors offset the cost of any such increased 
competition for capital? We request comment on whether the proposals, 
if adopted, would have an adverse effect on competition or would impose 
a burden on competition that is neither necessary nor appropriate in 
furthering the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \147\15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

IV. Summary of Initial Regulatory Flexibility Analysis

    We have prepared an Initial Regulatory Flexibility Analysis 
(''IRFA'') in accordance with 5 U.S.C. 603 regarding the proposed 
rules. The IRFA notes that the proposed rules are intended primarily to 
facilitate tender and rights offerings for securities of foreign 
private issuers held by U.S. residents. The resulting reduction in the 
expense, time and effort of making such offerings will benefit U.S. 
security holders. These persons normally are excluded from such 
offerings. Entities that wish to extend these offers to U.S. security 
holders will also benefit. The IRFA discusses several alternatives to 
the proposed rules that we preliminary considered, including permitting 
registration of securities issued in rights offerings and exchange 
offers to be based on home country documents. However, as a preliminary 
matter, we believe that there is no less restrictive alternative to the 
proposed rule amendments that would serve the purpose of the tender 
offer and registration requirements of the federal securities laws. We 
did not identify alternatives to the proposed rules that are consistent 
with their objectives and our statutory authority. The proposed rules 
would not duplicate or conflict with any existing federal rule 
provisions.
    The proposed rules are limited to tender offers and exchange offers 
for the securities of foreign private issuers. But both foreign and 
domestic bidders, whatever their size, are eligible to use these 
exemptions. Only foreign private issuers are eligible to use the 
exemption for rights offerings. Small entities could rely on the 
proposed tender and exchange offer exemptions on the same basis as 
larger entities, provided that they meet the conditions for relying on 
them.
    We know of approximately 1,100 Exchange Act reporting companies, 
that are not investment companies, that currently satisfy the 
definition of ``small business'' under Rule 0-10. There are 
approximately 400 investment companies that satisfy the ``small 
business'' definition. We have no data to determine how many reporting 
or non-reporting small businesses may actually rely on the proposed 
rules, or may otherwise be impacted by the rule proposals. However, we 
believe that the proposed amendments will result in a substantial 
savings to entities (both small and large) that qualify for the 
exemptions. Qualifying entities will not have to comply with the tender 
offer and registration requirements of the U.S. securities laws.
    The IRFA notes that the proposed amendments would eliminate certain 
existing reporting requirements for entities conducting an exempt 
tender or exchange offer. Specifically, an acquiror would not need to 
file Schedules 13E-4 or 14D-1. Further, in a rights or exchange offer, 
an acquiror would not need to register the securities being issued. In 
place of these filing obligations, an acquiror relying on the proposed 
exemptions would submit, rather than file, Form CB. Form CB is merely a 
cover sheet that incorporates the offering documents sent to security 
holders pursuant to the requirements of the country in which the issuer 
is incorporated. Also, a non-U.S. acquiror would file a Form F-X 
contemporaneously with the Form CB.\148\ We believe Form CB and Form F-
X are significantly less burdensome to prepare than the current 
reporting requirements for tender and exchange offers. In addition, we 
believe it takes a

[[Page 69155]]

lesser degree of professional skill, including that of securities 
lawyers and accountants, to prepare a Form CB and Form F-X than to 
prepare a Schedule 13E-4, 14D-1 or a registration statement. In some 
cases, the professional skills required would include the ability to 
translate from a foreign language into English. We estimate that Form 
CB and Form F-X would take substantially less time to prepare than 
Schedule 14D-1, Schedule 13E-4, or Forms S-1, S-2, S-3, S-4, F-1, F-2, 
F-3 and F-4.\149\
---------------------------------------------------------------------------

    \148\ Form F-X is used by certain non-U.S. entities to appoint 
an agent for service of process in the United States.
    \149\ See Section V, infra.
---------------------------------------------------------------------------

    We encourage written comments on any aspect of the IRFA. We will 
consider any comments in preparing the Final Regulatory Flexibility 
Analysis if the proposed amendments are adopted. To obtain a copy of 
the IRFA, you may contact Laurie L. Green or Christina Chalk, in the 
Office of Mergers and Acquisitions, Division of Corporation Finance, 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549, at (202) 942-2920.
    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, we are also requesting information regarding the potential 
impact of the proposed rule on the economy on an annual basis. 
Commenters should provide empirical data to support their views.

V. Paperwork Reduction Act

    Some provisions of the proposed rules and rule amendments contain 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995 (the ``Act'') (44 U.S.C. 3501 et seq.). 
We have submitted our proposed revisions to the information collections 
required by these provisions to the Office of Management and Budget 
(``OMB'') for review in accordance with 44 U.S.C. 3507(a) and 5 CFR 
1320.11. The title for the collection of information is ``Form CB'' and 
revised ``Form F-X''.
    The proposed rules and rule amendments would exempt from the tender 
offer and registration rules cross-border tender offers, exchange 
offers, rights offerings and business combinations when U.S. ownership 
of the foreign company is not significant. The purpose of these 
exemptions is to facilitate including U.S. security holders of foreign 
companies in these types of transactions. The proposed rules and rule 
amendments are intended to reduce the regulations applicable to some 
cross-border transactions and therefore, are expected to reduce the 
existing collection of information requirements. The proposed 
amendments would eliminate certain existing reporting requirements for 
entities, including small entities, conducting an exempt tender or 
exchange offer. Specifically, an acquiror would not need to comply with 
Schedules 13E-4 or 14D-1. Further, in an exchange or rights offer, an 
acquiror would not need to file a registration statement registering 
the securities being issued.
    Proposed Rule 14d-1(c)(2)(i) requires bidders to disseminate any 
informational documents to U.S. holders in English. This may require 
some bidders to translate documents and thus imposes a burden.
    Proposed Rules 801(c)(4)(i) and 802(c)(3)(i) under the Securities 
Act and Rules 13e-4(h)(8)(2)(i), 14d-1(c)(2)(i) and 14e-2(d)(1) require 
that an entity conducting an exempt tender or rights offer in 
connection with a cross-border transaction pursuant to the proposed 
exemptions file Form CB. The collection of information would be 
necessary so that we can determine whether the transaction meets the 
eligibility requirements of the proposed exemptive rules. We also have 
to collect information to ensure that information about the transaction 
would be publicly available. Security holders would thus have the 
opportunity to make informed investment decisions, particularly since 
the transactions relate to potential changes in control.
    Form CB is a cover sheet that incorporates the offering documents 
sent to security holders pursuant to the requirements of the country in 
which the issuer is incorporated. Form CB also requires disclosure of 
the identity of the entity conducting the tender or rights offer. Form 
CB must be submitted to the Commission on the business day following 
the date the offering documents are sent to security holders in the 
home jurisdiction.
    Proposed Form CB also requires that a non-U.S. entity must file a 
consent to service of process on Form F-X. Form F-X is used by certain 
non-U.S. entities to appoint an agent for service of process in the 
United States. The proposed revisions to Form F-X would add non-U.S. 
entities submitting a Form CB to the list of entities currently 
required to file Form F-X. This collection of information is necessary 
to provide investors with information concerning the U.S. person 
designated as agent for service of process.
    For the tender and exchange offer exemptions, domestic and foreign 
entities wishing to engage in cross-border transactions will likely be 
the respondents to the collection of information requirement. Also, the 
company that is the target of the tender offer will be required to 
respond to the collection of information requirements. With respect to 
rights offerings, the likely respondents would be foreign private 
issuers conducting rights offerings. We have no data to help us 
determine how many entities may actually rely on the proposed 
exemptions, since relying on the exemptions is voluntary. We estimate 
that 824 Forms CB would be filed each year if the proposals were 
adopted.\150\ We estimate that it would impose an estimated burden of 2 
hours \151\ for a total burden of 1648 hours. We estimate that half of 
the entities submitting Form CB would be foreign entities that would be 
required to file Forms F-X (412) each year if the proposals were 
adopted. Form F-X currently is estimated to impose an estimated burden 
of 2 hours for a total burden of 824 hours.
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    \150\ In 1997 there were 1,648 cross-border mergers and 
acquisitions. See supra, Note 23. We assume half those transactions 
would be eligible for the Tier I exemption and/or Rules 801 and 802 
if extended to U.S. holders. Based on these assumptions, we estimate 
that Form CB will be filed 824 times.
    \151\ Since Form CB is substantially similar to Schedules 14D-1F 
and 13E-4F (the forms prescribed under the MJDS), the estimated 
burden hours is the same as the amount determined for those forms. 
This calculation does not include the potential time needed to 
translate the document into English.
---------------------------------------------------------------------------

    The Commission believes that Forms CB and F-X would be 
significantly less burdensome to prepare than the current reporting 
requirements for tender and exchange offers. As discussed above, it is 
estimated that Forms CB and F-X would impose an estimated burden of two 
hours per Form. This contrasts with Schedule 14D-1 which has an 
estimated burden of 354 hours per form, Schedule 13E-4 which has an 
estimated burden of burden of 232 hours per form, and Forms S-1, S-2, 
S-3, S-4, F-1, F-2, F-3 and F-4 which have an estimated burden of 
1,239, 470, 397, 1,233, 1,868, 1,397, 166, and 1,308 hours per form, 
respectively.
    A bidder or issuer must respond to the described information 
collections in order to rely on the proposed exemptions. The 
information will not be kept confidential. Unless a currently valid OMB 
control number is displayed, an agency may not sponsor, conduct or 
require response to an information collection.
    In accordance with 44 U.S.C. 3506(c)(2)(B), we solicit comments on 
the following:
    (1) Whether the proposed collection of information is necessary for 
the proper performance of the functions of the agency, including 
whether the information shall have practical utility;

[[Page 69156]]

    (2) On the accuracy of the Commission's estimate of the burden of 
the proposed collection of information;
    (3) On the quality, utility and clarity of the information to be 
collected; and
    (4) whether the burden of collection of information on those who 
are to respond, including through the use of automated collection 
techniques or other forms of information technology, may be minimized.
    If you would like to submit comments on the collection of 
information requirements, please direct them to the Office of 
Management and Budget, Attention: Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with reference to File No. S7-29-98. The OMB must 
make a decision concerning the collection of information between 30 and 
60 days after publication, so a comment to OMB is best assured of 
having its full effect if OMB receives it within 30 days of 
publication.

VI. Request for Comments

    If you would like to submit written comments on the proposals, to 
suggest additional changes, or to submit comments on other matters that 
might have an impact on the proposals, we encourage you to do so. 
Besides the specific questions we asked in this release, we also 
solicit comments on the usefulness of the proposals to foreign private 
issuers, foreign private issuers who are reporting companies with the 
Commission, registrants and the marketplace at large. We also encourage 
the submission of written comments on any aspect of the initial 
regulatory flexibility analysis. We will consider any written comments 
we receive in preparing the final regulatory flexibility analysis if 
the proposed rules are adopted.
    We believe that the proposals, if adopted, would promote 
efficiency, competition, and capital formation. However, we solicit 
comments on whether the proposals would promote efficiency, 
competition, and capital formation.
    Please send three copies of your comments to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, 
Washington, DC 20549. You may also submit your comments electronically 
at the following E-mail address: [email protected]. All comment 
letters should refer to File No. S7-29-98; this file number should be 
included in the subject line if E-mail is used. Comment letters can be 
inspected and copied in the public reference room at 450 Fifth Street, 
NW, Washington, DC. We will post electronically submitted comments on 
our Internet Web site (http://www.sec.gov).

VII. Statutory Basis of Proposals

    We are proposing these revisions pursuant to Sections 3(b), 7, 8, 
10, 19 and 28 of the Securities Act, Sections 12, 13, 14, 23 and 36 of 
the Exchange Act, and Section 304 of the Trust Indenture Act.

List of Subjects

17 CFR Part 200

    Authority delegations (Government agencies).

17 CFR Parts 230, 239, 240, 249, and 260

    Reporting and recordkeeping requirements, Securities.

Text of Proposals

    In accordance with the foregoing, we are proposing to amend Title 
17, Chapter II of the Code of Federal Regulations as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND 
REQUESTS

    1. The authority citation for Part 200 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 78mm, 79t, 
77sss, 80a-37, 80b-11, unless otherwise noted.
* * * * *
    2. By amending Sec. 200.30-1 by adding paragraph (e)(16) to read as 
follows:


Sec. 200.30-1  Delegation of authority to Director of Division of 
Corporation Finance.

* * * * *
    (e) * * *
    (16) To grant exemptions from:
    (i) Tender offer provisions of Sections 13(e) and 14(d)(1) through 
14(d)(7) of the Exchange Act (15 U.S.C. 78m(e) and 78n(d)(1) through 
78n(d)(7)), Rule 13e-3 (Sec. 240.13e-3 of this chapter) and Rule 13e-4 
(Sec. 240.13e-4 of this chapter), Regulation 14D (Secs. 240.14d-1 
through 240.14d-10 of this chapter) and Schedules 13E-3, 13E-4, 14D-1, 
14D-9 (Secs. 240.13e-100, 240.13e-101, 240.14d-100 and 240.14d-101 of 
this chapter) thereunder, pursuant to Sections 14(d)(5) and 14(d)(8)(C) 
of the Exchange Act (15 U.S.C. 78n(d)(5) and 78(d)(8)(C)), and Rule 
14d-10(e) (Sec. 240.14d-10(e) of this chapter); and
    (ii) The tender offer provisions of Rule 14e-1 and 14e-2 of 
Regulation 14E (Sec. 240.14e-1 and 240.14e-2 of this chapter) pursuant 
to Section 36(a) of the Exchange Act (15 U.S.C. 78mm(a)).
* * * * *
    3. By amending Sec. 200.30-3 to add paragraph (a)(65) to read as 
follows:


Sec. 200.30-3  Delegation of authority to Director of Division of 
Market Regulation.

* * * * *
    (a) * * *
    (65) Pursuant to Section 36(a) of the Act, 15 U.S.C. 78mm(a), to 
grant exemptions from the tender offer provisions of Rule 14e-1 of 
Regulation 14E (Sec. 240.14e-1 of this chapter).
* * * * *

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    4. The authority citation for Part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77r, 77s, 77sss, 
78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-24, 80a-
28, 80-29, 80a-30, and 80a-37, unless otherwise noted.
* * * * *
    5. By amending Sec. 230.144 to add paragraphs (a)(3)(vi) and (vii) 
to read as follows:


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

* * * * *
    (a) * * *
    (3) * * *
    (vi) Securities acquired in a transaction made in compliance with 
Sec. 230.801; or
    (vii) Securities acquired in a transaction made in compliance with 
Sec. 230.802 if the securities that are tendered or surrendered in the 
Sec. 230.802 transaction are ``restricted securities'' within the 
meaning of this Sec. 230.144(a)(3).
* * * * *
    6. By adding Secs. 230.800 through 230.802 and an undesignated 
center heading to read as follows:
Exemptions for Cross-Border Rights Offerings, Exchange Offerings, and 
Business Combinations

General notes to Secs. 230.800, 230.801 and 230.802

    1. Sections 230.801 and 230.802 relate only to the applicability 
of the Act (15 U.S.C. 77e) and not to the applicability of the anti-
fraud, civil liability or other provisions of the federal securities 
laws.
    2. The exemptions provided by Sec. 230.801 and Sec. 230.802 are 
not available for any securities transaction or series of 
transactions that technically complies with Sec. 230.801 and 
Sec. 230.802 but are part of a plan or scheme to evade the 
registration provisions of the Act. In those cases, the issuer must 
register the offer and sale of the securities.
    3. An issuer who relies on Sec. 230.801 or an offeror who relies 
on Sec. 230.802 must still comply with the securities registration 
or broker-dealer registration requirements of the Securities 
Exchange Act of 1934 (15 U.S.C.

[[Page 69157]]

78a et seq.) and any other applicable provisions of the federal 
securities laws.
    4. An issuer who relies on Sec. 230.801 or an offeror who relies 
on Sec. 230.802 must still comply with any applicable state laws 
relating to the offer and sale of securities.
    5. Attempted compliance with Sec. 230.801 or Sec. 230.802 does 
not act as an exclusive election; an issuer making an offer or sale 
of securities in reliance on Sec. 230.801 or Sec. 230.802 may also 
rely on any other applicable exemption from the registration 
requirements of the Act.
    6. Section 230.801 and Sec. 230.802 provide exemptions only for 
the issuer of the securities and not for any affiliate of that 
issuer or for any other person for resales of the issuer's 
securities. These sections provide exemptions only for the 
transaction in which the issuer or other person offers or sells the 
securities, not for the securities themselves. Securities acquired 
in a Sec. 230.801 or Sec. 230.802 transaction may be resold in the 
United States only if they are registered under the Act or an 
exemption from registration is available.
    7. Section 230.801 does not apply to a rights offering by an 
investment company registered or required to be registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.). Section 
230.802 does not apply to exchange offers or business combinations 
by an investment company registered or required to be registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.).
    8. Unregistered offers and sales made outside the United States 
will not affect contemporaneous offers and sales made in compliance 
with Sec. 230.801 or Sec. 230.802. A transaction that complies with 
Sec. 230.801 or Sec. 230.802 will not be integrated with offerings 
exempt under other provisions of the Act, even if both transactions 
occur at the same time.
    9. Securities acquired in a rights offering under Sec. 230.801 
are ``restricted securities'' within the meaning of 
Sec. 230.144(a)(3). If the securities that are the subject of the 
exchange offer or business combination are restricted securities, 
securities issued in a transaction under Sec. 230.802 are also 
restricted securities.


Sec. 230.800  Definitions for Secs. 230.800, 230.801 and 230.802.

    The following definitions apply in Secs. 230.800, 230.801 and 
230.802.
    Business combination. Business combination means a statutory 
amalgamation, merger, arrangement or other reorganization requiring the 
vote of shareholders of one or more of the participating companies. It 
also includes a statutory short form merger that does not require a 
vote of shareholders.
    Commencement. Commencement means the same as in Sec. 240.14d-2(a) 
of this chapter.
    Equity security. Equity security means the same as in 
Sec. 240.3a11-1 of this chapter, but does not include:
    (1) Any debt security that is convertible into an equity security, 
with or without consideration; or
    (2) Any debt security that includes a warrant or right to subscribe 
to or purchase an equity security; or
    (3) Any such warrant or right; or
    (4) Any put, call, straddle, or other option or privilege that 
gives the holder the option of buying or selling a security but does 
not require the holder to do so.
    Exchange offer. Exchange offer means a tender offer in which 
securities are issued as consideration.
    Foreign private issuer. Foreign private issuer means the same as in 
Sec. 230.405 of Regulation C.
    Foreign target company. Foreign target company means any foreign 
private issuer whose securities are the subject of the exchange offer 
or business combination.
    Home jurisdiction. Home jurisdiction means both the jurisdiction of 
the issuer's incorporation, organization or chartering and the 
principal foreign market where the foreign private issuer's securities 
are listed or quoted.
    Rights offering. Rights offering means offers and sales for cash of 
equity securities where:
    (1) The issuer grants the existing security holders of a particular 
class of equity securities (including holders of depositary receipts 
evidencing those securities) the right to purchase or subscribe for 
additional securities of that class; and
    (2) The number of additional shares an existing security holder may 
purchase initially is in proportion to the number of securities he or 
she holds of record on the record date for the rights offering. If an 
existing security holder holds depositary receipts, the proportion must 
be calculated as if the underlying securities were held directly.
    U.S. holder. U.S. holder means any person whose address appears on 
the records of the issuer of the subject securities, or any voting 
trustee, depositary, share transfer agent, or any person acting in a 
similar capacity as being located in the United States. Unless 
information provided by the depositary demonstrates otherwise, holders 
of American Depositary Receipts shall be counted as U.S. holders of the 
underlying securities for the purposes of this section.


Sec. 230.801  Exemption in connection with a rights offering.

    A rights offering is exempt from the provisions of Section 5 of the 
Act (15 U.S.C. 77e), provided that the following conditions are 
satisfied:
    (a) Conditions--(1) Eligibility of issuer. The issuer is a foreign 
private issuer on the date the securities are first offered to U.S. 
holders.
    (2) Limitation on U.S. ownership. U.S. holders hold no more than 
five percent of the outstanding class of securities that is the subject 
of the rights offering on the date the securities are first offered to 
U.S. holders. For purposes of calculating the percentage of outstanding 
securities held by U.S. holders, exclude from the total number of 
shares outstanding shares held by non-U.S. persons who hold more than 
10 percent of the subject securities.
    (3) Equal treatment. The issuer permits U.S. holders to participate 
in the rights offering on terms at least as favorable as those offered 
the other holders of the securities that are the subject of the offer.
    (4) Informational documents. (i) If the issuer publishes or 
otherwise disseminates an informational document to the holders of the 
securities in connection with the rights offering, the issuer must 
provide that informational document to the Commission on Form CB 
(Sec. 239.800 of this chapter) by the first business day after 
publication or dissemination.
    (ii) The issuer must disseminate by mail any informational document 
to U.S. holders, in English, that is published or provided to security 
holders in the issuer's home jurisdiction.
    (5) Eligibility of securities. The securities offered in the rights 
offering are equity securities of the same class as the securities held 
by the offerees in the United States.
    (6) Limitation on transferability of rights. The terms of the 
rights prohibit transfers by U.S. holders except in accordance with 
Regulation S (Sec. 230.901 through Sec. 230.905).
    (b) Legends. The following legend is included on the cover page of 
any informational document the issuer disseminates to U.S. holders:

    This rights offering is made for the securities of a foreign 
company. The offer is subject to the disclosure requirements of a 
foreign country that are different from those of the United States. 
Financial statements included in the document, if any, have been 
prepared in accordance with foreign accounting standards that may 
not be comparable to the financial statements of United States 
companies.
    It may be difficult for you to enforce your rights and any claim 
you may have arising under the federal securities laws, since the 
issuer is located in a foreign country, and some or all of its 
officers and directors may be residents of a foreign country. You 
may not be able to sue the foreign company or its officers or 
directors in a foreign court for violations of the U.S. securities 
laws. It may be difficult to compel a foreign company and its 
affiliates to subject themselves to a U.S. court's judgment.

[[Page 69158]]

Sec. 230.802  Exemption for offerings in connection with an exchange 
offer or business combination for the securities of foreign private 
issuers.

    Offers and sales in any exchange offer for a class of securities of 
a foreign private issuer, or any exchange of securities for the 
securities of a foreign private issuer in any business combination are 
exempt from the provisions of Section 5 of the Act (15 U.S.C. 77e) if 
they satisfy the following conditions:
    (a) Conditions to be met. (1) Limitation on U.S. ownership. (i) 
U.S. holders of the foreign target company must hold no more than five 
percent of the securities that are the subject of the transaction as of 
the commencement of the exchange offer or solicitation for a business 
combination.
    (ii) In the case of a business combination in which the securities 
are to be issued by a successor registrant, U.S. holders will hold no 
more than five percent of the class of securities of the successor 
registrant, as if measured immediately after completion of the business 
combination.
    (iii) For purposes of calculating the percentage of outstanding 
securities held by U.S. holders, exclude from the total number of 
shares outstanding shares held by non-U.S. persons who hold more than 
10 percent of the subject securities.
    (2) Equal treatment. The issuer must permit U.S. holders to 
participate in the exchange offer or business combination on terms at 
least as favorable as those offered any other holder of the subject 
securities; provided:
    (i) Blue sky registration. If a U.S. state or jurisdiction requires 
registration or qualification of the offer or sale of securities in 
connection with the exchange offer or business combination, and the 
issuer does not so register or qualify the offer and sale, the issuer 
may offer security holders in such state or jurisdiction a cash 
alternative. If the issuer does not include a cash-only alternative in 
any other jurisdiction, it need not extend the offer in any state or 
jurisdiction that requires registration or qualification.
    (ii) Disparate tax treatment. If the issuer offers ``loan notes'' 
to offer sellers tax advantages not available in the United States and 
these notes are not listed on any organized securities market or 
registered under the Securities Act, the loan notes need not be offered 
to U.S. holders.
    (3) Informational documents. (i) If the issuer publishes or 
otherwise disseminates an informational document to the holders of the 
securities in connection with the exchange offer or business 
combination, the issuer must provide that informational document to the 
Commission on Form CB (Sec. 239.800 of this chapter) by the first 
business day after publication or dissemination.
    (ii) The issuer must disseminate any informational document to U.S. 
holders, in English, on a comparable basis as provided to security 
holders in the issuer's home jurisdiction.
    (iii) If the issuer disseminates solely by publication in its home 
jurisdiction, the issuer must publish the information in the United 
States in a manner reasonably calculated to inform U.S. holders of the 
offer.
    (b) Legends. The following legend must be included on the cover 
page of any informational document the issuer publishes or disseminates 
to U.S. holders:

    This exchange offer or business combination is made for the 
securities of a foreign company. The offer is subject to disclosure 
requirements of a foreign country that are different from those of 
the United States. Financial statements included in the document, if 
any, have been prepared in accordance with foreign accounting 
standards that may not be comparable to the financial statements of 
United States companies.
    It may be difficult for you to enforce your rights and any claim 
you may have arising under the federal securities laws, since the 
issuer is located in a foreign country, and some or all of its 
officers and directors may be residents of a foreign country. You 
may not be able to sue a foreign company or its officers or 
directors in a foreign court for violations of the U.S. securities 
laws. It may be difficult to compel a foreign company and its 
affiliates to subject themselves to a U.S. court's judgment.
    You should be aware that the issuer may purchase securities 
otherwise than pursuant to the exchange offer, such as open market 
or privately negotiated purchases.

    (c) For exchange offers conducted by third parties without the 
cooperation of the issuer of the subject securities, the issuer of the 
subject securities will be presumed to be a foreign private issuer and 
U.S. holders will be presumed to hold five percent or less of the 
outstanding subject securities, unless:
    (1) The aggregate trading volume of the subject class on national 
securities exchanges in the United States, on the Nasdaq market or on 
the OTC market, as reported to the NASD, exceeds five percent of the 
worldwide aggregate trading volume of the subject securities over the 
12-calendar-month period before commencement of the offer (or if 
commenced in response to a prior offer, over the 12-calendar-month 
period prior to the commencement of the initial offer);
    (2) The most recent annual report or annual information filed or 
submitted by the issuer with securities regulators of the home 
jurisdiction or with the Commission indicates that U.S. holders hold 
more than five percent of the outstanding subject class of securities; 
or
    (3) The offeror knows, or has reason to know, that U.S. ownership 
exceeds five percent of such securities.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    7. The authority citation for part 239 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77sss, 78c, 
78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 
79l, 79m, 79n, 79q, 79t, 80a-8, 80a-24, 80a-29, 80a-30 and 80a-37, 
unless otherwise noted.
* * * * *
    8. By amending Form F-X (referenced in Sec. 239.42) General 
Instruction 1 to add paragraph (g) and to revise Item II.F(b) to read 
as follows:

    [Note: Form F-X does not and this amendment will not appear in 
the Code of Federal Regulations.]

Form F-X

General Instructions
    1. Form F-X shall be filed with the Commission:
* * * * *
    (g) by any non-U.S. issuer providing Form CB to the Commission in 
connection with a tender offer, rights offering or business 
combination.
* * * * *
    II. * * *
    F. * * *
    (b) the use of Form F-8, Form F-80 or Form CB stipulates and agrees 
to appoint a successor agent for service of process and file an amended 
Form F-X if the Filer discharges the Agent or the Agent is unwilling or 
unable to accept service on behalf of the Filer;
* * * * *
    9. By adding Sec. 239.800 and Form CB to read as follows:


Sec. 239.800  Form CB, report of sales of securities in connection with 
an exchange offer or a rights offering.

    This Form shall be used to report sales of securities in connection 
with a rights offering in reliance upon Sec. 230.801 of this chapter 
and to report sales of securities in connection with an exchange offer 
or business combination in reliance upon Sec. 230.802 of this chapter.

    [Note: Form CB does not appear in the Code of Federal 
Regulations. Form CB is attached as Appendix A.]

[[Page 69159]]

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    10. The authority citation for Part 240 continues to read in part 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77eee, 
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d 78f, 78i, 78j, 78j-1, 78k, 78k-
1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d), 
78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and 
80b-11, unless otherwise noted.
* * * * *
    11. By amending Sec. 240.10b-13 to redesignate paragraph (d) as 
paragraph (f) and to add new paragraphs (d) and (e) to read as follows:


Sec. 240.10b-13  Prohibiting other purchases during tender offer or 
exchange offer.

* * * * *
    (d) The provisions of this section shall not apply to the purchase, 
or arrangement to purchase, of a security of the same class as that 
which is the subject of a cash tender offer or exchange offer (or of 
any other security which is immediately convertible into or 
exchangeable for such security) if the following conditions are 
satisfied:
    (1) The cash tender offer or exchange offer is exempt under 
Sec. 240.13e-4(h)(8) or Sec. 240.14d-1(c);
    (2) The offering documents furnished to U.S. holders prominently 
disclose the possibility of any purchases, or arrangements to purchase, 
or the intent to make such purchases;
    (3) The bidder discloses information in the United States about any 
such purchases in a manner comparable to the disclosure made in the 
home jurisdiction, as defined in Sec. 240.13e-4(i)(3); and
    (4) The purchases comply with the applicable tender offer laws and 
regulations of the home jurisdiction.
    (e) The provisions of this section shall not apply to the purchase, 
or arrangement to purchase, of a security of the same class as that 
which is the subject of a cash tender offer or exchange offer (or of 
any other security which is immediately convertible into or 
exchangeable for such security) if the following conditions are 
satisfied:
    (1) The issuer of the subject security is a foreign private issuer, 
as defined in Sec. 240.3b-4(c);
    (2) The offer is subject to the United Kingdom's City Code on 
Takeovers and Mergers;
    (3) The purchase or arrangement to purchase is effected by a 
connected exempt market maker or a connected exempt principal trader, 
as those terms are used in the United Kingdom's City Code on Takeovers 
and Mergers;
    (4) The connected exempt market maker or the connected exempt 
principal trader complies with the applicable provisions of the United 
Kingdom's City Code on Takeovers and Mergers; and
    (5) The offer documents disclose the identity of the connected 
exempt market maker or the connected exempt principal trader and 
describe how U.S. security holders can obtain, upon request, 
information regarding market making or principal purchases by such 
market maker or principal trader to the extent that this information is 
required to be made public in the United Kingdom.
* * * * *
    12. By amending Sec. 240.13e-3 to add paragraph (g)(6) to read as 
follows:


Sec. 240.13e-3  Going private transactions by certain issuers or their 
affiliates.

* * * * *
    (g) Exceptions. * * *
* * * * *
    (6) Any tender offer or business combination made in compliance 
with Sec. 230.802 of this chapter, Sec. 240.13e-4(h) or Sec. 240.14d-
1(c).
    13. By amending Sec. 240.13e-4 to redesignate paragraph (h)(8) as 
(h)(9) and to add new paragraphs (h)(8) and (i) to read as follows:


Sec. 240.13e-4  Tender offers by issuers.

* * * * *
    (h) * * *
    (8) Cross-border tender offers. Any issuer tender offer (including 
any exchange offer) by a foreign private issuer, if 10 percent or less 
of the outstanding class of securities that is the subject of the 
tender offer are held of record by U.S. holders and the following 
additional conditions are satisfied. For purposes of calculating the 
percentage of outstanding securities held by U.S. holders, exclude from 
the total number of shares outstanding shares held by non-U.S. persons 
who hold more than 10 percent of the subject securities:
    (i) The issuer must permit U.S. holders to participate in the offer 
on terms at least as favorable as those offered any other holder of the 
same class of securities that is the subject of the offer, however:
    (A) Registered exchange offers. If the issuer offers securities 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and 
a cash-only alternative, the issuer must offer only the cash 
alternative to security holders in any state or jurisdiction that 
prohibits the offer and sale of the securities after the issuer has 
made a good faith effort to register or qualify the offer and sale of 
securities in that state or jurisdiction. If the issuer does not 
include a cash-only alternative in any other jurisdiction, the issuer 
need not extend the offer to security holders in those states or 
jurisdictions that prohibits the offer and sale of the securities.
    (B) Exempt exchange offers. If the issuer offers securities exempt 
from registration under the Securities Act of 1933 (15 U.S.C. 77a et 
seq.) and a cash-only alternative, the issuer must offer only the cash 
alternative to security holders in any state in which the statutes or 
regulations do not provide a corresponding exemption from registration 
or qualification. When a cash-only alternative is not offered to 
security holders in any other state or jurisdiction, the issuer need 
not extend the offer to security holders in those states or 
jurisdictions that require registration or qualification.
    (C) Disparate tax treatment. If the issuer offers ``loan notes'' 
solely to offer sellers tax advantages not available in the United 
States and these notes are not listed on any organized securities 
market nor registered under the Securities Act of 1933 (15 U.S.C. 77a 
et seq.), the loan notes need not be offered to U.S. holders.
    (ii) Dissemination and filing. (A) If the issuer publishes or 
otherwise disseminates an informational document, the issuer must 
provide that informational document to the Commission on Form CB 
(Sec. 249.480 of this chapter). Form CB must be provided to the 
Commission no later than the next business day after publication or 
dissemination.
    (B) The issuer must disseminate any informational document to U.S. 
holders, in English, on a comparable basis as provided to security 
holders in the home jurisdiction.
    (C) If the issuer disseminates solely by publication in its home 
jurisdiction, the issuer must publish the information in the United 
States in a manner reasonably calculated to inform U.S. holders of the 
offer.
    (iii) For purposes of this paragraph (h)(8):
    (A) The issuer must include securities underlying American 
Depositary Shares that are exchangeable or convertible for such 
securities in determining the amount of securities outstanding of the 
class that is the subject of the offer, as well as, the percentage of 
the subject class of securities held of record by U.S. holders.
    (B) If an issuer submits Form CB (Sec. 249.480 of this chapter) 
during an ongoing tender or exchange offer for securities of the class 
subject to the offer, the issuer must calculate the percentage of the 
class held by U.S.

[[Page 69160]]

holders as of the same date used by the initial offeror.
    (C) Home jurisdiction means both the jurisdiction of the issuer's 
incorporation, organization or chartering and the principal foreign 
market where the issuer's securities are listed or quoted.
    (D) U.S. holder means any person whose address appears on the 
records of the issuer of the subject securities, or any voting trustee, 
depositary, share transfer agent, or any person acting in a similar 
capacity as being located in the United States. Unless information 
provided by the depositary demonstrates otherwise, holders of American 
Depositary Receipts shall be counted as U.S. holders of the underlying 
securities for the purposes of this section.
    (iv) An investment company registered or required to be registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) may 
not use this paragraph (h)(8).
* * * * *
    (i) Cross-border tender offers. Any issuer tender offer that meets 
the conditions in paragraph (i)(1) of this section shall be entitled to 
the exemptive relief specified in paragraph (i)(2) of this section:
    (1) Conditions. (i) The issuer is a foreign private issuer as 
defined in Sec. 240.3b-4 and is not an investment company registered or 
required to be registered under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.);
    (ii) U.S. security holders do not hold of record more than 40 
percent of the class of securities sought in the offer. For purposes of 
calculating the percentage of outstanding securities held by U.S. 
holders, exclude from the total number of shares outstanding shares 
held by non-U.S. affiliates who hold more than 10 percent of the 
subject securities; and
    (iii) The issuer complies with all applicable U.S. tender offer 
laws and regulations, other than those for which an exemption has been 
provided in paragraph (i)(2) of this section.
    (2) Exemptions. (i) Withdrawal rights. Any issuer tender offer 
meeting the conditions of paragraph (i)(1) of this section is exempt 
from the provisions of paragraph (f)(2) of this section. Withdrawal 
rights may terminate before the expiration of the offer if the offer is 
for all shares and, if:
    (A) All conditions to the offer have been satisfied or waived 
before the termination of withdrawal rights; except that, if it is 
impracticable to determine whether the minimum condition to the offer 
has been met at the expiration of the offer because of the home 
jurisdiction practice of tendering to multiple depositaries, the issuer 
may terminate withdrawal rights while determining whether the minimum 
condition has been satisfied. If the issuer determines that the minimum 
condition has not been satisfied and extends the offer instead of 
returning the tendered shares, withdrawal rights must be extended 
during that additional offering period;
    (B) All minimum time periods required by this section and 
Sec. 240.14e-1 through Sec. 240.14e-7 (Regulation 14E) have been 
satisfied;
    (C) The issuer extends withdrawal rights during all minimum time 
periods required by this section and Sec. 240.14e-1 through 
Sec. 240.14e-7 (Regulation 14E);
    (D) When withdrawal rights terminate, the issuer immediately 
accepts and promptly pays for all securities previously tendered upon 
termination of withdrawal rights; and
    (E) The issuer immediately accepts and promptly pays for all 
securities tendered after the termination of withdrawal rights.
    (ii) Equal treatment--loan notes. If the issuer offers loan notes 
solely to offer sellers tax advantages not available in the United 
States and these notes are not listed on any organized securities 
market nor registered under the Securities Act (15 U.S.C. 77a et seq.), 
the loan notes need not be offered to U.S. holders, notwithstanding 
paragraphs (f)(8) and (h)(9) of this section.
    (iii) Equal treatment--separate U.S. and foreign offers. 
Notwithstanding the provisions of paragraphs (f)(8) and (h)(9) of this 
section, an issuer conducting an issuer tender offer meeting the 
conditions of paragraph (i)(1) of this section may separate the offer 
into two offers: one offer made only to U.S. holders and another offer 
made only to non-U.S. holders. The offer to U.S. holders must be made 
on terms at least as favorable as those offered any other holder of the 
same class of securities that is the subject of the tender offer.
    (3) For purposes of this paragraph (i):
    (i) The issuer must include securities underlying American 
Depositary Shares that are exchangeable or convertible for such 
securities in determining the amount of securities outstanding of the 
class that is the subject of the offer, as well as, the percentage of 
the subject class of securities held of record by U.S. holders.
    (ii) If an issuer commences an issuer tender offer during an 
ongoing tender or exchange offer for securities of the same class 
subject to the offer, the issuer must calculate the percentage of the 
class held by U.S. holders as of the same date used by the initial 
offeror.
    (iii) Home jurisdiction means both the jurisdiction of the issuer's 
incorporation, organization or chartering and the principal foreign 
market where the issuer's securities are listed or quoted.
    (iv) U.S. holder means any person whose address appears on the 
records of the issuer of the subject securities, or any voting trustee, 
depositary, share transfer agent, or any person acting in a similar 
capacity as being located in the United States. Unless information 
provided by the depositary demonstrates otherwise, holders of American 
Depositary Receipts shall be counted as U.S. holders of the underlying 
securities for the purposes of this section.
    14. By amending Sec. 240.14d-1 to redesignate paragraphs (c), (d), 
(e), and (f) as paragraphs (e), (f), (g) and (h), and to add new 
paragraphs (c) and (d) and Notes thereto to read as follows:


Sec. 240.14d-1  Scope of and definitions applicable to Regulations 14D 
and 14E.

* * * * *
    (c) Any tender offer for the securities of a foreign private issuer 
as defined in Sec. 240.3b-4 shall be exempt from the requirements of 
Sections 14(d)(1) through 14(d)(7) of the Act (15 U.S.C. 78n(d)(1) 
through 78n(d)(7)), Regulation 14D (Sec. 240.14d-1 through 
Sec. 240.14d-10) and Schedules 14D-1 (Sec. 240.14d-100) and 14D-9 
(Sec. 240.14d-101) thereunder, and Sec. 240.14e-1 and Sec. 240.14e-2 of 
Regulation 14E under the Act, if U.S. holders own of record 10 percent 
or less of the outstanding class of securities that is the subject of 
the tender offer and the following additional conditions are satisfied. 
For purposes of calculating the percentage of outstanding securities 
held by U.S. holders, exclude from the total number of shares 
outstanding shares held by non-U.S. persons who hold more than 10 
percent of the subject securities.
    (1) Equal treatment. The bidder must permit U.S. holders to 
participate in the offer on terms at least as favorable as those 
offered any other holder of the same class of securities that is the 
subject of the tender offer, however:
    (i) Registered exchange offers. If the bidder offers securities 
registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and 
a cash-only alternative, the bidder must offer only the cash 
alternative to security holders in any state or jurisdiction that 
prohibits the sale of securities after the bidder has made a good faith 
effort to register or qualify the offer and sale of securities in

[[Page 69161]]

that state or jurisdiction. When a cash-only alternative is not offered 
to security holders in any other jurisdiction, the issuer need not 
extend the offer to security holders in those states or jurisdictions 
that prohibit the offer and sale of the securities.
    (ii) Exempt exchange offers. If the bidder offers securities exempt 
from registration under the Securities Act of 1933 (15 U.S.C. 77a et 
seq.) and a cash-only alternative, the bidder must offer only the cash 
alternative to security holders in any state or jurisdiction in which 
the statutes or regulations do not provide a corresponding exemption 
from registration or qualification. When a cash-only alternative is not 
offered to security holders in any other jurisdiction, the bidder need 
not extend the offer to security holders in those states or 
jurisdictions that require registration or qualification.
    (iii) Disparate tax treatment. If the bidder offers loan notes 
solely to offer sellers tax advantages not available in the United 
States and these notes are not listed on any organized securities 
market nor registered under the Securities Act of 1933 (15 U.S.C. 77a 
et seq.), the loan notes need not be offered to U.S. holders, 
notwithstanding Sec. 240.14d-10.
    (2) Informational documents. (i) The bidder shall disseminate any 
informational document to U.S. holders, in English, on a comparable 
basis as provided to security holders in the home jurisdiction.
    (ii) If the bidder disseminates solely by publication in its home 
jurisdiction, the bidder shall publish the information in the United 
States in a manner reasonably calculated to inform U.S. holders of the 
offer.
    (iii) In the case of tender offers for securities described in 
Section 14(d)(1) of the Act (15 U.S.C. 78n(d)(1)), the bidder shall 
furnish to the Commission on Form CB (Sec. 249.480 of this chapter) any 
informational document it publishes or otherwise disseminates to 
holders of the outstanding class of securities. The bidder shall 
provide the Form CB to the Commission no later than the next business 
day after publication or dissemination.
    (3) Investment companies. The issuer of the securities that are the 
subject of the tender offer is not an investment company registered or 
required to be registered under the Investment Company Act of 1940 (15 
U.S.C. 80a-1 et seq.).
    (d) A person conducting a tender offer that meets the conditions in 
paragraph (d)(1) of this section shall be entitled to the exemptive 
relief specified in paragraph (d)(2) of this section:
    (1) Conditions. (i) The subject company is a foreign private issuer 
as defined in Sec. 2403b-4 and is not an investment company registered 
or required to be registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1 et seq.);
    (ii) U.S. security holders do not hold of record more than 40 
percent of the class of securities sought in the offer. For purposes of 
calculating the percentage of outstanding securities held by U.S. 
holders, exclude from the total number of shares outstanding shares 
held by non-U.S. persons who hold more than 10 percent of the subject 
securities; and
    (iii) The bidder complies with all applicable U.S. tender offer 
laws and regulations, other than those pursuant to which an exemption 
has been provided for in paragraph (d)(2) of this section.
    (2) Exemptions--(i) Withdrawal rights. Notwithstanding the 
provisions of Section 14(d)(5) of the Act (15 U.S. C 78n(d)(5)) and 
Sec. 240.14d-7, a bidder in a tender offer meeting the conditions of 
paragraph (d)(1) of this section may terminate withdrawal rights before 
the expiration of the offer, if the offer is for all outstanding shares 
and:
    (A) All conditions to the offer are satisfied or waived before 
withdrawal rights terminate; except that, if it is impracticable to 
determine whether the minimum condition to the offer has been met at 
the expiration of the offer due to the home jurisdiction practice of 
tendering to multiple depositaries, the bidder may terminate withdrawal 
rights while determining whether the minimum condition has been 
satisfied. If the bidder determines that the minimum condition is not 
satisfied and extends the offer instead of returning the tendered 
shares, withdrawal rights must be extended during such additional 
offering period;
    (B) All minimum time periods required by Sec. 240.14d-1 through


Sec. 240.14d-10 (Regulation 14D)  and Sec. 240.14e-1 through 
Sec. 240.14e-7 (Regulation 14E) are satisfied;

    (C) The bidder extends withdrawal rights during all minimum time 
periods required by Regulation 14D and Regulation 14E;
    (D) All securities previously tendered are immediately accepted and 
promptly paid for upon termination of withdrawal rights; and
    (E) All securities tendered after the termination of withdrawal 
rights are immediately accepted and promptly paid for.
    (ii) Equal treatment--loan notes. If the bidder offers loan notes 
solely to offer sellers tax advantages not available in the United 
States and these notes are not listed on any organized securities 
market nor registered under the Securities Act of 1933 (15 U.S.C. 77a 
et seq.), the loan notes need not be offered to U.S. holders, 
notwithstanding Sec. 240.14d-10.
    (iii) Equal treatment--separate U.S. and foreign offers. 
Notwithstanding the provisions of Sec. 240.14d-10, a bidder conducting 
a tender offer meeting the conditions of paragraph (d)(1) of this 
section may separate the offer into two offers: one offer made only to 
U.S. holders and another offer made only to non-U.S. holders. The offer 
to U.S. holders must be made on terms at least as favorable as those 
offered any other holder of the same class of securities that is the 
subject of the tender offers.
    (iv) Commencement. A public announcement of a tender offer meeting 
the conditions of paragraph (d)(1) of this section will not trigger the 
commencement requirements under Sec. 240.14d-2(b), if:
    (A) The announcement is required by home jurisdiction law or 
practice;
    (B) The announcement contains no information beyond the 
requirements of the home jurisdiction law or practice;
    (C) The announcement, when disseminated in written form in the 
United States, contains a legend noting that the offer will not 
commence until the informational documents are mailed to shareholders, 
which mailing may not occur until permitted by the home jurisdiction; 
and
    (D) The bidder mails the informational documents within 30 days 
after the announcement or makes a public announcement if it decides not 
to commence an offer.

    Note to Paragraph (d)(2)(iv). If the tender offer meets these 
conditions, the tender offer will commence only upon mailing or 
publishing the offer. Further, the Schedule 14D-1 need not be filed 
with the Commission pursuant to Sec. 240.14d-3 until the offer is 
mailed or published. In addition, making an announcement meeting 
these conditions would not constitute a solicitation or 
recommendation with respect to the offer within the meaning of 
Sec. 240.14d-9.

    (v) Notice of extensions. Notice of extensions made in accordance 
with the requirements of the home jurisdiction law or practice will 
satisfy the requirements of Sec. 240.14e-1(d).
    (vi) Prompt payment. Payment made in accordance with the 
requirements of the home jurisdiction law or practice will satisfy the 
requirements of Sec. 240.14e-1(c).

    General Notes to paragraphs (c) and paragraphs (d):
    1. If a bidder believes it requires exemptive relief beyond that 
provided for in Section

[[Page 69162]]

14d-1(d)(2), the bidder should submit a written application 
requesting relief along with an analysis of the basis for such 
relief. The bidder should submit the application to the Director of 
the Division of Corporation Finance.
    2. The bidder should include securities underlying American 
Depositary Shares convertible or exchangeable into the securities 
that are the subject of the tender offer when calculating the number 
of target securities outstanding, as well as the number held of 
record by U.S. holders.
    3. Home jurisdiction means both the jurisdiction of the target 
company's incorporation, organization or chartering and the 
principal foreign market where the target company's securities are 
listed or quoted.
    4. U.S. holder means any person whose address appears on the 
records of the issuer of the subject securities, or any voting 
trustee, depositary, share transfer agent, or any person acting in a 
similar capacity as being located in the United States. Unless 
information provided by the depositary demonstrates otherwise, 
holders of American Depositary Receipts shall be counted as U.S. 
holders of the underlying securities for the purposes of 
Secs. 240.14d-1(c) and (d).
    5. For purposes of Sec. 240.14d-1(c), with respect to a tender 
offer conducted without the cooperation of the issuer of the subject 
securities, the issuer of the subject securities will be presumed to 
be a foreign private issuer and U.S. holders will be presumed to 
hold 10 percent or less of such outstanding securities, unless:
    (a) The aggregate trading volume of that class of securities on 
all national securities exchanges in the United States, on the 
Nasdaq market, or on the OTC market, as reported to the NASD, 
exceeds 10 percent of the worldwide aggregate trading volume of that 
class of securities over the 12 calendar month period prior to 
commencement of the offer;
    (b) The most recent annual report or annual information filed or 
submitted by the issuer with securities regulators of the home 
jurisdiction or with the Commission indicates that U.S. holders hold 
more than 10 percent of the outstanding subject class of securities; 
or
    (c) The bidder knows or has reason to know that the level of 
U.S. ownership exceeds 10 percent of such securities.
    6. For purposes of Sec. 240.14d-1(d), with respect to a tender 
offer conducted without the cooperation of the issuer of the subject 
securities, the issuer of the subject securities will be presumed to 
be a foreign private issuer and U.S. holders will be presumed to 
hold 40 percent or less of the outstanding securities, unless:
    (a) The aggregate trading volume of that class of securities on 
all national securities exchanges in the United States and on the 
Nasdaq market exceeds 40 percent of the worldwide aggregate trading 
volume of that class of securities over the 12 calendar month period 
prior to commencement of the offer;
    (b) The most recent annual report or annual information filed or 
submitted by the target company with securities regulators of the 
home jurisdiction or with the Commission indicates that U.S. holders 
hold more than 40 percent of the outstanding subject class of 
securities; or
    (c) The bidder knows, or has reason to know, that the level of 
U.S. ownership exceeds 40 percent of such securities.
    7. If a bidder commences a tender offer during an ongoing tender 
or exchange offer for securities of the same class subject to its 
offer, the bidder should calculate the percentage of target 
securities held by U.S. holders as of the same date used by the 
initial bidder.

    15. By amending Sec. 240.14e-2 to add paragraph (d) to read as 
follows:


Sec. 240.14e-2  Position of subject company with respect to a tender 
offer.

* * * * *
    (d) Exemption for cross-border tender offers. Any issuer of a class 
of securities that is the subject of a tender offer conducted in 
reliance upon and in conformity with Sec. 240.14d-1(c), or any other 
person subject to Sec. 240.14d-9, shall be exempt from Secs. 240.14e-2 
and 240.14d-9 if:
    (1) The issuer, or any other person subject to Sec. 240.14d-9, 
furnishes to the Commission on Form CB (Sec. 249.480 of this chapter) 
the entire informational document it publishes or otherwise 
disseminates to holders of the class of securities in connection with 
the tender offer no later than the next business day after publication 
or dissemination;
    (2) The issuer, or any other person subject to Sec. 240.14d-9, 
disseminates any informational document to U.S. holders, in English, on 
a comparable basis as provided to security holders in the issuer's home 
jurisdiction; and
    (3) If the issuer, or any other person subject to Sec. 240.14d-9, 
disseminates solely by publication in its home jurisdiction, such 
person shall publish the information in the United States in a manner 
reasonably calculated to inform U.S. security holders of the offer.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

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

* * * * *
    17. By adding Subpart E, Sec. 249.480 and Form CB to read as 
follows:

Subpart E--Forms for Statements Made in Connection with Exempt 
Tender Offers


Sec. 249.480  Form CB, tender offer statement in connection with a 
tender offer for a foreign private issuer.

    This form shall be used to report an issuer tender offer conducted 
in compliance with Sec. 240.13e-4(h)(8) of this chapter and a third-
party tender offer conducted in compliance with Sec. 240.14d-1(c) of 
this chapter. This report shall also be used by a target company 
pursuant to Sec. 240.14e-2(d)(1) of this chapter.

    [Note: Form CB does not appear in the Code of Federal 
Regulations. Form CB is attached as Appendix A.]

PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 
1939

    18. The authority citation for Part 260 continues to read as 
follows:

    Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-3, 
80b-4, and 80b-11.

    19. By adding Sec. 260.4d-10 to read as follows:


Sec. 260.4d-10  Exemption for securities issued pursuant to 
Sec. 230.802 of this chapter.

    Any debt security, whether or not issued under an indenture, shall 
be exempt from the operation of the Act if made in compliance with 
Sec. 230.802 of this chapter.

    Dated: November 13, 1998.

    By the Commission.
Jonathan G. Katz,
Secretary.

Appendix A

    Note: Form CB does not appear in the Code of Federal 
Regulations.

FORM CB

OMB APPROVAL

OMB Number: xxxx-xxxx
Expires: Approval Pending
Estimated average burdens hours per response: 2.0

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form CB

TENDER OFFER/RIGHTS OFFERING NOTIFICATION FORM

(AMENDMENT NO. ______)

    Please place an X in the box(es) to designate the appropriate 
rule provision(s) relied upon to file this Form:
Securities Act Rule 801 (Rights Offering) {time} 
Securities Act Rule 802 (Exchange Offer) {time} 
Exchange Act Rule 13e-4(h)(8) (Issuer Tender Offer) {time} 
Exchange Act Rule 14d-1(c) (Third Party Tender Offer) {time} 
Exchange Act Rule 14e-2(d)(1) (Target Response) {time} 

----------------------------------------------------------------------
(Name of Subject Company)

----------------------------------------------------------------------
(Translation of Subject Company's Name into English (if applicable))

----------------------------------------------------------------------
(Jurisdiction of Subject Company's Incorporation or Organization)

----------------------------------------------------------------------

[[Page 69163]]

(Name of Person(s) Furnishing Form)

----------------------------------------------------------------------
(Title of Class of Securities)

----------------------------------------------------------------------
(CUSIP Number of Class of Securities (if applicable))

----------------------------------------------------------------------
(Name, Address (including zip code) and Telephone Number (including 
area code) of Person(s) Authorized to Receive Notices and 
Communications on Behalf of Subject Company)

----------------------------------------------------------------------
(Date Tender Offer/Rights Offering Commenced)

    * An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information unless it 
displays a currently valid control number. Any member of the public 
may direct to the Commission any comments concerning the accuracy of 
this burden estimate and any suggestions for reducing this burden. 
This collection of information has been reviewed by OMB in 
accordance with the clearance requirements of 44 U.S.C. 3507.

General Instructions

I. Eligibility Requirements for Use of Form CB

    A. Use this Form to furnish information pursuant to Rules 13e-
4(h)(8), 14d-1(c) and 14e-2(d)(1) under the Securities Exchange Act 
of 1934 (``Exchange Act''), and Rules 801 and 802 under the 
Securities Act of 1933 (''Securities Act'').

Instructions

    1. For the purposes of this Form, the term ``subject company'' 
means the issuer of the securities in a rights offering and the 
company whose securities are sought in a tender offer.
    2. For the purposes of this Form, the term ``tender offer'' 
includes both cash and stock tender offers.
    B. The information and documents furnished on this Form are not 
deemed ``filed'' with the Commission or otherwise subject to the 
liabilities of Section 18 of the Exchange Act.

II. Instructions for Submitting Form

    A. You must furnish five copies of this Form and any amendment 
to the Form (see Part I, Item 1.(b)), including all exhibits and any 
other paper or document furnished as part of the Form, to the 
Commission at its principal office. Each copy shall be bound, 
stapled or otherwise compiled in one or more parts, without stiff 
covers. The binding shall be made on the side or stitching margin in 
such manner as to leave the reading matter legible.
    B. The persons specified in Part IV must manually sign the 
original and at least one copy of this Form and any amendments. You 
must conform any unsigned copies.
    C. You must furnish this Form to the Commission no later than 
the next business day after the disclosure documents submitted with 
this Form are published or otherwise disseminated in the subject 
company's home jurisdiction.
    D. In addition to any internal numbering you may include, 
sequentially number the manually signed original of the Form and any 
amendments by handwritten, typed, printed or other legible form of 
notation from the first page of the document through the last page 
of the document and any exhibits or attachments thereto. Further, 
you must set forth the total number of pages contained in a numbered 
original on the first page of the document.

III. Special Instructions for Complying with Form CB

    Under Sections 3(b), 7, 8, 10, 19 and 28 of the Securities Act 
of 1933, and Sections 12, 13, 14, 23 and 36 of the Exchange Act of 
1934 and the rules and regulations adopted under those Sections, the 
Commission is authorized to solicit the information required to be 
supplied by this form by certain entities conducting a tender offer, 
rights offer or business combination for the securities of certain 
issuers.
    Disclosure of the information specified in this form is 
mandatory. We will use the information for the primary purposes of 
ensuring that the offeror is entitled to use the Form and that 
investors have information about the transaction to enable them to 
make informed investment decisions. We will make this Form a matter 
of public record. Therefore, any information given will be available 
for inspection by any member of the public.
    Because of the public nature of the information, the Commission 
can utilize it for a variety of purposes. These purposes include 
referral to other governmental authorities or securities self-
regulatory organizations for investigatory purposes or in connection 
with litigation involving the Federal securities laws or other 
civil, criminal or regulatory statutes or provisions.

PART I--INFORMATION SENT TO SHAREHOLDERS

Item 1. Home Jurisdiction Documents
    (a) You must attach to this Form the entire disclosure document 
or documents you have delivered to holders of securities in the home 
jurisdiction. The Form need not include any documents incorporated 
by reference into those disclosure document(s) and not distributed 
to holders of securities. If any part of the document or documents 
to be sent to U.S. shareholders is in a foreign language, include an 
English translation.
    (b) Furnish any amendment to a home jurisdiction document or 
documents to the Commission under cover of this Form. Indicate on 
the cover page the number of the amendment.

Item 2. Informational Legends

    You may need to include legends on the outside cover page of any 
offering document(s) used in the transaction. See Rules 801(d) and 
802(d).

    Note to Item 2. If you deliver the home jurisdiction document(s) 
through an electronic medium, the required legends must be presented 
in a manner reasonably calculated to draw attention to them.

PART II--INFORMATION NOT REQUIRED TO BE SENT TO SHAREHOLDERS

    The exhibits specified below shall be furnished as part of the 
Form, but need not be sent to shareholders unless sent to 
shareholders in the home jurisdiction. Letter or number all exhibits 
for convenient reference.
    (1) Furnish to the Commission any reports or information that, 
in accordance with the requirements of the home jurisdiction, must 
be made publicly available in connection with the transaction but 
need not be disseminated to shareholders.
    (2) Furnish copies of any documents incorporated by reference 
into the home jurisdiction document(s).
    (3) If any name is signed to this Form pursuant to a power of 
attorney, furnish manually signed copies of the power of attorney.

PART III--CONSENT TO SERVICE OF PROCESS

    (1) When this Form is furnished to the Commission, the person 
furnishing this Form (if a non-U.S. person) shall also file with the 
Commission a written irrevocable consent and power of attorney on 
Form F-X.
    (2) Promptly communicate any change in the name or address of an 
agent for service to the Commission by amendment of the Form F-X.

PART IV--SIGNATURES

    (1) Each person (or its authorized representative) on whose 
behalf the Form is submitted must sign the Form. If a person's 
authorized representative signs, and the authorized representative 
is someone other than an executive officer or general partner), 
provide evidence of the representative's authority with the Form.
    (2) Type or print the name and any title of each person who 
signs the Form beneath his or her signature.
    After due inquiry and to the best of my knowledge and belief, I 
certify that the information set forth in this statement is true, 
complete and correct.
(Signature)------------------------------------------------------------
(Name and Title)-------------------------------------------------------
(Date)-----------------------------------------------------------------

[FR Doc. 98-31007 Filed 12-14-98; 8:45 am]
BILLING CODE 8010-01-U