Cross-Border Tender Offers, Business Combinations and Rights Offerings
Federal RegisterDec 15, 1998
Ask Donna
What actually matters in this document.
Text
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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].
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 77a et seq.
\14\ 15 U.S.C. 77aaa et seq.
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
\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].
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\27\ See National Securities market Improvement Act of 1996, 104
Pub. L. No. 290, 110 Stat. 3416 (1996) (the ``National Securities
Markets Improvement Act'').
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\30\ See proposed Rules 801(a)(3); 802(a)(2); 13e-4(h)(8)(i);
and 14d-1(c)(1).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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].
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\33\ See Section II.H, infra, for a discussion of how U.S.
ownership is determined.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78r.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\35\ Form F-X is used by certain non-U.S. companies to appoint
an agent for service in the United States.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\36\ 17 CFR 240.13e-3.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78m(d), 78m(g), and 78m(f).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\44\ 15 U.S.C. 78n(e)
\45\ 17 CFR 240.14e-1.
\46\ 17 CFR 240.14e-1(b).
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
(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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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].
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
(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\
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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].
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\76\ Interpretive Release Relating to Tender Offer Rules,
Exchange Act Release No. 24296 (Apr. 3, 1987), [52 FR 11458].
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\77\ See Section II.C.2.b for a discussion of the permissibility
of terminating withdrawal rights during the Subsequent Offering
Period.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
(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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 necessa
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.