Commission Guidance and Revisions to the Cross-Border Tender Offer, Exchange Offer, Rights Offerings, and Business Combination Rules and Beneficial Ownership Reporting Rules for Certain Foreign Institutions

Federal RegisterOct 9, 2008

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 231, 232, 239, 240, 241, and 249

[Release Nos. 33-8957; 34-58597; File No. S7-10-08]

RIN 3235-AK10

Commission Guidance and Revisions to the Cross-Border Tender Offer, Exchange Offer, Rights Offerings, and Business Combination Rules and Beneficial Ownership Reporting Rules for Certain Foreign Institutions

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule and interpretation.

SUMMARY:

Almost nine years after the adoption of the original cross-border exemptions in 1999, the Commission is adopting changes to expand and enhance the utility of these exemptions for business combination transactions and rights offerings and to encourage offerors and issuers to permit U.S. security holders to participate in these transactions on the same terms as other target security holders. Many of the rule changes we are adopting today codify existing interpretive positions and exemptive orders in the cross-border area. We also are setting forth interpretive guidance on several topics. In two instances, we have extended the rule changes adopted here to apply to acquisitions of U.S. companies as well, because we believe the rationale for the changes in those instances applies equally to acquisitions of domestic and foreign companies. We also are adopting changes to allow certain foreign institutions to file on Schedule 13G to the same extent as would be permitted for their U.S. counterparts, where specified conditions are satisfied. We also are adopting a conforming change to Rule 16a-1(a)(1) to include the foreign institutions eligible to file on Schedule 13G.

DATES:

The final rule is effective December 8, 2008, except that the amendments to part 231 and 241 are effective October 9, 2008.

FOR FURTHER INFORMATION CONTACT:

Christina Chalk, Senior Special Counsel, or Tamara Brightwell, Senior Special Counsel, at (202) 551-3440, in the Division of Corporation Finance, and Elizabeth Sandoe, Branch Chief, and David Bloom, Special Counsel, at (202) 551-5720, in the Division of Trading and Markets (regarding Rule 14e-5), U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION:

We are amending Rules 162,

800

and 802

under the Securities Act of 1933

and Rule 101

of Regulation S-T.

We also are amending Rules 13d-1,

13e-3,

13e-4,

14d-1,

14d-11,

14e-5,

and 16a-1

under the Securities Exchange Act of 1934.

We also are making changes to Form S-4,

Form F-4,

Form F-X,

Form CB,

Schedule 13G

and Schedule TO.

7 CFR 230.162.

17 CFR 230.800.

17 CFR 230.802.

15 U.S.C. 77a

et seq.

17 CFR 232.101.

17 CFR 232.10

et seq.

17 CFR 240.13d-1.

17 CFR 240.13e-3.

17 CFR 240.13e-4.

17 CFR 240.14d-1.

17 CFR 240.14d-11.

17 CFR 240.14e-5.

17 CFR 240.16a-1.

15 U.S.C. 78a

et seq.

17 CFR 239.25.

17 CFR 239.34.

17 CFR 239.42.

17 CFR 239.800 and 17 CFR 249.480.

17 CFR 240.13d-102.

17 CFR 240.14d-100.

Table of Contents

I. Background and Summary

A. General Overview of the Cross-Border Exemptions

B. Background of Rule Revisions Adopted

1. Reasons for the Amendments

2. Summary of the Amendments

II. Discussion

A. Revised Eligibility Test for the Revised Cross-Border Exemptions

1. Changes to the Look-Through Analysis

a. Timing of the Calculation

b. Exclusion of Large Target Security Holders

c. Under What Circumstances Is the Issuer or Acquiror Unable To Conduct the Look-Through Analysis To Determine Eligibility To Rely on a Cross-Border Exemption?

2. Elements of the Alternate Test

a. Average daily trading volume test

b. Information filed by the issuer with the Commission or home country regulators

c. Reason to know

3. Changes to the Eligibility Test for Rights Offerings

B. Changes to the Tier I Exemptions

1. Expanded Exemption From Exchange Act Rule 13e-3

2. Technical Changes to Securities Act Rule 802

C. Changes to the Tier II Exemptions

1. Tier II Relief for Tender Offers Not Subject to Rule 13e-4 or Regulation 14D

2. Tier II Relief for Concurrent U.S. and Non-U.S. Offers

a. Multiple foreign offers in connection with a U.S. offer

b. U.S. offer may include non-U.S. holders of ADRs

c. U.S. holders may be included in foreign offer

3. Termination of Withdrawal Rights While Counting Tendered Securities

4. Subsequent Offering Period Changes

a. Maximum time limit on subsequent offering period eliminated

b. Prompt payment of securities tendered during the subsequent offering period

c. Payment of interest on securities tendered during the subsequent offering period

d. Mix and match offers and the initial and subsequent offering periods

5. Terminating Withdrawal Rights Immediately After Reducing or Waiving a Minimum Acceptance Condition

6. Early Termination of an Initial Offering Period or a Voluntary Extension of an Initial Offering Period

7. Exceptions From Rule 14e-5 for Tier II Cross-Border Tender Offers

a. Purchases or arrangements to purchase pursuant to a foreign tender offer(s)

b. Purchases or arrangements to purchase by an affiliate of the financial advisor and an offeror and its affiliates

D. Expanded Availability of Early Commencement

E. Changes to Schedules and Forms

1. Form CB

2. Schedule TO, Form F-4 and Form S-4

F. Beneficial Ownership Reporting by Foreign Institutions

G. Interpretive Guidance

1. Foreign Target Security Holders and U.S. All-Holders Requirements

2. Exclusion of U.S. Target Security Holders From Cross-Border Tender Offers

3. Vendor Placements

III. Paperwork Reduction Act

IV. Cost-Benefit Analysis

V. Consideration of Impact on Economy, Burden on Competition and Promotion of Efficiency, Competition and Capital Formation

VI. Final Regulatory Flexibility Act Analysis

VII. Statutory Basis and Text of Amendments

I. Background and Summary

A. General Overview of the Cross-Border Exemptions

The existing cross-border exemptions,

as adopted in 1999, are structured as a two-tier system based broadly on the level of U.S. interest in a transaction, measured by the percentage of target securities of a foreign private issuer

beneficially owned by U.S. holders.

The purpose of the exemptions is to address conflicts

between U.S. and foreign regulation, thereby facilitating the inclusion of U.S. investors in cross-border transactions. While today's amendments will expand the scope of some of the exemptions, we retain this basic two-tier structure and the threshold U.S. ownership percentages. However, we are revising the manner in which eligibility to rely on the revised exemptions is determined.

Generally, the rule citations to the cross-border exemptions throughout this release refer to the exemptions that were adopted in 1999. When applicable, we specify that a citation is to a “new” or “amended” rule.

“Foreign private issuer” is defined in Exchange Act Rule 3b-4(c) [17 CFR 240.3b-4(c)].

“U.S. holder” is defined in the cross-border exemptions as any security holder resident in the United States. See Securities Act Rule 800(h) [17 CFR 230.800(h)]; Instruction 2 to Exchange Act Rules 13e-4(h)(8) and (i) [17 CFR 240.13e-4(h)(8) and 240.13e-4(i)] and 14d-1(c) and (d) [17 CFR 240.14d-1(c) and 240.14d-1(d)].

Where U.S. holders own no more than 10 percent of the subject securities, a qualifying cross-border transaction will be exempt from most U.S. tender offer rules

pursuant to Tier I and from the registration requirements of Section 5 of the Securities Act of 1933

pursuant to Securities Act Rules 801

and 802. Tier I provides a broad exemption from the filing, dissemination and procedural requirements of the U.S. tender offer rules and the heightened disclosure requirements applicable to going private transactions as defined in Rule 13e-3.

An issuer that is the subject of a tender offer also is exempt from the obligation to express a position, and provide reasons for its position, about the tender offer to its own security holders under Tier I.

At the same level of U.S. ownership, Rules 801 and 802 also provide relief from the registration requirements of Securities Act Section 5 for securities issued in rights offerings and business combination transactions.

The U.S. anti-fraud and anti-manipulation rules and civil liability provisions continue to apply to these transactions. See

Cross-Border Tender and Exchange Offers, Business Combinations and Rights Offerings

, Release No. 33-7759, 34-42054 (October 22, 1999) [64 FR 61382] (the “1999 Cross-Border Adopting Release”), Section I.A.

15 U.S.C. 77e.

17 CFR 230.801.

Exchange Act Rules 13e-3(g)(6) [17 CFR 240.13e-3(g)(6)], 13e-4(h)(8), and 14d-1(c).

Exchange Act Rule 14e-2(d) [17 CFR 240.14e-2(d)].

Where an issuer or acquiror relies on Rules 801 or 802 or the Tier I exemptions, it must furnish a Form CB to the Commission.

Form CB is a cover sheet to which the issuer or acquiror attaches an English translation of the disclosure document used in the foreign home jurisdiction and disseminated to U.S. target security holders.

The due date for furnishing Form CB to the Commission is the next business day after the disclosure document used in the foreign home jurisdiction is published or otherwise disseminated in accordance with home country rules.

The materials submitted under cover of Form CB are not deemed filed with the Commission, and the filer is not subject to the liability provisions of Section 18 of the Exchange Act.

Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i) [17 CFR 230.801(a)(4)(i) and 230.802(a)(3)(i)], and Exchange Act Rules 13e-4(h)(8)(iii) and 14d-1(c)(3)(iii) [17 CFR 240.13e-4(h)(8)(iii) and 240.14d-1(c)(3)(iii)].

Item 1 of Form CB.

Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i) and Exchange Act Rules 13e-4(h)(8)(iii) and 14d-1(c)(3)(iii). If the bidder is a foreign company, it must also file a Form F-X with the Commission appointing an agent for service of process in the United States. See Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i) and Exchange Act Rules 13e-4(h)(8)(iii) and 14d-1(c)(3)(iii).

15 U.S.C. 78r. See also, 1999 Cross-Border Adopting Release, Section II.A.2. An acquiror or other person submitting Form CB is subject to U.S. anti-fraud provisions. See footnote 24 above.

In adopting the cross-border exemptions, we did not intend to create new filing obligations for issuers and acquirors where none existed previously. For that reason, a bidder relying on the Tier I exemption must submit a Form CB only if the tender offer would have been subject to Rules 13e-3 or 13e-4 or Regulation 14D,

but for the Tier I exemption. No filing requirement exists for a tender offer subject only to Exchange Act Section 14(e)

and Regulation 14E;

accordingly, furnishing a Form CB is not necessary.

Exchange Act Rules 14d-1 through 14d-11 [17 CFR 240.14d-1 through 17 CFR 240.14d-11].

15 U.S.C. 78n(e).

17 CFR 240.14e-1 through 17 CFR 240.14e-8.

See 1999 Cross-Border Adopting Release, Section II.A.2. Regulation 14E applies to all tender offers, including those not subject to Section 13(e) or 14(d) of the Exchange Act. These include tender offers for non-equity securities and securities that are not registered under Section 12 of the Exchange Act [15 U.S.C. 78

], as well as partial offers for less than all of the subject class, where the bidder will not own more than five percent of the subject class of equity securities after the tender offer (based on purchases in the tender offer and ownership in the target before the offer commences).

Tier II provides targeted relief from some U.S. tender offer rules for issuers and third-party bidders where U.S. security holders own more than 10 percent, but no more than 40 percent, of the target class. The Tier II exemptions encompass narrowly-tailored relief from certain U.S. tender offer rules, such as the prompt payment, extension and notice of extension requirements in Regulation 14E. While they do address certain areas of common regulatory conflict, the Tier II exemptions do not provide relief from the registration requirements of Securities Act Section 5, nor do they include an exemption from the additional disclosure requirements applicable to going private transactions by issuers or affiliates.

The scope of the Tier I and Tier II cross-border exemptions and the exemptions from the Securities Act registration requirements provided in Rules 801 and 802 are based broadly on the level of U.S. interest in a given transaction, as measured by the percentage of shares beneficially owned by U.S. holders. In addition to these U.S. ownership thresholds, the cross-border exemptions are conditioned on other requirements, such as the principle that U.S. target security holders be permitted to participate in the offer on terms at least as favorable as those afforded other target holders.

We retain these basic equal treatment principles in our rule revisions.

Securities Act Rules 801(a)(3) and 802(a)(2) [17 CFR 230.801(a)(3) and 230.802(a)(2)]; Exchange Act Rules 13e-4(h)(8)(ii) and (i)(2)(ii) [17 CFR 240.13e-4(h)(8)(ii) and 240.13e-4(i)(2)(ii)]; and 14d-1(c)(2) and (d)(2)(ii) [17 CFR 240.14d-1(c)(2) and 240.14d-1(d)(2)(ii)].

B. Background of Rule Revisions Adopted

On May 6, 2008, we proposed revisions to the rules governing certain cross-border business combination transactions, as well as revisions to the beneficial ownership reporting rules for certain foreign institutions.

These revisions were intended to expand and enhance the utility of the exemptions available for cross-border business combination transactions.

Many of the changes we proposed would codify existing interpretive positions and exemptive orders, and were intended to encourage offerors and issuers in cross-border business combinations to permit U.S. security holders to participate in these transactions in the same manner as other holders. Additionally, we provided guidance regarding several interpretive issues of concern for U.S. and other offerors engaged in cross-border business combinations. We also addressed the applicability of the U.S. all-holders provisions to foreign target security holders in tender offers for domestic issuers. In several instances, we requested comment about whether

various rule changes we proposed should apply to tender offers for U.S. companies.

See

Revisions to the Cross-Border Tender Offer, Exchange Offer, and Business Combination Rules and Beneficial Ownership Reporting Rules for Certain Foreign Institutions

, Release No. 33-8917, 34-57781 (May 6, 2008) (the “Proposing Release”).

“Business combination” is defined in Securities Act Rule 800(a) as any “statutory amalgamation, merger, arrangement or reorganization requiring the vote of security holders of one or more participating companies. It also includes a statutory short form merger that does not require a vote of security holders.” In this release, we use the term more broadly to include those kinds of transactions, as well as tender and exchange offers. See Securities Act Rule 165(f)(1) [17 CFR 230.165(f)(1)] (defining the term more broadly, to include the types of transactions listed in Rule 145(a) [17 CFR 230.145(a)], as well as exchange offers). A “cross-border” business combination, as that term is used throughout this release, refers to a business combination in which the target company (or the issuer in a rights offering) is a foreign private issuer, as defined in Exchange Act Rule 3b-4(c).

Additionally, in several instances in the Proposing Release, we solicited comment regarding whether various proposed changes should be extended to the Multijurisdictional Disclosure System (“MJDS”) with Canada. We are not adopting any changes to MJDS at this time.

In response to our request for comment on the Proposing Release, we received comments from a variety of groups and constituencies, most of whom expressed their support for our proposed modifications to the current rules. While commenters generally supported our proposed changes, some advocated further modifications to our rules.

After considering the comments, we are adopting amendments to the cross-border exemptions and beneficial ownership rules substantially as proposed, but with modifications discussed more fully in this release. We also are adopting two changes to rules applicable to all tender offers, including those for U.S. target companies, where we believe the rule modifications initially proposed in the cross-border context will be useful and in the public interest if applied to all tender offers.

The public comments we received are available for inspection in our Public Reference Room at 100 F Street, NE, Washington, DC 20549 in File No. S7-10-08, or may be viewed at

http://www.sec.gov/rules/proposed/s71008.shtml

The rule changes that will apply to all tender offers, including those for domestic target companies: (1) Eliminate the maximum time limit on the length of the subsequent offering period and (2) provide the ability to commence an exchange offer upon the filing of a registration statement and before its effectiveness in exchange offers not subject to Rule 13e-4 or Regulation 14D. See amended Exchange Act Rule 14d-11 and amended Securities Act Rule 162.

1. Reasons for the Amendments

As discussed in the Proposing Release, before the cross-border exemptions were adopted in 1999,

cross-border business combination transactions or rights offerings often excluded U.S. holders of a foreign issuer or foreign target company because of actual or perceived conflicts between U.S. and foreign law. Exclusion of U.S. investors deprived them of some or all of the benefits of such cross-border transactions. The cross-border exemptions adopted in 1999 represented an effort to facilitate the inclusion of U.S. security holders in foreign transactions in a manner consistent with our investor protection mandate.

See 1999 Cross-Border Adopting Release.

While we believe the exemptions were successful in addressing many areas of conflict between U.S. and foreign law, we recognize that in some instances the exemptions are not operating as optimally as intended, or do not address recurring conflicts of law and practice not anticipated when we adopted them. The revisions we adopt today address frequently arising issues and unintended consequences that have detracted from the usefulness of the existing cross-border exemptions. The revisions represent an expansion and refinement of the current exemptions. We believe they will encourage more offers to be extended into the United States.

The amendments we are adopting represent another step in the Commission's efforts to revise its rules relating to transactions involving foreign private issuers.

These changes are intended to address the realities of the modern securities markets and, in particular, the increasing globalization of those markets. Increasingly, U.S. persons seek to diversify their investments by purchasing securities of foreign companies. Their ability to do so, including through direct purchases on foreign exchanges, has been facilitated greatly by the Internet. While the increasing globalization of the securities markets has proved beneficial to U.S. investors and companies, as well as non-U.S. investors and foreign private issuers, it also has increased the potential for regulatory conflicts in the context of cross-border business combination transactions. Whether foreign private issuers list their securities on a U.S. exchange or U.S. investors access overseas trading markets to purchase their securities, cross-border business combination transactions frequently present conflicts between U.S. and foreign regulatory systems.

The Commission has undertaken several recent rulemaking initiatives that impact foreign private issuer reporting and registration requirements. For example, we recently revised our rules to make the U.S. capital markets more attractive to foreign private issuers by allowing the use of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), without a reconciliation to U.S. GAAP. See

Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP

, Release No. 33-8879 (December 21, 2007) [73 FR 986]. In addition, we amended the deregistration rules for exiting the U.S. regulatory system when the level of U.S. interest in a foreign private issuer's securities has decreased, such that continued registration is no longer justified. See

Termination of a Foreign Private Issuer's Registration of a Class of Securities Under Section 12(g) and Duty to File Reports Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934

, Release No. 34-55540 (March 27, 2007) [72 FR 16934]. On August 27, 2008, we adopted changes to the manner of determining the availability of the Rule 12g3-2(b) exemption from Exchange Act registration. See

Exemption From Registration Under Section 12(g) of the Securities Exchange Act of 1934 for Foreign Private Issuers

, Release No. 34-58465 (September 5, 2008) [73 FR 52752]. Further, on August 27, 2008, we also adopted rule revisions applicable to foreign issuers, intended to improve the accessibility of the U.S. public capital markets and enhance the information available to investors. These revisions were proposed in

Foreign Issuer Reporting Enhancements

, Release No. 33-8900 (February 29, 2008) [73 FR 13404]. See also,

SEC Votes to Modernize Disclosure Requirements to Help U.S. Investors in Foreign Companies

(August 27, 2008) (announcing the adoption of three sets of rule amendments).

The revisions we are adopting today are intended to address the most frequent areas of conflict or inconsistency with foreign regulations and practice that acquirors encounter in cross-border business combination transactions. We believe the revisions appropriately balance the need to protect U.S. investors through the application of protections afforded by U.S. law, while facilitating transactions that may benefit all security holders, including those in the United States. The expanded availability of the cross-border exemptions will serve the public interest by encouraging bidders to include U.S. holders in cross-border business combination transactions from which they otherwise might be excluded, thereby extending the benefits of those transactions to U.S. investors.

We recognize that these revisions will not eliminate all conflicts in law or practice presented by cross-border business combination transactions. The staff will continue to address those issues not covered by these revisions on a case-by-case basis, as is currently the practice.

In discussing the changes we are adopting, the focus of the discussion is on acquirors in business combination transactions because the rules changes primarily impact that constituency. However, some of those changes, such as those to the eligibility test for the cross-border exemptions, also affect comparable provisions in the rights offering exemption in Securities Act Rule 801. We discuss the specific changes relating to the rights offering exemption in greater detail in Section II.A.3. below.

As discussed in the Proposing Release, the staff often provides exemptive or no-action relief by letter in the context of individual cross-border transactions. Pursuant to Rules 30-1 and 30-3 of the SEC's Rules of General Organization [17 CFR 200.30-1 and 200.30-3], we have delegated to the staff the authority to exempt individual bidders and issuers from the application of our rules. No-action and exemptive letters issued by the staff in connection with cross-border transactions may be found on our Web site at

http://www.sec.gov/divisions/corpfin/cf-noaction.shtml

and

http://www.sec.gov/divisions/marketreg/mr-noaction.shtml#rule14e5

2. Summary of the Amendments

The rule amendments we are adopting address practical problems that have limited the ability of bidders to rely on the exemptions. We believe they also will alleviate some of the burdens on

bidders who must comply with two or more regulatory systems in the context of cross-border transactions. Highlights of the amendments, which are adopted as proposed except where otherwise specified, include:

• Modifications to the manner in which the look-through analysis must be conducted under our current rules, to alleviate timing concerns associated with that calculation, including:

• Changes to the reference date for the calculation of U.S. beneficial ownership to allow calculation as of any date no more than 60 days before and no more than 30 days after the public announcement of the transaction;

and

Acquirors in business combinations that are unable to accomplish the look-through analysis as of a date during that range may calculate U.S. ownership as of a date no more than 120 days before public announcement. For rights offerings, the amended rule would permit calculation as of a date within 60 days before or 30 days after the record date. See amended Securities Act Rule 800(h)(1). The proposal included the date range of 60 days before announcement of a business combination only, and did not permit calculation as of a date after announcement.

• No longer requiring that individual holders of more than 10 percent of the subject securities be excluded from the calculation of U.S. ownership;

This change was not proposed, but the Proposing Release solicited comment on it. After further consideration and review of commenters' responses, we believe this change is appropriate.

• An alternate test for determining eligibility to rely on the cross-border exemptions, based in part on a comparison of average daily trading volume of the subject securities in the United States and worldwide. This alternate test will be available for all non-negotiated transactions and those for which the look-through analysis mandated by our rules may not be conducted;

Although we did not propose this specific change, we did solicit comment generally on possible changes to the eligibility criteria. See Proposing Release, Section II. For bidders relying on the alternate test because they are unable to conduct the look-through analysis, the ADTV calculation will include a primary trading market component.

• Expanded relief under Tier I for affiliated transactions subject to Rule 13e-3 for transaction structures not covered under our current cross-border exemptions, such as schemes of arrangement, cash mergers, or compulsory acquisitions for cash;

• Extension of relief afforded by the Tier II provisions to tender offers not subject to Sections 13(e) or 14(d) of the Exchange Act;

• Expansion of relief afforded under Tier II to eliminate recurrent conflicts between U.S. and foreign law and practice in several areas, including:

• Allowing multiple foreign offers in conjunction with a concurrent U.S. offer;

• Permitting bidders to include foreign holders of ADRs in the U.S. offer and, under specified conditions, U.S. holders in the foreign offer(s);

• Allowing bidders to suspend back-end withdrawal rights while tendered securities are counted;

• Allowing subsequent offering periods in both cross-border and domestic offers to extend beyond 20 U.S. business days;

We proposed to allow this change only for cross-border tender offers.

• Allowing securities tendered during the subsequent offering period to be purchased within 20 business days from the date of tender, rather than 14 business days as originally proposed;

• Allowing bidders to pay interest on securities tendered during a subsequent offering period, where required under foreign law;

• Allowing separate offset and proration pools for securities tendered during the initial and subsequent offering periods for certain kinds of tender offers;

Separate pro ration pools would be permitted only for Tier II tender offers that use the “mix and match” offer structure. See Section II.C.4.d. below.

• Permitting bidders to terminate an initial offering period or any voluntary extension of that period before a scheduled expiration date;

In the Proposing Release, we set forth interpretive guidance regarding the ability to terminate an initial offering period or voluntary extension of that period before a scheduled expiration date. We solicited comment on whether we should codify the existing interpretive guidance. See Proposing Release, Section II.C.6. We are codifying this guidance in new Exchange Act Rules 13e-4(i)(1)(vii) and 14d-1(d)(2)(ix).

• Codification of three class exemptive letters with respect to the application of Rule 14e-5 for Tier II tender offers;

• Expansion of the availability of early commencement to offers not subject to Section 13(e) or 14(d) of the Exchange Act, including offers for domestic target companies;

We proposed to allow this change only for cross-border tender offers.

• Modification of the cover pages of specified tender offer schedules and registration statements to identify any cross-border exemptions relied upon in conducting the relevant transactions;

• Requiring electronic filing of all Forms CB and Forms F-X, filed in connection with Form CB; and

• Permitting foreign institutions to report on Schedule 13G to the same extent as their U.S. counterparts, subject to certain conditions, and expanding the definition of beneficial ownership in Exchange Act Rule 16a-1(a)(1) to include those foreign institutions.

The change to Rule 16a-1 [17 CFR 240.16a-1] was not proposed, but was requested by commenters. We believe this change is consistent with the regulatory history of aligning the scope of Rule 16a-1(a)(1) with Rule 13d-1(b)(1)(ii).

In addition to these rule amendments, we also are reiterating the interpretive guidance we provided in the Proposing Release, with some modifications. We are providing guidance on the following issues:

• The ability of bidders in tender offers to waive or reduce the minimum tender condition without providing withdrawal rights;

• The application of the all-holders provisions of our tender offer rules to foreign target security holders in transactions subject to U.S. equal treatment provisions;

• The ability of bidders to exclude U.S. target security holders in cross-border tender offers; and

• The availability of the vendor placement procedure for exchange offers.

As discussed in further detail below, the revised rules we adopt today differ in some respects from what we proposed. For example, the alternate eligibility test is a combination of the existing look-through analysis and components of the existing test for non-negotiated transactions. For the revised look-through analysis, we are providing a longer date range than proposed, during which acquirors and issuers can calculate U.S. ownership. Where the acquiror or issuer is not able to accomplish the look-through analysis as of the date in 60 days before and 30 days after public announcement, we provide an extended period to accommodate those situations.

The changes we proposed to the eligibility test would have applied only to business combination transactions; however, those we adopt are applicable to rights offerings also. Another difference between the rule changes we proposed and those we adopt is that two changes are applicable to all business combinations, including those in which the target is a U.S. company. Under our revised rules, bidders conducting tender offers for either U.S. or foreign target companies may extend the subsequent offering period beyond the current 20-business day limit. In addition, offerors in exchange offers for both domestic and foreign targets may commence those offers before the effective date of the registration statement, even where the exchange offer is not subject to specified U.S. tender offer rules.

The revisions adopted today will be effective for transactions that commence

after the effective date of the revised rules. To the extent that the parties to transactions other than those that commence after the effective date wish to rely on these rule changes, requests for relief will be considered on a case-by-case basis. Transition issues and the effective date of the revised rules relating to beneficial ownership reporting are discussed in Section II.F.

II. Discussion

A. Revised Eligibility Test for the Revised Cross-Border Exemptions

We are adopting changes to the eligibility test for the cross-border exemptions that we believe will facilitate the use of the exemptions and reduce the burden of determining eligibility. For negotiated transactions, acquirors must continue to conduct the look-through analysis, as amended today to provide greater flexibility.

Where acquirors are unable to conduct this analysis, we are adopting an alternate test that incorporates elements from the current hostile presumption

for non-negotiated deals, including an element based on average daily trading volume of the subject securities (“ADTV”).

See new Securities Act Rules 800(h)(6) and (7); Instructions 2 and 3 to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instructions 2 and 3 to amended Exchange Act Rules 14d-1(c) and (d).

When we refer to the “hostile presumption” in this release, we mean the existing test used to determine eligibility for the cross-border exemptions for non-negotiated transactions,

i.e.

, those not made pursuant to an agreement between the acquiror and the target company. See Securities Act Rule 802(c) [17 CFR 230.802(c)] and Instruction 3 to Exchange Act Rules 14d-1(c) and (d).

As used in this release, “subject securities” means securities of a target company that are the subject of a tender offer or are sought to be acquired in another kind of business combination transaction.

The cross-border exemptions require acquirors to query record holders and other nominees to determine U.S. beneficial ownership. For example, acquirors need only “look through” nominees located in the United States, the subject company's jurisdiction of incorporation and that of each participant in the business combination transaction, and the jurisdiction that is the primary trading market for the subject securities, if different from the jurisdiction of incorporation.

In addition, acquirors may assume that beneficial holders are residents of the jurisdiction in which the nominee queried has its principal place of business, if after reasonable inquiry the acquiror is unable to obtain information from that nominee.

These limitations on the scope of the required look-through analysis assist the acquiror in accomplishing the required analysis. We are not changing these provisions in our revised rules.

See amended Securities Act Rule 800(h)(3); Instruction 2.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2.iii. to amended Exchange Act Rules 14d-1(c) and (d).

See amended Securities Act Rule 800(h)(4); Instruction 2.iv. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2.iv. to amended Exchange Act Rules 14d-1(c) and (d).

Where acquirors cannot conduct the look-through analysis, however, we are providing an alternate test similar to the hostile presumption for non-negotiated transactions.

Because we recognize that acquirors who do not have the cooperation of the target company may have limited access to information from nominees, this alternate test will be available for all non-negotiated transactions.

In the discussion that follows, we provide guidance on the limited circumstances under which the alternate test will be available for negotiated transactions.

See new Securities Act Rule 800(h)(6); Instruction 3 to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3 to amended Exchange Act Rules 14d-1(c) and (d).

See new Securities Act Rule 800(h)(6) and Instruction 3 to amended Exchange Act Rules 14d-1(c) and (d).

The existing cross-border exemptions and the revised exemptions we adopt today continue to be available only when the target company is a foreign private issuer as defined in our rules.

As is the case with the existing cross-border exemptions, the revised exemptions are available equally to both U.S. and foreign acquirors, where the company being acquired qualifies as a foreign private issuer.

See Exchange Act Rule 3b-4(c). For the Securities Act Rule 801 exemptions for rights offerings, the issuer must be a foreign private issuer as defined in that rule. For business combinations such as mergers of equals, where both parties to the transaction will be replaced by a successor entity which issues securities in the amalgamation, U.S. holders may hold no more than 10 percent of the subject class, as if measured immediately after the business combination. See Securities Act Rule 802(a) [17 CFR 230.802(a)].

Under the current rules and the revisions we adopt today, the percentage of the subject securities held beneficially by U.S. persons is an important element in determining eligibility to rely on the exemptions.

We continue to believe that U.S. beneficial ownership, as determined by the revised look-through calculation, should be a central element in determining eligibility to rely on the cross-border exemptions. Beneficial ownership is the characteristic of the target subject security holder base that is, in our view, most closely tied to U.S. interest in the subject securities in the context of a business combination transaction or a rights offering.

In the case of business combination transactions, which affect all target security holders whether or not they choose to participate, we believe the percentage of the subject securities that is held by U.S. holders is the best measure of when U.S. rules should apply.

In addition, because the cross-border exemptions include exemptions from the registration requirements of Section 5 of the Securities Act that are available to both foreign and U.S. acquirors, the focus on the percentage of target securities held by U.S. holders corresponds with the percentage of securities that may be issued without registration by a U.S. acquiror to U.S. target holders. Because securities of U.S. acquirors are likely to have their primary trading market in the United States, it is appropriate to consider the magnitude of these issuances and the resulting flow back into the United States.

The threshold U.S. beneficial ownership percentages are 10 percent (for Tier I and Securities Act Rules 801 and 802) and 40 percent (for Tier II).

As noted in the Proposing Release, our focus on U.S. beneficial ownership for business combinations and rights offerings differs from the approach we have taken recently for foreign private issuer deregistration and for purposes of the ability of a foreign private issuer to qualify for the exemption from registration under Exchange Act Rule 12g3-2(b) [17 CFR 240.12g3-2(b)]. See the discussion in the Proposing Release, Section I.A.2.

As we stated in the Proposing Release, using an ADTV test may result in target companies with significant U.S. ownership qualifying for the Tier I and Securities Act Rules 801 and 802 exemptions. Where a bidder, including a U.S. company, is eligible to rely on the Tier I cross-border exemptions, it may issue securities without registration under Securities Act Rule 802. We are concerned that use of an ADTV test for eligibility to rely on the cross-border exemptions would allow bidders, including U.S. bidders, to issue significant amounts of bidder securities to U.S. holders, without the protections of Securities Act registration.

The revised rules do not change the threshold percentages of U.S. ownership for reliance on the cross-border exemptions; however, we are changing the manner in which these percentages are determined. To address concerns raised by commenters about the look-through tests for negotiated transactions, we have significantly revised the manner in which that analysis must be performed, including when and under what circumstances it is mandated.

Based on feedback from commenters, we also are eliminating the requirement to exclude large security holders of the target class in calculating the percentage of U.S. ownership.

Commenters

advised that this change would expand the availability of the exemptions because of the concentrated ownership structures of many foreign private issuers.

We believe the cumulative effect of the revisions will facilitate the look-through process by providing greater flexibility to acquirors, and also will allow them to know at an earlier stage in the planning process how U.S. target holders will be treated.

See amended Securities Act Rule 800(h); Instructions 2 and 3 to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instructions 2 and 3 to amended Exchange Act Rules 14d-1(c) and (d).

The existing cross-border exemptions require target securities held by holders who individually

own more than 10 percent of the subject class to be excluded from both the numerator and the denominator in calculating total U.S. ownership. The exclusion requirement applies to both U.S. and non-U.S. large holders. See Section II.A.1.b. below.

See,

e.g.

, letter from Sullivan & Cromwell LLP (“S&C”).

No aspect of the Proposing Release generated more commentary, and more criticism, than this focus on beneficial ownership and the manner in which it must be calculated under our rules.

Despite the revisions to the look-through analysis adopted today, we remain cognizant of the concerns expressed by commenters with respect to the feasibility of the test under certain circumstances.

While we believe the look-through analysis and its focus on beneficial ownership should remain the starting point for determining eligibility to rely on the revised exemptions for negotiated transactions, we also recognize that circumstances exist in which acquirors are unable to conduct the look-through analysis.

Therefore, we are adopting an alternate test for such circumstances based, in part, on a comparison of the average daily trading volume of the subject securities in the United States as compared to worldwide trading over a twelve-month period.

The trading volume percentages we established for the ADTV element of the alternate test are the same as those for the existing hostile presumption.

The ADTV element of the alternate test is supplemented by other factors, such as the acquiror's actual knowledge of the U.S. ownership percentage of the subject securities, based on reports filed by the target company and others, as well as information from third parties known to the acquiror.

20 of the 22 comment letters we received addressed this issue, either directly or indirectly.

These include concerns about cost, burden and confidentiality. See,

e.g.

, letter from Committee on Federal Regulation of Securities, Section of Business Law, American Bar Association (“ABA”).

As discussed above, we are not requiring acquirors in hostile transactions to conduct the look-through analysis under our amended rules. This is the same approach as under the existing exemptions. See Instruction 3 to Exchange Act Rules 14d-1(c) and (d).

See new Securities Act Rules 800(h)(6) and (7); Instruction 3 to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3 to amended Exchange Act Rules 14d-1(c) and (d).

See Securities Act Rule 802(c) and Instruction 3.ii. to Exchange Act Rules 14d-1(c) and (d). The thresholds also mirror the maximum percentage limits for U.S. beneficial ownership.

See new Securities Act Rules 800(h)(6) and (7); Instruction 3.ii. and 3.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3.ii. and 3.iii. to amended Exchange Act Rules 14d-1(c) and (d).

We believe the changes to the look-through test in the cross-border exemptions and the alternate test we adopt today appropriately balance commenters' concerns with our investor protection goals. In our view, these revisions will increase the availability of the cross-border exemptions, including the exemptions from the registration requirements of Section 5 of the Securities Act,

which we anticipate will promote the inclusion of U.S. target holders in more cross-border transactions. We will continue to monitor the application of the revised rules to assess whether additional changes are necessary and in the public interest to facilitate this goal.

See Securities Act Rules 801 and 802.

1. Changes to the Look-through Analysis

a. Timing of the Calculation

We are adopting, with some modifications, the proposed changes to the timing of and reference date for the calculation of U.S. ownership for determining eligibility to rely on the cross-border exemptions for business combinations.

Under existing rules, acquirors are required to calculate U.S. ownership as of a set date—the 30th day before the commencement of a tender offer or before the solicitation for a business combination other than a tender offer.

The revisions adopted change the reference date to the public announcement of the business combination transaction.

For these purposes, we consider “public announcement” to be any oral or written communication by the acquiror or any party acting on its behalf, which is reasonably designed to inform or has the effect of informing the public or security holders in general about the transaction.

Under our revised rules, an acquiror seeking to rely on the cross-border exemptions may calculate U.S. ownership as of any date no more than 60 days before and no more than 30 days after the public announcement of the cross-border transaction.

See amended Securities Act Rule 800(h); Instruction 1.i. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2.i. to amended Exchange Act Rules 14d-1(c) and (d). As noted below, we did not propose but solicited comment on similar changes to the timing of the calculation for eligibility for Securities Act Rule 801 (exemption for rights offerings). Today we also are adopting changes to Rule 800(h) that will provide issuers with greater flexibility to use a date within a 60-day range before and a 30-day period after the record date for a rights offering. See amended Securities Act Rule 800(h) and the discussion below.

See Securities Act Rule 800(h); Instruction 2.i. to Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2.i. to Exchange Act Rules 14d-1(c) and (d).

See amended Securities Act Rule 800(h)(1); Instruction 2 to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2 to amended Exchange Act Rules 14d-1(c) and (d).

See generally, Instruction 5 to Exchange Act Rules 13e-4(c) and 14d-2 [17 CFR 240.13e-4(c) and 240.14d-2] (defining public announcement for purposes of precommencement communications about issuer or third-party tender offers).

The revised rules will allow the calculation to be accomplished based on a range of dates before public announcement of a business combination transaction because we believe that this will allow the parties to a business combination to determine and inform the markets of the treatment of U.S. target security holders at an earlier stage in the planning process. In addition, this change allows the calculation of U.S. ownership to be made before the target security holder base is affected by the public announcement. Most commenters supported the use of announcement as the reference point for the calculation.

Commenters generally also favored the use of a 60-day date range before public announcement, although one party advocated a shorter 30-day range.

See,

e.g.

, The Forum for U.S. Securities Lawyers in London.

See,

e.g.

, letter from Linklaters LLP (“Linklaters”). Another commenter suggested that for rights offering, the reference date should be 30 days before the record date, or alternatively, before announcement. See letter from S&C.

We expanded the rule to permit the calculation as of a date no more than 30 days after announcement to address commenters' concerns about the confidentiality of the look-through analysis.

Where that analysis must be conducted before announcement, it may compromise the confidentiality of the transaction. By allowing a range of dates both before and after public announcement, the rule is designed to provide acquirors whose home country law permits them to wait to conduct the analysis until after public announcement with flexibility to maintain confidentiality to the greatest extent possible.

This change was advocated by several commenters.

See letter from Shearman and Sterling LLP (“Shearman”).

In some foreign jurisdictions, the acquiror may need to conduct the look-through analysis before announcement because home country law may require detailed information about the transaction, including the treatment of U.S. holders, to be included in the announcement.

Two commenters, Shearman and Davis Polk & Wardwell (“DPW”), advocated a range extending

from the 60th day before through the 30th day after announcement. Another commenter, Simpson Thacher & Bartlett LLP (“STB”), suggested a range from the 60th day before through the 60th day after announcement.

This 90-day range should be used in most cases. We recognize, however, that the 90-day range may not be enough time in some foreign jurisdictions, depending on the procedures available for obtaining beneficial ownership information. Therefore, our revised rules specify that where the issuer or acquiror is unable to complete the look-through analysis as of this 90-day period, it may use a date within 120 days before public announcement.

We considered providing every acquiror and issuer with the flexibility to look through as of a date within the extended 120-day period before announcement. We believe, however, that there should be some limits on dates available to conduct the analysis, and this extended period is warranted only where necessary.

We believe that in most cases, this date range will be sufficient time to conduct the required look-through analysis. Where the acquiror or issuer cannot accomplish the look-through analysis within this time period, it may use the alternate test outlined below.

See amended Securities Act Rule 800(h)(1); Instruction 2.i. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2.i. to amended Exchange Act Rules 14d-1(c) and (d). This expanded date range is not available for rights offerings. See Section II.A.3. below.

In the Proposing Release, we expressed concern about a bidder or issuer intentionally choosing a date that presents less than a representative picture of the target security holder base. We noted that the cross-border exemptions are not available for any transaction or series of transactions that technically comply with our rules but are in fact part of a scheme to evade them. See Proposing Release, Section II.A.2.b.

b. Exclusion of Large Target Security Holders

Our revised rules do not affect the percentages of target securities that may be beneficially owned by U.S. holders in order for a transaction to qualify for the exemption. The maximum U.S. ownership percentages remain at no more than 10 percent for reliance on Tier I and Rules 801 and 802 and no more than 40 percent for Tier II.

The look-through analysis by which these percentages are calculated has changed, however. Our revised rules will no longer require that individual holders of more than 10 percent of the subject securities be excluded from the calculation of U.S. ownership.

We believe this change will significantly expand the number of cross-border business combinations eligible for the exemptions, while still providing appropriate investor protections.

See Securities Act Rules 801(a)(2) and 802(a)(1) [17 CFR 230.801(a)(2) and 17 CFR 230.802(a)(1)] and Exchange Act Rules 13e-4(h)(8)(i) and (i)(1)(ii) and 14d-1(c)(1) and (d)(2)(ii) [17 CFR 240.13e-4(h)(8)(i), 240.13e-4(i)(1)(ii), and 240.14d-1(c)(1)].

Under the current rules, all securities held by persons or entities that individually hold more than 10 percent of the subject class, whether U.S. or foreign, must be excluded from both the numerator (U.S. ownership) and denominator (worldwide ownership) when calculating U.S. ownership percentages. See Securities Act Rule 800(h)(2) [17 CFR 230.800(h)(2)]; Instruction 2.ii. to Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2.ii. to Exchange Act Rules 14d-1(c) and (d). Under the amended rules, these securities will be included in both the numerator and denominator.

Although we did not propose this change in the Proposing Release, we solicited comment on it, and many commenters advocated it.

Commenters noted that requiring the exclusion of large target holders generally has the effect of skewing upward the percentage of U.S. ownership of foreign private issuers, which in turn decreases the availability of the cross-border exemptions.

Although existing rules require the exclusion of both U.S. and foreign holders of greater than 10 percent of the subject securities, commenters suggested that the effect of this requirement disproportionately inflates U.S. holdings because holders of large blocks of foreign stock are more likely to be non-U.S. persons.

We note that although this may be the case generally, there could be specific fact patterns where this rule change would decrease the availability of the cross-border exemptions because of the particular characteristics of the subject security holder base.

We are persuaded by commenters, however, that we should not treat greater-than-10 percent holders as non-market participants for purposes of the U.S. ownership calculation required by our rules.

We also believe, based on the staff's own experiences with cross-border transactions since 1999 as well as feedback from the commenters, that eliminating this exclusion requirement will increase the availability of the cross-border exemptions without compromising our investor protection goals.

See Proposing Release, Section II.A.2.a. See,

e.g.

, letters from Committee on Mergers, Acquisitions and Corporate Control Contests, Association of the Bar of the City of New York (“ABCNY”), DPW, and Linklaters.

See,

e.g.

, letters from STB and S&C.

See letter from STB.

This could be the case where a foreign private issuer had a disproportionate number of large U.S. security holders of the subject class.

See letter from DPW.

We are retaining the requirement in our existing rules that securities held by the acquiror be excluded from both the numerator and denominator in calculating U.S. beneficial ownership.

We did not propose a change to this requirement of our existing rules. In assessing what securities should be considered for the calculation, it is appropriate to exclude those held by the acquiror because it will not be participating in the acquisition as a target holder. In addition, acquirors often purchase a minority stake in a target company as part of a series of transactions which, while they may occur in stages over time, are part of the same overall acquisition plan; eliminating the requirement to exclude securities held by the acquiror would not reflect the reality that these series of transactions are typically part of an integrated business combination transaction. One commenter noted that excluding securities held by the acquiror could have the effect of inflating the U.S. ownership figures for the remaining securities in the subject class.

As noted above, however, this will not always be the case; the requirement to exclude securities held by a U.S. acquiror might have the effect of reducing the total U.S. ownership percentages. In addition, the commenter acknowledged that excluding subject securities held by the acquiror does not present the same logistical issues as requiring an acquiror to exclude securities held by third parties, for which it might not have accurate and complete ownership information.

See amended Securities Act Rule 800(h)(2) and Instruction 2.ii. to amended Exchange Act Rules 14d-1(c) and (d).

See letter from ABA.

Id.

Several commenters suggested that securities held by greater than 10 percent holders should continue to be excluded from the U.S. ownership calculation, where those large holders are otherwise affiliated with the target.

At this time, we are not adopting this recommendation because we believe it may be too cumbersome to require acquirors to determine affiliation. Even if we set objective standards by which affiliation could be determined for these purposes, we believe the approach toward large holders, whether exclusion as under our existing rules, or inclusion under our revised rules, should be consistent for all similarly-situated holders. For this reason, we are not adopting the suggestion of one commenter to exclude from the calculation of U.S. ownership subject securities held by certain U.S.

institutional holders.

While the commenter argued that such institutional holders should be excluded from the calculation because our focus should be on retail holders, if we exclude U.S. institutions in determining eligibility to rely on the cross-border exemptions, our rules will apply less frequently to the retail holders who may need them the most. In addition, sophisticated institutional holders benefit from the procedural and other protections of our rules under the Williams Act.

See,

e.g.

, letters from Cleary Gottlieb Steen & Hamilton LLP (“Cleary”) and DPW.

See letter from Allen & Overy, Ashurst LLP, Clifford Chance LLP, Freshfields Bruckhaus Deringer, Herbert Smith LLP, Linklaters LLP, and Norton Rose LLP. This letter advocates disregarding holdings by U.S. institutional investors, such as those qualifying as “QIBs” as defined in Rule 144A, even where such entities individually hold no more than 10 percent of the subject securities.

Pub. L. No. 90-439, 82 Stat. 454 (1968).

c. Under what circumstances is the issuer or acquiror unable to conduct the look-through analysis to determine eligibility to rely on a cross-border exemption?

As discussed above, the look-through test—as revised today—will remain the primary means of determining eligibility to rely on the cross-border exemptions for negotiated transactions. We continue to believe that extraordinary events in the life of a corporation, such as tender or exchange offers or other kinds of business combination transactions, may pose unique opportunities and risks to security holders. In a tender or exchange offer, where the bidder may present its offer directly to target security holders even where the target company itself does not support the offer, the disclosure and procedural protections of our rules provide critical safeguards for U.S. investors. Unlike capital-raising transactions, the interests of all target security holders, including U.S. holders, are affected by business combinations, whether or not they are permitted to participate in them. Because U.S. beneficial ownership of target securities represents aggregate U.S. economic interest in the target company, we continue to believe that it is the proper standard for determining exemption status. Nevertheless, commenters have pointed out—and the staff's experience has informed us of—some problems that arise in requiring the look-through test. To address these concerns, today we adopt an alternate test, based in part on a comparison of average daily trading volume, which may be used to determine eligibility to rely on the cross-border exemptions. In limited situations, where an issuer or acquiror is unable to conduct the look-through analysis mandated in our rules, it may use the alternate test described below.

100

Cf.

Securities Act Rule 409 [17 CFR 230.409] and Exchange Act Rule 12b-21 [17 CFR 240.12b-21] (providing flexibility, under limited circumstances, for registrants when they are unable to provide information required by the Commission's rules).

Whether an issuer or an acquiror is unable to conduct the look-through analysis required by our rules will depend on the facts and circumstances of the particular analysis. We emphasize, however, that the need to dedicate time and resources to the look-through analysis alone will not support a finding that a bidder is unable to conduct the analysis. Similarly, concerns about the completeness and accuracy of the information obtained from the analysis will not necessarily justify the use of the alternate test. In each instance, the bidder must make a good faith effort to conduct a reasonable inquiry into ascertaining the level of U.S. beneficial ownership. Where issuers and acquirors have questions about the availability of the alternate test, whether in the context of individual cross-border transactions or otherwise, consideration will be given to whether additional guidance is appropriate.

Although we are not providing an exhaustive list of the situations that would justify the use of the alternate test, we do recognize specific factual scenarios when the alternate test could be used. For example, in some foreign jurisdictions, security holder lists are generated only at fixed intervals during the year and are not otherwise available. In those circumstances, where the published information is as of a date outside the range specified in our revised rules,

101

the alternate test may be used unless the acquiror or issuer otherwise has access to more current information. We believe that U.S. ownership information as of a date outside of the expanded range we provide in our revised rules will be outdated and therefore will justify the use of the alternate eligibility test.

101

Under the amended Instructions to the exemptions, as discussed above, the acquiror must obtain information about U.S. beneficial holders as of a date no more than 60 days before and no more than 30 days after the public announcement of the business combination (as of the record date for a rights offering). Where the acquiror cannot obtain information within these time frames, it may use a date no more than 120 days before public announcement. If it cannot conduct the look-through as of date within this extended time frame, the acquiror or issuer is unable to conduct the look-through for purposes of our rules and may rely on the alternate test.

We also believe that an acquiror generally will be unable to conduct the required look-through analysis in the manner prescribed by our revised rules when the subject securities are in bearer form.

102

In addition, in certain foreign jurisdictions, nominees may be prohibited by law from disclosing information about the beneficial owners on whose behalf they hold. Where this prohibition extends to the country of residence of the beneficial owners of the subject securities, we believe the alternate test for determining eligibility should be available. Even the issuer itself may be unable to conduct the required look-through analysis and thus may turn to the alternate test under our revised rules.

103

In addition, where a business combination transaction is non-negotiated (not conducted pursuant to an agreement between the target and the acquiror), the acquiror need not conduct the look-through analysis under our revised rules. This is consistent with the existing rules, premised on the concept that a third party will generally have decreased access to ownership information without the cooperation of the target.

104

102

These are securities for which the issuer or other party does not keep a registry of ownership. The possession of the stock certificate is the only proof of ownership for bearer securities.

103

See Instruction 3 to amended Exchange Act Rules 13e-4(h)(8) and (i). This is different from the approach in our current rules, where the hostile presumption based on factors other than the look-through analysis is not available to issuers or affiliated bidders.

104

See the Proposing Release, Section II.A.3.a. and the 1999 Cross-Border Adopting Release, Section II.F.3.

2. Elements of the Alternate Test

Under the revised eligibility test, most acquirors will be required to conduct the look-through analysis, as modified by the rule changes we adopt today and discussed above. Only where an acquiror is unable to conduct the required analysis because of specific circumstances may it turn to the other means of determining eligibility specified in the alternate test.

105

As noted above, acquirors in non-negotiated transactions may continue to rely on the alternate test, which is similar to and replaces the current “hostile presumption.”

105

See new Securities Act Rule 800(h)(7); Instruction 3 to amended Exchange Act Rules 13e-4(h) and (i); and Instruction 3 to amended Exchange Act Rules 14d-1(c) and (d).

Under the alternate test, an acquiror may rely on the cross-border exemptions unless average daily trading volume in the United States exceeds the limits set forth in our rules, reports filed by the target company indicate levels of U.S. ownership inconsistent with the limits for the applicable exemption, or the acquiror knows or has reason to

know that U.S. ownership exceeds the limits for the applicable exemption. We discuss each element of this alternate test below.

a. Average Daily Trading Volume Test

The first prong of our alternate test is based on a comparison of ADTV of the subject securities in the United States, as compared to worldwide ADTV.

106

As revised, this element of the alternate test is satisfied where ADTV for the subject securities in the United States over a twelve-month period ending no more than 60 days before the announcement of the transaction is not more than 10 percent (40 percent for Tier II) of ADTV on a worldwide basis.

107

As noted above, the percentage trading volume figures remain unchanged from the comparable component of the existing test for non-negotiated transactions.

108

We considered decreasing these percentages for purposes of this ADTV element, because our analysis indicates that these trading volume levels do not correspond with the U.S. beneficial ownership levels that remain the focus of our revised eligibility test.

109

However, these ADTV figures are a feature of the comparable ADTV element of the existing hostile presumption, and we have retained the comparable limiting elements focused on U.S. beneficial ownership discussed below. For these reasons, and because the alternate test will be available only in limited circumstances outside the context of a non-negotiated transaction, we have not changed the percentages for the ADTV test.

106

The comparable prong of the existing hostile presumption test compares “aggregate trading volume of the subject securities on all national securities exchanges in the United States, on the Nasdaq market, or on the OTC market as reported to the NASD” to the worldwide aggregate trading volume. See,

e.g.

, the existing Instruction 3 to Exchange Act Rules 14d-1(c) and (d). Although the revised instruction we adopt today refers to “average daily” instead of “aggregate” trading volume, and eliminates the references to the NASD (or its successor FINRA), we do not view these changes as substantive.

107

See new Securities Act Rule 800(h)(7)(i); Instruction 3.i. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3.i. to amended Exchange Act Rules 14d-1(c) and (d).

108

See Securities Act Rule 802(c) and Instruction 3 to Exchange Act Rules 14d-1(c) and (d).

109

See Memorandum from the Office of Economic Analysis (June 5, 2008) (available in the comment file for the Proposing Release at

http://www.sec.gov/rules/proposed/s71008.shtml

The revised rules specify that where a transaction is not made pursuant to an agreement between the acquiror and the target company, the acquiror need not conduct the look-through analysis.

110

This is similar to the existing “hostile presumption” for non-negotiated transactions. We made that presumption available in 1999 when the current exemptions were adopted because we recognized that where no such agreement exists, without the cooperation of the target company, the acquiror's ability to obtain information about brokers and other nominees may be limited.

111

We believe this continues to be the case today.

110

See new Securities Act Rule 800(h)(6) and Instruction 3 to amended Exchange Act Rules 14d-1(c) and (d).

111

See 1999 Cross-Border Adopting Release, Section II.F.3.

The revised rules provide acquirors with a range of dates by which they may do the comparison of U.S. and worldwide average daily trading volume. The comparison must be made over a twelve-month period ending no more than 60 days before the public announcement of the transaction.

112

The requirement to perform the comparison as of a twelve-month period minimizes the potential for manipulation of the trading volumes both inside and outside the United States. For the reasons discussed above, we believe that providing a range of dates as of which the comparison may be accomplished provides appropriate flexibility for acquirors. In the context of an objective measure such as ADTV, there should be no concerns about compromising confidentiality by doing this calculation before announcement. Therefore, for purposes of this prong of the alternate test, we are not permitting the acquiror to use a range of dates that extends beyond announcement, as we do for the look-through test discussed above.

113

Using public announcement instead of commencement as the reference point for the calculation will allow acquirors to determine and inform the market and target holders about the treatment of U.S. holders at an earlier stage in the process.

112

See new Securities Act Rule 800(h)(7)(i); Instruction 3.i. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3.i. to amended Exchange Act Rules 14d-1(c) and (d). We proposed to modify the instruction in our rules to mandate a calculation over a twelve-calendar-month period ending no later than 60 days before announcement. We did not receive comments specifically addressing this point.

113

See Instruction 2 to amended Exchange Act Rules 14d-1(c) and (d).

The revised rules also require that there be a “primary trading market” for the subject securities, as that term is defined in our rules,

114

in order for the acquiror in a negotiated transaction to rely on the alternate test as a result of being unable to conduct the look-through analysis.

115

“Primary trading market” means that at least 55 percent of the trading volume in the subject securities takes place in a single, or no more than two, foreign jurisdictions during a recent twelve-month period.

116

In addition, if the trading of the subject securities occurs in two foreign markets, the trading in at least one of the two must be larger than the trading in the United States for that class.

117

In our view, the existence of a primary trading market is important because it is designed to ensure that there is a primary foreign regulator with oversight over the transaction. Thus, where there is no primary trading market for the subject securities outside of the United States, an acquiror in a negotiated transaction may not rely on the alternate test. In response to our request for comments, several commenters supported the adoption of a “primary trading market” component if we adopted a test based in whole or in part on ADTV.

118

114

See Exchange Act Rule 12h-6(f)(5).

115

We did not propose, but we solicited comment on, whether we should adopt a primary trading market requirement when using an ADTV measure. See Proposing Release, Section II.A.4. The primary trading market requirement does not apply to the use of the alternate test for non-negotiated transactions.

116

Exchange Act Rule 12h-6(f)(5)(i) [17 CFR 240.12h-6(f)(5)(i)]. Elsewhere in the revised exemptions, we continue to use the term “primary trading market” more narrowly, to refer to the single, principal foreign trading market for the subject securities outside the United States. See footnote 58 in the Proposing Release.

117

Exchange Act Rule 12h-6(f)(5)(ii) [17 CFR 240.12h-6(f)(5)(ii)].

118

See letters from Bredin Prat, De Brauw Blackstone Westbroek, Hengeler Mueller, Slaughter and May, and Uria Mene

ndez, STB, and Sompo Japan Insurance Inc.

One commenter stated that requiring average daily trading volume in the United States to be compared to trading in the primary trading market, as opposed to the worldwide trading market, would be too restrictive.

119

The revised rules require a comparison of U.S. ADTV to worldwide ADTV, thus maximizing the size of the denominator and potentially limiting the U.S. average daily trading volume numbers.

120

119

See letter from ABA.

120

This is consistent with the manner in which the calculation is done for purposes of the deregistration rule. See Exchange Act Rule 12h-6(a)(4)(i) [17 CFR 240.12h-6(a)(4)(i)]. Worldwide average daily trading volume for these purposes would include U.S. average daily trading volume.

b. Information Filed by the Issuer With the Commission or Home Country Regulators

The second prong of the alternate test is that the acquiror must consider information about U.S. ownership levels that appear in annual reports or other annual information filed by the issuer with the Commission or with the regulator in its home jurisdiction. It may be disqualified from relying on the cross-border exemption sought if those

reports or other filings indicate levels of U.S. ownership that exceed applicable limits for that exemption.

121

See amended Securities Act Rule 800(h)(7)(ii); Instruction 3.ii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3.ii. to amended Exchange Act Rules 14d-1(c) and (d).

This element of the alternate test is virtually identical to the comparable element of the existing test for non-negotiated transactions.

122

The only change from the prior test for non-negotiated transactions is that the revised Instruction specifies that only annual reports or other annual information filed before the public announcement of the transaction must be taken into account by the acquiror. We believe it is appropriate to set a time limit on the information that the acquiror must consider, since the planning process of the transaction and the certainty of the exemption itself may be disrupted by a filing that is made late in the process.

122

See Securities Act Rule 802(c)(3) [17 CFR 230.802(c)(3)] and Instruction 3.iii. to Exchange Act Rules 14d-1(c) and (d).

The acquiror's eligibility to rely on a cross-border exemption should not be affected by filings after that time, because the public announcement may contain (and in some foreign jurisdictions, must contain) detailed information about the treatment of U.S. target holders. We do not believe that the acquiror should lose eligibility based on reports filed after announcement; conversely, the acquiror will not gain eligibility to rely on the exemptions based on reports filed after announcement indicating a reduction in the percentage of U.S. holders.

The annual report filed with the Commission by foreign private issuers subject to Exchange Act reporting requires disclosure of the percentage of the class held by U.S. persons.

123

Not all foreign private issuers file annual reports with the Commission, however.

124

For those who do not file with the Commission, reports filed in the home jurisdiction may or may not require disclosure of comparable information about U.S. ownership. However, the acquiror may have reason to know U.S. beneficial ownership figures for non-reporting issuers, which also must be taken into account pursuant to the final element of the eligibility test.

123

Item 7.A.2. of Form 20-F mandates that “[i]nformation shall be provided as to the portion of each class of securities held in [the United States] and the number of record holders in the [United States].” Many foreign private issuers filing Form 20-F provide information about U.S. record ownership only, which is not in and of itself the measure of U.S. ownership used to determine eligibility to rely on the cross-border exemptions.

124

A foreign private issuer must file an annual report with the Commission only where the foreign private issuer has a class of securities registered under Section 12 of the Exchange Act.

c. Reason To Know

We refer to the final element in the new alternate test as the “reason to know” element. The existing hostile presumption test for non-negotiated transactions contains a similar element.

125

This prong of the alternate test provides that an applicable cross-border exemption is not available, even where all other elements of the alternate test are met, if the acquiror “knows or has reason to know” that U.S. beneficial ownership levels exceed the limits for the applicable exemption.

126

125

See Securities Act Rule 802(c)(4) [17 CFR 230.802(c)(4)] and Instruction 3.iv. to Exchange Act Rules 14d-1(c) and (d).

126

See new Securities Act Rule 800(h)(7)(iii); Instruction 3.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3.iii. to amended Exchange Act Rules 14d-1(c) and (d).

We believe the reason to know element serves a critical function in protecting the interests of U.S. investors under the current hostile presumption. Each other element of the eligibility test has limitations which may translate into an inaccurate and incomplete picture of the subject security holder base. The reason to know element captures information that the acquiror may gain as a result of its own assessment of the target company and the feasibility of the transaction. The acquiror should not be permitted to ignore such information simply because it comes from sources other than those captured in the other elements of our alternate test. The staff has received numerous questions about what constitutes “reason to know” information about U.S. ownership levels that would preclude reliance on the exemptions under the current hostile presumption. To provide guidance on that issue, we proposed changes to this element of the current hostile presumption test to assist acquirors in determining what constitutes “reason to know.”

127

The proposed changes, which we are adopting today, clarified that an offeror is deemed to have reason to know information about U.S. ownership of the subject class that appears in any filing with the Commission or any regulatory authority in the issuer's home country or (if different) the jurisdiction in which its primary trading market is located.

128

This change will capture not only filings by the issuer, but also filings by other parties reporting beneficial ownership of the subject securities.

129

127

See proposed Securities Act Rule 802(c)(4) and proposed Instruction 3.iv. to Exchange Act Rules 14d-1(c) and (d).

128

Id.

129

Only “annual reports” or filings of “annual information” by the issuer are covered in the preceding element of the test. Reports that may be covered by the “reason to know” element of the revised test include beneficial ownership reports filed by third parties reporting ownership in the subject class.

While commenters supported our efforts to provide further specificity on “reason to know,” many requested further guidance on this issue, consistent with staff experience that it is an area of concern for practitioners under the current hostile presumption.

130

Therefore, as adopted, the revised provision contains additional references to specific sources of information that will be attributed to the acquiror.

131

This includes information about U.S. ownership “available from the issuer or obtained or readily available from any other source that is reasonably reliable.”

132

“Readily available” for these purposes means publicly available from sources reasonably accessible to the issuer or acquiror at no or limited cost. We do not intend this language to mean that an issuer or acquiror must take into account information publicly available from any source, no matter how obscure or costly to obtain. If the acquiror and the target enter into an agreement pursuant to which the acquiror has the right to obtain information from the target, including information about U.S. ownership, it will be deemed to know any such information known to the target. We believe such an agreement will almost always exist in the context of a negotiated transaction.

130

See,

e.g.

, letter from DPW.

131

See amended Securities Act Rule 800(h)(7)(iii); Instruction 3.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3.iii. to amended Exchange Act Rules 14d-1(c) and (d).

132

Id.

Other sources of information of which the acquiror will be deemed to have knowledge under the rule revisions adopted today include, but are not limited to, third-party information providers and other advisors engaged by the parties to the transaction that may have provided information about U.S. ownership. This change to the rule does not require that the parties engage such third parties in order to qualify for eligibility under this element.

133

The rule simply requires the acquiror to take into account information that is obtained from a third-party information provider, including information that is readily available from such providers.

These examples cited in our revised rules are not intended to be exclusive; an acquiror may have reason to know information from other sources, depending on the particular facts and circumstances of the transaction.

134

133

One commenter requested that we clarify that we are not establishing such a requirement. See letter from Cravath, Swaine, & Moore LLP (“Cravath”).

134

The proposed rules note that the sources listed are not intended to be an exclusive list.

We are adopting as proposed the limiting language in this revised instruction that makes it clear that knowledge or reason to know acquired after public announcement will not disqualify the acquiror from relying on the cross-border exemptions.

135

For the reasons discussed in the preceding section, we believe it is appropriate to include a timing element here, so that the ability to rely on a cross-border exemption is not called into question by knowledge acquired after announcement. Commenters generally supported this change.

136

135

We do this by inserting the language the words “before the public announcement” into the first sentence of this amended provision. See new Securities Act Rule 800(h)(7)(iii); Instruction 3.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3.iii. to amended Exchange Act Rules 14d-1(c) and (d).

136

See,

e.g.

, letter from ABCNY.

3. Changes to Eligibility Test for Rights Offerings

The changes to the eligibility test we adopt today also will apply to the calculation of U.S. ownership for rights offerings. Issuers may now calculate U.S. ownership as of a date no more than 60 days before and 30 days after the record date for the rights offering.

137

Thus, issuers will have greater flexibility on the timing of the calculation of U.S. ownership within a range of dates; however, the reference point for the calculation will continue to be the record date for rights offerings, rather than the date of public announcement for business combinations. This is appropriate because the record date for a rights offering is more closely tied to the specific security holder base that may participate in the transaction.

138

137

See amended Securities Act Rule 800(h).

138

See amended Securities Act Rule 800(h)(1). The expanded date range of up to 120 days if the information is not available within the range otherwise specified is not available for rights offerings. This should not be needed, as it is within the issuer's power to set an appropriate record date.

We solicited comment on, but did not propose changes to, the eligibility test for rights offerings because we did not believe that issuers faced the same problems with the look-through analysis as third-party acquirors did for business combination transactions.

139

However, several commenters argued that we should also adopt similar changes to the rights offering exemption.

140

It is our understanding that many foreign private issuers continue to exclude U.S. holders from rights offerings available to all other security holders. To the extent that the revisions we adopt today make the exemption for rights offerings more readily available and facilitate the inclusion of U.S. holders, these changes may be useful in promoting our investor protection goals.

139

See Proposing Release, Section II.A. This may be because issuers generally have access to greater information about their own security holders, and rights offerings may not be subject to the same time pressures as business combination transactions.

140

See letters from Cravath and S&C.

Therefore, we are adopting similar changes to the method of calculating U.S. ownership for purposes of the exemption for rights offerings as we adopt today for business combination transactions. This will allow issuers more time to conduct the U.S. ownership calculation at an earlier stage in the transaction planning process. In addition to the changes to the look-through analysis mandated under our revised rules, the alternate test for calculating U.S. ownership also will be available for issuers unable to conduct the look-through analysis.

141

See new Securities Act Rule 800(h)(6) and (7). This is a change from our existing rules, where the hostile presumption based in part on the average daily trading volume comparison is available only for third-party, unaffiliated acquirors. See,

e.g.

, existing Securities Act Rule 802(c), which applies only to persons other than the issuer of the subject securities and is being replaced by the alternate test.

B. Changes to the Tier I Exemptions

1. Expanded Exemption From Exchange Act Rule 13e-3

We are adopting as proposed revised Exchange Act Rule 13e-3(g)(6) expands the scope of the exemption from Rule 13e-3 to cover a broader range of cross-border transactions than otherwise would be subject to that Rule. Existing Rule 13e-3(g)(6) exempts the parties engaged in an affiliated cross-border business combination transaction from the application of Rule 13e-3 where that transaction is structured as an issuer or third-party tender offer under the Tier I cross-border exemptions, or as a securities offering made pursuant to Securities Act Rule 802. Transactions such as cash mergers, compulsory acquisitions for cash, and schemes of arrangement not consummated under these rules could be subject to Rule 13e-3 even where they otherwise would have been eligible for the cross-border exemption from that rule, if structured under Tier I or Securities Act Rule 802.

We believe that the form of the transaction should not govern whether Rule 13e-3 applies to a cross-border transaction which otherwise would be eligible for the Tier I exemption from that rule; therefore, we proposed eliminating the limits on the kinds of cross-border transactions that could be covered under the exemption in Rule 13e-3(g)(6). We are adopting this change as proposed. In order to qualify for the expanded exemption from Rule 13e-3, a party must meet all of the conditions for reliance on Rule 802 or Tier I. These conditions such as the requirement that U.S. security holders be treated at least as favorably as foreign security holders, will continue to safeguard the interests of U.S. holders. In addition, a party relying on revised Rule 13-3(g)(6) for affiliated transactions not conducted pursuant to Securities Act Rule 802 or Tier I must submit a Form CB to the same extent as would be required in a transaction conducted pursuant to those provisions. Because the party relying on the expanded cross-border exemption from Rule 13e-3 would have had an obligation to file a Schedule 13E-3, absent the expanded exemption, a Form CB (and Form F-X where the filer is foreign) will be required.

142

See Instruction to amended Exchange Act Rule 13e-3(g)(6).

In the Proposing Release, we solicited comment on how we should accomplish the proposed expansion of the exemption from Rule 13e-3. We asked whether we should revise the rule to list additional transaction structures that would be covered under the expanded exemption, or whether we should simply eliminate any limits on the types of transactions covered, as proposed. The four commenters who addressed this issue supported the change, including our approach of leaving open the kinds of cross-border transactions that may be covered under the expanded exemption, to provide maximum flexibility for the parties covered by Rule 13e-3.

143

See letters from ABA, ABCNY, Cravath, and DPW.

One commenter called for us to extend the exemption from Rule 13e-3 to tender offers conducted pursuant to Tier II, on the grounds that corporate law matters that underpin the enhanced investor protection provisions in Rule 13e-3 are best addressed by home country regulation.

144

We recognize that other jurisdictions may impose equally effective but different safeguards to address the conflict of interests that may exist in a transaction to which Rule 13e-3 applies. We note, however, that Rule 13e-3 is a disclosure provision and we do not believe its application is unduly burdensome, particularly where

U.S. investors make up more than 10 percent of a foreign target's security holder base.

144

See letter from ABCNY.

Another commenter called for us to exempt from the application of Rule 13e-3 any transaction subject to a third-party fairness hearing and determination.

145

We decline to expand the exemption in this manner. As noted above, Rule 13e-3 is a disclosure provision and does not regulate the substantive fairness of the underlying transaction. Thus, the fact that an affiliated transaction in a foreign jurisdiction has been found to be fair by an independent tribunal or other third party will be a matter for disclosure under the rule, but in our view, should not affect its general application.

145

See letter from the ABA.

2. Technical Changes to Securities Act Rule 802

We are adopting as proposed the changes to Rule 802(a)(2) and (3) to substitute the word “offeror” for “issuer.” This is a correction to the existing rule rather than a substantive change. We did not receive any comments on this technical correction.

C. Changes to the Tier II Exemptions

We proposed a number of changes to Tier II in order to alleviate practical difficulties that often result in the need for companies to request specific exemptive or no-action relief.

146

Most commenters did not address the specific changes we proposed, but generally supported our proposed expansion of these exemptions.

146

Where we refer in this release to “relief,” we mean exemptive or no-action relief provided by letter in the context of an individual transaction, unless otherwise indicated. See footnote 46 above referring to the staff's delegated authority to provide exemptive relief from U.S. rules for specific cross-border transactions. Where we refer to “interpretive guidance,” we mean oral positions taken by the staff or written interpretations promulgated by the Division of Corporation Finance in the Manual of Publicly Available Telephone Interpretations available on our Web site. We refer to “Commission guidance” or “Commission interpretive guidance” to mean positions expressed by the Commission in releases.

1. Tier II Relief for Tender Offers Not Subject to Rule 13e-4 or Regulation 14D

The Tier II exemptions represent targeted modifications to U.S. tender offer rules intended to accommodate differences between U.S. and foreign practice in the context of a cross-border tender offer. Because the Tier II exemptions are contained in Rule 13e-4 and Regulation 14D, the staff receives questions about whether a bidder may rely on these exemptions for a tender offer subject to the provisions of Regulation 14E only. The staff has taken the position that the Tier II exemptions are available for tender offers that would otherwise qualify for those exemptions, but for the fact that the tender offer is not subject to Rule 13e-4 or Regulation 14D. The staff's position was based on the premise that it would be inconsistent for bidders in tender offers subject only to the more basic tender offer provisions in Regulation 14E not to be able to take advantage of the Tier II exemptions, which technically apply to tender offers that are subject to the more extensive regulatory protections in Rule 13e-4 and Regulation 14D. We proposed to change the language of the Tier II exemptions to specifically make it available to offers subject only to Regulation 14E. As we stated in the Proposing Release, we believe the Tier II exemptions should be available for such offers if the conditions in our rules are satisfied; therefore, we are adopting amendments to the rules as proposed to clarify that the Tier II exemptions are available regardless of whether the target securities are subject to Rule 13e-4 or Regulation 14D.

147

See amended Exchange Act Rules 13e-4(i) and 14d-1(d).

Commenters supported the proposed amendments to codify this position.

148

Under the revised rules, the Tier II exemptions will be available to Regulation 14E-only offers only where the exemptions would have been available if those offers were subject to Rule 13e-4 or Regulation 14D. Thus, all of the existing conditions applicable to the Tier II exemptions will apply. Some of the Tier II exemptions may not be necessary for tender offers not subject to the requirements of Rule 13e-4 or Regulation 14D, because Regulation 14E may not have a corresponding regulatory requirement.

149

148

148 See,

e.g.

, letter from Cravath.

149

For example, there is no requirement in Regulation 14E to make a tender offer available to all target security holders. Therefore, the accommodation from the all-holders provisions in Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii) will not be necessary for an offer subject only to Regulation 14E.

2. Tier II Relief for Concurrent U.S. and Non-U.S. Offers

a. Multiple Foreign Offers in Connection With a U.S. Offer

The existing Tier II cross-border exemptions permit a bidder to conduct two separate but concurrent tender offers: one made

only

to U.S. target security holders and another open

only

to foreign target holders. In some instances, a tender offer may be subject to more than one regulatory regime outside the United States, particularly where the target's country of incorporation is not the location of the primary trading market for the target securities. In the past, bidders have requested and have been granted relief to conduct more than one foreign offer outside of the United States pursuant to the Tier II exemptions.

150

See,

e.g., Alcan, Inc.

(October 7, 2003) (“

Alcan

”);

Asia Satellite Telecommunications Holdings Limited

(May 25, 2007);

BCP Crystal Acquisition GmbH & Co

(February 3, 2004) and

Mittal Steel Company N.V.

(June 22, 2006) (“

Mittal

”) (providing relief for purchases outside of a U.S. offer for a tender offer that included more than one offer conducted outside of the United States).

Because we believe the use of a multiple offer structure may be helpful in addressing procedural and technical conflicts between tender offer rules and practice, as well as procedural requirements between different jurisdictions, we see no reason to prohibit the use of more than one offer outside the United States in connection with the Tier II exemptions. Three commenters addressed this proposed change; all supported it.

151

For the reasons noted above, we are adopting the amendments as proposed to permit the use of more than one offer outside of the United States for tender offers conducted under Tier II.

152

We believe the resulting increased flexibility to resolve regulatory conflicts will promote our goal of facilitating the inclusion of U.S. investors in cross-border tender offers subject to multiple regulatory regimes outside of the United States.

151

Letters from ABA, Cravath, and S&C.

152

Amended Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).

As discussed in the Proposing Release, the amendments we adopt today with respect to the use of a multiple offer structure under Tier II are not intended to permit the use of separate proration pools where such a structure is used in the context of a partial cross-border tender offer.

153

Under the current as well as the revised rules, bidders who conduct separate foreign and U.S. offers to minimize the difficulties of complying with two different regulatory regimes applicable to the offer must pro rate tendered securities on an aggregate basis, where required under U.S. rules.

154

153

Two commenters addressed our request for comment on whether we should permit the use of two separate proration pools in cross-border tender offers under Tier II. Both supported the continued use of a single proration pool. See letters from Cleary and Cravath.

154

See Exchange Act Section 14(d)(6) [15 U.S.C. 78n(d)(6)] and Exchange Act Rules 13e-4(f)(3) [17 CFR 240.13e-4(f)(3)] and 14d-8 [17 CFR 240.14d-8]. See also the discussion in Section II.C.2.c. of the Proposing Release.

b. U.S. Offer May Include Non-U.S. Holders of ADRs

155

“ADRs” refer to American Depositary Receipts. As in the Proposing Release, we use this term synonymously with American Depositary Shares, or ADSs.

The existing Tier II exemptions specify that a U.S. offer conducted in connection with a concurrent foreign offer under Tier II may be open to U.S. persons only.

156

This limitation creates a problem because bidders frequently seek to include all holders of ADRs, not only U.S. holders, in the U.S. portion of a dual offer. Additionally, in many instances, the target's home country regulations do not apply, by their terms, to ADRs.

157

So, as a practical matter, most bidders in cross-border tender offers wish to include all holders of ADRs in the U.S. portion of a dual offer. Companies frequently seek individual relief from the staff to address these issues.

158

The staff often has granted relief to permit a U.S. offer in a dual offer structure to include all holders of ADRs, including foreign holders.

159

Commenters generally supported the proposal.

160

Today we are adopting as proposed rule revisions that will allow a bidder in a cross-border tender offer conducted under Tier II to make the U.S. offer available to all holders of ADRs, including non-U.S. holders, to accommodate this preferred offer structure.

161

These revisions will eliminate the need for companies to seek individual relief in such circumstances.

156

Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).

157

See,

e.g., Portugal Telecom, SGPS, S.A.

(December 19, 2006) (“

Portugal Telecom

”) (noting that the provisions of the Portuguese Securities Code and the rules and regulations of the Portuguese Comissão de Mercado de Valores Mobiliários did not apply to the offer for ADSs of the target company listed on the New York Stock Exchange).

158

See

Harmony Gold Mining Company Limited

(November 19, 2004) (“

Harmony Gold 2004

”);

Discount Investment Corporation Ltd

. (June 14, 2004);

Alcan; Serono S.A.

(September 12, 2002) (“

Serono S.A.

”); and

Southern Cross

(March 5, 2002).

159

See,

e.g., Royal Bank of Scotland plc

(July 23, 2007) (“

Royal Bank

”);

E.ON Aktiengesellschaft

(December 6, 2006) (“

E.ON

”);

Koninklijke Ahold N.V.

(September 10, 2002) (“

Koninklijke

”).

160

See,

e.g.

, ABA.

161

Amended Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).

As we noted in the Proposing Release, bidders have not requested exemptive or no-action relief to permit the inclusion of foreign persons who hold shares directly in share form in the U.S. offer. Two commenters advocated that we allow the U.S. offer to be made to foreign holders of target shares as well as ADRs. We do not believe such a rule change is warranted at this time, given that this type of relief has not been requested frequently. If circumstances arise that weigh in favor of permitting foreign target holders to be included in the U.S. offer in a particular instance, requests for relief will be considered on a case-by-case basis. Therefore, we are not changing our rules to permit foreign holders who hold in direct share form to participate in the U.S. offer under Tier II.

We emphasize that, as discussed in the Proposing Release, this and other rule changes to the Tier II exemptions are not intended to enable a bidder to make an offer open only to ADR holders. This would be prohibited where the target securities are registered under Section 12 of the Exchange Act and the all-holders provisions of U.S. tender offer rules apply.

162

See Exchange Act Rules 13e-4(f) [17 CFR 240.13e-4(f)] and 14d-10 [17 CFR 240.14d-10].

c. U.S. Holders May Be Included in Foreign Offer

We are adopting as proposed revisions allowing a bidder to include U.S. target security holders in a foreign offer conducted under Tier II, under specified conditions. Under the revised rules, when a bidder conducts concurrent U.S. and foreign offers under Tier II, the foreign offer may be open to U.S. target security holders only where: (i) The laws of the foreign target company's home jurisdiction expressly prohibit the exclusion of any target security holders, including U.S. persons; and (ii) the offer materials distributed to U.S. persons fully and completely describe the risks to U.S. holders of participating in the non-U.S. offer.

163

See amended Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).

This rule change reflects the fact that takeover rules in some non-U.S. jurisdictions do not permit the exclusion of any target security holders from the foreign offer, even where the bidder makes a concurrent U.S. offer that is open to U.S. holders. Where such rules are present, relief has been granted on a case-by-case basis, in order to accommodate the requirements of the applicable foreign regulatory regime.

164

Such relief has been conditioned on the same conditions we now codify in the revised rule, which we believe strikes the appropriate balance between the need to respect a foreign regulatory requirement in a primarily foreign transaction and the need to provide adequate protections for U.S. investors by fully disclosing the risks of participating in a non-U.S. offer not subject to U.S. rules.

165

164

See,

e.g., Gas Natural SDG, S.A.

(March 2, 2006) (“

Gas Natural

”).

165

See amended Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).

Commenters generally supported the proposed changes to the Tier II exemptions, including this change. One commenter stated that permitting U.S. persons to be included in a foreign offer where mandated by foreign law and where U.S. investors have received appropriate disclosure concerning the risks of participating in the foreign offer strikes the appropriate investor protection balance.

166

Letter from ABA.

We note that the rule change permitting U.S. investors to participate in a non-U.S. offer conducted under the Tier II exemptions does not require them to do so. Under our revised rules, as was the case before today's amendments, any U.S. holder who prefers to tender into the U.S. offer in a multiple offer under Tier II is free to do so.

3. Termination of Withdrawal Rights While Counting Tendered Securities

We are adopting as proposed the rule revisions permitting a bidder in a cross-border tender offer conducted under Tier II to suspend withdrawal rights during the counting of tendered securities and until those securities are accepted for payment.

167

Rule 13e-4(f)(2)(ii) and Section 14(d)(5) of the Exchange Act require bidders to provide “back-end” withdrawal rights if tendered securities have not been accepted for payment within a certain date after the commencement of a tender offer.

168

Acceptance of securities tendered terminates the back-end withdrawal rights mandated by Rule 13e-4 and the Exchange Act.

169

167

See new Exchange Act Rules 13e-4(f)(2)(v) and 14d-1(d)(2)(viii).

168

For issuer tender offers subject to Rule 13e-4, tendering security holders must be able to withdraw tendered securities after the expiration of 40 business days from the commencement of the tender offer. Exchange Act Rule 13e-4(f)(2)(ii) [17 CFR 240.13e-4(f)(2)(ii)]. For third-party tender offers, Section 14(d)(5) of the Exchange Act states that withdrawal rights exist “at any time after sixty days from the date of [commencement] of the original tender offer * * *.”

169

Exchange Act Rule 13e-4(f)(2)(ii) states that back-end withdrawal rights arise upon the 41st day after commencement of an offer “if [tendered securities are] not yet accepted for payment.” We interpret the back-end withdrawal rights provisions in Section 14(d)(5) of the Exchange Act to terminate upon acceptance of tendered securities.

The requirement to provide back-end withdrawal rights creates problems in cross-border tender offers not generally present in U.S. offers. Differences in the tender, acceptance and payment procedures between U.S. and foreign offers necessitate this relief. The manner

in which securities are tendered and centralized for counting in U.S. tender offers typically enable bidders to accept tendered securities almost immediately after the expiration of the initial offering period, thereby terminating back-end withdrawal rights. However, because of differences in the manner in which securities are tendered in many non-U.S. jurisdictions, the centralization and counting of tendered securities can take longer than in the United States.

170

This makes it more likely that back-end withdrawal rights will exist during the counting process in a cross-border tender offer, thereby complicating the counting and payment procedure.

170

For a description of the counting and centralization process in several European jurisdictions, see

Business Objects S.A.

(December 5, 2007) and

Vodafone AirTouch PLC

(December 22, 1999).

As a result of these difficulties, bidders have sought relief from the application of the back-end withdrawal rights provided under our rules in connection with cross-border tender offers.

171

We have recognized that the mechanics of the tendering and counting regimes in other countries justifies different treatment under our rules,

172

and for the same reasons, we believe it is appropriate to provide an exemption in this area. Under the rule revisions we are adopting, back-end withdrawal rights may be suspended after the expiration of an offer while tendered securities are being counted in a cross-border tender offer conducted under Tier II, so long as:

171

See,

e.g., Barclays PLC tender offer for ABN AMRO Holding N.V.

(August 7, 2007) (“

Barclays

”);

Endesa, S.A.

(July 3, 2007); and

Portugal Telecom

172

See Exchange Act Rules 13e-4(i)(2)(iv) and 14d-1(d)(iv) [17 CFR 240.13e-4(i)(2)(iv) and 240.14d-1(d)(iv)]. As a result of the differences in process between the U.S. and various foreign jurisdictions, Tier II currently includes prompt payment relief to allow a bidder meeting the conditions of that exemption to pay for tendered securities in accordance with home country law or practice.

• The bidder has provided an offer period (including withdrawal rights) of at least 20 U.S. business days;

173

New Exchange Act Rules 13e-4(f)(2)(v)(A) and 14d-1(d)(2)(viii)(A).

• At the time withdrawal rights are suspended, all offer conditions other than the minimum acceptance condition have been satisfied or waived;

174

and

174

For reasons discussed above, the bidder in a cross-border tender offer may not know at the expiration of the offer whether the minimum tender condition has been satisfied, and the amended rules recognize this issue. See new Exchange Act Rules 13e-4(f)(2)(v)(B) and 14d-1(d)(2)(viii)(B). However, because the tenders of securities must occur before the expiration, even where the counting process occurs after the end of the offer, we view a minimum tender condition as being satisfied at or before expiration, consistent with our view that all non-regulatory conditions must be satisfied or waived as of that date. See footnote 151 in the Proposing Release. Note that the only conditions that may survive the expiration of the initial offering period are regulatory approvals necessary to consummate the tender offer.

• Back-end withdrawal rights are suspended only until tendered securities are counted and are reinstated immediately after that process, to the extent they are not terminated by the acceptance of tendered securities.

175

New Exchange Act Rules 13e-4(f)(2)(v)(C) and 14d-1(d)(2)(viii)(C).

Under the rules before today's amendments, back-end withdrawal rights were suspended between the end of an initial offering period and the commencement of a subsequent offering period.

176

We believe the rule change we adopt today is necessary because not every tender offer includes a subsequent offering period. For example, subsequent offering periods are not permitted in issuer tender offers or in third-party offers for less than all of the securities of the target class.

177

A subsequent offering period in a third-party tender offer for all outstanding target securities is at the option of the bidder and is not required under U.S. rules. The rule change we adopt today also operates to suspend back-end withdrawal rights that may exist after the expiration of a subsequent offering period, to the extent the bidder meets the conditions outlined in our rules.

176

Exchange Act Rule 14d-1(d)(2)(v) [17 CFR 240.14d-1(d)(2)(v)].

177

Exchange Act Rule 14d-11(b) [17 CFR 240.14d-11(b)].

The rule changes we adopt today are not intended to eliminate back-end withdrawal rights where a regulatory condition remains outstanding after the expiration of the offer period. Where a lengthy regulatory review process survives the expiration of a tender offer, the back-end withdrawal rights provided under our rules provide an important safeguard for tendering security holders.

Commenters generally supported the proposed changes to Tier II, including this one. One commenter noted that this relief is helpful even where no subsequent offering period is provided, and agreed that the requirement that all offer conditions must be satisfied at the time withdrawal rights are suspended is in the best interests of security holders.

178

Otherwise, security holders could face a prolonged period during which they could not withdraw and would not have received payment for tendered securities.

179

One commenter suggested that we also permit suspension of back-end withdrawal rights while a financing condition remains outstanding at the time withdrawal rights are suspended.

180

The commenter noted that the financing for an offer may be contingent on the satisfaction or waiver of the minimum acceptance condition. At this time, we are not extending the rule to permit the suspension of back-end withdrawal rights while an offer condition, other than a minimum acceptance condition, remains outstanding. As noted above, in our view, only conditions for regulatory approvals necessary to the consummation of the offer may survive its expiration.

181

178

Letter from ABA.

179

These provisions allow tendering security holders to withdraw their tendered securities after a certain period of time. Certain regulatory approval processes, such as anti-trust approvals, may be lengthy and back-end withdrawal rights may provide an important safeguard in such cases. See generally,

ProSiebenSat.1 Media AG

(January 30, 2007)(in granting no-action relief from the prompt payment requirements of Exchange Act Rule 14e-1(c) where a regulatory condition was expected to survive the expiration of a tender offer, the staff explicitly noted that tendering target holders would have withdrawal rights through the date of receipt of such regulatory approvals). Consideration will be given to requests for relief under those circumstances only where a compelling reason exists.

180

Letter from STB.

181

See footnote 174 above and footnote 151 in the Proposing Release.

4. Subsequent Offering Period Changes

a. Maximum Time Limit on Subsequent Offering Period Eliminated

Based on our experience with foreign rules permitting the use of a subsequent offering period, we revised our rules in 1999 to permit the use of this offer structure in domestic tender offers.

182

Current rules permit a third-party bidder in a tender offer for all of the subject class of securities to include a subsequent offering period during which securities may be tendered and purchased on a rolling or “as tendered” basis if certain conditions are met.

183

We adopted the subsequent offering period because we believe it benefits target security holders who may want to tender into an offer once the offer is unconditional and will be consummated; once an offer for all outstanding securities is certain to be consummated successfully because all offer conditions have been satisfied or waived, the opportunity to tender into

a subsequent offering period and to be paid quickly allows remaining target security holders to be paid before a back-end merger or other second-step transaction.

184

The subsequent offering period also may facilitate a bidder's efforts to reach the thresholds necessary to effect a short-form or “squeeze-out” merger at the levels set by the laws of the relevant jurisdiction.

185

182

Regulation of Takeovers and Security Holder Communications

, Release No. 33-7760 (October 22, 1999) [64 FR 61408] (“Regulation M-A Adopting Release”).

183

Exchange Act Rule 14d-11 permits the use of a subsequent offering period in an offer for all securities of the class that is the subject of the tender offer. If the bidder is offering security holders a choice of different forms of consideration, there may be no ceiling on any form of consideration offered. Subsequent offering periods are not permitted for issuer tender offers.

184

See Regulation M-A Adopting Release, Section II.G.1.

185

Id.

In practice, however, U.S. rules on subsequent offering periods have been a source of conflict with foreign regulations in the context of cross-border tender offers. A conflict often arises because Rule 14d-11 imposes a maximum time limit of 20 U.S. business days on the length of subsequent offering period.

186

Subsequent offering periods of significantly longer duration are common under law or practice in many foreign jurisdictions.

187

To address the conflict, today we are eliminating the maximum time limit on the length of a subsequent offering period in both foreign and domestic tender offers.

186

Another source of conflict is the minimum extension periods set forth in Exchange Act Rules 13e-4(e)(3) and 14d-4(d)(2) [17 CFR 240.13e-4(e)(3) and 240.14d-4(d)(2)]. These rules require an offer to remain open from the date that material changes to the offer materials are disseminated to security holders, as follows: (i) five business days for a prospectus supplement containing a material change other than price or share levels; (ii) 10 business days for a prospectus supplement containing a change in price, the amount of securities sought, the dealer's soliciting fee, or other similarly significant change; (iii) 10 business days for a prospectus supplement included as part of a post-effective amendment; and (iv) 20 business days for a revised prospectus when the initial prospectus was materially deficient.

187

See

RWE Aktiengesellschaft

(March 22, 2002) (“

RWE

”) (noting that subsequent offering periods lasting significantly longer than 20 business days are the custom in Great Britain and are permitted under The City Code on Takeovers);

Serono S.A.

(noting that French law does not set a maximum for the number of days in a subsequent offering and requesting relief for a 30 trading day subsequent offering period, with immediate acceptance of tendered shares on an “as tendered” basis);

Rio Tinto plc

(July 24, 2007) (“

Rio Tinto

”) (noting that Canadian law sets no maximum period for subsequent offering periods);

STATs ChipPAC Ltd.

(March 15, 2007) (“

STATs ChipPAC

”) (relief for a subsequent offering period of up to four months from the commencement date); and

Harmony Gold 2004

(requesting relief for a subsequent offering of longer than 20 U.S. business days, as permitted under South African law and as is customary market practice in that jurisdiction).

As proposed, this rule change would have applied only to Tier II cross-border tender offers. We also solicited comment on whether we should eliminate the 20-business day time limit as to domestic offers. Because we believe the flexibility to conduct a longer subsequent offering period will be beneficial to bidders and target security holders in U.S. offers as well, we are making this change to our tender offer rules generally.

188

We believe that as a practical matter, eliminating the limit on the time period for a subsequent offering period will benefit target security holders who choose not to tender into an initial offering period. The elimination of the 20-business day time limit will allow security holders more time to tender during the subsequent offering period. Tendering holders will be paid more quickly, thereby avoiding the lengthy process that may be associated with a squeeze-out process. We do not believe that the elimination of this limit will have any negative effects on security holders. Security holders tendering during a subsequent offering period will continue to be protected by the prompt payment provisions, as modified today in the case of Tier II offers, in the event that a subsequent offering is conducted over an extended period of time.

189

188

See amended Exchange Act Rule 14d-11.

189

See Exchange Act Rule 14d-11(e) [17 CFR 240.14d-11(e)] and amended Exchange Act Rule 14d-1(d)(2)(iv).

Five commenters specifically supported our proposal to eliminate the time limit on the length of the subsequent offering period.

190

Three supported making corresponding changes to the rules applicable to domestic tender offers, as we are doing today.

191

One commenter advocated the elimination of the 20-business day limit on the length of the subsequent offering period but expressed support for retaining the minimum three-business day period in our current rules.

192

We did not propose to eliminate the requirement that the subsequent offering period be at least three business days long, and we are not doing so today.

193

We believe the minimum time period is necessary to give remaining target security holders a meaningful opportunity to exercise the right to tender during this period.

190

See letters from ABA, Cleary, Cravath, Linklaters, and S&C.

191

See letters from ABA, Cleary, and Cravath.

192

Letter from ABA and Exchange Act Rule 14d-11.

193

Exchange Act Rule 14d-11.

b. Prompt Payment of Securities Tendered During the Subsequent Offering Period

We are adopting a modification of the proposed changes to the payment process for securities tendered during the subsequent offering period in a Tier II cross-border tender offer.

194

U.S. rules mandate that securities tendered during a subsequent offering period must be paid for as soon as they are tendered, on a “rolling” basis.

195

Our revised rules will allow a bidder in a cross-border tender offer conducted pursuant to the Tier II exemptions to “bundle” and pay for securities tendered in the subsequent offering period within 20 business days of the date of tender. For purposes of this rule provision only, a business day will be determined by reference to the relevant foreign jurisdiction; this will provide greater flexibility for bidders, because foreign and U.S. holidays may vary.

196

194

See amended Exchange Act Rule 14d-1(d)(2)(iv).

195

See Exchange Act Rule 14d-11(e) [17 CFR 240.14d-11(e)].

196

See amended Exchange Act Rule 14d-1(d)(2)(iv). By not defining business day in accordance with the U.S. calendar, we believe this rule modification will be more useful because U.S. and non-U.S. holidays will vary.

The requirement to pay for securities tendered during the subsequent offering period on a rolling basis exists because security holders cannot withdraw securities tendered in that period. Therefore, because the tender offer is no longer subject to any conditions,

197

it is appropriate for tendering security holders to be paid immediately upon tender.

197

A subsequent offering period may commence only when all offer conditions have been satisfied or waived. See Exchange Act Rule 14d-11(c) [17 CFR 240.14d-11(c)].

In a cross-border tender offer, foreign rules or practice often dictate payment practices during the subsequent offering period that conflict with U.S. rules. For example, foreign law may require securities tendered during the subsequent offering period to be paid for within a certain number of days after the expiration of the subsequent offering period

198

or may require “bundling” of securities and payment on specified periodic take-up dates.

199

In the past, bidders have been granted relief to accommodate conflicts between U.S. rules and non-U.S. law or practice with respect to payment practices during the subsequent offering period.

200

198

This is the practice in the Netherlands and France, for example. See

Barclays

and

Aventis

(June 10, 2004).

199

For example, under Canadian law, tendered securities must be taken up and paid for within ten calendar days of tender.

200

See

Barclays

(relief granted to permit payment for securities tendered in the subsequent offering period within five Dutch trading days after the end of that period);

Rio Tinto

(shares tendered during a subsequent offering period may be taken up and paid for within ten calendar days of the date of tender, in accordance with Canadian law); and

Aventis

(relief granted to permit payment for securities tendered into a French offer to be made within 12-18 French trading days after the expiration of that period).

This revised rule we adopt today is slightly modified from the proposal in

order to provide expanded flexibility to avoid conflicts between U.S. and non-U.S. law and practice and to address concerns raised by commenters that the proposal did not go far enough in this regard. We initially proposed to require payment for securities tendered during the subsequent offering period to be made within 14 business days, but solicited comment on whether a shorter or longer period would be appropriate.

201

As adopted, we are allowing bidders 20 business days to effect payment. The change to 20 business days was requested by one commenter.

202

We believe that allowing 20 business days to effect payment should be sufficient in most jurisdictions, and increasing the payment period to 20 business days, rather than 14 business days as proposed, will not be detrimental to investors.

201

See Proposing Release, Section II.C.4.a.

202

See letter from Linklaters.

Several other commenters expressed support for allowing bidders to pay for securities tendered during the subsequent offering period in accordance with the target's home country law or practice, rather than fixing a set payment date, as proposed.

203

We are not adopting this change. Because we are eliminating the maximum time period for the subsequent offering period, we believe that maintaining a time limit for payment is appropriate and in the best interests of U.S. investors. Without a time limit for payment, investors tendering securities in the subsequent offering period may face an indefinite waiting period for payment of their tendered securities. Maintaining a time limit is particularly important because target security holders who tender during the subsequent offering period do not have withdrawal rights.

204

203

See letters from ABA, Shearman, and S&C.

204

See note to Exchange Act Rule 14d-11.

The rule change we adopt is intended to set a minimum standard for payment for securities tendered during a subsequent offering period. Where local law mandates and local practice permits payment on a more expedited basis, payment must be made more quickly than 20 business days from the date of tender to satisfy U.S. prompt payment requirements.

205

The language of amended Exchange Act Rule 14d-1(d)(2)(iv) states “[w]here payment may not be made on a more expedited basis under home jurisdiction law or practice * * *.”

Although, as noted in the previous section, we are eliminating the limits on the length of the subsequent offering period for domestic as well as cross-border tender offers, we are not adopting corresponding changes to permitted payment practice during the subsequent offering period for domestic offers.

206

The changes in permitted payment practice for Tier II cross-border tender offers are necessitated by direct conflicts between U.S. and foreign law and practice; no such conflicts exist for U.S. offers. Moreover, because withdrawal rights are not provided during a subsequent offering period, we believe that in domestic offers where there is no impediment to doing so, it is appropriate to continue to require payment to be made on an as tendered basis.

206

See Exchange Act Rule 14d-1(d)(2) [17 CFR 240.14d-1(d)(2)] and Section II.C.4.a. of this release.

c. Payment of Interest on Securities Tendered During the Subsequent Offering Period

We are adopting as proposed a rule change permitting bidders in Tier II cross-border tender offers to pay interest on securities tendered during a subsequent offering period, where required under foreign law.

207

In some foreign jurisdictions, bidders are legally obligated to pay interest on securities tendered during a subsequent offering period at a rate set by law.

208

Sometimes interest accrues from the actual date of tender; in other jurisdictions, interest accrues from a date certain unrelated to the date of tender.

209

207

New Exchange Act Rule 14d-1(d)(2)(vi).

208

Germany and Brazil are two such foreign jurisdictions. For example, in Brazil, bidders must pay interest at a statutory rate on securities “put” to the bidder after the termination of a successful voluntary offer. We consider such a put right to be a tender offer or to constitute the subsequent offering period in a voluntary offer. See the description of this feature of Brazilian law in

Embratel Participacoes S.A.

(December 6, 2006) (“

Embratel

”) and

Telemar Participacoes S.A.

(October 9, 2007) (“

Telemar

”). See also,

Bayer AG

(September 26, 2006) (“

Bayer

”) (describing a similar requirement under German law).

209

Id.

Without the rule change we adopt today, paying interest on securities tendered during a subsequent offering period would violate U.S. rules, which mandate that security holders who tender into a subsequent offering period must receive the same consideration as those that tender during the initial offering period.

210

Because of this prohibition, bidders have requested and received exemptive relief to address the direct conflict of law presented, where foreign law in the relevant jurisdiction requires the payment of interest on securities tendered but U.S. law prohibits it.

211

The rule changes we adopt today codify this relief for Tier II tender offers.

210

Exchange Act Rules 14d-10 and 14d-11(f) [17 CFR 240.14d-11(f)].

211

See,

e.g.

Telemar

;

Embratel

; and

Blackstone Entities

(December 16, 2004).

We note that the rule change we adopt today applies only where the payment of interest is mandated by the law of the relevant foreign jurisdiction applicable to the offer. It is not intended to allow bidders to pay more in the subsequent offering period simply as an inducement to tendering.

212

We believe the general requirement that bidders make the same amount and form of consideration in the initial and subsequent offering periods serves an important function to eliminate any coercion of target security holders, and should be maintained unless it is inconsistent with an express requirement of applicable foreign law.

212

One commenter argued that voluntary interest payments should be permitted. See letter from ABA. However, we believe that the general purposes for which we permit the use of a subsequent offering period are not consistent with the payment of offer consideration different than that provided during the initial offering period, unless specifically required by home country law.

We have not limited the amount of interest that may be paid on securities tendered during the subsequent offering period. In our experience, the rate of interest set by foreign law generally results in a

de minimis

payment, but we have not conditioned the application of the revised exemption on the amount of the interest payment. Only one commenter responded to our question regarding whether we should limit the amount of interest that may be paid on securities tendered during the subsequent offering period. That commenter supported our approach of not setting a limit, on the grounds that interest payments would not have a coercive effect under the circumstances where they are permitted by our revised rules.

213

See letter from ABA.

Our rule change does not permit the payment of interest on securities tendered during the initial offering period. The only commenter who addressed this question indicated that we should permit interest payments on securities tendered during an initial offering period, where such interest payments are required under home country law.

214

However, this is not an area where relief is frequently requested, so we do not believe a rule change is appropriate at this time.

215

Consideration will be given to requests for relief in connection with individual cross-border transactions, if local law requires the payment of interest on securities tendered during an initial offering period.

214

See letter from Cravath.

215

To our knowledge, the staff has never been asked to provide no-action or exemptive relief to permit the payment of interest on securities tendered during an initial offering period. This may be, as one commenter posited, because tendering security holders often have withdrawal rights during an initial offering period, so they may not be deemed to have sold their shares until those rights terminate at the end of the initial offering period. See letter from ABA.

d. Mix and Match Offers and the Initial and Subsequent Offering Periods

We proposed changes to our rules, which we adopt as proposed, to facilitate so-called “mix and match” cross-border tender offers. We view these changes as necessary and appropriate to facilitate the prompt payment for securities tendered during these offer periods, and to permit the use of the mix and match offer structure generally. In a mix and match offer, bidders offer a set mix of cash and securities in exchange for each target security, but permit tendering holders to request a different proportion of cash or securities. These elections by tendering holders are satisfied to the extent that other tendering security holders make offsetting elections for the opposite proportion of cash and securities, subject to a maximum amount of cash or securities that the bidder is willing to issue.

216

For a discussion of the mechanics of a mix and match cross-border tender offer, see,

e.g., Barclays

and

Alcan

U.S. rules prohibit several features characteristic of mix and match offers. Under U.S. subsequent offering period rules, a bidder must offer the same form and amount of consideration to security holders who tender into both the initial and subsequent offering periods.

217

Further, a bidder may not impose a ceiling on any form of alternate consideration offered during the subsequent offering period.

218

217

Exchange Act Rule 14d-11(f).

218

Exchange Act Rule 14d-11(b).

Because of the prompt payment and other requirements of U.S. rules and the requirements of foreign law or practice in cross-border offers, bidders in mix and match offers often request relief to use two different proration and offset pools in their offers: one for securities tendered during the initial offering period and another for those tendered in the subsequent offering period.

219

The rule revisions we adopt today expressly permit the use of separate offset “pools” for securities tendered during the initial and subsequent offering periods for cross-border tender offers conducted under Tier II.

220

This rule change is necessary because of the U.S. prohibition on the payment of different consideration in the initial and subsequent offering periods.

221

New Rule 14d-1(d)(2)(viii) also eliminates the prohibition on a ceiling for the form of consideration in a mix and match cross-border offer under Tier II, where target security holders are able to elect to receive alternate forms of consideration in the offer. Applicable foreign rules generally require the bidder to promptly take up and pay for securities tendered during the initial offering period at the end of that period.

222

In a mix and match offer where the bidder allows tendering security holders to make offsetting elections of cash and bidder securities, the bidder must set the offset or proration “pool” at the end of the initial offering period for the securities tendered during that period, in order to begin the payment process for those securities. Similarly, the bidder must count and offset against each other all securities tendered during the subsequent offering period.

219

See

Barclays

and

SERENA Software Inc.

(April 13, 2004)(setting a cap on the number of bidder shares and cash that would be issued in a mix and match election, with elections for more cash or shares being offset against one another).

220

New Exchange Act Rule 14d-1(d)(2)(viii).

221

See Exchange Act Rule 14d-11(f).

222

See,

e.g.

, Germany and the United Kingdom.

We solicited comment about whether these changes should be extended to tender offers for U.S. target companies. Two commenters argued that these changes should apply to all tender offers, including offers for domestic targets, on the grounds that an acquiror for a U.S. target can accomplish the same result by entering into a merger agreement that provides target security holders with the same elections.

223

We are not extending these rule changes to tender offers for domestic issuers at this time. U.S. law already permits acquirors to structure business combination transactions in a manner that achieves the same result as the mix and match tender offer structure through the use of the merger structure. We have not received requests for relief in this area in connection with tender offers for U.S. targets; therefore, at this time, we do not believe there is a compelling reason to change our rules to provide this accommodation for U.S. offers.

223

See letters from ABA and Cleary.

5. Terminating Withdrawal Rights Immediately After Reducing or Waiving a Minimum Acceptance Condition

We are reaffirming the interpretive position we expressed in the Proposing Release, with some further modifications, with respect to a bidder's ability in a cross-border tender offer conducted under Tier II to waive or reduce a minimum acceptance condition without providing withdrawal rights. Under U.S. tender offer rules, bidders must ensure that a tender offer remains open and includes withdrawal rights for a prescribed period after a material change in the terms of the offer.

224

Generally, waiving or reducing the minimum acceptance condition is considered a material change in the terms of the offer that triggers this requirement. A statement in the initial offer materials advising target security holders that the minimum acceptance condition

may

be reduced or waived is not sufficient to avoid the obligation to inform target security holders of this development if it actually occurs. Such a statement also is not sufficient to avoid the obligation to extend the offering period where required to satisfy the minimum time periods set forth in our rules.

225

224

Exchange Act Rules 13e-4(e)(3) and 14d-4(d). The Commission has expressed the position that the minimum extension periods set forth in those rules apply as general guidelines applicable to all tender offers, including those that are not subject to Rule 13e-4 or Regulation 14D. See footnote 186 above and the discussion in Regulation M-A Adopting Release, Section II.E.2. See also Exchange Act Rule 14e-1(b) [17 CFR 240.14e-1(b)], which states that a tender offer must remain open for a minimum of 10 business days after a change in the consideration offered, the amount of securities sought, or the dealer's soliciting fee.

225

A bidder must announce that it may reduce or waive the minimum condition at least five business days before it reduces or waives it. See footnote 186 and the 1999 Cross-Border Adopting Release, Section II.B.

The requirement to provide withdrawal rights after a reduction in, or waiver of, a minimum acceptance condition under U.S. rules conflicts with law or practice in certain foreign jurisdictions. The conflicts with U.K. law and practice were the primary basis for the adoption of our original interpretive position when the cross-border exemptions were adopted in 1999.

226

Since that time, we have encountered other foreign jurisdictions with conflicting law or practice regarding the need or the ability of a bidder to provide withdrawal rights after reducing or waiving a minimum acceptance condition in a tender offer.

227

Because of these conflicts, we believe the basic premise for our interpretive position of permitting flexibility for bidders in Tier II cross-border tender offers to waive or reduce a minimum tender condition without providing withdrawal rights remains valid. As noted in the Proposing Release, however, additional conditions

are necessary to assure that the guidance is used for the purposes for which it was originally granted.

228

226

See 1998 Cross-Border Proposing Release, Section II.C.2.f.

227

For example, Netherlands law and practice allows a bidder to reduce or waive a minimum acceptance condition at or after the end of the initial offering period without providing tendering holders with the ability to withdraw their securities after the reduction or waiver. See,

e.g., Barclays

228

See Proposing Release, Section II.C.5.

We will not object if a bidder in a cross-border tender offer satisfying the requirements of Tier II waives or reduces the minimum acceptance condition in the offer without providing withdrawal rights after the reduction or waiver (except where an extension is required under Exchange Act Rule 14e-1),

229

under the following conditions:

229

Our position on reduction or waiver was never intended to allow a bidder to terminate withdrawal rights required under a mandatory extension of the offer period,

i.e.

, an extension required under Rule 14e-1. See 1999 Cross-Border Adopting Release, Section II.B. We maintain this limitation today in modifying the position.

• The bidder must announce that it may waive or reduce the minimum acceptance condition at least five business days before the actual waiver or reduction;

230

As noted above, a statement in the initial offering materials will not satisfy this condition.

• The bidder must disseminate the announcement through a press release and other methods reasonably calculated to inform U.S. holders of the possibility of a waiver or reduction, which may include placing an advertisement in a newspaper of national circulation in the United States;

231

This announcement should be filed on EDGAR, as is generally the practice today.

• The press release must state the exact percentage to which the minimum acceptance condition may be reduced (or if it will be waived, rather than reduced). The bidder must announce its actual intentions regarding waiver or reduction as soon as required under home country rules;

• During the five-day period after the announcement of a possible waiver or reduction, withdrawal rights must be provided;

• The announcement must advise security holders to withdraw tendered securities immediately if their willingness to tender into the offer would be affected by the reduction or waiver of the minimum acceptance condition;

• The procedure for waiving or reducing the minimum acceptance conditions must be described in the offering materials;

• The offer must remain open for at least five business days after the waiver or reduction of the minimum acceptance condition;

• All offer conditions are satisfied or waived when withdrawal rights are terminated;

232

See Section II.A. Question 1 in the Third Supplement to the Division of Corporation Finance's Manual of Publicly Available Telephone Interpretations (July 2001) at

http://www.sec.gov/interps/telephone/phonesupplement3.htm

• The potential impact of the waiver or reduction of the minimum acceptance condition is fully discussed in the initial offering materials or any supplemental materials;

233

and

233

The staff has conditioned a bidder's ability to waive or reduce the minimum acceptance condition without providing withdrawal rights on adequately describing the potential impact of that action in the initial offer materials or in a supplement. See,

e.g., Royal Bank

• The bidder may not waive or reduce the minimum acceptance condition below the percentage required for the bidder to control the target company after the tender offer under applicable foreign law, and in any case, may not reduce or waive the minimum acceptance condition below a majority

234

of the outstanding securities of the subject class.

234

We consider a “majority” for these purposes to be any number greater than 50 percent of the outstanding securities of the subject class.

With respect to the last bullet point above, we initially limited the guidance to apply only where the bidder would not waive or reduce the minimum acceptance condition below a simple majority.

235

We solicited comment on what should be considered a “majority” for these purposes. Consistent with the feedback from one commenter,

236

we have further modified the guidance to address foreign jurisdictions in which some percentage greater than a simple majority may be required to control the target company after the offer. As we modify the guidance today, it may not be relied upon unless the bidder undertakes not to waive below a simple majority, or the percentage threshold required to control the target company under applicable foreign law, if it is greater. We are aware of at least one foreign jurisdiction where a percentage greater than a simple majority is required to control the management and corporate governance of a target company.

237

As discussed in the Proposing Release, in addition to the potential need to provide alternate sets of pro forma financial statements under our existing disclosure rules,

238

we believe reducing the minimum acceptance condition significantly below the level at which it is initially set may fundamentally change the nature of the transaction and the relationship between the offeror and the target company going forward. In particular, where the minimum acceptance condition changes below a majority of the subject class or that greater percentage needed to control the target company, security holders should be afforded withdrawal rights after the change, as the nature of their investment decision may have changed fundamentally.

239

235

See Proposing Release, Section II.C.5.

236

See letter from ABA.

237

We have been advised that Germany is one such foreign jurisdiction. Under German law, 75 percent of a target's security holders must approve a “domination agreement” between the target and the bidder in order for the bidder to effectively exercise control of the target company after a tender offer. Therefore, unless the bidder can obtain at least 75 percent of the target's securities in the tender offer, it cannot be assured of the ability to fully integrate the target company. See,

e.g., Bayer

and

Blackstone

238

See Item 5 of Forms S-4 and F-4 and Rule 11-02(b)(8) of Regulation S-X [17 CFR 210.11-02(b)(8)]. Rule 11-02(b)(8) mandates that where a transaction is structured in such a way that significantly different results may occur, additional pro forma presentation must be provided which give effect to the range of possible results.

239

See Proposing Release, Section II.C.5.

Several commenters argued that placing a newspaper advertisement in a newspaper of national circulation in the United States is unnecessary in the Internet age and unduly burdensome.

240

While the use of a newspaper advertisement is not required under all circumstances, we believe in the tender offer context, newsprint media remain an important means of communicating with security holders, and in particular, “back office” personnel at many financial institutions. Although we continue to believe that in most instances today, a newspaper advertisement is an appropriate method of dissemination reasonably calculated to inform U.S. holders, we recognize that as practice changes, and Internet and other means of communication evolve, a newspaper advertisement may in the future become unnecessary.

241

240

See letters from ABA and Cravath.

241

Cf. Commission Guidance on the Use of Company Web Sites

, Release No. 34-58288 (August 1, 2008).

One of the commenters advocated eliminating the requirement to provide five days notice of a possible waiver or reduction.

242

We believe that advance notice of a possible waiver or reduction serves an important function in warning target security holders who may wish to withdraw their tendered securities immediately if their tender decision would be impacted by a change in the minimum acceptance condition. Therefore, we are retaining this condition. Another commenter advocated expanding the ability to waive or reduce a minimum acceptance condition without providing withdrawal rights to the waiver of a financing condition, arguing that this renders the successful completion of the offer more

likely and therefore benefits holders.

243

While we do not disagree that some changes in the terms of an offer may be viewed beneficially by target holders, we continue to believe that the provisions of U.S. rules that require extension of an offer period when its terms materially change are appropriate in most instances and should be relaxed only where conflicts between U.S. and foreign law or practice so necessitate. In our experience, bidders have not sought relief to waive a financing condition without providing withdrawal rights in cross-border tender offers. In addition, we believe that in some circumstances, the waiver of a financing condition may present risks to target holders, including those who have already tendered into the offer, because a bidder may waive the financing condition, thinking that financing is secure, when this may not turn out to be the case.

242

See letter from ABA.

243

See letter from STB.

We reiterate that the ability to rely on our position, as modified above, to terminate withdrawal rights immediately after waiving or reducing a minimum acceptance condition is limited to offers that otherwise satisfy the requirements of the Tier II cross-border exemptions.

244

In addition, it may be relied upon only where law or practice in the applicable foreign jurisdiction does not permit the bidder to provide withdrawal rights after the reduction or waiver, as required under U.S. law. We do not believe a bidder in a cross-border offer should be permitted to rely on this position where it is not needed under the requirements of foreign law or practice.

244

See Proposing Release, Section II.C.5.

6. Early Termination of an Initial Offering Period or a Voluntary Extension of an Initial Offering Period

Where the expiration date of a tender offer has been set by the bidder, whether in the original offer materials or in supplemental materials announcing an extension of the offer, changing that expiration date requires notice to target security holders before the initial offering period closes and withdrawal rights terminate.

245

This extension requirement in U.S. rules conflicts with the law or practice in some foreign jurisdictions, which mandate that once all offer conditions have been satisfied or waived, the initial offering period and withdrawal rights must terminate so that the bidder may begin the payment process.

246

Generally in these foreign jurisdictions, a subsequent offering period provides a means by which remaining target holders may participate in the offer, so they are not disadvantaged by its early termination.

247

245

As noted above in footnotes 186 and 224, Exchange Act Rules 13e-4(e)(3) and 14d-4(d)(2) establish minimum time periods during which an offer must remain open after notice of a material change in its terms is communicated to target holders. Although by their terms these periods apply only to early commencement exchange offers, we have stated that we view the time periods set forth in these rules as generally applicable to all tender offers, including those not subject to Rule 13e-4 or Regulation 14D. See Regulation M-A Adopting Release, Section II.E.2. See also, Exchange Act Rule 14e-1(b), which establishes comparable minimum time periods for certain kinds of material changes, such as an increase or decrease in the offer consideration or the amount of securities sought in the offer, and a change in the soliciting dealer's fees.

246

We are advised that some of these jurisdictions include the United Kingdom, South Africa, Singapore and China (Hong Kong). See,

e.g., RWE

(U.K. practice);

Harmony Gold Mining Ltd.

(March 10, 2005) (“Harmony Gold 2005”) (South Africa);

STATs ChipPAC

(Singapore); and

Jilin Chemical Industrial Company Ltd.

(December 21, 2005) (Hong Kong Code).

247

Id.

Both before and after the adoption of the cross-border exemptions, bidders in cross-border tender offers frequently have sought additional relief from the staff to terminate the initial offering period before its scheduled expiration, thereby terminating withdrawal rights, upon the satisfaction of all offer conditions.

248

We solicited comment on whether we should codify existing staff no-action guidance that permits a bidder in a cross-border tender offer conducted under the Tier II exemptions to terminate the initial offering period (or a voluntary extension of that period) if all offer conditions are satisfied, subject to the conditions discussed below. We received two comment letters supporting such a codification, and no objecting comments.

249

As one commenter noted, codifying this position will facilitate cross-border tender offers because it would be consistent with law and practice in certain jurisdictions, and transaction participants would not be required to seek individual relief from the staff as is currently the case.

250

Therefore, we are amending Exchange Act Rules 13e-4 and 14d-1(d) to codify the guidelines set forth in existing staff guidance to permit early termination, subject to the conditions set forth below, which will be specified in the rules.

248

See

AstraZeneca PLC

(May 23, 2006);

Harmony Gold 2005

; and

In the Matter of Central and South West Corp.

(September 27, 1995).

249

See letters from ABA and Linklaters.

250

Letter from Linklaters.

Under new Rule 14d-1(d)(2)(ix), bidders in cross-border tender offers conducted under Tier II may terminate an initial offering period, including a voluntary extension of that period, if at the time the initial offering period and withdrawal rights end:

• The initial offering period has been open for at least 20 U.S. business days and all offer conditions have been satisfied;

• The bidder has adequately discussed the possibility and the impact of the early termination in the original offer materials;

• The bidder provides a subsequent offering period after the termination of the initial offering period;

• All offer conditions are satisfied as of the time when the initial offering period ends; and

• The bidder does not terminate the initial offering period or any extension of that period during any mandatory extension required under U.S. tender offer rules.

251

A mandatory extension is one required because of a change in the offer consideration, the number of securities sought by the bidder in the tender offer, or in the dealer's soliciting fees. See footnotes 224 and 245 above. See also Exchange Act Rules 13e-4(e)(3), 14d-4(d)(2), and 14e-1(b).

We also are amending Rule 13e-4 to add a new provision, Rule 13e-4(i)(2)(vii), to allow issuers or affiliates in a Tier II issuer tender offer to early terminate the initial offering period, or voluntary extension of that period, under the same circumstances discussed above.

As discussed in the Proposing Release, the position we codify today does not permit early termination upon the waiver of an offer condition.

252

When a bidder waives an offer condition, the terms of the offer may be fundamentally altered, such that it may influence the investment decisions of both target holders who have tendered and those who have not yet tendered. Our rules mandate that a tender offer remain open for specified time periods after a material change in the terms of an offer, which would include the waiver of a material offer condition.

253

By contrast, when an offer condition is satisfied, we believe the change is less fundamental in nature, because target security holders know from the outset that the successful consummation of the offer is contingent on the occurrence or non-occurrence of the relevant event.

254

For this reason, a bidder may not take advantage of the rules adopted here upon the waiver of an offer condition;

the offer (including withdrawal rights) must be extended upon a waiver. To the extent that foreign law in a particular jurisdiction mandates that a bidder terminate an initial offering period and withdrawal rights upon the waiver of all or some offer conditions, requests for relief will be considered on a case-by-case basis.

252

See Proposing Release, footnote 216.

253

See Exchange Act Rules 13e-4(e)(3) and 14d-4(d)(2)(i) [17 CFR 240.14d-4(d)(2)(i)].

254

In our experience, foreign rules in certain jurisdictions may limit the number of offer conditions a bidder may impose and may also restrict a bidder's ability to waive those conditions. Therefore, waivers of material offer conditions may occur less frequently in cros

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