
[Federal Register: May 9, 2008 (Volume 73, Number 91)]
[Proposed Rules]               
[Page 26875-26921]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09my08-24]                         


[[Page 26875]]

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Part IV





Securities and Exchange Commission





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



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


[[Page 26876]]


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SECURITIES AND EXCHANGE COMMISSION

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

[Release Nos. 33-8917; 34-57781; File No. S7-10-08]
RIN 3235-AK10

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

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: After eight years of experience with the current cross-border 
exemptions adopted in 1999, the Commission is proposing changes to 
expand and enhance the utility of these exemptions for business 
combination transactions. Our goal continues to be to encourage 
offerors and issuers in cross-border business combinations, and rights 
offerings by foreign private issuers, to permit U.S. security holders 
to participate in these transactions in the same manner as other 
holders. Many of the rule changes we propose today would codify 
existing interpretive positions and exemptive orders in the cross-
border area. In several instances, we request comment about whether the 
rule changes we propose also should apply to tender offers for U.S. 
companies. In this release, we also address certain interpretive issues 
of concern for U.S. and other offerors engaged in cross-border business 
combinations. We hope that this guidance will prove useful in 
structuring and facilitating these transactions in a manner consistent 
with U.S. investor protection.

DATES: Comments should be received on or before June 23, 2008.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/proposed.shtml);
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-10-08 on the subject line; or
     Use the Federal Rulemaking Portal (http://
www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-10-08. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 
also are available for public inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

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, at (202) 551-5720, in the Division of Trading and Markets 
(for questions relating to the proposed changes to Rule 14e-5), U.S. 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-3628.

SUPPLEMENTARY INFORMATION: We propose to amend Rules 162,\1\ 800 \2\ 
and 802 \3\ under the Securities Act of 1933 \4\ and Rule 101 \5\ of 
Regulation S-T.\6\ We also propose to amend Rules 13d-1,\7\ 13e-3,\8\ 
13e-4,\9\ 14d-1,\10\ and 14e-5 \11\ under the Securities Exchange Act 
of 1934.\12\ We also propose changes to Form S-4,\13\ Form F-4,\14\ 
Form F-X,\15\ Form CB,\16\ Schedule 13G \17\ and Schedule TO.\18\
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    \1\ 17 CFR 230.162.
    \2\ 17 CFR 230.800.
    \3\ 17 CFR 230.802.
    \4\ 15 U.S.C. 77a et seq.
    \5\ 17 CFR 232.101.
    \6\ 17 CFR 232.10 et seq.
    \7\ 17 CFR 240.13d-1.
    \8\ 17 CFR 240.13e-3.
    \9\ 17 CFR 240.13e-4.
    \10\ 17 CFR 240.14d-1.
    \11\ 17 CFR 240.14e-5.
    \12\ 15 U.S.C. 78a et seq.
    \13\ 17 CFR 239.25.
    \14\ 17 CFR 239.34.
    \15\ 17 CFR 239.42.
    \16\ 17 CFR 239.800.
    \17\ 17 CFR 240.13d-102.
    \18\ 17 CFR 240.14d-100.
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Table of Contents

I. Background
    A. Introduction
    1. Treatment of U.S. target security holders before the adoption 
of the cross-border exemptions
    2. Overview of the cross-border exemptions
    B. Summary of the rule proposals and interpretive guidance
II. Discussion
    A. Eligibility threshold--determining U.S. ownership
    1. Methods for determining U.S. ownership under the existing 
cross-border exemptions
    a. Negotiated transactions
    b. Non-negotiated transactions
    2. Current eligibility test for negotiated transactions
    a. Concerns
    b. Proposed changes to the eligibility standard for negotiated 
transactions
    3. The current test for non-negotiated or hostile tender offers
    a. Concerns
    b. Proposed changes to the presumption for non-negotiated 
transactions
    4. Possible new eligibility standards for negotiated and hostile 
transactions
    B. Proposed changes to Tier I exemptions
    1. Expanded exemption from Rule 13e-3
    2. Technical changes to Rule 802
    C. Proposed changes to Tier II exemptions
    1. Extend Tier II relief where target securities are not subject 
to Rule 13e-4 or Regulation 14D
    2. Expand Tier II relief for dual or multiple offers
    a. Offeror may make more than one non-U.S. offer
    b. U.S. offer may include non-U.S. persons and foreign offer(s) 
may include U.S. persons
    c. Proration and the use of the dual or multiple offer structure
    3. Termination of withdrawal rights while tendered securities 
are counted
    4. Expanded relief for subsequent offering periods
    a. Proposed revisions to prompt payment rule
    b. Prompt payment and ``mix and match'' offers
    5. Additional guidance with respect to terminating withdrawal 
rights after reduction or waiver of a minimum acceptance condition
    6. Early termination of the initial offering period or a 
voluntary extension of the initial offer period
    7. Codification of Rule 14e-5 cross-border exemptions
    D. Expanded availability of early commencement for exchange 
offers
    E. Proposed changes to schedules and forms
    1. Form CB
    2. Proposed changes to Schedule TO, Form F-4 and Form S-4
    F. Beneficial ownership reporting by foreign institutions
    1. Background
    2. Proposed rules
    G. Interpretive Guidance
    1. Application of the all-holders rule to foreign target 
security holders
    2. Ability of bidders to exclude U.S. target security holders
    3. Vendor placements

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III. General Request for Comment
IV. Paperwork Reduction Act
V. Cost-Benefit Analysis
VI. Consideration of Impact on Economy, Burden on Competition and 
Promotion of Efficiency, Competition and CAPITAL FORMATION
VII. Initial Regulatory Flexibility Analysis
VIII. Small Business Regulatory Enforcement Fairness Act
IX. Statutory Basis and Text of Proposal

I. Background

A. Introduction

    Securities markets today are characterized by increasing 
globalization. Advances in information technology, the increased use of 
ADR \19\ facilities giving U.S. investors an ownership interest in the 
securities of foreign companies, and other factors have increased 
significantly the number of U.S. and foreign companies engaged in 
cross-border business combination transactions.\20\ Computerization and 
the advent of the Internet age have fueled a revolution in investor 
participation in global capital markets. With increasing globalization 
of worldwide securities markets, U.S. investors frequently purchase 
securities issued by foreign companies, including foreign private 
issuers.
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    \19\ ``ADRs'' refer to American Depositary Receipts. We use this 
term synonymously with American Depositary Shares, or ADSs.
    \20\ See Jessica Hall, Cross-Border Mergers Defy U.S. Slump, 
REUTERS (October 18, 2007)(noting that cross-border deals reached 
record highs through mid-October 2007, and were up 82 percent over 
levels for the same period in 2006, according to figures compiled by 
the research firm Dealogic).
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    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 (or IFRS) as issued by the 
International Accounting Standards Board (or IASB), without a 
reconciliation to U.S. GAAP.\21\ 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.\22\ 
We also have proposed a change to the manner of determining the 
availability of the Rule 12g3-2(b) exemption from Exchange Act 
registration.\23\ Further, we have proposed 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.\24\
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    \21\ 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].
    \22\ 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] 
(``Deregistration Release'').
    \23\ Exemption from Registration Under Section 12(g) of the 
Securities Exchange Act of 1934 for Foreign Private Issuers, Release 
No. 34-57350 (February 19, 2008) [73 FR 10102] (``Rule 12g3-2(b) 
Release'').
    \24\ Foreign Issuer Reporting Enhancements, Release No. 33-8900 
(February 29, 2008) [73 FR 13404].
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    We believe these changes benefit investors and issuers. U.S. 
investors benefit from additional investment opportunities in 
securities of foreign companies, while issuers benefit from the 
potential for increased investor interest and a reduction in the cost 
of regulatory compliance. Consistent with these recent efforts to 
enhance our regulatory system applicable to foreign private issuers, we 
are proposing enhancements to our rules governing cross-border business 
combination transactions.
    The rule revisions we propose today are based on our experiences in 
the cross-border area during the eight years since the current cross-
border exemptions were adopted. The revisions are intended to address 
the areas of conflict or inconsistency with foreign regulations and 
practice that acquirors frequently encounter in cross-border business 
combination transactions.\25\ Whether non-U.S. issuers list their 
securities on a U.S. market 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.\26\ The cross-border exemptions are premised on the 
status of the target company in a business combination, or the issuer 
in a rights offering, as a foreign private issuer as defined in our 
rules.
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    \25\ The proposed revisions are, with a few exceptions, limited 
to cross-border business combination transactions. ``Cross-border'' 
refers to business combinations in which the target company is a 
``foreign private issuer'' as defined in Exchange Act Rule 3b-4(c) 
[17 CFR 240.3b-4(c)], and rights offerings where the issuer is a 
foreign private issuer, as so defined. In the past under very 
limited circumstances, offerors have obtained no-action and 
exemptive relief for business combinations in which the target 
company was a foreign issuer but did not meet the definition of 
foreign private issuer in Rule 3b-4. Such relief continues to be 
considered only in special circumstances and will be as narrowly 
tailored as practicable.
    \26\ ``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).
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    We believe the revisions we propose today represent an appropriate 
balance between the need to protect U.S. investors through application 
of the protections afforded by U.S. law, and the desirability of 
facilitating and enabling transactions that may benefit all security 
holders, including those in the United States. We also believe 
expanding the 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.
1. Treatment of U.S. Target Security Holders Before the Adoption of the 
Cross-Border Exemptions
    Before the cross-border exemptions became effective in January 
2000, U.S. holders \27\ of a foreign issuer or foreign target company 
frequently were excluded from cross-border business combination 
transactions or rights offerings because of actual or perceived 
conflicts between U.S. and foreign law. Where U.S. security holders 
held a relatively small percentage of a foreign target's securities, 
their participation was not necessary to the successful completion of 
the business combination transaction and acquirors frequently excluded 
them.\28\ Even where the percentage of securities held in the United 
States was significant, acquirors and issuers in business combination 
transactions and rights offerings

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sometimes avoided extending the offer into the United States because of 
perceived litigation risks or conflicts in rules or practice, or the 
desire not to engage in the process of preparing and filing a 
Securities Act registration statement.\29\ Exclusion deprived U.S. 
investors of some or all of the benefits of such cross-border 
transactions.
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    \27\ See, e.g., Instruction 2 to Exchange Act Rules 14d-1(c) and 
14d-1(d) (defining ``U.S. holder'' as ``any security holder resident 
in the United States'').
    \28\ See Cross-Border Tender Offers, Business Combinations and 
Rights Offerings, Release No. 33-7611 (November 13, 1998) [63 FR 
69136] (``1998 Cross-Border Proposing Release''), Section II.A. The 
U.K. Takeover Panel (the entity that regulates tender offers in the 
United Kingdom) provided us with information it compiled in 1997 
based on a random sample of 31 tender offers (out of 171 possible 
mergers or tender offers). When the U.S. ownership of the target was 
less than 15 percent (30 offers), the bidders excluded U.S. persons 
in all of the offers. When the U.S. ownership was more significant, 
such as 38 percent (one offer), the bidders included U.S. persons. 
In the 30 offers that excluded U.S. persons, the ownership 
percentage was as follows: in 27 offers, U.S. persons held less than 
5 percent; in the remaining three offers, U.S. persons held 7 
percent, 8 percent and 10-15 percent, respectively.
    \29\ Id.
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2. Overview of the Cross-Border Exemptions
    In an effort to facilitate the inclusion of U.S. security holders 
in primarily foreign transactions, we adopted the cross-border 
exemptions on October 26, 1999.\30\ These exemptions represented the 
culmination of efforts since 1991, when we issued two proposing 
releases addressing cross-border issues.\31\ Between 1991 and 1999, the 
staff gained valuable experience addressing numerous individual 
requests for no-action and exemptive relief in the cross-border 
area.\32\ The cross-border exemptions addressed areas of frequent 
regulatory conflict or differences in practice encountered by the staff 
during those years.
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    \30\ Cross-Border Tender and Exchange Offers, Business 
Combinations and Rights Offerings, Release No. 33-7759, 34-42054 
(October 22, 1999) [64 FR 61382] (``Cross-Border Adopting 
Release''). In this release, we refer to the cross-border exemptions 
adopted in the Cross-Border Adopting Release as the ``cross-border 
exemptions.'' The cross-border exemptions may be found in Securities 
Act Rules 800-802 [17 CFR 230.800-802] and Exchange Act Rules 13e-
3(g)(6) [17 CFR 240.13e-3(g)(6)], 13e-4(h)(8) [17 CFR 240.13e-
4(h)(8)], 13e-4(i) [17 CFR 240.13e-4(i)], 14d-1(c) [17 CFR 240.14d-
1(c)], 14d-1(d) [17 CFR 240.14d-1(d)], and 14e-2(d) [17 CFR 240.14e-
2(d)].
    \31\ See International Tender and Exchange Offers, Release No. 
33-6897 (June 5, 1991) [56 FR 27582] and Cross-Border Rights Offers; 
Amendments to Form F-3, Release No. 33-6896 (June 4, 1991) [56 FR 
27564]. Additionally, we addressed a number of issues presented in 
the cross-border context in a concept release in 1990. See Concept 
Release Multinational Tender and Exchange Offers, Release No. 33-
6866 (June 6, 1990) [55 FR 23751].
    \32\ 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 
49 below referring to the staff's delegated authority to provide 
exemptive relief from U.S. rule provisions 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.
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    Generally speaking, the cross-border exemptions 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 held by U.S. investors.\33\ Where no more than 
ten percent of the subject securities are held in the United States 
(Tier I and Rules 801 and 802), a qualifying cross-border transaction 
will be exempt from most U.S. tender offer rules \34\ and from the 
registration requirements of Section 5 of the Securities Act of 
1933.\35\ 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.\36\ Tier I also exempts 
the subject company of a tender offer from the obligation to express 
and support a position with respect to that tender offer.\37\ 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.
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    \33\ Although the target (or issuer in a rights offering) must 
be a foreign private issuer, the acquiror relying on the cross-
border exemptions need not be a foreign private issuer and, in fact, 
may be a U.S. company.
    \34\ The U.S. anti-fraud and anti-manipulation rules and civil 
liability provisions continue to apply to these transactions. See 
Cross-Border Adopting Release, Section I.A.
    \35\ 15 U.S.C. 77e.
    \36\ Exchange Act Rules 13e-3(g)(6), 13e-4(h)(8) and 14d-1(c).
    \37\ Exchange Act Rule 14e-2(d).
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    Issuers relying on Rule 801, offerors relying on Rule 802, and 
third-party bidders and issuers relying on the Tier I cross-border 
exemption must furnish a Form CB to the Commission.\38\ Form CB is a 
cover sheet for an English translation of the disclosure document used 
in the foreign home jurisdiction and disseminated to U.S. target 
security holders.\39\ This form must be submitted to the Commission by 
the next business day after the disclosure document attached and used 
in the foreign home jurisdiction is published or otherwise disseminated 
in accordance with home country rules.\40\ 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.\41\
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    \38\ 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).
    \39\ Item 1 of Form CB [17 CFR 239.800].
    \40\ Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i) and 
Exchange Act Rules 14d-1(c)(3)(iii) and 13e-4(h)(8)(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, e.g., Exchange Act Rule 14d-1(c)(3)(iii).
    \41\ 15 U.S.C. 78r. See also, the Cross-Border Adopting Release, 
Section II.A.2. However, an acquiror or other person submitting Form 
CB is subject to U.S. anti-fraud provisions. See footnote 34 above.
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    A bidder relying on the Tier I exemption must submit a Form CB only 
if the tender offer would have been subject to Regulation 14D \42\ or 
Rule 13e-4, 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.\43\
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    \42\ Exchange Act Rules 14d-1 through 14d-11.
    \43\ See 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. 78l], as 
well as partial offers for less than all of the subject class, where 
the bidder will not own, based on purchases in the tender offer and 
ownership in the target before the offer commences, more than five 
percent of the subject class of equity securities after the tender 
offer.
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    Where U.S. holders own more than ten percent but no more than 40 
percent of the target securities (Tier II), the cross-border exemptions 
provide targeted relief from some U.S. tender offer rules to address 
certain recurring areas of regulatory conflict. 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. 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 illustrated by the percentage of shares held by 
U.S. persons. 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.\44\ This approach differs from our 
approach in adopting revisions to the deregistration rules applicable 
to foreign private issuers in 2007 \45\ and more recently, in our 
proposed revisions to Rule 12g3-2(b) recommending the

[[Page 26879]]

use of an average daily trading volume test (``ADTV'').\46\
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    \44\ 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); and 14d-1(c)(2) and (d)(2)(ii).
    \45\ See the Deregistration Release.
    \46\ See the Rule 12g3-2(b) Release and the discussion in 
Section II.A.4 below.
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B. Summary of Rule Proposals and Interpretive Guidance

    We believe the existing cross-border exemptions have facilitated 
the inclusion of U.S. security holders in foreign transactions in a 
manner consistent with our investor protection mandate.\47\ We 
recognize that in some instances, however, the exemptions are not 
operating as optimally as intended, or do not address continuing and 
recurring conflicts of law and practice not anticipated when we adopted 
them.\48\ As a result, companies repeatedly call upon the Commission's 
staff to address particular areas of conflict in the context of 
individual cross-border transactions.\49\
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    \47\ Another area in which we have modified our rules in the 
foreign private issuer context is the Multijurisdictional Disclosure 
System (``MJDS'') with Canada. See Exchange Act Rule 14d-1(b). That 
system allows a bidder in a cross-border tender offer to conduct its 
offer in accordance with Canadian rules and/or the rules of any 
applicable Canadian province instead of U.S. tender offer 
requirements, where the conditions in the rule are met. These 
include the requirement that the target company in the tender offer 
be a foreign private issuer and not an investment company, and that 
U.S. holders own less than 40 percent of the subject securities. The 
bidder must file its offer materials, prepared in accordance with 
Canadian requirements, on Form 14D-1F [17 CFR 240.14d-102] with the 
Commission. See Rule 14d-1(b)(1). MJDS also specifies certain forms 
to be used by Canadian companies issuing securities to U.S. persons. 
See, e.g., Forms F-8 [17 CFR 239.38], F-9 [17 CFR 239.39], F-10 [17 
CFR 239.40], and F-80 [17 CFR 239.41]. Except for limited 
solicitations of comment below, this release does not propose 
changes to MJDS.
    \48\ For a general discussion of the cross-border exemptions and 
a broad overview of how they operate, see Steven Davidoff & Brett 
Carron, ``Getting U.S. Security Holders to the Party: The SEC's 
Cross-Border Release Five Years On,'' 26.3 U. Pa. J. Int'l Econ. L. 
455 (2005); and John Basnage, William Curtin III & Jeffrey Rubin, 
``Cross-Border Tender Offers and Other Business Combination 
Transactions and the U.S. Federal Securities Laws: An Overview,'' 
61.3 Business Lawyer 1071 (2006).
    \49\ Pursuant to Rule 30-1 of the SEC's Rules of General 
Organization [17 CFR 200.30-1], the staff has delegated authority to 
exempt individual bidders and issuers from 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.
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    The rule revisions we propose today address recurring issues and 
unintended consequences that have impeded the usefulness of the cross-
border exemptions. We believe the proposed changes will encourage more 
offers to be extended into the United States. Generally speaking, the 
proposed revisions represent an expansion and refinement of the current 
exemptions, and in some areas, would codify relief previously granted 
only on an individual basis. Our proposed codification of various staff 
interpretive positions would make such relief available as a matter of 
right, thereby reducing the burdens and costs for bidders and issuers 
of extending cross-border offers to U.S. holders when conducting cross-
border transactions.
    In some instances, the changes we propose would address practical 
problems that have limited the ability of bidders and issuers to rely 
on the exemptions. For example, we hope the proposed changes relating 
to the calculation of U.S. ownership of the target foreign private 
issuer will provide greater certainty and ease of use for those seeking 
to rely on the exemptions. In proposing these rule revisions, we hope 
to better address the burdens on bidders and issuers who must comply 
with two or more regulatory systems in the context of cross-border 
transactions.\50\ As a result, we hope the revisions we propose today 
will make bidders more likely to extend offers to U.S. holders.
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    \50\ Although the focus of the rule changes we propose is cross-
border business combinations, in some instances, we solicit comment 
on whether certain of these changes should also apply to business 
combinations where the target company is a U.S. issuer. We may adopt 
these changes at the time we adopt changes to our cross-border 
business combination rules. For example, we ask for comments on 
whether domestic exchange offers not subject to Rule 13e-4 or 
Regulation 14D should be permitted to commence early. We also 
solicit comment on whether the rule changes we propose to facilitate 
``mix and match'' tender offers and the relaxation of the our rules 
relating to subsequent offering periods also should apply to tender 
offers for domestic companies.
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    In this release, we also provide guidance on some of the 
interpretive issues that have arisen during the years since the cross-
border exemptions were adopted. In some instances, we propose to codify 
existing staff interpretive positions. We also discuss our views on 
some of the interpretive matters addressed in the 1998 Cross-Border 
Proposing Release and the Cross-Border Adopting Release. The rule 
changes we propose today include:
     Refinement of the tests for calculating U.S. ownership of 
the target company for purposes of determining eligibility to rely on 
the cross-border exemptions in both negotiated and hostile 
transactions, including changes to:
     [cir] Use the date of public announcement of the business 
combination as the reference point for calculating U.S. ownership;
     [cir] Permit the offeror to calculate U.S. ownership as of a date 
within a 60-day range before announcement;
     [cir] Specify when the offeror has reason to know certain 
information about U.S. ownership that may affect its ability to rely on 
the presumption of eligibility in non-negotiated tender offers;
     Expanding 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;
     Extending the specific relief afforded under Tier II to 
tender offers not subject to Sections 13(e) or 14(d) of the Exchange 
Act;
     Expanding the relief afforded under Tier II in several 
ways to eliminate recurring conflicts between U.S. and foreign law and 
practice, including:
    [cir] Allowing more than one offer to be made abroad in conjunction 
with a U.S. offer;
    [cir] Permitting bidders to include foreign security holders in the 
U.S. offer and U.S. holders in the foreign offer(s);
    [cir] Allowing bidders to suspend back-end withdrawal rights while 
tendered securities are counted;
    [cir] Allowing subsequent offering periods to extend beyond 20 U.S. 
business days;
     [cir] Allowing securities tendered during the subsequent offering 
period to be purchased within 14 business days from the date of tender;
     [cir] Allowing bidders to pay interest on securities tendered 
during a subsequent offering period;
     [cir] Allowing separate offset and proration pools for securities 
tendered during the initial and subsequent offering periods;
     Codifying existing exemptive orders with respect to the 
application of Rule 14e-5 for Tier II tender offers;
     Expanding the availability of early commencement to offers 
not subject to Section 13(e) or 14(d) of the Exchange Act;
     Requiring that all Form CBs and the Form F-Xs that 
accompany them be filed electronically;
     Modifying the cover pages of certain tender offer 
schedules and registration statements to list any cross-border 
exemptions relied upon in conducting the relevant transactions; and
     Permitting foreign institutions to report on Schedule 13G 
to the same extent as their U.S. counterparts, without individual no-
action relief.
    In addition to these proposed rule changes, we provide guidance or 
solicit commenters' views on the following issues:
     The ability of bidders to terminate an initial offering 
period or any

[[Page 26880]]

voluntary extension of that period before a scheduled expiration date;
     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;
     The ability of bidders to exclude U.S. target security 
holders in cross-border tender offers; and
     The ability of bidders to use the vendor placement 
procedure for exchange offers subject to Section 13(e) or 14(d) of the 
Exchange Act.

II. Discussion

A. Eligibility Threshold--Determining U.S. Ownership

    Business combination transactions are extraordinary events for 
target companies and their security holders. When U.S. persons hold a 
significant percentage of a target's securities in a cross-border 
business combination transaction, we believe U.S. tender offer and 
other rules should provide certain basic protections in transactions 
that will significantly impact their ownership interest in that target 
company.\51\ When U.S. persons do not hold a significant stake in the 
subject target class, we believe that by allowing the acquiror to 
conduct the transaction in accordance with the applicable foreign law, 
while including U.S. persons and treating them at least as favorably as 
all other target holders, U.S. persons are better protected than they 
would be if the acquiror chose to exclude them from the transaction so 
that the transaction would not be subject to U.S. regulations.
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    \51\ We believe these protections are even more critical in 
cross-border tender offers, where home country law may not allow 
acquirors to eliminate minority security holders under the same 
circumstances as in the United States. For example, in some foreign 
jurisdictions, the ability of bidders to ``squeeze out'' target 
security holders remaining after a tender offer may be more limited 
than in the United States, where this generally will be accomplished 
whenever the bidder purchases a majority of target shares. See 
discussion in footnote 155 below. Therefore, a decision whether to 
tender into an offer and the procedural protections associated with 
that offer may be even more critical, because target security 
holders who remain after the offer may not be cashed out in a back-
end merger, as would be typical in the United States.
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    When we adopted the cross-border exemptions, we established a 
threshold eligibility test for use of the exemptions based on the 
percentage of target shares held by U.S. persons.\52\ The current test, 
based on the level of U.S. ownership in the target company, has worked 
well conceptually. However, we have become aware of certain 
difficulties that can make application of our threshold eligibility 
test problematic in practice, including issues that can arise when 
conducting both the look-through analysis for negotiated transactions 
and the alternate test for non-negotiated deals, as discussed below. We 
believe the recommended changes will enhance the utility of the cross-
border exemptions because they will make it easier for bidders and 
issuers to determine whether they are eligible to rely on them.
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    \52\ For rights offerings, eligibility to rely on Rule 801 is 
determined by the percentage of subject securities of the issuer 
held by U.S. persons. See Securities Act Rule 800(h).
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1. Methods for Determining U.S. Ownership Under the Existing Cross-
Border Exemptions
a. Negotiated Transactions
    As discussed above, under our current rules, eligibility to rely on 
the cross-border exemptions is determined in part by the percentage of 
U.S. beneficial holders of the relevant class of target securities.\53\ 
U.S. ownership of the target company is determined by reference to the 
target's non-affiliated float \54\ and holders of greater than ten 
percent of the subject class are excluded from the calculation of U.S. 
ownership.\55\ Any securities held by the acquiror in the business 
combination transaction similarly are excluded from the 
calculation.\56\
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    \53\ Note that in response to inquiries from U.S. bidders 
regarding the availability of Securities Act Rules 801 and 802 when 
there are no U.S. holders in the issuer (in a rights offering) or 
subject company (in an exchange offer or other business 
combination), or when an offer is not extended to U.S. holders, the 
Division of Corporation Finance has taken the position that the 
cross-border exemptions do not apply unless there is at least one 
U.S. security holder of the subject class of securities. See Section 
II.C. 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. This is consistent with the intent 
of the exemptions: to facilitate the inclusion of U.S. security 
holders of foreign private issuers in business combinations and 
rights offerings.
    \54\ We use ``float'' to refer to the aggregate market value of 
the subject securities held by non-affiliates. See generally, the 
definition of ``Small Business Issuer'' in Securities Act Rule 405 
[17 CFR 230.405] and the Note to that provision. We do not include 
in that definition securities held by persons or entities that 
individually own more than ten percent of the subject securities.
    \55\ See Instruction 2.ii. to Exchange Act Rules 13e-4(h)(8) and 
(i), and 14d-1(c) and 14d-1(d). See also Securities Act Rule 
800(h)(2).
    \56\ Id.
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    The rules specify the manner in which a bidder in a negotiated 
transaction must determine which target securities are held by persons 
resident in the United States.\57\ They require the acquiror to ``look 
through'' securities held of record by nominees in specified 
jurisdictions to identify those held for the accounts of persons 
located in the United States.\58\ If after ``reasonable inquiry,'' the 
acquiror is unable to obtain information about the location of the 
security holders for whom a nominee holds, the rules allow the acquiror 
to assume that the customers are residents of the jurisdiction in which 
the nominee has its principal place of business.\59\ The relevant date 
for determining U.S. ownership is the 30th day before a benchmark date 
that varies with the type of transaction for which the exemption is 
sought.\60\
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    \57\ See Instruction 2 to Exchange Act Rules 13e-4(h)(8) and 
(i), and 14d-1(c) and (d); Securities Act Rule 800(h).
    \58\ See, e.g., Instruction 2.iii. to Exchange Act Rules 14d-
1(c) and 14d-1(d) (instructing the bidder to limit its inquiry as to 
securities held in nominee form to nominees located in the United 
States, the subject company's jurisdiction of incorporation and the 
jurisdiction that is the primary trading market for the subject 
securities, if different from the target's jurisdiction of 
incorporation). We recently revised the rule pertaining to 
termination of registration to include a definition of ``primary 
trading market'' that may include trading in more than one foreign 
market. See Exchange Act Rule 12h-6(f)(5) [17 CFR 240.12h-6(f)(5)]. 
This does not change the meaning of ``primary trading market'' as 
used in the cross-border exemptions and in the instruction to the 
definition of foreign private issuer in Exchange Act Rule 3b-4 and 
Securities Act Rule 405 [17 CFR 230.405]. An acquiror's or issuer's 
obligation to look through nominees in calculating U.S. ownership 
continues to be limited to the jurisdiction of the single, principal 
foreign trading market for the target's securities, if different 
from the target's jurisdiction of incorporation.
    \59\ See Securities Act Rule 800(h)(3) and Instruction 2.iv. to 
Exchange Act Rules 13e-4(h)(8) and (i), and 14d-1(c) and (d).
    \60\ See Instruction 2.i. to Exchange Act Rules 13e-4(h)(8) and 
(i), and 14d-1(c) and (d) (specifying that U.S. ownership must be 
calculated as of the 30th day before commencement of a tender 
offer). For the Securities Act Rule 801 and 802 exemptions, see Rule 
800(h) (stating that U.S. ownership must be calculated as of the 
record date for a rights offering or as of the 30th day before the 
commencement of an exchange offer or the solicitation for a business 
combination other than a tender offer).
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b. Non-Negotiated Transactions
    In adopting the eligibility standard for negotiated transactions 
described in the preceding section, we recognized that the required 
look-through analysis would be more difficult for third-party offerors 
in non-negotiated transactions because they would not have the 
cooperation of the issuer.\61\ In particular, obtaining information 
from nominees who hold for the account of others is difficult for 
third-party acquirors and may have the effect of alerting the market to 
a contemplated offer before the acquiror wishes to make

[[Page 26881]]

its intentions known. For that reason, the cross-border exemptions 
include a presumption available for non-negotiated or ``hostile'' 
transactions.\62\ The ``hostile presumption'' allows a third-party 
bidder in a non-negotiated tender or exchange offer to assume that U.S. 
ownership in the target company is no more than ten percent or 40 
percent, the thresholds for Tier I and Rule 802, and Tier II 
respectively, so long as average daily trading volume in the United 
States does not exceed ten percent or 40 percent of the average daily 
trading volume worldwide over a twelve-month period ending 30 days 
before commencement, and the bidder has no reason to know that actual 
U.S. ownership is inconsistent with that figure (either based on the 
issuer's informational filings with the Commission or foreign 
regulators or based on the bidder's actual or imputed knowledge from 
other sources).\63\
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    \61\ See discussion in the Cross-Border Adopting Release, 
Section II.F.3.
    \62\ We distinguish a ``hostile'' tender offer from one made 
pursuant to an agreement with the target company, which we refer to 
as a negotiated or recommended transaction.
    \63\ See, e.g., Instruction 3.i.-iv. to Exchange Act Rules 14d-
1(c) and 14d-1(d) (stating that the presumption is available unless 
the aggregate trading volume in the U.S. exceeds certain levels, or 
the bidder knows or should know that actual levels of U.S ownership 
exceed the ceiling for the applicable exemption). The instruction, 
as currently written, refers to the Nasdaq market and the trading 
volume of securities on the over-the-counter (OTC) market as 
reported to the NASD, but since the adoption of Exchange Act Rules 
14d-1(c) and 14d-1(d) and the corresponding instruction, the Nasdaq 
market has become an exchange, the NASDAQ OMX Group, Inc. 
Additionally, the trading volume of securities on the OTC market is 
now reported to the Financial Industry Regulatory Authority, Inc., 
or FINRA, which was created through the consolidation of the NASD 
and the member regulation, enforcement and arbitration functions of 
the NYSE. We therefore propose a technical change to the rules to 
reflect these changes.
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2. Current Eligibility Test for Negotiated Transactions
a. Concerns
    Although we believe the current tests for determining eligibility 
to rely on the cross-border exemptions generally have worked well, 
changes in several areas would be appropriate to address timing and 
informational restrictions that have impeded the application of the 
current exemptions. Many of these problems relate to the threshold 
eligibility determination for negotiated transactions.
    In particular, the requirement that U.S. ownership be calculated as 
of the 30th day before the commencement of a tender offer or exchange 
offer, or before the solicitation for other kinds of business 
combination transactions \64\ presents practical difficulties for 
acquirors in certain jurisdictions. In some countries, the look-through 
analysis we require for negotiated transactions takes longer than 30 
days to perform.\65\ Numerous acquirors have advised us that in some 
jurisdictions, it is not possible to calculate U.S. ownership as of a 
set date in the past. In others, information about the location of 
target security holders is only published at fixed intervals.\66\ 
Additionally, the exact date of commencement is not within the control 
of the acquiror in some jurisdictions.\67\ In recognition of these 
problems, issuers have sought guidance from the staff regarding the 
date of calculating U.S. ownership for purposes of determining 
eligibility to rely on the cross-border exemptions. The staff has 
stated that, where the 30th day before commencement is impracticable 
for reasons outside of the acquiror's control the acquiror may use the 
date within the 30-day period before commencement that is as close as 
possible to the 30th day.\68\ However, the staff continues to receive 
inquiries from acquirors who cannot definitively use a date within the 
30 days before commencement because of logistical problems in the time 
needed to conduct the mandated look-through analysis, or because of the 
regulatory review process.\69\ In the case of an exchange offer where 
the acquiror will issue securities in exchange for target securities, 
more than 30 days may be needed to prepare offering materials and 
complete the regulatory review process.
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    \64\ See Securities Act Rule 800(h)(1), Instruction 2.i. to 
Exchange Act Rules 13e-4(h)(8) and 13e-4(i), and Instruction 2.i. to 
Rules 14d-1(c) and 14d-1(d).
    \65\ See, e.g., Serono S.A. (September 12, 2002) (``Serono 
S.A.'') (stating that approximately six to eight weeks is necessary 
to complete a look-through analysis to obtain information about the 
level of U.S. beneficial ownership of a French company).
    \66\ See Section II.E. Question 8 in the Third Supplement to the 
Division of Corporation Finance Manual of Publicly Available 
Telephone Interpretations (July 2001), at http://www.sec.gov/
interps/telephone/phonesupplement3.htm.
    \67\ In some foreign jurisdictions, for example, a bidder is 
obligated to commence an offer within a certain number of days of 
receiving home country regulatory approval of its offer materials. 
As noted above, bidders cannot always obtain information about U.S. 
ownership as of a date in the past; rather, they can request that 
information only as of a current date going forward 30 days to the 
anticipated date of commencement. When the date of commencement is 
uncertain, it becomes difficult for offerors to comply with our 
rules.
    \68\ See Section II.E. Question 7 in the Third Supplement to the 
Division of Corporation Finance Manual of Publicly Available 
Telephone Interpretations (July 2001), at http://www.sec.gov/
interps/telephone/phonesupplement3.htm.
    \69\ For example, shares of listed French companies are not 
certificated and the majority of such shares are held in bearer 
form, meaning that the only ownership records for such shares are 
maintained by Euroclear France, the French clearing system. It 
generally takes more than 30 days to request and analyze the 
position listing known as a ``TPI report.'' See, e.g., Alcan, Inc. 
(October 7, 2003) (``Alcan'') and Equant N.V. (April 18, 2005) 
(``Equant N.V.'') and footnote 65 above.
---------------------------------------------------------------------------

    The reference date for assessing U.S. ownership under the cross-
border exemptions also creates logistical problems in certain cases. 
The current exemptions key the determination of U.S. ownership to the 
date of commencement of the tender offer or the commencement of the 
solicitation for other types of business combinations, or to the record 
date for a rights offering.\70\ If the announcement of the transaction 
predates the commencement by more than 30 days, an acquiror will not 
know with certainty when it announces a transaction whether it will be 
eligible to rely on the cross-border exemptions at all, or whether it 
will be eligible for Tier I/Rule 802 or Tier II. The staff has been 
advised that this is problematic in some foreign jurisdictions because 
by law, the announcement must provide detailed information about the 
transaction, including information about how U.S. target security 
holders will be treated.\71\ Even where such information is not legally 
required at the time of announcement, issuers may wish to inform target 
security holders and the market at large of this information.
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    \70\ See Securities Act Rule 800(h)(1), Instruction 2.i. to 
Exchange Act Rules 13e-4(h)(8) and (i), and Instruction 2 to 
Exchange Act Rules 14d-1(c) and (d).
    \71\ The staff has been contacted by counsel for bidders in 
certain European countries with concerns about calculating U.S. 
ownership as of the date specified under current rules, where an 
announcement of the transaction must be made more than 30 days 
before commencement and under home country regulation the 
announcement must include detailed information about the treatment 
of U.S. target holders.
---------------------------------------------------------------------------

    In addition, keying the look-through analysis to commencement 
creates a discrepancy for purposes of the exemption from Rule 14e-5. 
Rule 14e-5 generally prohibits purchases of target securities outside 
of a tender offer from the date of announcement of that offer through 
its expiration.\72\ Tender offers conducted in reliance on the Tier I 
exemption are exempt from the application of Rule 14e-5.\73\ However, 
because Rule 14e-5 applies from the date of announcement of the tender 
offer, a bidder will not necessarily know at the time of announcement 
whether it will qualify for the cross-border exemptions as of the 30th 
date before commencement.
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    \72\ Exchange Act Rule 14e-5 [17 CFR 240.14e-5]. We propose to 
extend this exemption to encompass Tier II-eligible tender offers.
    \73\ Exchange Act Rule 14e-5(b)(10)(i).
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    Finally, from time to time the suggestion is made that excluding 
holders of greater than ten percent of the

[[Page 26882]]

subject securities disproportionately elevates the levels of U.S. 
ownership in target companies. In the 1998 Cross-Border Proposing 
Release, we proposed to exclude from the calculation of U.S. ownership 
securities owned by non-U.S. target holders who individually held more 
than ten percent of the subject class, on the grounds that such large 
investors were affiliates and the securities they held were not part of 
the target's public float.\74\ When the exemptions were adopted, they 
excluded securities held by both U.S. and non-U.S. persons holding 
greater than ten percent of the target company's securities because of 
commenters' concerns that excluding only large non-U.S. holders, as 
originally proposed, would skew the U.S. ownership percentages 
upward.\75\ We continue to receive feedback from various 
constituencies, however, that exclusion of large holders results in 
reduced eligibility to rely on the cross-border exemptions. We would be 
interested in commenters' views on this requirement under our current 
rules and whether it should be modified or eliminated.
---------------------------------------------------------------------------

    \74\ See 1998 Cross-Border Proposing Release, Section II.H.2.
    \75\ See Cross-Border Adopting Release, Section II.F.2.
---------------------------------------------------------------------------

Request for Comment
     Should we continue to exclude from the calculation of U.S. 
ownership target securities held by the acquiror in the contemplated 
transaction?
     Should we eliminate the requirement to exclude subject 
securities held by greater than ten percent holders in calculating U.S. 
ownership of the target company? Would U.S. interest in a transaction 
more appropriately be measured by considering all of the outstanding 
securities, without excluding large holders? Would changing the rule in 
this manner result in extending the exemptions to circumstances where 
U.S. investors could be adversely affected?
     Should we eliminate greater than ten percent holders only 
where such holders are otherwise affiliated with the issuer?
     Are there problems in determining who is a greater than 
ten percent holder that should be addressed in revised rules?
     If the requirement to exclude large holders is retained, 
is a greater than ten percent holding the appropriate level for 
exclusion? Should the percentage be higher, such as 15 or 20 percent?
     Is there any reason to eliminate the exclusion of greater 
than ten percent holders only for non-U.S. holders and not for U.S. 
holders, or vice-versa? What would the impact of such change be on the 
number of companies eligible for Tier I or Tier II?
     Should we maintain the same tests, with the revisions 
proposed, but raise the maximum U.S. ownership level for Tier I and 
Rules 801 and 802 to 15 percent? What effect would this have on the 
number of cross-border transactions eligible to be conducted under 
these exemptions? Would expanding the availability of Tier I and Rules 
801 and 802 be in the interests of U.S. investors?
b. Proposed Changes to the Eligibility Standard for Negotiated 
Transactions
    We believe that by revising the eligibility tests for negotiated 
cross-border business combination transactions as proposed, we would 
eliminate many of the issues that have arisen. As discussed above, the 
first problem with the current test is the requirement that U.S. 
ownership be calculated as of a single, specified date. Accordingly, we 
propose that acquirors be permitted to calculate U.S. ownership within 
a specified 60-day range rather than using a single date.\76\ This 
approach is consistent with the position taken by the staff 
interpretively in considering timing issues in the cross-border 
context.\77\ It also would provide greater flexibility where the timing 
of a transaction is driven by market forces or a regulatory process 
that is, to some extent, outside the control of the acquiror.
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    \76\ As discussed below, we also propose to change the reference 
point for calculation of U.S. ownership from commencement to 
announcement. We are not currently proposing a change to the 
requirement to calculate as of the record date for rights offerings. 
See Rule 800(h)(1).
    \77\ See, e.g., Section II.E. Questions 6, 7 and 8 in the Third 
Supplement to the Division of Corporation Finance Manual of Publicly 
Available Telephone Interpretations (July 2001), at http://
www.sec.gov/interps/telephone/phonesupplement3.htm.
---------------------------------------------------------------------------

    While we propose to provide greater flexibility as to the date on 
which U.S. ownership in the target company may be assessed, we remain 
concerned about the possibility that a date for calculation would 
intentionally be chosen to present less than a representative picture 
of the target security holder base. The instructions to the cross-
border exemptions make it clear that the exemptions are not available 
for any transaction or series of transactions that technically comply 
with our rules but are, in fact, part of a plan or scheme to evade them 
in practice.\78\
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    \78\ See General Note 2 to Securities Act Rules 800, 801 and 
802, Instruction 4 to Exchange Act Rules 13e-4(h)(8) and 13e-4(i), 
and Instruction 5 to Exchange Act Rules 14d-1(c) and 14d-1(d).
---------------------------------------------------------------------------

    As discussed above, another logistical problem with the cross-
border exemptions centers on the use of commencement as the triggering 
event for the calculation of U.S. ownership. We now propose to require 
that U.S. ownership be calculated within a 60-day period before the 
public announcement of the cross-border tender offer or business 
combination transaction.\79\ For these purposes, public announcement 
generally means the same as in Instruction 5 to Rule 14d-2(b)(2).\80\ 
By using announcement instead of commencement as the triggering event 
for purposes of the calculation, we hope to enable acquirors planning 
cross-border transactions to determine at an earlier point how they 
will treat U.S. holders.
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    \79\ See proposed revisions to Securities Act Rule 80 0(h)(1), 
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).
    \80\ Instruction 5 to Exchange Act Rule 14d-2(b)(2) [17 CFR 
240.14d-2(b)(2)] states that `` `public announcement' is any oral or 
written communication by the bidder, or any person authorized to act 
on the bidder's behalf, that is reasonably designed to, or has the 
effect of, informing the public or security holders in general about 
the tender offer.''
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    This change also would allow the application of the exemptions to 
be based on the characteristics of the target security holder base 
before it is influenced by the announcement of the transaction.\81\ 
Further, it would permit acquirors to meet home country requirements, 
which may mandate that the acquiror include information about the 
treatment of U.S. holders in the announcement of the transaction. In 
addition, it would encourage bidders to provide the markets and target 
security holders with valuable information at an earlier stage in the 
transaction process, including alerting investors who may acquire the 
target company's securities after the announcement whether they will 
have the full protections of Regulations 14D and 14E.
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    \81\ See Section II.E. Question 6 in the Third Supplement to the 
Division of Corporation Finance Manual of Publicly Available 
Telephone Interpretations (July 2001), at http://www.sec.gov/
interps/telephone/phonesupplement3.htm (discussing the rationale for 
why the staff has permitted announcement to be used as the reference 
point for calculating U.S. ownership in ``pre-conditional offers'' 
conducted under U.K. or Irish law).
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    Where U.S. ownership levels do not permit the acquiror to rely on 
the Tier I exemption or Rule 802, calculating the level before 
announcement would provide more time to plan and put together the 
necessary offering materials. For those who plan to rely on the Tier II 
exemption, the proposed change would afford more time to determine and 
seek any necessary

[[Page 26883]]

exemptive or no-action relief. In addition, because announcement also 
is the triggering event for application of Rule 14e-5, this change 
would further harmonize Tier I and Tier II relief as it relates to that 
provision. However, we are aware that for some business combination 
transactions, several weeks or months may elapse between the time of 
announcement and commencement of the transaction, because of home 
country regulatory review or other reasons. The target security holder 
base, including the percentage of those securities held by U.S. 
persons, may change significantly between announcement and 
commencement. We do not propose to change the relevant date for 
calculation of U.S. ownership for rights offerings. Issuers will 
continue to calculate U.S. ownership as of the record date for a rights 
offering.\82\ Because issuers control the record date for rights 
offerings and generally have greater access to information about their 
own security holders, the test for calculating U.S ownership for rights 
offerings has not been the subject of requests for relief. Therefore, 
we do not propose to change that test today.
---------------------------------------------------------------------------

    \82\ See Securities Act Rule 800(h)(1).
---------------------------------------------------------------------------

    The existing cross-border exemptions provide that where one 
acquiror is eligible to rely on a particular cross-border exemption 
based on the level of U.S. ownership in the target, a second acquiror 
who makes an offer for the same target company may rely on the same 
exemption.\83\ We do not propose to change this result with the rule 
modifications we propose today. We believe it provides an important 
safeguard to place competing transactions on an equal footing with 
respect to calculation of U.S. ownership and eligibility to rely on 
applicable cross-border exemptions.
---------------------------------------------------------------------------

    \83\ See, e.g., Exchange Act Rule 14d-1(d)(1)(ii). The second 
bidder may choose not to rely on the same exemption as the first 
bidder. See also Cross-Border Adopting Release, Section II.F.1.
---------------------------------------------------------------------------

Request for Comment
     Should we revise the date as of which U.S. ownership is 
calculated for purposes of determining eligibility to rely on the 
cross-border exemptions for business combination transactions, as 
proposed?
     [cir] Should we revise the rules to provide for a range of dates 
as proposed, or should we continue to specify a date certain for the 
calculation? If we continue to specify a date certain, should we 
specify a date earlier than the 30th day before commencement? For 
example, should we specify the 30th day before announcement?
     Is a range of 60 days before announcement sufficient time 
to allow bidders and issuers maximum flexibility while avoiding the 
potential for manipulation of the calculation of U.S. ownership? Or 
would 75 or 90 days be more appropriate?
     Is announcement the appropriate reference point for 
determining eligibility to rely on the cross-border exemptions? Or 
should we retain commencement as the reference point? Are there other 
alternative reference points we should consider?
     Should we keep commencement as a reference point, but use 
a range, such as within 60 days before commencement?
     Is it appropriate to use announcement as the reference 
point, even where a significant period of time may elapse between 
announcement and commencement, and the makeup of the target security 
holder base may change in response to announcement or because of the 
lapse of time? Should we establish a limit on the period of time which 
may elapse between the reference point for calculation of U.S. 
ownership and the commencement of the business combination transaction?
     Should we change the date as of which U.S. ownership is 
calculated for rights offerings in the same or in a similar manner? If 
so, please explain what issues may arise under the current test and 
what changes should be made.
     If we adopt the proposed rule changes allowing bidders and 
offerors to choose a date within a range for purposes of the 
calculation of U.S. ownership, should we provide guidance on what dates 
may not be chosen because of an event or events significantly affecting 
the target security holder base? For example, if an event occurs that 
the bidder or offeror knows significantly impacted the U.S. ownership 
of the target securities within the relevant sixty-day range, but the 
bidder or offeror did not cause or contribute to such event, should the 
bidder or offeror be prohibited from using that date as the reference 
point for the calculation of U.S. ownership?
3. The Current Test for Non-Negotiated or Hostile Tender Offers
a. Concerns
    Where a third-party tender offer is not made pursuant to an 
agreement between the bidder and the target company, the current cross-
border exemptions allow a bidder to presume eligibility to rely on the 
exemptions based on a test outlined in our rules, which focuses on 
information readily available to the bidder.\84\ The hostile 
presumption was adopted in recognition of the difficulties third 
parties face in obtaining information about U.S. ownership without the 
cooperation of the target company.\85\ Because issuers have greater 
access to information about their own security holders, the hostile 
presumption is not available for issuer tender offers.
---------------------------------------------------------------------------

    \84\ See Securities Act Rule 802(c) and Instruction 3 to 
Exchange Act Rules 14d-1(c) and 14d-1(d).
    \85\ See Cross-Border Adopting Release, Section II.F.3.
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    The eligibility standard for hostile transactions is based in part 
on the trading volume of the target's securities in the United States, 
as compared to worldwide trading volume, over a 12-month period.\86\ 
However, the presumption of U.S. ownership derived under the trading 
volume element of the test is qualified by information about U.S. 
ownership reported in the target's most recent annual report filed with 
the Commission or its home country regulators.\87\ In addition, the 
bidder cannot rely on the hostile presumption if it knows or has reason 
to know that the actual level of U.S. ownership of the subject 
securities exceeds the relevant thresholds for Tier I and Tier II.\88\ 
Knowledge or ``reason to know'' may come from sources other than 
reports filed with the Commission or the target's home country 
regulator and disqualifies the bidder from being able to rely on the 
cross-border exemptions.
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    \86\ Securities Act Rule 802(c)(2) and Instruction 3.ii. to 
Exchange Act Rules 14d-1(c) and 14d-1(d). Trading volume in the 
hostile presumption is not calculated in the same way as the average 
daily trading volume used for purposes of deregistration and the 
threshold proposed for Rule 12g3-2(b). The trading volume in the 
hostile presumption is calculated using a 12-calendar-month period 
ending 30 days before commencement of the offer, although we propose 
to change this calculation to a 12-calendar-month period ending no 
later than 60 days before announcement of the offer, as discussed 
below.
    \87\ Securities Act Rule 802(c)(3) and Instruction 3.iii. to 
Exchange Act Rules 14d-1(c) and 14d-1(d).
    \88\ Securities Act Rule 802(c)(4) and Instruction 3.iv. to 
Exchange Act Rules 14d-1(c) and 14d-1(d).
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    These elements of the hostile presumption have resulted in certain 
issues in practice. First, acquirors appear to be uncertain about what 
constitutes ``reason to know'' with respect to the level of U.S. 
ownership of the target, other than information reported in filings 
with the Commission or the home country regulators. Acquirors have 
expressed uncertainty about whether they have any obligation, and if 
so, the extent of their obligation to seek out information about U.S. 
ownership levels. Questions also arise as to the timing of that 
knowledge. For example, because average daily trading

[[Page 26884]]

volume is calculated as of the 12-calendar-month period ending 30 days 
before commencement,\89\ acquirors often are unsure of whether their 
actual or imputed knowledge of U.S. ownership similarly should be as of 
that date.
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    \89\ Securities Act Rule 802(c)(2) and Instruction 3.ii. to 
Exchange Act Rules 14d-1(c) and 14d-1(d).
---------------------------------------------------------------------------

    It also is possible that targets may use the reporting and 
knowledge elements of the hostile presumption defensively. For example, 
targets that learn of a possible hostile offer could file reports 
preemptively with the Commission stating a percentage of U.S. ownership 
that precludes the hostile bidder's reliance on certain exemptions, or 
they may contact the bidder's counsel directly to assert levels of U.S. 
ownership that disqualify the bidder from relying on Tier I and Rule 
802 in particular.\90\ In the latter case, bidders have asked whether 
such an assertion as to U.S. ownership must be substantiated (and if 
so, how) in order to preclude reliance on the hostile presumption. Even 
when a target has filed a periodic report with the Commission 
indicating a certain percentage of U.S. ownership as a defensive 
measure, we have seen targets reduce those ownership figures when the 
transaction becomes recommended. These types of situations create a 
level of uncertainty for unsolicited bidders that may make it difficult 
to apply the presumption of U.S. ownership in unsolicited offers.
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    \90\ It also is possible that a target may attempt to provide 
information preemptively before announcement of a hostile bid, but 
we believe this may happen less frequently when the determination of 
U.S. ownership is made as of a date before announcement, because the 
negotiations may begin in a friendly manner.
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b. Proposed Changes to the Presumption for Non-Negotiated Transactions
    Today we propose changes to the hostile presumption for determining 
eligibility to rely on the cross-border exemptions. First, we propose 
to clarify the ``reason to know'' element of that test.\91\ In the 
years since the adoption of the cross-border exemptions, bidders 
frequently have asked what constitutes ``reason to know'' information 
about U.S. ownership for purposes of the hostile presumption. We 
propose to amend our rules to specify that an acquiror has reason to 
know information that is publicly available. This would include 
information appearing in reports compiled by independent information 
service providers that generally are available to the public. However, 
neither our current rules nor the changes we propose today 
affirmatively would require an acquiror seeking to rely on the hostile 
presumption to engage such a third-party service at its own expense.
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    \91\ Securities Act Rule 802(c)(4) and Instruction 3.iv. to 
Exchange Act Rules 14d-1(c) and 14d-1(d).
---------------------------------------------------------------------------

    The proposed rule also would make it clear that acquirors are 
presumed to know information about beneficial ownership reflected in 
filings by third parties with the Commission, such as beneficial 
ownership reports on Schedule 13D, 13F \92\ or 13G. Similarly, 
acquirors are presumed to know about similar reports filed by third 
parties in the target's home country and in the country of its primary 
trading market, if different. Acquirors may not ignore credible 
information about target securities held by U.S. persons from non-
public sources, such as from investment bankers or other market 
participants, including the target company, from whom they receive 
information. As discussed below, however, such information would have 
to be available before announcement to disqualify the acquiror from 
relying on the hostile presumption.
---------------------------------------------------------------------------

    \92\ 17 CFR 249.325.
---------------------------------------------------------------------------

    We also propose to specify the time periods applicable to the 
hostile presumption. For purposes of the element of that test relating 
to the average daily trading volume calculation, we propose to modify 
the instruction to our rules to mandate a calculation over a twelve-
calendar month period ending no later than 60 days before 
announcement.\93\ This time period for calculation is the same as the 
period we are proposing for negotiated transactions. We believe it is 
appropriate that the time periods for measuring levels of U.S. 
ownership be comparable for both hostile and negotiated transactions.
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    \93\ See proposed revisions to Securities Act Rule 802(c)(2) and 
Instruction 2.ii. to Exchange Act Rules 14d-1(c) and (d).
---------------------------------------------------------------------------

    We also propose to add a timing element to the other components of 
the hostile presumption test. These changes to the instructions and to 
the rules would provide that the acquiror's knowledge or ``reason to 
know'' refers to knowledge as of the date of announcement. As proposed, 
our rules would allow an acquiror to ignore conflicting information 
received after announcement.\94\ These changes are intended to address 
our concern that some target companies may be manipulating their 
disclosure of U.S. ownership with respect to unsolicited offers. They 
also would eliminate uncertainties created by changes in the target's 
security holder base that may be caused by the announcement of the 
offer.
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    \94\ See proposed Securities Act Rule 802(c)(3) and (4) and 
Instructions 3.iii. and iv. to Exchange Act Rules 14d-1(c) and (d).
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Request for Comment
     Is it helpful to specify in the rule, as proposed, 
examples of information that the acquiror has reason to know, or should 
the rule remain more general?
     Would the clarifications we propose to the reason to know 
element of the test prevent the abuse of U.S. ownership information by 
targets? Are there currently sufficient safeguards to prevent misuse of 
this information?
     For purposes of the hostile presumption, should we change 
the date for comparison of the average daily trading volume of the 
target securities to a twelve-month period ending no later than 60 days 
before announcement, as proposed?
     [cir] Should we limit the knowledge or reason to know element of 
the test to the same time, as proposed, so that acquirors will not be 
disqualified from relying on the presumption if they learn of 
conflicting U.S. ownership information after the date of announcement? 
Or should we require acquirors to take into account any information 
they learn at any time before commencement?
     [cir] Would the proposed cut-off date for the actual knowledge 
test be disadvantageous for U.S. investors in the target company?
     [cir] Where the target asserts levels of U.S. ownership that are 
inconsistent with reliance on an applicable presumption in the context 
of a hostile transaction, should the rules provide any guidance on the 
extent to which such assertions must be substantiated? Should we allow 
acquirors to ignore such assertions by the target, absent adequate 
substantiation or in the face of conflicting information known to the 
acquiror?
     [cir] If the rule changes are adopted as proposed, should we make 
corresponding changes to the date of comparison in the ``actual 
knowledge'' element of the test for the MJDS with Canada? \95\
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    \95\ See Exchange Act Rule 14d-1(b).
---------------------------------------------------------------------------

     Should we decline to make any changes in the reason to 
know element of the hostile presumption, leaving acquirors to assess 
the facts and circumstances in a specific situation on a case-by-case 
basis?
4. Possible New Eligibility Standards for Negotiated and Hostile 
Transactions
    Instead of adopting the proposed changes to our current eligibility 
standards for hostile and negotiated cross-border business combinations

[[Page 26885]]

discussed above, we could adopt a different approach based on different 
measures of U.S. investor interest in target securities. For example, 
for negotiated transactions, we could consider a test based on twelve-
month ADTV in the United States as compared to worldwide trading volume 
over the same period. Alternatively, we could consider a test based on 
the percentage of shares that are held in the form of ADRs. It is 
possible that there are other, more suitable tests that we have yet to 
identify. We could adopt an alternate test for business combination 
transactions only, or we could adopt it for both business combinations 
and rights offerings.
    As discussed above, the existing hostile presumption available for 
non-negotiated business combination transactions contains an element 
based on a comparison of U.S. and worldwide ADTV,\96\ and we have 
recently used this test as a reference in other areas.\97\ Based on an 
analysis performed by the staff comparing U.S. beneficial ownership 
figures yielded by the look-through analysis mandated by our current 
rules to the figures that would result by using an ADTV-based measure, 
it appears that trading volume may not reflect beneficial holdings of 
U.S. investors in a target company. To perform this analysis, the staff 
considered negotiated business combination transactions conducted under 
the existing cross-border exemptions using the current look-through 
analysis and compared the resulting percentages of U.S. beneficial 
ownership with the figures that would have resulted using the ratio of 
U.S. to worldwide ADTV. Based upon the transactions considered, the 
analysis suggests that the correlation between the ADTV-based measure 
and the percentage of target securities beneficially held by U.S. 
persons is low.
---------------------------------------------------------------------------

    \96\ See Securities Act Rule 802(c) and Instructions 3.i.-iv. to 
Exchange Act Rules 14d-1(c) and 14d-1(d).
    \97\ See footnotes 45 and 46 above.
---------------------------------------------------------------------------

    Using such a test may result in target companies with significant 
U.S. ownership qualifying for the Tier I and 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 registration. For cash tender offers and other kinds of 
business combination transactions, we do not believe the requirements 
of the U.S. tender offer and other rules applicable to business 
combinations are onerous. Unlike continuing Exchange Act registration 
and reporting requirements, these rules apply to a single, discrete 
transaction and, in many instances, are specifically tailored to 
address potential conflicts with foreign law and practice.
    We are concerned 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 that are not present in the context of 
deregistration, where we have adopted an ADTV test for measuring U.S. 
interest in a transaction, or exemption from Exchange Act Section 12(g) 
registration under Rule 12g3-2(b), where we have proposed an ADTV test. 
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. As noted above, the requirement to comply with U.S. rules for 
a business combination transaction is generally less burdensome than 
the continuous reporting requirements under the Exchange Act. For these 
reasons, we have historically viewed a test based on U.S. beneficial 
ownership of target securities as the approach that best aligns U.S. 
investor interests with application of our rules. Therefore, we are not 
proposing the use of an ADTV test to determine eligibility to rely on 
the cross-border exemptions.
    Similarly, we are not currently proposing a test based solely on a 
measure of the percentage of target securities held in ADR form. When 
the current cross-border exemptions were proposed, we considered an 
eligibility standard that presumed that target securities held in ADR 
form were beneficially held by U.S. persons.\98\ Commenters were 
critical of any presumption that securities held in ADR form were held 
only by U.S. persons.\99\ An ADR-based test need not rest on a 
presumption that securities held in ADR form are held by U.S. persons; 
rather, ADRs could, in general, be considered a proxy for U.S. 
beneficial ownership, or for a component (e.g., direct retail) of U.S. 
beneficial ownership. Since some foreign target securities are traded 
in direct share form in the United States, any test based on securities 
held in ADR form would be inapplicable to those companies.
---------------------------------------------------------------------------

    \98\ See 1998 Cross-Border Proposing Release, Section II.H.1.
    \99\ See Cross-Border Adopting Release, Section II.F.1.
---------------------------------------------------------------------------

    We believe that information about the percentage of target shares 
held in ADR form is not currently readily accessible to third-party 
bidders in non-negotiated offers. The information might become 
available through the introduction of registrant disclosure 
requirements, however. In the case of such disclosure, an ADR-based 
test could provide a solution for both hostile and negotiated 
transactions. A weakness of the ADR-based measure is that, as discussed 
above, because some foreign target securities are traded in direct 
share form in the United States, any test based on securities held in 
ADR form would be inapplicable to those companies. We also would need 
to consider the relevant time period for which we would look at the 
percentage of target securities held in ADR form if such a test were to 
be considered, and whether ADRs held by the acquiror and large holders 
would continue to be excluded from the calculation of U.S. ownership 
under such a test. If we did not exclude ADRs held by the bidder, the 
bidder could potentially influence the percentage of such securities 
held by U.S. persons by changing the form of its securities held from 
ADRs into the underlying securities. We are interested in obtaining 
comments as to whether an ADTV test or a test based on target 
securities held in ADR form would be appropriate.
Request for Comment
     Is our continued focus on the percentage of target 
securities beneficially held by U.S. persons as the relevant test for 
measuring U.S. interest appropriate and in the best interests of U.S. 
investors?
    [cir] If we change the rules as proposed, would this alleviate 
sufficiently the practical difficulties with the calculation of U.S. 
ownership, so that our rules will be more workable and will better 
encourage and facilitate the inclusion of U.S. security holders in 
cross-border transactions? Or would there still be a reason to move 
from the current focus on the percentage of securities held by U.S. 
investors to another standard?
    [cir] Are there other practical difficulties involving the 
beneficial ownership

[[Page 26886]]

standard that we have not addressed and that it would be helpful to 
address?
     Should we propose a different test for Tier I and Tier II 
eligibility, based on U.S. ADTV compared to worldwide ADTV over a 
twelve-month period?
    [cir] Using U.S. ADTV compared to worldwide ADTV would likely 
result in many more transactions being eligible for Tier I, and some 
additional transactions being eligible for Tier II if we maintain the 
existing ten percent and 40 percent thresholds. Should the thresholds 
be adjusted so that the transactions eligible for the cross-border 
exemptions are equivalent, in terms of number of transactions eligible, 
before and after changing the eligibility test? If ADTV levels in the 
United States are very low even where beneficial ownership is high, 
should we adjust the thresholds to account for this situation? For 
example, should we lower the Tier I threshold to five percent? One 
percent? Less than one percent? If we do this, should we also adjust 
the thresholds in the hostile presumption correspondingly? What would 
be the appropriate adjustments for Tier II?
    [cir] Are there reasons for or against adopting an ADTV test? For 
example, would an ADTV test be an adequate measure for gauging U.S. 
retail versus institutional ownership of the target securities?
    [cir] Should we qualify the ADTV test based on other factors, such 
as an acquiror's actual knowledge or U.S. ownership as reported by the 
target?
    [cir] If we adopt an ADTV test, should we adopt the concept of 
``primary trading market'' as defined in Exchange Act Rule 12h-
6(f)(5)?\100\ That is, should we establish the requirement that the 
issuer maintain a listing for the subject securities on one or no more 
than two exchanges in a foreign jurisdiction that, alone or together, 
constitute 55 percent of the trading in the subject securities over a 
specified period as a comparison point for U.S. trading volume? Should 
we adopt the concept that the ``primary trading market'' for the 
subject securities may encompass one or no more than two foreign 
markets, and if more than one market, the requirement that the 
aggregate trading volume in one of those two foreign markets must be 
greater than the trading volume in the U.S., as specified in Rule 12h-
6(f)(5)?
---------------------------------------------------------------------------

    \100\ See footnote 58 above.
---------------------------------------------------------------------------

     Should we propose a different test for Tier I and Tier II 
eligibility, based on the percentage of shares held in ADR form?
    [cir] Is the percentage of shares held in ADR form an effective 
proxy for U.S. investor ownership? For U.S. institutional ownership? 
For U.S. direct retail investor ownership?
    [cir] Are there reasons why U.S. persons may choose to hold target 
securities in direct share form instead of holding ADRs?
    [cir] Under a test based on the percentage of shares held in ADR 
form, should Tier I and Tier II eligibility thresholds remain constant 
at their current values (10 percent and 40 percent), or should they 
change? What criteria should we use, and what evidence should we 
consult in establishing eligibility thresholds for Tier I and Tier II?
    [cir] If we adopt such a test, as of what date should we measure 
the securities held in ADR form? Should we exclude from the calculation 
ADRs held by certain persons, such as the bidder, as we do under our 
current test for some kinds of business combination transactions?
    [cir] How should we handle securities of foreign private issuers 
that trade in direct share form?
    [cir] If we adopt a test based on the percentage of shares held in 
ADR form, should we amend Form 20-F to require reporting of sponsored 
ADRs outstanding, so that targets, acquirors and their investors 
understand eligibility status? How costly or difficult would it be for 
the issuer to obtain information about the number of sponsored ADRs 
outstanding? If this information were reported only once each year in 
the Form 20-F, would the information be current enough for use in 
cross-border transactions that might occur months later?
    [cir] Are there reasons for or against adopting a test based on the 
percentage of shares held in ADR form?
     ADTV- and ADR-based standards may effectively place 
companies with no U.S.-traded securities in Tier I. What implications 
would this have for investor protection?
    [cir] If we move toward a different standard for determining U.S. 
interest, should this new standard apply only to companies with 
securities traded in the U.S., with the beneficial ownership standard 
continuing to apply to companies with no securities traded in the U.S.? 
Alternatively, for securities not traded in U.S. markets, do U.S. 
investors adequately understand the distinct risks of ownership?
     If we make any changes to the standard for determining 
Tier I and Tier II eligibility, should we also change the standard for 
the hostile presumption? Should we adopt this alternative standard for 
business combination transactions only, or should we adopt it for both 
business combinations and rights offerings?
     If we change the standard, should we also change the 
standard for the tender offer rules in Rule 14d-1(b) under the MJDS 
with Canada?
     Should we propose a different eligibility test(s) for 
determining eligibility to rely on the cross-border exemptions? What 
general criteria are important in selecting a measure for U.S. investor 
interest, for the purposes of this rule? Several potential criteria are 
(i) the ease of public access to information related to the measure; 
(ii) the difficulty of manipulation of the measure; and (iii) the 
alignment of the measure with the percentage of target securities 
beneficially held by U.S. investors. Are these criteria appropriate? 
Are there others we should consider?

B. Proposed Changes to Tier I Exemptions

1. Expanded Exemption From Rule 13e-3
    Rule 13e-3 establishes specific filing and disclosure requirements 
for certain kinds of affiliated transactions, because of the conflicts 
of interest inherent in such situations.\101\ Rule 13e-3 applies to 
these kinds of transactions by issuers or their affiliates, where the 
transactions would have a ``going private'' effect.\102\
    Cross-border transactions conducted by the issuer or its affiliates 
under Exchange Act Rules 13e-4(h)(8), 14d-1(c) and Securities Act Rule 
802 are exempt from the requirements of Rule 13e-3.\103\ The scope of 
the current Tier I exemption from Rule 13e-3 does not apply to some 
transaction structures commonly used abroad. These include schemes of 
arrangement,\104\ cash mergers, compulsory acquisitions for

[[Page 26887]]

cash,\105\ and other types of transactions. We do not believe there is 
a reason for excluding these kinds of transactions from the exemption 
from Rule 13e-3, assuming they would otherwise qualify for Tier I. We 
believe the form of the transaction structure should not prevent an 
otherwise-eligible issuer or affiliate from relying on the Tier I 
exemption from Rule 13e-3. We therefore propose to expand the scope of 
the Tier I exemption from Rule 13e-3 to remove any restriction on the 
category of transactions covered.
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    \101\ The kinds of transactions covered by Exchange Act Rule 
13e-3 include tender offers, purchases of securities, mergers, 
reorganizations, reclassifications and sales of substantially all 
the assets of a company. See Rule 13e-3(a)(3)(i)(A)-(C). Rule 13e-3 
requires that a Schedule 13E-3 be filed for these kinds of 
transactions. See Exchange Act Rule 13e-3(d)(1).
    \102\ Exchange Act Rule 13e-3(a)(3)(ii) lists the effects that 
will cause the rule to apply to a specified transaction: (A) Causing 
any class of equity securities of an issuer which is subject to 
section 12(g) or section 15(d) of the Act to be held of record by 
less than 300 persons; or (B) causing any class of equity securities 
of the issuer which is listed on an exchange or quoted on an 
interdealer quotation system to no longer be so listed or quoted. 
For foreign private issuers engaged in transactions that would have 
a going private effect under our rules, we interpret Rule 13e-3 to 
apply where the transaction results in fewer than 300 security 
holders of record in the United States. See Foreign Issuer Reporting 
Enhancements, Release No. 33-8900 (February 29, 2008).
    \103\ Exchange Act Rule 13e-3(g)(6).
    \104\ We use this term to refer to a court-approved business 
combination transaction. See, e.g., U.K. Companies Act, Parts 26 and 
27.
    \105\ By ``compulsory acquisition,'' we mean a transaction where 
an acquiror purchases the specified minimum percentage of target 
securities set by applicable law or the governing instruments of the 
target company, thereby allowing it to acquire any remaining target 
securities it does not own without the consent of the holders. A 
compulsory acquisition may occur after a tender offer for all target 
securities. A compulsory acquisition of target securities remaining 
after a tender offer will sometimes be exempt from the application 
of Exchange Act Rule 13e-3 under existing rules. See Exchange Act 
Rule 13e-3(g)(1).
---------------------------------------------------------------------------

    The heightened disclosure requirements of Rule 13e-3 may represent 
a significant disincentive for acquirors to include U.S. security 
holders in cross-border transactions that do not currently fit within 
the Rule 13e-3(g)(6) exemption, particularly where U.S. holders make up 
no more than ten percent of the target shareholder base. In several 
instances, the staff has granted individual no-action requests for 
transaction structures not covered within the scope of current Rule 
13e-3(g)(6), but which otherwise met the conditions for reliance on 
that exemption.\106\ The revised rule we propose today is consistent 
with the staff's approach in these no-action letters.
    We believe exempting acquirors from the application of Rule 13e-3 
in Tier I-eligible transactions is consistent with our goal of 
facilitating the inclusion of U.S. investors in primarily foreign 
transactions. Therefore, we propose to eliminate the restriction on the 
kinds of cross-border transactions that qualify for the Tier I 
exemption from Rule 13e-3. The proposed rule would include within the 
exemption any kind of transaction that would otherwise meet the 
conditions for Tier I or Rule 802 eligibility.\107\ By omitting 
reference to specific kinds of transaction structures, we hope the 
revised exemption will focus on substance rather than form.
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    \106\ See, e.g., SUNDAY Communications Ltd. (November 1, 2006) 
(involving a scheme of arrangement); SUNDAY Communications Ltd. 
(November 7, 2005) (involving a privatization scheme); and Equant 
N.V. (involving a synthetic merger).
    \107\ In order to qualify for the Tier I exemption, an offer 
must meet the following requirements of Exchange Act Rules 13e-
4(h)(8) and 14d-1(c): (i) The acquiree must be a foreign private 
issuer as defined in Rule 3b-4 of the Exchange Act; (ii) U.S. 
holders of the acquiree must hold ten percent or less of the 
securities subject to the offer; (iii) the acquiror must submit an 
English language translation of the offering materials to the SEC 
under cover of Form CB and, in the case of an acquiror who is a 
foreign private issuer, submit to service of process on Form F-X; 
(iv) U.S. holders must be treated on terms at least as favorable as 
those offered to any other security holders of the acquiree; and (v) 
U.S. holders of the acquiree must be provided the offering circular 
or other offering materials, in English, on a comparable basis as 
non-U.S. acquiree security holders. See also Securities Act Rule 
802(a).
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Request for Comment
     Should the proposed expansion of the Tier I exemption from 
Rule 13e-3 specify the particular types of affiliated transaction 
structures that will be exempt from Rule 13e-3, as the current rule 
does?
     If so, what kinds of transactions should be covered?
     Is it preferable to phrase the exemption more generally, 
as proposed, to avoid limiting the focus on the transaction structure? 
Are there any kinds of affiliated transactions that should not be 
included in the exemption?
2. Technical Changes to Rule 802
    We are proposing a technical change to Rule 802 to clarify the 
application of Rules 802(a)(2) and (3). When read in context, it is 
clear that the term ``issuer'' in those rules is intended to refer to 
the ``offeror'' in an exchange offer. We believe it is appropriate to 
revise those rules to use the term ``offeror'' instead. This is 
consistent with the reference to ``offeror'' in Rule 802(c)(4). These 
revisions are not intended to change the scope or operation of the 
existing rule.
    In some foreign jurisdictions, local rule or practice dictates that 
the offeror and the target company jointly prepare a single offer 
document that is disseminated to target holders. In other 
jurisdictions, the offeror may prepare the offer materials but they are 
disseminated by the target company. Our rule change is not intended to 
change the obligation of the offeror to submit the Form CB with 
attached offer materials, even where the offer document is technically 
distributed by another party to the transaction on its behalf.

C. Proposed Changes to Tier II Exemptions

    As discussed above, the Tier II cross-border exemptions currently 
provide targeted relief from specific U.S. tender offer rules, where 
U.S. persons hold more than ten percent but no more than 40 percent of 
the relevant class of target securities.\108\ The Tier II exemptions 
address certain common procedural and practical problems associated 
with conducting offers in accordance with two or more different 
regulatory regimes. This relief is limited in scope, in recognition of 
the substantial U.S. interest in such transactions.
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    \108\ Exchange Act Rules 13e-4(i) and 14d-1(d).
---------------------------------------------------------------------------

    Unlike the Tier I exemptions and the Rule 801 and 802 exemptions, 
the Tier II exemptions do not exempt third-party bidders or issuers 
from applicable U.S. filing, disclosure, dissemination and procedural 
requirements for tender offers or going-private transactions subject to 
Rule 13e-3. In addition, no exemption is provided from the filing and 
disclosure requirements of Schedules TO and 13E-3. Accordingly, no Form 
CB is required for Tier II cross-border tender offers. Unlike 
Securities Act Rules 801 and 802, the Tier II exemptions do not provide 
relief from the registration requirements of Section 5 of the 
Securities Act.
    Since the adoption of the cross-border exemptions, we have become 
aware of specific areas in which the Tier II exemptions do not function 
as smoothly as intended. We also have identified other instances of 
conflict between U.S. and foreign regulation or practice which we 
believe warrant expanded relief. The no-action and exemptive letters 
issued for Tier II cross-border transactions since the adoption of the 
exemptions reveal a number of common areas in which further regulatory 
relief may be appropriate. By broadening the relief provided for Tier 
II-eligible transactions as we propose today, we hope to obviate the 
need for many of these individual requests for relief in the future. 
This expanded relief is specifically targeted and narrowly tailored, 
and as a result, we believe it maintains an appropriate balance between 
investor protection and the promotion of cross-border transactions, 
particularly in transactions involving target companies with 
significant levels of U.S. ownership.
Request for Comment
     In addition to the proposed revisions described below, are 
there other areas in which Tier II should be expanded to better address 
the needs of bidders and U.S. target security holders in cross-border 
tender offers?
     Are there areas in which the existing Tier II exemptions 
or the revisions we propose should be limited or modified?

[[Page 26888]]

1. Extend Tier II Relief Where Target Securities Are Not Subject to 
Rule 13e-4 or Regulation 14D
    The Tier II exemptions apply to transactions governed by Regulation 
14D and Rule 13e-4 under the Exchange Act.\109\ As currently written, 
it is unclear whether the Tier II exemptions are available when a 
tender offer is not subject to those rules, i.e., when the tender offer 
is governed by Regulation 14E \110\ only. We believe the Tier II 
exemptions should be available if the conditions specified in our rules 
are satisfied, and therefore we propose to amend the rules accordingly 
to clarify that the Tier II exemptions are available regardless of 
whether the target securities are subject to Rule 13e-4 or Regulation 
14D.
---------------------------------------------------------------------------

    \109\ Rule 13e-4 and Regulation 14D apply only to tender offers 
for equity securities. Regulation 14D applies only where the equity 
security that is the subject of the tender offer is registered under 
Section 12 of the Exchange Act, and where the bidder makes a partial 
offer for less than all of the outstanding securities of the subject 
class, where the bidder could own more than 5 percent of those 
securities when purchases in the tender offer are aggregated with 
its existing ownership of those securities. Rule 13e-4 applies to an 
issuer tender offer where the subject securities are not themselves 
registered under Section 12, but where the issuer has another class 
of securities that are so registered.
    \110\ Exchange Act Rule 14d-1(a) defines the scope of Regulation 
14E and currently includes within the scope of that regulation only 
Exchange Act Rules 14e-1 and 14e-2. Exchange Act Rule 14d-1(a) was 
not amended to reflect the increased scope of Regulation 14E, 
beginning with the adoption of Exchange Act Rule 14e-3 in 1980. See 
Tender Offers, Release No. 34-17120 (September 4, 1980) [45 FR 
60410]. Today we propose a change to the definition of Regulation 
14E in Rule 14d-1(a), to encompass Exchange Act Rules 14e-1 through 
14e-8.\
---------------------------------------------------------------------------

    Since the adoption of the Tier II cross-border exemptions, the 
staff has periodically received inquiries from offerors in tender 
offers that would have qualified for the Tier II cross-border 
exemptions, but for the fact that the tender offer was not subject to 
Rule 13e-4 or Regulation 14D. The staff has taken the position that 
bidders otherwise meeting the conditions for reliance on the Tier II 
cross-border exemptions may rely on that relief in making tender offers 
for a subject class of securities not subject to Rule 13e-4 or 
Regulation 14D, to the extent applicable. Today we propose to codify 
this position by changing the language of the Tier II exemptions to 
specifically expand the scope of the exemptions to these kinds of 
offers.\111\
---------------------------------------------------------------------------

    \111\ See proposed Exchange Act Rules 13e-4(i) and 14d-1(d).
---------------------------------------------------------------------------

    Some of the relief afforded under the Tier II exemptions will not 
be necessary in the case of offers not subject to Rule 13e-4 or 
Regulation 14D. For example, because our ``all-holders'' requirement 
\112\ does not apply to such offers, the Tier II provision permitting 
the use of the dual offer structure \113\ may be unnecessary. However, 
where the relief provided in Tier II is needed, we see no reason to 
restrict its application only to tender offers subject to Rule 13e-4 or 
Regulation 14D.
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    \112\ See Exchange Act Rules 13e-4(f)(8) and 14d-10(a) [17 CFR 
240.14d-10(a)].
    \113\ Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).
---------------------------------------------------------------------------

Request for Comment
     Is the proposed expansion of the application of the Tier 
II exemptions to tender offers not subject to Rule 13e-4 or Regulation 
14D appropriate?
     Should we condition the proposed extension of the relief 
provided under Tier II on any other factors besides general eligibility 
to rely on the Tier II exemptions?
     Are there other areas in which we should provide targeted 
relief (other than those currently proposed for Tier II offers) for 
tender offers not subject to Rule 13e-4 or Regulation 14D?
2. Expand Tier II Relief for Dual or Multiple Offers
a. Offeror May Make More Than One Non-U.S. Offer
    U.S. tender offer rules require that when a bidder makes a tender 
offer that is subject to Section 13(e) or 14(d) of the Exchange Act, 
that tender offer must be open to all target security holders of that 
class.\114\ The Tier II cross-border exemptions currently contain a 
provision permitting a bidder conducting a tender offer to separate 
that offer into two separate offers--one U.S. and one foreign--for the 
same class of securities.\115\ This exemption for dual offers provides 
bidders with maximum flexibility to comply with two sets of regulatory 
regimes and to accommodate frequent conflicts in tender offer practice 
between U.S. and foreign jurisdictions. By permitting the use of two 
separate but concurrent offers--one made in compliance with U.S. rules 
and the other conducted in accordance with foreign law or practice--the 
dual offer provision facilitates cross-border tender offers.
---------------------------------------------------------------------------

    \114\ Exchange Act Rules 13e-4(f)(8) and 14d-10(a)(1).
    \115\ Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).
---------------------------------------------------------------------------

    In practice, however, issues have arisen because of the language of 
the dual offer provision contained in the Tier II exemptions. First, 
the text of the exemption specifically permits only two offers for the 
target class of securities.\116\ Bidders may be required to (or may 
wish to) make more than one offer outside of the United States. This 
may be the case, for example, where the primary trading market for the 
target's securities differs from the target's country of 
incorporation.\117\
---------------------------------------------------------------------------

    \116\ Id.
    \117\ See, e.g., Mittal Steel Company N.V. (June 22, 2006) 
(``Mittal''). This letter states that it may be relied upon by any 
similarly-situated offeror or affiliate meeting the conditions 
outlined in the letter.
---------------------------------------------------------------------------

    We see no reason to limit a bidder to only two offers for target 
securities. Where a bidder is subject to more than one foreign 
regulatory scheme, greater potential for regulatory conflicts may 
exist. We note that companies have, upon request, received relief 
permitting multiple foreign offers.\118\ We propose to eliminate the 
restriction on the number of non-U.S. offers a bidder may make in a 
cross-border tender offer by changing the references to ``dual offers'' 
to refer instead to ``multiple offers.'' \119\
---------------------------------------------------------------------------

    \118\ See, e.g., Alcan; Asia Satellite Telecommunications 
Holdings Limited (May 25, 2007); BCP Crystal Acquisition GmbH & Co 
(February 3, 2004) (``BCP'') and 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).
    \119\ See proposed Exchange Act Rules 13e-4(i)(2)(ii) and 14d-
1(d)(2)(ii).
---------------------------------------------------------------------------

b. U.S. Offer May Include Non-U.S. Persons and Foreign Offer(s) May 
Include U.S. Persons
    The existing Tier II dual offer exemption provides that the U.S. 
offer can be open only to security holders resident in the United 
States.\120\ This limitation creates a problem because bidders 
frequently seek to include all holders of ADRs, not only U.S. holders, 
in the U.S. offer. In many instances, the target's home country 
regulations do not apply, by their terms, to ADRs.\121\ Similarly, the 
existing Tier II dual offer provision mandates that the foreign offer 
be available only to non-U.S. holders.\122\ The prohibition against 
permitting U.S. holders from participating in the foreign offer may 
conflict with the law of the target's home country if those rules do 
not permit the exclusion of any security holders, including those in 
the United States.\123\
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    \120\ Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).
    \121\ 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 Comiss[atilde]o de Mercado de Valores Mobili[aacute]rios 
did not apply to the offer for ADSs of the target company listed on 
the New York Stock Exchange).
    \122\ Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).
    \123\ See, e.g., Gas Natural SDG, S.A. (March 6, 2006) 
(involving Spanish law).

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[[Page 26889]]

    Companies frequently are forced to seek individual relief from the 
staff to address these issues.\124\ 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.\125\ We propose to change our rules 
so that acquirors will no longer need to seek individual relief to 
structure their offers in this manner. We are not aware of a 
transaction for which acquirors have sought to extend the U.S. offer to 
foreign target holders who do not hold in ADR form. Therefore, we are 
not proposing to allow these holders to participate in U.S. offers.
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    \124\ See Harmony Gold Mining Company Limited (November 19, 
2004) (``Harmony Gold 2004''); Discount Investment Corporation Ltd. 
(June 14, 2004); Alcan; Serono S.A.; and Southern Cross (March 5, 
2002).
    \125\ See e.g., Royal Bank of Scotland Group plc (July 23, 2007) 
(``Royal Bank''); E.ON Aktiengesellschaft (December 6, 2006) 
(``E.ON''); Koninklijke Ahold N.V. (September 10, 2002).
---------------------------------------------------------------------------

    We also propose to change our rules to allow U.S. holders to 
participate in non-U.S. offers where required under foreign law and 
where U.S. holders are provided with adequate disclosure about the 
implications of participating in the foreign offer. When relief has 
been granted to permit the inclusion of U.S. persons in a non-U.S. 
offer, it has been conditioned on appropriate disclosure in the offer 
materials concerning the risks for U.S. holders of participating in the 
foreign offer.\126\ Relief also has been conditioned on the existence 
of an express legal requirement in the foreign target company's home 
jurisdiction to include U.S. target holders.\127\
---------------------------------------------------------------------------

    \126\ See, e.g., Endesa, S.A. (July 3, 2007) (``Endesa'').
    \127\ Id.
---------------------------------------------------------------------------

    Today we propose to change our rules to address these issues by 
revising the equal treatment provisions in Exchange Act Rules 13e-
4(i)(2)(ii) and 14d-1(d)(2)(ii) to allow a U.S. offer to be made to 
U.S. target holders and all holders of American Depositary Receipts 
representing interests in the subject securities. The U.S. offer must 
be made on terms at least as favorable as those offered any other 
holder of the subject securities. We note that the proposed changes are 
not intended to enable an offer to be made only to holders of ADRs or 
only to holders of the underlying securities, where the target shares 
are registered under Section 12 or where Rule 13e-4 otherwise applies. 
We view ADRs and the underlying securities as a single class for 
purposes of our tender offer and beneficial ownership reporting 
rules.\128\
---------------------------------------------------------------------------

    \128\ See American Depositary Receipts, Release No. 33-6894 (May 
23, 1991) [56 FR 24420], Section II.D.2 (explaining that, for 
purposes of determining beneficial ownership reporting requirements 
under Section 13 of the Exchange Act, ADRs and the underlying 
securities are to be considered a single class). The staff takes the 
same view that they are one class for purposes of the tender offer 
rules.
---------------------------------------------------------------------------

    In addition, revised Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii) 
would provide that one or more foreign offers may be conducted in 
conjunction with a U.S. offer for the same subject securities. U.S. 
persons may be included in the foreign offer(s) only where the laws of 
the jurisdiction governing such foreign offer(s) expressly preclude the 
exclusion of U.S. persons from the foreign offer(s) and where the offer 
materials distributed to U.S. persons fully and adequately disclose the 
risks of participating in the foreign offer(s).
c. Proration and the Use of the Dual or Multiple Offer Structure
    When a bidder makes a partial tender offer \129\ subject to Section 
13(e) or 14(d) of the Exchange Act, our rules require tendered 
securities to be purchased on a pro rata basis if the offer is 
oversubscribed.\130\ This is to assure equal treatment of security 
holders who have tendered their securities.
---------------------------------------------------------------------------

    \129\ A ``partial tender offer'' is a tender offer where the 
bidder is offering to purchase less than all of the outstanding 
securities of that the subject class.
    \130\ See Section 14(d)(6) of the Exchange Act [15 U.S.C. 
78n(d)(6)], and Rules 13e-4(f)(3) and 14d-8 [17 CFR 240.14d-8].
---------------------------------------------------------------------------

    We are not proposing a change to this requirement. We are 
clarifying that bidders relying on the dual offer provision in the Tier 
II exemptions to conduct separate U.S. and non-U.S. offers for less 
than all of a class of target securities must use a single proration 
``pool,'' in accordance with the existing requirements of our 
rules.\131\ This is not a change in how the staff has interpreted 
existing proration rules; however, it has come to our attention that in 
the past, certain bidders may have separately pro rated tenders made 
into the U.S. and foreign offers.\132\ In this release, we clarify that 
where a bidder makes a partial tender offer for less than all 
outstanding target securities of a given class, and relies on the 
provision in Tier II allowing the use of a dual or multiple (as 
proposed) offer structure, the securities tendered into the U.S. and 
non-U.S. offers must be pro rated on an aggregate basis in order to 
comply with proration rules. Otherwise, if different proration factors 
were used, U.S. security holders could be disadvantaged as compared to 
target holders tendering into a foreign offer.
---------------------------------------------------------------------------

    \131\ Id.
    \132\ See AES Corporation (October 22, 2001) (advising against 
this practice in the context of a partial cross-border tender 
offer).
---------------------------------------------------------------------------

Request for Comment
     Should we permit the use of multiple offers outside of the 
United States for Tier-II eligible tender offers?
     Should we allow all non-U.S. holders to be included in a 
U.S. offer, or only non-U.S. holders of ADRs, as proposed?
     Should we allow U.S. holders to be included in the foreign 
offer(s) open to target security holders outside of the United States?
     [cir] Should we permit this, as proposed, only when applicable 
foreign law does not allow exclusion of U.S. holders from the foreign 
offer, even where a concurrent U.S. offer is available to them?
     [cir] Is the requirement that the implications of participating in 
the foreign offer(s) be disclosed in the U.S. offering materials 
adequate to protect U.S. investors?
     [cir] Should we impose additional conditions on the ability of 
offerors to include U.S. target holders in the foreign offer(s)?
     Are there situations where bidders in cross-border tender 
offers should be permitted to separately pro rate securities tendered 
into U.S. and foreign offers?
3. Termination of Withdrawal Rights While Tendered Securities Are 
Counted
    We are proposing rule revisions to eliminate issues relating to the 
``back-end'' withdrawal rights required under Section 14(d)(5) of the 
Exchange Act and Rule 13e-4(f)(2)(ii) for tender offers conducted under 
the Tier II cross-border exemptions. Under today's proposed changes, 
new provisions would be added to the Tier II exemptions permitting the 
suspension of back-end withdrawal rights during the time after the 
initial offering period, when tendered securities are being counted and 
before they are accepted for payment.\133\ Both of the back-end 
withdrawal rights provisions require bidders to provide withdrawal 
rights after a set date, measured from the commencement of a tender 
offer.\134\

[[Page 26890]]

Thus, even where a tender offer has technically closed and tenders are 
no longer being accepted, back-end withdrawal rights may exist until 
the offeror accepts tendered shares for payment.\135\
---------------------------------------------------------------------------

    \133\ See proposed Exchange Act Rules 13e-4(i)(2)(v) and 14d-
1(d)(2)(viii).
    \134\ Section 14(d)(5) of the Exchange Act [15 U.S.C 78n(d)(5)] 
states that ``[s]ecurities deposited pursuant to a tender offer * * 
* may be withdrawn by or on behalf of the depositor at any time 
until the expiration of seven days after the time definitive copies 
of the offer * * * are first published or sent or given to security 
holders, and at any time after sixty days from the date of the 
original tender offer * * *, except as the Commission may otherwise 
prescribe by rules, regulations, or order as necessary or 
appropriate in the public interest or for the protection of 
investors.'' Exchange Act Rule 13e-4(f)(2)(ii) includes a similar 
mandate for issuer tender offers: ``The issuer or affiliate making 
the issuer tender offer shall permit securities tendered pursuant to 
the issuer tender offer to be withdrawn * * * if not yet accepted 
for payment, after the expiration of forty business days from the 
commencement of the issuer tender offer.'' Where the tender offer is 
subject to Rule 13e-4 and Regulation 14D, bidders also must provide 
withdrawal rights during the ``initial offering period.'' We do not 
propose to modify this requirement.
    \135\ Whether back-end withdrawal rights arise also will depend 
on the length of the tender offer period; if the initial offering 
period and the payment process are completed before such rights 
arise, back-end withdrawal rights will not be triggered.
---------------------------------------------------------------------------

    Section 14(d)(5) of the Exchange Act grants us the authority to 
modify the back-end withdrawal rights afforded under that 
provision.\136\ We exercised this authority in adopting Rule 14d-11, 
which permits the use of a ``subsequent offering period'' during which 
securities may be tendered but not withdrawn.\137\ Practical 
considerations influenced our willingness to modify the withdrawal 
rights provisions of Section 14(d)(5) for subsequent offering periods. 
Permitting withdrawal rights during a subsequent offering period, when 
tendered shares are required to be purchased on a ``rolling'' or as 
tendered basis,\138\ would interfere with the payment process.
---------------------------------------------------------------------------

    \136\ See footnote 134 above.
    \137\ Exchange Act Rule 14d-7(a)(2) [17 CFR 240.14d-7(a)(2)].
    \138\ Exchange Act Rule 14d-11(c) [17 CFR 240.14d-11(c)].
---------------------------------------------------------------------------

    The Tier II cross-border exemptions provide that a bidder need not 
extend withdrawal rights from the close of the initial offering period 
and before the commencement of the subsequent offering period, where 
the bidder announces the results of the initial offering period and 
pays for tendered securities in accordance with home country law or 
practice, so long as the subsequent offering period begins immediately 
thereafter.\139\ Due to similar practical considerations, we propose to 
extend this suspension of the back-end withdrawal rights provisions for 
all tender offers conducted under Tier II during the counting of 
tendered securities. This would allow withdrawal rights to be 
terminated at the end of an offer and during the counting process for 
bidders that do not provide a subsequent offering period.\140\
---------------------------------------------------------------------------

    \139\ Exchange Act Rule 14d-1(d)(2)(v).
    \140\ For example, the subsequent offering period structure is 
available for third-party offerors subject to Regulation 14D, but 
not for issuer tender offers subject to Exchange Act Rule 13e-4. 
Applicable foreign law may also impact a third-party offeror's 
ability to provide a subsequent offering period.
---------------------------------------------------------------------------

    Differences in the tender, acceptance and payment procedures 
between U.S. and foreign offers necessitate this relief. In a U.S. 
offer, tendering security holders generally tender their shares to a 
single exchange agent employed by the bidder.\141\ Thus, bidders 
generally are in a position to know at any point in the offering period 
the number of securities tendered. Because bidders know how many target 
securities have been tendered into the offer at the expiration, 
acceptance of tendered securities in a U.S. offer can occur almost 
immediately after the expiration of an offer.\142\ Therefore, bidders 
in domestic offers are able to terminate the back-end withdrawal rights 
almost immediately after expiration by accepting securities tendered 
(assuming all offer conditions have been satisfied or waived). Bidders 
can begin the payment process promptly after expiration of the offer, 
consistent with their obligations under U.S. law to pay promptly.\143\
---------------------------------------------------------------------------

    \141\ Tenders may be made through nominees, such as broker-
dealers, who hold the target securities in ``street name,'' or 
directly by the ultimate beneficial holder of the target securities.
    \142\ See Exchange Act Rule 14e-1 [17 CFR 240.14e-1] (stating 
that a bidder must promptly pay for or return tendered securities 
after the expiration or withdrawal of a tender offer). According to 
Rule 14e-1(d), in a U.S. offer, the bidder has only until 9:00 a.m. 
Eastern time on the next business day after the expiration of the 
tender offer to announce the extension of the offer.
    \143\ ``Prompt payment'' in U.S. offers is generally understood 
to mean payment within three days of expiration. See Guidance on 
Mini-Tender Offers and Limited Partnership Tender Offers, Release 
No. 34-43069 (July 24, 2000) [65 FR 46581].
---------------------------------------------------------------------------

    The mechanics of the tender process in non-U.S. tender offers are 
generally very different. Tenders often are made through many different 
financial institutions instead of through a single tender agent, as in 
the United States.\144\ The process of centralizing and counting 
tendered securities therefore may take an extended period of time.\145\ 
In some countries, entities other than the bidder or its agents 
undertake the counting process and the announcement of the result of 
the tender offer.\146\
---------------------------------------------------------------------------

    \144\ See, e.g., Technip, S.A. (August 30, 2001) (describing the 
tender process through banks, and other financial institutions and 
intermediaries) and Vodafone AirTouch Plc (December 22, 1999) 
(noting that under German law, tenders of target securities could be 
made through any branch of over 300 depositary banks through which 
such securities were held).
    \145\ See, e.g., Business Object S.A. (December 5, 2007).
    \146\ Id. (The letter states that once the French Offer has 
expired, securities tendered in the French Offer are ``centralized'' 
at Euronext, which then counts the total number of securities 
tendered. The Autorite des Marches Financiers (the French regulator) 
then announces the results of the offer).
---------------------------------------------------------------------------

    Because of these differences in procedure, the bidder in a cross-
border tender offer may not know whether the minimum tender condition 
has been satisfied immediately after the end of the initial offering 
period. The bidder cannot accept tendered securities until all offer 
conditions, including the minimum tender condition, have been satisfied 
or waived and the counting process is completed.\147\ We already have 
recognized that the mechanics of the tendering and counting regimes in 
other countries justifies different treatment under our rules,\148\ and 
for the same reasons, we believe it is appropriate to provide an 
exemption in this area.
---------------------------------------------------------------------------

    \147\ While a bidder technically could accept tendered 
securities immediately after the expiration of a cross-border tender 
offer by waiving the minimum tender condition, we believe this would 
be a significant hardship for bidders and would negatively impact 
bidders' ability to conduct cross-border tender offers.
    \148\ See Exchange Act Rules 13e-4(i)(2)(iv) and 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.
---------------------------------------------------------------------------

    Bidders previously have sought relief from the back-end withdrawal 
rights provisions for Tier II cross-border tender offers, during the 
period in which tendered securities are being counted and until the 
announcement of the results of the offer, where no subsequent offering 
period is provided.\149\ The relief requested generally is premised on 
the following factors:
---------------------------------------------------------------------------

    \149\ See, e.g., Barclays PLC tender offer for ABN AMRO Holding 
N.V. (August 7, 2007) (``Barclays'') (period of no longer than five 
Dutch trading days); Endesa, S.A. (when the tendered shares are 
being counted and until payment occurs, in accordance with Spanish 
law and practice); Portugal Telecom (three Portuguese business days 
after the special session of Euronext Lisbon); E.ON (when the 
tendered shares are being counted and until payment occurs, in 
accordance with Spanish law and practice); and Bayer AG (April 28, 
2006).
---------------------------------------------------------------------------

     The initial offering period of at least 20 business days 
has expired, and withdrawal rights were provided during that period;
     All offer conditions, other than the minimum tender 
condition, are satisfied or waived as of the expiration of the initial 
offering period; \150\ and
---------------------------------------------------------------------------

    \150\ If a bidder counts the number of securities tendered as of 
the expiration date in determining whether the minimum acceptance 
condition has been satisfied, we view this condition as having been 
satisfied as of expiration. This is the case even though the 
counting process may, as a logistical matter, take some period of 
time after expiration to be completed.
---------------------------------------------------------------------------

     Back-end withdrawal rights are suspended only during the 
period

[[Page 26891]]

necessary to centralize and count the tendered securities, and are 
reinstated immediately at the end of that process, to the extent they 
are not terminated by acceptance of tendered securities immediately 
afterwards.\151\
---------------------------------------------------------------------------

    \151\ See the letters listed in footnote 149 above. Note that 
the only conditions that may survive the expiration of the initial 
offering period are regulatory approvals necessary to consummate the 
tender offer. We believe that the existence of the back-end 
withdrawal rights provided in Exchange Act Rule 13e-4(f)(2)(ii) and 
Section 14(d)(5) of the Exchange Act provide a critical safeguard 
where a regulatory condition survives the expiration of the initial 
offering period. 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). The staff will continue to consider 
limited relief under those circumstances only where a compelling 
reason exists.
---------------------------------------------------------------------------

    As proposed, both third-party bidders for securities of a foreign 
private issuer and foreign private issuers repurchasing their own 
securities would be permitted to suspend back-end withdrawal rights 
while tendered securities are being counted, even where no subsequent 
offering period is provided. The revised rules would be conditioned on 
the following factors:
     The Tier II exemption must be available;
     The offer must include an offering period, including 
withdrawal rights, of at least 20 U.S. business days;
     At the time withdrawal rights are suspended, all offer 
conditions have been satisfied or waived, except to the extent that the 
bidder is still counting tendered securities to determine if the 
minimum acceptance condition has been satisfied; and
     Withdrawal rights are suspended only during the necessary 
centralization and counting process period and are reinstated 
immediately thereafter, except to the extent that they are terminated 
by the acceptance of tendered securities.
Request for Comment
     Is it appropriate and in the best interests of U.S. 
investors to permit the suspension of back-end withdrawal rights, as 
proposed?
     Do the proposed conditions address bidders' practical 
concerns while still protecting tendering security holders?
     Should we permit back-end withdrawal rights to be 
suspended only during the counting process? Or should this relief be 
provided through the announcement of the results of the tender offer?
4. Expanded Relief for Subsequent Offering Periods
    Since the adoption of the cross-border exemptions, foreign 
requirements and practices relating to tender offers have frequently 
led to conflicts with the Commission's rule on subsequent offering 
periods.\152\ Today we propose to address some of the more common areas 
of conflict. The most frequent area of conflict relates to the maximum 
limit on the length of the subsequent offering period of 20 U.S. 
business days imposed by our rules.\153\ In some instances, foreign law 
mandates a subsequent offering period of longer than 20 U.S. business 
days.\154\ In other non-U.S. jurisdictions, market practice dictates a 
subsequent offering period of longer than 20 business days.\155\ In 
these jurisdictions bidders must seek relief to extend the permissible 
time period of their subsequent offering periods to reconcile U.S. 
rules with foreign law or customary practice.\156\
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    \152\ Exchange Act Rule 14d-11. At the same time we adopted the 
existing cross-border exemptions, we also changed our rules for 
domestic tender offers to permit the use of subsequent offering 
periods. See Regulation of Takeovers and Security Holder 
Communications, Release No. 33-7760 (October 22, 1999) [64 FR 61408] 
(``Regulation M-A Adopting Release''). We made this change in part 
because of years of experience with the subsequent offering period 
in cross-border tender offers.
    \153\ Our rules permit (but do not require) a bidder in a third-
party tender offer to provide a subsequent offering period of 
between three and 20 U.S. business days, under certain conditions. 
The conditions outlined in Exchange Act Rule 14d-11 are: (a) The 
initial offering period of at least 20 business days has expired; 
(b) the offer is for all outstanding securities of the class, and if 
the bidder offers security holders a choice of different forms of 
consideration, there is not a ceiling on any form of consideration 
offered; (c) the bidder immediately accepts and promptly pays for 
all securities tendered during the initial offering period; (d) the 
bidder announces the results of the tender offer by 9 a.m. Eastern 
standard time on the morning after expiration of the initial 
offering period and immediately begins the subsequent offering 
period; (e) the bidder immediately accepts and promptly pays for all 
securities as they are tendered in the subsequent offering period; 
and (f) the bidder offers the same form and amount of consideration 
in both the initial and subsequent offering periods.
    \154\ See, e.g., Embratel Particpacoes S.A. (December 6, 2006) 
(``Embratel''); and Barrick Gold Corp. (January 19, 2006).
    \155\ 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) 
(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).
    \156\ Id.
---------------------------------------------------------------------------

    We believe establishing a maximum time period for subsequent 
offering periods in cross-border tender offers is no longer necessary, 
in part because it creates unnecessary conflict between U.S. and 
foreign law or practice. Therefore, we propose to eliminate this time 
limit for cross-border tender offers eligible to rely on the Tier II 
exemptions by adding a new provision specifically allowing Tier II 
cross-border tender offers to include subsequent offering periods 
longer than 20 U.S. business days. Allowing subsequent offering periods 
in cross-border tender offers to extend beyond the current 20-day 
maximum period is consistent with one of the primary reasons we revised 
our rules to permit subsequent offering periods generally: To enable 
bidders to reach the necessary thresholds for acquiring the remaining 
target securities not tendered in an initial offering period and to pay 
tendering security holders before they would receive payment in a 
second-step ``squeeze out'' process.\157\ In some foreign 
jurisdictions, the ability of a bidder to acquire securities of the 
target that remain outstanding after a tender offer is more limited 
than in the United States.\158\ We believe the ability to extend the 
subsequent offering period for longer than 20 U.S. business days will 
provide an opportunity for remaining target security holders to tender 
into a successfully-consummated offer, after which the market for their 
securities may be very limited.\159\ The subsequent offering period 
allows target security holders to be paid before a compulsory 
acquisition can be

[[Page 26892]]

completed, in a circumstance where an offer has become unconditional 
and will certainly be consummated.\160\
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    \157\ See Regulation M-A Adopting Release, Section II.G.1. 
(``The purpose of the subsequent offering period is two-fold. First, 
the period will assist bidders in reaching the statutory state law 
minimum necessary to engage in a short-form, back-end merger with 
the target. Second, the period will provide security holders who 
remain after the offer one last opportunity to tender into an offer 
that is otherwise complete in order to avoid the delay and illiquid 
market that can result after a tender offer and before a back-end 
merger.'').
    \158\ Where an acquiror obtains more than 50 percent of the 
target securities of a domestic company, it generally can acquire 
the remaining target shares through a back-end merger. In some 
foreign jurisdictions, the bidder's ability to ``squeeze out'' 
remaining target shareholders is more limited. See, e.g., In the 
Matter of Texas Utilities Company (March 27, 1998) (``Texas 
Utilities'') (noting that under U.K. law, the compulsory acquisition 
process is available only when the bidder owns at least 90 percent 
of the subject securities and this process is the only means to 
acquire 100 percent of the subject class).
    \159\ See Regulation M-A Adopting Release, Section II.G.1. and 
footnote 157 above.
    \160\ See footnote 157 above.
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Request for Comment
     Are there any other conflicts between U.S. and foreign 
laws or practice arising out of the subsequent offering period 
structure that should be addressed through additional rule revisions?
     Is it appropriate, as proposed, to eliminate the 20 U.S. 
business day limit on the length of the subsequent offering period for 
Tier II cross-border tender offers?
     Should we eliminate the 20 U.S. business day limit on the 
length of the subsequent offering period for all tender offers 
generally, including those for domestic issuers?
    [cir] Do bidders for U.S. companies face any practical difficulties 
because of the 20 U.S. business day limit?
     Is the limit on the length of the subsequent offering 
period necessary for investor protection, either in the U.S. or in 
cross-border offers? Should we retain a limit but increase it, for 
example, to 30 or 60 U.S. business days?
a. Proposed Revisions To Prompt Payment Rule
    Another area of conflict in subsequent offering period practice 
that we address today relates to the requirement under U.S. rules that 
bidders must immediately accept and promptly pay for all securities 
``as they are tendered during the subsequent offering period.'' \161\ 
The requirement to purchase securities tendered during the subsequent 
offering period on a rolling basis exists because, in the absence of 
withdrawal rights, which need not be provided during a subsequent 
offering period,\162\ tendering security holders should receive the 
offer consideration as quickly as possible. Bidders in cross-border 
tender offers often are required to, or for practical reasons need to, 
follow local practices when paying for securities tendered in a 
subsequent offering period.\163\ We have been advised, however, that 
the requirement that securities be paid for on an as tendered basis in 
the same manner as in the United States may conflict with market 
practice in certain non-U.S. jurisdictions, and is in many instances 
practicably unworkable there.\164\
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    \161\ Exchange Act Rule 14d-11(e).
    \162\ See Note to Exchange Act Rule 14d-11.
    \163\ 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 plc 
(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); Aventis (June 10, 2004)(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).
    \164\ See Barrick Gold Corporation (October 10, 2006) 
(discussing multiple ``take-up'' dates required under Canadian 
rules). See also Singapore Technologies Semiconductors Pte Ltd. 
(March 15, 2007) and BCP.
---------------------------------------------------------------------------

    Today we propose to allow, under certain circumstances, securities 
tendered during the subsequent offering period for a Tier II cross-
border tender offer to be purchased on a modified rolling basis. We do 
this by including language in proposed new Rule 14d-1(d)(2)(iv) that 
defines ``prompt payment'' for purposes of the requirement under Rule 
14d-11(e) to purchase on an as tendered basis. Instead of requiring 
daily aggregation of securities tendered during the subsequent offering 
period, the proposed rule would permit such securities to be 
``bundled'' and paid for within 14 business days from the date of 
tender. We chose 14 business days as the time period because, in our 
experience, that amount of time is sufficient to cover the subsequent 
offering periods used in most foreign jurisdictions.\165\ Depending on 
the length of the subsequent offering period and the payment practice 
in the applicable foreign jurisdiction, this may allow payment for 
securities tendered during the subsequent offering period to be made at 
the end of that period. We understand that this is market practice in 
some foreign jurisdictions.\166\
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    \165\ In this context, we propose to define ``business day'' 
without reference to a business day in the United States. A business 
day as used in proposed Rule 14d-1(d)(2)(iv) is determined with 
reference to the relevant foreign jurisdiction. By not defining 
business day in accordance with the U.S. calendar, we hope to make 
this rule modification more useful because U.S. and non-U.S. 
holidays will vary.
    \166\ See Barclays (Dutch practice requires payment for 
securities tendered during a subsequent offering period to be made 
within five Dutch trading days after the end of that period); Alcan 
(noting that French practice is to pay for securities tendered in 
the subsequent offering period at the end of that period); and Smith 
& Nephew Group plc (April 4, 2003) (payment within ten Swiss trading 
days after the end of the subsequent offering period is required 
under Swiss law).
---------------------------------------------------------------------------

    Another practical difficulty involving subsequent offering periods 
arises because, in certain foreign jurisdictions, bidders are legally 
required to pay interest on securities tendered during the subsequent 
offering period. Generally, the rate of interest is set by law and is 
calculated from the date on which securities are tendered.\167\ 
Sometimes interest is calculated as of a set reference point not 
directly tied to the tender offer timetable.\168\
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    \167\ 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 and ``Telemar Participacoes S.A. (October 
9, 2007) (``Telemar''). See also, Bayer AG (September 26, 2006) 
(``Bayer 2006'') (describing a similar requirement under German 
law).
    \168\ Under German law, for example, we have been advised that 
if a bidder acquires a sufficient percentage of a target's shares in 
a voluntary tender offer, it may enter into a ``domination 
agreement'' with the target. The bidder is then required to pay 
interest at a rate set by German law on all securities tendered 
during the subsequent offering period, from the date that such 
domination agreement becomes effective. See Blackstone Entities 
(December 16, 2004) (``Blackstone'').
---------------------------------------------------------------------------

    Under either scenario, paying interest on securities tendered 
during a subsequent offering period conflicts with U.S. tender offer 
rules in several respects. U.S. rules specify that for offers subject 
to Regulation 14D, a bidder must pay the same form and amount of 
consideration for securities tendered during the subsequent offering 
period as it pays for those tendered into the initial offering 
period.\169\ For those types of offers, it is also impermissible to pay 
different amounts of consideration for securities tendered within 
either the initial or the subsequent offering periods.\170\ Companies 
have addressed this conflict by seeking exemptive relief.\171\
---------------------------------------------------------------------------

    \169\ Exchange Act Rule 14d-11(f).
    \170\ Exchange Act Rule 14d-10(a)(2).
    \171\ See e.g., Telemar; Embratel; and Blackstone.
---------------------------------------------------------------------------

    We propose to revise our rules to permit the payment of interest 
for securities tendered during a subsequent offering period in a Tier 
II cross-border tender offer where required under foreign law.\172\ The 
proposed new provision explicitly notes that paying interest on 
securities tendered during the subsequent offering period would not be 
deemed to violate the equal treatment principles in Rule 14d-
10(a)(2).\173\ As discussed above, under the equal treatment and all-
holders provisions of the tender offer rules,\174\ a bidder could not 
pay interest only on securities tendered into a foreign offer.
---------------------------------------------------------------------------

    \172\ See proposed Exchange Act Rule 14d-1(d)(2)(vii).
    \173\ See proposed Exchange Act Rule 14d-1(d)(2).
    \174\ Exchange Act Rule 14d-10.
---------------------------------------------------------------------------

Request for Comment
     Is it appropriate to permit payment for securities 
tendered during the subsequent offering period in cross-border tender 
offers to be made up to 14 business days after the date of tender?
    [cir] Is 14 business days a sufficient period to make this relief 
useful for cross-border tender offers that include a subsequent 
offering period? Would a shorter (five, seven or 10 business days)

[[Page 26893]]

or longer period (15, 20 or 30 business days) of time better serve the 
interests of bidders or tendering security holders?
    [cir] Should we permit payment for securities tendered during the 
subsequent offering period to be made within a certain number of days 
after the end of that period, such as within five, 10 or 14 business 
days, even if we eliminate the time limit on the length of the 
subsequent offering period? Or would this disadvantage tendering 
security holders?
     Should we revise our rules to permit the payment of 
interest on target securities tendered during the subsequent offering 
period, as proposed?
     Should we expand the proposed relief to encompass interest 
paid on securities tendered during the initial offering period?
     Should we provide this relief only where interest is 
required to be paid under foreign law, as proposed?
     Should the proposed amendment only permit de minimis 
interest payments? If so, what limits are appropriate?
b. Prompt Payment and ``Mix and Match'' Offers
    The final issue we address with respect to subsequent offering 
periods involves ``mix and match'' offers. The requirement to pay for 
shares on an as tendered basis during the subsequent offering period is 
particularly problematic in cross-border tender offers that include a 
mix and match election feature. In this offer structure, target 
security holders are offered a set mix of cash and securities of the 
bidder--often referred to as the ``standard entitlement''--with the 
option to elect a different proportion of cash and securities, to the 
extent that other tendering security holders make opposite 
elections.\175\ The bidder typically sets a maximum amount of cash or 
securities that it will issue in the offer; to the extent that more 
tendering target security holders elect cash or bidder securities, 
their elections are prorated to the extent they cannot be satisfied 
through ``offsetting elections'' made by other target security 
holders.\176\
---------------------------------------------------------------------------

    \175\ 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).
    \176\ Id.
---------------------------------------------------------------------------

    Mix and match offers often conflict with U.S. requirements 
applicable to the subsequent offering period. First, those rules 
provide that a bidder may offer a choice of different forms of 
consideration in the subsequent offering period, but only if there is 
no ceiling on any form of consideration offered.\177\ In addition, the 
rules require a bidder to offer the same form and amount of 
consideration to tendering security holders in both the initial and 
subsequent offering periods.\178\ Both requirements present 
difficulties in the context of mix and match offers. In these kinds of 
offers, bidders want to impose a maximum limit on either (or both) the 
number of securities or the amount of cash they will be obligated to 
deliver if the offer is successful.\179\ In addition, the offset 
feature characteristic of mix and match offers is inconsistent with the 
prohibition on offering different forms and amounts of consideration in 
the initial and subsequent offering periods.
---------------------------------------------------------------------------

    \177\ Exchange Act Rule 14d-11(b).
    \178\ Exchange Act Rule 14d-11(f).
    \179\ See letters cited in footnote 175 above.
---------------------------------------------------------------------------

    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.\180\ That is, bidders 
match elections made during the initial offering period against each 
other to determine offsets and proration and begin the payment process 
for those securities as promptly as practicable after the end of the 
initial offering period.\181\ Similarly, securities tendered during the 
subsequent offering period are matched against each other, not against 
those tendered during the initial offering period, so as not to delay 
the payment process. As a result, the mix of consideration provided to 
tendering security holders may be different in the initial and 
subsequent offering periods.
---------------------------------------------------------------------------

    \180\ Id.
    \181\ This is necessitated by foreign rules, which typically 
require those securities to be accepted and paid for while the 
subsequent offering period is ongoing. U.S. rules also require that 
securities tendered in an initial offering period be accepted and 
promptly paid for at the end of that period. Exchange Act Rule 14d-
11(c).
---------------------------------------------------------------------------

    Today we propose to revise our rules to specifically allow separate 
offset and proration pools for securities tendered during the initial 
and the subsequent offering periods.\182\ 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. Because of the same 
practical considerations, we also propose to eliminate the prohibition 
on a ``ceiling'' for the form of consideration offered in the 
subsequent offering period, where target security holders are given the 
ability to elect between two or more different forms of offer 
consideration. These changes would be accomplished by adding a 
provision in Rule 14d-1(d)(2) that specifies that such practices are 
permissible for Tier II cross-border offers.\183\
---------------------------------------------------------------------------

    \182\ See proposed Exchange Act Rule 14d-1(d)(2)(ix).
    \183\ See id.
---------------------------------------------------------------------------

Request for Comment
     Would these proposed rule changes address the practical 
needs of cross-border offerors? Would there be any disadvantages for 
target security holders?
     Should we extend these changes to all tender offers, 
including tender offers for U.S. issuers? Would bidders for U.S. 
issuers use the ability to make mix and match offers? Would such a 
structure be workable in the U.S. and in the best interests of U.S. 
investors?
5. Additional Guidance With Respect to Terminating Withdrawal Rights 
After Reduction or Waiver of a Minimum Acceptance Condition
    U.S. tender offer rules generally provide that a bidder must allow 
an offer to remain open for a certain period of time after a material 
change in its terms is communicated to target security holders.\184\ 
The minimum time periods established allow target security holders time 
to learn of and react to information about material changes. Some 
target holders may want to tender in response to the new information, 
while others who already have tendered may seek to withdraw their 
securities. For this reason, U.S. rules mandate that, for

[[Page 26894]]

tender offers subject to Section 13(e) or 14(d) of the Exchange Act, in 
addition to keeping the offer open for a set period of time after 
providing notice of a material change, the bidder must provide 
withdrawal rights during such period.\185\
---------------------------------------------------------------------------

    \184\ Exchange Act Rule 14d-4(d)(2)(i)-(iv) sets forth the 
minimum time periods for which an offer must remain open after 
certain specified types of changes in the terms of that offer are 
communicated to target security holders. The Rule states that an 
offer must remain open for: (1) Ten business days after 
dissemination of a prospectus supplement containing a change in 
price, the amount of securities sought, the dealer's soliciting fee 
or other similarly significant change; (2) ten business days for a 
prospectus supplement included as part of a post-effective 
amendment; (3) twenty business days for a prospectus supplement when 
the initial prospectus was materially deficient; and (4) five 
business days for a material change other than price or share 
levels. Exchange Act Rule 14d-4(d)(2) by its terms applies only to 
third-party tender offers for Exchange Act registered securities. 
However, we have stated that we view the time periods established in 
that rule as general guidelines applicable to all tender offers, 
including those subject only to Regulation 14E. See the discussion 
in the Regulation M-A Adopting Release, Section II.E.2. In addition, 
Rule 14e-1(b), applicable to all tender offers, specifies that a 
tender offer must be kept open for a minimum of ten business days 
after an increase or decrease in the amount of securities sought or 
the consideration offered or a change in the dealer's soliciting 
fee.
    \185\ Id.
---------------------------------------------------------------------------

    In the years leading up to the adoption of the existing cross-
border exemptions in 1999, we found that in practice, this U.S. 
withdrawal rights requirement created a conflict with foreign practice 
in cross-border tender offers. We discussed in the 1998 Cross-Border 
Proposing Release how the U.S. requirement to provide withdrawal rights 
for a set period after the waiver or reduction in a minimum acceptance 
condition created a conflict with U.K. practice, the jurisdiction with 
which we had the most experience at that time.\186\ We noted that the 
staff had granted relief to bidders to address this conflict in 
individual cases.\187\
---------------------------------------------------------------------------

    \186\ See 1998 Cross-Border Proposing Release, Section II.C.2.f.
    \187\ See id. citing e.g., In the Matter of Pacificorp and The 
Energy Group, Exchange Act Release No. 38776 (June 25, 1997).
---------------------------------------------------------------------------

    In adopting the cross-border exemptions, we affirmed the staff's 
interpretive position that a bidder meeting the conditions of the Tier 
II exemptions may waive or reduce the minimum acceptance condition 
without providing withdrawal rights during the time remaining in the 
tender offer after the waiver or reduction.\188\ We conditioned a 
bidder's ability to rely on this guidance on the following:
---------------------------------------------------------------------------

    \188\ Cross-Border Adopting Release, Section II.B.
---------------------------------------------------------------------------

     The bidder must announce that it may reduce or waive the 
minimum condition at least five business days before it reduces or 
waives it; \189\
---------------------------------------------------------------------------

    \189\ A statement at the commencement of the offer that the 
bidder may reduce or waive the minimum acceptance condition is 
insufficient to satisfy this element. See Cross-Border Adopting 
Release, Section II.B.
---------------------------------------------------------------------------

     The bidder must disseminate this announcement through a 
press release and other methods reasonably designed to inform U.S. 
security holders, which may include placing an advertisement in a 
newspaper of national circulation in the United States; \190\
---------------------------------------------------------------------------

    \190\ Some bidders have asked for the elimination of the 
requirement that the notice of a potential waiver or reduction in 
the minimum acceptance condition be placed in a newspaper of 
national circulation in the United States. We continue to believe 
that this requirement serves an important function in notifying 
target security holders about a possible change in the terms of the 
offer, and therefore we are retaining it.
---------------------------------------------------------------------------

     The press release must state the exact percentage to which 
the condition may be reduced. The bidder must announce its actual 
intentions once it is required to do so under the target's home country 
rules;
     During the five-day period after the announcement of a 
possible waiver or reduction, security holders who have tendered into 
the offer must be afforded the right to withdraw tendered securities;
     The announcement must advise security holders to withdraw 
their 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 reducing or waiving the minimum 
acceptance condition must be described in the offering document; and
     The bidder must hold the offer open for acceptances for at 
least five business days after the reduction or waiver of the minimum 
acceptance condition.
    When the bidder terminates withdrawal rights pursuant to this 
interpretive position, all offer conditions must be satisfied or waived 
so that the offer is wholly unconditional when withdrawal rights 
terminate.\191\ A bidder may not terminate withdrawal rights where an 
extension is otherwise required under our rules because of another 
material change in the terms of the offer.\192\
---------------------------------------------------------------------------

    \191\ We note that this is consistent with the interpretive 
position previously expressed by the staff. 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.
    \192\ See, e.g., STATS ChipPAC Ltd. (March 15, 2007) (``STATS 
ChipPAC'') (noting that a bidder may not terminate withdrawal rights 
or close an offer during any extension mandated under Regulations 
14D or 14E). In addition to the extension requirements in Rule 14e-
1(b), we note that the Commission has expressed the view that the 
minimum time periods set forth in Rule 14d-4(d)(2) represent 
``general guidelines that should be applied uniformly to all tender 
offers, including those subject only to Regulation 14E.'' See 
Regulation M-A Adopting Release, Section II.E.2.
---------------------------------------------------------------------------

    While we continue to recognize that bidders in cross-border tender 
offers may need the flexibility afforded by this interpretive position, 
we are aware of certain issues arising from its application. When we 
adopted the interpretive position regarding waiver or reduction of a 
minimum acceptance condition, we did so primarily on the basis of the 
staff's experience with U.K. law and practice.\193\ The regulatory 
accommodation was necessitated by U.K. practice and the particular 
circumstances common to the U.K. markets. The vast majority of the 
transactions for which the staff had granted this relief before we 
adopted the interpretive position involved cash tender offers.\194\
---------------------------------------------------------------------------

    \193\ See Cross-Border Adopting Release, Section II.B.
    \194\ See, e.g., Texas Utilities.
---------------------------------------------------------------------------

    In the years since the Commission adopted the interpretive 
position, we have become aware of the unintended consequences of this 
position in the context of certain kinds of offers, including exchange 
offers and competed offers. We believe it is necessary to provide 
additional guidance on the circumstances under which bidders may rely 
upon this interpretive position in cross-border tender offers to waive 
or reduce a minimum acceptance condition without providing withdrawal 
rights after such waiver. For these reasons, today we are limiting the 
interpretive position adopted in the Cross-Border Adopting Release.
    The interpretation originally was premised on bidders' need to 
reduce the minimum acceptance condition in order to declare the offer 
wholly unconditional, thereby permitting the participation of certain 
institutional holders that were prevented by charter from tendering 
into conditional offers.\195\ The interpretive guidance about the 
ability to waive or reduce the minimum acceptance condition was and 
continues to be limited to instances where it is necessary because of 
specific features of home country law or practice that make it 
impossible or unnecessarily burdensome to comply with the extension 
requirements of U.S. law.
---------------------------------------------------------------------------

    \195\ See, e.g., Willis Corroon Group plc (July 22, 1998) and 
Thorn plc (June 30, 1998). For example, we were advised that certain 
U.K. institutional holders are prohibited from tendering into an 
offer until all offer conditions have been satisfied or waived. For 
that reason, it is critical that the bidder reduce the minimum 
tender condition in an effort to induce these institutions to 
tender, which in turn may allow the bidder to reach the 90 percent 
ownership level necessary to effect a compulsory acquisition under 
U.K. law.
---------------------------------------------------------------------------

    We also think it is important to note that, where bidders may seek 
to waive or reduce a minimum acceptance condition in a Tier II-eligible 
tender offer without extending withdrawal rights after the waiver or 
reduction, the initial offering materials or a supplement must fully 
discuss the implications of the waiver or reduction.\196\ We note that 
this necessary disclosure may be challenging to provide in the context 
of an exchange offer, but we believe security holders need this 
disclosure to make an informed investment decision about the

[[Page 26895]]

potential impact of the bidder accepting a lesser percentage of 
securities than originally proposed as the minimum acceptance 
condition.
---------------------------------------------------------------------------

    \196\ This is a general requirement under the tender offer 
rules. See, e.g., Item 1 of Schedule TO and Item 101 of Regulation 
M-A (requiring the filer to describe the essential terms and to 
describe the significance of the transaction for target security 
holders). See also, footnote 254 below for transactions subject to 
the registration requirements of Section 5 of the Securities Act.
---------------------------------------------------------------------------

    In addition to the potential need to provide alternate sets of pro 
forma financial statements under our existing disclosure rules,\197\ 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. For example, an offeror could go from 
potentially holding a majority interest in the target to a minority 
stakeholder with limited ability to influence the management of the 
target. This change has implications for both the target holders who 
choose to tender into the offer and receive bidder shares, as well as 
those who elect not to tender and remain as target security holders. It 
also has implications with respect to the acquiror's ability to 
consolidate the financial statements of the target.
---------------------------------------------------------------------------

    \197\ See Item 5 of Forms S-4 and F-4 and Exchange Act 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.
---------------------------------------------------------------------------

    Consequently, even for cash tender offers, the staff has 
conditioned the granting of no-action relief in the cross-border 
context on bidders adequately disclosing in the initial offer materials 
the impact of a potential waiver or reduction.\198\ For example, where 
a bidder initially includes an 80 percent minimum acceptance condition 
in its offer, but seeks the flexibility to reduce this condition to 51 
percent and purchase tendered securities immediately without affording 
withdrawal rights, the staff has noted that the disclosure document 
must fully and fairly present the potential impact of both outcomes for 
target shareholders. In addition, the staff also has encouraged bidders 
to consider the disclosures necessary with regard to the ability to 
govern or otherwise integrate the target company after any acquisition 
at a lower level.
---------------------------------------------------------------------------

    \198\ See, e.g., Royal Bank.
---------------------------------------------------------------------------

    The difficulty in providing the necessary disclosure is heightened 
where there are two or more competing bids, creating an even greater 
level of uncertainty. In that circumstance, a bidder that waives or 
reduces its minimum acceptance condition to purchase a minority stake 
in the target may nevertheless be able to thwart the minimum acceptance 
condition of a competing bidder, thereby defeating the competing bid. 
Under these circumstances, target security holders are disadvantaged 
because they have no opportunity to react to the change in the terms of 
the offer by withdrawing their securities and accepting the competing 
bid. As noted above, this may also affect the success of the competing 
bid.
    Today we are refining our prior guidance to clarify that, in 
addition to the conditions outlined in the Cross-Border Adopting 
Release and the general disclosure obligations discussed above, the 
relief from the extension requirements of Rule 14d-4(d)(2) adopted in 
the Cross-Border Adopting Release may not be relied upon unless the 
bidder is eligible to rely on the Tier II exemptions and the bidder 
undertakes not to waive or reduce the minimum acceptance condition 
below a majority.\199\ This will limit the impact on target security 
holders of allowing this type of change without providing withdrawal 
rights, while balancing the needs of bidders to meet the requirements 
of foreign home country law or practice. In addition, this interpretive 
position is limited to circumstances where there exists a requirement 
of law or practice in the foreign home country justifying a bidder's 
inability to extend the offer after a waiver or reduction in the 
minimum offer condition. Furthermore, it does not apply to mandatory 
extensions for changes related to the offer consideration, the amount 
of target securities sought in the offer, and a change to the dealer's 
soliciting fee.\200\
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    \199\ By a majority, we mean more than 50 percent of the 
outstanding target securities that are the subject of the tender 
offer.
    \200\ See Exchange Act Rules 13e-4(e)(3)(ii), 14d-4(d)(2)(ii) 
and 14e-1(b).
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    Bidders seeking to rely on this guidance, as modified, must fully 
disclose and discuss all of the implications of the potential waiver or 
reduction, including at the specific levels contemplated, in its 
offering materials. For example, in some foreign jurisdictions, the 
ability to operate and fully integrate the target company as a 
subsidiary of the bidder after a tender offer depends on the bidder's 
ability to purchase a percentage of target securities higher than a 
simple majority.\201\ In those jurisdictions, the impact of waiving or 
reducing the minimum acceptance condition below the levels necessary to 
operate and fully integrate the target as a subsidiary must be fully 
explained in the initial offering materials disseminated to target 
security holders. Where such disclosure is not provided, the bidder may 
not rely on the interpretive guidance set forth in the Cross-Border 
Adopting Release, as modified today. In those circumstances, the bidder 
must disseminate additional disclosure and also must allow adequate 
time in the offer period, including extension of withdrawal rights, as 
mandated by our rules.\202\
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    \201\ 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 2006 and 
Blackstone.
    \202\ See footnote 197 above.
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Request for Comment
     Should we continue to allow bidders in Tier II-eligible 
offers to waive or reduce the minimum acceptance condition without 
providing withdrawal rights?
     Are the conditions set forth in the Cross-Border Adopting 
Release adequate? Or overly burdensome?
     Is it appropriate to modify such relief, as discussed 
above?
     Should we condition the ability to waive or reduce the 
minimum acceptance condition without providing withdrawal rights on the 
undertaking by the bidder not to waive below a majority, as proposed? 
What should constitute a ``majority'' for these purposes?
     Should we continue to require bidders seeking to rely on 
the interpretation to place an advertisement in a newspaper of national 
circulation in the United States? Does this serve a useful function 
under current market practice? Does it constitute an undue burden?
     Is the guidance, as modified above, clear? Should it be 
codified in rules?
6. Early Termination of the Initial Offering Period or a Voluntary 
Extension of the Initial Offering Period
    Under U.S. tender offer rules, the initial offering period in a 
tender offer must remain open for specified minimum time periods after 
a material change in the terms of an offer.\203\ The minimum time 
periods vary with the

[[Page 26896]]

materiality of the change.\204\ For a change other than one related to 
the tender price or the number of securities sought in the offer, five 
business days may be sufficient to allow security holders time to learn 
of, and react to, new information.\205\ We believe that where the 
expiration of a tender offer has been set, whether at the outset of the 
offer or through a voluntary extension, a change in that expiration 
date constitutes a material change requiring an offer to remain open 
within the time periods established by our rules. These minimum time 
periods are important because they allow security holders who have 
already tendered into the offer to react to the change by withdrawing 
their tendered securities; similarly, those who have not tendered may 
choose to do so in response to the change.
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    \203\ Exchange Act Rules 13e-4(e)(3) and 14d-4(d)(2) set forth 
the minimum required time periods for ``registered securities 
offers,'' where the bidder is offering registered securities and 
commences an offer before the effectiveness of its registration 
statement. See footnote 184 above with respect to the Commission's 
statement concerning the broader applicability of those time periods 
for other kinds of tender offers. In addition, Rule 14e-1(b) also 
sets forth timing requirements with respect to certain kinds of 
changes in the terms of the offer.
    \204\ See Exchange Act Rules 13e-4(e)(3)(i) through (iv) and 
14d-4(d)(2)(i) through (iv) and 14e-1(b).
    \205\ See Exchange Act Rules 13e-4(e)(3) and 14d-4(d)(2)(i). Of 
course, additional time may be needed for specific types of new 
information that is of particular importance to target security 
holders. See Exchange Act Rules 13e-4(e)(3)(ii) and 14d-4(d)(ii) 
(stating that ten business days is the required period for a change 
``similarly significant'' to a change in price or the number of 
securities sought).
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    The minimum time periods established by our rules for changes to 
the terms of a tender offer may conflict with foreign law or practice, 
where bidders may be required to terminate an offer and withdrawal 
rights immediately after all offer conditions are satisfied.\206\ Thus, 
in some foreign jurisdictions, bidders must accept tendered securities 
and begin the payment process as soon as all offer conditions are 
satisfied, even if this occurs before the scheduled expiration date of 
the initial offering period or any voluntary extension of that 
period.\207\ In other foreign jurisdictions, longstanding practice 
dictates early termination of a voluntary extension of the initial 
offering period when an offer becomes wholly unconditional.\208\ These 
jurisdictions take the view that once the offer is wholly unconditional 
and is therefore certain to be consummated, the initial offering period 
should close immediately and tendering security holders should receive 
the offer consideration as soon as possible. Security holders who did 
not tender before the end of the initial offering period can tender 
into the subsequent offering.
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    \206\ We refer to the time when all offer conditions have been 
satisfied or waived as the time when the offer becomes ``wholly 
unconditional.''
    \207\ See STATS ChipPAC (stating that under the Singapore Code, 
payment for securities tendered in a tender offer must be made 
within 21 calendar days after such offer is declared unconditional 
or after the relevant holder accepts the offer, whichever is later); 
Jilin Chemical Industrial Company Limited (December 21, 
2005)(''Jilin Chemical'') (stating that under the Hong Kong Code, 
once a tender offer becomes wholly unconditional, the bidder must 
pay for tendered securities within ten days of that date); and 
Harmony Gold Mining Ltd. (March 10, 2005) (''Harmony Gold 2005'') 
(describing South African legal requirements for prompt payment that 
are triggered by the offer going unconditional, which may occur 
before the scheduled expiration of the initial offering period or 
any voluntary extension of that period).
    \208\ This is the case in the United Kingdom. See, e.g., RWE.
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    In the Cross-Border Adopting Release, we adopted a staff 
interpretive position relating to a change in a specific type of offer 
condition, the minimum acceptance condition.\209\ Such a change 
represents a modification of the original conditions of the tender 
offer, not the satisfaction of an existing offer condition. However, we 
did not provide similar guidance with respect to early termination of 
the initial offering period, or any extension of that period, for 
changes other than to the minimum acceptance condition.
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    \209\ See Cross-Border Adopting Release, Section II.B. Today, as 
discussed above in Section II.C.5, we are modifying our guidance 
with respect to the bidder's ability to waive or reduce the minimum 
acceptance condition in a Tier-II tender offer without providing 
withdrawal rights.
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    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.\210\ In connection with early 
termination, some bidders also have concurrently requested relief from 
the requirement under our rules to promptly ``publish, send or give'' 
to target security holders information concerning any material change 
in the terms of a tender offer.\211\
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    \210\ See AstraZeneca PLC (May 23, 2006); Harmony Gold 2005; and 
In the Matter of Central and South West Corp. (September 27, 1995).
    \211\ See Exchange Act Rule 14d-4(d). See Jilin Chemical 
(requesting no-action relief under Exchange Act Rules 14d-4(d) and 
14d-6(c)).
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    Under specified circumstances, bidders have been given relief to 
permit the early termination of the initial offering period (or any 
voluntary extension of that period).\212\ A voluntary extension is an 
extension that is not required under U.S. tender offer rules. Early 
termination of the initial offering period is not permitted, however, 
where U.S. rules require mandatory offer extensions for certain changes 
to the terms of an offer, including those arising from changes in the 
offer consideration, the dealer's soliciting fee, or the percentage of 
target securities for which the offer is made, or other material 
changes.\213\ Thus, bidders making any of these kinds of changes to the 
terms of a tender offer may not terminate an initial offering period 
(or any of that period) before the scheduled expiration of the 
mandatory extension.
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    \212\ See footnote 210 above.
    \213\ See Exchange Act Rules 13e-4(f)(1)(ii) and 14e-1(b).
---------------------------------------------------------------------------

    The relief granted by the staff in this area is contingent on 
several conditions similar to those we established for bidders wishing 
to waive or reduce a minimum acceptance condition.\214\ Bidders seeking 
to terminate the initial offering period before its scheduled 
expiration may do so only if, at the time the initial offering period 
expires and withdrawal rights terminate:
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    \214\ See, e.g., RWE.
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     The initial offering period has been open for at least 20 
U.S. business days and all offer conditions have been satisfied; \215\
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    \215\ Id.
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     The bidder has adequately discussed the possibility of and 
the impact of the early termination in the original offer materials;
     The bidder provides a subsequent offering period after 
early termination of the initial offering period;
     All offer conditions have been satisfied when the initial 
offering period terminates; \216\ and
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    \216\ A bidder may not waive an offer condition without 
providing withdrawal rights after the waiver to allow security 
holders who have already tendered into the offer the opportunity to 
react to information about the waiver. Because a waiver is entirely 
within the control of the bidder and represents a change in the 
terms of the offer, the bidder must afford tendering security 
holders the right to withdraw their securities in response to the 
change. To the extent that foreign law would permit a waiver of the 
offer conditions to trigger a requirement to immediately terminate 
the initial offering period or any voluntary extension of that 
period, requests for relief will be considered on a case-by-case 
basis. As noted above, we address the specific circumstance of a 
bidder that seeks to waive the minimum acceptance condition in a 
tender offer in another section of this release. See Section II.C.5. 
above. However, the ability of a bidder to waive an offer condition 
in a cross-border tender offer may be more limited than in a 
domestic offer, because in some foreign jurisdictions, the waiver of 
an offer condition is permitted only with the permission of the home 
country regulator. In addition, foreign rules may limit the type of 
conditions that may be included in a cross-border tender offer.
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     The bidder does not terminate the initial offering period 
during any mandatory extension of the initial offering period required 
under U.S. tender offer rules.\217\
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    \217\ See discussion above for the definition of ``mandatory 
extension'' as we use that term here.
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    At this time, we are not codifying the guidelines set forth in 
staff no-action precedent for cross-border tender offers regarding the 
ability to terminate an initial offering period or a voluntary 
extension of that period early.

[[Page 26897]]

Considering the responses we receive to our requests for comment below, 
we will determine whether to revise our rules to codify this relief, 
under the conditions specified.
Request for Comment
     Is this relief necessary to alleviate practical 
difficulties? If so, should the relief be codified in rules?
     Should we allow a bidder in a Tier II-eligible cross-
border tender offer to terminate the initial offering period or any 
voluntary extension of that period upon the satisfaction of all offer 
conditions? Or should the rules limit this relief only to early 
termination of the initial offering period or only to early termination 
of a voluntary extension of the initial offering period?
     Should we allow early termination only where it is 
specifically required under the law of the target's home jurisdiction? 
Or should this be permitted when customary under foreign practice as 
well?
     Should we condition this relief on any other conditions 
besides those listed above? For example, should we require the same 
kind of advance notice as we propose for a waiver of the minimum 
acceptance condition in a tender offer?
7. Codification of Rule 14e-5 Cross-Border Exemptions
    We propose to modernize and enhance the utility of Exchange Act 
Rule 14e-5 by codifying exemptive relief issued in the context of 
cross-border tender offers.\218\ Rule 14e-5 safeguards the interests of 
persons who sell their securities in response to a tender offer. As we 
noted in 1999, the rule protects investors by preventing an offeror 
from extending greater or different consideration to some security 
holders by offering to purchase their shares outside the offer, while 
other security holders are limited to the offer's terms.\219\ The rule 
prohibits the disparate treatment of security holders, prevents the 
avoidance of proration requirements, and guards against the dangers 
posed by a bidder's purchases outside an offer that may involve fraud, 
deception and manipulation.\220\
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    \218\ See footnotes 231 through 233 below.
    \219\ Cross-Border Adopting Release [64 FR 61382 at 61387].
    \220\ Regulation of Takeovers and Security Holder 
Communications, Release No. 34-40633 (November 3, 1998) [63 FR 67331 
at 67359].
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    Specifically, Rule 14e-5 prohibits purchasing or arranging to 
purchase any subject securities or any related securities except as 
part of the tender offer.\221\ The rule's prohibitions apply from the 
time of public announcement of the tender offer until the offer 
expires.\222\ The rule applies to ``covered persons'' \223\ as that 
term is defined in the rule. Covered persons include the offeror and 
its affiliates,\224\ the offeror's dealer-manager and its 
affiliates,\225\ any advisor to the offeror and its affiliates or the 
offeror's dealer-manager and its affiliates whose compensation is 
dependent on the completion of the offer,\226\ as well as any person 
acting, directly or indirectly, in concert with the abovementioned 
persons in connection with any purchase or arrangement to purchase any 
subject securities or any related securities.\227\
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    \221\ ``Subject securities'' means the securities or class of 
securities that are sought to be acquired in the transaction or that 
are otherwise the subject of the transaction. 17 CFR 229.1000(g). 
``Related securities'' means securities that are immediately 
convertible into, exchangeable for, or exercisable for subject 
securities. See Exchange Act Rule 14e-5(c)(6).
    \222\ Exchange Act Rule 14e-5(a).
    \223\ Exchange Act Rule 14e-5(c)(3).
    \224\ Exchange Act Rule 14e-5(c)(3)(i).
    \225\ Exchange Act Rule 14e-5(c)(3)(ii).
    \226\ Exchange Act Rule 14e-5(c)(3)(iii).
    \227\ Exchange Act Rule 14e-5(c)(3)(iv).
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    In the Cross-Border Adopting Release, we adopted an exception to 
allow purchases or arrangements to purchase made outside of, but 
during, Tier I tender offers.\228\ As limited to Tier I tender offers, 
the exception extends only to tender offers for the securities of 
foreign private issuers ``where U.S. persons hold of record ten percent 
or less of the class of securities sought in the offer.'' \229\ We 
determined to ``continue to review requests for relief from Rule 14e-5 
for offers other than Tier I eligible offers on a case-by-case 
basis.''\230\ Since that time, we have received numerous requests for 
relief to allow purchases outside of tender offers conducted under the 
Tier II exemptions.
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    \228\ Exchange Act Rule 14e-5(b)(10).
    \229\ Cross-Border Adopting Release [64 FR 61382 at 61388].
    \230\ Id.
---------------------------------------------------------------------------

    Over the past several years in the cross border context, frequent 
exemptions from Rule 14e-5's prohibition have been granted for Tier II 
tender offers in three recurring areas: Purchases and arrangements to 
purchase securities of a foreign private issuer (1) pursuant to the 
non-U.S. tender offer for a cross-border tender offer where there are 
separate U.S. and non-U.S. offers; \231\ (2) by offerors and their 
affiliates outside of a tender offer; \232\ and (3) by financial 
advisor's affiliates outside of a tender offer.\233\ In 2006 and 2007, 
three class exemptive letters were issued in these areas.\234\ The rule 
changes we propose today are intended to codify this exemptive relief.
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    \231\ See, e.g., Mittal (providing class relief for similarly 
situated parties, under the conditions specified).
    \232\ See, e.g., Cash Tender Offer by Sulzer AG for the Ordinary 
Shares of Bodycote International plc (March 2, 2007) (''Sulzer'') 
(providing class relief to similarly situated parties, under the 
conditions specified).
    \233\ See, e.g., Rule 14e-5 Relief for Certain Trading 
Activities of Financial Advisors (April 4, 2007) (''Financial 
Advisors'') (providing class relief for similarly situated parties, 
under the conditions specified).
    \234\ See notes 231 through 233 above. As noted there, the class 
exemptive letters indicate that they may be relied upon by all 
similarly-situated parties.
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    As discussed above, a Tier II tender offer for a foreign target 
company may be structured as two concurrent but separate tender offers: 
One made to U.S. security holders and another made to target security 
holders outside the U.S.\235\ If purchases pursuant to the foreign 
offer are made during the Rule 14e-5 prohibited period,\236\ those 
purchases would run afoul of the rule because they technically 
constitute purchases outside the U.S. tender offer. Exemptive relief 
has been commonly provided in connection with Tier II offers to allow 
purchases or arrangements to purchase in the foreign offer where there 
are safeguards to protect the interests of U.S. tendering security 
holders. This relief facilitates cross-border tender offers and 
encourages the inclusion of U.S. security holders in such offers. We 
propose to change Rule 14e-5 to codify that relief today, to allow 
purchases or arrangements to purchase the subject securities pursuant 
to a foreign offer (or multiple foreign offers) \237\ and during a U.S. 
tender offer.
---------------------------------------------------------------------------

    \235\ Exchange Act Rule 14d-1(d)(2)(ii).
    \236\ The Rule 14e-5 prohibited period is the period of time 
from public announcement of the tender offer until expiration.
    \237\ As discussed above, we propose to allow bidders eligible 
to rely on the Tier II exemption to separate their offer into a U.S. 
offer and multiple non-U.S. offers. We also propose to extend relief 
from Exchange Act Rule 14e-5 for purchases in more than one non-U.S. 
offer during the term of the U.S. offer.
---------------------------------------------------------------------------

    Proposed Rule 14e-5(b)(11) would permit purchases or arrangements 
to purchase pursuant to a foreign tender offer (or in more than one 
foreign offer) during the Rule 14e-5 prohibited period if certain 
conditions are satisfied. This proposed exception would permit 
purchases in a foreign offer or offers made concurrently or 
substantially concurrently with a U.S. offer under Rule 14d-
1(d)(2)(ii). The tender offer must qualify as a Tier II tender offer 
under Rule 14d-1(d).\238\ Thus, the

[[Page 26898]]

subject company must be a foreign private issuer.
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    \238\ Consistent with Mittal, the proposed exception is limited 
to tender offers that qualify as Tier II tender offers under Rule 
14d-1(d). Tender offers that do not qualify as Tier II tender 
offers, such as issuer tender offers, would not meet the 
requirements of this proposed exception.
---------------------------------------------------------------------------

    The proposed exception is conditioned on the existence of certain 
safeguards to help protect U.S. security holders. These conditions 
address the economic terms, consideration, and procedural terms of the 
tender offer. The conditions require that U.S. security holders are 
treated at least as favorably as non-U.S. tendering security holders. 
The proposal also permits any cash consideration to be paid to U.S. 
security holders to be converted from the currency paid in the foreign 
offer to U.S. dollars at the exchange rate disclosed in the U.S. 
offering documents. In addition, the conditions require transparency 
regarding the offeror's intent to make purchases pursuant to a foreign 
offer in the U.S. offering documents. As the activity that the proposed 
exception covers is quite narrow, the exception is limited to purchases 
in foreign tender offers and does not apply to open market 
transactions, private transactions, or other transactions outside the 
tender offer.
    The second and third recurring relief requests under Rule 14e-5 for 
cross-border tender offers concern purchases and arrangements to 
purchase by an offeror and its affiliates, as well as by a financial 
advisor's affiliates.\239\ Some cross-border tender offers are 
structured as a single global offer made in the U.S. and other 
jurisdictions. Purchases and arrangements to purchase the subject 
securities outside the tender offer, including open market purchases 
and privately negotiated purchases, very often are permitted under 
foreign law. The staff has granted relief to allow purchases outside a 
tender offer when this activity is permissible under the laws of the 
target's foreign home jurisdiction if certain conditions designed to 
promote the fair treatment of tendering security holders are met. We 
propose to change Rule 14e-5 to codify that relief.\240\
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    \239\ An affiliate of a financial advisor includes a separately 
identifiable department of the financial advisor.
    \240\ The proposed Rule 14e-5(b)(12) exception does not impose 
any additional conditions to those provided in the Sulzer and 
Financial Advisors letters. However, some conditions from those 
letters are not incorporated into the proposal in an effort to 
streamline the rule text in a manner that would not compromise the 
fair treatment of security holders. For example, condition number 
ten in the Financial Advisors letter concerns voluntary compliance 
with the United Kingdom's City Code and condition numbers three and 
five in Sulzer concerns compliance with the laws of the target's 
home jurisdiction and bilateral or multilateral memorandum of 
understanding are not included in the proposal.
---------------------------------------------------------------------------

    Proposed Rule 14e-5(b)(12) would permit purchases or arrangements 
to purchase outside of a Tier II tender offer by (i) an offeror and its 
affiliates; and (ii) an affiliate of a financial advisor if certain 
conditions are satisfied. This rule revision is intended to address 
situations where the subject company is a non-U.S. company, the 
majority of whose shareholders reside outside the U.S. Thus, the 
subject company must be a foreign private issuer, and the covered 
person must reasonably expect that the tender offer qualifies as Tier 
II.\241\ The proposal prohibits any purchases or arrangements to 
purchase in the U.S. otherwise than pursuant to the tender offer. 
Further, it contains conditions to enhance the transparency of the 
excepted activity. For example, the proposal would require that the 
U.S. offering materials prominently disclose the possibility of or the 
intention to make purchases or arrangements to purchase outside the 
tender offer. The proposal also would require disclosure in the U.S. of 
purchases made outside the tender offer to the extent that such 
information is made public in the home jurisdiction.
---------------------------------------------------------------------------

    \241\ We would modify the reasonable expectation condition if 
the proposal to change the timing of the Tier II calculation to a 
date no earlier than 60 days before the tender offer announcement is 
adopted.
---------------------------------------------------------------------------

    Where an offeror or its affiliate purchases or arranges to purchase 
outside of a tender offer, the proposed exception would impose one 
additional condition regarding consideration. In order to safeguard 
against the disparate treatment of security holders, the proposed 
exception would require that the tender offer price be raised to equal 
any higher price paid outside of the tender offer.
    Where an affiliate of a financial advisor purchases or arranges to 
purchase outside of a tender offer, our proposed exception would impose 
additional conditions. In order to prevent the flow of information that 
may result in a violation of U.S. securities laws, these conditions 
relate to information barriers and common officers or employees. 
Specifically, the proposal would require that the financial advisor and 
affiliate maintain and enforce written policies and procedures designed 
to prevent the flow of information among the financial advisor and the 
affiliate that might result in a violation of the federal securities 
laws and regulations. It also would require that the affiliate have no 
officers (or persons performing similar functions) or employees (other 
than clerical, ministerial, or support personnel) in common with the 
financial advisor that directly effect or recommend transactions in the 
subject securities or related securities who also will be involved in 
providing the offeror or subject company with financial advisory 
services or dealer-manager services. The proposed exception also would 
require that the financial advisor have a registered broker-dealer 
affiliate under Section 15(a) of the Exchange Act.\242\ As the 
exception is premised on the affiliate of the financial advisor 
carrying out its normal business activity when purchasing outside a 
tender offer, it would not permit purchases or arrangements to purchase 
to be made to facilitate the tender offer. Accordingly, purchasing 
activity effected in reliance on the proposed exception should be 
consistent with the affiliate's prior levels of activity. We note that 
risk arbitrage is excluded from the exception applicable to the 
financial advisor's affiliate.\243\ Risk arbitrage is so closely 
related to the tender offer that the incentive for abusive behavior is 
significant. Finally, we propose to add definitions of subject 
company\244\ and home jurisdiction\245\ to Rule 14e-5, consistent with 
existing definitions.
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    \242\ 15 U.S.C. 78o.
    \243\ Risk arbitrage may involve the purchase of the subject 
security and the sale of stock in the proposed acquirer. See 
Financial Advisors and the attached request dated April 3, 2007 
regarding Blanket Exemptive Relief Request under Rule 14e-5 
excepting risk arbitrage from the list of trading activities at page 
3.
    \244\ 17 CFR 229.1000.
    \245\ Exchange Act Rule 14d-1.
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Request for Comment
     We solicit comment on all aspects of the proposed 
exceptions, including each of the enumerated conditions.
     We solicit specific comments on each of the conditions in 
the Rule 14e-5(b)(11) proposal concerning Tier II status, economic 
terms, consideration, currency conversion, procedural terms, disclosure 
and purchases being made solely pursuant to the foreign tender offer.
     We solicit specific comments on each of the conditions in 
the Rule 14e-5(b)(12) proposal concerning foreign private issuer and 
Tier II status, no purchases or arrangements to purchase in the U.S. 
other than pursuant to the tender offer, and disclosure. We also 
solicit comment on the price matching condition applicable to the 
offeror and its affiliates, as well as each of the additional 
conditions applicable to a financial advisor's affiliate, including the 
financial advisor having an affiliate that is registered as a broker or 
dealer

[[Page 26899]]

under Section 15(a) of the Exchange Act.
     Are there additional means besides analyzing prior 
purchasing activity by the financial advisor's affiliate to assure that 
routine trading activity outside the tender offer is not conducted with 
the intent to affect the tender offer?
     Are there additional conditions that should be added to 
the proposed exceptions to safeguard the interests of persons who sell 
their securities in response to a tender offer? In particular, should 
conditions number ten from the Financial Advisors letter \246\ and 
numbers three and five from the Sulzer letter  \247\ be incorporated 
into the Rule 14e-5(b)(12) proposal?
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    \246\ Condition number ten states: ``The Financial Advisor, 
through its Affiliates and Departments, conduct the Trading 
Activities voluntarily in compliance with the pertinent provisions 
of the United Kingdom's City Code on Takeovers and mergers and Rules 
Governing Substantial Acquisitions of Shares (the ``City Code''), 
and the Affiliates and Departments conduct themselves as if they 
were connected exempt principal traders as defined in the City Code, 
including complying with regulations with respect to the 
establishment and maintenance of information barriers, conflict of 
interest provisions and other requirements, other than with respect 
to the notification of relevant trades to the Panel * * *''. 
Financial Advisors at p. 3.
    \247\ Condition number three states: ``The Prospective 
Purchasers comply with the applicable laws and regulations of the 
`home jurisdiction' as defined in Rule 14d-1.'' Sulzer at p. 2. 
Condition number five states: ``The Commission and the home 
jurisdiction are parties to a bilateral or multilateral memorandum 
of understanding (MOU) as to the consultation and cooperation in the 
administration and enforcement of securities laws.'' Sulzer at p. 3.
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     Are there other alternatives that would better protect the 
interests of security holders?
     We solicit comment on suggested definitions of risk 
arbitrage.
     In addition to risk arbitrage, is there any other 
purchasing activity that should be excluded from the proposed Rule 14e-
5(b)(12) exception?

D. Expanded Availability of Early Commencement for Exchange Offers

    In 1999, we adopted rule revisions intended to minimize the 
regulatory disparity between cash and stock tender offers.\248\ Before 
those changes, exchange offers in which the bidder offered its shares 
as part or all of the offer consideration were at a disadvantage 
compared to cash offers because of the regulatory review process 
associated with the filing of a Securities Act registration 
statement.\249\ Cash tender offers could commence on the date of the 
filing of a tender offer statement with the Commission. Before the 1999 
rule revisions, exchange offers, by contrast, could not begin until the 
staff completed its review of the registration statement filed by the 
bidder and it had been declared effective. This disparity was of 
particular concern in the tender offer context, where multiple bidders 
may make contemporaneous offers for the same target company through 
competing offers.
---------------------------------------------------------------------------

    \248\ See Regulation M-A Adopting Release, Section II.3.A.
    \249\ See Regulation M-A Proposing Release, Section I. (``In 
some cases, where the staff undertakes to review and comment during 
the waiting period, the delay of effectiveness can be quite lengthy. 
This delay is particularly troublesome for bidders in exchange 
offers. In contrast, cash offers, which may compete with exchange 
offers, can commence as soon as the required information is filed 
with the Commission and disseminated to security holders. The delay 
in commencing an exchange offer can place the bidder at risk that a 
competing all-cash bid will commence and close before the exchange 
offer can even commence.'').
---------------------------------------------------------------------------

    To address this disparity in the regulatory process for cash tender 
offers and exchange offers, we adopted rule changes permitting exchange 
offers to commence upon the date of the filing of a registration 
statement under specified conditions.\250\ However, bidders exercising 
the option to ``early commence'' an exchange offer may not terminate 
that offer and purchase tendered shares until the registration 
statement has been declared effective by the Commission.\251\ We 
recognized in proposing the early commencement option that a regulatory 
disparity in the treatment of cash and stock tender offers could 
continue to exist because the staff review process might delay the 
effectiveness of the registration statement in an exchange offer and 
thus could delay the bidder's ability to close the exchange offer.\252\ 
In adopting the early commencement option, however, the staff undertook 
to expedite the review of such exchange offers so that they could 
compete on an equal footing with cash tender offers.\253\ We believe 
the staff generally has been successful in meeting this commitment.
---------------------------------------------------------------------------

    \250\ See Regulation M-A Adopting Release, Section II.E.1.
    \251\ See Securities Act Rule 162(a) [17 CFR 230.162(a)].
    \252\ See Regulation M-A Proposing Release, Section II.A.3.A.
    \253\ See Regulation M-A Adopting Release, Section II.E.1.
---------------------------------------------------------------------------

    Since we made early commencement available, we have recognized that 
a regulatory disparity continues to exist because the early 
commencement option is not available for exchange offers that are not 
subject to Rule 13e-4 or Regulation 14D.\254\ In certain foreign 
jurisdictions, the staff has been advised that applicable non-U.S. 
tender offer rules provide that, where a bidder makes a tender offer 
for one class of target securities, it also must make an offer or 
offers for any other class or classes of securities issued by the same 
target and convertible into the subject securities. Because these 
offers are made contemporaneously and through a single offer document, 
if one class of target securities is not subject to Rule 13e-4(e) or 
Rule 14d-4(b), the bidder effectively loses the ability to commence 
early under our existing rules. This may create an undue burden for 
bidders, where the offer for each class of target securities is made in 
accordance with the requirements of Regulation 14D or Rule 13e-4, as 
modified by the Tier II cross-border exemptions.
---------------------------------------------------------------------------

    \254\ Securities Act Rule 162(a) provides an exemption from the 
registration requirements of Section 5(a) of the Securities Act only 
for exchange offers subject to Rule 13e-4(e) or 14d-4(b). Since 
those rules apply only to tender offers for target securities 
registered under Section 12 of the Exchange Act and in limited other 
circumstances, early commencement is not currently available for all 
exchange offers. See footnote 109 above for a discussion of when 
Exchange Act Rule 13e-4 and Regulation 14D apply.
---------------------------------------------------------------------------

    We believe that all exchange offers eligible for the Tier II cross-
border exemptions should be able to take advantage of the early 
commencement procedure, regardless of whether the exchange offer is 
subject to the provisions of Regulation 14E only, where the offeror 
voluntarily provides protections required in an offer subject to Rule 
13e-4 or Regulation 14D. Since its adoption, the early commencement 
procedure has worked well in facilitating exchange offers and we 
believe extending the procedure to all Tier II offers would be 
appropriate. Under the expanded rules we propose today, bidders for 
foreign securities that are not registered under the Exchange Act would 
be able to take advantage of the early commencement option, subject to 
the conditions discussed below.
    Today we propose to expand the availability of early commencement 
for cross-border exchange offers not subject to Rule 13e-4 or 
Regulation 14D under the conditions outlined in our proposed rules. 
\255\ A new provision in the Tier II exemptions would permit early 
commencement, where the exchange offer meets the conditions of the 
exemptions. We also propose a corresponding change to Securities Act 
Rule 162 to extend the exemption from Section 5(a) in that rule for 
exchange offers not subject to Rule 13e-4 or Regulation 14D that 
otherwise meet the conditions for the Tier II exemptions.
---------------------------------------------------------------------------

    \255\ Proposed Exchange Act Rules 13e-4(i)(2)(vi) and 14d-
1(d)(2)(x).
---------------------------------------------------------------------------

    Initially, the Commission did not make this option available 
because we were concerned that such offers were

[[Page 26900]]

not subject to all of the disclosure and procedural protections 
applicable to registered offers.\256\ In particular, the absence of the 
requirement to provide withdrawal rights in offerings for unregistered 
classes of securities caused us to retain the requirement that a bidder 
could not commence such offers before the registration statement filed 
to register the share issuance had been declared effective by the 
Commission.\257\ The proposed rules would address these concerns by 
permitting early commencement for exchange offers for unregistered 
securities only where the bidder provides withdrawal rights in the 
offer to the same extent as would be required under Regulation 14D or 
Rule 13e-4.\258\ In addition, the proposed rule would require the same 
minimum time periods after the occurrence of specified changes as are 
required for other ``early commencement'' offers.\259\
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    \256\ See Section I.E. Question 4 in the Third Supplement to the 
Division of Corporation Finance Manual of Publicly Available 
Telephone Interpretations (July 2001), at http://www.sec.gov/
interps/telephone/phonesupplement3.htm (noting that the early 
commencement option is not available for debt restructurings under 
existing rules, because Regulation 14D and Rule 13e-4 apply to 
tenders for equity securities only).
    \257\ Securities Act Rule 162(a) states that an exchange offer 
subject to Exchange Act Rule 13e-4(e) or 14d-4(b) may commence upon 
the filing of a registration statement ``so long as no securities 
are purchased until the registration statement has been declared 
effective and the tender offer has expired in accordance with the 
tender offer rules.''
    \258\ Proposed Exchange Act Rules 13e-4(i)(2)(vi) and 14d-
1(d)(2)(x).
    \259\ Proposed Securities Act Rule 162(a).
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Request for Comment
     Should the expanded eligibility to commence early be 
limited, as proposed, to cross-border exchange offers eligible to rely 
on the Tier II exemptions only?
     Should the expanded eligibility be conditioned on the 
bidder providing withdrawal rights and keeping the offer open for 
certain minimum time periods after information about material changes 
is disseminated to security holders, as proposed? Are there any other 
procedural protections applicable to offers subject to Regulation 14D 
or Rule 13e-4 besides withdrawal rights that should be required in an 
early commencement offer not subject to Regulation 14D or Rule 13e-4?
     Should the early commencement option be made available for 
all exchange offers, including those for domestic target companies not 
within the scope of current Rule 162? For example, would this be useful 
in the case of tender offers for debt securities, which are not covered 
by Regulation 14D or Rule 13e-4?
     Are there certain types of exchange offers for which early 
commencement should not be permitted, whether in the cross-border 
context or otherwise? For example, should transactions in which an 
issuer privately places securities and, shortly thereafter, conducts an 
exchange offer to exchange them for registered securities \260\ be 
permitted to commence early, where such offers are not subject to Rule 
13e-4?
---------------------------------------------------------------------------

    \260\ See the no-action letter issued to Exxon Capital Holdings 
Corp. (April 1988). These offers are commonly known as ``Exxon 
Capital exchange offers.''
---------------------------------------------------------------------------

     What have been bidders' experiences with the usefulness of 
the early commencement option in our current rules, in light of the 
staff review and comment process?

E. Proposed Changes to Schedules and Forms

1. Form CB
    When an offeror or issuer relies on the Tier I cross-border 
exemptions in connection with a cross-border business combination 
transaction or rights offering, it may be required to furnish to the 
Commission an English translation of the offer materials, submitted 
under cover of Form CB. \261\ When we adopted Form CB in 1999, we 
specified that the form could be submitted in paper form only. In 2002, 
however, the Commission adopted rule changes mandating electronic 
filing for persons already reporting under Section 13(a) \262\ or 15(d) 
\263\ of the Exchange Act.\264\ If the person furnishing the Form CB is 
not an Exchange Act reporting entity, it may currently submit the Form 
CB in paper or via the Commission's Electronic Data Gathering, 
Analysis, and Retrieval system, or EDGAR.\265\
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    \261\ Exchange Act Rules 14d-1(c)(3)(iii) and 13e-4(h)(8)(iii). 
Form CB must be furnished to the Commission by the first business 
day after publication or dissemination of the attached disclosure 
document in the applicable foreign jurisdiction(s). See Securities 
Act Rules 801(a)(4)(i) and 802(a)(4)(i), and Exchange Act Rules 13e-
4(h)(8)(iii) and 14d-1(c)(3)(iii). The obligation to furnish a Form 
CB arises only when the bidder in a tender offer otherwise would 
have been required to file a Schedule TO or a registration statement 
for an exchange offer; thus, no Form CB is required for cash tender 
offers subject only to Regulation 14E.
    \262\ 15 U.S.C. 78m.
    \263\ 15 U.S.C. 78o(d).
    \264\ See Rule 101(a)(1)(vi) of Regulation S-T [17 CFR 
232.101(a)(1)(vi)].
    \265\ See Rule 101(b)(7) of Regulation S-T [17 CFR 
232.101(b)(7)].
---------------------------------------------------------------------------

    As a result of advances in technology and its widespread use, we 
believe it would be appropriate to require all Form CBs to be filed 
electronically via our EDGAR system. We therefore propose to amend Item 
101(a) of Regulation S-T to require that all Form CBs be submitted 
electronically.\266 \For the same reasons, we also propose to require 
the electronic filing of the form for appointment of an agent in the 
United States for service of process, which must be filed by all 
foreign companies that furnish a Form CB to the Commission.\267\ For 
purposes of the current cross-border exemptions, our rules require Form 
F-X \268\ to be filed electronically only when the Form CB must be so 
filed, i.e., when the foreign company filing it is already subject to 
the reporting requirements of Section 13 or Section 15(d) of the 
Exchange Act.\269\
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    \266\ See proposed Rule 101(a)(1)(vi) of Regulation S-T.
    \267\ See proposed Rule 101(a)(1)(vii) of Regulation S-T.
    \268\ Form F-X is a form for appointing an agent in the United 
States for service of process. It must be filed by foreign filers 
only.
    \269\ See Rules 101(a)(vii) and 101(b)(8)(i) of Regulation S-T.
---------------------------------------------------------------------------

    We note that, in order to file electronically, an offeror or issuer 
that is not already doing so would need to obtain filing codes required 
to file on EDGAR. An offeror or issuer that does not already have EDGAR 
filing codes, and to which the Commission has not previously assigned a 
user identification number, which we call a ``Central Index Key (CIK)'' 
code, would obtain the codes by filing electronically a Form ID \270\ 
at https://www/filermanagement.edgarfiling.sec.gov and filing, in paper 
by fax within two business days before or after filing the Form ID, a 
notarized authenticating document. The authenticating document would 
need to be manually signed by the applicant over the applicant's typed 
signature, include the information contained in the Form ID, and 
confirm the authenticity of the Form ID.\271\ If the authenticating 
document is filed after electronically filing the Form ID, it would 
need to include the accession number assigned to the electronically 
filed Form ID as a result of its filing.\272\
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    \270\ 17 CFR 239.63, 249.446, 269.7 and 274.402.
    \271\ An offeror or issuer could confirm the authenticity of a 
Form ID by, for example, stating that ``[name of offeror or issuer] 
hereby confirms the authenticity of the Form ID [filed] [to be 
filed] on [specify date] containing the information contained in 
this document.''
    \272\ 17 CFR 232.10(b). An ``accession number'' is a unique 
number generated by EDGAR for each electronic submission. Assignment 
of an accession number does not mean that EDGAR has accepted a 
submission.
---------------------------------------------------------------------------

    Electronic filing in all cases would benefit investors by enabling 
them to more easily access these forms through the Commission's 
website. If adopted, this requirement would have no impact

[[Page 26901]]

on the liability of the persons furnishing their offer materials under 
cover of Form CB.\273\ Additionally, it would not change the 
circumstances under which a Form CB or Form F-X must be filed.
---------------------------------------------------------------------------

    \273\ We note that persons furnishing Form CB are not subject to 
Section 18 liability with respect to the information provided.
---------------------------------------------------------------------------

    We are not currently proposing, but we solicit comment on, whether 
we should change the cover page of the Form CB to make it easier for 
the staff to monitor the application of the cross-border exemptions. We 
could amend the cover page of the Form CB to include a space where 
persons furnishing the form would specify the U.S. ownership interest 
in the foreign target company or in the issuer for rights offerings 
supporting reliance on the exemptions. This would help us monitor the 
application and effectiveness of the cross-border exemptions. This 
information already would be available to the person furnishing the 
Form CB, since it is required for the Tier I calculation.\274\
---------------------------------------------------------------------------

    \274\ For bidders relying on the hostile presumption available 
for non-negotiated transactions, the Form CB would list the 
percentage of U.S. ownership of the target yielded by the ADTV 
calculation, unless the bidder had reason to know a different level 
of U.S ownership.
---------------------------------------------------------------------------

Request for Comment
     Should we require all Form CBs to be furnished to the 
Commission in electronic form via our EDGAR system, as proposed? Would 
this requirement present a hardship for non-reporting entities 
submitting the form? For example, would the process for procuring a 
notarized authenticating document in a foreign jurisdiction for 
purposes of obtaining a Form ID present a hardship for non-reporting 
entities?
     If we change our rules to require the electronic 
submission of all Form CBs, should we adopt the same requirements for 
electronic filing of Form F-Xs, as proposed, when required to be 
submitted with the Form CB?
     Are there reasons why electronic filing would not be 
desirable?
     Should we require the filing person to fill in a box on 
the cover page of the Form CB specifying the level of U.S. ownership of 
the target or issuer that permits reliance on the cross-border 
exemptions?
2. Proposed Changes to Schedule TO, Form F-4 and Form S-4
    We also propose to add a box on the cover page of the Schedule TO 
and Forms F-4 and S-4 that a filing person would be required to check 
to indicate reliance on one of the applicable cross-border 
exemptions.\275\ This would be helpful to the staff as well as to 
filing persons. For example, the inclusion of this information on the 
cover page of a tender offer statement or registration statement, filed 
in connection with a cross-border transaction in which the filer is 
seeking to rely on an applicable cross-border exemption, would enable 
the staff to perform the review process more efficiently. The 
availability of this information would eliminate staff comments that 
are based on misperceptions about which exemption the filer is seeking 
and which U.S. rules apply to the transaction, thereby reducing the 
time and cost involved for the filer in responding to staff comments. 
Currently, there is often no way to tell from reading the tender offer 
materials whether filers are relying on the cross-border exemptions.
---------------------------------------------------------------------------

    \275\ Existing Form CB contains such a box.
---------------------------------------------------------------------------

    We also solicit comment on whether we should include a space or box 
on the cover page of these schedules and forms requiring the filer to 
specify the U.S. ownership percentage that permits reliance on the 
exemption claimed. We do not propose this change today, but we believe 
it could be helpful in certain circumstances and are interested in 
commenters' views on whether this would present an undue burden or 
liability risk for filers. If we were to require this, it would be 
required only if one or more of the cross-border exemptions is being 
relied upon. As with Form CB, filers already would possess this 
information in determining eligibility to rely on the applicable cross-
border exemption.
Request for Comment
     Would the proposed requirement to check a box identifying 
the cross-border exemption relied upon be a burden for filers? Would 
the information be useful to the public?
     Should we also add a box or blank space on the cover page 
of Schedule TO and Forms S-4 and F-4 where filers would list the 
percentage of the target securities held by U.S. persons that permits 
reliance on the applicable cross-border exemption? Would this 
requirement represent an undue hardship or liability for filers?
     Would investors or others find this information useful in 
connection with their consideration of the transaction?

F. Beneficial Ownership Reporting by Foreign Institutions

1. Background
    The beneficial ownership reporting requirements in Sections 13(d) 
\276\ and 13(g) \277\ of the Exchange Act \278\ and the corresponding 
regulations \279\ provide investors and the issuer with information 
about accumulations of securities that may have the potential to change 
or influence control of the issuer. This statutory and regulatory 
framework establishes a comprehensive reporting system for gathering 
and disseminating information about the ownership of equity securities.
---------------------------------------------------------------------------

    \276\ 15 U.S.C. 78m(d).
    \277\ 15 U.S.C. 78m(g).
    \278\ 15 U.S.C. 78a et seq.
    \279\ Regulation 13D-G, Exchange Act Rule 13d-1 et seq. [17 CFR 
240.13d-1 et seq.].
---------------------------------------------------------------------------

    The beneficial ownership reporting provisions require, subject to 
exceptions, that any person who acquires more than five percent of a 
class of equity securities registered under Section 12 of the Exchange 
Act \280\ and other specified equity securities report the acquisition 
on Schedule 13D within ten days. Persons holding more than five percent 
of a class of such securities at the end of the calendar year, but not 
required to report on Schedule 13D, must file a short-form Schedule 13G 
within 45 days after December 31. These Schedule 13G filers include 
persons exempt from the requirements of Section 13(d),\281\ as well as 
specified institutional investors holding securities in the ordinary 
course of business and not with a control purpose.\282\ As specified in 
Rule 13d-1(b)(1)(ii), the types of institutional investors that may 
file on Schedule 13G under that rule include a broker or dealer 
registered under Section 15(a) of the Exchange Act,\283\ a bank as 
defined in Section 3(a)(6) of the Exchange Act,\284\ an insurance 
company as defined in Section 3(a)(9) of the Exchange Act,\285\ an 
investment company registered under Section 8 of the Investment Company 
Act of 1940,\286\ an investment adviser registered under Section 203 of 
the Investment Advisers Act of 1940,\287\ an employee benefit plan or 
pension fund that is subject to the provisions of the Employee 
Retirement Income Security Act,\288\ and related holding companies and 
groups. The list of institutional investors in Rule 13d-1(b)(1)(ii) 
currently does not include non-domestic institutions generally, and is 
limited to institutions

[[Page 26902]]

such as brokers, dealers, investment advisers and investment companies 
registered with the Commission, or regulated banks, pension funds or 
insurance companies.
---------------------------------------------------------------------------

    \280\ 15 U.S.C. 78l.
    \281\ This category consists of persons filing on Schedule 13G 
because their acquisitions are statutorily or administratively 
exempt from reporting on Schedule 13D.
    \282\ Exchange Act Rule 13d-1(b)(1)(ii).
    \283\ 15 U.S.C. 78o(b).
    \284\ 15 U.S.C. 78c(a)(6).
    \285\ 15 U.S.C. 78c(a)(9).
    \286\ 15 U.S.C. 80a-8.
    \287\ 15 U.S.C. 80b-1 et seq.
    \288\ Codified principally in 29 U.S.C. 1001-1461.
---------------------------------------------------------------------------

    In 1977, we proposed an amendment to the precursor to Rule 13d-
1(b)(1)(ii) \289\ which would have allowed non-domestic entities 
similar to domestic brokers, dealers, banks, investment companies, 
investment advisers, employee benefit plans, and parents and groups of 
these persons to use the short form Schedule 13G to report beneficial 
ownership, provided that such persons agreed to make available to the 
Commission the same information they would be required to furnish in 
responding to the disclosure requirements of Schedule 13D.\290\ When we 
adopted final rules in 1978, however, we declined to amend the rule to 
allow foreign entities, who otherwise qualified, to use the short form 
available to U.S. institutions.\291\
---------------------------------------------------------------------------

    \289\ Exchange Act Rule 13d-5 was the precursor to Exchange Act 
Rule 13d-1(b).
    \290\ See Beneficial Ownership Disclosure Requirements, Release 
No. 34-13292 (February 24, 1977) [42 FR 44964].
    \291\ The release stated that we determined not to adopt the 
amendment ``in view of the substantial enforcement difficulties 
encountered in seeking to assure compliance by foreign persons with 
the provisions of Section 13(d).'' See Filing and Disclosure 
Requirements Relating to Beneficial Ownership, Release No. 34-14692 
(April 21, 1978) [43 FR 18484].
---------------------------------------------------------------------------

    The 1978 adopting release indicated that applications for exemptive 
orders by foreign entities would be entertained to enable them to 
report on Schedule 13G. The release discussed several conditions to the 
availability of such exemptive orders, and stated that the Commission 
would entertain applications when the acquisitions are in the ordinary 
course of business and not with the purpose nor with the effect of 
changing or influencing control of the issuer, nor in connection with 
or as a participant in any transaction having such purpose or effect. 
It stated that the Commission may consider any further conditions that 
may be appropriate when granting exemptive orders.
    Historically, use of the Schedule 13G by foreign institutions 
filing as qualified institutions under Rule 13d-1(b)(i)(ii) has been 
limited to institutions that have obtained an exemptive order from the 
Commission \292\ or, under the current practice, a no-action position 
from the Division of Corporation Finance based upon the requester's 
undertaking to grant the Commission or the staff access to information 
that would otherwise be disclosed in a Schedule 13D and the 
comparability of the foreign regulatory scheme applicable to the 
particular category of institutional investor.\293\ In connection with 
the amendments to the beneficial ownership reporting requirements 
proposed in 1996, we noted that we ``believe[d] that a non-U.S. 
institution seeking relief to file pursuant to Rule 13d-1(b)(1) should 
be subject to a regulatory scheme in its country comparable to the U.S. 
regulatory scheme for the particular category of institution and that 
such institutions should undertake to grant the Commission access to 
information that would otherwise be disclosed on Schedule 13D.'' \294\ 
We stated that no change to the practice of issuing exemptive orders or 
staff no-action positions was proposed.\295\ We requested comment 
regarding whether the rules should be amended to expressly allow 
foreign institutional investors that are the functional equivalent of 
our domestic institutions to file on Schedule 13G.\296\
---------------------------------------------------------------------------

    \292\ Id.
    \293\ See, e.g., Canada Pension Plan Investment Board (May 5, 
2006) (granting relief for the Canada Pension Plan (CPP) Investment 
Board to file on Schedule 13G where the Board represented that the 
Canadian Pension Plan was the functional equivalent of a U.S. 
private pension fund and the regulatory regime governing the CPP 
Investment Board was substantially similar to the regulations 
applicable to U.S. pension funds under the Employee Retirement 
Income Security Act of 1974) and Citigroup Inc. (May 27, 2004) 
(granting relief for certain qualifying subsidiaries of Citigroup 
organized under the laws of England and Wales; the subsidiaries 
conducted investment banking business, including market-making, 
through trading in their own accounts and for their customers and 
represented that they were subject to regulation in the United 
Kingdom that was comparable to U.S. regulations).
    \294\ See Amendments to Beneficial Ownership Reporting 
Requirements, Release No. 34-37403 (July 3, 1996) [61 FR 36521] (the 
``Reproposing Release'').
    \295\ Id.
    \296\ Id.
---------------------------------------------------------------------------

    When we adopted amendments to the beneficial ownership reporting 
rules in 1998, we stated that we were not expanding the list of 
qualified institutional investors in Rule 13d-1(b)(1)(ii) to include 
foreign institutions.\297\ Further, we stated that the use of Schedule 
13G pursuant to the provisions of Rule 13d-1(b)(1) would continue to be 
limited to institutions such as brokers, dealers, investment companies, 
and investment advisers registered with the Commission, or regulated 
banks, pension funds, or insurance companies, and its availability 
would not be extended to foreign institutions generally.\298\ The 
adopting release noted that foreign institutional investors that do not 
have a disqualifying purpose or effect would be able to rely on the 
passive investor provisions of Rule 13d-1(c) to file a Schedule 
13G.\299\ To the extent that any foreign institutional investor sought 
to report on Schedule 13G as a qualified institutional investor, the 
institution would be required to obtain an exemptive order or no-action 
position. We continue to receive and grant requests from foreign 
institutions seeking to file on Schedule 13G as qualified institutional 
investors.\300\
---------------------------------------------------------------------------

    \297\ See Amendments to Beneficial Ownership Reporting 
Requirements, Release No. 34-39538 (January 12, 1998) [63 FR 2854].
    \298\ Id.
    \299\ The passive investor provision was adopted in 1998 to 
expand the class of investors eligible to file on the short form 
Schedule 13G. See Release No. 34-39538. Under Exchange Act Rule 13d-
1(c), a passive investor choosing to file a Schedule 13G must file 
within ten calendar days after acquiring beneficial ownership and 
must certify that it does not have a disqualifying purpose or 
effect. Qualified institutional investors filing on Schedule 13G 
pursuant to Exchange Act Rule 13d-1(b) must file the form within 45 
calendar days after the calendar year end of the year in which, on 
the last day of the year, its beneficial ownership of the subject 
class exceeds 5 percent. Under the amendments we propose today and 
discussed below, a foreign institution would be permitted to file on 
Schedule 13G as a qualified institutional investor if it meets the 
specified conditions.
    \300\ See footnote 293 above.
---------------------------------------------------------------------------

2. Proposed Rules
    The past ten years have brought tremendous change to our capital 
markets. As the capital markets become increasingly global, we believe 
we need to continually re-evaluate our regulatory scheme to determine 
whether it is efficiently and effectively protecting investors and not 
imposing unnecessary burdens. We recognize that the burden imposed on 
foreign institutions that must file a Schedule 13D (or obtain an 
individual no-action letter) is more extensive than the filing 
requirements applicable to comparable U.S. institutions that are able 
to report beneficial ownership on Schedule 13G. We also recognize that 
foreign institutions filing as passive investors pursuant to Rule 13d-
1(c) are subject to more stringent requirements than institutions 
eligible to rely on Rule 13d-1(b).\301\ We weigh these burdens against

[[Page 26903]]

the important safeguards that the provisions of Rule 13d-1(b) provide. 
We believe that it may be possible to extend Schedule 13G filing 
eligibility pursuant to Rule 13d-1(b) to foreign institutions, while 
maintaining the protections of the rule.\302\
---------------------------------------------------------------------------

    \301\ Currently, a difference exists for passive investors and 
qualified institutional investors in the timing requirements for 
filing an initial Schedule 13G, as discussed above, and filing 
amendments to Schedule 13G. Passive investors amend Schedule 13G in 
a manner similar to qualified institutional investors, but more 
promptly. Another difference in the filing requirements for passive 
investors and qualified institutional investors is the applicable 
certification. Finally, an investor beneficially owning more than 20 
percent of a class of securities may not file as a passive investor. 
A qualified institutional investor is not subject to the 20 percent 
limit. These differences present a significant burden for 
institutions that do a significant amount of trading or engage in 
securities transactions on behalf of clients. Allowing foreign 
institutions to file as qualified institutional investors would 
reduce the filing burden for those foreign institutions and decrease 
the disparities in the way U.S. and foreign institutions are treated 
under the rules.
    \302\ We note that in 2004, the Commission adopted a rule that 
remedied disparate treatment of domestic and foreign banks. See 
Foreign Bank Exemption from the Insider Lending Prohibition of the 
Exchange Act Section 13(k), Release No. 34-49616 (April 26, 2004) 
[69 FR 24016].
---------------------------------------------------------------------------

    Accordingly, we propose to amend Rule 13d-1(b)(1)(ii) to include 
foreign institutions that are substantially comparable to the U.S. 
institutions listed in subparagraphs (A)-(J) of the current rule. In 
this regard, to be eligible to file on Schedule 13G, the foreign 
institution would be required to determine,\303\ and certify on 
Schedule 13G, that it is subject to a regulatory scheme comparable to 
the regulatory scheme applicable to its U.S. counterparts.\304\ 
Additionally, in its certification on Schedule 13G, the foreign 
institution would need to undertake to furnish to the Commission staff, 
upon request, the information it otherwise would be required to provide 
in a Schedule 13D. If these proposed rule changes are adopted, Rule 
13d-1(b) would continue to be available only to institutions that 
acquired and held the equity securities in the ordinary course of 
business and not with the purpose or effect of influencing or changing 
control of the issuer.\305\
---------------------------------------------------------------------------

    \303\ Similar to a domestic institution, a foreign institution 
would need to determine whether it qualified to use the short-form 
Schedule 13G at the time it exceeded the beneficial ownership 
threshold. This initial determination as to form eligibility would 
require a foreign institution to determine, at the time it exceeds 
the beneficial ownership threshold, whether it is subject to a 
foreign regulatory scheme applicable to the particular category of 
institutional investor comparable to the applicable U.S. regulatory 
scheme. If the foreign institution made such a determination, it 
would be eligible to file on Schedule 13G as a qualified 
institutional investor, as long as it could provide the 
certification required by Schedule 13G. If at any time before filing 
a Schedule 13G pursuant to proposed Rule 13d-1(b)(1)(ii)(K) the 
foreign institution determined that it was no longer able to rely on 
the provision, it would be required to file a Schedule 13D in 
accordance with the rules.
    \304\ When determining whether the foreign regulatory scheme is 
comparable to the U.S. regulatory scheme, the foreign institution 
should consider a number of factors, including whether the 
institution is engaged in a business similar to the business engaged 
in by the qualified institutional investors listed in Rule 13d-
1(b)(1)(ii), and whether the institution affords protections similar 
to those offered by domestic institutions (such as minimum capital 
requirements, deposit guarantees, licensing requirements, periodic 
reporting of information in the home country, power of inspection by 
home country regulators, etc.). See, e.g., Natixis S.A., Banque 
F[eacute]d[eacute]rale des Banqes Populaires and Caisse National des 
Caisses d'Epargne (October 9, 2007) (granting relief where the 
requestor and its subsidiaries represented they were engaged in 
businesses similar to those engaged in by one or more qualified 
institutional investors listed in Rule13d-1(b)(1)(ii) and that they 
were subject to regulation in France that was substantially 
comparable to the U.S. regulatory scheme) and DnB NOR ASA and 
Qualifying Subsidiaries (January 9, 2008) (granting relief where DnB 
NOR and its qualifying subsidiaries represented that they were 
engaged in businesses similar to those engaged in by one or more 
classes of persons identified in Rule 13d-1(b)(1)(ii) and that they 
were subject to extensive regulation in the jurisdictions in which 
they operate analogous to U.S. regulations).
    \305\ See Exchange Act Rule 13d-1(b).
---------------------------------------------------------------------------

    Under Rule 13d-1(e), when a passive investor or qualified 
institutional investor determines that it holds subject securities with 
a disqualifying purpose or effect, it must file a Schedule 13D no later 
than 10 calendar days after the change in investment purpose.\306\ 
Therefore, in the event that an institution--foreign or domestic--
determines that it holds subject securities with a disqualifying 
purpose or effect, it would be required to file a Schedule 13D. In 
addition, the institution would be subject to a ``cooling-off period.'' 
\307\ During the cooling-off period, the reporting person is prohibited 
from voting or directing the voting of the subject securities or 
acquiring additional beneficial ownership of any equity securities of 
the issuer or any person controlling the issuer. We believe the 
cooling-off period provides an important safeguard for the market and 
investors and allows them time to react to the information in the 
Schedule 13D filing.
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    \306\ Exchange Act Rule 13d-1(e).
    \307\ We adopted the cooling-off period in 1998, and it applies 
to both passive investors and qualified institutional investors; 
therefore, it would apply to a foreign institution filing under 
proposed Exchange Act Rule 13d-1(b). The cooling-off period begins 
with the change in investment purpose and lasts until the expiration 
of the tenth calendar day from the date the investor filed a 
Schedule 13D.
---------------------------------------------------------------------------

    As noted above, in the past we expressed concern regarding possible 
difficulties with enforcement in the event that we sought additional 
information from a foreign institution. We believe that such 
difficulties are mitigated by various factors. First, we are proposing 
that any foreign institution availing itself of Schedule 13G certify 
that it is subject to a comparable regulatory scheme and that it will 
provide Schedule 13D-type information upon request. Second, much of the 
additional Schedule 13D-type information already may be provided to the 
primary home country regulator and may be publicly available or 
available in the event of a formal request.
Request for Comment
     Would the proposed amendments alleviate practical 
difficulties for foreign beneficial owners without affecting the 
quality of information available to U.S. investors?
     Should a foreign institution be required, as proposed, to 
certify on Schedule 13G that it is subject to a regulatory scheme 
comparable to the U.S. regulatory scheme for the particular category of 
institution?
    [cir] Would foreign institutions find it difficult to certify that 
they are subject to comparable regulation? How should we alleviate any 
difficulty?
    [cir] Should the certification be different or include any other 
information? Should the certification language include a statement that 
the foreign institution is subject to comprehensive supervision or 
regulation in its home jurisdiction,\308\ rather than the language we 
proposed? Why or why not?
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    \308\ Similar language is used in Exchange Act Rule 13k-1, which 
provides an exemption for foreign banks from the insider lending 
prohibition of Section 13(k). The rule provides a definition of a 
foreign bank and includes conditions that foreign banks must meet, 
such as being required to insure deposits or being subject to a 
deposit guarantee.
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     Should filing on Schedule 13G only be available, as 
proposed, to non-U.S. persons who undertake on Schedule 13G to furnish 
the staff with information, at its request, that would otherwise be 
disclosed in a Schedule 13D?
     Should a foreign institution that seeks to use a Schedule 
13G also be required to file a Form F-X? Should the Form F-X, like 
Schedule 13G, be required to be filed electronically?
     Should a foreign institution that intends to rely on 
proposed new Rule 13d-1(b)(1)(ii)(K) be required to file a public 
notice of such intent? If such a notice was required to be filed, when 
should the notice be filed and should the filer be required to make the 
proposed certification at the time the notice is filed?
     Should we also require foreign institutions filing as 
passive investors under Rule 13d-1(c) to file a Form F-X?
     Should the use of Schedule 13G by foreign institutions 
relying on the proposed rule be limited to institutions from 
jurisdictions that have a bilateral enforcement memorandum of 
understanding (MOU) with the SEC or institutions that are signatories 
to the IOSCO Multilateral Memorandum of Understanding concerning 
consultation, cooperation and the exchange of information?

[[Page 26904]]

G. Interpretive Guidance

1. Application of the All-Holders Rule to Foreign Target Security 
Holders
    Most of this release deals with cross-border business combination 
transactions where the target is a foreign private issuer. In this 
section, however, we address an issue involving the treatment of 
foreign target security holders in tender offers generally, including 
those for U.S. target companies. The issue of bidders' ability to 
exclude foreign target security holders is addressed here because it 
closely relates to the issue of the exclusion of U.S. target security 
holders in cross-border tender offers, which we discuss in the next 
section below. As we continue to encourage our fellow international 
securities and takeover regulators to minimize the ability of bidders 
to exclude U.S. holders from business combination transactions, we 
recognize the need to take similar steps with regard to the ability of 
bidders to exclude non-U.S. holders pursuant to our rules.
    In 1986, we adopted Rule 14d-10 and amended Rule 13e-4(f) to 
require that all target security holders in a tender offer subject to 
either of those rules be included in the tender offer and treated 
equally.\309\ These rules require that third-party tender offers 
subject to Section 14(d) of the Exchange Act, as well as issuer tender 
offers subject to Section 13(e) of the Exchange Act, be open to all 
holders of the subject class of securities.\310\ This equal treatment 
provision does not prohibit tender offers for less than all outstanding 
securities of a subject class, but it does require that all security 
holders be able to accept the tender offer if they choose.\311\
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    \309\ See Amendments to Tender Offer Rules: All-Holders and 
Best-Price, Release No. 34-23421 (July 11, 1986) [51 FR 25873] 
(``All-Holders and Best Price Adopting Release'').
    \310\ Pursuant to these provisions, the bidder may not restrict 
the offer to target holders as of a particular record date only. See 
footnote 35 in All-Holders and Best Price Adopting Release. While as 
a practical matter, the bidder will look to beneficial holders as of 
a recent date in distributing the offer materials, the offer must be 
open to all target security holders, including those who purchase 
after the tender offer commences. See In the Matter of Application 
of WHX Corp., Exchange Act Release No. 47980 (June 4, 2003), vacated 
on other grounds, WHX Corp. v. SEC, 362 F.3d 854 (D.C. Cir. 2004).
    \311\ If the tender offer is for less than all of the securities 
of the subject class and the offer is oversubscribed, the bidder 
must purchase tendered securities on a pro rata basis. See Section 
14(d)(6) of the Exchange Act and Exchange Act Rules 13e-4(f)(3) and 
14d-8.
---------------------------------------------------------------------------

    The all-holders provisions in Rules 14d-10 and 13e-4(f) apply 
equally to U.S. as well as non-U.S. target holders.\312\ However, we 
are aware that certain bidders are purporting to exclude foreign target 
security holders in tender offers subject to these rules. Therefore, we 
wish to reiterate our position that the all-holders requirement does 
not allow the exclusion of any foreign or U.S. target holder in tender 
offers subject to those rules. We believe it is in the interests of 
U.S. investors to enforce U.S. equal treatment principles for the 
benefit of non-U.S. target security holders. This is particularly true 
today, where comparable foreign all-holders requirements may protect 
U.S. investors by preventing their exclusion from cross-border offers.
---------------------------------------------------------------------------

    \312\ See All-Holders and Best-Price Adopting Release, Section 
III.A.2., which stated ``While a tender offer subject to Sections 
13(e) and 14(d) of the Williams Act must be held open to all holders 
of the subject class of securities, including foreign persons, Rules 
14d-10(b)(1) and 13e-4(f)(9)(i) make clear that the all-holders 
requirement does not affect the required dissemination of tender 
offers. * * * The Commission has not interpreted these provisions as 
requiring dissemination of tender offer materials outside of the 
United States, and the adoption of the all-holders requirement is 
not intended to impose any additional requirements in this regard.'' 
(emphasis added; footnotes omitted).
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    We recognize, however, that the requirement to make an offer 
available to all foreign target holders, particularly for registered 
exchange offers, may present a burden for bidders that may need to 
comply with both foreign and U.S. rules. We are soliciting comment on 
whether any amendments to the U.S. equal treatment provisions are 
necessary or advisable to allow certain target security holders to be 
excluded from the offer. In this regard, we note the exception in Rule 
14d-10(b), which states that the all-holders rule will not ``prohibit a 
bidder from making a tender offer excluding all security holders in a 
state where the bidder is prohibited from making the tender offer by 
administrative or judicial action pursuant to a state statute after a 
good faith effort by the bidder to comply with such statute.''\313\ We 
are soliciting comment as to whether this rule should be amended to 
include a similar provision with respect to target holders in foreign 
jurisdictions. We are also soliciting comment as to whether we should 
specifically define what a ``good faith effort'' means.
---------------------------------------------------------------------------

    \313\ Exchange Act Rule 13e-4(e)(9) contains a comparable 
provision for issuer tender offers.
---------------------------------------------------------------------------

    Notwithstanding the requirements of Rule 14d-10 and Rule 13e-4(f) 
to extend an offer to all holders of a target company's securities, 
these provisions have not been interpreted to require that offering 
materials be mailed into foreign jurisdictions.\314\ We recognize that 
disseminating a U.S. offer document in non-U.S. jurisdictions may 
implicate applicable foreign laws. Certain foreign jurisdictions allow 
bidders not to mail offer materials into certain foreign jurisdictions. 
For instance, the U.K. Takeover Panel has adopted a ``de minimis'' 
exception permitting bidders not to mail offer materials to target 
holders in jurisdictions where few target securities are held. Under 
that rule, bidders for U.K. target companies may choose not to mail 
offer materials to target security holders outside the U.K. and outside 
the European Economic Area (the ``EEA'') when a particular jurisdiction 
presents significant risks of civil, regulatory or criminal liability 
to the bidder and less than three percent of the securities of the 
target are held of record in that jurisdiction.\315\ We note that even 
when the U.K. Code does not require the dissemination of offer 
materials into a particular foreign jurisdiction pursuant to this 
provision, it does not sanction a prohibition on tenders from security 
holders located there.
---------------------------------------------------------------------------

    \314\ See footnote 312 above.
    \315\ The City Code on Takeovers and Mergers, Rule 30.3. The 
note to Rule 30.3 provides an exception to the UK's dissemination 
requirement with respect to shareholders outside of the EEA. The 
note states:
    Where local laws or regulations of a particular non-EEA 
jurisdiction may result in a significant risk of civil, regulatory 
or, particularly, criminal exposure for the offeror or the offeree 
company if the information or documentation is sent or made 
available to shareholders in that jurisdiction without any 
amendment, and unless they can avoid such exposure by making minor 
amendments to the information being provided or documents being sent 
or made available either:
    (a) The offeror or the offeree company need not provide such 
information or send or make such information or documents available 
to registered shareholders of the offeree company who are located in 
that jurisdiction if less than 3% of the shares of the offeree 
company are held by registered shareholders located there at the 
date on which the information is to be provided or the information 
or documents are to be sent or made available * * *; or
    (b) In all other cases, the Panel may grant a dispensation where 
it would be proportionate in the circumstances to do so having 
regard, notably, to the cost involved, any resulting delay to the 
transaction timetable, the number of registered shareholders in the 
relevant jurisdiction, the number of shares involved and any other 
factors invoked by the offeror or the offeree company.
---------------------------------------------------------------------------

    We further note that certain bidders have required target holders 
to certify that tendering their securities complies with local laws or 
that an exemption applies that allows such tenders without further 
action by the bidder to register or qualify its offer. We do not 
believe it is appropriate to shift this burden of assuring compliance 
with the relevant jurisdiction's laws to target security holders 
because target security holders may not be in possession of relevant 
facts regarding the bidder's action and the provisions of local law in 
their home

[[Page 26905]]

jurisdiction necessary to make this determination.
Request for Comment
     Is it necessary or appropriate for bidders in tender 
offers for U.S. target companies to exclude foreign target security 
holders in certain non-U.S. jurisdictions? Why? Is the answer different 
for cash tender offers versus exchange offers?
     Should bidders be allowed to condition tendering into an 
offer on the subject security holder certifying to compliance with the 
securities law requirements of its jurisdiction?
     Would permitting exclusion of some foreign target holders 
result in decreased protections for U.S. holders in cross-border tender 
offers?
     Should Rule 14d-10 and Rule 13e-4 be amended to include a 
provision expressly stating that those rules will not prohibit a bidder 
from excluding shareholders in a particular foreign jurisdiction, where 
the bidder is prohibited from making the tender offer by foreign law 
after a good faith effort by the bidder to comply with the law?
     [cir] What should be considered a ``good faith effort'' for 
purposes of such a rule change?
     [cir] Should the number or percentage of security holders in a 
particular jurisdiction or the cost or additional timing requirements 
of complying with a particular jurisdiction's rules impact the good 
faith determination?
     Should our rules be revised to permit exclusion of foreign 
target security holders in any jurisdiction where a minimal number of 
target holders are located? If so, what would be an appropriate de 
minimis threshold? Three percent? Five percent?
     [cir] If the rules should be amended as described, should such a 
provision be expanded to specifically include situations where a bidder 
is unable to determine the beneficial ownership of the securities in a 
foreign jurisdiction?
     [cir] If we were to adopt a de minimis exclusion, should we permit 
exclusion only where the bidder also establishes a significant risk of 
civil or criminal liability by extending the offer into that 
jurisdiction?
     Should we require dissemination of offering materials to 
all holders of a target's securities, whether or not they are located 
in the United States? If we adopted such a requirement, should there be 
exceptions? If so, what should they be?
2. Ability of Bidders To Exclude U.S. Target Security Holders
    As discussed above, one of the primary motivations of the 
Commission in adopting the cross-border exemptions was to facilitate 
the inclusion of U.S. security holders in cross-border business 
combination transactions. We believe those exemptions have been 
successful generally in encouraging offerors in cross-border business 
combination transactions to include U.S. security holders in those 
transactions. At the request of commenters, the Cross-Border Adopting 
Release also provided guidance on whether and under what circumstances 
offer materials for offshore tender and exchange offers may be posted 
on the Internet without triggering U.S. tender offer and registration 
rules.\316\ This followed earlier Commission guidance on the use of 
Internet Web sites to solicit securities transactions and to offer 
securities.\317\ The issue of using Internet Web sites in offshore 
tender and exchange offers is part of a broader question as to whether 
and how bidders in cross-border business combination transactions 
legitimately may avoid the application of U.S. registration and tender 
offer rules. Based on our experience with these matters since 1999, we 
believe it may be helpful to provide additional guidance on issues 
specific to cross-border tender offers.
---------------------------------------------------------------------------

    \316\ See Cross-Border Adopting Release, Section II.G.
    \317\ See Statement of the Commission regarding use of Internet 
Web sites to offer securities, solicit securities transactions or 
advertise investment securities offshore, Release No. 33-7516 (March 
23, 1998) [63 FR 14806] (``1998 Internet Release'').
---------------------------------------------------------------------------

    Whether U.S tender offer rules apply in the context of a cross-
border tender offer depends on whether the bidder triggers U.S. 
jurisdictional means in making a tender offer.\318\ Today foreign 
jurisdictions commonly require information about a tender offer or 
business combination transaction to be posted on a publicly-available 
and unrestricted Web site.\319\ In addition, it is common for both 
bidders and target companies in business combination transactions to 
post information about the transactions on their own Internet Web 
sites, whether or not they are required by the law of the foreign home 
jurisdiction to do so.
---------------------------------------------------------------------------

    \318\ Section 14(d)(1) of the Exchange Act reads in relevant 
part: ``It shall be unlawful for any person, directly or indirectly, 
by use of the mails or by any means or instrumentality of interstate 
commerce or of any facility of a national securities exchange or 
otherwise, to make a tender offer for, or a request or invitation 
for tenders of, any class of any equity security which is registered 
pursuant to section 12 of this title * * * if, after consummation 
thereof, such person would, directly or indirectly, be the 
beneficial owner of more than 5 per centum of such class, unless at 
the time copies of the offer or request or invitation are first 
published or sent or given to security holders such person has filed 
with the Commission a statement containing such information as the 
Commission may by rules or regulations prescribe. * * *.''
    \319\ See, e.g., ProSiebenSat.1 Media AG (September 12, 
2005)(describing the procedure in Germany of posting the offer 
documents on an Internet web site). Such foreign provisions may 
include a requirement to post the offer documents themselves, or 
notice of the offer with instructions on how to obtain the offer 
materials.
---------------------------------------------------------------------------

    As discussed above, the Commission has provided guidance on 
measures acquirors may take to avoid triggering U.S. jurisdictional 
means.\320\ We have recognized that bidders who are not U.S. persons 
\321\ may structure a tender offer to avoid the use of the means or 
instrumentalities of interstate commerce or any facility of a national 
securities exchange in making its offer and, thus avoid triggering 
application of our rules.\322\ A bidder making a tender offer for 
target securities of a foreign private issuer may exclude U.S. target 
security holders if the offer is conducted outside the United States 
and U.S. jurisdictional means are not implicated.\323\ However, a 
bidder may implicate U.S. jurisdictional means if it fails to take 
adequate measures to prevent tenders by U.S. target holders while 
purporting to exclude them. While we encourage bidders to allow U.S. 
target security holders to participate in cross-border tender offers, 
when a bidder permits them to participate in a tender offer, it must 
follow U.S. rules unless an exemption applies. The relevant question 
thus becomes how bidders may conduct exclusionary offers that are 
limited to non-U.S. holders \324\ without implicating U.S. tender offer 
rules, particularly where those offers are subject to the equal 
treatment principles in Section 13(e) or 14(d) of the Exchange 
Act.\325\
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    \320\ See generally, the 1998 Internet Release and the Cross-
Border Adopting Release.
    \321\ In our view, it generally is inappropriate for a U.S. 
bidder to exclude U.S. target security holders when making a tender 
offer for a foreign private issuer target company. We continue to 
believe that, in light of the cross-border exemptions adopted in 
1999, a U.S. bidder generally would not have reason to exclude U.S. 
target security holders in making an offer for the securities of a 
foreign private issuer. See Cross-Border Adopting Release, Section 
II.G.4. The rule revisions proposed today, if adopted, would 
reinforce this view.
    \322\ See All-Holders and Best Price Adopting Release, Section 
III.A.3. (finding that amendments to the all-holders and best price 
provisions specifically exempting offshore exclusionary offers from 
those provisions were unnecessary, given the application of the 
jurisdictional means test).
    \323\ See footnote 319 above.
    \324\ We use the term ``exclusionary offer'' to mean tender 
offers that exclude U.S. target holders of the subject class of 
securities for which the offer is made.
    \325\ For tender offers not subject to Sections 13(e) or 14(d) 
of the Exchange Act, such as third-party offers for a target class 
of securities that is not registered under Section 12 of the 
Exchange Act, no all-holders requirement exists. Therefore, U.S. 
target security holders technically may be excluded from those 
offers even where the U.S. jurisdictional means are triggered; 
however, these offers would need to comply with the procedural and 
anti-fraud requirements of applicable U.S. rules.

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[[Page 26906]]

    The Commission has recognized, and we reaffirm today, that business 
combination transactions present special considerations not common to 
capital-raising issuances.\326\ Because of their pre-existing 
investment in a target company, target security holders, including U.S. 
holders, are likely to seek out any information about the target 
company, the acquiror, and the proposed transaction.\327\ U.S. security 
holders also may have a greater incentive and opportunity to find a 
means to participate in transactions involving the target securities 
they own. Even where they are not able to do so, U.S. holders' interest 
in those securities may be affected significantly by a business 
combination transaction involving the target company.\328\
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    \326\ See Cross-Border Adopting Release, Section II.G.2.
    \327\ This is particularly true today, where advances in 
technology permit investors to establish online alert systems to 
inform them of any news relating to a target company.
    \328\ This is particularly the case in cross-border tender 
offers, where bidders' ability to ``squeeze out'' target security 
holders remaining after a tender offer may be more limited than in 
the United States. For example, in some countries, bidders must 
achieve ownership levels significantly in excess of 51 percent of 
target securities to be able to compulsorily acquire the remaining 
target securities. Where target securities are delisted after the 
tender offer, U.S. holders excluded from the offer may be left with 
an illiquid security.
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    For these reasons, bidders seeking to avoid the application of U.S. 
law should take special precautions to assure that their offer is not 
made in the United States. We have provided guidance on how they may do 
so in the context of cross-border tender offers.\329\ Perhaps the most 
basic measure is to include legends on the offer materials themselves 
and on any Internet Web site on which they are posted, indicating that 
the offer is not being made in the United States.\330\ In addition, the 
bidder should take special precautions to assure that tenders are not 
accepted from nor sales of bidder securities made (in the case of 
exchange offers) to target security holders resident in the United 
States.\331\ These may include, in responding to inquiries and 
processing letters of transmittal, obtaining adequate information to 
determine whether the target security holder is a U.S. investor.\332\ 
In addition, the bidder could require representations by the tendering 
security holder, or anyone tendering on that person's behalf, that the 
tendering holder is not a U.S. holder or someone tendering on behalf of 
a U.S. holder.\333\
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    \329\ See Cross-Border Adopting Release, Section II.G.2.
    \330\ See 1998 Internet Release, Section III.B.
    \331\ See Cross-Border Adopting Release, Section II.G.2. We note 
that business combinations other than tender offers, where the 
target company is being merged out of existence, are different 
because once such transactions are approved, all target holders' 
securities will be acquired. In business combinations other than 
tender offers, we have stated that we do not believe the acquiror 
should avoid the payment of consideration to U.S. target holders. 
Id.
    \332\ Id.
    \333\ Id.
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    Several issues have come to light with respect to these measures to 
keep a tender offer outside of the United States. First, we reiterate 
that a legend or disclaimer stating that the offer is not being made 
into the United States, or that the offer materials may not be 
distributed there, is not likely to be sufficient in itself because, as 
discussed in the preceding paragraph, if the bidder wants to support a 
claim that the offer has no jurisdictional connection to the United 
States, it also will need to take special precautions to prevent sales 
to or tenders from U.S. target holders.\334\ In some cases, bidders 
purporting to make exclusionary tender offers offshore have attempted 
to circumvent foreign all-holders requirements by including statements 
that the tender offer is not ``being made into the United States.'' We 
do not view such statements as sufficient in themselves to avoid being 
subject to the U.S. federal securities laws if, as a practical matter, 
U.S. holders are not and may not be prevented from participating in the 
offer using U.S. jurisdictional means.
---------------------------------------------------------------------------

    \334\ See Cross-Border Adopting Release, Section II.G.2.
---------------------------------------------------------------------------

    Bidders may require a representation or certification from 
tendering holders that they are not U.S. holders to avoid triggering 
U.S. law.\335\ We recognize the possibility that target security 
holders could misrepresent their status in order to be permitted to 
tender into an exclusionary offer. We have stated that where this 
occurs, bidders will not be viewed as having targeted U.S. investors, 
thereby invoking U.S. jurisdictional means.\336\ However, this position 
is premised on the bidder having taken adequate measures reasonably 
designed to guard against purchases from and sales to U.S. 
holders.\337\ It is also premised on the absence of indicia that would 
or should put the bidder on notice that the tendering holder is a U.S. 
investor.\338\ Where tenders in exclusionary offers are made through 
offshore nominees, bidders could require that these nominees certify 
that tenders are not being made on behalf of U.S. holders. We recognize 
that this may be problematic where the law of the applicable foreign 
jurisdiction prevents the nominee from knowing the identity or location 
of beneficial holders on whose behalf they hold.
---------------------------------------------------------------------------

    \335\ See Cross-Border Adopting Release, Section II.G.2.
    \336\ See 1998 Internet Release, Section III.C.
    \337\ Id.
    \338\ These would include receipt of payment drawn on a U.S. 
bank, provision of a U.S. taxpayer identification number or 
statements by the tendering holder that notwithstanding a foreign 
address, the tendering holder is a U.S. investor. We have explicitly 
noted that if, after implementing measures intended to safeguard 
against tenders by U.S. persons, the bidder discovers it has 
purchased securities from U.S holders, it should consider other 
measures that may avoid this lapse in the future. Id.
---------------------------------------------------------------------------

    While we encourage the participation of U.S. target security 
holders in cross-border tender offers and other business combination 
transactions, their participation should be accomplished in compliance 
with U.S. rules or through applicable cross-border exemptions. In the 
future, the staff will more closely monitor exclusionary offers to 
determine whether Commission action is necessary to protect U.S. target 
holders.
Request for Comment
     Should the Commission provide additional guidance on the 
specific measures an acquiror may or should take to avoid triggering 
U.S. jurisdictional means in the context of cross-border business 
combination transactions?
     What measures are reasonable and effective, and in the 
best interests of U.S. investors?
     Should we also consider further rulemaking to address the 
situation where a bidder seeks to avoid U.S. jurisdictional means by 
excluding U.S. target security holders, but is subject to foreign home 
country rules mandating that all target security holders must be 
permitted to participate in the offer? How would such rules balance the 
practical needs of bidders with the requirement to protect the 
interests of U.S. investors?
3. Vendor Placements
    In many business combination transactions, the offer consideration 
may include securities of the bidder. In some transactions, cash may be 
offered together with the bidders' securities and, in other 
transactions, no cash will be offered and the bidder's securities will 
constitute the sole consideration offered to tendering holders of the 
target's securities.
    For Tier I-eligible tender offers, for purposes of complying with 
the equal

[[Page 26907]]

treatment requirement, bidders are permitted to offer cash 
consideration to U.S. holders in lieu of offering securities so long as 
the bidder has a reasonable basis for believing that the amount of cash 
is substantially equivalent to the value of the consideration offered 
to non-U.S. holders. In addition, most Tier I-eligible offers should be 
eligible for the exemption from Securities Act registration provided by 
Rule 802. If Rule 802 or another exemption from registration is not 
available, then the bidder is required to register the securities being 
offered under the Securities Act.
    In certain cross-border exchange offers, bidders may seek to avoid 
the registration requirements under the Securities Act by establishing 
a vendor placement arrangement for the benefit of U.S. target security 
holders who tender into the offer. In a vendor placement, the bidder 
generally employs a third party to sell in offshore transactions the 
securities to which tendering U.S. security holders are entitled in the 
offer. The bidder (or the third party) then remits the proceeds of the 
resale (minus expenses) to those U.S. target security holders that 
tendered into the offer.
    Where permissible, the vendor placement process allows bidders in 
cross-border exchange offers to extend the offer into the United States 
but avoid the Securities Act registration requirements. In effect, the 
vendor placement is an effort to convert an exchange offer involving 
the offer and sale of the bidder's securities (which would require 
Securities Act registration) into an offer involving solely cash (which 
does not require registration) as it relates to tendering U.S. security 
holders.
    The staff often receives inquiries about the use of the vendor 
placement structure in cross-border offers and has in the past issued 
no-action letters permitting the use of the structure in limited 
situations.\339\ Although tendering holders receive cash in a vendor 
placement, the amount of cash received is largely dependent on the 
market value of the underlying security. The protections of the 
Securities Act are intended to give investors access to information 
when making an investment decision with respect to the purchase of a 
security. A vendor placement does not in all circumstances eliminate 
the requirement for Securities Act registration, because tendering U.S. 
holders may be effectively making an investment decision with respect 
to the purchase of a security.
---------------------------------------------------------------------------

    \339\ See, e.g., Singapore Telecommunications Ltd (May 15, 
2001); Oldcastle, Inc. (July 3, 1986); Electrocomponents PLC 
(September 23, 1982), Equitable Life Mortgage and Realty Investors 
(December 23, 1982); Getty Oil (Canadian Operations) Ltd. (May 19, 
1983) and Hudson Bay Mining and Smelting Co., Ltd. (June 19, 1985).
---------------------------------------------------------------------------

    In the no-action letters issued by the staff, there are a number of 
factors the staff looks to in deciding whether the vendor placement 
arrangement obviates the need for Securities Act registration. These 
factors include:
     The level of U.S. ownership in the target company;
     The amount of bidder securities to be issued overall in 
the business combination as compared to the amount of bidder securities 
outstanding before the offer;
     The amount of bidder securities to be issued to tendering 
U.S. holders and subject to the vendor placement, as compared to the 
amount of bidder securities outstanding before the offer;
     The liquidity and general trading market of the bidder's 
securities;
     The likelihood that the vendor placement can be effected 
within a very short time after the termination of the offer and the 
bidder's acceptance of shares tendered in the offer;
     The likelihood that the bidder plans to disclose material 
information around the time of the vendor placement sales; and
     The process used to effect the vendor placement sales.
    We believe these factors are relevant to whether registration is 
required. In addition to the other factors listed above, offerors 
should be particularly cognizant of U.S. target ownership levels.
    We believe that a vendor placement arrangement in cross-border 
exchange offers would be subject to Securities Act registration unless 
the market for the bidder securities to be issued in the exchange offer 
and sold pursuant to the vendor placement procedure is highly liquid 
and robust and the number of bidder securities to be issued in the 
exchange offer and for the benefit of tendering U.S. holders is 
relatively small compared to the total number of bidder securities 
outstanding. We also would consider:
     The timeliness of the vendor placement process; that is, 
whether sales of bidder securities through the vendor placement process 
are effected within a few business days of the closing of the offer;
     Whether the bidder announces material information, such as 
earnings results, forecasts or other financial or operating 
information, before that process is complete; and
     Whether the vendor placement involves special selling 
efforts by brokers or others acting on behalf of the bidder.
    In tender offers subject to Section 14(d) of the Exchange Act, the 
all-holders and best price requirements in Rule 14d-10 also are 
implicated by the use of the vendor placement structure because U.S. 
target security holders would receive different consideration from 
their non-U.S. counterparts. We generally believe that the parameters 
of the Tier I cross-border exemptions should represent the appropriate 
limits under which a bidder in a tender offer subject to Regulation 14D 
may offer cash to U.S. security holders while issuing shares to their 
counterparts outside the United States.
    Bidders making a cross-border exchange offer sometimes ask whether 
they may exclude some U.S. target holders and include in the exchange 
offer only those U.S. target holders (such as accredited investors) for 
whom an exemption from the registration requirements of the Securities 
Act may be available. We have stated that exchange offers for 
securities subject to Section 14(d) of the Exchange Act may not be made 
in the United States on a private offering basis, consistent with the 
all-holders provisions of Rule 14d-10.\340\ Thus, even where the bidder 
is eligible to rely on an exemption from Securities Act Section 5 for 
such offers, it would violate the equal treatment provisions applicable 
to such offers by excluding target security holders for whom an 
exemption was not available. Similarly, as discussed above, offering 
cash under a vendor placement arrangement to some U.S. holders and 
bidder securities to others (such as institutions) is not permitted in 
tender offers subject to the all-holders rule.
---------------------------------------------------------------------------

    \340\ See footnote 91 in the Cross-Border Adopting Release.
---------------------------------------------------------------------------

    Bidders may continue to use vendor placement arrangements in 
accordance with the guidance set forth here. Where a bidder seeks to 
use the vendor placement structure for a tender offer subject to Rule 
14d-10 at U.S. ownership levels above Tier I, it must seek an exemption 
from those rules. As noted above, such relief will be granted only 
where it is in the interests of U.S. investors.

III. General Request for Comment

    We request and encourage any interested person to submit comments 
on any aspect of our proposals or guidance and any of related matters 
that might impact the proposed amendments or guidance. We request 
comment from investors, issuers, and other users of the information 
that may be affected by the

[[Page 26908]]

proposed rule changes and interpretive guidance. We also request 
comment from service professionals, such as law and accounting firms. 
With respect to any comments, we note that they are of greatest 
assistance to our rulemaking initiatives if accompanied by supporting 
data and analysis of the issues addressed in those comments.

IV. Paperwork Reduction Act

    Some provisions of the proposed rule amendments require the 
``collection of information'' within the meaning of the Paperwork 
Reduction Act of 1995 (the ``PRA'').\341\ We will submit our proposed 
revisions to the Office of Management and Budget (``OMB'') for review 
in accordance with the PRA.\342\ The titles for the collections of 
information are:
---------------------------------------------------------------------------

    \341\ 44 U.S.C. 3501 et seq.
    \342\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    (1) ``Form S-4'' (OMB Control No. 3235-0065);
    (2) ``Form F-4'' (OMB Control No. 3235-0325);
    (3) ``Form ID'' (OMB Control No. 3235-0328);
    (4) ``Form CB'' (OMB Control No. 3235-0518);
    (5) ``Form F-X'' (OMB Control No. 3235-0379);
    (6) ``Schedule TO'' (OMB Control No. 3235-0515); and
    (7) ``Securities Ownership--Regulation 13D (Commission Rules 13d-1 
through 13d-7 and Schedules 13D and 13G)'' (OMB Control No. 3235-0145).
    We adopted these existing forms and schedules pursuant to the 
Securities Act and Exchange Act. Forms F-4 and S-4 contain disclosure 
requirements for registration statements that are prepared by issuers 
to provide investors information to make informed investment decisions 
in registered offerings of securities. Form CB and Schedule TO provide 
investors with information to make informed investment decisions 
regarding certain business combination transactions and rights 
offerings. Regulation 13D was adopted pursuant to the Exchange Act and 
sets forth the disclosure requirements for securities ownership reports 
filed by investors.
    The hours and costs associated with preparing and filing the 
disclosure, filing the forms and schedules and retaining records 
required by these regulations constitute reporting and cost burdens 
imposed by each collection of information. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.

A. Summary of Proposals

1. Proposed Amendments to the Tier I Exemption and Form CB
    The proposed rule amendments would add to the types of affiliated 
transactions that could be effected in reliance on the Tier I exemption 
from Rule 13e-3(g)(6). A Form CB would be required when an issuer or 
acquiror relies on the expanded Tier I exemption proposed and publishes 
or otherwise disseminates an informational document to holders of the 
subject securities. Because more transactions would become eligible to 
rely on the exemption from Rule 13e-3 for cross-border transactions, 
this rule change may result in additional submissions of Form CB. If 
the rule were not expanded, however, the issuer or affiliate would be 
required to comply with the more burdensome filing requirements of 
Schedule 13E-3 if the issuer or affiliate sought to include U.S. 
security holders in the transaction. We believe the proposed rule and 
reduced filing requirement would encourage issuers or affiliates to 
include U.S. security holders in transactions that otherwise may have 
excluded them to avoid Rule 13e-3 and the corresponding Schedule 13E-3 
filing requirements. Domestic or foreign entities or persons engaged in 
cross-border business combination transactions would likely be the 
respondents to the collection of information requirements.
    Unlike Schedule 13E-3, Form CB is a notice filing that is little 
more than a cover sheet that incorporates offer documents sent to 
security holders pursuant to applicable foreign rules in the issuer's 
or target's home country. The party furnishing the form must attach an 
English translation of the offer materials disseminated abroad. Form CB 
must be submitted by the next U.S. business day after that document is 
disseminated under home country rules.
    We propose to require all Form CBs to be filed electronically. 
Under existing rules, only persons who are already subject to reporting 
obligations under Section 13(a) or 15(d) of the Exchange Act are 
required to submit Form CB electronically and all others may submit the 
form in paper. We also propose to require that Form F-Xs filed in 
connection with Form CBs to be filed electronically. We do not expect 
these amendments to affect the overall collection of information burden 
of these forms.
    Form ID is filed by registrants, individuals, transfer agents, 
third-party filers or their agents to request the assignment of access 
codes that permit the filing of securities documents on EDGAR. This 
form enables the Commission to assign an identification number (CIK), 
confirmation code, password and password modification authorization 
code to each EDGAR filer, each of which is designed to protect the 
security of the EDGAR system. While we do not expect that the proposed 
amendments will affect the overall collection of information burden of 
Forms CB and F-X, we do expect that it will cause additional 
respondents to file a Form ID each year and, as a result, will increase 
the annual collection of information burden for that form. We estimate 
that 65,700 respondents file Form ID each year at an estimated burden 
of .15 hours per response, all of which is borne internally by the 
respondent for a total annual burden of 9,855 hours. For fiscal year 
2007, a total of 189 Form CBs were filed with the Commission. Of those 
189 Form CBs, 100 were filed in paper. We expect the proposed 
amendments will cause an additional 100 respondents to file a Form ID 
each year and, as a result, cause an additional annual burden of 15 
hours (100 x .15). For purposes of the PRA, we estimate that the 
additional burden cost resulting from the proposed amendments will be 
zero.
2. Proposed Amendments to Forms S-4, F-4, and Schedule TO
    We propose amendments to the cover page of Forms S-4 and F-4 and 
Schedule TO that would require the filer to check a box specifying the 
applicable cross-border exemption being relied upon in connection with 
the transaction. Domestic and foreign persons or entities filing these 
documents would be the respondents to the collection of information 
requirement. This change would not affect the substantive obligation to 
file the forms or schedule. This additional information would allow the 
staff to better process such filings and monitor the application of the 
cross-border exemptions. For our proposal regarding Schedule TO and 
Forms S-4 and F-4, the amount of information required to be included in 
each schedule or form would change minimally with the addition of a 
check box. Accordingly, for purposes of the PRA, our preliminary 
estimate is that the amount of time necessary to prepare each schedule 
or form, and hence, the total amount of burden hours, would not change.

[[Page 26909]]

3. Proposed Amendments to Schedule 13G
    Exchange Act Schedule 13G is a short-form filing for persons to 
report ownership of more than five percent of a class of equity 
securities registered under Section 12 of the Exchange Act. Generally, 
the filer must certify that the securities have not been acquired and 
are not held for the purpose of, or with the effect of, changing or 
influencing the control of the issuer of the securities. For purposes 
of the PRA, we currently estimate that compliance with the Schedule 13G 
requirements under Regulation 13D requires 98,800 burden hours in 
aggregate each year, broken down into 24,700 hours (or 2.6 hours per 
respondent) of respondent personnel time and costs of $22,230,000 (or 
$2,340 per respondent) for the services of outside professionals.\343\
---------------------------------------------------------------------------

    \343\ These figures assume 9,500 respondents file Schedule 13G 
with the Commission annually. We estimate that 25 percent of the 
burden of preparation is carried by the company internally and that 
75 percent of the burden of preparation is carried by outside 
professionals retained by the issuer. These figures assume an 
average cost of $300 per hour for the services of outside 
professionals. We have increased the cost estimate to $400 since our 
last estimate provided to OMB, based on our consultations with 
several registrants and law firms and other persons who regularly 
assist registrants in preparing and filing with the Commission. 
Therefore, the revised cost for the service of outside professionals 
would be $29,640,000 ($400 x 74,100 hours) or $3,120 per respondent.
---------------------------------------------------------------------------

    The proposed amendment to Rule 13d-1 would expand the availability 
of Schedule 13G to foreign institutions governed by a regulatory system 
substantially comparable to the U.S. regulatory system for domestic 
institutions. We propose to allow specified foreign institutions to 
report beneficial ownership of more than five percent of a subject 
class of securities on Schedule 13G instead of Schedule 13D. Foreign 
institutions of the type specified in amended Rule 13d-1(b) would be 
the likely respondents to the collection of information requirements. 
These institutions either currently would be filing on Schedule 13D as 
required by existing rules, or would be required to seek no-action 
letters from the staff to permit them to file on Schedule 13G to the 
same extent as their domestic counterparts, so long as they satisfy 
certain conditions. Amending the rule would enable foreign institutions 
meeting the conditions in the rule to file the Schedule 13G without 
seeking a no-action letter. Therefore, the amended rule may result in 
only a slight increase in the number of Schedule 13G filers.\344\
---------------------------------------------------------------------------

    \344\ Based on the number of no-action requests in this area in 
recent years, we believe that approximately three filers per year 
would benefit from this proposed change and would avoid the time and 
expense of submitting a no-action request to the staff. In addition, 
foreign institutions currently filing on Schedule 13D who have not 
sought no-action relief to file on Schedule 13G would also benefit 
by becoming eligible to use the shorter Schedule 13G. See discussion 
above.
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that the proposed amendments 
to Schedule 13G would create an incremental burden of two hours per 
response, which we would add to the existing Schedule 13G burden 
resulting in a total burden of 117,800 hours.\345\ We note that the 
burden associated with the proposed amendments to Schedule 13G 
initially would be higher with an estimated burden of five hours. Over 
time, however, we believe that on average the burden would lessen and 
therefore estimate an incremental burden of two hours per response. 
Each additional filer would incur a burden of approximately .50 hours 
of respondent personnel time (25 percent of the total burden) and costs 
of $450 for the services of outside professionals (75 percent of the 
total burden). In sum, we estimate that the amendments to Schedule 13G 
would increase the annual paperwork burden by approximately 1.50 hours 
of respondent personnel time \346\ and a cost of approximately $1,350 
for the services of outside professionals.\347\
---------------------------------------------------------------------------

    \345\ We currently estimate the burden for preparing a Schedule 
13G filing to be 10.4 hours, resulting in a total of 98,800 burden 
hours in aggregate each year. If each additional filer incurred an 
additional two hours, the resulting burden would be 117,800 total 
burden hours ((10.4 hours + two hours) x 9500 respondents).
    \346\ Three additional filers x .50 hours of respondent 
personnel time = 1.50 aggregate burden hours.
    \347\ Three additional filers x $450 = $1,350.
---------------------------------------------------------------------------

    We estimate that Schedule 13D has a total burden of approximately 
14.5 hours per response to prepare and is filed by 3,000 respondents 
annually. For purposes of the PRA, we currently estimate that 
compliance with the Schedule 13D requirements under Regulation 13D 
requires 43,500 burden hours in aggregate each year, broken down into 
10,875 hours (or 3.6 hours per respondent) of respondent personnel time 
and costs of $9,787,500 (or $3,263 per respondent) for the services of 
outside professionals.\348\
---------------------------------------------------------------------------

    \348\ As noted above, we have increased the cost estimate to 
$400 since our last estimate provided to OMB, based on our 
consultations with several registrants and law firms and other 
persons who regularly assist registrants in preparing and filing 
with the Commission. Therefore, the revised cost for the service of 
outside professionals would be $13,050,000 ($400 x 10,875 hours) or 
$4,350 per respondent.
---------------------------------------------------------------------------

    Based upon these estimates, a foreign institution currently filing 
a Schedule 13D that would be eligible to file a Schedule 13G pursuant 
to the proposed rule would benefit from a cost reduction of $473 per 
respondent.\349\ As noted above, however, for a number of years, the 
staff has provided no-action relief to foreign institutions seeking to 
file a Schedule 13G rather than a Schedule 13D. For those institutions 
that are already filing a Schedule 13G pursuant to no-action relief, 
the proposed rules should only increase the cost associated with 
providing the required certification in Schedule 13G and will not 
significantly impact the cost of complying with the requirements of 
Regulation 13D.
---------------------------------------------------------------------------

    \349\ We calculate this figure in the following manner: $3,263-
($2,340 + $450) = $473. The total cost burden of Schedule 13G is 
estimated currently at an aggregate burden of $22,230,000, or $2,340 
per respondent ($22,230,000/9,500 respondents = $2,340).
---------------------------------------------------------------------------

B. Solicitation of Comments

    We request comment on the accuracy of our estimates. Pursuant to 44 
U.S.C. 3506(c)(2)(B), the Commission solicits comments to: (i) Evaluate 
whether the proposed collection of information is necessary for the 
proper performance of the functions of the agency, including whether 
the information would have practical utility; (ii) evaluate the 
accuracy of the Commission's estimate of burden of the proposed 
collection of information; (iii) determine whether there are ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (iv) evaluate whether there are ways to minimize the 
burden of the collection of information on those who are to respond, 
including through the use of automated collection techniques or other 
forms of information technology.
    Persons submitting comments on the collection of information 
requirements should direct the comments to the Office of Management and 
Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and should send a copy to Nancy M. Morris, Secretary, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090, with reference to File No. S7-10-08. Requests for materials 
submitted to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-10-08, and be 
submitted to the Securities and Exchange Commission, Office of the 
Secretary--Records Management Branch, 100 F Street, NE., Office of 
Filings and Information Services, Washington, DC 20549. OMB is required 
to make a decision concerning the collection of information between 30

[[Page 26910]]

and 60 days after publication of this release. Consequently, a comment 
to OMB is assured of having its full effect if OMB receives it within 
30 days of publication.

V. Cost-Benefit Analysis

    We are proposing amendments to our rules that would reduce the 
overall cost for issuers and acquirors engaged in cross-border business 
combination transactions. We also provide interpretive guidance 
regarding the application of certain rules. Under current rules, where 
there are conflicts between U.S. and foreign law or practice, acquirors 
in cross-border business combination transactions frequently seek no-
action or exemptive letters from the staff. Under the proposed rule 
amendments, much of the relief sought in the past would be available 
without the need for no-action or exemptive letters. As a result, the 
benefits of the rule amendments would include an increase in regulatory 
certainty about the U.S. rules governing cross-border business 
combination transactions and a substantial savings in the cost of 
preparing letters requesting no-action or exemptive relief. Decreasing 
the burden on acquirors of complying with U.S. rules governing business 
combination transactions is designed to encourage them to extend more 
transactions to U.S. target holders; therefore, we believe the proposed 
rule revisions would be in the interests of U.S. investors while 
continuing to provide appropriate protections. In order to more fully 
characterize these benefits, we seek comments on the average cost of 
preparing such letters and the amount of time spent working through 
concerns raised during the staff's review of such letters. We also 
solicit comments on any incremental costs of undertaking cross-border 
transactions that might arise from the proposed rule amendments. We 
request any relevant data from commenters that would help us quantify 
these costs and related benefits.
    In analyzing the costs and benefits of the proposed rules, we 
compare estimated future cross-border transaction activity that would 
likely occur under the proposed rules with what would occur in a 
benchmark case without the rules. Because the proposed rules would 
assure parties of their ability to engage in practices that are 
permitted now only through the request and issuance of a no-action or 
exemptive letter, the benchmark case is the level of transaction 
activity that would occur if parties did not have access to such 
regulatory relief.

 A. Proposed Changes to the Eligibility Test for Determining 
Eligibility To Rely on the Cross-Border Exemptions

1. Proposed Changes
    The changes we propose to the test for determining eligibility to 
rely on the cross-border exemptions for business combination 
transactions are limited in nature and scope and do not represent a 
significant departure from our current rules. They are intended to 
address specific problems acquirors have faced in determining whether 
they can rely on the cross-border exemptions. These changes are not 
intended to expand or reduce the number of parties eligible to use the 
cross-border exemptions. The changes will not materially affect the 
cost of undertaking such transactions relative to what would occur if 
parties could not reliably obtain no-action or exemptive letters, as 
currently is the case.
    We propose to allow acquirors to calculate the required U.S. 
beneficial ownership figure within a range of dates that is no more 
than 60 days before a specified reference date. Currently, our rules 
require the calculation to be done as of a set date. We also propose to 
change the reference date for purposes of the required calculation for 
business combination transactions. Under current rules, the calculation 
was required to be done as of the 30th day before commencement of a 
cross-border business combination transaction. As proposed, we would 
require the calculation to be done no more than 60 days before the 
public announcement of the cross-border business combination 
transaction. We also propose limited changes to the manner in which 
U.S. ownership may be calculated for cross-border tender offers 
accomplished on a non-negotiated or hostile basis. These changes are 
intended to clarify certain elements of the ``hostile presumption'' 
test for these kinds of offers that have created uncertainty for 
acquirors in the past. As discussed above, the reference date for the 
negotiated transaction and hostile presumption tests for business 
combination transactions also would be changed to key off of the public 
announcement of the transaction. Finally, in this release and the 
proposed rules, we provide some guidance on the ``reason to know'' 
element of the hostile presumption test, which we hope would make the 
application of the test simpler and more certain for acquirors.
2. Benefits
    We anticipate that the enhanced flexibility to choose a date within 
a range may make it easier for acquirors to accomplish the required 
calculation as specified under our rules, thereby promoting use of the 
exemptions and the inclusion of U.S. holders while reducing the 
acquirors' burden of seeking no-action or exemptive letters in this 
area. Changing the reference point for the calculation of U.S. 
ownership to the public announcement of the transaction would mean that 
the calculation would be done as of a date when the target's security 
holder base may be unaffected (or less affected, if there are some 
changes in response to rumors in the market) by the announcement of the 
transaction, which would provide a more accurate picture of the 
security holder base. This change also would allow acquirors more 
flexibility in planning cross-border business combination transactions 
and therefore, we expect bidders would be encouraged to engage in these 
transactions. It is unclear whether using public announcement as the 
reference point for the calculation would have the effect of increasing 
or reducing U.S. ownership in the target company.
3. Costs
    Under the proposed amendments, U.S. investors may lose certain 
protections under the U.S. rules governing cross-border business 
combination transactions if the foreign private issuer in which they 
own securities becomes the subject of such a transaction and the 
acquiror relies on the cross-border exemptions. To the extent that the 
applicable cross-border exemptions would exempt the acquiror from 
compliance with U.S. registration, filing and disclosure requirements, 
U.S. investors would lose these protections. In such circumstances, 
however, we believe that the benefit to U.S. investors of being 
included in the transaction rather than being excluded justifies the 
cost of reduced protections under U.S. law. Otherwise, we do not 
believe that U.S. investors would be harmed by the proposed flexibility 
in calculation of U.S. ownership.

 B. Changes to the Tier I Cross-Border Exemptions

1. Expansion of the Tier I Exemption From Rule 13e-3
    We propose to expand the set of cross-border business combination 
transactions that are exempt from the requirements of Rule 13e-3. 
Currently, the cross-border exemption from Rule 13e-3 applies only to 
tender or exchange offers or business combinations conducted under Tier 
I.\350\

[[Page 26911]]

 We propose to expand the exemption to encompass any kind of affiliated 
transaction that otherwise meets the conditions of the Tier I 
exemption, including schemes of arrangement, cash mergers, compulsory 
acquisitions for cash, and other types of transactions.
---------------------------------------------------------------------------

    \350\ As noted previously, the Tier I exemption is available 
when U.S. holders beneficially own no more than ten percent of the 
foreign private issuer target's securities.
---------------------------------------------------------------------------

a. Benefits
    The expansion of the Tier I exemption from Rule 13e-3 would likely 
result in fewer filings of Schedule 13E-3, thus reducing the costs for 
issuers and affiliates in cross-border transactions that would 
otherwise be subject to those rules. Under the current rules, the 
burden of complying with Rule 13e-3 and Schedule 13E-3 may be greater 
for foreign filers than domestic filers. Foreign filers may not have a 
counterpart to these rule provisions in their home jurisdiction and may 
not be subject to the same fiduciary duty standards that form the basis 
for this heightened disclosure system for affiliated transactions.
    Currently, some entities engaged in affiliated cross-border 
business combination transactions that would have been subject to Rule 
13e-3 under our current rules and cross-border exemptions request 
individual exemptive relief from the staff. The staff has routinely 
granted these requests. To the extent that these kinds of requests 
would no longer be necessary, the rule change we propose today would 
further reduce the costs for these entities. Issuers and affiliates may 
have excluded U.S. holders from transactions where they would have been 
required to file a Schedule 13E-3. We have been told that entities may 
have avoided making an offer to U.S. holders to avoid application of 
these rules, although it is difficult to isolate the effect of this 
provision on the number of entities that chose not to include U.S. 
holders. During 2007, approximately 110 Schedules 13E-3 were filed, 10 
of which were filed by foreign private issuers. During that same 
period, no requests for no-action relief on this issue were granted. 
Therefore, we assume the overall effect would not be significant, 
although we are not able to estimate the number of transactions that 
may have been structured to avoid U.S. jurisdictional means, thereby 
avoiding the requirement to file a Schedule 13E-3. We solicit comment 
regarding the number of entities or persons that the rule amendment 
would affect and the increases or decreases in cost that are likely to 
result. We believe the rule amendment would result in a cost reduction 
because it would lower the costs and burdens associated with extending 
these kinds of transactions into the United States. This amendment 
would be in the interests of U.S. investors to the extent that the 
expanded exemption from Rule 13e-3 motivates an acquiror to include 
U.S. investors in the transaction. Since the exemption applies only 
where U.S. security holders make up no more than ten percent of the 
subject security holder base, and because the heightened disclosure 
requirements of Schedule 13E-3 may be onerous for foreign filers, we 
believe this exemption may result in more cross-border transactions 
being extended to U.S. investors.
b. Costs
    U.S investors of foreign private issuer targets in cross-border 
business combination transactions that would have been subject to Rule 
13e-3 but for our proposed rule amendment would lose the benefits of 
the disclosure in Schedule 13E-3, to the extent that such disclosure is 
not required under applicable foreign law.
    We seek data regarding the number of Schedules 13E-3 filed with 
respect to the securities of foreign private issuers, the number of 
entities or persons that the rule amendment would affect, and the 
increases or decreases in cost that are likely to result, so we may be 
able to estimate the costs and benefits associated with any possible 
reduction of Schedule 13E-3 filings.
2. Technical Change to Rule 802 of Regulation C
    We also propose technical changes to the language of Rule 802. 
These changes are not intended to substantively change the filing 
obligations under the current rule, and we do not believe they would 
have any impact on the way that rule currently functions, except to 
clarify how it may be used. Therefore, the proposed changes would 
likely confer no significant costs or benefits.

C. Proposed Changes to the Tier II Cross-Border Exemptions

    The rule changes we propose represent an expansion of the current 
cross-border exemptions available to tender offers that meet the 
conditions outlined in our rules. The Tier II exemptions--which exempt 
certain tender offers for foreign target companies in which U.S. 
persons beneficially own more than ten percent but not more than 40 
percent of the target's subject securities--currently apply to tender 
offers conducted by third parties, issuers or affiliates, where those 
tender offers are subject to Rule 13e-4 or Regulation 14D. The rule 
changes we propose would expand the relief provided in the Tier II 
exemptions, and clarify that the Tier II exemptions also may be used 
for cross-border tender offers subject only to Regulation 14E of the 
Exchange Act. We also propose to expand Tier II relief for dual offers 
by allowing offerors to make more than one concurrent non-U.S. offer, 
and to allow certain U.S. offers to include non-U.S. persons and 
certain foreign offers to include U.S. persons. Additionally, we 
propose changes to Rule 14e-5 to codify recent exemptive relief for 
Tier II-eligible tender offers.
1. Benefits
    These changes to the Tier II cross-border exemptions would expand 
the relief provided for eligible cross-border tender offers.\351\ The 
rule changes would reduce the need for bidders to seek individual no-
action or exemptive relief from the staff. Since they represent areas 
in which relief is most frequently requested and granted for these 
kinds of transactions, the changes would reduce the associated costs 
and burdens of applying for relief. Where we already have reduced the 
associated costs and burdens of requesting and granting relief through 
Rule 14e-5 class exemptive letters, the codification of that relief in 
rule text benefits market participants by modernizing the rule and 
enhancing its utility by providing one readily-accessible location for 
exempted activities. Because the proposed rule changes will make it 
easier to make purchases outside of a U.S. tender offer in a manner 
consistent with relief frequently granted by the staff in this area, we 
believe the proposed changes also would have the effect of encouraging 
acquirors and bidders to extend cross-border tender offers to U.S. 
target holders on the same terms as all other target security holders.
---------------------------------------------------------------------------

    \351\ See the discussion above regarding the changes to the 
threshold eligibility determination relating to the calculation of 
U.S. ownership.
---------------------------------------------------------------------------

    To the extent that some of these proposed rule changes were not 
contemplated in the 1999 Cross-Border Adopting Release and came about 
only as a result of the staff's issuance of no-action and exemptive 
letters, we analyze the benefits and costs of the proposed revisions 
against the rules adopted in 1999 rather than against the perceived 
state of the rules as created by the issuance of no-action relief. When 
the Tier II exemption was adopted in 1999, by its terms it only applied 
to tender offers subject to Rule 13e-4 or Regulation 14D. However, we 
believe the benefits of the Tier II exemption

[[Page 26912]]

would apply equally to cross-border tender offers governed by 
Regulation 14E only. By expanding the Tier II exemption to cover such 
offers, the changes we propose would allow more acquirors to take 
advantage of the exemption and thus allow more U.S. investors to 
benefit from being included in the offer. Expanding the category of 
offers for which Tier II relief is granted also would allow more 
flexibility in structuring offers and encourage more acquirors to take 
advantage of the exemption. Similarly, the proposed changes to the Tier 
II relief for dual offers and the proposed changes to Rule 14e-5 are 
intended to address certain foreign regulatory conflicts that were not 
fully appreciated when the Tier II exemption was adopted in 1999. By 
revising our rules to address these conflicts, we hope to enhance the 
applicability of the Tier II exemption and the exemptions to Rule 14e-5 
and therefore encourage more acquirors to take advantage of the 
exemptions and include U.S. holders in cross-border transactions.
2. Costs
    As with transactions governed by Regulation 14D and Rule 13e-4, the 
cost of reducing the protections of the Williams Act may include 
reduced procedural and informational safeguards for U.S. investors; 
however, the exemptions have been designed to reduce such a 
possibility. We are not aware of any other cost that would be incurred 
by expanding Tier II relief to tender offers governed by Regulation 14E 
only. In addition, because these amendments would not change the filing 
obligations of acquirors, investors would not lose the benefits of any 
required disclosure. Neither the existing or proposed changes to Tier 
II affect the registration requirements of Section 5 of the Securities 
Act, which are not covered by these exemptions.
    The codification of Rule 14e-5 class exemptive letters into rule 
text should not increase costs to market participants, as the substance 
of the relief is not being altered. It is only a mechanism for the 
relief that is being changed from class exemptive letters to propose 
rule exemptions. While permitting purchases outside of a tender offer 
might negatively impact U.S. investors by weakening the equal treatment 
and proration protections of our rules, we believe that the conditions 
imposed on the ability to purchase outside of a Tier II tender offer 
under the proposed rules should help to safeguard the interests of U.S. 
security holders. We solicit comment on any increases or reductions in 
costs to security holders that may result from the proposals.

 D. Expanded Availability of Early Commencement

1. Proposed Change to Rule 162
    The rules we propose today would expand the ability to commence an 
exchange offer before the registration statement filed with respect to 
the securities offered is declared effective by the Commission. Our 
current rules permit ``early commencement'' only where an exchange 
offer is subject to Rule 13e-4 or Regulation 14D. For tender offers 
conducted under Tier II, we propose to extend the option to all 
exchange offers, so long as withdrawal rights are provided to the same 
extent as would be required under Rule 13e-4 or Regulation 14D.
2. Benefits
    The proposed rule change would further harmonize the treatment of 
exchange offers and cash tender offers. It would not impact the filing 
and disclosure obligations of the acquiror under the Securities Act, or 
the requirement to comply with the tender offer rules in Regulation 
14E. Because foreign law may provide that a tender offer for one class 
of securities will trigger an obligation to make a contemporaneous 
offer for a related class, this rule change could enhance the ability 
of such exchange offers to commence early, and therefore could enhance 
the speed with which such offers may be effected. The proposed rule 
change also could allow combined offers to compete with cash bids.
    The rule would provide the benefit to investors of receiving 
withdrawal rights when they otherwise would not have been required 
under U.S. rules. It also could cause offerors to extend an exchange 
offer to U.S. target security holders, where concerns about delays 
arising from the U.S. registration process might otherwise have caused 
them to exclude U.S. investors.
3. Costs
    As discussed above, allowing an early commencement option for an 
exchange offer may result in informational costs for target security 
holders. Broadening the availability of early commencement may mean 
that investors may be more likely to receive updates to the original 
prospectus, to the extent that staff review results in material changes 
to that document. In addition, this may present increased costs for 
offerors who must recirculate in circumstances where they have elected 
to commence their offer early, before the staff comment process (where 
applicable) is complete.

E. Proposed Changes to Forms and Schedules

    In this release, we propose changes to the manner in which several 
forms and schedules are filed. We propose that all Form CBs, and Form 
F-Xs filed in connection with a Form CB, be required to be filed 
electronically. Currently, Form CB must be filed electronically only 
where the person furnishing it already is subject to Exchange Act 
Sections 13(a) or 15(d) reporting requirements. A Form F-X filed in 
connection with a Form CB must be filed electronically under the same 
circumstances.
    In addition, we propose to add a box to the cover page of Schedule 
TO and Forms S-4 and F-4 where the filing person would specify the 
applicable cross-border exemption or exemptions being relied upon to 
conduct the applicable transaction. The cover page of Form CB already 
requires disclosure of this information. However, that form needs to be 
filed only for some cross-border transactions, and only for those 
conducted under Tier I or Rules 801 or 802. Under the rules proposed 
today, filers relying on the Tier II cross-border exemptions and filing 
a Schedule TO also would be required to indicate which, if any, cross-
border exemption they are relying on in conducting their tender offer.
    Similarly, filers of Form S-4 or F-4 that are conducting a cross-
border transaction under the Tier II exemptions would be required to 
specify the cross-border exemption claimed on the cover page of those 
forms. In some cases, they also would be filing a Schedule TO, where 
the exchange offer is subject to Rule 13e-4 or Regulation 14D. However, 
Form S-4 or F-4 may be filed before Schedule TO, where an exchange 
offer commences early, and it would be helpful to have this information 
at the earliest possible time in the offering process (see discussion 
of benefits below). In other cases, where the subject class of 
securities is not subject to Rule 13e-4 or Regulation 14D, but the 
filer is relying on the Tier II exemptions under the expanded 
availability we propose today, requiring this information on the cover 
page of the Form S-4 or F-4 would be the only source of this 
information. The changes we propose to Schedule TO and Forms S-4 and F-
4 would have no impact on the obligation of an offeror to file those 
forms.
1. Benefits
    Requiring all Form CBs and related Form F-Xs to be filed via the

[[Page 26913]]

Commission's electronic data gathering and retrieval system, or EDGAR, 
would make those forms more quickly and easily accessible to the 
public, including U.S. investors. Instead of having to come in person 
or through an agent to the Commission's public reference room to 
conduct a search for these paper forms, investors would be able to 
access them electronically through the Commission's Web site or through 
any commercial service that links to EDGAR. Requiring Form CB to be 
filed electronically also would enable the press and other market 
participants to access these forms more easily and quickly, thereby 
benefiting the market participants and investors by possibly making 
information about the transaction more readily available.
    Filers should further benefit from increased efficiencies in the 
filing process. Electronic filing avoids the delays and uncertainties 
sometimes associated with manual delivery of paper filings. Not having 
to submit multiple copies of paper documents to the Commission may 
reduce burdens on filers, especially if they are located outside of the 
United States. In addition, the longer filing hours for the direct 
electronic submission of documents (until 10 p.m., Eastern Standard 
Time or Eastern Daylight Saving Time, whichever is in effect) would 
allow filers additional flexibility in meeting their obligation to 
submit Form CB and Form F-X (where required) on the next business day 
after the attached disclosure document is disseminated pursuant to home 
country law.\352\
---------------------------------------------------------------------------

    \352\ Although filings are accepted until 10 p.m. Eastern 
Standard Time or Eastern Daylight Savings Time, whichever is 
currently in effect, Regulation S-T Item 13(a)(2) states that except 
as otherwise provided in the rule, ``all filings submitted by direct 
transmission commencing on or before 5:30 p.m. Eastern Standard Time 
or Eastern Daylight Savings Time, whichever is currently in effect, 
shall be deemed filed on the same business day, and all filings 
submitted by direct transmission commencing after 5:30 p.m. Eastern 
Standard Time or Eastern Daylight Savings Time, whichever is 
currently in effect, shall be deemed filed as of the next business 
day.'' Therefore, offerors or issuers would be able to submit 
documents after Commission business hours on the day of 
dissemination and have the filing date be the next business day.
---------------------------------------------------------------------------

    As to the information sought in Form S-4 or F-4 or Schedule TO, we 
believe this information would serve an important function for purposes 
of the staff review process and also would benefit filers. Currently, 
the staff may not be aware when reviewing a registration statement or 
tender offer statement that the filer is relying upon an applicable 
cross-border exemption to modify the terms of its offer. Consequently, 
the staff may not know whether non-compliance with all the rules that 
would govern a particular transaction is a matter that the staff should 
pursue through the comment process. Providing this information when the 
Form S-4 or F-4 or Schedule TO is initially filed would eliminate the 
need for the staff to issue, and the bidder to respond to, unnecessary 
comments based on a lack of knowledge about reliance on a cross-border 
exemption.
2. Costs
    There are costs associated with requiring all Forms CBs and related 
Form F-Xs to be filed electronically. During the fiscal year ended 
October 1, 2007, 45 initial Form CBs and 57 amendments were filed in 
paper. Initial costs of electronic filing include those associated with 
purchasing compatible computer equipment and software, including EDGAR 
software if obtained from a third-party vendor and not from the 
Commission's Web site. Initial costs also include training of existing 
employees to make the required EDGAR filings, or engaging a third-party 
to make them on the filer's behalf. Additional costs may be associated 
with the formatting and transmission of a filer's document on EDGAR. 
However, today financial printers and other information technology 
specialists capable of electronic document processing for the EDGAR 
system are widely available in the United States and abroad.
    In addition, there would be initial costs associated with filing a 
Form ID in order to obtain the access codes needed to file a Form CB 
and Form F-X electronically.\353\ To file Form ID, an offeror or issuer 
must learn the related electronic filing requirements, obtain access to 
a computer and the Internet, use the computer to access the 
Commission's EDGAR Filer Management Web site, respond to Form ID's 
information requirements and fax to the Commission a notarized 
authenticating document. We expect that offerors or issuers would incur 
few, if any, additional costs related to obtaining computer and 
Internet access. We believe the vast majority of offerors and issuers 
already would have access to a computer and the Internet.
---------------------------------------------------------------------------

    \353\ Offerors and issuers that already have EDGAR access codes 
would not need to file a Form ID. We assume, however, that about 53 
percent of Form CB filers do not or would not already have codes. 
Assuming a cost of $175 per hour for in-house professional staff, we 
estimate the current Form ID aggregate burden cost at $2,625 per 
year ($175 per hour x 15 hours per year). The additional Form ID 
burden cost resulting from the proposed amendments and the total 
Form ID burden cost that will result from adding the estimated 
additional Form ID burden cost to the estimated current Form ID 
burden cost will be $1,727,250 (9,855 hours per year + 15 hours per 
year = 9,870 hours per year); 9,870 hours per year x $175 per hour = 
$1,727,250.
---------------------------------------------------------------------------

    Since a Form CB and the accompanying Form F-X required for foreign 
filers are not forms associated with periodic reporting on a regular 
basis and are required only for certain specified kinds of 
extraordinary transactions, we believe ongoing costs associated with 
the proposed rule amendments may not be significant. We solicit 
comments regarding the initial and ongoing costs that would be incurred 
by filers submitting Form CB and related Form F-X electronically.
    We believe the costs associated with our proposed changes to 
Schedule TO and Forms S-4 and F-4 would be minimal. As discussed above, 
these changes would not impact the obligation to file the schedule or 
form, nor would they change the substantive disclosure required. Filers 
would already know whether, and if so, what cross-border exemption they 
will rely upon in conducting their transaction. The proposed rule 
change would require them only to specify that information for the 
benefit of the staff and others viewing the filings.

F. Changes to the Beneficial Ownership Reporting Rules

    We propose to amend our rules to allow foreign institutions of the 
same type as the domestic institutions listed in Rule 13d-1(b)(1)(ii) 
to file on Schedule 13G instead of Schedule 13D. The proposed rule 
would permit filing on Schedule 13G for certain specified types of 
institutions, where they have acquired securities in the ordinary 
course of their business and not with the purpose or effect of changing 
or influencing control of the issuer of the subject securities. In 
order to use Schedule 13G to the same extent as their U.S. 
counterparts, these foreign ``qualified institutional'' filers also 
would have to meet certain conditions currently set forth in the 
staff's no-action letters. One such condition is the requirement to 
certify that the regulatory scheme applicable to that type of 
institution in its home country is comparable to the regulatory system 
applicable to its U.S. counterpart. Another such condition is an 
undertaking to provide to the Commission staff, upon request, the 
information that would have been required under Schedule 13D.
 1. Benefits
    Currently, the staff commonly grants requests from foreign 
institutions comparable to the types of institutions listed in Rule 
13d-1(b) to file on Schedule 13G if they meet the

[[Page 26914]]

conditions outlined in the no-action letters. In the release adopting 
amendments to the beneficial ownership rules in 1998, the Commission 
discussed the fact that in the past, foreign institutional investors 
requested exemptive and no-action letters.\354\ The Commission also 
stated that foreign institutions that wanted to use Schedule 13G as a 
qualified institutional investor should continue to request no-action 
relief from the staff. Because the staff's issuance of no-action 
letters was contemplated at the time of the 1998 amendments to the 
beneficial ownership rules, we only consider the costs and benefits of 
the proposed rule relevant to the staff's current practice of issuing 
no-action letters. From this perspective, the proposed rule change 
would eliminate the costs and burdens on foreign institutions of 
seeking such relief individually. For foreign institutions that would 
otherwise have been eligible to file on Schedule 13G as passive 
investors under current rules, filing under Rule 13d-1(b) reduces the 
burden on those filers because the initial filing obligation is less 
onerous for qualified institutional filers. For example, qualified 
institutions filing under Rule 13d-1(b) are required to file a Schedule 
13G within 45 days after the end of the calendar year in which they own 
over five percent of the subject class as of the last day of that year. 
By contrast, passive investors reporting on Schedule 13G pursuant to 
Rule 13d-1(c) must file their initial report within ten days of the 
acquisition of more than five percent of the class. Unlike qualified 
institutional filers, passive investors may not file on Schedule 13G 
when their ownership equals or exceeds 20 percent of the subject class. 
No such limit exists for qualified institutional filers.
---------------------------------------------------------------------------

    \354\ See Amendments to Beneficial Ownership Reporting 
Requirements, Release No. 34-39538 (January 12, 1998) [63 FR 2854].
---------------------------------------------------------------------------

2. Costs
    Schedule 13D requires more extensive disclosure than Schedule 13G. 
Therefore, to the extent that a filer taking advantage of the proposed 
rule revisions otherwise would be required to file a Schedule 13D (or a 
Schedule 13G as a passive investor), there may be some information cost 
to U.S. investors by permitting the filer to use Schedule 13G. For 
instance, Schedule 13D requires information about the purpose of the 
beneficial owner's transaction in the securities, investment intent, 
and sources of funding. To the extent that such information may be of 
value to investors in making informed investment decisions, there would 
be a cost in permitting these institutions to file on Schedule 13G. We 
seek comment on the usefulness to investors of requiring these foreign 
institutions to file on Schedule 13D.
    Foreign institutions wishing to take advantage of the proposed rule 
change would incur certain costs to satisfy the conditions for filing 
on Schedule 13G. In particular, foreign institutions would need to 
assess whether their home country regulatory scheme is comparable to 
the regulatory scheme applicable to their U.S. counterparts. This might 
involve seeking the advice of home country or U.S. legal counsel. 
However, we believe the incremental costs of complying with the 
proposed rule would be minimal because foreign institutions are 
commonly granted no-action relief to file on Schedule 13G under the 
same circumstances as we propose to permit under the new rule.
Request for Comment
    We are sensitive to the costs and benefits imposed by our rules, 
and have identified certain costs and benefits related to these 
proposals. We request comment on all aspects of this cost-benefit 
analysis, including identification of any additional costs and 
benefits. We encourage commenters to identify and supply relevant data 
concerning the costs and benefits of the proposed amendments.



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

    Section 2(b) of the Securities Act \355\ and Section 3(f) of the 
Exchange Act \356\ require us, when engaged in rulemaking that requires 
us to consider or determine whether an action is necessary or 
appropriate in the public interest, to consider whether the action will 
promote efficiency, competition, and capital formation. When adopting 
rules under the Exchange Act, Section 23(a)(2) of the Exchange Act 
\357\ requires us to consider the impact that any new rule would have 
on competition. In addition, Section 23(a)(2) prohibits us from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. We request comment on whether the proposals, if adopted, would 
promote efficiency, competition and capital formation or have an impact 
or burden on competition. Commenters are requested to provide empirical 
data and other factual support for their view, if possible.
---------------------------------------------------------------------------

    \355\ 15 U.S.C. 77b(b)
    \356\ 15 U.S.C. 78c(f).
    \357\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The proposed changes to the test for determining eligibility to 
rely on the Tier I and Tier II cross-border exemptions and Rule 802 
under Regulation C are intended to facilitate the application of those 
exemptions. When the exemptions were adopted in 1999, we determined 
that the cross-border exemptions are important tools to promote the 
inclusion of U.S. investors in transactions required to be conducted in 
accordance with a foreign regulatory system. Streamlining and improving 
the eligibility standards for the cross-border exemptions enhances 
their utility by promoting their ease of use, thereby encouraging the 
inclusion of U.S. investors in cross-border transactions.
    The purpose of the proposed amendment to Rule 13e-3(g)(6) is to 
expand the exemption from Rule 13e-3 for cross-border transactions 
meeting the conditions of Tier I. This proposed amendment should reduce 
regulatory compliance burdens for issuers and affiliates engaged in 
affiliated cross-border transactions that would otherwise be subject to 
Rule 13e-3. The ability to avoid the application of Rule 13e-3 for 
certain cross-border transactions is expected to benefit U.S. 
investors, because an issuer or affiliate may choose to exclude them if 
it is the only means to avoid the heightened disclosure burdens of Rule 
13e-3.
    The purpose of the proposed changes to the Tier II tender offer 
exemptions in Rules 13e-4(i), 14d-1(d) and 14e-5 is to expand those 
exemptions to better address areas of recurring regulatory conflict. By 
codifying relief previously granted by the staff for individual 
transactions, the changes would reduce compliance burdens on issuers 
and bidders who would no longer need to seek such relief for each 
individual transaction. By enhancing the flexibility of U.S. tender 
offer rules in cross-border transactions, where those rules conflict 
with common elements of foreign law or practice, the changes would 
increase the likelihood that bidders would include U.S. investors in 
these transactions.
    We do not anticipate that the proposed changes to Rule 14e-5 will 
have a significant impact, if any, on the economy because they simply 
codify the current scope of activities exempted from that rule's 
prohibitions through existing class exemptive letters. We believe that 
the proposed changes to Rule 14e-5 should not place any burden on 
competition as the proposed rule changes apply equally to all market

[[Page 26915]]

participants covered by the rule. We believe that the Rule 14e-5 class 
exemptive letters concerning Tier II cross-border transactions have 
promoted efficiency and capital formation by eliminating the time and 
cost burdens associated with individual grants of relief. We believe 
that the codification of those letters similarly should foster 
efficiency and cross-border capital formation.
    The proposed amendment to Rule 162(a) expanding the ability of 
offerors to commence an exchange offer early where a tender offer is 
not subject to Regulation 14D or Rule 13e-4 would further equalize the 
regulatory burden between cash tender offers and exchange offers. 
Because foreign rules often contain a mandatory offer requirement, 
obligating an offeror to make a tender offer for a given class of 
securities, these rule changes would place mandatory offers for 
unregistered classes of securities on an equal footing with offers for 
registered equity securities.
    The proposed changes to require that Forms CB and F-X be filed 
electronically on EDGAR could impose additional compliance costs on 
filers. Since Form F-X is filed only by foreign companies, the proposed 
change to that form would not impact U.S. companies. Requiring these 
forms to be filed electronically by all entities would level the 
playing field, since the forms are currently required to be filed 
electronically only by entities subject to a reporting obligation under 
Exchange Act Section 13(a) or 15(d).
    The proposed changes to Schedule TO and Forms S-4 and F-4 would 
result in negligible additional compliance costs for filing persons. 
Because the proposed changes would require filers to publicly disclose 
information that they would already know if they are relying on the 
cross-border exemptions, we believe there would be little cost in 
implementing this change. Where the filer of a Schedule TO or Form S-4 
or Form F-4 is not relying on the cross-border exemptions, no action 
would be required. In addition, this requirement applies equally to 
domestic and foreign filers. The proposed changes with respect to this 
schedule and these forms would not alter in any way the circumstances 
under which an offeror would incur a filing obligation under our rules.
    The proposed rule changes generally would enhance efficiency in 
conducting cross-border tender offers and business combination 
transactions by streamlining the application of U.S. and foreign rules 
that may apply to those transactions. We expect that they would promote 
capital formation by facilitating cross-border business combination 
transactions conducted under multiple and possibly conflicting 
regulatory systems. Some of the proposed rule revisions, such as the 
changes that would broaden the availability of early commencement for 
exchange offers and the applicability of the Tier II exemptions for 
tender offers not subject to Rule 13e-4 or Regulation 14D, may be 
viewed as enhancing competition between competing offers for the same 
target securities, because they would make these provisions available 
to different kinds of offers. Furthermore, the proposed rule changes 
would reduce the regulatory burden on entities engaging in cross-border 
business combination transactions generally, which may promote 
competition by encouraging additional entities to engage in these types 
of transactions. We solicit comment on whether the proposed rule 
changes would impose a burden on competition or whether they would 
promote efficiency, competition and capital formation. For example, 
would the proposals have an adverse effect on competition that is 
neither necessary nor appropriate in furtherance of the purposes of the 
Exchange Act? Would the proposals have an adverse effect on U.S. or 
foreign issuers? Commenters are requested to provide empirical data and 
other factual support for their views where possible.

 VII. Initial Regulatory Flexibility Analysis

    This Initial Regulatory Flexibility Analysis in accordance with 5 
U.S.C. 603. It relates to proposed revisions to the rules and 
forms.\358\
---------------------------------------------------------------------------

    \358\ Based on an analysis of the language and legislative 
history of the Regulatory Flexibility Act, Congress does not appear 
to have intended the Act to apply to foreign issuers. Therefore, we 
are analyzing the impact on small U.S. entities only.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, Proposed Action

    The proposed rule changes are intended primarily to facilitate the 
inclusion of U.S. target security holders in cross-border business 
combination transactions. The rule changes would result in further 
reductions in the cost and burdens associated with including U.S. 
target holders in those transactions. U.S. target holders previously 
excluded from such transactions would benefit by having additional 
transactions extended to them.
    The proposed rule changes are incremental in nature and would not 
be a significant departure from the current cross-border exemptions. 
The changes would further harmonize U.S. and foreign law and practice, 
and to facilitate greater inclusion of U.S. target holders in cross-
border transactions. In many instances, the proposed changes would 
codify existing staff interpretations and exemptive relief. We do not 
believe any less restrictive alternative to the proposed rule 
amendments exists that would serve the purpose of the tender offer and 
registration requirements of the federal securities laws. We did not 
identify alternatives to the proposed rules that are consistent with 
their objectives and our statutory authority. The proposed rules would 
not duplicate or conflict with any existing federal rule provisions.

B. Legal Basis

    We are proposing the amendments to the forms and rules under the 
authority set forth in Sections 3(b), 7, 8, 9, 10, 19, and 28 of the 
Securities Act, and Sections 12, 13, 14, 23, 35A, and 36 of the 
Exchange Act.

C. Small Entities Subject to the Proposed Rules

    The Regulatory Flexibility Act defines ``small entity'' to mean 
``small business,'' ``small organization,'' or ``small governmental 
jurisdiction.'' \359\ The Commission's rules define ``small business'' 
and ``small organization'' for purposes of the Regulatory Flexibility 
Act for each of the types of entities regulated by the Commission.\360\ 
A ``small business'' and ``small organization,'' when used with 
reference to an issuer other than an investment company, generally 
means an issuer with total assets of $5 million or less on the last day 
of its most recent fiscal year. We estimate that there are 
approximately 1,100 issuers that may be considered reporting small 
entities.\361\ The proposed rules may affect each of the approximately 
1,100 issuers that may be considered reporting small entities. We have 
no data to determine how many reporting or non-reporting small 
businesses may actually rely on the proposed rules, or may otherwise be 
impacted by the rule proposals. Acquirors relying on the exemptions may 
or may not have reporting obligations under the Exchange Act prior to 
engaging in a cross-border business combination transaction. An

[[Page 26916]]

acquiror's ability to rely on the exemptions is not determined by the 
acquiror's size or market capitalization. However, we believe that 
small businesses are not typically acquirors in cross-border 
transactions. We believe that the proposed amendments would result in 
savings to entities (both small and large) that qualify for the 
exemptions. We request comment on the number of small entities that 
would be affected by our proposals, including any available empirical 
data.
---------------------------------------------------------------------------

    \359\ 5 U.S.C. 601(6).
    \360\ Securities Act Rule 157 (17 CFR 230.157) and Exchange Act 
Rule 0-10 (17 CFR 240.0-10) contain the applicable definitions.
    \361\ The estimated number of reporting small entities is based 
on 2007 data, including the Commission's EDGAR database and Thomson 
Financial's Worldscope database.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments would not impose any new reporting, 
recordkeeping or other compliance requirements on issuers that are 
small entities.

E. Duplicative, Overlapping or Conflicting Federal Rules

    The Commission believes that there are no rules that duplicate, 
overlap or conflict with the proposed amendments.

F. Significant Alternatives

    The Regulatory Flexibility Act directs the Commission to consider 
significant alternatives that would accomplish the stated objective, 
while minimizing any significant adverse impact on small entities. In 
connection with the proposed amendments, the Commission considered the 
following alternatives: (i) The establishment of differing compliance 
or reporting requirements or timetables that take into account the 
resources of small entities; (ii) the clarification, consolidation or 
simplification of compliance and reporting requirements under the rule 
for small entities; (iii) the use of performance rather than design 
standards; and (iv) an exemption from coverage of the proposed 
amendment, or any part thereof, for small entities.
    The proposed amendments are designed to expand and enhance the 
usefulness of the current cross-border exemptions. The Commission 
believes that different compliance or reporting requirements are not 
necessary because the proposed amendments do not establish any new 
reporting, recordkeeping, or compliance requirements for small 
entities. Establishing a different standard for small business entities 
would impose a greater compliance burden on small entities and would be 
inconsistent with the benefits provided for all entities that are able 
to avail themselves of the exemptions.

G. Solicitation of Comment

    The Commission encourages the submission of comments with respect 
to any aspect of this Initial Regulatory Flexibility Analysis. We will 
consider any comments in preparing the Final Regulatory Flexibility 
Analysis, if the proposed amendments are adopted, and the comments will 
be placed in the same public file as comments on the proposed 
amendments themselves. In particular, we request comments regarding:
     The number of small entities that may be affected by the 
proposals;
     The existence or nature of the potential impact of the 
proposals on small entities discussed in the analysis; and
     How to quantify the impact of the proposed rules.

Commenters are asked to describe the nature of any impact and provide 
empirical data supporting the extent of the impact.

VIII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (the ``SBREFA''),\362\ a rule is ``major'' if it has 
resulted, or is likely to result in:
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    \362\ Public Law 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 50 U.S.C., 15 U.S.C. and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.
    We request comment on whether our proposals would be a ``major 
rule'' for purposes of the SBREFA. We solicit comment and empirical 
data on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment or 
innovation.

IX. Statutory Basis and Text of Proposal

    We propose amendments to the forms and rules under the authority 
set forth in Sections 3(b), 7, 8, 9, 10, 19 and 28 of the Securities 
Act, and Sections 12, 13, 14, 23, 35A, and 36 of the Exchange Act.

List of Subjects in 17 CFR Parts 230, 232, 239, 240, and 249

    Reporting and recordkeeping requirements, Securities.

Text of Proposals

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

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

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

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
* * * * *
    2. Revise Sec.  230.162(a) to read as follows:


Sec.  230.162  Submission of tenders in registered exchange offers.

    (a) Notwithstanding section 5(a) of the Act (15 U.S.C. 77e(a)), 
offerors may solicit tenders of securities in an exchange offer subject 
to Sec.  240.13e-4(e) or Sec.  240.14d-4(b) of this chapter, and in 
exchange offers conducted under Sec.  240.13e-4(i) or Sec.  240.14d-
1(d) of this chapter that are not subject to Sec.  240.13e-4(e) or 
Sec.  240.14d-4(b) of this chapter to the extent permitted under Sec.  
240.13e-4(i)(2)(vi) and Sec.  240.14d-1(d)(2)(x) of this chapter, 
before a registration statement is effective as to the security 
offered, so long as no securities are purchased until the registration 
statement is effective and the tender offer has expired in accordance 
with the tender offer rules.
* * * * *
    3. Revise Sec.  230.800(h)(1) to read as follows:


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

* * * * *
    (h) * * *
    (1) Calculate percentage of outstanding securities held by U.S. 
holders as of the record date for a rights offering and as of a date no 
more than 60 days before the public announcement of an exchange offer 
or a business combination.
* * * * *
    4. Amend Sec.  230.802 by revising paragraphs (a)(2), (a)(3), 
(c)(2), (c)(3) and (c)(4) to read as follows:


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

* * * * *
    (a) * * *
    (2) Equal treatment. The offeror must permit U.S. holders to 
participate in the

[[Page 26917]]

exchange offer or business combination on terms at least as favorable 
as those offered any other holder of the subject securities. The 
offeror, however, need not extend the offer to security holders in 
those states or jurisdictions that require registration or 
qualification, except that the offeror must offer the same cash 
alternative to security holders in any such state that it has offered 
to security holders in any other state or jurisdiction.
    (3) Informational documents. (i) If the offeror publishes or 
otherwise disseminates an informational document to the holders of the 
subject securities in connection with the exchange offer or business 
combination, the offeror must furnish that informational document, 
including any amendments thereto, in English, to the Commission on Form 
CB (Sec.  239.800 of this chapter) by the first business day after 
publication or dissemination. If the offeror is a foreign company, it 
must also file a Form F-X (Sec.  239.42 of this chapter) with the 
Commission at the same time as the submission of the Form CB to appoint 
an agent for service of process in the United States.
    (ii) The offeror must disseminate the informational document to 
U.S. holders, including any amendments thereto, in English, on a 
comparable basis to that provided to security holders in the foreign 
subject company's home jurisdiction.
    (iii) If the offeror disseminates by publication in its home 
jurisdiction, the offeror must publish the information in the United 
States in a manner reasonably calculated to inform U.S. holders of the 
offer.
* * * * *
    (c) * * *
    (2) The aggregate trading volume of the subject class of securities 
on all national securities exchanges in the United States or on the OTC 
market, as reported to the Financial Industry Regulatory Authority 
Inc., over the 12-calendar-month period ending on a date no more than 
60 days before public announcement of the offer, exceeds 10 percent of 
the worldwide aggregate trading volume of that class of securities over 
the same period;
    (3) The most recent annual report or annual information filed or 
submitted by the issuer with securities regulators of the home 
jurisdiction or with the Commission before the public announcement of 
the offer indicates that U.S. holders hold more than 10 percent of the 
outstanding subject class of securities; or
    (4) The offeror knows, or has reason to know, before the public 
announcement of the offer, that U.S. ownership exceeds 10 percent of 
the subject securities. As an example, for purposes of this paragraph, 
an offeror is deemed to have reason to know information about U.S. 
ownership of the subject class of securities that is publicly available 
and that appears in any filing with the Commission or any regulatory 
body in the issuer's jurisdiction of incorporation or (if different) 
the non-U.S. jurisdiction in which the primary trading market for the 
subject securities is located. This example is not intended to be 
exclusive.

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

    5. The authority citation for Part 232 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77z-3, 
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 
80a-8, 80a-29, 80a-30, 80a-37, and 7201 et. seq.; and 18 U.S.C. 
1350.
* * * * *
    6. Amend Sec.  232.101 by:
    a. Revising paragraphs (a)(1)(vi) and (a)(1)(vii);
    b. Removing and reserving paragraph (b)(7); and
    c. Revising paragraph (b)(8) to read as follows:


Sec.  232.101  Mandated electronic submissions and exceptions.

    (a) * * *
    (1) * * *
    (vi) Form CB (Sec. Sec.  239.800 and 249.480 of this chapter) filed 
or submitted under Sec.  230.801 or 230.802 of this chapter or Sec.  
240.13e-4(h)(8), 240.14d-1(c), or 240.14e-2(d) of this chapter;
    (vii) Form F-X (Sec.  239.42 of this chapter) when filed in 
connection with a Form CB (Sec. Sec.  239.800 and 249.480 of this 
chapter);
* * * * *
    (b) * * *
    (8) Form F-X (Sec.  232.42 of this chapter) if filed by a Canadian 
issuer when qualifying an offering statement pursuant to the provisions 
of Regulation A (Sec. Sec.  230.251-230.263 of this chapter);
* * * * *

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

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

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll, 78mm, 80a-
2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 
80a-30, and 80a-37, unless otherwise noted.
* * * * *
    8. Form S-4 (referenced in Sec.  239.25) is amended by adding a 
statement regarding reliance on the cross-border exemptions and check 
boxes on the cover page immediately before the ``Calculation of 
Registration Fee'' table to read as follows:

    Note: The text of Form S-4 does not and this amendment will not 
appear in the Code of Federal Regulations.

Form S-4 Registration Statement Under the Securities Act of 1933

* * * * *
    If applicable, place an X in the box to designate the appropriate 
rule provision relied upon in conducting this transaction:
    Exchange Act Rule 13e-4(i) (Issuer Tender Offer) [ballot]
    Exchange Act Rule 14d-1(d) (Third Party Tender Offer) [ballot]
* * * * *
    9. Amend Form F-4 (referenced in Sec.  239.34) by adding a 
statement regarding reliance on the cross-border exemptions and check 
boxes on the cover page immediately before the ``Calculation of 
Registration Fee'' table to read as follows:

    Note: The text of Form F-4 does not and this amendment will not 
appear in the Code of Federal Regulations.

Form F-4 Registration Statement Under the Securities Act of 1933

* * * * *
    If applicable, place an X in the box to designate the appropriate 
rule provision relied upon in conducting this transaction:
    Exchange Act Rule 13e-4(i) (Issuer Tender Offer) [ballot]
    Exchange Act Rule 14d-1(d) (Third Party Tender Offer) [ballot]
* * * * *
    10. Amend Form F-X (referenced in Sec.  239.42) by revising the 
Note to General Instruction II.B.(2) to read as follows:

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

Form F-X Appointment of Agent for Service of Process and Undertaking

General Instructions

* * * * *
    II. * * *
    B. * * *
    (2) * * *

    Note: Regulation S-T Rule 101(b)(8) only permits the filing of 
the Form F-X in paper if filed by a Canadian issuer when qualifying 
an offering statement pursuant to the provisions of Regulation A 
(Sec. Sec.  230.251--230.263 of this chapter).

* * * * *

[[Page 26918]]

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

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

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *
    12. Amend Sec.  240.13d-1 by:
    a. Removing ``; and'' from the end of paragraph (b)(1)(ii)(I);
    b. Adding paragraph (b)(1)(ii)(K); and
    c. Removing the authority citation following the section.
    The addition reads as follows:


Sec.  240.13d-1  Filing of Schedules 13D and 13G.

* * * * *
    (b)(1) * * *
    (ii) * * *
    (K) A non-U.S. institution that is the functional equivalent of any 
of the institutions listed in paragraphs (b)(1)(ii)(A) through (J) of 
this section, so long as the non-U.S. institution is subject to a 
regulatory scheme that is comparable to the regulatory scheme 
applicable to the equivalent U.S. institution; and
* * * * *
    13. Amend Sec.  240.13d-102 by:
    a. Revising Instruction 12 to the Instruction for the Cover Page 
before the Notes;
    b. In Item 3 removing the period at the end of paragraphs (a), (b), 
(c), and (d) and in each place adding a semicolon;
    c. In Item 3 removing the period at the end of paragraph (j) and in 
its place adding a semicolon and adding paragraph (k); and
    d. In Item 10 redesignating paragraph (b) as paragraph (c) and 
adding new paragraph (b).
    The revision and additions read as follows:


Sec.  240.13d-102  Schedule 13G--Information to be included in 
statements filed pursuant to Sec.  240.13d-1(b), (c), and (d) and 
amendments thereto filed pursuant to Sec.  240.13d-2.

* * * * *
    Instructions for Cover Page:
* * * * *
    (12) Type of Reporting Person--Please classify each ``reporting 
person'' according to the following breakdown (see Item 3 of Schedule 
13G) and place the appropriate Symbol on the form:

------------------------------------------------------------------------
                           Category                              Symbol
------------------------------------------------------------------------
Broker Dealer.................................................       BD
Bank..........................................................       BK
Insurance Company.............................................        IC
Investment Company............................................       IV
Investment Adviser............................................       IA
Employee Benefit Plan or Endowment Fund.......................       EP
Parent Holding Company/Control Person.........................        HC
Savings Association...........................................       SA
Church Plan...................................................         CP
Corporation...................................................         CO
Partnership...................................................       PN
Individual....................................................       IN
Non-U.S. Institution..........................................       FI
Other.........................................................       OO
------------------------------------------------------------------------

* * * * *

Item 3. * * *

    (k) [ ] A non-U.S. institution that is the functional equivalent of 
any of the institutions listed in paragraphs (a)-(j) of this Item. 
Please specify the type of institution: ------
* * * * *

Item 10. Certification

* * * * *
    (b) The following certification shall be included if the statement 
is filed pursuant to Sec.  240.13d-1(b)(1)(ii)(K):
    By signing below I certify that, to the best of my knowledge and 
belief, the foreign regulatory scheme applicable to [insert particular 
category of institutional investor] is comparable to the regulatory 
scheme applicable to the functionally equivalent U.S. institution(s). I 
also undertake to furnish to the Commission staff, upon request, 
information that would otherwise be disclosed in a Schedule 13D.
* * * * *
    14. Amend Sec.  240.13e-3 by revising paragraph (g)(6) to read as 
follows:


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

* * * * *
    (g) * * *
    (6) Any tender offer or business combination made in compliance 
with Sec.  230.802 of this chapter, Sec.  240.13e-4(h)(8) or Sec.  
240.14d-1(c) or any other kind of transaction that otherwise meets the 
conditions for reliance on the cross-border exemptions set forth in 
Sec.  240.13e-4(h)(8), 240.14d-1(c) or 230.802(a) of this chapter 
except for the fact that it is not technically conducted under those 
rules.
    15. Amend Sec.  240.13e-4 by:
    a. Revising the introductory text of paragraph (i);
    b. Revising paragraph (i)(2)(ii);
    c. Adding paragraphs (i)(2)(v) and (vi); and
    d. Revising paragraph 2.i. to the Instructions to paragraph (h)(8) 
and (i).
    The revisions and additions read as follows:


Sec.  240.13e-4  Tender offers by issuers.

* * * * *
    (i) Cross-border tender offers (Tier II). Any issuer tender offer 
(including any exchange offer) that meets the conditions in paragraph 
(i)(1) of this section shall be entitled to the exemptive relief 
specified in paragraph (i)(2) of this section, provided that such 
issuer tender offer complies with all the requirements of this section 
other than those for which an exemption has been specifically provided 
in paragraph (i)(2) of this section. In addition, any issuer tender 
offer (including any exchange offer) subject only to the requirements 
of section 14(e) of the Act and Regulation 14E (Sec. Sec.  240.14e-1 
through 240.14e-8) thereunder that meets the conditions in paragraph 
(i)(1) of this section also shall be entitled to the exemptive relief 
specified in paragraph (i)(2) of this section, to the extent needed 
under the requirements of Regulation 14E provided the tender offer 
complies with all other requirements of Regulation 14E other than those 
for which an exemption has been specifically provided in paragraph 
(i)(2) of this section:
* * * * *
    (2) * * *
    (ii) Equal treatment--separate U.S. and foreign offers. 
Notwithstanding the provisions of paragraph (f)(8) of this section, an 
issuer or affiliate conducting an issuer tender offer meeting the 
conditions of paragraph (i)(1) of this section may separate the offer 
into multiple offers: One offer made to U.S. holders and all holders of 
American Depositary Receipts representing interests in the subject 
securities and one or more offers made to non-U.S. holders. The U.S. 
offer must be made on terms at least as favorable as those offered any 
other holder of the same class of securities that is the subject of the 
tender offers. U.S. holders may be included in the foreign offer(s) 
only where the laws of the jurisdiction governing such foreign offer(s) 
expressly preclude the exclusion of U.S. holders from the foreign 
offer(s) and where the offer materials distributed to U.S. holders 
fully and adequately disclose the risks of participating in the foreign 
offer(s).
* * * * *
    (v) Suspension of withdrawal rights during counting of tendered 
securities. The issuer or affiliate may suspend withdrawal rights 
required under

[[Page 26919]]

paragraph (f)(2) of this section at the end of the offer and during the 
period that securities tendered into the offer are being counted, 
provided that:
    (A) The issuer or affiliate has provided an offer period including 
withdrawal rights for a period of at least 20 U.S. business days;
    (B) At the time withdrawal rights are suspended, all offer 
conditions have been satisfied or waived, except to the extent that the 
issuer or affiliate is in the process of determining whether a minimum 
acceptance condition included in the terms of the offer has been 
satisfied by counting tendered securities; and
    (C) Withdrawal rights are suspended only during the counting 
process and are reinstated immediately thereafter, except to the extent 
that they are terminated through the acceptance of tendered securities.
    (vi) Early commencement. Notwithstanding the requirements of 
section 5(a) of the Act (15 U.S.C. 77e(a)), the issuer or affiliate in 
an exchange offer not subject to this section may solicit tenders 
before a registration statement is effective as to the security offered 
to the same extent as would be permitted pursuant to paragraph (e)(2) 
of this section, so long as no securities are purchased until the 
registration statement is effective and the tender offer has expired, 
and the issuer or affiliate provides withdrawal rights to the same 
extent as would be required if the exchange offer were subject to the 
requirements of section 13(e) of the Act (15 U.S.C. 78m(e)) and 
paragraph (f)(2)(i) of this section. If a material change occurs in the 
information published, sent or given to security holders, the issuer or 
affiliate must comply with the provisions of paragraph (e)(3) of this 
section in disseminating information about the material change to 
security holders, including the minimum periods during which the offer 
must remain open after notice of such change is provided to security 
holders.
    Instructions to paragraph (h)(8) and (i) of this section:
* * * * *
    2. * * *
    i. Calculate the U.S. ownership as of a date no more than 60 days 
before the public announcement of the tender offer;
* * * * *
    16. Amend Sec.  240.14d-1 by:
    a. Revising paragraph (a);
    b. Revising paragraph (d) introductory text, paragraphs (d)(2)(ii) 
and (d)(2)(iv);
    c. Adding paragraphs (d)(2)(vi), (d)(2)(vii), (d)(2)(viii), 
(d)(2)(ix), and (d)(2)(x); and
    d. Revising Instructions 2.i., 3.ii., 3.iii., and 3.iv. to the 
Instructions to paragraphs (c) and (d).
    The revisions and additions read as follows:


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

* * * * *
    (a) Scope. Regulation 14D (Sec. Sec.  240.14d-1 through 240.14d-
101) shall apply to any tender offer which is subject to section 
14(d)(1) of the Act (15 U.S.C. 78n(d)(1)), including, but not limited 
to, any tender offer for securities of a class described in that 
section which is made by an affiliate of the issuer of such class. 
Regulation 14E (Sec. Sec.  240.14e-1 through 240.14e-8) shall apply to 
any tender offer for securities (other than exempted securities) unless 
otherwise noted therein.
* * * * *
    (d) Tier II. A person conducting a tender offer (including any 
exchange offer) that meets the conditions in paragraph (d)(1) of this 
section shall be entitled to the exemptive relief specified in 
paragraph (d)(2) of this section, provided that such tender offer 
complies with all the requirements of this section other than those for 
which an exemption has been specifically provided in paragraph (d)(2) 
of this section. In addition, a person conducting a tender offer 
subject only to the requirements of section 14(e) of the Act (15 U.S.C. 
78n(e)) and Regulation 14E thereunder that meets the conditions in 
paragraph (d)(1) of the section also shall be entitled to the exemptive 
relief specified in paragraph (d)(2) of this section, to the extent 
needed pursuant to the requirements of Regulation 14E, provided that 
the tender offer complies with all requirements of Regulation 14E other 
than those for which an exemption has been specifically provided in 
paragraph (d)(2) of this section:
* * * * *
    (2) * * *
    (ii) Equal treatment--separate U.S. and foreign offers. 
Notwithstanding the provisions of Sec.  240.14d-10, a bidder conducting 
a tender offer meeting the conditions of paragraph (d)(1) of this 
section may separate the offer into multiple offers: One offer made to 
U.S. holders and all holders of American Depositary Receipts 
representing interests in the subject securities and one or more offers 
made to non-U.S. holders. The U.S. offer must be made on terms at least 
as favorable as those offered any other holder of the same class of 
securities that is the subject of the tender offers. U.S. holders may 
be included in the foreign offer(s) only where the laws of the 
jurisdiction governing such foreign offer(s) expressly preclude the 
exclusion of U.S. holders from the foreign offer(s) and where the offer 
materials distributed to U.S. holders fully and adequately disclose the 
risks of participating in the foreign offer(s).
* * * * *
    (iv) Prompt payment. Payment made in accordance with the 
requirements of the home jurisdiction law or practice will satisfy the 
requirements of Sec.  240.14e-1(c). Where payment may not be made on a 
more expedited basis under home jurisdiction law or practice, payment 
for securities tendered during any subsequent offering period within 14 
business days of the date of tender will satisfy the prompt payment 
requirements of Sec.  240.14d-11(e). For purposes of this paragraph, a 
business day is determined with reference to the target's home 
jurisdiction.
* * * * *
    (vi) Length of subsequent offering period. Notwithstanding the 
provisions of Sec.  240.14d-11, the maximum time period for a 
subsequent offering period may extend beyond 20 U.S. business days.
    (vii) Payment of interest on securities tendered during subsequent 
offering period. Notwithstanding the requirements of Sec.  240.14d-
11(f), the bidder may pay interest on securities tendered during a 
subsequent offering period, if required under applicable foreign law. 
Paying interest on securities tendered during a subsequent offering 
period in accordance with this section will not be deemed to violate 
Sec.  240.14d-10(a)(2).
    (viii) Suspension of withdrawal rights during counting of tendered 
securities. The bidder may suspend withdrawal rights required under 
section 14(d)(5) of the Act (15 U.S.C. 78n(d)(5)) at the end of the 
offer and during the period that securities tendered into the offer are 
being counted, provided that:
    (A) The bidder has provided an offer period including withdrawal 
rights for a period of at least 20 U.S. business days;
    (B) At the time withdrawal rights are suspended, all offer 
conditions have been satisfied or waived, except to the extent that the 
bidder is in the process of determining whether a minimum acceptance 
condition included in the terms of the offer has been satisfied by 
counting tendered securities; and
    (C) Withdrawal rights are suspended only during the counting 
process and are reinstated immediately thereafter, except to the extent 
that they are terminated through the acceptance of tendered securities.

[[Page 26920]]

    (ix) Mix and match elections and the subsequent offering period. 
Notwithstanding the requirements of Sec.  240.14d-11(b), where the 
bidder offers target security holders a choice between different forms 
of consideration, it may establish a ceiling on one or more forms of 
consideration offered. Notwithstanding the requirements of Sec.  
240.14d-11(f), a bidder that establishes a ceiling on one or more forms 
of consideration offered pursuant to this subsection may offset 
elections of tendering security holders against one another, subject to 
proration, so that elections are satisfied to the greatest extent 
possible and pro rated to the extent that they cannot be satisfied in 
full. Such a bidder also may separately offset and pro rate securities 
tendered during the initial offering period and those tendered during 
any subsequent offering period, notwithstanding the requirements of 
Sec.  240.14d-10(c).
    (x) Early commencement. Notwithstanding the requirements of section 
5(a) of the Act (15 U.S.C. 77e(a)), the bidder in an exchange offer not 
subject to Sec.  240.14d-4(b) may solicit tenders before a registration 
statement is effective as to the security offered to the same extent as 
would be permitted pursuant to Sec.  240.14d-4(b), so long as no 
securities are purchased until the registration statement is effective 
and the tender offer has expired, and the bidder provides withdrawal 
rights to the same extent as would be required if the exchange offer 
were subject to the requirements of Sec.  240.14d-7. If a material 
change occurs in the information published, sent or given to security 
holders, the bidder must comply with the provisions of Sec.  240.14d-
4(d) in disseminating information about the material change to security 
holders, including the minimum periods during which the offer must 
remain open after notice of such change is provided to security 
holders.
    Instructions to paragraphs (c) and (d):
* * * * *
    2. * * *
    i. Calculate the U.S. ownership as of a date no more than 60 days 
before the public announcement of the tender offer;
* * * * *
    3. * * *
    ii. The aggregate trading volume of the subject class of securities 
on all national securities exchanges in the United States or on the OTC 
market, as reported to the Financial Industry Regulatory Authority, 
Inc. over the 12-calendar-month period ending on a date no more than 60 
days before public announcement of the offer, exceeds 10 percent (40 
percent in the case of paragraph (d) of this section) of the worldwide 
aggregate trading volume of that class of securities over the same 
period;
    iii. The most recent annual report or annual information filed or 
submitted by the issuer with securities regulators of the home 
jurisdiction or with the Commission before the public announcement of 
the offer indicates that U.S. holders hold more than 10 percent (40 
percent in the case of paragraph (d) of this section) of the 
outstanding subject class of securities; or
    iv. The bidder knows or has reason to know, before the public 
announcement of the offer, that the level of U.S. ownership exceeds 10 
percent (40 percent in the case of paragraph (d) of this section) of 
such securities. As an example, for purposes of this Instruction, a 
bidder is deemed to have reason to know information about U.S. 
ownership of the subject class of securities that is publicly available 
and that appears in any filing with the Commission or any regulatory 
body in the issuer's jurisdiction of incorporation or (if different) 
the non-U.S. jurisdiction in which the primary trading market for the 
subject securities is located. This example is not intended to be 
exclusive.
* * * * *
    17. Amend Sec.  240.14d-100 by adding a statement regarding 
reliance on the cross-border exemptions and check boxes on the cover 
page immediately before the General Instructions to read as follows:


Sec.  240.14d-100  Schedule TO. Tender offer statement under section 
14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934.

Schedule TO--Tender Offer Statement Under Section 14(d)(1) or 13(e)(1) 
of the Securities Exchange Act of 1934

* * * * *
    If applicable, check the appropriate box(es) below to designate the 
appropriate rule provision(s) relied upon:
    [ ] Rule 13e-4(i) (Issuer Tender Offer)
    [ ] Rule 14d-1(d) (Third-Party Tender Offer)
* * * * *
    18. Amend Sec.  240.14e-5 by:
    a. Removing ``and'' at the end of paragraphs (b)(9) and (c)(6);
    b. Removing the period at the end of paragraphs (b)(10) and (c)(7) 
and in its place adding ``; and''; and
    c. Adding paragraphs (b)(11), (b)(12), (c)(8), and (c)(9).
    The additions read as follows:


Sec.  240.14e-5.  Prohibiting purchases outside of a tender offer.

* * * * *
    (b) Excepted activity. * * *
    (11) Purchases or arrangements to purchase pursuant to a foreign 
tender offer(s). Purchases or arrangements to purchase pursuant to a 
foreign offer(s) where the offeror seeks to acquire subject securities 
through a U.S. tender offer and a concurrent or substantially 
concurrent foreign offer(s), if the following conditions are satisfied:
    (i) The U.S. and foreign tender offer(s) meet the conditions for 
reliance on the Tier II cross-border exemptions set forth in Sec.  
240.14d-1(d);
    (ii) The economic terms and consideration in the U.S. tender offer 
and foreign tender offer(s) are the same, provided that any cash 
consideration to be paid to U.S. security holders may be converted from 
the currency to be paid in the foreign tender offer(s) to U.S. dollars 
at an exchange rate disclosed in the U.S. offering documents;
    (iii) The procedural terms of the U.S. tender offer are at least as 
favorable as the terms of the foreign tender offer(s);
    (iv) The intention of the offeror to make purchases pursuant to the 
foreign tender offer(s) is disclosed in the U.S. offering documents; 
and
    (v) Purchases by the offeror in the foreign tender offer(s) are 
made solely pursuant to the foreign tender offer(s) and not pursuant to 
an open market transaction(s), a private transaction(s), or other 
transaction(s); and
    (12) Purchases or arrangements to purchase by an affiliate of the 
financial advisor and an offeror and its affiliates.
    (i) Purchases or arrangements to purchase by an affiliate of a 
financial advisor and an offeror and its affiliates that are 
permissible under and will be conducted in accordance with the 
applicable laws of the subject company's home jurisdiction if the 
following conditions are satisfied:
    (A) The subject company is a foreign private issuer as defined in 
Sec.  240.3b-4(c);
    (B) The covered person reasonably expects that the tender offer 
meets the conditions for reliance on the Tier II cross-border 
exemptions set forth in Sec.  240.14d-1(d);
    (C) No purchases or arrangements to purchase otherwise than 
pursuant to the tender offer are made in the United States;
    (D) The United States offering materials disclose prominently: The 
possibility of, or the intention to make, purchases or arrangements to 
purchase subject securities or related securities outside of the tender 
offer, and if there will be public disclosure of purchases of

[[Page 26921]]

subject or related securities, the manner in which information 
regarding such purchases will be disseminated;
    (E) There is public disclosure in the United States, to the extent 
that such information is made public in the subject company's home 
jurisdiction, of information regarding all purchases of subject 
securities and related securities otherwise than pursuant to the tender 
offer from the time of public announcement of the tender offer until 
the tender offer expires;
    (F) Purchases or arrangements to purchase by an offeror and its 
affiliates must satisfy the following additional condition: the tender 
offer price will be increased to match any consideration paid outside 
of the tender offer that is greater than the tender offer price; and
    (G) Purchases or arrangements to purchase by an affiliate of a 
financial advisor must satisfy the following additional conditions:
    (1) The financial advisor and the affiliate maintain and enforce 
written policies and procedures reasonably designed to prevent the 
transfer of information among the financial advisor and affiliate that 
might result in a violation of U.S. federal securities laws and 
regulations through the establishment of information barriers;
    (2) The financial advisor has an affiliate that is registered as a 
broker or dealer under section 15(a) of the Act (15 U.S.C. 78o(a));
    (3) The affiliate has no officers (or persons performing similar 
functions) or employees (other than clerical, ministerial, or support 
personnel) in common with the financial advisor that direct, effect, or 
recommend transactions in the subject securities or related securities 
who also will be involved in providing the offeror or subject company 
with financial advisory services or dealer-manager services; and
    (4) The purchases or arrangements to purchase are not made to 
facilitate the tender offer.
    (ii) The provisions of paragraph (b)(12)(i) of this section shall 
not apply to risk arbitrage trading by an affiliate of a financial 
advisor.
    (c) Definitions. * * *
    (8) Subject company has the same meaning as in Sec.  229.1000 of 
this chapter.
    (9) Home jurisdiction has the same meaning as in the Instructions 
to paragraphs (c) and (d) of Sec.  240.14d-1.
* * * * *

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

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

    Authority: 15 U.S.C. 78a et. seq., 7202, 7233, 7241, 7262, 7264, 
and 7265; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *
    20. Amend Form CB (referenced in Sec.  239.800 and Sec.  249.480) 
by:
    a. Removing the line ``Filed or submitted in paper if permitted by 
Regulation S-T Rule 101(b)(8) [ ]'' and the corresponding Note on the 
cover page;
    b. Revising General Instruction II.A.(1);
    c. Removing General Instruction II.A.(2) and redesignating General 
Instruction II.A.(3) and (4) as General Instruction II.A.(2) and (3); 
and
    d. Revising General Instructions B and D.

    Note: The text of Form CB does not and this amendment will not 
appear in the Code of Federal Regulations.

Form CB

TENDER OFFER/RIGHTS OFFERING NOTIFICATION FORM

(AMENDMENT NO. ----)
* * * * *

General Instructions

* * * * *

II. Instructions for Submitting Form

    A. (1) Regulation S-T Rule 101(a)(1)(vi) (17 CFR 232.101(a)(1)(vi)) 
requires a party to submit the Form CB in electronic format via the 
Commission's Electronic Data Gathering, Analysis, and Retrieval system 
(EDGAR) in accordance with the EDGAR rules set forth in Regulation S-T 
(17 CFR Part 232). For assistance with technical questions about EDGAR 
or to request an access code, call the EDGAR Filer Support Office at 
(202) 551-8900.
* * * * *
    B. When submitting the Form CB in electronic format, the persons 
specified in Part IV must provide signatures in accordance with 
Regulation S-T Rule 302 (17 CFR 232.302). When submitting the Form CB 
in paper in accordance with a hardship exemption, the persons specified 
in Part IV must sign the original and at least one copy of the Form and 
any amendments. You must conform any unsigned copies. The specified 
persons may provide typed or facsimile signatures in accordance with 
Securities Act Rule 402(e) (17 CFR 230.402(e)) or Exchange Act Rule 
12b-11(d) (17 CFR 240.12b-11(d)) as long as the filer retains copies of 
signatures manually signed by each of the specified persons for five 
years.
* * * * *
    D. If filing in paper pursuant to a hardship exemption, in addition 
to any internal numbering you may include, sequentially number the 
signed original of the Form and any amendments by handwritten, typed, 
printed or other legible form of notation from the first page of the 
document through the last page of the document and any exhibits or 
attachments. Further, you must set forth the total number of pages 
contained in a numbered original on the first page of the document.
* * * * *

    Dated: May 6, 2008.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E8-10388 Filed 5-8-08; 8:45 am]

BILLING CODE 8010-01-P
