[Federal Register: October 9, 2008 (Volume 73, Number 197)]
[Rules and Regulations]
[Page 60049-60094]
[DOCID:fr09oc08-24]

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Part V

Securities and Exchange Commission

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17 CFR Parts 230, 231, 232, et al.

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

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SECURITIES AND EXCHANGE COMMISSION

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

[Release Nos. 33-8957; 34-58597; File No. S7-10-08]
RIN 3235-AK10

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

AGENCY: Securities and Exchange Commission.

ACTION: Final rule and interpretation.

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

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

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

SUPPLEMENTARY INFORMATION: We are amending Rules 162,\1\ 800 \2\ and
802 \3\ under the Securities Act of 1933 \4\ and Rule 101 \5\ of
Regulation S-T.\6\ We also are amending Rules 13d-1,\7\ 13e-3,\8\ 13e-
4,\9\ 14d-1,\10\ 14d-11,\11\ 14e-5,\12\ and 16a-1 \13\ under the
Securities Exchange Act of 1934.\14\ We also are making changes to Form
S-4,\15\ Form F-4,\16\ Form F-X,\17\ Form CB,\18\ Schedule 13G \19\ and
Schedule TO.\20\
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    \1\ 7 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 240.14d-11.
    \12\ 17 CFR 240.14e-5.
    \13\ 17 CFR 240.16a-1.
    \14\ 15 U.S.C. 78a et seq.
    \15\ 17 CFR 239.25.
    \16\ 17 CFR 239.34.
    \17\ 17 CFR 239.42.
    \18\ 17 CFR 239.800 and 17 CFR 249.480.
    \19\ 17 CFR 240.13d-102.
    \20\ 17 CFR 240.14d-100.
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Table of Contents

I. Background and Summary
    A. General Overview of the Cross-Border Exemptions
    B. Background of Rule Revisions Adopted
    1. Reasons for the Amendments
    2. Summary of the Amendments
II. Discussion
    A. Revised Eligibility Test for the Revised Cross-Border
Exemptions
    1. Changes to the Look-Through Analysis
    a. Timing of the Calculation
    b. Exclusion of Large Target Security Holders
    c. Under What Circumstances Is the Issuer or Acquiror Unable To
Conduct the Look-Through Analysis To Determine Eligibility To Rely
on a Cross-Border Exemption?
    2. Elements of the Alternate Test
    a. Average daily trading volume test
    b. Information filed by the issuer with the Commission or home
country regulators
    c. Reason to know
    3. Changes to the Eligibility Test for Rights Offerings
    B. Changes to the Tier I Exemptions
    1. Expanded Exemption From Exchange Act Rule 13e-3
    2. Technical Changes to Securities Act Rule 802
    C. Changes to the Tier II Exemptions
    1. Tier II Relief for Tender Offers Not Subject to Rule 13e-4 or
Regulation 14D
    2. Tier II Relief for Concurrent U.S. and Non-U.S. Offers
    a. Multiple foreign offers in connection with a U.S. offer
    b. U.S. offer may include non-U.S. holders of ADRs
    c. U.S. holders may be included in foreign offer
    3. Termination of Withdrawal Rights While Counting Tendered
Securities
    4. Subsequent Offering Period Changes
    a. Maximum time limit on subsequent offering period eliminated
    b. Prompt payment of securities tendered during the subsequent
offering period
    c. Payment of interest on securities tendered during the
subsequent offering period
    d. Mix and match offers and the initial and subsequent offering
periods
    5. Terminating Withdrawal Rights Immediately After Reducing or
Waiving a Minimum Acceptance Condition
    6. Early Termination of an Initial Offering Period or a
Voluntary Extension of an Initial Offering Period
    7. Exceptions From Rule 14e-5 for Tier II Cross-Border Tender
Offers
    a. Purchases or arrangements to purchase pursuant to a foreign
tender offer(s)
    b. Purchases or arrangements to purchase by an affiliate of the
financial advisor and an offeror and its affiliates
    D. Expanded Availability of Early Commencement
    E. Changes to Schedules and Forms
    1. Form CB
    2. Schedule TO, Form F-4 and Form S-4
    F. Beneficial Ownership Reporting by Foreign Institutions
    G. Interpretive Guidance
    1. Foreign Target Security Holders and U.S. All-Holders
Requirements
    2. Exclusion of U.S. Target Security Holders From Cross-Border
Tender Offers
    3. Vendor Placements
III. Paperwork Reduction Act
IV. Cost-Benefit Analysis
V. Consideration of Impact on Economy, Burden on Competition and
Promotion of Efficiency, Competition and Capital Formation
VI. Final Regulatory Flexibility Act Analysis
VII. Statutory Basis and Text of Amendments

I. Background and Summary

A. General Overview of the Cross-Border Exemptions

    The existing cross-border exemptions,\21\ as adopted in 1999, are
structured as a two-tier system based broadly on the level of U.S.
interest in a transaction, measured by the percentage of target
securities of a foreign private issuer \22\ beneficially owned by U.S.
holders.\23\ The purpose of the exemptions is to address conflicts

between U.S. and foreign regulation, thereby facilitating the inclusion
of U.S. investors in cross-border transactions. While today's
amendments will expand the scope of some of the exemptions, we retain
this basic two-tier structure and the threshold U.S. ownership
percentages. However, we are revising the manner in which eligibility
to rely on the revised exemptions is determined.
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    \21\ Generally, the rule citations to the cross-border
exemptions throughout this release refer to the exemptions that were
adopted in 1999. When applicable, we specify that a citation is to a
``new'' or ``amended'' rule.
    \22\ ``Foreign private issuer'' is defined in Exchange Act Rule
3b-4(c) [17 CFR 240.3b-4(c)].
    \23\ ``U.S. holder'' is defined in the cross-border exemptions
as any security holder resident in the United States. See Securities
Act Rule 800(h) [17 CFR 230.800(h)]; Instruction 2 to Exchange Act
Rules 13e-4(h)(8) and (i) [17 CFR 240.13e-4(h)(8) and 240.13e-4(i)]
and 14d-1(c) and (d) [17 CFR 240.14d-1(c) and 240.14d-1(d)].
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    Where U.S. holders own no more than 10 percent of the subject
securities, a qualifying cross-border transaction will be exempt from
most U.S. tender offer rules \24\ pursuant to Tier I and from the
registration requirements of Section 5 of the Securities Act of 1933
\25\ pursuant to Securities Act Rules 801 \26\ and 802. Tier I provides
a broad exemption from the filing, dissemination and procedural
requirements of the U.S. tender offer rules and the heightened
disclosure requirements applicable to going private transactions as
defined in Rule 13e-3.\27\ An issuer that is the subject of a tender
offer also is exempt from the obligation to express a position, and
provide reasons for its position, about the tender offer to its own
security holders under Tier I.\28\ 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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    \24\ The U.S. anti-fraud and anti-manipulation rules and civil
liability provisions continue to apply to these transactions. See
Cross-Border Tender and Exchange Offers, Business Combinations and
Rights Offerings, Release No. 33-7759, 34-42054 (October 22, 1999)
[64 FR 61382] (the ``1999 Cross-Border Adopting Release''), Section
I.A.
    \25\ 15 U.S.C. 77e.
    \26\ 17 CFR 230.801.
    \27\ Exchange Act Rules 13e-3(g)(6) [17 CFR 240.13e-3(g)(6)],
13e-4(h)(8), and 14d-1(c).
    \28\ Exchange Act Rule 14e-2(d) [17 CFR 240.14e-2(d)].
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    Where an issuer or acquiror relies on Rules 801 or 802 or the Tier
I exemptions, it must furnish a Form CB to the Commission.\29\ Form CB
is a cover sheet to which the issuer or acquiror attaches an English
translation of the disclosure document used in the foreign home
jurisdiction and disseminated to U.S. target security holders.\30\ The
due date for furnishing Form CB to the Commission is the next business
day after the disclosure document used in the foreign home jurisdiction
is published or otherwise disseminated in accordance with home country
rules.\31\ 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.\32\
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    \29\ Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i) [17 CFR
230.801(a)(4)(i) and 230.802(a)(3)(i)], and Exchange Act Rules 13e-
4(h)(8)(iii) and 14d-1(c)(3)(iii) [17 CFR 240.13e-4(h)(8)(iii) and
240.14d-1(c)(3)(iii)].
    \30\ Item 1 of Form CB.
    \31\ Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i) and
Exchange Act Rules 13e-4(h)(8)(iii) and 14d-1(c)(3)(iii). If the
bidder is a foreign company, it must also file a Form F-X with the
Commission appointing an agent for service of process in the United
States. See Securities Act Rules 801(a)(4)(i) and 802(a)(3)(i) and
Exchange Act Rules 13e-4(h)(8)(iii) and 14d-1(c)(3)(iii).
    \32\ 15 U.S.C. 78r. See also, 1999 Cross-Border Adopting
Release, Section II.A.2. An acquiror or other person submitting Form
CB is subject to U.S. anti-fraud provisions. See footnote 24 above.
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    In adopting the cross-border exemptions, we did not intend to
create new filing obligations for issuers and acquirors where none
existed previously. For that reason, a bidder relying on the Tier I
exemption must submit a Form CB only if the tender offer would have
been subject to Rules 13e-3 or 13e-4 or Regulation 14D,\33\ but for the
Tier I exemption. No filing requirement exists for a tender offer
subject only to Exchange Act Section 14(e) \34\ and Regulation 14E;
\35\ accordingly, furnishing a Form CB is not necessary.\36\
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    \33\ Exchange Act Rules 14d-1 through 14d-11 [17 CFR 240.14d-1
through 17 CFR 240.14d-11].
    \34\ 15 U.S.C. 78n(e).
    \35\ 17 CFR 240.14e-1 through 17 CFR 240.14e-8.
    \36\ See 1999 Cross-Border Adopting Release, Section II.A.2.
Regulation 14E applies to all tender offers, including those not
subject to Section 13(e) or 14(d) of the Exchange Act. These include
tender offers for non-equity securities and securities that are not
registered under Section 12 of the Exchange Act [15 U.S.C. 78l], as
well as partial offers for less than all of the subject class, where
the bidder will not own more than five percent of the subject class
of equity securities after the tender offer (based on purchases in
the tender offer and ownership in the target before the offer
commences).
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    Tier II provides targeted relief from some U.S. tender offer rules
for issuers and third-party bidders where U.S. security holders own
more than 10 percent, but no more than 40 percent, of the target class.
The Tier II exemptions encompass narrowly-tailored relief from certain
U.S. tender offer rules, such as the prompt payment, extension and
notice of extension requirements in Regulation 14E. While they do
address certain areas of common regulatory conflict, the Tier II
exemptions do not provide relief from the registration requirements of
Securities Act Section 5, nor do they include an exemption from the
additional disclosure requirements applicable to going private
transactions by issuers or affiliates.
    The scope of the Tier I and Tier II cross-border exemptions and the
exemptions from the Securities Act registration requirements provided
in Rules 801 and 802 are based broadly on the level of U.S. interest in
a given transaction, as measured by the percentage of shares
beneficially owned by U.S. holders. In addition to these U.S. ownership
thresholds, the cross-border exemptions are conditioned on other
requirements, such as the principle that U.S. target security holders
be permitted to participate in the offer on terms at least as favorable
as those afforded other target holders.\37\ We retain these basic equal
treatment principles in our rule revisions.
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    \37\ Securities Act Rules 801(a)(3) and 802(a)(2) [17 CFR
230.801(a)(3) and 230.802(a)(2)]; Exchange Act Rules 13e-4(h)(8)(ii)
and (i)(2)(ii) [17 CFR 240.13e-4(h)(8)(ii) and 240.13e-4(i)(2)(ii)];
and 14d-1(c)(2) and (d)(2)(ii) [17 CFR 240.14d-1(c)(2) and 240.14d-
1(d)(2)(ii)].
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B. Background of Rule Revisions Adopted

    On May 6, 2008, we proposed revisions to the rules governing
certain cross-border business combination transactions, as well as
revisions to the beneficial ownership reporting rules for certain
foreign institutions.\38\ These revisions were intended to expand and
enhance the utility of the exemptions available for cross-border
business combination transactions.\39\ Many of the changes we proposed
would codify existing interpretive positions and exemptive orders, and
were intended to encourage offerors and issuers in cross-border
business combinations to permit U.S. security holders to participate in
these transactions in the same manner as other holders. Additionally,
we provided guidance regarding several interpretive issues of concern
for U.S. and other offerors engaged in cross-border business
combinations. We also addressed the applicability of the U.S. all-
holders provisions to foreign target security holders in tender offers
for domestic issuers. In several instances, we requested comment about
whether

various rule changes we proposed should apply to tender offers for U.S.
companies.\40\
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    \38\ See Revisions to the Cross-Border Tender Offer, Exchange
Offer, and Business Combination Rules and Beneficial Ownership
Reporting Rules for Certain Foreign Institutions, Release No. 33-
8917, 34-57781 (May 6, 2008) (the ``Proposing Release'').
    \39\ ``Business combination'' is defined in Securities Act Rule
800(a) as any ``statutory amalgamation, merger, arrangement or
reorganization requiring the vote of security holders of one or more
participating companies. It also includes a statutory short form
merger that does not require a vote of security holders.'' In this
release, we use the term more broadly to include those kinds of
transactions, as well as tender and exchange offers. See Securities
Act Rule 165(f)(1) [17 CFR 230.165(f)(1)] (defining the term more
broadly, to include the types of transactions listed in Rule 145(a)
[17 CFR 230.145(a)], as well as exchange offers). A ``cross-border''
business combination, as that term is used throughout this release,
refers to a business combination in which the target company (or the
issuer in a rights offering) is a foreign private issuer, as defined
in Exchange Act Rule 3b-4(c).
    \40\ Additionally, in several instances in the Proposing
Release, we solicited comment regarding whether various proposed
changes should be extended to the Multijurisdictional Disclosure
System (``MJDS'') with Canada. We are not adopting any changes to
MJDS at this time.
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    In response to our request for comment on the Proposing Release, we
received comments from a variety of groups and constituencies, most of
whom expressed their support for our proposed modifications to the
current rules. While commenters generally supported our proposed
changes, some advocated further modifications to our rules.\41\ After
considering the comments, we are adopting amendments to the cross-
border exemptions and beneficial ownership rules substantially as
proposed, but with modifications discussed more fully in this release.
We also are adopting two changes to rules applicable to all tender
offers, including those for U.S. target companies, where we believe the
rule modifications initially proposed in the cross-border context will
be useful and in the public interest if applied to all tender
offers.\42\
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    \41\ The public comments we received are available for
inspection in our Public Reference Room at 100 F Street, NE,
Washington, DC 20549 in File No. S7-10-08, or may be viewed at
http://www.sec.gov/rules/proposed/s71008.shtml.
    \42\ The rule changes that will apply to all tender offers,
including those for domestic target companies: (1) Eliminate the
maximum time limit on the length of the subsequent offering period
and (2) provide the ability to commence an exchange offer upon the
filing of a registration statement and before its effectiveness in
exchange offers not subject to Rule 13e-4 or Regulation 14D. See
amended Exchange Act Rule 14d-11 and amended Securities Act Rule
162.
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1. Reasons for the Amendments
    As discussed in the Proposing Release, before the cross-border
exemptions were adopted in 1999,\43\ cross-border business combination
transactions or rights offerings often excluded U.S. holders of a
foreign issuer or foreign target company because of actual or perceived
conflicts between U.S. and foreign law. Exclusion of U.S. investors
deprived them of some or all of the benefits of such cross-border
transactions. The cross-border exemptions adopted in 1999 represented
an effort to facilitate the inclusion of U.S. security holders in
foreign transactions in a manner consistent with our investor
protection mandate.
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    \43\ See 1999 Cross-Border Adopting Release.
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    While we believe the exemptions were successful in addressing many
areas of conflict between U.S. and foreign law, we recognize that in
some instances the exemptions are not operating as optimally as
intended, or do not address recurring conflicts of law and practice not
anticipated when we adopted them. The revisions we adopt today address
frequently arising issues and unintended consequences that have
detracted from the usefulness of the existing cross-border exemptions.
The revisions represent an expansion and refinement of the current
exemptions. We believe they will encourage more offers to be extended
into the United States.
    The amendments we are adopting represent another step in the
Commission's efforts to revise its rules relating to transactions
involving foreign private issuers.\44\ These changes are intended to
address the realities of the modern securities markets and, in
particular, the increasing globalization of those markets.
Increasingly, U.S. persons seek to diversify their investments by
purchasing securities of foreign companies. Their ability to do so,
including through direct purchases on foreign exchanges, has been
facilitated greatly by the Internet. While the increasing globalization
of the securities markets has proved beneficial to U.S. investors and
companies, as well as non-U.S. investors and foreign private issuers,
it also has increased the potential for regulatory conflicts in the
context of cross-border business combination transactions. Whether
foreign private issuers list their securities on a U.S. exchange or
U.S. investors access overseas trading markets to purchase their
securities, cross-border business combination transactions frequently
present conflicts between U.S. and foreign regulatory systems.
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    \44\ The Commission has undertaken several recent rulemaking
initiatives that impact foreign private issuer reporting and
registration requirements. For example, we recently revised our
rules to make the U.S. capital markets more attractive to foreign
private issuers by allowing the use of financial statements prepared
in accordance with International Financial Reporting Standards
(``IFRS'') as issued by the International Accounting Standards Board
(``IASB''), without a reconciliation to U.S. GAAP. See Acceptance
From Foreign Private Issuers of Financial Statements Prepared in
Accordance With International Financial Reporting Standards Without
Reconciliation to U.S. GAAP, Release No. 33-8879 (December 21, 2007)
[73 FR 986]. In addition, we amended the deregistration rules for
exiting the U.S. regulatory system when the level of U.S. interest
in a foreign private issuer's securities has decreased, such that
continued registration is no longer justified. See Termination of a
Foreign Private Issuer's Registration of a Class of Securities Under
Section 12(g) and Duty to File Reports Under Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, Release No. 34-55540 (March
27, 2007) [72 FR 16934]. On August 27, 2008, we adopted changes to
the manner of determining the availability of the Rule 12g3-2(b)
exemption from Exchange Act registration. See Exemption From
Registration Under Section 12(g) of the Securities Exchange Act of
1934 for Foreign Private Issuers, Release No. 34-58465 (September 5,
2008) [73 FR 52752]. Further, on August 27, 2008, we also adopted
rule revisions applicable to foreign issuers, intended to improve
the accessibility of the U.S. public capital markets and enhance the
information available to investors. These revisions were proposed in
Foreign Issuer Reporting Enhancements, Release No. 33-8900 (February
29, 2008) [73 FR 13404]. See also, SEC Votes to Modernize Disclosure
Requirements to Help U.S. Investors in Foreign Companies (August 27,
2008) (announcing the adoption of three sets of rule amendments).
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    The revisions we are adopting today are intended to address the
most frequent areas of conflict or inconsistency with foreign
regulations and practice that acquirors encounter in cross-border
business combination transactions. We believe the revisions
appropriately balance the need to protect U.S. investors through the
application of protections afforded by U.S. law, while facilitating
transactions that may benefit all security holders, including those in
the United States. The expanded availability of the cross-border
exemptions will serve the public interest by encouraging bidders to
include U.S. holders in cross-border business combination transactions
from which they otherwise might be excluded, thereby extending the
benefits of those transactions to U.S. investors.\45\ We recognize that
these revisions will not eliminate all conflicts in law or practice
presented by cross-border business combination transactions. The staff
will continue to address those issues not covered by these revisions on
a case-by-case basis, as is currently the practice.\46\
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    \45\ In discussing the changes we are adopting, the focus of the
discussion is on acquirors in business combination transactions
because the rules changes primarily impact that constituency.
However, some of those changes, such as those to the eligibility
test for the cross-border exemptions, also affect comparable
provisions in the rights offering exemption in Securities Act Rule
801. We discuss the specific changes relating to the rights offering
exemption in greater detail in Section II.A.3. below.
    \46\ As discussed in the Proposing Release, the staff often
provides exemptive or no-action relief by letter in the context of
individual cross-border transactions. Pursuant to Rules 30-1 and 30-
3 of the SEC's Rules of General Organization [17 CFR 200.30-1 and
200.30-3], we have delegated to the staff the authority to exempt
individual bidders and issuers from the application of our rules.
No-action and exemptive letters issued by the staff in connection
with cross-border transactions may be found on our Web site at
http://www.sec.gov/divisions/corpfin/cf-noaction.shtml and http://
www.sec.gov/divisions/marketreg/mr-noaction.shtml#rule14e5.
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2. Summary of the Amendments
    The rule amendments we are adopting address practical problems that
have limited the ability of bidders to rely on the exemptions. We
believe they also will alleviate some of the burdens on

bidders who must comply with two or more regulatory systems in the
context of cross-border transactions. Highlights of the amendments,
which are adopted as proposed except where otherwise specified,
include:
     Modifications to the manner in which the look-through
analysis must be conducted under our current rules, to alleviate timing
concerns associated with that calculation, including:
     Changes to the reference date for the calculation of U.S.
beneficial ownership to allow calculation as of any date no more than
60 days before and no more than 30 days after the public announcement
of the transaction; \47\ and
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    \47\ Acquirors in business combinations that are unable to
accomplish the look-through analysis as of a date during that range
may calculate U.S. ownership as of a date no more than 120 days
before public announcement. For rights offerings, the amended rule
would permit calculation as of a date within 60 days before or 30
days after the record date. See amended Securities Act Rule
800(h)(1). The proposal included the date range of 60 days before
announcement of a business combination only, and did not permit
calculation as of a date after announcement.
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     No longer requiring that individual holders of more than
10 percent of the subject securities be excluded from the calculation
of U.S. ownership; \48\
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    \48\ This change was not proposed, but the Proposing Release
solicited comment on it. After further consideration and review of
commenters' responses, we believe this change is appropriate.
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     An alternate test for determining eligibility to rely on
the cross-border exemptions, based in part on a comparison of average
daily trading volume of the subject securities in the United States and
worldwide. This alternate test will be available for all non-negotiated
transactions and those for which the look-through analysis mandated by
our rules may not be conducted; \49\
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    \49\ Although we did not propose this specific change, we did
solicit comment generally on possible changes to the eligibility
criteria. See Proposing Release, Section II. For bidders relying on
the alternate test because they are unable to conduct the look-
through analysis, the ADTV calculation will include a primary
trading market component.
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     Expanded relief under Tier I for affiliated transactions
subject to Rule 13e-3 for transaction structures not covered under our
current cross-border exemptions, such as schemes of arrangement, cash
mergers, or compulsory acquisitions for cash;
     Extension of relief afforded by the Tier II provisions to
tender offers not subject to Sections 13(e) or 14(d) of the Exchange
Act;
     Expansion of relief afforded under Tier II to eliminate
recurrent conflicts between U.S. and foreign law and practice in
several areas, including:
     Allowing multiple foreign offers in conjunction with a
concurrent U.S. offer;
     Permitting bidders to include foreign holders of ADRs in
the U.S. offer and, under specified conditions, U.S. holders in the
foreign offer(s);
     Allowing bidders to suspend back-end withdrawal rights
while tendered securities are counted;
     Allowing subsequent offering periods in both cross-border
and domestic offers to extend beyond 20 U.S. business days; \50\
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    \50\ We proposed to allow this change only for cross-border
tender offers.
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     Allowing securities tendered during the subsequent
offering period to be purchased within 20 business days from the date
of tender, rather than 14 business days as originally proposed;
     Allowing bidders to pay interest on securities tendered
during a subsequent offering period, where required under foreign law;
     Allowing separate offset and proration pools for
securities tendered during the initial and subsequent offering periods
for certain kinds of tender offers; \51\
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    \51\ Separate pro ration pools would be permitted only for Tier
II tender offers that use the ``mix and match'' offer structure. See
Section II.C.4.d. below.
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     Permitting bidders to terminate an initial offering period
or any voluntary extension of that period before a scheduled expiration
date; \52\
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    \52\ In the Proposing Release, we set forth interpretive
guidance regarding the ability to terminate an initial offering
period or voluntary extension of that period before a scheduled
expiration date. We solicited comment on whether we should codify
the existing interpretive guidance. See Proposing Release, Section
II.C.6. We are codifying this guidance in new Exchange Act Rules
13e-4(i)(1)(vii) and 14d-1(d)(2)(ix).
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     Codification of three class exemptive letters with respect
to the application of Rule 14e-5 for Tier II tender offers;
     Expansion of the availability of early commencement to
offers not subject to Section 13(e) or 14(d) of the Exchange Act,
including offers for domestic target companies; \53\
---------------------------------------------------------------------------

    \53\ We proposed to allow this change only for cross-border
tender offers.
---------------------------------------------------------------------------

     Modification of the cover pages of specified tender offer
schedules and registration statements to identify any cross-border
exemptions relied upon in conducting the relevant transactions;
     Requiring electronic filing of all Forms CB and Forms F-X,
filed in connection with Form CB; and
     Permitting foreign institutions to report on Schedule 13G
to the same extent as their U.S. counterparts, subject to certain
conditions, and expanding the definition of beneficial ownership in
Exchange Act Rule 16a-1(a)(1) to include those foreign
institutions.\54\
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    \54\ The change to Rule 16a-1 [17 CFR 240.16a-1] was not
proposed, but was requested by commenters. We believe this change is
consistent with the regulatory history of aligning the scope of Rule
16a-1(a)(1) with Rule 13d-1(b)(1)(ii).
---------------------------------------------------------------------------

    In addition to these rule amendments, we also are reiterating the
interpretive guidance we provided in the Proposing Release, with some
modifications. We are providing guidance on the following issues:
     The ability of bidders in tender offers to waive or reduce
the minimum tender condition without providing withdrawal rights;
     The application of the all-holders provisions of our
tender offer rules to foreign target security holders in transactions
subject to U.S. equal treatment provisions;
     The ability of bidders to exclude U.S. target security
holders in cross-border tender offers; and
     The availability of the vendor placement procedure for
exchange offers.
    As discussed in further detail below, the revised rules we adopt
today differ in some respects from what we proposed. For example, the
alternate eligibility test is a combination of the existing look-
through analysis and components of the existing test for non-negotiated
transactions. For the revised look-through analysis, we are providing a
longer date range than proposed, during which acquirors and issuers can
calculate U.S. ownership. Where the acquiror or issuer is not able to
accomplish the look-through analysis as of the date in 60 days before
and 30 days after public announcement, we provide an extended period to
accommodate those situations.
    The changes we proposed to the eligibility test would have applied
only to business combination transactions; however, those we adopt are
applicable to rights offerings also. Another difference between the
rule changes we proposed and those we adopt is that two changes are
applicable to all business combinations, including those in which the
target is a U.S. company. Under our revised rules, bidders conducting
tender offers for either U.S. or foreign target companies may extend
the subsequent offering period beyond the current 20-business day
limit. In addition, offerors in exchange offers for both domestic and
foreign targets may commence those offers before the effective date of
the registration statement, even where the exchange offer is not
subject to specified U.S. tender offer rules.
    The revisions adopted today will be effective for transactions that
commence

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

II. Discussion

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

    We are adopting changes to the eligibility test for the cross-
border exemptions that we believe will facilitate the use of the
exemptions and reduce the burden of determining eligibility. For
negotiated transactions, acquirors must continue to conduct the look-
through analysis, as amended today to provide greater flexibility.\55\
Where acquirors are unable to conduct this analysis, we are adopting an
alternate test that incorporates elements from the current hostile
presumption \56\ for non-negotiated deals, including an element based
on average daily trading volume of the subject securities
(``ADTV'').\57\
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    \55\ See new Securities Act Rules 800(h)(6) and (7);
Instructions 2 and 3 to amended Exchange Act Rules 13e-4(h)(8) and
(i); and Instructions 2 and 3 to amended Exchange Act Rules 14d-1(c)
and (d).
    \56\ When we refer to the ``hostile presumption'' in this
release, we mean the existing test used to determine eligibility for
the cross-border exemptions for non-negotiated transactions, i.e.,
those not made pursuant to an agreement between the acquiror and the
target company. See Securities Act Rule 802(c) [17 CFR 230.802(c)]
and Instruction 3 to Exchange Act Rules 14d-1(c) and (d).
    \57\ As used in this release, ``subject securities'' means
securities of a target company that are the subject of a tender
offer or are sought to be acquired in another kind of business
combination transaction.
---------------------------------------------------------------------------

    The cross-border exemptions require acquirors to query record
holders and other nominees to determine U.S. beneficial ownership. For
example, acquirors need only ``look through'' nominees located in the
United States, the subject company's jurisdiction of incorporation and
that of each participant in the business combination transaction, and
the jurisdiction that is the primary trading market for the subject
securities, if different from the jurisdiction of incorporation.\58\ In
addition, acquirors may assume that beneficial holders are residents of
the jurisdiction in which the nominee queried has its principal place
of business, if after reasonable inquiry the acquiror is unable to
obtain information from that nominee.\59\ These limitations on the
scope of the required look-through analysis assist the acquiror in
accomplishing the required analysis. We are not changing these
provisions in our revised rules.
---------------------------------------------------------------------------

    \58\ See amended Securities Act Rule 800(h)(3); Instruction
2.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and
Instruction 2.iii. to amended Exchange Act Rules 14d-1(c) and (d).
    \59\ See amended Securities Act Rule 800(h)(4); Instruction
2.iv. to amended Exchange Act Rules 13e-4(h)(8) and (i); and
Instruction 2.iv. to amended Exchange Act Rules 14d-1(c) and (d).
---------------------------------------------------------------------------

    Where acquirors cannot conduct the look-through analysis, however,
we are providing an alternate test similar to the hostile presumption
for non-negotiated transactions.\60\ Because we recognize that
acquirors who do not have the cooperation of the target company may
have limited access to information from nominees, this alternate test
will be available for all non-negotiated transactions.\61\ In the
discussion that follows, we provide guidance on the limited
circumstances under which the alternate test will be available for
negotiated transactions.
---------------------------------------------------------------------------

    \60\ See new Securities Act Rule 800(h)(6); Instruction 3 to
amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 3 to
amended Exchange Act Rules 14d-1(c) and (d).
    \61\ See new Securities Act Rule 800(h)(6) and Instruction 3 to
amended Exchange Act Rules 14d-1(c) and (d).
---------------------------------------------------------------------------

    The existing cross-border exemptions and the revised exemptions we
adopt today continue to be available only when the target company is a
foreign private issuer as defined in our rules.\62\ As is the case with
the existing cross-border exemptions, the revised exemptions are
available equally to both U.S. and foreign acquirors, where the company
being acquired qualifies as a foreign private issuer.
---------------------------------------------------------------------------

    \62\ See Exchange Act Rule 3b-4(c). For the Securities Act Rule
801 exemptions for rights offerings, the issuer must be a foreign
private issuer as defined in that rule. For business combinations
such as mergers of equals, where both parties to the transaction
will be replaced by a successor entity which issues securities in
the amalgamation, U.S. holders may hold no more than 10 percent of
the subject class, as if measured immediately after the business
combination. See Securities Act Rule 802(a) [17 CFR 230.802(a)].
---------------------------------------------------------------------------

    Under the current rules and the revisions we adopt today, the
percentage of the subject securities held beneficially by U.S. persons
is an important element in determining eligibility to rely on the
exemptions.\63\ We continue to believe that U.S. beneficial ownership,
as determined by the revised look-through calculation, should be a
central element in determining eligibility to rely on the cross-border
exemptions. Beneficial ownership is the characteristic of the target
subject security holder base that is, in our view, most closely tied to
U.S. interest in the subject securities in the context of a business
combination transaction or a rights offering.\64\ In the case of
business combination transactions, which affect all target security
holders whether or not they choose to participate, we believe the
percentage of the subject securities that is held by U.S. holders is
the best measure of when U.S. rules should apply.\65\ In addition,
because the cross-border exemptions include exemptions from the
registration requirements of Section 5 of the Securities Act that are
available to both foreign and U.S. acquirors, the focus on the
percentage of target securities held by U.S. holders corresponds with
the percentage of securities that may be issued without registration by
a U.S. acquiror to U.S. target holders. Because securities of U.S.
acquirors are likely to have their primary trading market in the United
States, it is appropriate to consider the magnitude of these issuances
and the resulting flow back into the United States.
---------------------------------------------------------------------------

    \63\ The threshold U.S. beneficial ownership percentages are 10
percent (for Tier I and Securities Act Rules 801 and 802) and 40
percent (for Tier II).
    \64\ As noted in the Proposing Release, our focus on U.S.
beneficial ownership for business combinations and rights offerings
differs from the approach we have taken recently for foreign private
issuer deregistration and for purposes of the ability of a foreign
private issuer to qualify for the exemption from registration under
Exchange Act Rule 12g3-2(b) [17 CFR 240.12g3-2(b)]. See the
discussion in the Proposing Release, Section I.A.2.
    \65\ As we stated in the Proposing Release, using an ADTV test
may result in target companies with significant U.S. ownership
qualifying for the Tier I and Securities Act Rules 801 and 802
exemptions. Where a bidder, including a U.S. company, is eligible to
rely on the Tier I cross-border exemptions, it may issue securities
without registration under Securities Act Rule 802. We are concerned
that use of an ADTV test for eligibility to rely on the cross-border
exemptions would allow bidders, including U.S. bidders, to issue
significant amounts of bidder securities to U.S. holders, without
the protections of Securities Act registration.
---------------------------------------------------------------------------

    The revised rules do not change the threshold percentages of U.S.
ownership for reliance on the cross-border exemptions; however, we are
changing the manner in which these percentages are determined. To
address concerns raised by commenters about the look-through tests for
negotiated transactions, we have significantly revised the manner in
which that analysis must be performed, including when and under what
circumstances it is mandated.\66\ Based on feedback from commenters, we
also are eliminating the requirement to exclude large security holders
of the target class in calculating the percentage of U.S.
ownership.\67\ Commenters

advised that this change would expand the availability of the
exemptions because of the concentrated ownership structures of many
foreign private issuers.\68\ We believe the cumulative effect of the
revisions will facilitate the look-through process by providing greater
flexibility to acquirors, and also will allow them to know at an
earlier stage in the planning process how U.S. target holders will be
treated.
---------------------------------------------------------------------------

    \66\ See amended Securities Act Rule 800(h); Instructions 2 and
3 to amended Exchange Act Rules 13e-4(h)(8) and (i); and
Instructions 2 and 3 to amended Exchange Act Rules 14d-1(c) and (d).
    \67\ The existing cross-border exemptions require target
securities held by holders who individually own more than 10 percent
of the subject class to be excluded from both the numerator and the
denominator in calculating total U.S. ownership. The exclusion
requirement applies to both U.S. and non-U.S. large holders. See
Section II.A.1.b. below.
    \68\ See, e.g., letter from Sullivan & Cromwell LLP (``S&C'').
---------------------------------------------------------------------------

    No aspect of the Proposing Release generated more commentary, and
more criticism, than this focus on beneficial ownership and the manner
in which it must be calculated under our rules.\69\ Despite the
revisions to the look-through analysis adopted today, we remain
cognizant of the concerns expressed by commenters with respect to the
feasibility of the test under certain circumstances.\70\ While we
believe the look-through analysis and its focus on beneficial ownership
should remain the starting point for determining eligibility to rely on
the revised exemptions for negotiated transactions, we also recognize
that circumstances exist in which acquirors are unable to conduct the
look-through analysis.\71\ Therefore, we are adopting an alternate test
for such circumstances based, in part, on a comparison of the average
daily trading volume of the subject securities in the United States as
compared to worldwide trading over a twelve-month period.\72\ The
trading volume percentages we established for the ADTV element of the
alternate test are the same as those for the existing hostile
presumption.\73\ The ADTV element of the alternate test is supplemented
by other factors, such as the acquiror's actual knowledge of the U.S.
ownership percentage of the subject securities, based on reports filed
by the target company and others, as well as information from third
parties known to the acquiror.\74\
---------------------------------------------------------------------------

    \69\ 20 of the 22 comment letters we received addressed this
issue, either directly or indirectly.
    \70\ These include concerns about cost, burden and
confidentiality. See, e.g., letter from Committee on Federal
Regulation of Securities, Section of Business Law, American Bar
Association (``ABA'').
    \71\ As discussed above, we are not requiring acquirors in
hostile transactions to conduct the look-through analysis under our
amended rules. This is the same approach as under the existing
exemptions. See Instruction 3 to Exchange Act Rules 14d-1(c) and
(d).
    \72\ See new Securities Act Rules 800(h)(6) and (7); Instruction
3 to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction
3 to amended Exchange Act Rules 14d-1(c) and (d).
    \73\ See Securities Act Rule 802(c) and Instruction 3.ii. to
Exchange Act Rules 14d-1(c) and (d). The thresholds also mirror the
maximum percentage limits for U.S. beneficial ownership.
    \74\ See new Securities Act Rules 800(h)(6) and (7); Instruction
3.ii. and 3.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i);
and Instruction 3.ii. and 3.iii. to amended Exchange Act Rules 14d-
1(c) and (d).
---------------------------------------------------------------------------

    We believe the changes to the look-through test in the cross-border
exemptions and the alternate test we adopt today appropriately balance
commenters' concerns with our investor protection goals. In our view,
these revisions will increase the availability of the cross-border
exemptions, including the exemptions from the registration requirements
of Section 5 of the Securities Act,\75\ which we anticipate will
promote the inclusion of U.S. target holders in more cross-border
transactions. We will continue to monitor the application of the
revised rules to assess whether additional changes are necessary and in
the public interest to facilitate this goal.
---------------------------------------------------------------------------

    \75\ See Securities Act Rules 801 and 802.
---------------------------------------------------------------------------

1. Changes to the Look-through Analysis
a. Timing of the Calculation
    We are adopting, with some modifications, the proposed changes to
the timing of and reference date for the calculation of U.S. ownership
for determining eligibility to rely on the cross-border exemptions for
business combinations.\76\ Under existing rules, acquirors are required
to calculate U.S. ownership as of a set date--the 30th day before the
commencement of a tender offer or before the solicitation for a
business combination other than a tender offer.\77\ The revisions
adopted change the reference date to the public announcement of the
business combination transaction.\78\ For these purposes, we consider
``public announcement'' to be any oral or written communication by the
acquiror or any party acting on its behalf, which is reasonably
designed to inform or has the effect of informing the public or
security holders in general about the transaction.\79\ Under our
revised rules, an acquiror seeking to rely on the cross-border
exemptions may calculate U.S. ownership as of any date no more than 60
days before and no more than 30 days after the public announcement of
the cross-border transaction.
---------------------------------------------------------------------------

    \76\ See amended Securities Act Rule 800(h); Instruction 1.i. to
amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2.i.
to amended Exchange Act Rules 14d-1(c) and (d). As noted below, we
did not propose but solicited comment on similar changes to the
timing of the calculation for eligibility for Securities Act Rule
801 (exemption for rights offerings). Today we also are adopting
changes to Rule 800(h) that will provide issuers with greater
flexibility to use a date within a 60-day range before and a 30-day
period after the record date for a rights offering. See amended
Securities Act Rule 800(h) and the discussion below.
    \77\ See Securities Act Rule 800(h); Instruction 2.i. to
Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2.i. to
Exchange Act Rules 14d-1(c) and (d).
    \78\ See amended Securities Act Rule 800(h)(1); Instruction 2 to
amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction 2 to
amended Exchange Act Rules 14d-1(c) and (d).
    \79\ See generally, Instruction 5 to Exchange Act Rules 13e-4(c)
and 14d-2 [17 CFR 240.13e-4(c) and 240.14d-2] (defining public
announcement for purposes of precommencement communications about
issuer or third-party tender offers).
---------------------------------------------------------------------------

    The revised rules will allow the calculation to be accomplished
based on a range of dates before public announcement of a business
combination transaction because we believe that this will allow the
parties to a business combination to determine and inform the markets
of the treatment of U.S. target security holders at an earlier stage in
the planning process. In addition, this change allows the calculation
of U.S. ownership to be made before the target security holder base is
affected by the public announcement. Most commenters supported the use
of announcement as the reference point for the calculation.\80\
Commenters generally also favored the use of a 60-day date range before
public announcement, although one party advocated a shorter 30-day
range.\81\
---------------------------------------------------------------------------

    \80\ See, e.g., The Forum for U.S. Securities Lawyers in London.
    \81\ See, e.g., letter from Linklaters LLP (``Linklaters'').
Another commenter suggested that for rights offering, the reference
date should be 30 days before the record date, or alternatively,
before announcement. See letter from S&C.
---------------------------------------------------------------------------

    We expanded the rule to permit the calculation as of a date no more
than 30 days after announcement to address commenters' concerns about
the confidentiality of the look-through analysis.\82\ Where that
analysis must be conducted before announcement, it may compromise the
confidentiality of the transaction. By allowing a range of dates both
before and after public announcement, the rule is designed to provide
acquirors whose home country law permits them to wait to conduct the
analysis until after public announcement with flexibility to maintain
confidentiality to the greatest extent possible.\83\ This change was
advocated by several commenters.\84\
---------------------------------------------------------------------------

    \82\ See letter from Shearman and Sterling LLP (``Shearman'').
    \83\ In some foreign jurisdictions, the acquiror may need to
conduct the look-through analysis before announcement because home
country law may require detailed information about the transaction,
including the treatment of U.S. holders, to be included in the
announcement.
    \84\ Two commenters, Shearman and Davis Polk & Wardwell
(``DPW''), advocated a range extending from the 60th day before
through the 30th day after announcement. Another commenter, Simpson
Thacher & Bartlett LLP (``STB''), suggested a range from the 60th
day before through the 60th day after announcement.

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

    This 90-day range should be used in most cases. We recognize,
however, that the 90-day range may not be enough time in some foreign
jurisdictions, depending on the procedures available for obtaining
beneficial ownership information. Therefore, our revised rules specify
that where the issuer or acquiror is unable to complete the look-
through analysis as of this 90-day period, it may use a date within 120
days before public announcement.\85\ We considered providing every
acquiror and issuer with the flexibility to look through as of a date
within the extended 120-day period before announcement. We believe,
however, that there should be some limits on dates available to conduct
the analysis, and this extended period is warranted only where
necessary.\86\ We believe that in most cases, this date range will be
sufficient time to conduct the required look-through analysis. Where
the acquiror or issuer cannot accomplish the look-through analysis
within this time period, it may use the alternate test outlined below.
---------------------------------------------------------------------------

    \85\ See amended Securities Act Rule 800(h)(1); Instruction 2.i.
to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction
2.i. to amended Exchange Act Rules 14d-1(c) and (d). This expanded
date range is not available for rights offerings. See Section
II.A.3. below.
    \86\ In the Proposing Release, we expressed concern about a
bidder or issuer intentionally choosing a date that presents less
than a representative picture of the target security holder base. We
noted that the cross-border exemptions are not available for any
transaction or series of transactions that technically comply with
our rules but are in fact part of a scheme to evade them. See
Proposing Release, Section II.A.2.b.
---------------------------------------------------------------------------

b. Exclusion of Large Target Security Holders
    Our revised rules do not affect the percentages of target
securities that may be beneficially owned by U.S. holders in order for
a transaction to qualify for the exemption. The maximum U.S. ownership
percentages remain at no more than 10 percent for reliance on Tier I
and Rules 801 and 802 and no more than 40 percent for Tier II.\87\ The
look-through analysis by which these percentages are calculated has
changed, however. Our revised rules will no longer require that
individual holders of more than 10 percent of the subject securities be
excluded from the calculation of U.S. ownership.\88\ We believe this
change will significantly expand the number of cross-border business
combinations eligible for the exemptions, while still providing
appropriate investor protections.
---------------------------------------------------------------------------

    \87\ See Securities Act Rules 801(a)(2) and 802(a)(1) [17 CFR
230.801(a)(2) and 17 CFR 230.802(a)(1)] and Exchange Act Rules 13e-
4(h)(8)(i) and (i)(1)(ii) and 14d-1(c)(1) and (d)(2)(ii) [17 CFR
240.13e-4(h)(8)(i), 240.13e-4(i)(1)(ii), and 240.14d-1(c)(1)].
    \88\ Under the current rules, all securities held by persons or
entities that individually hold more than 10 percent of the subject
class, whether U.S. or foreign, must be excluded from both the
numerator (U.S. ownership) and denominator (worldwide ownership)
when calculating U.S. ownership percentages. See Securities Act Rule
800(h)(2) [17 CFR 230.800(h)(2)]; Instruction 2.ii. to Exchange Act
Rules 13e-4(h)(8) and (i); and Instruction 2.ii. to Exchange Act
Rules 14d-1(c) and (d). Under the amended rules, these securities
will be included in both the numerator and denominator.
---------------------------------------------------------------------------

    Although we did not propose this change in the Proposing Release,
we solicited comment on it, and many commenters advocated it.\89\
Commenters noted that requiring the exclusion of large target holders
generally has the effect of skewing upward the percentage of U.S.
ownership of foreign private issuers, which in turn decreases the
availability of the cross-border exemptions.\90\ Although existing
rules require the exclusion of both U.S. and foreign holders of greater
than 10 percent of the subject securities, commenters suggested that
the effect of this requirement disproportionately inflates U.S.
holdings because holders of large blocks of foreign stock are more
likely to be non-U.S. persons.\91\ We note that although this may be
the case generally, there could be specific fact patterns where this
rule change would decrease the availability of the cross-border
exemptions because of the particular characteristics of the subject
security holder base.\92\ We are persuaded by commenters, however, that
we should not treat greater-than-10 percent holders as non-market
participants for purposes of the U.S. ownership calculation required by
our rules.\93\ We also believe, based on the staff's own experiences
with cross-border transactions since 1999 as well as feedback from the
commenters, that eliminating this exclusion requirement will increase
the availability of the cross-border exemptions without compromising
our investor protection goals.
---------------------------------------------------------------------------

    \89\ See Proposing Release, Section II.A.2.a. See, e.g., letters
from Committee on Mergers, Acquisitions and Corporate Control
Contests, Association of the Bar of the City of New York
(``ABCNY''), DPW, and Linklaters.
    \90\ See, e.g., letters from STB and S&C.
    \91\ See letter from STB.
    \92\ This could be the case where a foreign private issuer had a
disproportionate number of large U.S. security holders of the
subject class.
    \93\ See letter from DPW.
---------------------------------------------------------------------------

    We are retaining the requirement in our existing rules that
securities held by the acquiror be excluded from both the numerator and
denominator in calculating U.S. beneficial ownership.\94\ We did not
propose a change to this requirement of our existing rules. In
assessing what securities should be considered for the calculation, it
is appropriate to exclude those held by the acquiror because it will
not be participating in the acquisition as a target holder. In
addition, acquirors often purchase a minority stake in a target company
as part of a series of transactions which, while they may occur in
stages over time, are part of the same overall acquisition plan;
eliminating the requirement to exclude securities held by the acquiror
would not reflect the reality that these series of transactions are
typically part of an integrated business combination transaction. One
commenter noted that excluding securities held by the acquiror could
have the effect of inflating the U.S. ownership figures for the
remaining securities in the subject class.\95\ As noted above, however,
this will not always be the case; the requirement to exclude securities
held by a U.S. acquiror might have the effect of reducing the total
U.S. ownership percentages. In addition, the commenter acknowledged
that excluding subject securities held by the acquiror does not present
the same logistical issues as requiring an acquiror to exclude
securities held by third parties, for which it might not have accurate
and complete ownership information.\96\
---------------------------------------------------------------------------

    \94\ See amended Securities Act Rule 800(h)(2) and Instruction
2.ii. to amended Exchange Act Rules 14d-1(c) and (d).
    \95\ See letter from ABA.
    \96\ Id.
---------------------------------------------------------------------------

    Several commenters suggested that securities held by greater than
10 percent holders should continue to be excluded from the U.S.
ownership calculation, where those large holders are otherwise
affiliated with the target.\97\ At this time, we are not adopting this
recommendation because we believe it may be too cumbersome to require
acquirors to determine affiliation. Even if we set objective standards
by which affiliation could be determined for these purposes, we believe
the approach toward large holders, whether exclusion as under our
existing rules, or inclusion under our revised rules, should be
consistent for all similarly-situated holders. For this reason, we are
not adopting the suggestion of one commenter to exclude from the
calculation of U.S. ownership subject securities held by certain U.S.

institutional holders.\98\ While the commenter argued that such
institutional holders should be excluded from the calculation because
our focus should be on retail holders, if we exclude U.S. institutions
in determining eligibility to rely on the cross-border exemptions, our
rules will apply less frequently to the retail holders who may need
them the most. In addition, sophisticated institutional holders benefit
from the procedural and other protections of our rules under the
Williams Act.\99\
---------------------------------------------------------------------------

    \97\ See, e.g., letters from Cleary Gottlieb Steen & Hamilton
LLP (``Cleary'') and DPW.
    \98\ See letter from Allen & Overy, Ashurst LLP, Clifford Chance
LLP, Freshfields Bruckhaus Deringer, Herbert Smith LLP, Linklaters
LLP, and Norton Rose LLP. This letter advocates disregarding
holdings by U.S. institutional investors, such as those qualifying
as ``QIBs'' as defined in Rule 144A, even where such entities
individually hold no more than 10 percent of the subject securities.
    \99\ Pub. L. No. 90-439, 82 Stat. 454 (1968).
---------------------------------------------------------------------------

c. Under what circumstances is the issuer or acquiror unable to conduct
the look-through analysis to determine eligibility to rely on a cross-
border exemption?
    As discussed above, the look-through test--as revised today--will
remain the primary means of determining eligibility to rely on the
cross-border exemptions for negotiated transactions. We continue to
believe that extraordinary events in the life of a corporation, such as
tender or exchange offers or other kinds of business combination
transactions, may pose unique opportunities and risks to security
holders. In a tender or exchange offer, where the bidder may present
its offer directly to target security holders even where the target
company itself does not support the offer, the disclosure and
procedural protections of our rules provide critical safeguards for
U.S. investors. Unlike capital-raising transactions, the interests of
all target security holders, including U.S. holders, are affected by
business combinations, whether or not they are permitted to participate
in them. Because U.S. beneficial ownership of target securities
represents aggregate U.S. economic interest in the target company, we
continue to believe that it is the proper standard for determining
exemption status. Nevertheless, commenters have pointed out--and the
staff's experience has informed us of--some problems that arise in
requiring the look-through test. To address these concerns, today we
adopt an alternate test, based in part on a comparison of average daily
trading volume, which may be used to determine eligibility to rely on
the cross-border exemptions. In limited situations, where an issuer or
acquiror is unable to conduct the look-through analysis mandated in our
rules, it may use the alternate test described below.\100\
---------------------------------------------------------------------------

    \100\ Cf. Securities Act Rule 409 [17 CFR 230.409] and Exchange
Act Rule 12b-21 [17 CFR 240.12b-21] (providing flexibility, under
limited circumstances, for registrants when they are unable to
provide information required by the Commission's rules).
---------------------------------------------------------------------------

    Whether an issuer or an acquiror is unable to conduct the look-
through analysis required by our rules will depend on the facts and
circumstances of the particular analysis. We emphasize, however, that
the need to dedicate time and resources to the look-through analysis
alone will not support a finding that a bidder is unable to conduct the
analysis. Similarly, concerns about the completeness and accuracy of
the information obtained from the analysis will not necessarily justify
the use of the alternate test. In each instance, the bidder must make a
good faith effort to conduct a reasonable inquiry into ascertaining the
level of U.S. beneficial ownership. Where issuers and acquirors have
questions about the availability of the alternate test, whether in the
context of individual cross-border transactions or otherwise,
consideration will be given to whether additional guidance is
appropriate.
    Although we are not providing an exhaustive list of the situations
that would justify the use of the alternate test, we do recognize
specific factual scenarios when the alternate test could be used. For
example, in some foreign jurisdictions, security holder lists are
generated only at fixed intervals during the year and are not otherwise
available. In those circumstances, where the published information is
as of a date outside the range specified in our revised rules,\101\ the
alternate test may be used unless the acquiror or issuer otherwise has
access to more current information. We believe that U.S. ownership
information as of a date outside of the expanded range we provide in
our revised rules will be outdated and therefore will justify the use
of the alternate eligibility test.
---------------------------------------------------------------------------

    \101\ Under the amended Instructions to the exemptions, as
discussed above, the acquiror must obtain information about U.S.
beneficial holders as of a date no more than 60 days before and no
more than 30 days after the public announcement of the business
combination (as of the record date for a rights offering). Where the
acquiror cannot obtain information within these time frames, it may
use a date no more than 120 days before public announcement. If it
cannot conduct the look-through as of date within this extended time
frame, the acquiror or issuer is unable to conduct the look-through
for purposes of our rules and may rely on the alternate test.
---------------------------------------------------------------------------

    We also believe that an acquiror generally will be unable to
conduct the required look-through analysis in the manner prescribed by
our revised rules when the subject securities are in bearer form.\102\
In addition, in certain foreign jurisdictions, nominees may be
prohibited by law from disclosing information about the beneficial
owners on whose behalf they hold. Where this prohibition extends to the
country of residence of the beneficial owners of the subject
securities, we believe the alternate test for determining eligibility
should be available. Even the issuer itself may be unable to conduct
the required look-through analysis and thus may turn to the alternate
test under our revised rules.\103\ In addition, where a business
combination transaction is non-negotiated (not conducted pursuant to an
agreement between the target and the acquiror), the acquiror need not
conduct the look-through analysis under our revised rules. This is
consistent with the existing rules, premised on the concept that a
third party will generally have decreased access to ownership
information without the cooperation of the target.\104\
---------------------------------------------------------------------------

    \102\ These are securities for which the issuer or other party
does not keep a registry of ownership. The possession of the stock
certificate is the only proof of ownership for bearer securities.
    \103\ See Instruction 3 to amended Exchange Act Rules 13e-
4(h)(8) and (i). This is different from the approach in our current
rules, where the hostile presumption based on factors other than the
look-through analysis is not available to issuers or affiliated
bidders.
    \104\ See the Proposing Release, Section II.A.3.a. and the 1999
Cross-Border Adopting Release, Section II.F.3.
---------------------------------------------------------------------------

2. Elements of the Alternate Test
    Under the revised eligibility test, most acquirors will be required
to conduct the look-through analysis, as modified by the rule changes
we adopt today and discussed above. Only where an acquiror is unable to
conduct the required analysis because of specific circumstances may it
turn to the other means of determining eligibility specified in the
alternate test.\105\ As noted above, acquirors in non-negotiated
transactions may continue to rely on the alternate test, which is
similar to and replaces the current ``hostile presumption.''
---------------------------------------------------------------------------

    \105\ See new Securities Act Rule 800(h)(7); Instruction 3 to
amended Exchange Act Rules 13e-4(h) and (i); and Instruction 3 to
amended Exchange Act Rules 14d-1(c) and (d).
---------------------------------------------------------------------------

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

know that U.S. ownership exceeds the limits for the applicable
exemption. We discuss each element of this alternate test below.
a. Average Daily Trading Volume Test
    The first prong of our alternate test is based on a comparison of
ADTV of the subject securities in the United States, as compared to
worldwide ADTV.\106\ As revised, this element of the alternate test is
satisfied where ADTV for the subject securities in the United States
over a twelve-month period ending no more than 60 days before the
announcement of the transaction is not more than 10 percent (40 percent
for Tier II) of ADTV on a worldwide basis.\107\ As noted above, the
percentage trading volume figures remain unchanged from the comparable
component of the existing test for non-negotiated transactions.\108\ We
considered decreasing these percentages for purposes of this ADTV
element, because our analysis indicates that these trading volume
levels do not correspond with the U.S. beneficial ownership levels that
remain the focus of our revised eligibility test.\109\ However, these
ADTV figures are a feature of the comparable ADTV element of the
existing hostile presumption, and we have retained the comparable
limiting elements focused on U.S. beneficial ownership discussed below.
For these reasons, and because the alternate test will be available
only in limited circumstances outside the context of a non-negotiated
transaction, we have not changed the percentages for the ADTV test.
---------------------------------------------------------------------------

    \106\ The comparable prong of the existing hostile presumption
test compares ``aggregate trading volume of the subject securities
on all national securities exchanges in the United States, on the
Nasdaq market, or on the OTC market as reported to the NASD'' to the
worldwide aggregate trading volume. See, e.g., the existing
Instruction 3 to Exchange Act Rules 14d-1(c) and (d). Although the
revised instruction we adopt today refers to ``average daily''
instead of ``aggregate'' trading volume, and eliminates the
references to the NASD (or its successor FINRA), we do not view
these changes as substantive.
    \107\ See new Securities Act Rule 800(h)(7)(i); Instruction 3.i.
to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction
3.i. to amended Exchange Act Rules 14d-1(c) and (d).
    \108\ See Securities Act Rule 802(c) and Instruction 3 to
Exchange Act Rules 14d-1(c) and (d).
    \109\ See Memorandum from the Office of Economic Analysis (June
5, 2008) (available in the comment file for the Proposing Release at
http://www.sec.gov/rules/proposed/s71008.shtml).
---------------------------------------------------------------------------

    The revised rules specify that where a transaction is not made
pursuant to an agreement between the acquiror and the target company,
the acquiror need not conduct the look-through analysis.\110\ This is
similar to the existing ``hostile presumption'' for non-negotiated
transactions. We made that presumption available in 1999 when the
current exemptions were adopted because we recognized that where no
such agreement exists, without the cooperation of the target company,
the acquiror's ability to obtain information about brokers and other
nominees may be limited.\111\ We believe this continues to be the case
today.
---------------------------------------------------------------------------

    \110\ See new Securities Act Rule 800(h)(6) and Instruction 3 to
amended Exchange Act Rules 14d-1(c) and (d).
    \111\ See 1999 Cross-Border Adopting Release, Section II.F.3.
---------------------------------------------------------------------------

    The revised rules provide acquirors with a range of dates by which
they may do the comparison of U.S. and worldwide average daily trading
volume. The comparison must be made over a twelve-month period ending
no more than 60 days before the public announcement of the
transaction.\112\ The requirement to perform the comparison as of a
twelve-month period minimizes the potential for manipulation of the
trading volumes both inside and outside the United States. For the
reasons discussed above, we believe that providing a range of dates as
of which the comparison may be accomplished provides appropriate
flexibility for acquirors. In the context of an objective measure such
as ADTV, there should be no concerns about compromising confidentiality
by doing this calculation before announcement. Therefore, for purposes
of this prong of the alternate test, we are not permitting the acquiror
to use a range of dates that extends beyond announcement, as we do for
the look-through test discussed above.\113\ Using public announcement
instead of commencement as the reference point for the calculation will
allow acquirors to determine and inform the market and target holders
about the treatment of U.S. holders at an earlier stage in the process.
---------------------------------------------------------------------------

    \112\ See new Securities Act Rule 800(h)(7)(i); Instruction 3.i.
to amended Exchange Act Rules 13e-4(h)(8) and (i); and Instruction
3.i. to amended Exchange Act Rules 14d-1(c) and (d). We proposed to
modify the instruction in our rules to mandate a calculation over a
twelve-calendar-month period ending no later than 60 days before
announcement. We did not receive comments specifically addressing
this point.
    \113\ See Instruction 2 to amended Exchange Act Rules 14d-1(c)
and (d).
---------------------------------------------------------------------------

    The revised rules also require that there be a ``primary trading
market'' for the subject securities, as that term is defined in our
rules,\114\ in order for the acquiror in a negotiated transaction to
rely on the alternate test as a result of being unable to conduct the
look-through analysis.\115\ ``Primary trading market'' means that at
least 55 percent of the trading volume in the subject securities takes
place in a single, or no more than two, foreign jurisdictions during a
recent twelve-month period.\116\ In addition, if the trading of the
subject securities occurs in two foreign markets, the trading in at
least one of the two must be larger than the trading in the United
States for that class.\117\ In our view, the existence of a primary
trading market is important because it is designed to ensure that there
is a primary foreign regulator with oversight over the transaction.
Thus, where there is no primary trading market for the subject
securities outside of the United States, an acquiror in a negotiated
transaction may not rely on the alternate test. In response to our
request for comments, several commenters supported the adoption of a
``primary trading market'' component if we adopted a test based in
whole or in part on ADTV.\118\
---------------------------------------------------------------------------

    \114\ See Exchange Act Rule 12h-6(f)(5).
    \115\ We did not propose, but we solicited comment on, whether
we should adopt a primary trading market requirement when using an
ADTV measure. See Proposing Release, Section II.A.4. The primary
trading market requirement does not apply to the use of the
alternate test for non-negotiated transactions.
    \116\ Exchange Act Rule 12h-6(f)(5)(i) [17 CFR 240.12h-
6(f)(5)(i)]. Elsewhere in the revised exemptions, we continue to use
the term ``primary trading market'' more narrowly, to refer to the
single, principal foreign trading market for the subject securities
outside the United States. See footnote 58 in the Proposing Release.
    \117\ Exchange Act Rule 12h-6(f)(5)(ii) [17 CFR 240.12h-
6(f)(5)(ii)].
    \118\ See letters from Bredin Prat, De Brauw Blackstone
Westbroek, Hengeler Mueller, Slaughter and May, and Uria Menendez,
STB, and Sompo Japan Insurance Inc.
---------------------------------------------------------------------------

    One commenter stated that requiring average daily trading volume in
the United States to be compared to trading in the primary trading
market, as opposed to the worldwide trading market, would be too
restrictive.\119\ The revised rules require a comparison of U.S. ADTV
to worldwide ADTV, thus maximizing the size of the denominator and
potentially limiting the U.S. average daily trading volume
numbers.\120\
---------------------------------------------------------------------------

    \119\ See letter from ABA.
    \120\ This is consistent with the manner in which the
calculation is done for purposes of the deregistration rule. See
Exchange Act Rule 12h-6(a)(4)(i) [17 CFR 240.12h-6(a)(4)(i)].
Worldwide average daily trading volume for these purposes would
include U.S. average daily trading volume.
---------------------------------------------------------------------------

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

reports or other filings indicate levels of U.S. ownership that exceed
applicable limits for that exemption.\121\
---------------------------------------------------------------------------

    \121\ See amended Securities Act Rule 800(h)(7)(ii); Instruction
3.ii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and
Instruction 3.ii. to amended Exchange Act Rules 14d-1(c) and (d).
---------------------------------------------------------------------------

    This element of the alternate test is virtually identical to the
comparable element of the existing test for non-negotiated
transactions.\122\ The only change from the prior test for non-
negotiated transactions is that the revised Instruction specifies that
only annual reports or other annual information filed before the public
announcement of the transaction must be taken into account by the
acquiror. We believe it is appropriate to set a time limit on the
information that the acquiror must consider, since the planning process
of the transaction and the certainty of the exemption itself may be
disrupted by a filing that is made late in the process.
---------------------------------------------------------------------------

    \122\ See Securities Act Rule 802(c)(3) [17 CFR 230.802(c)(3)]
and Instruction 3.iii. to Exchange Act Rules 14d-1(c) and (d).
---------------------------------------------------------------------------

    The acquiror's eligibility to rely on a cross-border exemption
should not be affected by filings after that time, because the public
announcement may contain (and in some foreign jurisdictions, must
contain) detailed information about the treatment of U.S. target
holders. We do not believe that the acquiror should lose eligibility
based on reports filed after announcement; conversely, the acquiror
will not gain eligibility to rely on the exemptions based on reports
filed after announcement indicating a reduction in the percentage of
U.S. holders.
    The annual report filed with the Commission by foreign private
issuers subject to Exchange Act reporting requires disclosure of the
percentage of the class held by U.S. persons.\123\ Not all foreign
private issuers file annual reports with the Commission, however.\124\
For those who do not file with the Commission, reports filed in the
home jurisdiction may or may not require disclosure of comparable
information about U.S. ownership. However, the acquiror may have reason
to know U.S. beneficial ownership figures for non-reporting issuers,
which also must be taken into account pursuant to the final element of
the eligibility test.
---------------------------------------------------------------------------

    \123\ Item 7.A.2. of Form 20-F mandates that ``[i]nformation
shall be provided as to the portion of each class of securities held
in [the United States] and the number of record holders in the
[United States].'' Many foreign private issuers filing Form 20-F
provide information about U.S. record ownership only, which is not
in and of itself the measure of U.S. ownership used to determine
eligibility to rely on the cross-border exemptions.
    \124\ A foreign private issuer must file an annual report with
the Commission only where the foreign private issuer has a class of
securities registered under Section 12 of the Exchange Act.
---------------------------------------------------------------------------

c. Reason To Know
    We refer to the final element in the new alternate test as the
``reason to know'' element. The existing hostile presumption test for
non-negotiated transactions contains a similar element.\125\ This prong
of the alternate test provides that an applicable cross-border
exemption is not available, even where all other elements of the
alternate test are met, if the acquiror ``knows or has reason to know''
that U.S. beneficial ownership levels exceed the limits for the
applicable exemption.\126\
---------------------------------------------------------------------------

    \125\ See Securities Act Rule 802(c)(4) [17 CFR 230.802(c)(4)]
and Instruction 3.iv. to Exchange Act Rules 14d-1(c) and (d).
    \126\ See new Securities Act Rule 800(h)(7)(iii); Instruction
3.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and
Instruction 3.iii. to amended Exchange Act Rules 14d-1(c) and (d).
---------------------------------------------------------------------------

    We believe the reason to know element serves a critical function in
protecting the interests of U.S. investors under the current hostile
presumption. Each other element of the eligibility test has limitations
which may translate into an inaccurate and incomplete picture of the
subject security holder base. The reason to know element captures
information that the acquiror may gain as a result of its own
assessment of the target company and the feasibility of the
transaction. The acquiror should not be permitted to ignore such
information simply because it comes from sources other than those
captured in the other elements of our alternate test. The staff has
received numerous questions about what constitutes ``reason to know''
information about U.S. ownership levels that would preclude reliance on
the exemptions under the current hostile presumption. To provide
guidance on that issue, we proposed changes to this element of the
current hostile presumption test to assist acquirors in determining
what constitutes ``reason to know.'' \127\ The proposed changes, which
we are adopting today, clarified that an offeror is deemed to have
reason to know information about U.S. ownership of the subject class
that appears in any filing with the Commission or any regulatory
authority in the issuer's home country or (if different) the
jurisdiction in which its primary trading market is located.\128\ This
change will capture not only filings by the issuer, but also filings by
other parties reporting beneficial ownership of the subject
securities.\129\
---------------------------------------------------------------------------

    \127\ See proposed Securities Act Rule 802(c)(4) and proposed
Instruction 3.iv. to Exchange Act Rules 14d-1(c) and (d).
    \128\ Id.
    \129\ Only ``annual reports'' or filings of ``annual
information'' by the issuer are covered in the preceding element of
the test. Reports that may be covered by the ``reason to know''
element of the revised test include beneficial ownership reports
filed by third parties reporting ownership in the subject class.
---------------------------------------------------------------------------

    While commenters supported our efforts to provide further
specificity on ``reason to know,'' many requested further guidance on
this issue, consistent with staff experience that it is an area of
concern for practitioners under the current hostile presumption.\130\
Therefore, as adopted, the revised provision contains additional
references to specific sources of information that will be attributed
to the acquiror.\131\ This includes information about U.S. ownership
``available from the issuer or obtained or readily available from any
other source that is reasonably reliable.'' \132\ ``Readily available''
for these purposes means publicly available from sources reasonably
accessible to the issuer or acquiror at no or limited cost. We do not
intend this language to mean that an issuer or acquiror must take into
account information publicly available from any source, no matter how
obscure or costly to obtain. If the acquiror and the target enter into
an agreement pursuant to which the acquiror has the right to obtain
information from the target, including information about U.S.
ownership, it will be deemed to know any such information known to the
target. We believe such an agreement will almost always exist in the
context of a negotiated transaction.
---------------------------------------------------------------------------

    \130\ See, e.g., letter from DPW.
    \131\ See amended Securities Act Rule 800(h)(7)(iii);
Instruction 3.iii. to amended Exchange Act Rules 13e-4(h)(8) and
(i); and Instruction 3.iii. to amended Exchange Act Rules 14d-1(c)
and (d).
    \132\ Id.
---------------------------------------------------------------------------

    Other sources of information of which the acquiror will be deemed
to have knowledge under the rule revisions adopted today include, but
are not limited to, third-party information providers and other
advisors engaged by the parties to the transaction that may have
provided information about U.S. ownership. This change to the rule does
not require that the parties engage such third parties in order to
qualify for eligibility under this element.\133\ The rule simply
requires the acquiror to take into account information that is obtained
from a third-party information provider, including information that is
readily available from such providers.

These examples cited in our revised rules are not intended to be
exclusive; an acquiror may have reason to know information from other
sources, depending on the particular facts and circumstances of the
transaction.\134\
---------------------------------------------------------------------------

    \133\ One commenter requested that we clarify that we are not
establishing such a requirement. See letter from Cravath, Swaine, &
Moore LLP (``Cravath'').
    \134\ The proposed rules note that the sources listed are not
intended to be an exclusive list.
---------------------------------------------------------------------------

    We are adopting as proposed the limiting language in this revised
instruction that makes it clear that knowledge or reason to know
acquired after public announcement will not disqualify the acquiror
from relying on the cross-border exemptions.\135\ For the reasons
discussed in the preceding section, we believe it is appropriate to
include a timing element here, so that the ability to rely on a cross-
border exemption is not called into question by knowledge acquired
after announcement. Commenters generally supported this change.\136\
---------------------------------------------------------------------------

    \135\ We do this by inserting the language the words ``before
the public announcement'' into the first sentence of this amended
provision. See new Securities Act Rule 800(h)(7)(iii); Instruction
3.iii. to amended Exchange Act Rules 13e-4(h)(8) and (i); and
Instruction 3.iii. to amended Exchange Act Rules 14d-1(c) and (d).
    \136\ See, e.g., letter from ABCNY.
---------------------------------------------------------------------------

3. Changes to Eligibility Test for Rights Offerings
    The changes to the eligibility test we adopt today also will apply
to the calculation of U.S. ownership for rights offerings. Issuers may
now calculate U.S. ownership as of a date no more than 60 days before
and 30 days after the record date for the rights offering.\137\ Thus,
issuers will have greater flexibility on the timing of the calculation
of U.S. ownership within a range of dates; however, the reference point
for the calculation will continue to be the record date for rights
offerings, rather than the date of public announcement for business
combinations. This is appropriate because the record date for a rights
offering is more closely tied to the specific security holder base that
may participate in the transaction.\138\
---------------------------------------------------------------------------

    \137\ See amended Securities Act Rule 800(h).
    \138\ See amended Securities Act Rule 800(h)(1). The expanded
date range of up to 120 days if the information is not available
within the range otherwise specified is not available for rights
offerings. This should not be needed, as it is within the issuer's
power to set an appropriate record date.
---------------------------------------------------------------------------

    We solicited comment on, but did not propose changes to, the
eligibility test for rights offerings because we did not believe that
issuers faced the same problems with the look-through analysis as
third-party acquirors did for business combination transactions.\139\
However, several commenters argued that we should also adopt similar
changes to the rights offering exemption.\140\ It is our understanding
that many foreign private issuers continue to exclude U.S. holders from
rights offerings available to all other security holders. To the extent
that the revisions we adopt today make the exemption for rights
offerings more readily available and facilitate the inclusion of U.S.
holders, these changes may be useful in promoting our investor
protection goals.
---------------------------------------------------------------------------

    \139\ See Proposing Release, Section II.A. This may be because
issuers generally have access to greater information about their own
security holders, and rights offerings may not be subject to the
same time pressures as business combination transactions.
    \140\ See letters from Cravath and S&C.
---------------------------------------------------------------------------

    Therefore, we are adopting similar changes to the method of
calculating U.S. ownership for purposes of the exemption for rights
offerings as we adopt today for business combination transactions. This
will allow issuers more time to conduct the U.S. ownership calculation
at an earlier stage in the transaction planning process. In addition to
the changes to the look-through analysis mandated under our revised
rules, the alternate test for calculating U.S. ownership also will be
available for issuers unable to conduct the look-through analysis.\141\
---------------------------------------------------------------------------

    \141\ See new Securities Act Rule 800(h)(6) and (7). This is a
change from our existing rules, where the hostile presumption based
in part on the average daily trading volume comparison is available
only for third-party, unaffiliated acquirors. See, e.g., existing
Securities Act Rule 802(c), which applies only to persons other than
the issuer of the subject securities and is being replaced by the
alternate test.
---------------------------------------------------------------------------

B. Changes to the Tier I Exemptions

1. Expanded Exemption From Exchange Act Rule 13e-3
    We are adopting as proposed revised Exchange Act Rule 13e-3(g)(6)
expands the scope of the exemption from Rule 13e-3 to cover a broader
range of cross-border transactions than otherwise would be subject to
that Rule. Existing Rule 13e-3(g)(6) exempts the parties engaged in an
affiliated cross-border business combination transaction from the
application of Rule 13e-3 where that transaction is structured as an
issuer or third-party tender offer under the Tier I cross-border
exemptions, or as a securities offering made pursuant to Securities Act
Rule 802. Transactions such as cash mergers, compulsory acquisitions
for cash, and schemes of arrangement not consummated under these rules
could be subject to Rule 13e-3 even where they otherwise would have
been eligible for the cross-border exemption from that rule, if
structured under Tier I or Securities Act Rule 802.
    We believe that the form of the transaction should not govern
whether Rule 13e-3 applies to a cross-border transaction which
otherwise would be eligible for the Tier I exemption from that rule;
therefore, we proposed eliminating the limits on the kinds of cross-
border transactions that could be covered under the exemption in Rule
13e-3(g)(6). We are adopting this change as proposed. In order to
qualify for the expanded exemption from Rule 13e-3, a party must meet
all of the conditions for reliance on Rule 802 or Tier I. These
conditions such as the requirement that U.S. security holders be
treated at least as favorably as foreign security holders, will
continue to safeguard the interests of U.S. holders. In addition, a
party relying on revised Rule 13-3(g)(6) for affiliated transactions
not conducted pursuant to Securities Act Rule 802 or Tier I must submit
a Form CB to the same extent as would be required in a transaction
conducted pursuant to those provisions. Because the party relying on
the expanded cross-border exemption from Rule 13e-3 would have had an
obligation to file a Schedule 13E-3, absent the expanded exemption, a
Form CB (and Form F-X where the filer is foreign) will be
required.\142\
---------------------------------------------------------------------------

    \142\ See Instruction to amended Exchange Act Rule 13e-3(g)(6).
---------------------------------------------------------------------------

    In the Proposing Release, we solicited comment on how we should
accomplish the proposed expansion of the exemption from Rule 13e-3. We
asked whether we should revise the rule to list additional transaction
structures that would be covered under the expanded exemption, or
whether we should simply eliminate any limits on the types of
transactions covered, as proposed. The four commenters who addressed
this issue supported the change, including our approach of leaving open
the kinds of cross-border transactions that may be covered under the
expanded exemption, to provide maximum flexibility for the parties
covered by Rule 13e-3.\143\
---------------------------------------------------------------------------

    \143\ See letters from ABA, ABCNY, Cravath, and DPW.
---------------------------------------------------------------------------

    One commenter called for us to extend the exemption from Rule 13e-3
to tender offers conducted pursuant to Tier II, on the grounds that
corporate law matters that underpin the enhanced investor protection
provisions in Rule 13e-3 are best addressed by home country
regulation.\144\ We recognize that other jurisdictions may impose
equally effective but different safeguards to address the conflict of
interests that may exist in a transaction to which Rule 13e-3 applies.
We note, however, that Rule 13e-3 is a disclosure provision and we do
not believe its application is unduly burdensome, particularly where

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

    \144\ See letter from ABCNY.
---------------------------------------------------------------------------

    Another commenter called for us to exempt from the application of
Rule 13e-3 any transaction subject to a third-party fairness hearing
and determination.\145\ We decline to expand the exemption in this
manner. As noted above, Rule 13e-3 is a disclosure provision and does
not regulate the substantive fairness of the underlying transaction.
Thus, the fact that an affiliated transaction in a foreign jurisdiction
has been found to be fair by an independent tribunal or other third
party will be a matter for disclosure under the rule, but in our view,
should not affect its general application.
---------------------------------------------------------------------------

    \145\ See letter from the ABA.
---------------------------------------------------------------------------

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

C. Changes to the Tier II Exemptions

    We proposed a number of changes to Tier II in order to alleviate
practical difficulties that often result in the need for companies to
request specific exemptive or no-action relief.\146\ Most commenters
did not address the specific changes we proposed, but generally
supported our proposed expansion of these exemptions.
---------------------------------------------------------------------------

    \146\ Where we refer in this release to ``relief,'' we mean
exemptive or no-action relief provided by letter in the context of
an individual transaction, unless otherwise indicated. See footnote
46 above referring to the staff's delegated authority to provide
exemptive relief from U.S. rules for specific cross-border
transactions. Where we refer to ``interpretive guidance,'' we mean
oral positions taken by the staff or written interpretations
promulgated by the Division of Corporation Finance in the Manual of
Publicly Available Telephone Interpretations available on our Web
site. We refer to ``Commission guidance'' or ``Commission
interpretive guidance'' to mean positions expressed by the
Commission in releases.
---------------------------------------------------------------------------

1. Tier II Relief for Tender Offers Not Subject to Rule 13e-4 or
Regulation 14D
    The Tier II exemptions represent targeted modifications to U.S.
tender offer rules intended to accommodate differences between U.S. and
foreign practice in the context of a cross-border tender offer. Because
the Tier II exemptions are contained in Rule 13e-4 and Regulation 14D,
the staff receives questions about whether a bidder may rely on these
exemptions for a tender offer subject to the provisions of Regulation
14E only. The staff has taken the position that the Tier II exemptions
are available for tender offers that would otherwise qualify for those
exemptions, but for the fact that the tender offer is not subject to
Rule 13e-4 or Regulation 14D. The staff's position was based on the
premise that it would be inconsistent for bidders in tender offers
subject only to the more basic tender offer provisions in Regulation
14E not to be able to take advantage of the Tier II exemptions, which
technically apply to tender offers that are subject to the more
extensive regulatory protections in Rule 13e-4 and Regulation 14D. We
proposed to change the language of the Tier II exemptions to
specifically make it available to offers subject only to Regulation
14E. As we stated in the Proposing Release, we believe the Tier II
exemptions should be available for such offers if the conditions in our
rules are satisfied; therefore, we are adopting amendments to the rules
as proposed to clarify that the Tier II exemptions are available
regardless of whether the target securities are subject to Rule 13e-4
or Regulation 14D.\147\
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    \147\ See amended Exchange Act Rules 13e-4(i) and 14d-1(d).
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    Commenters supported the proposed amendments to codify this
position.\148\ Under the revised rules, the Tier II exemptions will be
available to Regulation 14E-only offers only where the exemptions would
have been available if those offers were subject to Rule 13e-4 or
Regulation 14D. Thus, all of the existing conditions applicable to the
Tier II exemptions will apply. Some of the Tier II exemptions may not
be necessary for tender offers not subject to the requirements of Rule
13e-4 or Regulation 14D, because Regulation 14E may not have a
corresponding regulatory requirement.\149\
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    \148\ 148 See, e.g., letter from Cravath.
    \149\ For example, there is no requirement in Regulation 14E to
make a tender offer available to all target security holders.
Therefore, the accommodation from the all-holders provisions in
Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii) will not be
necessary for an offer subject only to Regulation 14E.
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2. Tier II Relief for Concurrent U.S. and Non-U.S. Offers
a. Multiple Foreign Offers in Connection With a U.S. Offer
    The existing Tier II cross-border exemptions permit a bidder to
conduct two separate but concurrent tender offers: one made only to
U.S. target security holders and another open only to foreign target
holders. In some instances, a tender offer may be subject to more than
one regulatory regime outside the United States, particularly where the
target's country of incorporation is not the location of the primary
trading market for the target securities. In the past, bidders have
requested and have been granted relief to conduct more than one foreign
offer outside of the United States pursuant to the Tier II
exemptions.\150\
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    \150\ See, e.g., Alcan, Inc. (October 7, 2003) (``Alcan''); Asia
Satellite Telecommunications Holdings Limited (May 25, 2007); BCP
Crystal Acquisition GmbH & Co (February 3, 2004) and Mittal Steel
Company N.V. (June 22, 2006) (``Mittal'') (providing relief for
purchases outside of a U.S. offer for a tender offer that included
more than one offer conducted outside of the United States).
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    Because we believe the use of a multiple offer structure may be
helpful in addressing procedural and technical conflicts between tender
offer rules and practice, as well as procedural requirements between
different jurisdictions, we see no reason to prohibit the use of more
than one offer outside the United States in connection with the Tier II
exemptions. Three commenters addressed this proposed change; all
supported it.\151\ For the reasons noted above, we are adopting the
amendments as proposed to permit the use of more than one offer outside
of the United States for tender offers conducted under Tier II.\152\ We
believe the resulting increased flexibility to resolve regulatory
conflicts will promote our goal of facilitating the inclusion of U.S.
investors in cross-border tender offers subject to multiple regulatory
regimes outside of the United States.
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    \151\ Letters from ABA, Cravath, and S&C.
    \152\ Amended Exchange Act Rules 13e-4(i)(2)(ii) and 14d-
1(d)(2)(ii).
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    As discussed in the Proposing Release, the amendments we adopt
today with respect to the use of a multiple offer structure under Tier
II are not intended to permit the use of separate proration pools where
such a structure is used in the context of a partial cross-border
tender offer.\153\ Under the current as well as the revised rules,
bidders who conduct separate foreign and U.S. offers to minimize the
difficulties of complying with two different regulatory regimes
applicable to the offer must pro rate tendered securities on an
aggregate basis, where required under U.S. rules.\154\
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    \153\ Two commenters addressed our request for comment on
whether we should permit the use of two separate proration pools in
cross-border tender offers under Tier II. Both supported the
continued use of a single proration pool. See letters from Cleary
and Cravath.
    \154\ See Exchange Act Section 14(d)(6) [15 U.S.C. 78n(d)(6)]
and Exchange Act Rules 13e-4(f)(3) [17 CFR 240.13e-4(f)(3)] and 14d-
8 [17 CFR 240.14d-8]. See also the discussion in Section II.C.2.c.
of the Proposing Release.

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b. U.S. Offer May Include Non-U.S. Holders of ADRs \155\
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    \155\ ``ADRs'' refer to American Depositary Receipts. As in the
Proposing Release, we use this term synonymously with American
Depositary Shares, or ADSs.
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    The existing Tier II exemptions specify that a U.S. offer conducted
in connection with a concurrent foreign offer under Tier II may be open
to U.S. persons only.\156\ This limitation creates a problem because
bidders frequently seek to include all holders of ADRs, not only U.S.
holders, in the U.S. portion of a dual offer. Additionally, in many
instances, the target's home country regulations do not apply, by their
terms, to ADRs.\157\ So, as a practical matter, most bidders in cross-
border tender offers wish to include all holders of ADRs in the U.S.
portion of a dual offer. Companies frequently seek individual relief
from the staff to address these issues.\158\ The staff often has
granted relief to permit a U.S. offer in a dual offer structure to
include all holders of ADRs, including foreign holders.\159\ Commenters
generally supported the proposal.\160\ Today we are adopting as
proposed rule revisions that will allow a bidder in a cross-border
tender offer conducted under Tier II to make the U.S. offer available
to all holders of ADRs, including non-U.S. holders, to accommodate this
preferred offer structure.\161\ These revisions will eliminate the need
for companies to seek individual relief in such circumstances.
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    \156\ Exchange Act Rules 13e-4(i)(2)(ii) and 14d-1(d)(2)(ii).
    \157\ See, e.g., Portugal Telecom, SGPS, S.A. (December 19,
2006) (``Portugal Telecom'') (noting that the provisions of the
Portuguese Securities Code and the rules and regulations of the
Portuguese 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).
    \158\ See Harmony Gold Mining Company Limited (November 19,
2004) (``Harmony Gold 2004''); Discount Investment Corporation Ltd.
(June 14, 2004); Alcan; Serono S.A. (September 12, 2002) (``Serono
S.A.''); and Southern Cross (March 5, 2002).
    \159\ See, e.g., Royal Bank of Scotland plc (July 23, 2007)
(``Royal Bank''); E.ON Aktiengesellschaft (December 6, 2006)
(``E.ON''); Koninklijke Ahold N.V. (September 10, 2002)
(``Koninklijke'').
    \160\ See, e.g., ABA.
    \161\ Amended Exchange Act Rules 13e-4(i)(2)(ii) and 14d-
1(d)(2)(ii).
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    As we noted in the Proposing Release, bidders have not requested
exemptive or no-action relief to permit the inclusion of foreign
persons who hold shares directly in share form in the U.S. offer. Two
commenters advocated that we allow the U.S. offer to be made to foreign
holders of target shares as well as ADRs. We do not believe such a rule
change is warranted at this time, given that this type of relief has
not been requested frequently. If circumstances arise that weigh in
favor of permitting foreign target holders to be included in the U.S.
offer in a particular instance, requests for relief will be considered
on a case-by-case basis. Therefore, we are not changing our rules to
permit foreign holders who hold in direct share form to participate in
the U.S. offer under Tier II.
    We emphasize that, as discussed in the Proposing Release, this and
other rule changes to the Tier II exemptions are not intended to enable
a bidder to make an offer open only to ADR holders. This would be
prohibited where the target securities are registered under Section 12
of the Exchange Act and the all-holders provisions of U.S. tender offer
rules apply.\162\
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    \162\ See Exchange Act Rules 13e-4(f) [17 CFR 240.13e-4(f)] and
14d-10 [17 CFR 240.14d-10].
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c. U.S. Holders May Be Included in Foreign Offer
    We are adopting as proposed revisions allowing a bidder to include
U.S. target security holders in a foreign offer conducted under Tier
II, under specified conditions. Under the revised rules, when a bidder
conducts concurrent U.S. and foreign offers under Tier II, the foreign
offer may be open to U.S. target security holders only where: (i) The
laws of the foreign target company's home jurisdiction expressly
prohibit the exclusion of any target security holders, including U.S.
persons; and (ii) the offer materials distributed to U.S. persons fully
and completely describe the risks to U.S. holders of participating in
the non-U.S. offer.\163\
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    \163\ See amended Exchange Act Rules 13e-4(i)(2)(ii) and 14d-
1(d)(2)(ii).
---------------------------------------------------------------------------

    This rule change reflects the fact that takeover rules in some non-
U.S. jurisdictions do not permit the exclusion of any target security
holders from the foreign offer, even where the bidder makes a
concurrent U.S. offer that is open to U.S. holders. Where such rules
are present, relief has been granted on a case-by-case basis, in order
to accommodate the requirements of the applicable foreign regulatory
regime.\164\ Such relief has been conditioned on the same conditions we
now codify in the revised rule, which we believe strikes the
appropriate balance between the need to respect a foreign regulatory
requirement in a primarily foreign transaction and the need to provide
adequate protections for U.S. investors by fully disclosing the risks
of participating in a non-U.S. offer not subject to U.S. rules.\165\
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    \164\ See, e.g., Gas Natural SDG, S.A. (March 2, 2006) (``Gas
Natural'').
    \165\ See amended Exchange Act Rules 13e-4(i)(2)(ii) and 14d-
1(d)(2)(ii).
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    Commenters generally supported the proposed changes to the Tier II
exemptions, including this change. One commenter stated that permitting
U.S. persons to be included in a foreign offer where mandated by
foreign law and where U.S. investors have received appropriate
disclosure concerning the risks of participating in the foreign offer
strikes the appropriate investor protection balance.\166\
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    \166\ Letter from ABA.
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    We note that the rule change permitting U.S. investors to
participate in a non-U.S. offer conducted under the Tier II exemptions
does not require them to do so. Under our revised rules, as was the
case before today's amendments, any U.S. holder who prefers to tender
into the U.S. offer in a multiple offer under Tier II is free to do so.
3. Termination of Withdrawal Rights While Counting Tendered Securities
    We are adopting as proposed the rule revisions permitting a bidder
in a cross-border tender offer conducted under Tier II to suspend
withdrawal rights during the counting of tendered securities and until
those securities are accepted for payment.\167\ Rule 13e-4(f)(2)(ii)
and Section 14(d)(5) of the Exchange Act require bidders to provide
``back-end'' withdrawal rights if tendered securities have not been
accepted for payment within a certain date after the commencement of a
tender offer.\168\ Acceptance of securities tendered terminates the
back-end withdrawal rights mandated by Rule 13e-4 and the Exchange
Act.\169\
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    \167\ See new Exchange Act Rules 13e-4(f)(2)(v) and 14d-
1(d)(2)(viii).
    \168\ For issuer tender offers subject to Rule 13e-4, tendering
security holders must be able to withdraw tendered securities after
the expiration of 40 business days from the commencement of the
tender offer. Exchange Act Rule 13e-4(f)(2)(ii) [17 CFR 240.13e-
4(f)(2)(ii)]. For third-party tender offers, Section 14(d)(5) of the
Exchange Act states that withdrawal rights exist ``at any time after
sixty days from the date of [commencement] of the original tender
offer * * *.''
    \169\ Exchange Act Rule 13e-4(f)(2)(ii) states that back-end
withdrawal rights arise upon the 41st day after commencement of an
offer ``if [tendered securities are] not yet accepted for payment.''
We interpret the back-end withdrawal rights provisions in Section
14(d)(5) of the Exchange Act to terminate upon acceptance of
tendered securities.
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    The requirement to provide back-end withdrawal rights creates
problems in cross-border tender offers not generally present in U.S.
offers. Differences in the tender, acceptance and payment procedures
between U.S. and foreign offers necessitate this relief. The manner

in which securities are tendered and centralized for counting in U.S.
tender offers typically enable bidders to accept tendered securities
almost immediately after the expiration of the initial offering period,
thereby terminating back-end withdrawal rights. However, because of
differences in the manner in which securities are tendered in many non-
U.S. jurisdictions, the centralization and counting of tendered
securities can take longer than in the United States.\170\ This makes
it more likely that back-end withdrawal rights will exist during the
counting process in a cross-border tender offer, thereby complicating
the counting and payment procedure.
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    \170\ For a description of the counting and centralization
process in several European jurisdictions, see Business Objects S.A.
(December 5, 2007) and Vodafone AirTouch PLC (December 22, 1999).
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    As a result of these difficulties, bidders have sought relief from
the application of the back-end withdrawal rights provided under our
rules in connection with cross-border tender offers.\171\ We have
recognized that the mechanics of the tendering and counting regimes in
other countries justifies different treatment under our rules,\172\ and
for the same reasons, we believe it is appropriate to provide an
exemption in this area. Under the rule revisions we are adopting, back-
end withdrawal rights may be suspended after the expiration of an offer
while tendered securities are being counted in a cross-border tender
offer conducted under Tier II, so long as:
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    \171\ See, e.g., Barclays PLC tender offer for ABN AMRO Holding
N.V. (August 7, 2007) (``Barclays''); Endesa, S.A. (July 3, 2007);
and Portugal Telecom.
    \172\ See Exchange Act Rules 13e-4(i)(2)(iv) and 14d-1(d)(iv)
[17 CFR 240.13e-4(i)(2)(iv) and 240.14d-1(d)(iv)]. As a result of
the differences in process between the U.S. and various foreign
jurisdictions, Tier II currently includes prompt payment relief to
allow a bidder meeting the conditions of that exemption to pay for
tendered securities in accordance with home country law or practice.
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     The bidder has provided an offer period (including
withdrawal rights) of at least 20 U.S. business days; \173\
---------------------------------------------------------------------------

    \173\ New Exchange Act Rules 13e-4(f)(2)(v)(A) and 14d-
1(d)(2)(viii)(A).
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     At the time withdrawal rights are suspended, all offer
conditions other than the minimum acceptance condition have been
satisfied or waived; \174\ and
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    \174\ For reasons discussed above, the bidder in a cross-border
tender offer may not know at the expiration of the offer whether the
minimum tender condition has been satisfied, and the amended rules
recognize this issue. See new Exchange Act Rules 13e-4(f)(2)(v)(B)
and 14d-1(d)(2)(viii)(B). However, because the tenders of securities
must occur before the expiration, even where the counting process
occurs after the end of the offer, we view a minimum tender
condition as being satisfied at or before expiration, consistent
with our view that all non-regulatory conditions must be satisfied
or waived as of that date. See footnote 151 in the Proposing
Release. Note that the only conditions that may survive the
expiration of the initial offering period are regulatory approvals
necessary to consummate the tender offer.
---------------------------------------------------------------------------

     Back-end withdrawal rights are suspended only until
tendered securities are counted and are reinstated immediately after
that process, to the extent they are not terminated by the acceptance
of tendered securities.\175\
---------------------------------------------------------------------------

    \175\ New Exchange Act Rules 13e-4(f)(2)(v)(C) and 14d-
1(d)(2)(viii)(C).
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    Under the rules before today's amendments, back-end withdrawal
rights were suspended between the end of an initial offering period and
the commencement of a subsequent offering period.\176\ We believe the
rule change we adopt today is necessary because not every tender offer
includes a subsequent offering period. For example, subsequent offering
periods are not permitted in issuer tender offers or in third-party
offers for less than all of the securities of the target class.\177\ A
subsequent offering period in a third-party tender offer for all
outstanding target securities is at the option of the bidder and is not
required under U.S. rules. The rule change we adopt today also operates
to suspend back-end withdrawal rights that may exist after the
expiration of a subsequent offering period, to the extent the bidder
meets the conditions outlined in our rules.
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    \176\ Exchange Act Rule 14d-1(d)(2)(v) [17 CFR 240.14d-
1(d)(2)(v)].
    \177\ Exchange Act Rule 14d-11(b) [17 CFR 240.14d-11(b)].
---------------------------------------------------------------------------

    The rule changes we adopt today are not intended to eliminate back-
end withdrawal rights where a regulatory condition remains outstanding
after the expiration of the offer period. Where a lengthy regulatory
review process survives the expiration of a tender offer, the back-end
withdrawal rights provided under our rules provide an important
safeguard for tendering security holders.
    Commenters generally supported the proposed changes to Tier II,
including this one. One commenter noted that this relief is helpful
even where no subsequent offering period is provided, and agreed that
the requirement that all offer conditions must be satisfied at the time
withdrawal rights are suspended is in the best interests of security
holders.\178\ Otherwise, security holders could face a prolonged period
during which they could not withdraw and would not have received
payment for tendered securities.\179\ One commenter suggested that we
also permit suspension of back-end withdrawal rights while a financing
condition remains outstanding at the time withdrawal rights are
suspended.\180\ The commenter noted that the financing for an offer may
be contingent on the satisfaction or waiver of the minimum acceptance
condition. At this time, we are not extending the rule to permit the
suspension of back-end withdrawal rights while an offer condition,
other than a minimum acceptance condition, remains outstanding. As
noted above, in our view, only conditions for regulatory approvals
necessary to the consummation of the offer may survive its
expiration.\181\
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    \178\ Letter from ABA.
    \179\ These provisions allow tendering security holders to
withdraw their tendered securities after a certain period of time.