Division of Corporation Finance:
Manual of Publicly Available
Telephone Interpretations

Yes, see Question A.2. Note that communication restrictions on issuer tender offers are new.
 

A statement may be a public announcement even if all of the terms of the transaction are not set. If the parties to the transaction are announced, that should be enough to trigger the announcement. For example, if XCo publicly states its intention to acquire YCo, even if it does not give a time frame, price or form of the transaction, this should constitute a public announcement. Similarly, if a company publicly states that it intends to have an issuer tender offer later in the year, this should constitute a public announcement. This result should not be too burdensome since the only communications that need to be filed are those in connection with or relating to the transaction.

In contrast, a public statement that does not identify the parties, for example, a statement that a company is looking for a buyer or is looking for acquisition targets, should not constitute a "public announcement" within the meaning of the rules. Basically, the test is a sliding scale. The more specific that the announcement gets the more likely that it will commence application of the rules.
 

The filing fee must be paid on commencement, when the tender offer disclosure document is filed. See Instruction D to Schedule TO.
 

No, if a communication is not an offer to sell or a solicitation of an offer to buy the Rule 165 exemption will not be needed. Therefore, it is not necessary to comply with the conditions of the rule. The party to the transaction and its counsel should make this determination, based upon the facts and circumstances, in accordance with traditional legal principles. A similar analysis also applies to the need to file material under the proxy or tender offer rules. See Question D.1.
 

See Note 37 to Release No. 33-7760, which indicates that written communications include electronic communications and other future applications of changing technology. The note states that parties that use videos and CD-ROMs must file them on EDGAR by means of a transcript. (If the transaction relates to a company that is not required to file electronically, such as a foreign private issuer, the transcript will be filed in paper.) It is similarly our view that parties that use Internet or telephone technology to make available video or audio materials in connection with a business combination transaction must file transcripts of those materials.

The staff, however, will not object if parties do not file live, "real-time" audio or video material. For example, a company need not file a transcript of a live video or audio presentation, whether made available over the Internet or by telephone, so long as the presentation does not continue to be made available after it is completed.

This interpretation also applies to the filing of proxy material under Rule 14a-12 and tender offer material under Rules 14d-2 and 14d-6.
 

The company is not required to state the legend in the initial live presentation, although it may wish to do so as a matter of good practice. Whether or not the legend is in the live presentation, however, it must be inserted in the material when it is subsequently made available. For example,

• the company should insert the legend in writing at the top of the transcript in the material filed with the SEC;
  
• in addition, if the company is making the presentation available by telephone, the company should record the legend as part of the phone call so that persons calling in will hear the legend before the conversation begins; and
  
• if the company is making the presentation available over the Internet in video or audio form, the company may either insert the legend in audio or video form at the beginning of the presentation, or include the legend on its Internet site in the same place where viewers are instructed to "click here" for the video or audio presentation of the particular material.

No. If, however, the script is given out to the audience or the press, attached to a press release, or otherwise distributed, it must be filed. Similarly, if the script is widely distributed throughout the company so the speech can be given many times, it must be filed; this would be analogous to the "proxy solicitation scripts" that are routinely filed.
 

If this information is reasonably viewed as offering material, it must be filed, since the Q & A sheet will be adding substance to what has previously been filed. Employees are often shareholders, and concerns of employees regarding the transaction may very well be relevant to the investing public at large. In contrast, if the company does not have a Q & A sheet, but instead simply uses a cover letter whose tenor is, "Dear Employee, you may be interested to read the attached letter about the exchange offer" (attaching the communication that has previously been filed), the company would not have to file the cover letter. This is because it would not be providing any information about the transaction in addition to what already has been filed. See note 46 to the release.
 

No. Communications with banks or other lending institutions in connection with financing arrangements for an offer would not have to be filed. Communications with lenders would be considered internal communications among the parties to the transaction.
 

This depends on the circumstances. In most cases, the answer is no, especially where the information is not public. It was not our intent to become a repository of all the information filed with regulators around the world. In most cases, the filings will not have new or different information from what is already required to be filed with the Commission. However, if the filing with the foreign regulator were public, used to communicate with investors, and had new or different information, it could be viewed as an offer that would have to be filed.
 

No, so long as the information is not published or otherwise disseminated to security holders. Generally, credit rating agencies do not own securities in the companies that they rate. These communications would not be viewed as offers.
 

The offeror must file the press release under Rule 425. If the offeror also is participating in a proxy solicitation, the material is subject to the proxy rules, but the offeror need not make a separate filing under Rule 14a-12, since Note 2 to Rule 425 provides that the filing would be deemed filed under other applicable regulatory sections. However, in this event the Rule 425 filing would have to comply with the disclosure requirements of Rule 14a-12. For example, it would have to contain the participant information called for by Rule 14a-12(a). See Question D.2.

The target has a separate filing obligation. Note 2 to Rule 425 does not apply, since that note eliminates the need for duplicative filings by the same party. Each different party has its own liability and must make its own filings. If the target's security holders are voting on the transaction, then any written statements by the target regarding the transaction may be soliciting material that must be filed under Rule 14a-12. Also, if the target views itself as joining with the bidder in making the offer, the target may want to rely on the Rule 165 exemption from Section 5 and file the written communications under Rule 425 (which would be deemed filed under Rule 14a-12). See Rule 165(d).
 

Yes. A dealer-manager retained by the bidder would in most circumstances be viewed as acting on behalf of the bidder. Even where the dealer-manager is paid the same soliciting fee that all other broker-dealers are paid for tenders, any written materials or scripts used by the dealer-manager are most likely based on information received from the bidder. In addition, the bidder will most likely review and approve the written materials before they are used by the dealer-manager to solicit tenders. Therefore, the dealer-manager should file any written materials it uses to solicit tenders, including scripts.
 

The "filing person" is the person making communications about a proposed business combination transaction in reliance on Rules 165 and 166. This person usually is the acquiror, but also may be the subject company or some other party.

The "subject company" is the company whose securities are sought in the proposed business combination transaction. The subject company is sometimes referred to as the "target" company.
 

When filing written communications about a business combination transaction in reliance on new Rules 165 and 166, use the Securities Act file number of the registration statement (e.g., Form S-4) for the transaction if one has been filed. If a registration statement has not yet been filed, then use the Exchange Act file number (zero-dash or one-dash) of the subject company. If the subject company has no Exchange Act file number (e.g., it is a private company), then use the filing person's Exchange Act file number. If neither the filing person nor the subject company has an Exchange Act number, use a correspondence (132-dash) file number obtained from the file desk.

In a merger of equals where two companies merge into a newly-formed public company, use the file number of the new company (the Securities Act file number of the registration statement). If the registration statement has not been filed, use the file number of one of the component companies--whichever "subject company" made the communication.
 

No. Information that is required to be disclosed in an annual or other Exchange Act report, including the company's glossy annual report to shareholders, need not be filed under Rule 425 so long as the information in the report is being disclosed solely to satisfy the requirements of that report. If, however, a report contains information that goes well beyond the information that is required to be disclosed, and is included to publicize the transaction, the information (not the complete Exchange Act report) would need to be filed separately under Rule 425.

Note that providing information in a voluntarily filed Form 8-K does not eliminate the need to file the information under Rule 425. Some companies have a practice of filing a merger agreement on Form 8-K as soon as a deal is announced. In the case of a foreign private issuer, the agreement may be submitted on Form 6-K. The staff does not want to discourage the prompt public disclosure of the merger agreement. However, the Form 8-K or 6-K disclosure does not eliminate the need to provide this information under Rule 425. Public information about the business combination should be located in the Rule 425 filings. Although Rule 425 generally does not permit incorporation by reference, the staff will not require the merger agreement provided on Form 8-K or 6-K to be repeated in the Form 425 filing, so long as the Form 8-K or 6-K is filed on EDGAR and the Rule 425 filing contains a brief statement such as: "The merger agreement for Company A's acquisition of Company B was filed by Company A under cover of Form 8-K today and is incorporated by reference into this filing." Alternatively, of course, the company may elect to provide this information under Rule 425 only rather than on a Form 8-K. This interpretation also is applicable to a cash deal, where the relevant filing will be under the proxy or tender offer rules instead of Rule 425.
 

Articles that merely quote a company official discussing a business combination transaction would not be viewed as a written communication by a party to the transaction or a person acting on their behalf. This is true even if the article is based on a public communication by the company such as a press conference. The article is viewed as a communication by someone other than a party to the transaction or a person acting on behalf of a party.

In contrast, if a party to the transaction controls or arranges for an article to be published, pays for the article to be published, or disseminates the article (for example, by placing the article on the party's website as discussed in the following question), the article would be a written communication that must be filed under Rule 425. For example, if a company official gives an in-depth interview with a member of the press with the understanding that the interview will be published substantially verbatim, the interview would need to be filed by the company.
 

If a party to a business combination posts an article discussing the transaction on its website, the article would be a written communication that must be filed under Rule 425. If the website provides a hyperlink to the article, a strong inference arises that the party has adopted that information, and accordingly must file the article under Rule 425. See Release No. 33-7856 (April 28, 2000), Part II.B.
 

No. If the party relies on Rule 135 to make its first public announcement and does not go beyond Rules 135 and 134 before the registration statement is effective, the only written communication that must be filed is the initial Rule 135 communication. If the party is relying on Rule 165 to communicate and for some reason then wants to make a limited written communication pursuant to Rule 134, that limited communication would not have to be filed under Rule 425.
 

Communications viewed as offers must be filed under Rules 424 or 425 (or as post-effective amendments), as appropriate, until the offering period is over. In general, communications that must be part of the mandated prospectus must be filed under Rule 424 or as post-effective amendments, as was the case before the new regulatory scheme was adopted. "Optional" communications may be filed under Rule 425 instead. See note 52 of the Regulation M-A release.
 

Certain communications filed under Rule 425 satisfy the filing requirements under the proxy and tender offer rules. See Instruction 2 to Rule 425, which specifies that communications made under Rules 13e-4(c), 14a-12(b), 14d-2(b) and 14d-9(a) may be covered by the Rule 425 filing. These communications, however, generally are limited to those made before filing a proxy statement or tender offer statement.

Rule 14a-6(j) under the proxy rules states that merger proxy materials filed under Rules 424 or 425, or as part of the registration statement, will be deemed filed under the proxy rules even if they are filed only under the Securities Act. But there is no analogous provision in the tender offer rules. Accordingly, in a registered exchange offer, post-commencement communications filed under the Securities Act also must be filed as an amendment to the Schedule TO. The information may be incorporated by reference as provided by General Instruction F of Schedule TO.
 

Rule 165 creates an exemption from Sections 5(c) and 5(b)(1) for written communications that offer to sell or solicit offers to buy securities in connection with or related to a business combination transaction so long as those communications are filed upon first use in accordance with Rule 425. Rule 165 does not protect communications in connection with capital-raising transactions, which are still fully subject to the Section 5 restrictions on communications before and after the filing of a registration statement. In situations where an issuer contemporaneously engages in a business combination transaction and a capital-raising transaction, whether or not an issuer can rely on Rule 165 for a specific communication depends on analysis of the facts and circumstances surrounding the communication. Absent the protection of the exemption provided in Rule 165, the dissemination and filing of a communication in connection with the business combination transaction may result in "gun jumping" or illegal free writing in connection with the contemporaneous capital-raising transaction. The preliminary note to Rule 165 states that the exemption does not apply to communications that may be in technical compliance with the rule, "but have the primary purpose or effect of conditioning the market for another transaction, such as a capital- raising transaction" (emphasis added). Thus, in the event of contemporaneous transactions, issuers and their counsel must analyze the proposed communication to determine whether its primary purpose or effect relates to the capital-raising transaction. If so, the communication will not be covered by Rule 165. Factors to be considered in determining whether the primary purpose or effect of the communication is capital-raising include, but are not limited to, the following:

1. The audience or targeted audience for the communication. (For example, does the audience consist primarily of potential investors or existing shareholders?)
2. The context in which the communication is made. (For example, is the communication part of a larger package of communications that relate to the business combination transaction?)
3. The content of the communication. (Is the substance of the communication primarily aimed at informing an investment decision in the capital-raising transaction or a voting decision in the business combination transaction?)

We recognize that the purpose of some capital-raising transactions is to finance a contemporaneous business combination. For example, an issuer may offer and sell either debt or equity to pay the purchase price in an acquisition. Under these circumstances it will be difficult for the issuer to establish that the communication for the business combination transaction does not also have the primary purpose or effect of conditioning the market for the capital-raising transaction. Notwithstanding the foregoing analysis, where the net proceeds from a capital-raising transaction are to be used exclusively to finance a contemporaneous acquisition and the acquisition is conditioned upon the success of the capital-raising transaction, any communication that is related to either the business combination transaction or the financing transaction will not be deemed to have as its primary purpose or effect creating interest in the capital-raising transaction. Therefore, Rule 165 is available.

When the transactions are not contemporaneous, this analysis does not apply. For example, communications about the financing transaction that are made after the completion of the business combination transaction will be viewed as relating to the capital-raising transaction, and Rule 165 will not be available.
 

No. The company is not required to file every written communication it makes as soliciting material. The company is required to file only those written communications that relate to or are made in connection with the transaction that are reasonably viewed as soliciting material. However, communications that would not ordinarily be solicitations when the company is not soliciting its shareholders may be viewed as solicitations if made when the company is soliciting its shareholders (i.e., the circumstances under which the communications are made have changed). A solicitation is a communication that is reasonably likely to result in the giving, withholding or revocation of a proxy. See Rule 14a-1(l). The company must analyze each written communication on a case-by-case basis to determine whether the communication relates to the transaction and whether the communication is a solicitation. If so, then the party must file the written communication under Rule 14a-12.
 

Yes. Written communications filed under Rule 14a-12 must include participant information or a prominent legend advising security holders where they can obtain this information. This is a change from old Rules 14a-11 and 14a-12, which required participant information only in contested solicitations. See Rule 14a-12(a)(1).

If the solicitation relates to a merger in which securities are offered, the offeror may be subject to the proxy rules if it is soliciting proxies on its own behalf or on behalf of the target's security holders. In this event, the offeror's filings under Rule 425 will satisfy the filing requirement under Rule 14a-12. The participant information required by Rule 14a-12 would still be necessary. See Question B.9.
 

No. In order to rely on Rule 14a-12, soliciting parties must intend to furnish a proxy statement to security holders. The "as soon as practicable" requirement was eliminated so that soliciting parties would not have a technical requirement to deliver a proxy statement should the solicitation be discontinued for any reason. One basis for permitting free communications under Rule 14a-12 was that security holders will receive a complete disclosure document containing all material information before having to make a voting decision.
 

No. Subsequent communications are filed as "other soliciting material" under Rule 14a-6(b).
 

The restricted period under Regulation M begins when the proxy statement and proxy card are mailed to security holders.
 

The offer will commence when the bidder: (i) files a registration statement containing all required information, including pricing information; (ii) files a Schedule TO; and (iii) begins dissemination of the offer by making a request under Rule 14d-5. The 20 business day period required by Rule 14e-1(a) begins on this date. Commencement is not delayed during the time periods provided under Rule 14d-5.

If the prospectus is not mailed to security holders on the date of commencement because the bidder must wait for a response from the target in accordance with Rule 14d-5, then bidders are encouraged to publish a summary advertisement notifying target security holders how they can obtain a copy of the prospectus (e.g., by calling a toll-free number). Bidders also may disseminate their offering materials to as many security holders as possible. For example, a bidder may provide copies of the prospectus to all known target security holders.

This interpretation would not apply to a negotiated transaction since the bidder in a negotiated transaction would generally not have to rely on Rule 14d-5 to disseminate the information. This interpretation applies whether or not the bidder is using "early commencement."
 

No. The language of the legend should be appropriately tailored to explain that the prospectus may be amended. The legend should not state that the prospectus is not complete or is otherwise subject to completion. The preliminary prospectus disseminated to security holders must contain all required information, including pricing information, in order to effectively "commence" the exchange offer. See Rule 14d-4(b). Information may not be omitted under Rules 430 or 430A. Therefore, the sample legend provided in Rule 501(b)(10)(iv) may be potentially confusing or misleading if it states that the prospectus is not complete or subject to completion.

The following is an example of a legend that may be used when an exchange offer is commenced early under Rule 162:

The information in this prospectus may change. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer is not permitted.

Yes. The discussion of early commencement at note 137 and surrounding text in the Regulation M-A adopting release explains that although Rule 162(b) eliminates the requirement to deliver a final prospectus, offerors still must file a final prospectus. The obligation to file a final prospectus is not satisfied by the filing of an amendment to the registration statement before effectiveness. Since no final prospectus is delivered, it is important for the public and the staff to be able to locate the final prospectus in a Rule 424(b)(3) filing.
 

Rule 162 permits the use of this procedure only for an exchange offer subject to Regulation 14D or Rule 13e-4. This is because the offer must be subject to all the disclosure and procedural requirements, including withdrawal rights, imposed by those regulations. Regulation 14D and Rule 13e-4 both apply to tenders for equity securities only. An exchange offer for convertible debt could qualify for "early commencement," assuming it met the other criteria for Regulation 14D or Rule 13e-4, because convertible debt is viewed as equity. See Section 3(a)(11) of the Exchange Act and Rule 3a11-1. An offer for non-convertible debt, however, could not qualify.
 

Rule 135 is used as a bright line test for purposes of ascertaining when public disclosure of information will preclude availability of confidential treatment for an Item 14 proxy statement. See Rule 14a-6(e)(2)(ii). The reference to Rule 135 does not limit the types of transactions for which confidential treatment is available. See the paragraph after fn. 80 in the adopting release.
 

Yes. The substantive disclosure requirements have not changed. See Item 14(b) of Schedule 14A, which includes a requirement to describe the material terms of the transaction.
 

No. Rule 14a-9 prohibits a registrant from omitting a material fact from its proxy statement at the time of the solicitation. The staff believes that it is inconsistent with this provision of Rule 14a-9 when the initial definitive proxy statement does not disclose the existence of a solicitation in opposition when the registrant knows, or reasonably should know, of a solicitation in opposition. The staff believes the existence of alternative nominees is material to security holders' voting decisions. Further, it is not appropriate for the registrant to omit this information from its initial proxy statement and wait to address the solicitation in opposition at a later time in the solicitation. It is also inappropriate to merely disclose the existence of the solicitation in opposition in a press release issued at the same time the registrant mails to shareholders the definitive proxy statement that omits the information.
 

The staff believes that, pursuant to Rule 14a-9, shareholders are entitled to disclosure when a proxy contest is settled because the settlement may nullify their previously-granted proxy. This is the case where a shareholder grants a proxy to an insurgent group that later terminates its solicitation because of a settlement with the company. Even where the insurgent group has filed a proxy statement but settles with the company before it is disseminated, shareholders may learn of the contest through the filing or other publicity surrounding the dispute. They are entitled to know the terms of any settlement. It is the company's obligation to provide this disclosure to its shareholders. If the insurgent received proxies, the insurgent also should take steps to notify those shareholders that their proxies will not be voted. Means of dissemination by the company and the insurgent may include a press release, proxy supplement, letter to shareholders or other means reasonably calculated to inform shareholders of the new development. These materials should be filed, generally as definitive additional proxy materials.
 

Book value is a ratio based on balance sheet data, and the ratio of earnings to fixed charges is based on the income statement. We believe book value information is most relevant as of the most recent balance sheet date, while the performance measured by the ratio of earnings to fixed charges is most meaningful when it can be compared among the periods covered by the income statements.
 

Revised Item 17(b)(7)(ii) to Form S-4 states that no financial information (including pro forma and comparative per share information) is required for a non-reporting target when the target is significant to the acquiror at or below the 20% level and the registrant's security holders are not voting on the transaction. In these circumstances, the staff will not object to the omission of pro forma and comparative per share information as well as financial and related information of the target stipulated under Regulation S-K Items 301, 302, 303, 304(b), and 305, and comparable items of Regulation S-B.

Registrants should remember to include the insignificant non-reporting target in measuring the aggregate impact of individually insignificant business acquisitions under Rule 3-05(b)(2)(i) of Regulation S-X (or Item 310(c)(3)(iii) of Regulation S-B).
 

Yes. Financial information that is material to a voting security holder's evaluation should be included in the proxy materials. When security holders of the acquiror are voting, the staff believes that a non-reporting target company also must furnish financial statements under Rule 3-05 of Regulation S-X if the omission of those financial statements renders the target company's financial statements substantially incomplete or misleading. The staff's prior practice in these circumstances is not affected by the adoption of the new rules. This answer applies both to cash merger proxy statements and proxy material that is included in a Form S-4 registration statement. Note: In this and other Q&As in the Financial Statements section, references to Rule 3-05 of Regulation S-X also apply to Item 310(c) of Regulation S-B.
 

Yes. The target company's security holders are presumed to have access to information about their company, which would include filings it made on Form 8-K containing financial statements of significant businesses acquired. In addition, however, the target company should furnish all financial statements required by Rule 3-05 of Regulation S-X in its proxy materials to the extent those financial statements have not previously been filed, along with related pro forma information, as that information would be considered material to an informed voting decision. The staff's position concerning compliance with Rule 3-05 has not been affected by the adoption of the new rules.

The same analysis applies to the omission of financial information about the acquiror when only the acquiror's security holders are voting, as permitted by Instructions 2 and 3. Again, this information may be omitted because the acquiror's security holders are presumed to have access to information about their own company. The Rule 3-05 information should be furnished along with related pro forma financial information if not previously filed.
 

Yes. When an acquiror is required to furnish its financial information, the revised proxy rules (Item 14(c)(1) of Schedule 14A) refer to Part B of Form S-4, which requires compliance with Rule 3-05 of Regulation S-X. However, if only the target's security holders are voting, the staff would consider granting relief on a case-by-case basis to acquirors with respect to financial statements required by Rule 3-05 in all-cash transactions when those financial statements are not material in assessing the acquiror's financial ability to satisfy the terms of the transaction. The staff's position concerning compliance with Rule 3-05 in these circumstances is not affected by the adoption of the new rules.
 

The registrant should provide its financial information pursuant to Item 14(c)(1) of Schedule 14A. In addition, if authorization is sought from security holders for disposition of a significant business, unaudited financial statements of that business should be provided in the proxy materials for the same periods as are required for the registrant, along with pro forma information. The staff's position concerning these financial statements is not affected by the adoption of the new rules.
 

No. Instruction 6 is intended to make it clear that when financial information is considered material, the disclosure materials disseminated to security holders must contain at least summarized financial information. In addition, when summarized financial information is disseminated to security holders in lieu of full financial information pursuant to Instruction 6, the full financial information must be provided in the Schedule TO or incorporated by reference pursuant to Instruction 3.
 

When the proposed mailing date of the Schedule TO falls within 90 days after the end of the fiscal year, that Schedule need not include financial statements more current than as of the end of the third fiscal quarter of the most recently completed fiscal year unless the financial statements for the most recently completed fiscal year are available. The audited annual financial statements for the most recently completed fiscal year must be included if the mailing date of the Schedule TO is beyond 90 days after the end of the fiscal year. If the bidder is a foreign private issuer, the audited year-end financial statements must be included if the mailing date of the Schedule TO is beyond six months after the end of the fiscal year (the due date of the Form 20-F if one were required).
 

A foreign private issuer does not need to provide any quarterly or other interim financial statements unless it has filed such information in a report on Form 6-K or made it publicly available in its home jurisdiction. In that case, the information would satisfy the quarterly financial information requirement of Item 1010. The information would have to be either provided in the tender offer material or incorporated by reference and a summary provided. See Question H.7 above. If the foreign private issuer prepares its financial statements on the basis of a comprehensive body of accounting principles other than U.S. GAAP, the quarterly or other interim financial information should include disclosures consistent with the guidance in Instruction 3 to Item 8.A.5 of Form 20-F.
 

Yes, unless the reconciliation to U.S. GAAP is not available. If the financial statements are included solely to comply with local law and a reconciliation to U.S. GAAP is not available, preamble disclosure to those financial statements should explain why those financial statements are being furnished, that they are not required to be furnished under the SEC's rules, and that they do not include all the disclosures that would be required under the SEC's rules, such as a U.S. GAAP reconciliation. A textual description of the differences between U.S. GAAP and home country GAAP is encouraged but not required.
 

No. A manually signed copy of the accountant's report is not required to be filed with the Commission in connection with a Schedule TO.
 

No. The references to GAAP in this Item also include a comprehensive body of accounting principles other than U.S. GAAP. If the financial statements required to be included in the filing are prepared on a comprehensive body of accounting principles other than U.S. GAAP, those financial statements should include a reconciliation to U.S. GAAP in accordance with Item 17 of Form 20-F. However, that reconciliation may be omitted if it is unavailable or not obtainable without unreasonable cost or expense, so long as a narrative description of all material differences between U.S. GAAP and non-U.S. GAAP is disclosed.
 

No. A foreign private issuer's pro forma financial information presented in accordance with Article 11 of Regulation S-X should either be prepared on a U.S. GAAP basis or be accompanied by quantified reconciliations to U.S. GAAP prepared in a manner consistent with Item 17 of Form 20-F. A domestic issuer's pro forma financial information must be prepared on a U.S. GAAP basis even when the financial statements of the foreign target are not required to be reconciled to U.S. GAAP.
 

If financial statements of a non-reporting foreign target have been previously audited in accordance with non-U.S. GAAS and those financial statements have been published for general distribution in the target's home jurisdiction or elsewhere, financial statements for those periods must be audited in accordance with U.S. GAAS and included in the registration statement. The staff will consider granting relief on a case-by-case basis in unusual circumstances.
 

Amendment numbering should start with the first revision to the disclosure document, or offer to purchase. The EDGAR tag (i.e., "TO-C") for the written communications made before the filing of the disclosure document has no way of indicating an amendment. For example, there is no "TO-C/A" EDGAR tag. Therefore, the cover of the Schedule TO should only indicate an amendment number after the initial disclosure document is filed -- starting with the first revision. The EDGAR tag will then also indicate an amendment by using the "/A" (e.g., "TO-T/A").
 

Yes. The staff, however, will give priority in its review to transactions that have already commenced. Because prompt review of a tender offer that has not commenced may be impracticable, the staff still encourages concurrent filing and dissemination of tender offer documents. Prospective bidders are reminded that new Rule 14e-8 requires bidders to have a bona fide intent to commence a tender offer once a Schedule TO has been filed. In addition, if a bidder files a Schedule TO before commencing the offer, the materials should make it clear that the offer has not yet commenced in order to avoid confusing investors.
 

Section II.G.1 of the Regulation M-A release (No. 33-7760, Oct. 22, 1999) stated that the addition of the SOP once an offer has commenced would constitute a material change to the terms of the offer. A material change generally would require that notice of the change be disseminated to security holders five business days before the expiration of the initial offering period. The release went on to say that "[a]fter the Division of Corporation Finance gains practical experience with the operation of the subsequent offering period, the Division may decide, through staff interpretation, to shorten or possibly eliminate the requirement for advance notice." Based upon our experience, we believe that adding a SOP does not require advance notice, so long as:

1)	The initial offering material discloses that the bidder may include a SOP (or reserves the right to include a SOP) and describes what a SOP is. If this information is not in the initial material it may be provided during the course of the offer, so long as at least five business days remain before the expiration of the offer (not counting the SOP);
2)	In the notice announcing the results of the initial offering period required by Rule 14d-11(d), the bidder announces and begins the subsequent offering period; and
3)	If the bidder has definitively decided to provide a SOP or is contractually obligated to provide a SOP (e.g., this is a term of the merger agreement), it is not sufficient to merely reserve the right to provide a SOP. The initial offer to purchase must disclose this information.

Eliminating a SOP that was previously announced continues to be viewed as a material change to the offer, requiring five business days advance notice.
 

The final amendment should be filed, with the correct box on the cover page checked, after the completion of the subsequent offering period.
 

The general instructions to Schedule TO state that a bidder may file a combined Schedule 13E-3/TO where the transaction is both a tender offer and a going private transaction. In a standard unaffiliated transaction, a Schedule TO is typically filed when the Form S-4 is declared effective. However, where a joint Schedule 13E-3/TO is filed, it must be filed when the Form S-4 is initially filed. This will alert the public and the staff that a going private transaction is involved. This is consistent with General Instruction D to Schedule 13E-3, which states that the schedule must be filed "[a]t the same time as filing a registration statement under the Securities Act of 1933." The Schedule should make it clear that the offer has not yet commenced, and should be amended when the offer does commence.
 

Yes. If the affiliation between the offeror and target is sufficient to trigger Rule 13e-3, the staff believes that the favorable recommendation alone would be sufficient to cause the target to be "engaged" in the going-private transaction. As a result, the target would have to comply with Rule 13e-3(d), (e) and (f). While the staff understands that the target has an obligation under Rule 14e-2 to make a statement with respect to the tender offer, the target is not required to recommend in favor of the offer. The target's choices are to recommend acceptance or rejection of the offer, express no opinion and remain neutral, or state that it is unable to take a position. Given the importance to security holders of their management's recommendation and the conflicted nature of the transaction, the staff believes the protections of Rule 13e-3 are warranted in these circumstances. Illustration two to Q&A No. 5 in Exchange Act Release 17719 (April 13, 1981) is not inconsistent with this view since that illustration does not contemplate that the target recommended the tender offer to its security holders.
 

Yes. The common stock that is the subject of the issuer repurchase program is neither considered to be a member of the same class or series of securities being offered or acquired in the option exchange offer nor a right to purchase any such security.

For other issues involving option exchange offers, see the Rule 13e-4 exemptive order issued March 21, 2001, and Part II of the Division of Corporation Finance Current Issues and Rulemaking Projects Outline (March 31, 2001 update).
 

Yes, the definition of "public announcement" in Rule 14e-5(c)(5) is the same as in the communications rules cited above. The facts and circumstances of any particular communication should be analyzed in order to determine whether it constitutes a public announcement. See Questions A.1 and A.2 above for applicable interpretations.
 

For the purpose of the Tier I exception under Rule 14e-5(b)(10), the bidder should calculate U.S. ownership in the target company 30 days before commencement, as set forth in the Instructions to Rules 14d-1(c) and 13e-4(h). (See the questions in Part E of the Cross-Border Interpretations for discussion of this 30-day look back.) Because Rule 14e-5 applies from "announcement," as opposed to "commencement," sometimes these two events are not simultaneous, which may create difficulties in calculating U.S. ownership for purposes of Rule 14e-5. If, at the time of announcement, the offeror cannot calculate the percentage of U.S. ownership for the 30 days before commencement, the exception is not available. The exception may, however, become available if the 30-day "look back" can be performed at a later time. Counsel should contact the Office of Trading Practices in the Division of Market Regulation if this situation arises and the bidder wants to request an individual exemption while the exception is not available. An exemption would be based, in part, on U.S. ownership at the time of announcement.
 

Yes. The bidder should contact the Office of Trading Practices in the Division of Market Regulation to obtain an individual exemption from Rule 14e-5 for this dual offer structure. See Letter re BSCH's Offer for Shares and ADSs of Banco Rio (June 20, 2000). We do not require many of the conditions for this exemption from Rule 14e-5 that we have required in other cross-border contexts.
 

Yes, if the arrangement is truly an "irrevocable undertaking" to tender into the offer with no additional compensation paid to the shareholder. This interpretation only applies to "hard irrevocables," which are agreements to tender from which the shareholder cannot withdraw, and the consideration must be paid in accordance with the offer. If the irrevocable does not have these features, the offeror may still qualify for an exemption, so counsel should contact the Office of Trading Practices in the Division of Market Regulation. See, e.g., Letter re St David Capital plc Offer for Hyder plc to John M. Basnage, Esq. (April 17, 2000); Letter re WPD Limited Offer for Hyder plc to Bart Capeci, Esq. (May 30, 2000).
 

No. We strictly interpret this condition. Any of these scenarios violates the condition of the exemption from Rule 14e-5 that purchases outside the offer not be made in the United States.
 

Yes. We have interpreted "affiliate" to include a "department" if all the conditions of Rule 14e-5(b)(8) are satisfied. See Letter re Vodafone AirTouch Offer for Mannesmann to Sebastian R. Sperber, Esq. (January 27, 2000); Letter re Exchange Offers by Telefonica S.A. to Spencer Klein, Esq. (February 29, 2000); Letter re Exchange Offers by Telefonica S.A. to David Golay, Esq. (February 4, 2000). This is similar to the definition of "affiliated purchaser" in Rule 100 of Regulation M, which addresses certain separately identifiable departments or divisions of an entity. See Rule 100(b) of Regulation M, Exchange Act Release No. 38067, n. 22 (January 3, 1997).
 

All entities conducting the tender offer or offering advisory services regarding the tender offer must be either: (i) registered as a broker or dealer under Section 15(a); or (ii) an affiliate within a broker or dealer registered under Section 15(a). It is extremely important that there is no information sharing between the affiliates seeking to rely on the exception and all entities conducting the tender offer or offering advisory services regarding the offer. Effective information barriers prevent improper motives from influencing purchases by affiliates while permitting the dealer-manager and other affiliates to continue their normal tender offer activities. We can only monitor the sufficiency of these information barriers if those entities conducting, or advising on, the offer are registered under Section 15(a) of the Exchange Act. Otherwise, the potential for abuse exists. Thus, we limit this exception to instances where all entities assisting the offeror (both dealer-managers and other affiliates) are registered under Section 15(a) of the Exchange.
 

No. The contract must be unconditional.
 

Yes. Regulation M-A and the cross-border exemptions have not changed or eliminated availability of MJDS for tender offers involving Canadian issuers. See Rules 13e-4(g) and 14d-1(b).
 

No. Disclosure made in connection with a tender offer or a going private transaction is not entitled to the safe harbor provisions of the PSLRA. The Act does not apply to statements made in connection with a tender offer. See Section 21E(b)(2)(C) of the Securities Exchange Act of 1934. Similarly, the Act does not apply to statements made in connection with a going private transaction. See Sec. 21E(b)(1)(E) of the Exchange Act. Registrants should not refer to the PSLRA in disclosure made in connection with a tender offer or a going private transaction, including press releases, offers to purchase, and proxy materials.
 

No. Parties that have not decided whether to offer registered securities as consideration in connection with a proposed business combination may not rely on the registered offering exemption under Regulation FD when issuing communications. This exemption is available only when the parties have a bona fide intent to offer securities in the transaction. As a result, a potential acquiror that publicly announces its intention to acquire a company without specifying whether it will offer cash, registered securities, or a combination must comply with Regulation FD until it decides to offer registered securities as consideration.
 

No. In order to terminate withdrawal rights, all conditions must be satisfied or waived and the bidder must declare the offer wholly unconditional. In adopting Tier II, the intent was to codify previous staff interpretations regarding waivers or reductions of minimum conditions in cross-border transactions. In prior no-action letters and exemptive orders the Commission and the staff have typically permitted, with five days advance notice to security holders, a reduction in the minimum condition and termination of withdrawal rights once all other conditions to the offer are satisfied. The reference in the adopting release to "the remainder of the offer" refers to a subsequent offering period. Pursuant to Rules 14d-7(a)(2) and 14d-11, the bidder may include a subsequent offering period during which withdrawal rights are not provided.
 

The equal treatment requirement in the Tier I and Tier II exemptions means that the U.S. offer generally must be open for at least as many days as the minimum period permitted by the foreign jurisdiction. Where this could cause the offeror to violate the foreign jurisdiction's rules, such as a limit on the maximum allowable offering period, we will consider relief on a case-by-case basis.
 

No. See General Note 2 to Rules 800, 801 and 802. These exemptions are intended to create an incentive to include U.S. security holders, not to provide an exemption for offerings made only to foreign security holders.
 

No. An offeror relying on Rule 801 or 802 that is a domestic issuer incorporated in the United States may tailor the legend so that it is not confusing or misleading. If there are no risks associated with enforcing claims under the federal securities laws against the offeror in the United States, then the legend need not advise security holders of this risk.
 

Yes. While foreign law may require a very detailed advertisement of a bidder's offer, a less-detailed advertisement in a publication of national circulation in the United States that includes a toll-free number for investors to call to obtain a copy of the complete disclosure document will satisfy the requirement in Rule 802(a)(3)(iii).
 

Yes. All 10% and greater security holders are excluded from both the numerator and denominator. See Rule 800(h)(2); Instruction (2)(i) of paragraphs (h)(8) and (i) of Rule 13e-4; and, Instruction (2)(ii) to paragraphs (c) and (d) of Rule 14d-1.
 

No. Only security holders with 10% or more of the securities of the target are excluded.
 

Yes. See Rule 800(h)(2); Instruction (2)(ii) to paragraphs (c) and (d) of Rule 14d-1.
 

Yes. See Securities Act Rule 477 for procedures to withdraw a registration statement.
 

This scenario would concern us if the circumstances suggested that the bidder excluded U.S. persons from an exchange offer either with the purpose or intent of causing a migration of shares from the U.S. to the foreign jurisdiction so that an exemption from registration would then become available. This would be viewed as part of a plan or scheme to evade the registration provisions of the Securities Act. Therefore, the exemptions would not be available. See General Note 2 to Rules 800, 801 and 802.
 

U.S. ownership may be determined 30 days before announcement of the offer. This should allow the bidder to determine the availability of the exemptions during the planning of the offer, and U.S. ownership will be based on a more relevant point of time in the process. This position is based on the nature of these pre-conditional offers - the U.K. and Irish regulatory systems expressly provide for this type of offer, the foreign regulators must approve the use of this type of offer, and the foreign regulators also must approve when the bidder terminates the offer before commencement.

This position applies only to these U.K. and Irish pre-conditional offers. This position otherwise does not negate the general requirement that U.S. ownership is to be determined 30 days before commencement. See Securities Act Rule 800(h)(1), Exchange Act Rule 13e-4 (Instruction 2(i) to paragraphs (h)(8) and (i)) and Exchange Act Rule 14d-1 (Instruction 2(i) to paragraphs (c) and (d)). This time period assures that applicability of the exemptions turns on the actual shareholder base at a time close to the commencement of the offer. If a company believes relief similar to that provided for U.K. and Irish preconditional offers is warranted under another country's regulatory system, the Office of Mergers & Acquisitions should be consulted in advance.
 

No. Bidders must look at U.S. ownership on the 30th day before commencement. If the 30th day is impracticable for reasons outside of the bidder's control, the bidder should use the date within the 30-day period as close to the 30th day as practicable. Also see the following question.
 

In foreign jurisdictions where the bidder and issuer are limited in their access to security holder list information prepared periodically by third parties, calculation of U.S. ownership may be based on the latest security holder list available, unless the bidder or issuer has access to more accurate information.
 

No. The initial calculation of U.S. ownership made for the first step of the transaction is sufficient to determine eligibility for the use of the exemptions in the subsequent step, so long as: (1) the disclosure document for the first step discloses the offeror's intent to conduct the subsequent step and the terms of the subsequent transaction; and (2) the subsequent step is consummated within a reasonable time following the first step.
 

No. The release merely points out that there should be no precautions taken to prevent the U.S. holders from receiving the merger consideration when they are excluded from the business combination since participation in a business combination that is approved by shareholders is not voluntary for the U.S. holders. The discussion does not contemplate sending the proxy statement/prospectus to those U.S. holders.

Accordingly, a company using Regulation S to allow participation in a business combination offshore (but not a tender or exchange offer) may put the proxy statement/prospectus on an unrestricted web site. The company need not prevent the U.S. holders from receiving the consideration. These activities will not be viewed as "directed selling efforts" in the United States. However, the company should not engage in any further activities such as sending the material to U.S. holders.
 

The materials may be furnished to the Commission without triggering the applicability of the U.S. tender offer rules so long as the issuer takes steps to assure that the information is not used as a means to induce indirect participation by U.S. holders of the securities. Accordingly, the materials must not include a transmittal letter or other means of tendering the securities. The materials also must prominently disclose that the offer is not available to U.S. persons or is being made only in countries other than the U.S. Further, the issuer must take precautionary measures that are reasonably designed to ensure that the offer is not targeted to persons in the United States or to U.S. persons. For a description of precautionary measures that could be taken, see Part II.G of Release No. 33-7759 (Oct. 22, 1999). Alternatively, the issuer may choose not to submit these materials to the Commission.
 

Modified: 07/18/2001