Shearman & Sterling Fax: 212-848-7179 599 LEXINGTON AVENUE Abu Dhabi 212-848-7181 NEW YORK, N.Y. 10022-6069 Beijing Telex: 667290 WUI (212) 848-4000 Budapest Dusseldorf Frankfurt Hong Kong London Los Angeles New York Paris San Francisco Singapore Tokyo Toronto Washington, D.C. January 17, 1997 Mr. Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Offshore Press Conferences, Meetings with Company Representatives Conducted Offshore and Press Related Materials Released Offshore Release Nos. 33-7356; 34-37803 (October 10, 1996) (File No. S7-26-96) Dear Mr. Katz: We welcome the opportunity to comment on the issues raised by the Securities and Exchange Commission (the "Commission") on the above-captioned release (the "Release"). We support the Commission's efforts to clarify that legitimate journalistic activities should not implicate the filing or procedural provisions of the U.S. securities laws. While we generally support the Commission's adoption of a safe harbor with respect to offshore press activities, we are in favor of even broader reform. Technological advances and internationalization of the markets have profoundly changed the implications of the current regulatory framework in ways that call for reexamination of geography based regulation. Securities Act Safe Harbor The Commission proposes to provide a safe harbor from Section 5 under the Securities Act of 1933 (the "Securities Act") for press contacts made and press releases delivered offshore in connection with any offering of securities, provided that a portion of the offering is made offshore, foreign journalists are provided comparable access and certain written material includes specified legends. The safe harbor would be available both with respect to registered and exempt offerings. We fully agree with the Commission that it is in the public interest and consistent with the protection of investors to provide a safe harbor for journalistic contacts in connection with both registered and exempt offerings. However, we have two principal reservations concerning the proposed Section 5 safe harbor (which are equally applicable to the proposed Williams Act safe harbor, discussed below). First, there seems little principled basis for requiring that the press contacts occur offshore. No investor protection interest is served by such requirement and the location of the press contact generally will not affect either the content or dissemination of the information. The requirement simply adds to the complexity of the rule, makes it more expensive and cumbersome for U.S. news media to access information directly and leaves in place an incentive to deny U.S. journalists access to information made available to other news media. The location of the press contact in no way affects the legitimacy of the journalistic activity. Having (in our view) correctly determined that legitimate journalistic coverage of a securities offering is not inconsistent with the purposes of the federal securities laws and the interests of investors, the Commission should recognize that the locus of the press contact is irrelevant. Likewise, the requirement that some portion of the offering be conducted offshore does not further investors' interests or lend itself to clear application. Indeed, such a requirement may preclude an issuer from using the most economically advantageous structure of an offering to come within the ambit of the safe harbor or, more likely, limit the utility of the safe harbor and result in the continued exclusion of U.S. journalists from participation in news coverage of the offering. Moreover, as the Commission recognizes in the Release, offerings frequently are not clearly separated into identifiable onshore and offshore tranches. It may not be possible at the outset to determine where sales will be successfully made. To avoid being unduly narrow, the safe harbor requirement would have to focus on the locus of offers, not simply sales, which would introduce a counterproductive element of subjectivity. The Commission seems to suggest that there would be no reason for offshore press contacts concerning an exclusively U.S. offering. However, foreign issuers may be subject to stock exchange and other offshore requirements to inform the market of such transactions; so too may domestic issuers as the Commission has recognized in its safe harbor Rules 135(a), (b) and (c). The geographic focus of both the press contact and offering location requirements is unnecessary and ineffective and should be eliminated from the safe harbor. Antifraud prohibitions, journalistic independence and the remaining conditions of the safe harbor should provide adequate safeguards against abuse of the safe harbor. We fully concur with the Commission's proposal to provide a safe harbor based on objective criteria, unrestricted with respect to the issuer, content or nature of the offering. Experience under the Commission's current guidance with respect to offshore press contacts has made clear that without an objective safe harbor with minimal procedural conditions, issuers and bidders will find it safer and easier to exclude U.S. journalists rather than run the risk of violating the regulatory provisions of the Securities Act or the Williams Act. Restrictions on the content of information concerning an issuer or an offering will not reduce offshore press communications. It will, as it has done in the past, simply cause U.S. journalists' access to information to be cut off or delayed. The Commission asks whether the safe harbor should cover press releases that are limited in a manner similar to that covered by Rules 135(a), (b) and (c). As noted in our comment letter on the Commission's Concept Release No. 33-7314, the highly restrictive nature of these safe harbors severely limits their utility and operates to compel issuers to artificially segment information disseminated to the public. In the case of offshore press communications, issuers have another choice: exclude U.S. journalists entirely and forgo the need to rely on the safe harbor. Similarly, any requirement to file with or submit to the Commission written press communications would likely deter reliance on the safe harbor, particularly in the case of foreign issuers. This would be all the more true if a registration statement was required to be on file prior to reliance on the safe harbor in connection with a public offering. As the Commission is fully aware, there is often significant media coverage of a proposed offering well in advance of the preparation of a registration statement, or even a decision as to whether to conduct a public offering in the United States. Press coverage of the recent Deutsche Telekom AG offering started several years prior to the actual offering. To condition the safe harbor on the filing of a registration statement could have the unintended consequence of encouraging those issuers that want to rely on the safe harbor, particularly foreign issuers, to proceed with an exempt rather than registered offering in the United States. We agree with the Commission's proposal to extend the safe harbor to issuers and selling security holders, and to those acting on behalf of the issuers and selling security holders. We assume this would include all those involved in the offering process: underwriters, dealers and public relations agents. It is unclear who among those subject to Section 5 would be precluded from relying on the safe harbor and what purpose is served by limiting the availability of the safe harbor. We recommend that the safe harbor be available to any person. Williams Act Safe Harbor As in the case of the Securities Act safe harbor, we see no principled reason for requiring that the press contact occur offshore and recommend that the Commission eliminate such condition. The Commission proposes to provide the safe harbor only with respect to bids made in connection with the securities of a foreign private issuer. We believe that consideration should be given to broadening the safe harbor to cover foreign issuers that do not qualify for foreign private issuer status where the bid is also subject to takeover laws of a foreign jurisdiction. Unlike Section 14(d) of the Securities Exchange Act of 1934, certain foreign takeover laws base their jurisdiction, in large part, on the target company's domicile in the jurisdiction. For example, the U.K. City Code of Take-overs and Mergers applies where the offeree is a public company resident in the United Kingdom, Channel Islands or Isle of Man. The Code defines resident companies to include those incorporated, and with their head office and central management, in one of those jurisdictions. Such companies may not quality for foreign private issuer status under Rule 405 of the Securities Act where, for example, they have a majority of U.S. shareholders and conduct significant operations in the United States. Nonetheless they may have reason to conduct press activity offshore in accordance with foreign law and local practice. Exclusion of bids for such foreign targets is likely to cause U.S. journalists to be excluded from such offshore press contacts. As with the Securities Act safe harbor, we do not believe that any written materials should be required to be filed with the Commission, even when there is a substantial U.S. market interest in the target company. Likewise, reliance on the safe harbor should not be conditioned on the bidder's undertaking to extend an offer in compliance with Section 14(d)(l) to U.S. investors. Such requirements would have the effect of deterring reliance on the safe harbor. * * * We appreciate the opportunity to comment on the proposed safe harbor for offshore press activities and believe that broader reforms can and should be implemented expeditiously for the benefit of all market participants. If the Commission or the staff have any questions concerning the foregoing, please call Mark Kessel at (212) 848-7285 or Arbie R. Thalacker at (212) 848-7085. Very truly yours, Shearman & Sterling