Company Name: Skadden, Arps, Slate, Meagher & Flom
The Stock Exchange Automated Quotations ("SEAQ")
Public Availability Date: 05-18-1993

INQUIRY LETTER

SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK 10022-3897
TELEPHONE(212) 735-3000

May 13, 1993

Office of International Corporate Finance
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Attention: Anita T. Klein

Re: Interpretation of "Directed Selling Efforts" under Rule 902(b)
of Regulation S

We are writing to seek confirmation from the Staff of the Securities and Exchange Commission (the "Commission") that a quotation on The Stock Exchange Automated Quotations, the automated quotation system for the London Stock Exchange ("SEAQ"), of a security of a foreign issuer is not considered a "directed selling effort" under Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), if such quotation is not undertaken for the purpose of conditioning the market in the United States for such security and if the issuer, distributors, their respective affiliates and persons acting on behalf of any of the foregoing covenant not to, and do not, initiate contacts with "U.S. persons" or persons within the United States beyond those contacts exempted under Rule 15a-6 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Regulation S (adopted by the Commission in Release No. 33-6863 (the "Release") and consisting of Preliminary Notes and Rules 901-904 under the Securities Act) contains a General Statement and two safe harbors from the registration requirements of the Securities Act for offers and sales of securities outside the United States, subject to the conditions set forth therein. One of the two general conditions to qualify for the safe harbors under Regulation S is that no "directed selling efforts" be made in the United States. A "directed selling effort" is defined in Rule 902(b)(1) as "any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the securities being offered in reliance on Regulation S. 1 As noted in the Release, whether the dissemination in the United States of a broker-dealer's quotations for a security being offered and sold in reliance on Regulation S constitutes "directed selling efforts" typically will be decided on an individual interpretative basis. 2

Information relating to prices, sizes and trades ("Trading Information") of all securities quoted on SEAQ, including those offered in reliance upon Regulation S, may be made available, through SEAQ terminals and SEAQ-compatible computer systems, not only to member firms of SEAQ but also to outside investors including "U.S. persons" or persons within the United States. Should such availability of Trading Information of a security render the quotation on SEAQ of such security a "directed selling effort," then all offerings made in reliance upon Regulation S would be precluded from being quoted on SEAQ. We do not believe that such a harsh result was intended by the Commission for the securities whose quotation on SEAQ is undertaken for purposes other than conditioning the market. Therefore, we believe that a quotation on SEAQ of a security offered in reliance upon Regulation S should not be deemed "directed selling efforts" under the definition of Rule 902(b)(1) so long as such quotation is not undertaken for the purpose of conditioning the market in the United States for such security.

Under Rule 902(b)(6), a distribution in the United States of a foreign broker-dealer's quotations by a third-party system that distributes such quotations primarily in foreign countries will not be deemed "directed selling efforts" if (1) securities transactions cannot be executed between foreign broker-dealers and persons in the United States through the system, and (2) the issuer, distributors, their respective affiliates, persons acting on behalf of any of the foregoing (the "Offering Participants"), foreign broker-dealers and other participants in the system do not initiate contacts with "U.S. persons" or persons within the United States beyond those contacts exempted under Rule 15a-6 under the Exchange Act.

Since SEAQ is only a quotation system and does not allow investors to execute transactions directly through the system (an investor must call the market maker to make a trade), SEAQ satisfies the first requirement of the two-part test of Rule 902(b)(6) that there be no securities transactions between foreign broker-dealers and persons in the United States through the system. However, under Rule 902(b)(6)(ii) it is not just the Offering Participants but all foreign broker-dealers (including foreign broker-dealers who have not participated in the distribution of the securities) and other participants in SEAQ that cannot initiate contacts with "U.S. persons" or persons in the United States beyond those contacts exempted under Rule 15a-6 of the Exchange Act. Since it is impossible, as a practical matter, to ensure that every foreign broker-dealer who may make a market in a security issued under Regulation S and quoted on SEAQ complies with Rule 902(b)(6)(ii), it appears that a literal reading of Rule 902(b)(6) would dictate that a quotation on SEAQ would be considered a "directed selling effort" under Regulation S even though the Offering Participants do not make any "directed selling effort". We do not believe that such a literal reading of Rule 902(b)(6) is justified, as a matter of policy, because it would have the effect of precluding all SEAQ quotations. We do not believe that result was intended by the Commission.

Accordingly, we would appreciate your confirmation of our view that a quotation on SEAQ of a security of a foreign issuer offered under Regulation S will not be deemed a "directed selling effort" if such quotation is not undertaken for the purpose of conditioning the market in the United States for such security and if the issuer, distributors, their respective affiliates and persons acting on behalf of any of the foregoing covenant in the underwriting and inter-syndicate agreements not to, and do not, initiate contacts with "U.S. persons" or persons within the United States beyond those contacts exempted under Rule 15a-6 under the Exchange Act.

Very truly yours,

Robert M. Chilstrom

STAFF REPLY LETTER

May 18, 1993

RESPONSE OF THE OFFICE OF INTERNATIONAL CORPORATE FINANCE
DIVISION OF CORPORATION FINANCE

Re: Skadden, Arps, Slate, Meagher & Flom
Incoming letter dated May 13, 1993

In response to your letter, it is the Division's view that a quotation on The Stock Exchange Automated Quotations ("SEAQ") system of a security of a foreign issuer will not constitute "directed selling efforts," as that term is defined in Rule 902(b) of Regulation S, provided that such quotation is not undertaken for the purpose of conditioning the market in the United States and, provided further, that the issuer, distributors, their respective affiliates and persons acting on behalf of any of the foregoing covenant not to, and do not, initiate contacts with U.S. persons or persons within the United States beyond those contacts exempted under Rule 15a-6 of the Securities Exchange Act of 1934.

Sincerely,

Anita T. Klein
Special Counsel

1According to the Release, activities such as mailing printed material to U.S. investors, conducting promotional seminars in the United States, or placing advertisements with radio or television stations broadcasting into the United States or in publications with a general circulation in the United States, which discuss the offering or are otherwise intended to condition the market for the securities purportedly being offered abroad, constitute "directed selling efforts" in the United States. Fed. Sec. L. Rep. (CCH) 84,524, at 80,668 (April 24, 1990).

2See id. at 80,671.