Release No. 33-7505

Release No. 34-39668

International Series Release No. 1118

63 Fed. Reg. 9631 - Feb. 25, 1998

Offshore Offers and Sales

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission is adopting amendments  to the Regulation S safe harbor procedures for offshore sales of equity  securities of U.S. issuers and the reporting requirements applicable to  those transactions. The amendments are designed to stop abusive  practices in connection with offerings of equity securities purportedly  made in reliance on Regulation S.

EFFECTIVE DATES: April 27, 1998 except Secs. 249.308, 249.308a,  249.308b, 249.310 and 249.310b (the amendments to Forms 8-K, 10-Q, 10- QSB, 10-K and 10-KSB) will become effective on January 1, 1999.

FOR FURTHER INFORMATION CONTACT: Felicia H. Kung, Office of  International Corporate Finance, Division of Corporation Finance, at  (202) 942-2990.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (the  ''Commission'') is adopting amendments to Rule 903¹ of Regulation  S,² the issuer safe harbor under the Securities Act of 1933³ for  offshore offerings of securities, to address abusive practices that  have developed. The amendments apply to the offshore sales of equity  securities of domestic issuers. The Commission is also adopting  amendments to Rule 144(a)(3)⁴ and a new Rule 905⁵ that classify  these equity securities as ''restricted securities,'' as defined in  Rule 144 under the Securities Act. In addition, Rule 905 makes clear  that offshore resales under Rule 904⁶ of restricted equity securities  of domestic issuers will not alter the status of these securities as  restricted securities after the resale. The Commission also is  replacing the current requirement that reporting issuers file a Form 8- K to disclose Regulation S sales of equity securities within 15 days of  the transaction with a requirement that these sales be reported on  Forms 10-Q, 10-QSB, 10-K or 10-KSB, as appropriate. In addition to  these changes, the Commission is adopting other technical amendments to  Regulation S to make the rule clearer and more concise.

Table of Contents

I. Executive Summary

The Commission adopted Regulation S in 1990 as a safe harbor from  the registration requirements of the Securities Act for offshore offers  and sales of securities. Although the regulation has proved successful  for many types of offerings, abuses in connection with sales of  domestic equity securities have been common.

Regulation S has been used as a means of perpetrating fraudulent  and manipulative schemes, especially schemes involving the securities  of thinly capitalized or ''microcap'' companies. These types of  securities are particularly vulnerable to fraud and manipulation  because little information about them is available to investors.

The Commission is seeking to enhance investor protection with  respect to microcap securities through various initiatives, including  amendments to Regulation S. The changes to the regulation adopted today  should prevent further abuses of this rule, but also allow continued  reliance on Regulation S in legitimate offshore offerings.

The Regulation S amendments adopted today are as follows:

Equity securities placed offshore by domestic issuers  under Regulation S will be classified as ''restricted securities''  within the meaning of Rule 144, so that resales without registration or  an exemption from registration will be restricted; ⁷

To avoid confusion between the holding period for  ''restricted securities'' under Rule 144 and the ''restricted period''  under Regulation S, the term ''restricted period'' will be renamed the  ''distribution compliance period'';

The distribution compliance period for these securities  will be lengthened from 40 days to one year;

Certification, legending and other requirements, which  currently are applicable only to sales of equity securities by non- reporting issuers, will be imposed on these equity securities;

As a means to alert purchasers of these equity securities  to potential restrictions on hedging their positions in these  securities, purchasers will be required to agree that their hedging  transactions with respect to such securities will be conducted in  compliance with the Securities Act, such as Rule 144 thereunder; and

Offshore resales under Rule 901 ⁸ or 904 of equity  securities of domestic issuers that are ''restricted securities,'' as  defined in Rule 144, will not affect the restricted status of these  securities.

The amendments are substantially as proposed with some important  differences. To avoid undue interference with offshore offering  practices of foreign companies, the amendments will apply to the equity  securities of U.S. issuers, but not to the equity securities of foreign  issuers. The distribution compliance period applicable to issuers and  distributors under Rule 903 will be extended to one year, rather than  the proposed two years, to align Regulation S more precisely with the  Rule 144 resale restrictions. In addition, promissory notes will not be  prohibited in Regulation S transactions; rather, the notes must satisfy  certain conditions set forth in Rule 144 before the purchaser can  resell pursuant to that rule. These conditions should ensure that  promissory notes are not used as a means to distribute securities into  the United States. This refined approach will still forestall abuses  related to the use of promissory notes in Regulation S transactions.  Finally, the change from Form 8-K reporting to quarterly reporting will  be delayed to allow the Commission staff to monitor developments under  the amended rule.

II. Background of Proposals and Commenters' Concerns

The Commission has acted to stem abuses of Regulation S by issuers,  affiliates and others involved in the distribution process who were  using Regulation S as a guise for distributing securities into the U.S.  markets without the protections to investors of registration of the  securities under the Securities Act. The Commission first stated its  position about these abuses in a June 1995 interpretive release that  described certain problematic practices under Regulation S.⁹ The  Commission also has instituted enforcement proceedings against  participants in abusive Regulation S transactions.¹⁰

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As a result of the continuation of certain of these abusive  practices and in response to the comment letters received on the  Interpretive Release, the Commission on February 20, 1997, proposed new  restrictions to Regulation S to stop these abusive practices for  placements of equity securities by domestic companies.¹¹ In addition,  the Commission proposed to make these restrictions apply to foreign  companies where the principal trading market for their securities is in  the United States because of concerns that abusive practices might  develop in the future. The Commission proposed to classify these equity  securities of domestic and foreign companies placed offshore under  Regulation S as ''restricted securities'' within the meaning of Rule  144, and to revise the applicable offering restrictions to ensure that  these equity securities could not be sold or resold to U.S. persons  (unless pursuant to registration or an exemption).¹²

The comments on the proposals were mixed.¹³ A number of  commenters supported the proposed amendments as necessary and  appropriate to curb abusive practices and to facilitate legitimate  offshore capital raising by U.S. companies. Others believed the  proposals would severely restrict the ability of U.S. companies to  access alternative offshore sources of capital. Several commenters  objected to the extension of the revisions in the rule to foreign  private issuers that have their principal market in the United States.  These commenters urged that the application of the new resale  restrictions, including the legending and stop transfer requirements,  would be inconsistent with the requirements of offshore trading markets  and public offering practices.

III. Amendments Adopted Today

A. Scope of the Amendments

1. Will Not Apply to Foreign Issuers for Which the United States Is the

Principal Market

Although abusive practices under Regulation S have not been evident  in offerings by foreign issuers, the Commission was concerned that  abusive practices might develop in the future since the economic  incentives for indirect distributions and resales into the United  States are the same for equity offerings of both domestic companies and  foreign companies where the principal market for their securities is in  the United States.¹⁴ Therefore, the Commission proposed that the  Regulation S changes would treat these offerings similarly both with  respect to the new Regulation S requirements, as well as the  ''restricted securities'' classification under Rule 144.

The commenters strongly opposed this approach. They pointed out  that subjecting foreign issuer securities to these restrictions was  unnecessary in light of the absence of abuses with respect to those  securities. They also asserted that there should be no presumption that  a foreign issuer offering securities overseas is doing so to avoid the  registration and disclosure requirements of the U.S. federal securities  laws, even when it has a substantial trading market for its securities  in the United States. Moreover, in the view of some these commenters,  there is no reason to assume that indirect unregistered distributions  into the United States will occur when these foreign issuers'  securities are sold offshore.

The commenters also noted that if equity securities issued by these  foreign companies are deemed restricted securities, the issuers in  essence would be applying to their offshore offerings many of the  standard practices used in U.S. private placements. The certification  and purchaser agreement requirements would impose a significant burden  on foreign issuers that wish to conduct public offerings in their home  jurisdictions. In addition, many foreign stock exchanges will not  permit trading of legended securities. The commenters asserted that the  legending and stop transfer restrictions, as well as to a lesser extent  the disclosure and certification requirements that would be imposed by  the rule, would impede both public offerings and trading in those  securities on offshore public markets that do not accept legended stock  for trading.¹⁵ As a result, the classification of foreign equity  securities as ''restricted'' could create a strong disincentive for  foreign companies to list their securities on U.S. markets.

While the Commission remains concerned with the potential for  abuse, it has determined not to extend, at this time, the new  requirements to the securities of foreign private issuers, regardless  of the relative size of their U.S. markets to their worldwide  trading.¹⁶ The Commission agrees that absent a showing of abuse,  imposing significant new restrictions on the offshore offering  practices of foreign companies is not warranted. However, the  Commission will monitor practices in this area, and will revisit the  issue if abuses occur. Meanwhile, purchasers of these securities are  reminded that Regulation S does not provide a safe harbor for resales  of securities into the United States, and any resales must be made  pursuant to a registration statement or an exemption from the  Securities Act. Regardless of the foreign issuer's compliance with the  Regulation

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S requirements, purchasers cannot purchase securities and resell them  into the United States under circumstances in which they would be  deemed statutory underwriters unless they register those resales.¹⁷

2. Will Apply to Public Offerings

Several commenters expressed the view that the proposed  restrictions, including the designation of equity securities issued  under Regulation S as restricted securities, were inconsistent with  offshore public offering practices and the requirements of foreign  trading markets. These commenters urged the Commission to adopt a  distinction based on whether there was or will be a public trading  market for the securities offshore following the offer, or whether the  offering was subject to a foreign regulatory scheme governing public  offerings.

Since most of the concerns in this respect were raised with regard  to the extension of the requirements to foreign private issuers, those  concerns are substantially addressed by the Commission's decision to  limit the applicability of the new restrictions to domestic issuers. As  discussed below,¹⁸ the Commission believes that offering practices  can be adopted to allow the new restrictions to be applied in the  context of a public offering by domestic issuers, including share  acquisitions. The existence of an offshore trading market would not  eliminate the potential for abuse; for example, an offering could be  made at a discount to purchasers offshore who may engage in an illegal  distribution back into the United States. The Commission also is  concerned that otherwise limited distributions to a small group of  offshore investors easily could be structured as underwritten public  offerings to avoid any additional restrictions on resales by those  investors back into the United States. Accordingly, the amendments do  not incorporate a distinction based upon whether a public trading  market for the securities exists offshore, or whether the securities  were issued in a public offering.

3. Will Apply to All Equity Securities of Domestic Companies, including

Convertible Securities

Consistent with the proposal, the new procedures and restrictions  and the ''restricted securities'' classification will apply only to  offerings of equity securities. Rule 405 of Regulation C under the  Securities Act defines the term ''equity security'' to include stock,  securities convertible or exchangeable into stock, warrants, options,  rights to purchase stock, and other types of equity-related  securities.¹⁹ The Commission is not applying the new restrictions to  offerings of straight debt securities because the nature of the trading  markets for debt securities appears not to have facilitated similar  abusive practices. However, the new restrictions will apply to  offerings of convertible debt securities because Regulation S abuses  have involved the use of convertible or exchangeable securities and  warrants.²⁰

Commenters addressing the issue of whether the restrictions should  apply to convertible securities urged the Commission to adopt the  approach incorporated into Rule 144A. Under that approach, a  convertible security is not treated as the same class as the underlying  equity security if it has a conversion premium exceeding a specified  percentage threshold over the market price of the underlying securities  at the time of issuance.²¹ If this approach were used in Regulation  S, convertible securities with a sufficient conversion premium would  not be subject to the new restrictions applicable to equity.

The new rules and restrictions will apply to all equity securities  of U.S. issuers, including exchangeable or convertible securities and  warrants, without regard to the conversion or exercise premium or other  factors. It is clear that these securities can and have been used in  abusive transactions. The potential for abuse exists whenever a  domestic issuer can create offshore, in a transaction not subject to  the registration provisions of the U.S. securities laws, pools of  equity securities that appear to be immediately tradeable back into the  United States because of their unrestricted status. The Commission is  reluctant to specify a conversion premium and thus possibly be viewed  as condoning abusive practices in securities set above that threshold.  In any event, given the volatility of the markets for the types of  small capitalization companies in which the Commission has witnessed  abuses, it would be difficult to set an appropriate threshold for all  types of issuers. Finally, as discussed below, even with application of  the new restrictions to convertible securities, the Commission does not  believe that Regulation S will eliminate the use of these securities as  a means to lower a U.S. issuer's cost of capital. Many issuers do not  need to rely on Regulation S with respect to their sales of convertible  securities because they can use Form S-3 to register the securities.

4. Will Apply to Securities in Employee Benefit Plans

Equity securities offered and sold to non-U.S. resident employees  through an employee benefit plan governed by foreign law have not been  subject to a distribution compliance period regardless of the domicile  of the issuer or U.S. market interest in its securities. Since new Rule  905 would extend to all equity securities of domestic issuers, however,  the proposals would classify those equity securities as restricted  securities within the meaning of Rule 144 when issued to the employee.

Several commenters believed that it was inappropriate to require  non-U.S. resident employees to accept restricted securities pursuant to  their employee benefit plans. To the extent reporting U.S. issuers  believe it is necessary to give their non-U.S. resident employees  immediate access to the U.S. public markets in order to sell the  security, Form S-8, which is effective immediately upon filing, is  available to permit the issuer to register the securities on a  streamlined basis. Consequently, the Commission has determined to apply  Rule 905 to these securities as proposed.

B. Distribution Compliance Periods

As explained in greater detail in the Proposing Release,²² the  issuer safe harbor distinguishes three categories of securities  offerings, based upon factors such as the jurisdiction of incorporation  of the company whose securities are being sold, the company's reporting  status under the Securities Exchange Act of 1934 (''Exchange  Act''),²³ and the degree of U.S. market interest in the issuer's  securities.²⁴ The Commission proposed shifting U.S. reporting  companies to ''Category 3'' and

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lengthening the distribution compliance period applicable to domestic  equity securities. The effect of the proposals would have been to  lengthen the distribution compliance period for U.S. reporting  companies from 40 days to two years. Issuers previously subject to  Category 3 for their equity offerings--non-reporting domestic issuers  and foreign issuers with a significant U.S. market interest for their  securities--would have had their distribution compliance period  extended from one to two years. During this period, issuers,  distributors, and their affiliates would have been required to comply  with the documentation and disclosure requirements imposed by Rule 903,  and any offers and sales during this period could not be made to a U.S.  person and still qualify for the safe harbor. In response to concerns  raised by commenters, the Commission is adopting a modified version of  these proposals.

In addition, to further avoid confusion between the requirements  applicable to issuers and distributors as a condition to perfecting  their Rule 903 safe harbor and the Rule 144 safe harbor applicable to  resales of the securities into the United States by the purchasers of  those securities, the restricted period has been renamed the  ''distribution compliance period.'' This should clarify that the  availability of the safe harbor to the issuer and distributors has no  bearing on whether purchasers of Regulation S securities may be acting  as statutory underwriters if they purchase with a view to reselling  into the U.S. markets.

1. Extension of the Distribution Compliance Period

A distribution compliance period is required for Category 2 and  Category 3 offerings under the issuer safe harbors because there is a  greater likelihood that the securities will flow back into the United  States. The purpose of the distribution compliance period is to ensure  that during the offering period and the subsequent aftermarket trading  that takes place offshore, the persons relying on the safe harbor-- issuers, distributors and their affiliates--are not engaged in an  unregistered, non-exempt distribution into the United States capital  markets.²⁵ In addition to the prohibition against selling to U.S.  persons during the distribution compliance period, these persons are  subject to special requirements designed to provide assurance that the  securities will come to rest offshore.

The Commission proposed the two-year distribution compliance period  to make the restrictions on issuers and distributors consistent with  the Rule 144 holding periods applicable to purchasers of the Regulation  S securities under new Rule 905 and the amendments to Rule 144. The  commenters generally agreed that the current 40-day distribution  compliance period was insufficient to protect against use of an  offshore offering to make an indirect offering into the United States,  at least with respect to equity securities of domestic issuers. Some  commenters argued, however, that the two-year period was not necessary  and that a 90-day period, like that originally proposed when Regulation  S was first formulated, would be sufficient.²⁶

Consideration was given to eliminating the distribution compliance  period altogether, on the premise that since the equity securities  issued under Regulation S could not be sold back into the U.S. markets  for a period of two years unless sold in a manner consistent with the  Rule 144 requirements, the additional requirements of the distribution  compliance period were unnecessary. However, the documentation,  disclosure and certification requirements linked to the distribution  compliance period, as well as the prohibition against offers and sales  to a U.S. person during the distribution compliance period, provide  important additional protections and assurance that, at least from the  perspective of the distribution participants, the securities have come  to rest offshore. Extending those requirements for a period of time  after the closing of the offering is necessary, particularly with  respect to distributors of those securities who may immediately make a  market for the securities offshore. The purposes of the protections  would be defeated if the requirements are applied only to the initial  purchasers.

The Commission has decided to extend the distribution compliance  period substantially beyond 40 days to one year. The expiration of the  one-year period will coincide with the period when limited resales may  begin under Rule 144. At that point, the distribution compliance period  is unnecessary. A two-year distribution compliance period, as  originally proposed, could be confusing to apply because the  distribution compliance period under Regulation S would cover a longer  period than the holding period under Rule 144.

2. Offering Restrictions

Category 2 and Category 3 of Rule 903 require that ''offering  restrictions'' ²⁷ be implemented during the distribution compliance  period. For offerings classified as Category 3, these offering  restrictions include agreements by distributors that the securities  will only be sold in accordance with the Securities Act or Regulation  S, and a requirement for disclosure in all offering materials to the  same effect. The amendments adopted today do not affect these  requirements other than to:

Lengthen the period during which they must be implemented,  as a result of the lengthening of the distribution compliance period;  and

Require that additional language be provided in the  mandated agreements and on the securities themselves, so that  purchasers have notice that hedging transactions not in compliance with  the Securities Act are prohibited.

3. Purchaser Agreements and Certifications

Category 3 imposes additional requirements not included in Category  2 relating to purchaser certifications and agreements. Those  requirements will be imposed on equity offerings of domestic reporting  companies for the first time under the amendments. In addition, the  issuer and distributors will be subject to the additional requirements  for a longer period, as a result of the longer distribution compliance  period.

In keeping with a more restrictive approach to the types of  Regulation S offerings where the Commission has observed the greatest  potential for abuse, the Commission is adopting amendments that will  require purchasers of equity securities in Category 3 offerings to  agree to resell the securities, or to engage in hedging transactions,  only in accordance with the registration or exemptive provisions of the  Securities Act, or in accordance with Regulation S.²⁸ This agreement  by

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purchasers of the covered equity securities should help ensure that  purchasers have notice of the resale restrictions applicable to the  securities.

Purchasers of domestic equity securities of reporting companies  also will now be required to certify that they are not U.S. persons and  are not acquiring the securities for the account or benefit of a U.S.  person, or that they are U.S. persons who purchased securities in a  transaction that did not require registration under the Securities Act.  This certification procedure should make it clear to all parties  involved in the Regulation S offering that the rule may not be used to  circumvent the registration requirements of the Securities Act. This  should prevent some of the ''sham'' transactions described in the  Interpretive Release where issuers or distributors ''park'' securities  offshore with affiliates or shell entities that are actually owned by  U.S. persons.

4. Legending and Stop Transfer Requirements

Under the amendments, Category 3 will now require all domestic  issuers of equity securities to place a legend on the securities sold  offshore under Regulation S. This legend will advise that transfer of  such securities is prohibited other than in accordance with Regulation  S, pursuant to registration under the Securities Act, or pursuant to an  available exemption from registration. The legend requirement will  provide notice to any subsequent purchasers of the resale restrictions  applicable to the securities. Legending equity securities of domestic  reporting issuers until the expiration of the current 40-day  distribution compliance period appears to be a common practice under  Regulation S. The extension of the express legending requirement to  reporting companies, when limited to domestic issuers, should not  impose a different or new burden. In addition, as proposed, the current  legending requirement is being amended, so that purchasers are aware  that hedging transactions may not be conducted except in compliance  with the Securities Act.

Category 3 also requires an issuer, by contract or a provision in  its bylaws, articles, charter or comparable document, to refuse to  register any transfer of securities unless made in accordance with the  registration or exemptive provisions of the Securities Act, or in  accordance with Regulation S. This requirement imposes on issuers a  monitoring role similar to that which is often imposed in connection  with unregistered private placements. In light of the abuses in this  area, domestic reporting issuers should be held more accountable for  compliance in these offerings.

Commenters were concerned that these procedures--which have existed  under Category 3 since before the adoption of Regulation S ²⁹ and now  are merely being extended to a broader class of issuers--are  inconsistent with public offering practices and that imposing these  requirements will prevent the issuer from engaging in offshore public  offerings or listings. Since these concerns were raised principally  with respect to foreign issuers, they have been addressed by the  decision not to extend Category 3 to reporting foreign issuers that  have their principal market in the United States.³⁰ With respect to  domestic issuers, although these requirements will not be complied with  easily in an offshore public offering, the need to develop mechanisms  to prevent abuse is clear. Absent measures like those required in  Category 3, the Commission is concerned that abusive practices will  continue.³¹ Domestic reporting companies that find it too cumbersome  to take advantage of the Regulation S safe harbor when conducting a  public offering would simply register under the Securities Act or  resort to other exempt offerings.

Regulation S does not require, and the Commission is not  proposing, that the legend contain specific language to describe  these restrictions. Issuers and distributors should prepare such  legends in a form that conveys to holders the restricted nature of  the securities and that they can only be resold under Regulation S,  pursuant to registration under the Act, or under an exemption. Nor  is the legend requirement intended to require that securities sold  under Category 3 be in certificated form. Issuers whose securities  are in uncertificated form may satisfy the legend requirement by any  means which puts holders and subsequent purchasers on notice of the  applicable resale restrictions.

Proposing Release at Section III.B.4. Depending on the  circumstances, the following alternatives, among others, may be  sufficient to put holders on notice and prevent a public  distribution into the United States: Notices of the restrictions to  investors on the confirmation or allotment telex, use of global  securities held in a depository, and restrictions on trading in the  United States through the use of restricted CUSIP numbers.

C. New Rule 905--Restricted Securities

Because some of the abusive practices under Regulation S have  involved activities by persons other than issuers, distributors and  their affiliates (investors who purchase Regulation S securities with a  view to distributing those securities into the U.S. markets at the end  of the 40-day distribution compliance period), the Commission believes  that it is appropriate to clarify the legal obligations of purchasers  of securities under Regulation S. The Commission proposed new Rule 905,  and amendments to Rule 144(a)(3), to classify covered equity securities  (of both reporting and non-reporting issuers) placed offshore under  Regulation S as ''restricted securities'' within the meaning of Rule  144. By expressly defining these Regulation S securities as falling  within the definition of ''restricted securities'' under the Rule 144  resale safe harbor, purchasers of those securities are provided with  clear guidance regarding when and how those securities may be resold in  the United States without registration under the Securities Act.

Several commenters believed that subjecting offshore purchasers of  Regulation S securities to the Rule 144 holding periods would impair  liquidity in those securities to such an extent that the safe harbor  would no longer provide an alternative source of capital for U.S.  companies. Instead, U.S. issuers would either have to register the  offering or rely on a separate exemption, such as Regulation D or  Section 4(2) under the Securities Act for private offerings.

1. Advantages of Regulation S

Notwithstanding the concerns raised by commenters, the Commission  believes Regulation S will continue to offer significant advantages  over the private offering exemptions. U.S. issuers can sell securities  offshore without regard to the sophistication or number of purchasers  in the offering or the size of the offering. Similarly, unlike Rules  505 and 506 of Regulation D, Regulation S does not contain specific  information requirements. In addition, Regulation S permits issuers and  distributors to advertise an offering offshore (consistent with the  prohibition against directed selling efforts and the offshore  transaction requirements) in a manner that would not be consistent with  the prohibition against general solicitation in a private placement in  the United States. Like the private offering exemptions, Regulation S  will continue to afford U.S. issuers a means to sell

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securities without the potential delay and ''market overhang'' caused  by registering equity securities under the Securities Act.

Purchasers will continue to have several sources of liquidity in  addition to reliance on Rule 144. Offshore purchasers can continue to  rely upon the Rule 904 safe harbor for offshore resales. They can also  resell in the United States pursuant to exemptions other than Rule 144,  including Rule 144A. Finally, and perhaps most importantly, it is  possible that purchasers in Regulation S offerings could insist upon  registration rights as do purchasers in private placements under  Section 4(2) or Regulation D as a means of obtaining liquidity in the  U.S. markets.³² Particularly in the case of reporting companies, a  Regulation S offering coupled with on demand registration rights  provides an issuer with ready access to foreign capital while according  purchasers access to U.S. markets for liquidity.³³

2. Resales of Restricted Securities

Rule 905 also addresses the resale of restricted securities under  Rule 904. Rule 905 clarifies that the resale of restricted securities  offshore under Rule 904 does not ''wash off'' the restricted status of  those securities to allow them to be freely resold into the United  States by the purchaser. Several commenters argued that it was  impossible to keep track of the restricted status of securities trading  in offshore securities markets. With the widespread adoption of  uncertificated securities and rules of offshore markets that prohibit  the listing of legended securities, these commenters observed that the  approach simply was not practicable.

By not extending Rule 905 to securities of foreign private issuers,  the principal concerns of the commenters in this respect should be  addressed.³⁴ Although some commenters have expressed concern that the  certification and legending requirements may hinder free trading on  offshore securities markets, without these requirements the potential  for easy evasion of Rule 144's resale limitations for domestic equity  securities is high. Absent the mandatory certification and legending  requirements, the purchaser would not be on notice that it is subject  to any restrictions on the resale of those securities into the United  States.³⁵ It is possible that some markets can accommodate such  securities, or may adapt to accommodate them in the future.  Consequently, the Commission is adopting Rule 905 as proposed for  domestic equity securities.

3. Retroactive Application of Rule 905

Rule 905 will not be applied retroactively to classify domestic  equity securities previously sold under Regulation S as restricted  securities under Rule 144. However, the provision of Rule 905 that  codifies the Commission's interpretive position that resales offshore  do not ''wash off'' restrictions will apply to offerings taking place  before the effective date. This position was stated in the Interpretive  Release and reiterated in the Regulation S Proposing Release.

D. Promissory Notes

Under the proposal, Regulation S would have prohibited the use of  promissory notes or other executory obligations as payment for domestic  equity securities. The proposal was designed to address abuses where  the offshore purchaser used a promissory note to pay all or a portion  of the purchase price of the securities. In some cases, the notes were  secured only by the Regulation S securities; in other cases, the notes  were unsecured. Some notes provided recourse to the buyer if the note  was not repaid; others did not. Purchasers have resold the securities  into the U.S. markets upon expiration of the 40-day distribution  compliance period and used the proceeds of the resale to repay the  note. Under such an arrangement, the issuer and purchaser clearly  expect a U.S. resale to provide the funds necessary to repay the note;  in economic substance, the issuer is raising funds from the U.S. public  markets.

Rather than exclude such transactions from the coverage of the safe  harbor, some commenters recommended that the Commission adopt the  alternative approach suggested in the Proposing Release--that is, to  toll the holding period under Rule 144 until certain conditions are  satisfied, similar to the tolling approach taken under Rule 144 with  respect to promissory notes and other similar obligations. The  Commission has decided to adopt this approach because it is persuaded  that this approach will address concerns about the use of promissory  notes to raise funds in the U.S. markets, since the securities  purchased pursuant to Regulation S will be fully paid for before the  securities can be resold into the U.S. markets pursuant to Rule 144. In  that case, the resale of the securities into the U.S. markets under  Rule 144 would not be used to raise funds to repay the promissory note.  Under the approach adopted, promissory notes or similar obligations or  contracts can be accepted as payment to purchase domestic equity  securities under Regulation S. The holding period will not begin to run  for the purchaser, however, unless the following conditions are  satisfied: The promissory note, obligation or contract provides for  full recourse against the purchaser of the securities, and is secured  by collateral (other than the securities purchased) having a fair  market value at least equal to the purchase price of the securities  purchased. In addition, after the holding period requirement has been  satisfied, the promissory note, obligation or contract must be paid in  full before the resale of the securities under Rule 144. This ensures  that the funds obtained through the Rule 144 resales will not be used  to pay off the promissory note.

E. Reporting of Regulation S Transactions

As a result of amendments adopted by the Commission in October  1996,³⁶ sales of equity securities by domestic issuers under  Regulation S are required to be reported on Form 8-K within 15 days of  occurrence. All other unregistered sales of equity securities by  domestic issuers (e.g., private placements) must be reported quarterly  in the issuer's Form 10-Q and in its Form 10-K (for the last fiscal  quarter). At the time the Commission adopted the Form 8-K 15-day  reporting requirement, the Commission stated that if it extended the  distribution compliance period for sales of equity securities under

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Regulation S, it would consider revising the reporting requirement.

The commenters generally favored dropping the Form 8-K requirement,  although some thought that the Form 8-K report was important to stop  abuses, and provided timely notice to shareholders and the markets of a  material development concerning the issuer. Since equity securities  sold under Regulation S will now be deemed restricted securities and  thus cannot enter the U.S. public markets any faster than securities  issued in an exempt private placement, the benefits of expedited Form  8-K reporting is minimal. Accordingly, the Form 8-K filing requirement  is being eliminated, and these sales will be reported on Forms 10-Q,  10-QSB, 10-K or 10-KSB, as applicable.³⁷

The Commission has determined to delay the effectiveness of this  amendment, however, to allow the Commission staff to monitor closely  developments under the amended Regulation S safe harbor procedures  during a transition period. Accordingly, the Form 8-K report will not  be required for any Regulation S sales occurring after January 1, 1999.

Following the October 1996 adoption of the Form 8-K reporting  requirement, the Commission staff received inquiries regarding the need  to report on Form 8-K unregistered sales of equity securities by U.S.  companies to their non-U.S. resident employees pursuant to employee  benefit plans. To the extent that the sales qualify for Category 1  treatment under Rule 903 of Regulation S, issuers may report the sales  on an aggregated basis on the Form 10-Q, rather than on a current basis  on Form 8-K, prior to January 1, 1999.

F. Technical and Clarifying Revisions

As proposed, the Commission is adopting non-substantive technical  and clarifying revisions to Regulation S to make the rule more concise  and understandable. The principal changes include:

Revising the captions of the three sections of the Rule  903 issuer safe harbor to refer to them as commonly known: ''Category  1,'' ''Category 2'' and ''Category 3'';

Revising the Rule 903 issuer safe harbor to state clearly  for each category what procedures are to be followed and what  securities are eligible for each category;

Combining some definitions within Rule 902, the definition  section of Regulation S, and moving certain definitions to the Rule 903  safe harbor to make the rule easier to read and understand;

Updating the list of ''designated offshore securities  markets'' in Rule 902;

If the same terms are already defined elsewhere in the  Commission's rules and regulations, deleting those definitions from  Rule 902 and adding cross-references to the definitions contained  elsewhere; and

Generally editing the language in the rule to make it more  understandable.

IV. Certain Findings

Section 23(a) of the Exchange Act ³⁸ requires the Commission to  consider any anti-competitive effects of any rules it adopts thereunder  and the reasons for its determination that any burden on competition  imposed by such rules is necessary or appropriate to further the  purposes of the Exchange Act. Furthermore, Section 2 ³⁹ of the  Securities Act and Section 3 ⁴⁰ of the Exchange Act, as amended by  the National Securities Markets Improvement Act of 1996,⁴¹ provide  that whenever the Commission is engaged in rulemaking and is required  to consider or determine whether an action is necessary or appropriate  in the public interest, the Commission also shall consider, in addition  to the protection of investors, whether the action will promote  efficiency, competition, and capital formation.

The Commission has considered the amendments discussed in this  release in light of the comments received in response to the Proposing  Release and the standards in Section 23(a) of the Exchange Act.⁴² The  Commission adopted Regulation S in 1990 to provide a safe harbor from  the registration requirements of the Securities Act for offshore offers  and sales of securities. Since the adoption of Regulation S, the  Commission has become aware of abuses of this rule in connection with  sales of domestic equity securities. The Commission is adopting the  amendments to prevent further abuses of this rule.

In compliance with Section 2 of the Securities Act, which requires  the Commission to consider whether the action will promote competition,  it is important to note that the amendments will impose certain burdens  on purchasers of equity securities issued by domestic companies, as  well as on the issuers themselves, that may place domestic issuers at a  competitive disadvantage in raising funds through Regulation S  transactions as compared to foreign issuers. For example, purchasers of  domestic equity securities sold pursuant to Regulation S may have to  wait a longer period of time before they can publicly resell the  securities into the United States. In addition, these purchasers will  have to provide certification that they are not U.S. persons that may  result in additional recordkeeping burdens on issuers and distributors  who must maintain records of this compliance. Of course, any U.S. law  applicable only to U.S. issuers will have some competitive effect on  domestic issuers compared to foreign issuers. However, the Commission  believes that such restrictions are necessary to deter abuses of the  rule. Because abusive practices under Regulation S primarily have  involved domestic companies, the Commission believes that it is not  necessary at this time to apply additional restrictions on sales of  equity securities by foreign issuers.

Although the amendments will impose certain burdens on both  purchasers and issuers of equity securities issued by domestic  companies, the Commission anticipates that the overall effect of the  amendments will be to enhance efficient capital formation. By deterring  abusive market practices, the amendments will protect investors and  promote capital formation by enhancing investors' confidence in the  integrity of Regulation S offerings.

The Commission is adopting amendments to relax the requirements to  report unregistered sales of equity securities made pursuant to  Regulation S. Such sales will now be reported on a delayed basis on  Forms 10-Q, 10-QSB, 10-K and 10-KSB, rather than Form 8-K. However,  investors will continue to have sufficient information regarding  changes in outstanding securities of public companies. These amendments  could decrease Form 8-K filing burdens for some reporting issuers,  although the new requirements to report unregistered equity sales on a  quarterly basis could result in an offsetting increase in reporting.

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Nonetheless, the Commission believes the amendments will promote  efficiency and capital formation, and will not unnecessarily burden  competition.

V. Cost-Benefit Analysis

The Commission adopted Regulation S to enhance access to offshore  securities markets for both foreign and domestic issuers. Regulation S  provides a safe harbor from the registration requirements of the  Securities Act for offshore offers and sales of securities. In spite of  the overall success of this rule, Regulation S has been abused with  respect to sales of equity securities by domestic issuers. Abuses have  occurred in which these securities have inappropriately been  distributed back into the United States after the Regulation S  transaction in violation of U.S. laws and regulations. As a result of  these abuses, fraudulent schemes involving millions of dollars have  been perpetrated through the use of Regulation S.

The amendments to Regulation S will prevent further abusive  practices under this rule, and will protect investors and promote  capital formation by enhancing the integrity of the securities markets.  At the same time, the amendments will permit continued reliance on  Regulation S for legitimate offshore offerings.

The amendments will impose restrictions on purchasers of equity  securities of U.S. issuers, as well as on the issuers themselves, that  may make it more costly for such issuers to raise funds through  Regulation S placements. For instance, some purchasers may now have to  wait a longer period of time before they can publicly resell the  securities into the United States. In addition, the amendments will  require purchasers of domestic equity securities sold under Regulation  S to provide certification that they are not U.S. persons. This may  impose additional recordkeeping burdens on issuers and distributors  that must maintain records of such compliance, which could make  Regulation S sales of their equity securities more costly for these  issuers. However, the Commission believes that these restrictions are  needed to prevent abusive practices that have occurred under Regulation  S. By deterring abusive market practices, the amendments will protect  investors and promote capital formation by enhancing investors'  confidence in the integrity of the securities markets.

Based on a review by Commission staff of Form 8-Ks filed by issuers  to report equity sales made under Regulation S, the Commission  estimates that approximately 500 Exchange Act reporting companies  conduct approximately 550 sales pursuant to Regulation S each year and  that over $5 billion in equity sales will be affected by the  amendments. The total number of companies affected by the amendments is  not known because non-reporting companies are not required to file Form  8-K and the Form 8-K reporting requirement only applies to sales of  equity securities under Regulation S.

Although the new requirements, such as the purchaser certifications  and purchaser and distributor agreements, may increase costs to  issuers, the Commission believes that the increase will be negligible.  According to an informal survey taken by Commission staff of attorneys  in private practice whose clients could be expected to rely on these  safe harbors, domestic issuers that sell equity securities under  Regulation S already comply with the certification and legending  requirements of Category 3 as a matter of common practice. No new costs  will be imposed on domestic issuers as a result of formally extending  the Category 3 requirements to sales of equity securities by domestic  issuers. The new requirements with respect to hedging transactions  under Regulation S are expected to have a negligible impact on costs  because the amendments will only require issuers to add an additional  sentence with respect to hedging on the securities, and in the  purchaser agreements. Private practitioners surveyed by the Commission  staff have indicated that the increased costs as a result of the  amendments with respect to hedging are insignificant.

The amendments to Forms 8-K, 10-Q, 10-QSB, 10-K and 10-KSB relax  the requirements to report unregistered sales of equity securities by  delaying the reporting of the unregistered sale. The sufficiency of the  information provided to investors about unregistered offerings made by  public companies should not be affected. However, the Commission  believes the reduction in burdens and costs will be negligible. As a  result of these amendments, information on unregistered offerings  (include private placements and Regulation S offerings) during a given  time period will now be available to investors in one filing.

The Commission is amending Regulation S to clarify the legal  obligations of purchasers of securities under that rule. Some of the  abuses under Regulation S have involved activities by persons other  than issuers, distributors and their affiliates--investors who  purchased with a view to distributing the securities into the U.S.  markets at the end of the distribution compliance period. The  Commission is attempting to address this abuse by defining these  securities as ''restricted securities'' under the Rule 144 resale safe  harbor. However, the Commission does not believe that this  classification will be unduly burdensome for purchasers in Regulation S  offerings. The holding periods under Rule 144 were shortened ⁴³ at  the same time that the Regulation S amendments were proposed, and some  purchasers of securities sold under Regulation S may be able to demand  registration rights. If a purchaser decides to resell the securities  under the Rule 144 safe harbor, the Commission does not believe that  the requirement to file a Form 144 under those circumstances will be  unduly burdensome, especially given the benefits of resale under that  safe harbor. The Commission estimates that this amendment will result  in approximately 750 additional filings on Form 144 per year, and an  increase of approximately 1,500 hours per year in total annual  reporting and recordkeeping burdens.⁴⁴ The Commission estimates that  the total increase in costs as a result of this amendment will be  approximately $45,000 per year.⁴⁵

Restricted shares normally must be sold at a discount relative to  the price of shares that are freely tradable in the public markets. The  size of that price discount reflects, at least in part, the  compensation buyers of shares receive for giving up the ability to  readily sell the shares immediately in the public market. The size of  the price discount is affected by a variety of factors including how  long the restricted shares must be held before they can be sold in the  public markets. Discounts are likely to increase with the length of the  distribution compliance period. Therefore, the Commission expects  discounts on Regulation S securities to increase as a result of the  increase in the minimum distribution compliance period from 40 days to  one year. However, it is difficult to determine how large that increase  is likely to be, and no commenters provided any empirical data in this  regard. The Commission's Office of Economic Analysis' study of recent  sales of Regulation S shares indicates that they were sold at an  average discount of approximately 22%. Studies that have measured price  discounts of shares subject to the longer Rule 144 restricted periods  found that the discounts

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averaged about 20% in the 1980-1987 period according to one study, and  34% in the 1981-1988 period according to another study.⁴⁶ The average  price discount of more recent sales of shares subject to Rule 144 may  be smaller because the restricted periods were shortened by one  year.⁴⁷

VI. Final Regulatory Flexibility Analysis

This Final Regulatory Flexibility Analysis (''FRFA'') has been  prepared in accordance with the Regulatory Flexibility Act ⁴⁸ with  respect to the amendments.

A. The Need for and Objectives of the Amendments to Regulation S

The amendments to Regulation S are designed to stop abuses under  Regulation S in which domestic issuers conduct offshore placements of  their securities under Regulation S that result in indirect  distributions of these securities into the U.S. markets without the  protection of registration under the Securities Act.

B. Summary of Significant Issues Raised by the Public Comments

The Commission requested comment with respect to the Initial  Regulatory Flexibility Analysis (''IRFA'') prepared in connection with  the Proposing Release, but did not receive any comments that  specifically addressed the IRFA.

C. Description and Estimate of the Number of Small Entities That the

Amendments Will Affect

These amendments will affect persons that are small entities, as  defined by the Commission's rules, but only in the same manner as  larger entities. The Commission is aware of approximately 1100 Exchange  Act reporting companies that currently satisfy the definition of  ''small business'' under Rule 0-10 ⁴⁹ of the Exchange Act. While the  Commission sought comment on the number of non-reporting issuers that  may be affected by the proposed changes, commenters did not provide any  additional data on such number. However, there is no reliable way of  determining how many non-reporting companies may be subject to  Regulation S. Furthermore, there is no reliable way of determining how  many small businesses may become subject to the Commission's  registration and reporting obligations in the future.

Based on a review by Commission staff of a sample of the Form 8-Ks  filed with the Commission to report Regulation S equity sales,⁵⁰  approximately 500 Exchange Act reporting companies conduct  approximately 550 sales pursuant to Regulation S each year, and will be  affected by the amendments. The Commission estimates that over 160 of  these reporting companies would meet the Regulatory Flexibility Act  definition of small business. However, the Commission has only been  receiving data regarding offshore placements of equity securities under  Regulation S since November 18, 1996, and does not have any long-term  data that would enable the Commission to develop precise estimates of  the number of small businesses that may actually rely on Regulation S,  or that may otherwise be affected by the amendments. Commenters did not  provide any additional quantitative data in that regard. In addition,  the Form 8-K reporting requirement only applies to sales of equity  securities by domestic reporting issuers, and does not apply at all to  non-reporting companies. As a result, the total number of small  entities that conduct sales under Regulation S will exceed the numbers  referenced above.

D. Description of the Projected Reporting, Recordkeeping and Other

Compliance Requirements of the Amendments

Regulation S is being amended to include new reporting,  recordkeeping and other compliance requirements. In general, compliance  with the new reporting and other compliance requirements will require  the professional skills of attorneys and paralegals specializing in  securities or corporate law. The Commission is lengthening the  distribution compliance period during which persons relying on the  Regulation S safe harbor may not sell to U.S. persons and must  institute certain precautionary measures against such sales. The  Commission also is classifying these securities as ''restricted  securities'' within the meaning of Rule 144. As a result, purchasers of  these securities may resell these securities under the Rule 144 safe  harbor, and would be required to comply with the conditions of that  safe harbor, including the Rule 144 holding periods. These amendments  may reduce incentives to conduct equity placements under Regulation S  due to a perceived reduction in the liquidity of these securities  absent registration under the Securities Act or a valid exemption.

The amendments will impose on reporting domestic issuers  certification, legending and other requirements that previously only  applied to sales of equity securities by non-reporting issuers. These  requirements are intended to assure that participants in the  distribution, as well as the purchasers, are aware of the restricted  nature of these securities. The amendments will expand the current  purchaser and distributor agreement requirements to require that  purchasers and distributors agree not to engage in hedging transactions  with respect to these securities unless the transaction complies with  the Securities Act,⁵¹ and will ensure that participants in the  Regulation S offerings are aware of and comply with these restrictions.

Because equity securities of domestic issuers placed under  Regulation S will be treated as ''restricted securities'' under Rule  144, the holding period will be tolled for securities purchased with a  promissory note unless certain conditions under Rule 144 are satisfied.  These amendments are designed to address abuses involving hedging  transactions and the use of promissory notes that result in indirect  distributions of securities into the U.S. markets without the  protection of registration. These additional purchaser requirements  could increase recordkeeping and compliance burdens. However, they are  expected to have an indirect impact on small U.S. businesses because,  in most cases, the purchasers of securities sold under Regulation S  would be non-U.S. persons.

The new amendments to Regulation S also will clarify that offshore  resales under Rule 904 of equity securities of domestic issuers that  are ''restricted securities,'' as defined in Rule 144, will not affect  the restricted status of those securities. These changes clarify the  requirement that holders of restricted securities may not remove the  restrictions by selling the securities offshore.

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The amendments to Forms 8-K, 10-Q, 10-QSB, 10-K and 10-KSB will  relax the requirements to report unregistered sales of equity  securities by delaying the reporting of the unregistered sale. However,  the sufficiency of the information provided to investors regarding  changes in outstanding securities of public companies should not be  affected. The amendments to Forms 8-K, 10-QSB and 10-KSB will affect  small entities, as defined by the Commission's rules. The Commission  expects that the amendments will reduce Form 8-K filing burdens for  some reporting companies that qualify as small businesses. However, as  a result of the requirement to report unregistered sales of equity  securities on Forms 10-Q, 10-QSB, 10-K and 10-KSB, there will be an  offsetting increase in reporting with no net effect on overall  reporting burden.

E. Description of Steps Taken To Minimize Effect on Small Entities and

Consideration of Alternative Approaches

All of the amendments are being imposed on all domestic issuers.  Small businesses will be able to obtain the protections of Regulation S  on the same basis as larger entities. The Commission considered and  rejected several alternatives to the amendments applicable to small  businesses because it believes that the alternative approaches would  not be consistent with the Commission's statutory mandate of investor  protection. One alternative would be to establish differing compliance  or reporting requirements or timetables that take into account the  resources available to small entities. This alternative would not be  consistent with the intent of the amendments to forestall abusive  practices under Regulation S, especially because some of the abuses  have involved the securities of small issuers.

Another alternative would be to clarify, consolidate or simplify  the amendments with respect to small businesses. It would be difficult  to further clarify, consolidate or simplify the amendments and  concurrently prevent abuses under Regulation S. The Commission believes  the amendments impose the minimum requirements necessary to prevent  further abuses under Regulation S.

In addition to these alternatives, the Commission has considered  establishing separate requirements for small businesses that are based  on performance rather than design standards. However, in the context of  providing a safe harbor from the Commission's registration requirements  for offshore offerings, the adoption of performance standards would be  inconsistent with the Commission's statutory mandate to require full  and fair disclosure of material information to investors, in compliance  with the federal securities laws, and would not provide the kind of  legal certainty that practitioners seek in a safe harbor rule.

Finally, the Commission has considered exempting small businesses  from coverage of the amendments. However, the amendments are intended  to address abusive practices that have occurred under Regulation S,  including abuses that have involved the securities of small issuers,  such that further distinctions between companies based on size would  not be appropriate.

The Commission believes that by adopting the amendments, it is  balancing its objective of preventing abuses under Regulation S with  its statutory mandate of maximizing investor protection in a manner  that is more appropriate than other alternatives.

Although the amendments to Regulation S may affect the ability of  some small businesses to access offshore capital, the amendments should  be sufficient to curb abusive practices under Regulation S without  entirely foreclosing the offshore market for unregistered offshore  offerings of equity securities by domestic issuers. Moreover, the  recent adoption of shortened holding periods under Rule 144 should help  reduce any negative effect on small businesses.

VII. Paperwork Reduction Act

As set forth in the Proposing Release, the amendments to Regulation  S could affect changes to collections of information within the meaning  of the Paperwork Reduction Act of 1995 (''PRA'').⁵² As a result of  these amendments, equity securities of domestic issuers that are issued  offshore under Regulation S will be deemed ''restricted securities'' as  defined in Rule 144 under the Securities Act. Purchasers of these  securities, and any subsequent purchasers, could resell these  securities into the U.S. markets according to the conditions of Rule  144. These conditions include the requirement that these purchasers  file a notice of proposed sale on Form 144 that discloses information  about the issuer of the securities, the seller, the securities to be  sold and the proposed manner of sale. In addition, the amendments to  Forms 8-K, 10-Q, 10-QSB, 10-K and 10-KSB will relax the reporting  requirements pertaining to unregistered sales of equity securities by  delaying the reporting of the unregistered sale. Regulation S issuers  will no longer have the burden of filing Form 8-K to report  unregistered sales of equity securities. However, as a result of the  requirement to report unregistered sales of equity securities on Forms  10-Q, 10-QSB, 10-K and 10-KSB, there will be an offsetting increase in  reporting burden, with no net effect on the reporting burden relating  to these Forms.

Under the proposed amendments, reporting foreign issuers with their  primary market in the United States would have been subject to  additional collections of information. Several commenters objected to  this aspect of the proposals. As a result, the amendments as adopted do  not apply to these foreign issuers, and the overall paperwork burden is  somewhat reduced.

Regulation S provides a safe harbor from registration that is  available on a voluntary basis to issuers and other parties. However,  if an issuer or other person chooses to rely on the Regulation S safe  harbor, it is required to provide the applicable collections of  information. To the extent the required collections of information are  filed with the Commission, such as Form 144 and the Exchange Act  periodic reports, they will not be kept confidential.

The collection of information requirements affected by the  amendments were submitted to OMB for review and were approved by OMB,  which assigned the following control numbers: Form 144, control number  3235-0101; Form 8-K, control number 3235-0060; Form 10-K, control  number 3235-0063; Form 10-Q, control number 3235-0070; Form 10-QSB,  control number 3235-0416; and Form 10-KSB, control number 3235-0420.  The collection of information requirements are in accordance with  Section 3507 ⁵³ of the PRA. An agency may not conduct or sponsor, and  a person is not required to respond to, a collection of information  unless the agency displays a valid OMB control number. The descriptions  and estimated burdens for the collection of information requirements  were set forth in the Proposing Release.

VIII. Statutory Bases

The amendments to Regulation S are adopted pursuant to Sections 5  and 19 of the Securities Act, as amended, and the amendments to Rule  144 are adopted pursuant to sections 2(a)(11), 4, 5 and 19 of the  Securities Act, as

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amended.¹ The amendments to Forms 8-K, 10-QSB, 10-Q, 10-KSB, and 10-K  are adopted pursuant to sections 3(b), 4A, 12, 13, 15, and 23 of the  Securities Exchange Act.²

List of Subjects in 17 CFR Parts 230 and 249

Reporting and recordkeeping requirements, Securities.

Text of the Amendments

In accordance with the foregoing, Title 17, Chapter II of the Code  of Federal Regulations is amended as follows:

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

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

Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,  78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-24, 80a-29,  80a-30, and 80a-37, unless otherwise noted. * * * * *

2. Section 230.144 is amended by revising paragraphs (a)(3) and  (e)(3)(vii) to read as follows:

Sec. 230.144  Persons deemed not to be engaged in a distribution and  therefore not underwriters.

* * * * *

(a) * * *

(3) The term restricted securities means:

(i) Securities acquired directly or indirectly from the issuer, or  from an affiliate of the issuer, in a transaction or chain of  transactions not involving any public offering;

(ii) Securities acquired from the issuer that are subject to the  resale limitations of Sec. 230.502(d) under Regulation D or  Sec. 230.701(c);

(iii) Securities acquired in a transaction or chain of transactions  meeting the requirements of Sec. 230.144A;

(iv) Securities acquired from the issuer in a transaction subject  to the conditions of Regulation CE (Sec. 230.1001); and

(v) Equity securities of domestic issuers acquired in a transaction  or chain of transactions subject to the conditions of Sec. 230.901 or  Sec. 230.903 under Regulation S (Sec. 230.901 through Sec. 230.905, and  Preliminary Notes). * * * * *

(e) * * *

(3) * * *

(vii) The following sales of securities need not be included in  determining the amount of securities sold in reliance upon this  section: securities sold pursuant to an effective registration  statement under the Act; securities sold pursuant to an exemption  provided by Regulation A (Sec. 230.251 through Sec. 230.263) under the  Act; securities sold in a transaction exempt pursuant to Section 4 of  the Act (15 U.S.C. 77d) and not involving any public offering; and  securities sold offshore pursuant to Regulation S (Sec. 230.901 through  Sec. 230.905, and Preliminary Notes) under the Act. * * * * *

3. Preliminary Note 5 to Regulation S (Sec. 230.901 through  Sec. 230.905) is amended by adding a sentence at the end of the note to  read as follows:

Regulation S--Rules Governing Offers and Sales Made Outside the United  States Without Registration Under the Securities Act of 1933

Preliminary Notes

* * * * *

5. * * * The availability of the Regulation S safe harbor to  offers and sales that occur outside of the United States will not be  affected by the subsequent offer and sale of these securities into  the United States or to U.S. persons during the distribution  compliance period, as long as the subsequent offer and sale are made  pursuant to registration or an exemption therefrom under the Act. * * * * *

4. Section 230.902 is revised to read as follows:

Sec. 230.902  Definitions.

As used in Regulation S, the following terms shall have the  meanings indicated.

(a) Debt securities. ''Debt securities'' of an issuer is defined to  mean any security other than an equity security as defined in  Sec. 230.405, as well as the following:

(1) Non-participatory preferred stock, which is defined as non- convertible capital stock, the holders of which are entitled to a  preference in payment of dividends and in distribution of assets on  liquidation, dissolution, or winding up of the issuer, but are not  entitled to participate in residual earnings or assets of the issuer;  and

(2) Asset-backed securities, which are securities of a type that  either:

(i) Represent an ownership interest in a pool of discrete assets,  or certificates of interest or participation in such assets (including  any rights designed to assure servicing, or the receipt or timeliness  of receipt by holders of such assets, or certificates of interest or  participation in such assets, of amounts payable thereunder), provided  that the assets are not generated or originated between the issuer of  the security and its affiliates; or

(ii) Are secured by one or more assets or certificates of interest  or participation in such assets, and the securities, by their terms,  provide for payments of principal and interest (if any) in relation to  payments or reasonable projections of payments on assets meeting the  requirements of paragraph (a)(2)(i) of this section, or certificates of  interest or participations in assets meeting such requirements.

(iii) For purposes of paragraph (a)(2) of this section, the term  ''assets'' means securities, installment sales, accounts receivable,  notes, leases or other contracts, or other assets that by their terms  convert into cash over a finite period of time.

(b) Designated offshore securities market. ''Designated offshore  securities market'' means:

(1) The Eurobond market, as regulated by the International  Securities Market Association; the Alberta Stock Exchange; the  Amsterdam Stock Exchange; the Australian Stock Exchange Limited; the  Bermuda Stock Exchange; the Bourse de Bruxelles; the Copenhagen Stock  Exchange; the European Association of Securities Dealers Automated  Quotation; the Frankfurt Stock Exchange; the Helsinki Stock Exchange;  The Stock Exchange of Hong Kong Limited; the Irish Stock Exchange; the  Istanbul Stock Exchange; the Johannesburg Stock Exchange; the London  Stock Exchange; the Bourse de Luxembourg; the Mexico Stock Exchange;  the Borsa Valori di Milan; the Montreal Stock Exchange; the Oslo Stock  Exchange; the Bourse de Paris; the Stock Exchange of Singapore Ltd.;  the Stockholm Stock Exchange; the Tokyo Stock Exchange; the Toronto  Stock Exchange; the Vancouver Stock Exchange; the Warsaw Stock Exchange  and the Zurich Stock Exchange; and

(2) Any foreign securities exchange or non-exchange market  designated by the Commission. Attributes to be considered in  determining whether to designate an offshore securities market, among  others, include:

(i) Organization under foreign law;

(ii) Association with a generally recognized community of brokers,  dealers, banks, or other professional intermediaries with an  established operating history;

(iii) Oversight by a governmental or self-regulatory body;

(iv) Oversight standards set by an existing body of law;

(v) Reporting of securities transactions on a regular basis to a  governmental or self-regulatory body;

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(vi) A system for exchange of price quotations through common  communications media; and

(vii) An organized clearance and settlement system.

(c) Directed selling efforts. (1) ''Directed selling efforts''  means 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 this Regulation S (Sec. 230.901 through Sec. 230.905, and  Preliminary Notes). Such activity includes placing an advertisement in  a publication ''with a general circulation in the United States'' that  refers to the offering of securities being made in reliance upon this  Regulation S.

(2) Publication ''with a general circulation in the United  States'':

(i) Is defined as any publication that is printed primarily for  distribution in the United States, or has had, during the preceding  twelve months, an average circulation in the United States of 15,000 or  more copies per issue; and

(ii) Will encompass only the U.S. edition of any publication  printing a separate U.S. edition if the publication, without  considering its U.S. edition, would not constitute a publication with a  general circulation in the United States.

(3) The following are not ''directed selling efforts'':

(i) Placing an advertisement required to be published under U.S. or  foreign law, or under rules or regulations of a U.S. or foreign  regulatory or self-regulatory authority, provided the advertisement  contains no more information than legally required and includes a  statement to the effect that the securities have not been registered  under the Act and may not be offered or sold in the United States (or  to a U.S. person, if the advertisement relates to an offering under  Category 2 or 3 (paragraph (b)(2) or (b)(3)) in Sec. 230.903) absent  registration or an applicable exemption from the registration  requirements;

(ii) Contact with persons excluded from the definition of ''U.S.  person'' pursuant to paragraph (k)(2)(vi) of this section or persons  holding accounts excluded from the definition of ''U.S. person''  pursuant to paragraph (k)(2)(i) of this section, solely in their  capacities as holders of such accounts;

(iii) A tombstone advertisement in any publication with a general  circulation in the United States, provided:

(A) The publication has less than 20% of its circulation,  calculated by aggregating the circulation of its U.S. and comparable  non-U.S. editions, in the United States;

(B) Such advertisement contains a legend to the effect that the  securities have not been registered under the Act and may not be  offered or sold in the United States (or to a U.S. person, if the  advertisement relates to an offering under Category 2 or 3 (paragraph  (b)(2) or (b)(3)) in Sec. 230.903) absent registration or an applicable  exemption from the registration requirements; and

(C) Such advertisement contains no more information than:

(1) The issuer's name;

(2) The amount and title of the securities being sold;

(3) A brief indication of the issuer's general type of business;

(4) The price of the securities;

(5) The yield of the securities, if debt securities with a fixed  (non-contingent) interest provision;

(6) The name and address of the person placing the advertisement,  and whether such person is participating in the distribution;

(7) The names of the managing underwriters;

(8) The dates, if any, upon which the sales commenced and  concluded;

(9) Whether the securities are offered or were offered by rights  issued to security holders and, if so, the class of securities that are  entitled or were entitled to subscribe, the subscription ratio, the  record date, the dates (if any) upon which the rights were issued and  expired, and the subscription price; and

(10) Any legend required by law or any foreign or U.S. regulatory  or self-regulatory authority;

(iv) Bona fide visits to real estate, plants or other facilities  located in the United States and tours thereof conducted for a  prospective investor by an issuer, a distributor, any of their  respective affiliates or a person acting on behalf of any of the  foregoing;

(v) 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 if:

(A) Securities transactions cannot be executed between foreign  broker-dealers and persons in the United States through the system; and

(B) The issuer, distributors, their respective affiliates, persons  acting on behalf of any of the foregoing, 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 Sec. 240.15a-6 of this chapter; and

(vi) Publication by an issuer of a notice in accordance with  Sec. 230.135 or Sec. 230.135c.

(vii) Providing any journalist with access to press conferences  held outside of the United States, to meetings with the issuer or  selling security holder representatives conducted outside the United  States, or to written press-related materials released outside the  United States, at or in which a present or proposed offering of  securities is discussed, if the requirements of Sec. 230.135e are  satisfied.

(d) Distributor. ''Distributor'' means any underwriter, dealer, or  other person who participates, pursuant to a contractual arrangement,  in the distribution of the securities offered or sold in reliance on  this Regulation S (Sec. 230.901 through Sec. 230.905, and Preliminary  Notes).

(e) Domestic issuer/Foreign issuer. ''Domestic issuer'' means any  issuer other than a ''foreign government'' or ''foreign private  issuer'' (both as defined in Sec. 230.405). ''Foreign issuer'' means  any issuer other than a ''domestic issuer.''

(f) Distribution compliance period. ''Distribution compliance  period'' means a period that begins when the securities were first  offered to persons other than distributors in reliance upon this  Regulation S (Sec. 230.901 through Sec. 230.905, and Preliminary Notes)  or the date of closing of the offering, whichever is later, and  continues until the end of the period of time specified in the relevant  provision of Sec. 230.903, except that:

(1) All offers and sales by a distributor of an unsold allotment or  subscription shall be deemed to be made during the distribution  compliance period;

(2) In a continuous offering, the distribution compliance period  shall commence upon completion of the distribution, as determined and  certified by the managing underwriter or person performing similar  functions;

(3) In a continuous offering of non-convertible debt securities  offered and sold in identifiable tranches, the distribution compliance  period for securities in a tranche shall commence upon completion of  the distribution of such tranche, as determined and certified by the  managing underwriter or person performing similar functions; and

(4) That in a continuous offering of securities to be acquired upon  the exercise of warrants, the distribution compliance period shall  commence upon completion of the distribution of the warrants, as  determined and certified by the managing underwriter or person  performing similar functions, if requirements of Sec. 230.903(b)(5) are  satisfied.

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(g) Offering restrictions. ''Offering restrictions'' means:

(1) Each distributor agrees in writing:

(i) That all offers and sales of the securities prior to the  expiration of the distribution compliance period specified in Category  2 or 3 (paragraph (b)(2) or (b)(3)) in Sec. 230.903, as applicable,  shall be made only in accordance with the provisions of Sec. 230.903 or  Sec. 230.904; pursuant to registration of the securities under the Act;  or pursuant to an available exemption from the registration  requirements of the Act; and

(ii) For offers and sales of equity securities of domestic issuers,  not to engage in hedging transactions with regard to such securities  prior to the expiration of the distribution compliance period specified  in Category 2 or 3 (paragraph (b)(2) or (b)(3)) in Sec. 230.903, as  applicable, unless in compliance with the Act; and

(2) All offering materials and documents (other than press  releases) used in connection with offers and sales of the securities  prior to the expiration of the distribution compliance period specified  in Category 2 or 3 (paragraph (b)(2) or (b)(3)) in Sec. 230.903, as  applicable, shall include statements to the effect that the securities  have not been registered under the Act and may not be offered or sold  in the United States or to U.S. persons (other than distributors)  unless the securities are registered under the Act, or an exemption  from the registration requirements of the Act is available. For offers  and sales of equity securities of domestic issuers, such offering  materials and documents also must state that hedging transactions  involving those securities may not be conducted unless in compliance  with the Act. Such statements shall appear:

(i) On the cover or inside cover page of any prospectus or offering  circular used in connection with the offer or sale of the securities;

(ii) In the underwriting section of any prospectus or offering  circular used in connection with the offer or sale of the securities;  and

(iii) In any advertisement made or issued by the issuer, any  distributor, any of their respective affiliates, or any person acting  on behalf of any of the foregoing. Such statements may appear in  summary form on prospectus cover pages and in advertisements.

(h) Offshore transaction. (1) An offer or sale of securities is  made in an ''offshore transaction'' if:

(i) The offer is not made to a person in the United States; and

(ii) Either:

(A) At the time the buy order is originated, the buyer is outside  the United States, or the seller and any person acting on its behalf  reasonably believe that the buyer is outside the United States; or

(B) For purposes of:

(1) Section 230.903, the transaction is executed in, on or through  a physical trading floor of an established foreign securities exchange  that is located outside the United States; or

(2) Section 230.904, the transaction is executed in, on or through  the facilities of a designated offshore securities market described in  paragraph (b) of this section, and neither the seller nor any person  acting on its behalf knows that the transaction has been pre-arranged  with a buyer in the United States.

(2) Notwithstanding paragraph (h)(1) of this section, offers and  sales of securities specifically targeted at identifiable groups of  U.S. citizens abroad, such as members of the U.S. armed forces serving  overseas, shall not be deemed to be made in ''offshore transactions.''

(3) Notwithstanding paragraph (h)(1) of this section, offers and  sales of securities to persons excluded from the definition of ''U.S.  person'' pursuant to paragraph (k)(2)(vi) of this section or persons  holding accounts excluded from the definition of ''U.S. person''  pursuant to paragraph (k)(2)(i) of this section, solely in their  capacities as holders of such accounts, shall be deemed to be made in  ''offshore transactions.''

(i) Reporting issuer. ''Reporting issuer'' means an issuer other  than an investment company registered or required to register under the  1940 Act that:

(1) Has a class of securities registered pursuant to Section 12(b)  or 12(g) of the Exchange Act (15 U.S.C. 78l(b) or 78l(g)) or is  required to file reports pursuant to Section 15(d) of the Exchange Act  (15 U.S.C. 78o(d)); and

(2) Has filed all the material required to be filed pursuant to  Section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d))  for a period of at least twelve months immediately preceding the offer  or sale of securities made in reliance upon this Regulation S  (Sec. 230.901 through Sec. 230.905, and Preliminary Notes) (or for such  shorter period that the issuer was required to file such material).

(j) Substantial U.S. market interest. (1) ''Substantial U.S. market  interest'' with respect to a class of an issuer's equity securities  means:

(i) The securities exchanges and inter-dealer quotation systems in  the United States in the aggregate constituted the single largest  market for such class of securities in the shorter of the issuer's  prior fiscal year or the period since the issuer's incorporation; or

(ii) 20 percent or more of all trading in such class of securities  took place in, on or through the facilities of securities exchanges and  inter-dealer quotation systems in the United States and less than 55  percent of such trading took place in, on or through the facilities of  securities markets of a single foreign country in the shorter of the  issuer's prior fiscal year or the period since the issuer's  incorporation.

(2) ''Substantial U.S. market interest'' with respect to an  issuer's debt securities means:

(i) Its debt securities, in the aggregate, are held of record (as  that term is defined in Sec. 240.12g5-1 of this chapter and used for  purposes of paragraph (j)(2) of this section) by 300 or more U.S.  persons;

(ii) $1 billion or more of: The principal amount outstanding of its  debt securities, the greater of liquidation preference or par value of  its securities described in Sec. 230.902(a)(1), and the principal  amount or principal balance of its securities described in  Sec. 230.902(a)(2), in the aggregate, is held of record by U.S.  persons; and

(iii) 20 percent or more of: The principal amount outstanding of  its debt securities, the greater of liquidation preference or par value  of its securities described in Sec. 230.902(a)(1), and the principal  amount or principal balance of its securities described in  Sec. 230.902(a)(2), in the aggregate, is held of record by U.S.  persons.

(3) Notwithstanding paragraph (j)(2) of this section, substantial  U.S. market interest with respect to an issuer's debt securities is  calculated without reference to securities that qualify for the  exemption provided by Section 3(a)(3) of the Act (15 U.S.C. 77c(a)(3)).

(k) U.S. person. (1) ''U.S. person'' means:

(i) Any natural person resident in the United States;

(ii) Any partnership or corporation organized or incorporated under  the laws of the United States;

(iii) Any estate of which any executor or administrator is a U.S.  person;

(iv) Any trust of which any trustee is a U.S. person;

(v) Any agency or branch of a foreign entity located in the United  States;

(vi) Any non-discretionary account or similar account (other than  an estate or trust) held by a dealer or other fiduciary for the benefit  or account of a U.S. person;

(vii) Any discretionary account or similar account (other than an  estate or trust) held by a dealer or other fiduciary

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organized, incorporated, or (if an individual) resident in the United  States; and

(viii) Any partnership or corporation if:

(A) Organized or incorporated under the laws of any foreign  jurisdiction; and

(B) Formed by a U.S. person principally for the purpose of  investing in securities not registered under the Act, unless it is  organized or incorporated, and owned, by accredited investors (as  defined in Sec. 230.501(a)) who are not natural persons, estates or  trusts.

(2) The following are not ''U.S. persons'':

(i) Any discretionary account or similar account (other than an  estate or trust) held for the benefit or account of a non-U.S. person  by a dealer or other professional fiduciary organized, incorporated, or  (if an individual) resident in the United States;

(ii) Any estate of which any professional fiduciary acting as  executor or administrator is a U.S. person if:

(A) An executor or administrator of the estate who is not a U.S.  person has sole or shared investment discretion with respect to the  assets of the estate; and

(B) The estate is governed by foreign law;

(iii) Any trust of which any professional fiduciary acting as  trustee is a U.S. person, if a trustee who is not a U.S. person has  sole or shared investment discretion with respect to the trust assets,  and no beneficiary of the trust (and no settlor if the trust is  revocable) is a U.S. person;

(iv) An employee benefit plan established and administered in  accordance with the law of a country other than the United States and  customary practices and documentation of such country;

(v) Any agency or branch of a U.S. person located outside the  United States if:

(A) The agency or branch operates for valid business reasons; and

(B) The agency or branch is engaged in the business of insurance or  banking and is subject to substantive insurance or banking regulation,  respectively, in the jurisdiction where located; and

(vi) The International Monetary Fund, the International Bank for  Reconstruction and Development, the Inter-American Development Bank,  the Asian Development Bank, the African Development Bank, the United  Nations, and their agencies, affiliates and pension plans, and any  other similar international organizations, their agencies, affiliates  and pension plans.

(l) United States. ''United States'' means the United States of  America, its territories and possessions, any State of the United  States, and the District of Columbia.

5. Section 230.903 is revised to read as follows:

Sec. 230.903  Offers or sales of securities by the issuer, a  distributor, any of their respective affiliates, or any person acting  on behalf of any of the foregoing; conditions relating to specific  securities.

(a) An offer or sale of securities by the issuer, a distributor,  any of their respective affiliates, or any person acting on behalf of  any of the foregoing, shall be deemed to occur outside the United  States within the meaning of Sec. 230.901 if:

(1) The offer or sale is made in an offshore transaction;

(2) No directed selling efforts are made in the United States by  the issuer, a distributor, any of their respective affiliates, or any  person acting on behalf of any of the foregoing; and

(3) The conditions of paragraph (b) of this section, as applicable,  are satisfied.

(b) Additional Conditions. (1) Category 1. No conditions other than  those set forth in Sec. 230.903(a) apply to securities in this  category. Securities are eligible for this category if:

(i) The securities are issued by a foreign issuer that reasonably  believes at the commencement of the offering that:

(A) There is no substantial U.S. market interest in the class of  securities to be offered or sold (if equity securities are offered or  sold);

(B) There is no substantial U.S. market interest in its debt  securities (if debt securities are offered or sold);

(C) There is no substantial U.S. market interest in the securities  to be purchased upon exercise (if warrants are offered or sold); and

(D) There is no substantial U.S. market interest in either the  convertible securities or the underlying securities (if convertible  securities are offered or sold);

(ii) The securities are offered and sold in an overseas directed  offering, which means:

(A) An offering of securities of a foreign issuer that is directed  into a single country other than the United States to the residents  thereof and that is made in accordance with the local laws and  customary practices and documentation of such country; or

(B) An offering of non-convertible debt securities of a domestic  issuer that is directed into a single country other than the United  States to the residents thereof and that is made in accordance with the  local laws and customary practices and documentation of such country,  provided that the principal and interest of the securities (or par  value, as applicable) are denominated in a currency other than U.S.  dollars and such securities are neither convertible into U.S. dollar- denominated securities nor linked to U.S. dollars (other than through  related currency or interest rate swap transactions that are commercial  in nature) in a manner that in effect converts the securities to U.S.  dollar-denominated securities.

(iii) The securities are backed by the full faith and credit of a  foreign government; or

(iv) The securities are offered and sold to employees of the issuer  or its affiliates pursuant to an employee benefit plan established and  administered in accordance with the law of a country other than the  United States, and customary practices and documentation of such  country, provided that:

(A) The securities are issued in compensatory circumstances for  bona fide services rendered to the issuer or its affiliates in  connection with their businesses and such services are not rendered in  connection with the offer or sale of securities in a capital-raising  transaction;

(B) Any interests in the plan are not transferable other than by  will or the laws of descent or distribution;

(C) The issuer takes reasonable steps to preclude the offer and  sale of interests in the plan or securities under the plan to U.S.  residents other than employees on temporary assignment in the United  States; and

(D) Documentation used in connection with any offer pursuant to the  plan contains a statement that the securities have not been registered  under the Act and may not be offered or sold in the United States  unless registered or an exemption from registration is available.

(2) Category 2. The following conditions apply to securities that  are not eligible for Category 1 (paragraph (b)(1)) of this section and  that are equity securities of a reporting foreign issuer, or debt  securities of a reporting issuer or of a non-reporting foreign issuer.

(i) Offering restrictions are implemented;

(ii) The offer or sale, if made prior to the expiration of a 40-day  distribution compliance period, is not made to a U.S. person or for the  account or benefit of a U.S. person (other than a distributor); and

(iii) Each distributor selling securities to a distributor, a  dealer, as defined in section 2(a)(12) of the Act (15 U.S.C.  77b(a)(12)), or a person receiving a

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selling concession, fee or other remuneration in respect of the  securities sold, prior to the expiration of a 40-day distribution  compliance period, sends a confirmation or other notice to the  purchaser stating that the purchaser is subject to the same  restrictions on offers and sales that apply to a distributor.

(3) Category 3. The following conditions apply to securities that  are not eligible for Category 1 or 2 (paragraph (b)(1) or (b)(2)) of  this section:

(i) Offering restrictions are implemented;

(ii) In the case of debt securities:

(A) The offer or sale, if made prior to the expiration of a 40-day  distribution compliance period, is not made to a U.S. person or for the  account or benefit of a U.S. person (other than a distributor); and

(B) The securities are represented upon issuance by a temporary  global security which is not exchangeable for definitive securities  until the expiration of the 40-day distribution compliance period and,  for persons other than distributors, until certification of beneficial  ownership of the securities by a non-U.S. person or a U.S. person who  purchased securities in a transaction that did not require registration  under the Act;

(iii) In the case of equity securities:

(A) The offer or sale, if made prior to the expiration of a one- year distribution compliance period, is not made to a U.S. person or  for the account or benefit of a U.S. person (other than a distributor);  and

(B) The offer or sale, if made prior to the expiration of a one- year distribution compliance period, is made pursuant to the following  conditions:

(1) The purchaser of the securities (other than a distributor)  certifies that it is not a U.S. person and is not acquiring the  securities for the account or benefit of any U.S. person or is a U.S.  person who purchased securities in a transaction that did not require  registration under the Act;

(2) The purchaser of the securities agrees to resell such  securities only in accordance with the provisions of this Regulation S  (Sec. 230.901 through Sec. 230.905, and Preliminary Notes), pursuant to  registration under the Act, or pursuant to an available exemption from  registration; and agrees not to engage in hedging transactions with  regard to such securities unless in compliance with the Act;

(3) The securities of a domestic issuer contain a legend to the  effect that transfer is prohibited except in accordance with the  provisions of this Regulation S (Sec. 230.901 through Sec. 230.905, and  Preliminary Notes), pursuant to registration under the Act, or pursuant  to an available exemption from registration; and that hedging  transactions involving those securities may not be conducted unless in  compliance with the Act;

(4) The issuer is required, either by contract or a provision in  its bylaws, articles, charter or comparable document, to refuse to  register any transfer of the securities not made in accordance with the  provisions of this Regulation S (S