SEC Division of Corporation Finance no-action letter: Xyratex PLC

Home | Previous Page

Securities Act of 1933 - Section 3(a)(10)

No Action, Interpretive and/or Exemptive Letter:

May 29, 2002 Response of the Office of International Corporate Finance Division of Corporation Finance

Re: Xyratex Group Limited (formerly Xyratex plc) Incoming letter dated March 25, 2002 Incoming letter dated May 27, 2002

Based on the facts presented, the Division will not recommend enforcement action to the Commission if, pursuant to the scheme of arrangement (as described in your letter) involving Xyratex Group Limited (formerly Xyratex plc) and a newly formed Bermuda company (described in your letter as "Newco"), Newco, in reliance on your opinion of counsel that the exemption under Section 3(a)(10) of the Securities Act of 1933 ("Securities Act") is available, issues its common stock ("Newco shares") to holders of Xyratex stock ("Xyratex shares") without registration under the Securities Act. In reaching this position, we have noted that: - the High Court of Justice in England ("the Court") will conduct a hearing on the fairness of the scheme of arrangement to holders of the Xyratex shares; - the Court will approve the fairness of the terms and conditions of the scheme or arrangement to holders of the Xyratex shares before Newco issues shares pursuant to the scheme of arrangement; - all prospective recipients of Newco shares pursuant to the scheme of arrangement will receive notice of the hearing regarding the scheme of arrangement and will have the opportunity to be heard at the hearing; - and Xyratex will advise the Court prior to the hearing that, if the Court approves the terms and conditions of the scheme of arrangement, its sanctioning of the scheme of arrangement will constitute the basis for the issuance of Newco shares pursuant to the scheme of arrangement without registration under the Securities Act, in reliance on the exemption from registration provided by Securities Act Section 3(a)(10). Further, the Division is of the view that recipients of Newco stock may resell these securities as follows:

Persons who are not affiliates of Xyratex or Newco prior to completion of the scheme of arrangement for shareholder approval, and who are not affiliates of Newco after completion of the scheme of arrangement, may resell any Newco shares received in the scheme of arrangement without regard to Securities Act Rules 144 or 145(c) and (d). Persons who are affiliates of Xyratex or Newco at the time the parties submit the scheme of arrangement for shareholder approval, but who are not affiliates of Newco after completion of the scheme of arrangement, may resell their Newco stock received in the scheme of arrangement pursuant to Securities Act Rule 145(d)(1), (d)(2) or (d)(3). However, when computing the holding period of the Section 3(a)(10) securities for purposes of Rule 145(d)(2) or (d)(3), such persons may not "tack" the holding period of the securities exchanged for the Section 3(a)(10) securities in the Section 3(a)(10)-exempt transaction. Persons who are affiliates of Xyratex or Newco before completion of the scheme of arrangement and are affiliates of Newco after completion of the scheme of arrangement may resell shares received in the scheme of arrangement in the manner permitted by Rule 145(d)(1).

These positions are based upon the representations made in your letter to the Division. Any different facts or conditions might require a different conclusion. Moreover, regarding whether the Section 3(a)(10) exemption from registration is available for the Newco shares to be issued pursuant to the scheme of arrangement, this response expresses the Division's position on enforcement action only and does not express any legal conclusion on the question presented. Sincerely, Michael Coco Attorney-Adviser

Incoming Letter:

Latham & Watkins

SOLICITORS AND REGISTERED FOREIGN LAWYERS WWW.LW.COM

99 BISHOPSGATE LONDON EC2M 3XF UNITED KINGDOM

TELEPHONE: +44-20-7710-1000 FAX: +44-20-7374-4460

27 May 2002 Paul Dudek, Esq. Chief, Office of International Corporate Finance Division of Corporation Finance Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 United States of America Dear Mr. Dudek: Re: Xyratex Group Limited (formerly Xyratex plc) - Securities Act of 1933, Section 3(a)(10)

We are writing on behalf of our client, Xyratex Group Limited (formerly Xyratex plc), a private limited company organized under the laws of England (" Xyratex "), in connection with a scheme of arrangement (the " Scheme ") under Section 425 of the United Kingdom Companies Act of 1985 (the " Companies Act "), pursuant to which: (i) all of the issued and outstanding shares, par value 1 pence per share, of Xyratex (the " Xyratex Shares "), will be cancelled; (ii) each holder thereof will be allotted common shares, nominal value U.S.$0.01 per share (the " Newco Shares "), of Xyratex Ltd., a company organized under the laws of Bermuda (" Newco "), and (iii) Xyratex will issue new shares, par value 1 pence per share, to Newco credited as fully paid. In accordance with Section 425 of the Companies Act, the Scheme must be sanctioned by the High Court of Justice in England (the " Court "), and Xyratex intends to seek such sanction. We are requesting that the Division of Corporation Finance (the " Division ") not recommend enforcement action to the Securities and Exchange Commission (the " Commission ") if the Newco Shares to be issued to Xyratex's shareholders (the " Xyratex Shareholders ") pursuant to the Scheme are issued without registration under the Securities Act of 1933, as amended (the " Securities Act "), in reliance on Section 3(a)(10) of the Securities Act. In addition, this letter also requests the Division not to recommend enforcement action to the Commission if the Newco Shares issued to Xyratex's shareholders under the Scheme are resold in accordance with the limitations set forth in this letter. Description of the Parties

Xyratex is a leading data storage and network technology company. Xyratex designs and manufactures key components of high-performance data communications networks that enable high-speed, highly reliable access to stored digital information. Xyratex is headquartered in Havant, England, and, as of February 28, 2002, had approximately 580 employees worldwide. The Xyratex Shares are not currently listed on a U.S. or foreign exchange or registered under the Securities Exchange Act of 1934, as amended (the " Exchange Act "). As of February 28, 2002, approximately 22,914,298 Xyratex Shares were issued and outstanding, held by approximately 1010 shareholders of record. To the best of Xyratex's knowledge, approximately 26

Xyratex Shareholders are U.S. Persons, as defined in Regulation S under the Securities Act. Xyratex formed Newco in April 2002 to become the holding company of Xyratex through the Scheme. No securities of Newco are listed on a U.S. or foreign exchange or are registered under the Exchange Act. It is expected that Newco will file a registration statement on Form F-1 (the " Registration Statement ") with the Commission relating to the issuance and sale of Newco Shares by Newco and the resale of Newco Shares by certain selling shareholders of Newco in an initial public offering pursuant to a firm commitment underwriting (the " Newco IPO "). The Registration Statement will also register the sale of additional Newco Shares by Newco in the event the underwriters exercise an over-allotment option. Newco intends to apply to NASDAQ for quotation on The NASDAQ National Market of Newco Shares to be issued and/or sold in connection with the initial public offering. Reasons for the Scheme

Under the laws of the United Kingdom, Xyratex is unable to consummate a reincorporation merger and thereby move its jurisdiction of incorporation from England to Bermuda. As a result, Xyratex has proposed that its shareholders agree to receive Newco Shares in consideration for the cancellation of their Xyratex Shares pursuant to the Scheme in order to accomplish this objective. Xyratex believes that moving its jurisdiction of incorporation will, among other things, facilitate capital raising activities. Description of the Scheme

The Scheme is proposed to be effected among Xyratex and the Xyratex Shareholders pursuant to Section 425 of the Companies Act. Under the Scheme: (a) all Xyratex Shares will be cancelled and, in exchange for each of their cancelled shares, each Xyratex Shareholder will be allotted and receive Newco Shares; and (b) subject to confirmation of the Court of the relevant resolution, Xyratex will issue to Newco a number of new shares in Xyratex intended to be equivalent to the number of Xyratex Shares cancelled. As a result of the Scheme, Xyratex will become a wholly-owned subsidiary of Newco, and all Xyratex Shareholders will become shareholders of Newco. Under the terms of the Scheme and in accordance with the Companies Act, the Scheme will not become effective and binding unless, among other things: (a) the Scheme is approved by a majority in number, representing 75.0% in par value, of Xyratex Shareholders present and voting, either in person or by proxy, at each of the special meetings of the Xyratex Shareholders convened in accordance with the directions of the Court (the " Court Meetings "); (b) a resolution as to the reduction of the capital of Xyratex (a " Capital Reduction Resolution ") as required by the Scheme is approved by 75.0% in par value of holders of Xyratex Shares present and voting, either in person or by proxy, at an extraordinary general meeting of the Xyratex Shareholders, convened in accordance with the Memorandum and Articles of Association of Xyratex (the " Extraordinary Meeting " and, together with the Court Meetings, the " Shareholder Meetings "); and (c) following shareholder approval, the Scheme is sanctioned by the Court and the Capital Reduction Resolution is confirmed by the Court after a hearing of a petition seeking Court approval at which the Court will consider the fairness of the terms and conditions of the Scheme to the Xyratex Shareholders (the " Court Hearing "). In addition to these requirements of Section 425 of the Companies Act, the Scheme will not become effective until shortly prior to or contemporaneous with the closing of the Newco IPO. All Xyratex Shareholders will be entitled to attend, speak and vote at the Court Meetings. All Xyratex Shareholders and creditors also will be entitled to appear and have the opportunity to speak at the Court Hearing. The Companies Act requires that notice must be given to the Xyratex Shareholders announcing the convening of the Court Meetings, and that such notice must be accompanied by a statement explaining the effect of the Scheme. Other items that will be sent to Xyratex Shareholders in connection with the Shareholder Meetings as part of an information statement (the " Information Statement ") include: a description of the Scheme; a description of Xyratex and Newco; a proxy form and instructions for voting at the Shareholder Meetings; and information concerning the rights of the Xyratex Shareholders to attend, speak and vote at the Shareholder Meetings and to appear
and have the opportunity to speak at the Court Hearing. We intend to limit any discussion of the Newco IPO in the information statement to that information permitted by Rule 135 under the Securities Act. The dates of the Shareholder Meetings and the approximate date of the Court Hearing will be set forth in the Information Statement. Notice of the Shareholder Meetings will be mailed to Xyratex Shareholders at least 24 days before the Shareholder Meetings. The exact date of the Court Hearing will not be known until after approval of the Scheme by the shareholders at the Court Meetings. Once such date is known, notice of the Court Hearing will be advertised in the national press. Xyratex and Newco will arrange for notice of the Court Hearing to be published in The Financial Times in the United Kingdom, or a comparable newspaper of national circulation in the United Kingdom, and in The Wall Street Journal in the United States. If the Court so orders, the notice will be published in additional newspapers or jurisdictions prior to the Court Hearing. In addition, Newco and Xyratex will issue a press release in the United States and in the United Kingdom announcing the time and date of the Court Hearing. Finally, notice of the Court Hearing will be mailed to all shareholders with registered addresses in the United States. Section 3(a)(10)

Section 3(a)(10) of the Securities Act provides an exemption from the registration requirements of the Securities Act for, in relevant part, "any security which is issued in exchange for one or more bona fide outstanding securities...where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court...." The conditions of a Section 3(a)(10) exemption that must be met are: (a) an exchange of securities; (b) approval by a court after a hearing on the fairness of the exchange; and (c) a hearing open to all persons to whom securities will be issued in the exchange. In addition, the Division has emphasized that the approving court must be advised before the hearing that the issuer (in this case, Newco) will rely on the Section 3(a)(10) exemption from the registration requirements under the Securities Act based on the court's approval of the exchange. See Revised Staff Legal Bulletin No. 3 (dated October 20, 1999); Galen Holdings PLC (avail. Oct 24, 2000); Ashanti Gold Fields Company Limited (avail. October 17, 1996); Lucas Industries plc (avail. August 20, 1996); and The Rank Organisation plc (avail. August 6, 1996 ) .

The Scheme will meet the conditions of the Section 3(a)(10) exemption. First, there will be a securities exchange: the Xyratex Shares will be cancelled and the Newco Shares will be issued in exchange therefor. There will be no exchange of Xyratex Shares for cash or any other consideration. Second, the Scheme will not become effective and binding until it is sanctioned by the Court after a fairness hearing. The Division has indicated that the term "any court" in Section 3(a)(10) includes a foreign court. See, e.g., Revised Staff Legal Bulletin No. 3 (dated October 20, 1999); Galen Holdings PLC (avail. Oct 24, 2000); Crown Resources Corporation (November 27, 1989); Institute Merieux International S.A./Connaught BioSciences Inc. (August 28, 1989) . Therefore, the fact that the judicial proceeding with respect to the Scheme will be held in England, rather than in the United States, does not affect the availability of the Section 3(a)(10) exemption. We have been informed by English counsel to Xyratex, who will be filing the petition in the Court with respect to the Scheme, that, in determining whether or not to sanction the Scheme, the Court will consider, among other things, the fairness of the terms and conditions of the Scheme with regard to the interests of the Xyratex Shareholders. The Court also will have the power, either of its own volition or as a result of a challenge to the Scheme brought by a Xyratex Shareholder, to require additional evidence as to any aspect of the Scheme, including as to its fairness. The Court Hearing thus satisfies the Section 3(a)(10) requirement that a court consider the fairness of the terms and conditions of the exchange. Third, both the Court Meetings and the Court Hearing will be open to all record holders of the Xyratex Shares. The Xyratex Shareholders will receive notice of both the Shareholder Meetings and the Court Hearing and, at both events, the Xyratex Shareholders will have the opportunity to be heard. Importantly, the Court has general discretion as to whom it may allow to appear and be heard at the Court Hearing, including persons who are not record holders of Xyratex Shares. Thus, the requirement of Section 3(a)(10) that all persons to whom securities will be issued under the exchange shall have the right to appear at the fairness hearing will be fulfilled. Finally, Xyratex's English counsel has confirmed that it will advise the Court before and during the Court Hearing that Newco will rely on the Court's approval of the Scheme as court approval of the Scheme following a hearing on the fairness of the terms and conditions of the Scheme to the holders of each class of Xyratex Shares for purposes of meeting the requirements for a Section 3(a)(10) exemption with respect to the Newco Shares to be issued pursuant to the Scheme. Our facts and our analysis under Section 3(a)(10) are substantially similar to those set forth in a no-action letter with respect to a Scottish company, Wood Group plc, pursuant to
a scheme of arrangement in the United Kingdom with Wood Group Inc., a company organized under the laws of the British Virgin Islands (avail. March 1, 2001) (the " Wood Letter "). In the Wood Letter, the Staff took a no-action position when a Scottish company proposed that its shareholders exchange their shares in exchange for new shares in a British Virgin Island company through a scheme of arrangement under the laws of Scotland and the United Kingdom. As discussed above, a reincorporation merger is not permitted under the laws of the United Kingdom. The Scottish company sought to implement the scheme of arrangement in order to move its jurisdiction of organization from Scotland to the British Virgin Islands. The Division previously has taken no-action positions with respect to similar schemes of arrangement. See Galen Holdings PLC (avail. Oct 24, 2000); Guinness PLC (avail. February 28, 1998); The Rank Organisation plc (avail. August 6, 1996); NOVA Corporation of Alberta (avail. April 1, 1994); and The Hong Kong and Shanghai Banking Corporation Ltd., (avail. January 23, 1991) . Based on the foregoing and in reliance upon the opinion of English counsel for Xyratex, which is enclosed with this letter, we are of the opinion that the Section 3(a)(10) exemption is available with respect to the Scheme, and we respectfully request that the Division confirm that it will not recommend any enforcement action to the Commission if the proposed Scheme is effected as described in this letter without registering the Newco Shares to be issued in the Scheme under the Securities Act. Resale of Newco Shares

The Division has taken the position that securities issued in Section 3(a)(10) transactions are not per se "restricted securities" within the meaning of Rule 144(a)(3) issued under the Securities Act. See Revised Staff Legal Bulletin No. 3 (dated October 20, 1999); ADC Telecommunications, Inc. (avail. July 30, 1999); Galen Holdings PLC (avail. Oct 24, 2000); Ashanti Gold Fields Company Limited (avail. October 17, 1996); Lucas Industries plc (avail. August 20, 1996); The Rank Organisation plc (avail. August 6, 1996); and BTR plc (avail. September 5, 1995 ). On the basis of these letters, we understand that: (a) Persons who are not affiliates of Xyratex or Newco either before or after the Scheme may sell any Newco Shares they receive in the Scheme without restriction. (b) Persons who are affiliates of Xyratex before the Scheme but who are not affiliates of Newco after the Scheme may resell any Newco Shares they receive in the Scheme in the manner permitted by Rule 145(d)(1) under the Securities Act (without regard to the holding period required by Rule 144(d) under that Act) or in the manner permitted by Rule 145(d)(2) or Rule 144(d)(3) under the Securities Act (but computing the relevant holding period without tacking the holding period of their Xyratex Shares). (c) Persons who are or become affiliates of Newco after the Scheme may resell the Newco Shares they receive in the Scheme only in accordance with the provisions of Rule 144 (other than the holding period requirement of Rule 144(d)). We respectfully request that the Division not recommend enforcement action to the Commission if resales of the Newco Shares received in the Scheme are made in accordance with the provisions set forth above. We note that it is Xyratex's intention to lock-up substantially all of the shareholders of Newco for a period of six months following the Newco IPO, with the exception of three shareholders whose resales will be included within the Registration Statement. Pursuant to Release No. 33-6269 (Dec. 5, 1980), seven additional copies of this letter are enclosed. Please contact Alexander F. Cohen of Latham & Watkins at 011-44-20-7710-1014, if you have any questions or require additional information concerning this no-action request. Respectfully submitted, Alexander F. Cohen of LATHAM & WATKINS

http://www.sec.gov/divisions/corpfin/cf-noaction/xyratex052902.htm

Home | Previous Page

Modified: 10/10/2002