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U.S. Securities and Exchange Commission

Securities Exchange Act of 1934
Rule 14d-7(a)(1)

No-Action, Interpretive and/or Exemptive Letter
Discount Investment Corporation Ltd.

June 14, 2004

Via Facsimile and U.S. Mail

Thomas H. Kennedy, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036-6522

Re:

Offer by Discount Investment Corporation Ltd. for ordinary shares of Elron Electronic Industries Ltd.

Dear Mr. Kennedy:

We are responding to your letter dated June 11, 2004 to Brian V. Breheny and Nicholas P. Panos, as supplemented by conversations with the staff. We have attached the enclosed photocopy of your correspondence to avoid having to recite or summarize the facts set forth in your letter. Unless otherwise noted, each capitalized term in our letter has the same meaning as the term defined in your letter.

You have requested exemptive relief on behalf of the Bidder so that it may extend the period of its tender offer to conduct a four-calendar day additional offering period during which withdrawal rights will not be available as mandated by applicable Israeli law. Without necessarily concurring in your analysis, and based on your oral and written representations and the facts presented in your letter, the Securities and Exchange Commission hereby grants an exemption from Rule 14d-7(a)(1) under the Exchange Act. The exemption from Rule 14d-7(a)(1) of the Exchange Act permits the Bidder to eliminate withdrawal rights before commencement of the additional offer period mandated by applicable Israeli law. In granting this exemption, we note that:

  • the initial offer period will be open for at least 20 U.S. business days;
     
  • all conditions to the Offer will be satisfied or waived prior to commencement of the additional offer period;
     
  • the Bidder intends to conduct a single offer and extend the Offer immediately following completion of the initial offering period to provide for an additional offering period; and
     
  • the Bidder intends to pay for all of the securities tendered in both the initial and additional offering periods of the proposed Offer promptly after expiration of the additional offering period in accordance with Israeli law and practice.
     

The foregoing exemption is based solely on the representations and the facts presented in your June 11, 2004 letter, as supplemented by telephone conversations with the Commission staff. In granting this relief, we note in particular your representations that the additional offering period and its structure are required by Section 328 of the Israeli Companies Law from which no exemptive relief by Israeli authorities is available for the Offer. The relief is strictly limited to the application of the rule listed above to this transaction. You should discontinue this transaction pending further consultations with the staff if any of the facts or representations set forth in your letter change.

In addition, your attention is directed to the anti-fraud and anti-manipulation provisions of the federal securities laws, including Sections 10(b) and 14(e) of the Exchange Act, and Rule 10b-5 thereunder. Responsibility for compliance with these and any other applicable provisions of the federal securities laws must rest with the participants in the Offer. The Division of Corporation Finance expresses no view with respect to any other questions that the proposed transaction may raise, including, but not limited to, the adequacy of disclosure concerning, and the applicability of any other federal or state laws to, the proposed transaction.

For the Commission,
by the Division of Corporation Finance,
pursuant to delegated authority,

Mauri L. Osheroff
Associate Director
Division of Corporation Finance


Incoming Letter:

June 11, 2004

Securities and Exchange Commission
Division of Corporation Finance
Office of Mergers and Acquisitions
450 Fifth Avenue
Washington, D.C. 20549
Attention: Brian V. Breheny, Nicholas P. Panos

Re: Request for exemptive relief from the provisions of Rule 14d 7(a)(1)
     promulgated under the Securities Exchange Act of 1934, as amended

Ladies and Gentlemen:

We are submitting this request for exemptive relief on behalf of our client, Discount Investment Corporation Ltd., a company organized under the laws of the State of Israel (the "Bidder"). The Bidder intends to commence a tender offer to purchase ordinary shares of Elron Electronic Industries Ltd. ("Elron") so as to increase its ownership percentage therein from approximately 38.45% to approximately 46%. The Bidder hereby requests that the Securities and Exchange Commission (the "Commission") grant exemptive relief from the provisions of Rule 14d 7(a)(1) ("Rule 14d 7(a)(1)") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), set forth herein to allow the Bidder to extend its tender offer and conduct a four-calendar day additional offering period as mandated by applicable Israeli law.

I. Background

A. The Parties

Elron is a "foreign private issuer" as defined in Rule 3b-4(c) under the Exchange Act. Elron is incorporated under the laws of the State of Israel and is headquartered in Israel. Elron is a technology holding company with operations in the areas of defense electronics, software, communications, medical devices and semiconductors.

Elron's ordinary shares are traded under the ticker symbol "ELRN" in the United States on the Nasdaq National Market and in Israel on the Tel Aviv Stock Exchange (the "TASE"). In the United States, Elron's ordinary shares are registered pursuant to Section 12(g) of the Exchange Act. Approximately 6.45% of Elron's shares are held by shareholders of record with addresses in the United States (as reported in Elron's most recent Annual Report on Form 20-F/A filed with the Commission on July 21, 2003). Based on Elron's Current Report on Form 6-K filed with the Commission on April 29, 2004, Elron had 29,211,345 shares issued and outstanding as of April 1, 2004.

On June 10, 2004, Elron's last reported sale price on the Nasdaq National Market was $13.19 and Elron's last reported sale price on the TASE was NIS 59.84 ($13.21 based on an exchange rate of NIS 4.53 per U.S. dollar).

The Bidder is a public company headquartered in Israel and listed on the TASE under the symbol "DISI." The Bidder's address is 3 Azrieli Center, Triangle Tower, Tel Aviv 67023, Israel, and its telephone number in Israel is 972-3-607-5888. The Bidder beneficially owns, as of April 1, 2004, an aggregate of 11,240,233 ordinary shares of Elron, representing approximately 38.5% of Elron's issued and outstanding shares as of April 1, 2004.

In the manner described below, the Bidder has attempted to determine the maximum percentage of Elron's beneficial shareholders who are U.S. holders (as defined in Instruction 2 to paragraphs (c) and (d) of Rule 14d-1 under the Exchange Act) and the percentage of Elron's beneficial shareholders who are non-U.S. holders. To Bidder's knowledge, based in part on general information received from Elron from time to time (but without specific direct inquiry of Elron in connection with the proposed tender offer), Elron's shares held by (i) all of Elron's shareholders registered at the U.S. stock transfer registry (other than those having an address in Israel) together with (ii) all of Elron's shareholders registered at the Israeli stock transfer registry (with non-Israeli addresses (but not necessarily U.S. holders)) represent approximately 8.4% of the issued and outstanding shares of Elron. These numbers are not necessarily representative of the number of non-Israeli beneficial owners of Elron's shares. Accordingly, and together with the information made publicly available by Elron, the Bidder estimates that non-Israeli holders, and thus the maximum number of U.S. holders, are the beneficial owners of up to approximately 14% of the outstanding shares of Elron and non-U.S. holders are the beneficial owners of the remaining 86%, in each case, excluding shares held by the Bidder.1 Based on the foregoing estimate, the Bidder believes that the proposed tender offer qualifies for the Tier II exemption pursuant to Rule 14d-1(d) under the Exchange Act. Among other things, Rule 14d-1(d)(2)(iii) under the Exchange Act would allow the Bidder to comply with Israeli law and practice, rather than the notice of extension requirements of Rule 14e 1(d) under the Exchange Act; and Rule 14d-1(d)(2)(iv) under the Exchange Act would allow the Bidder to comply with Israeli law and practice, rather than the prompt payment requirements of Rule 14e-1(c) under the Exchange Act. Although the foregoing exemptions are available to the Bidder, the Bidder intends only to avail itself of Rule 14d-1(d)(2)(iv) under the Exchange Act and, subject to the relief requested herein, otherwise to comply with applicable U.S. law.

B. Applicable Israeli Law

Since Elron is organized under the laws of the State of Israel and its outstanding shares are traded on the TASE, Bidder's transactions in Elron's outstanding shares are governed by the Israeli Companies Law 1999-5759 (the "Israeli Companies Law"), the Israeli Securities Law, 1968 - 5728 (the "Israeli Securities Law") and the Israeli Securities Regulations (Tender Offer), 2000 - 5760 (the "Israeli Securities Regulations"). The Israeli Companies Law primarily specifies requirements for matters such as corporate formation, corporate governance and related substantive matters. The Israeli Securities Law and the Israeli Securities Regulations primarily provide the disclosure requirements for public companies that are subject to their provisions.

Section 328(a) of the Israeli Companies Law specifies, inter alia, that a purchase of the shares of a public company may not be made other than by means of a tender offer in accordance with Part VIII, Chapter 2 of the Israeli Companies Law ("Special Tender Offer") if:

  • the result of the purchase would be that the purchaser will own more than 45% of the voting power of the company; and
     
  • no other person owns in excess of 50% of the voting power of the company.
     

If the Bidder's tender offer were fully subscribed, its ownership percentage of Elron's voting power would increase from approximately 38.5% to approximately 46%. Therefore, the Bidder is required to conduct a Special Tender Offer pursuant to the requirements and proceedings set forth under Israeli law. Once a purchase is made pursuant to a Special Tender Offer that results in a purchaser acquiring over 45% of the voting power of a company, it is not required to conduct a Special Tender Offer to further increase its ownership thereafter, and thus may acquire additional shares in the open market (although a purchaser is again required to conduct a tender offer under Israeli law if it desires to increase its ownership above 90%). As a result of the foregoing, the Bidder determined to conduct the Offer for an amount of securities in excess of 45% (i.e., 46%) so as not to be subject to the Special Tender Offer requirements following such acquisition.

Based on the Israeli Companies Law, the Israeli Securities Law and the Israeli Securities Regulations, a Special Tender Offer must meet specified conditions which are applicable to all of Elron's shareholders, wherever located, including the following:

  • the offer must be made available to all of Elron's shareholders under Section 331(a) of the Israeli Companies Law and Section 5(a) of the Israeli Securities Regulations;
     
  • the offer must result in a purchase of shares representing no less than five percent of the voting power of Elron under Section 332 of the Israeli Companies Law;
     
  • the offer to, and the manner of acceptance by, each of Elron's shareholders must be identical under Section 5(b) of the Israeli Securities Regulations;
     
  • the payment of the purchase price must be secured by a guarantee issued by the Bidder to a member of the TASE (the "TASE Member") to the satisfaction of the TASE Member under Section 5(d) of the Israeli Securities Regulations, who in turn is required to guarantee such payment under Section 5(e) of the Israeli Securities Regulations;
     
  • as a condition to the completion of the tender offer, the aggregate number of shares tendered in the tender offer must exceed the number of shares represented by objections to the tender offer (under Israeli law, shareholders may accept the offer, not respond to the offer or object to the tender offer being completed) under Section 331(b) of the Israeli Companies Law;2 and
     
  • upon acceptance of the offer (i.e., upon satisfaction of all of the conditions to the offer), the Bidder must provide a four-calendar day additional offering period without withdrawal rights for shares tendered during the initial offering period to allow all other shareholders who have not tendered their shares an opportunity to tender in accordance with Section 331(d) of the Israeli Companies Law and Sections 5(i)(1) and 7(b) of the Israeli Securities Regulations.
     

The Bidder is attempting to structure a tender offer in the United States and Israel that complies with the requirements of the Exchange Act as well as the requirements of the Israeli Companies Law, the Israeli Securities Law and the Israeli Securities Regulations. The Bidder's Israeli counsel intends to approach the Israel Securities Authority (the "ISA") to apply for exemptions from certain aspects of the Israeli Securities Law to enable the proposed tender offer to be conducted simultaneously in the United States and Israel. The ISA will be asked to grant relief in a number of areas, including that the offer be conducted as a unified offer in both the United States and Israel and that the Bidder will be permitted to distribute an English language offer to purchase in both the United States and Israel in the manner described in Section C "Proposed Offer Structure" below. Based on conversations Israeli counsel has previously had with the ISA, Israeli counsel believes that the ISA will grant these exemptions.

We, on behalf of the Bidder, have consulted with the Staff of the Commission's Office of Mergers and Acquisitions (the "Staff"). In the course of these consultations, it was recommended that we request exemptive relief from the provisions of Rule 14d 7(a)(1) as set forth in this letter.

C. Proposed Offer Structure

The Bidder proposes to offer to purchase (the "Offer") an aggregate of approximately 7.5% of the issued and outstanding ordinary shares of Elron that it does not already beneficially own in a tender offer to be conducted in both the United States and Israel. The tender offer would be conditioned on there being a number of ordinary shares tendered such that the Bidder would beneficially own no less than an aggregate number of shares representing 46% of the issued and outstanding shares following the Offer. If a number of Elron's ordinary shares are tendered such that, if accepted for payment, the Bidder would purchase more than the ordinary shares sought in the Offer, the Bidder would purchase a pro rata number of shares from all tendering shareholders.

The Offer would be open for an initial offering period of not less than 20 U.S. business days (and, pursuant to Israeli law, not less than 21 calendar days). Under Israeli law, if the applicable conditions to a Special Tender Offer have been satisfied at the completion of the initial offering period, the shareholders who have not yet responded to the Offer and/or who have objected to the Offer must be provided a four-calendar day additional offering period during which they may tender their shares. By 9:00 am Eastern time on the business day following completion of the initial offering period, the Bidder would announce to the shareholders (i) the results of the initial offering period, including whether or not the conditions to the Offer have been satisfied and the approximate number and percentage of securities tendered to date and (ii) if the conditions to the Offer have been satisfied, that it is extending the offering period following the completion of the initial offering period for a four-calendar day additional offering period. There would be no withdrawal rights during such four-calendar day additional offering period for shares previously tendered in the Offer. The Bidder would disclose in the offer to purchase that there would be an extension of the initial offering period to provide for an additional offering period of four calendar days following the completion of the initial offering period. The Bidder would pay for shares that are tendered in the initial offering period and the additional offering period promptly following the expiration of the additional offering period, subject to proration, if any. Such proration would be determined promptly following the expiration of the additional offering period. This information would be prominently disclosed in the offer to purchase distributed to Elron's shareholders.

Prior to the commencement of the Offer, the Bidder would engage a TASE Member to act as escrow agent and would deposit cash in an escrow account in an amount sufficient to pay for the shares assuming the maximum number of shares tendered for is tendered. Promptly following the completion of the additional offering period, the Bidder would determine the appropriate proration factor, if any. The escrow agent would, promptly following this determination, pay the Israeli and U.S. depositaries for the shares tendered and accepted by the Bidder without further involvement by the Bidder, with such depositaries to make appropriate payments to tendering shareholders. We have been advised by the Bidder's Israeli counsel, that under Israeli law, the Bidder would be required to make payments to shareholders who have tendered their shares in the Offer promptly following the expiration of the four-calendar day additional offering period. While the practice in Israel for Special Tender Offers for shares of Israeli public companies listed on the TASE is to make payments to Israeli shareholders who have tendered their shares in the Offer on the first Israeli business day following the expiration of the four-calendar day additional offering period, such schedule would not be feasible in the Offer, primarily, due to the procedures required in the United States for calculating the number of shares tendered and facilitating the payment through the U.S. depositary. Based on conversations among the Bidder's Israeli counsel and the likely U.S. depository and Israeli depositary for the Offer, the Bidder estimates that shareholders (both in Israel and the U.S.) would be paid within no more than three to four business days following the expiration of the additional offering period.

As described above, subject to the exemptive relief requested herein, it is intended that the Offer will be structured as a single offer made in both the United States and in Israel. The Offer would be made in the United States and in Israel pursuant to an English language offer to purchase. In addition, Israeli shareholders would also receive a Hebrew language cover page complying with the Israeli regulations. A translation to English of the Israeli cover page would be filed as an exhibit to the Schedule TO. The consideration offered, and all other terms of the Offer, would be identical for all holders of Elron's ordinary shares.

II. Withdrawal Rights

A. Conflict Between U.S. Law and Israeli Law

Israeli law

We have been advised by the Bidder's Israeli counsel as follows: under Section 331(d) of the Israeli Companies Law and Section 5(i)(1) of the Israeli Securities Regulations, if the Offer has been accepted (i.e., all the conditions to the Offer, including the minimum condition, have been satisfied) at the end of the initial offering period, the Bidder is required to publicly announce within one day (i) the results of the initial offering period and (ii) that all of Elron's shareholders that have not responded to the Offer or have objected to the Offer will be provided with a four-calendar day additional offering period (counted from the end of the initial offering period) during which they may tender their shares. In accordance with the prevailing interpretation (as confirmed to the Bidder's Israeli counsel by the ISA) of Section 331(d) and pursuant to the provisions of the Israeli Securities Regulations, during the four-calendar day additional offering period, no withdrawal rights are applicable to shares previously tendered. Further, once the Bidder has announced at the end of the initial offering period that the Offer has been accepted, no further conditions to the Offer apply and the Bidder becomes irrevocably bound to purchase, subject to proration, the shares tendered in the Offer (i.e., in both the initial offering period and the four-calendar day additional offering period). The purpose of this requirement under Israeli law is to provide shareholders with additional protection. It appears that the Israeli legislature's rationale in mandating this additional offering period was to address the so-called "prisoner dilemma" by allowing the shareholders the opportunity to wait and see if the Offer is indeed accepted (i.e., all of the conditions to the Offer have been satisfied) and only then decide whether to tender their shares. If withdrawal rights were to be permitted, withdrawals during the additional offering period of shares previously tendered could cause the minimum condition to become unsatisfied (despite previously having been satisfied upon the completion of the initial offering period), thus undermining the intended protection afforded by the additional offering period. In the experience of Bidder's Israeli counsel, all Special Tender Offers in Israel are structured without withdrawal rights during the four-calendar day additional offering period with respect to shares previously tendered.

We have also been informed by Israeli counsel that the Companies Regulations (Alleviation for Public Companies Whose Shares are Listed on a Stock Exchange Outside of Israel), 5760-2000 provide a general exemption from Section 328(a) of the Israeli Companies Law which, as described above, requires the Bidder to purchase additional shares of Elron only by means of a Special Tender Offer. The exemption is applicable, among other things, to companies whose securities were listed on a stock exchange both outside of Israel and in Israel prior to the effective date of the Israeli Companies Law and are still so listed. Elron satisfies these requirements. This exemption only applies, however, if the law of the non-Israeli jurisdiction in which the company's shares are listed includes "a restriction on the purchase of control of a certain percentage in the company, or provides that the purchase of control of a certain percentage in the company would also require the purchaser to commence a tender offer to the public shareholders." We have been informed by the Bidder's Israeli counsel that, under relevant interpretations of Israeli law, this exemption does not apply to companies whose shares are traded in the U.S. since there is no provision under U.S. law that is deemed to meet this requirement, and therefore, this exemption is not available with respect to the Offer. Under the Israeli Companies Law, the Minister of Justice may adopt regulations, including regulations which provide general exemptions from provisions of the Israeli Companies Law. The general exemption described above was adopted pursuant to this authority. The Israeli Companies Law does not, however, grant the Minister of Justice or any other governmental body the authority to grant exemptive relief on a case-by-case basis.

The foregoing differs from the Israeli Securities Law and the regulations promulgated thereunder. The Israeli Securities Law empowers the ISA or its Chairman to grant exemptions and other relief with respect to disclosure matters relating to tender offers and the related offering materials, but not with respect to the provisions of the Israeli Companies Law. The ISA orally confirmed to Bidder's Israeli counsel that the correct interpretation of Section 331(d) of the Israeli Companies Law is that no withdrawal rights are applicable to the previously tendered shares during the four-calendar day additional offering period and that, even if the ISA was to grant exemptive relief from the requirement that the four-calendar day additional offering period be conducted without withdrawal rights, the ISA's exemptive authority (as the ISA noted) does not extend to matters governed by the Israeli Companies Law. In fact, there is no Israeli regulatory body or other governmental body that has statutory authority to grant such exemptions on a case by case basis.

U.S. law

Pursuant to Rule 14d-7(a)(1) under the Exchange Act, a bidder is required to permit securities tendered pursuant to an offer to be withdrawn at any time during the period such tender offer remains open.

In order to permit the Bidder to conduct the four-calendar day additional offering period in accordance with Israeli law, the Bidder must extend the offering period following the completion of the initial offering period for a four-calendar day additional offering period. In accordance with the prevailing interpretation (as confirmed to the Bidder's Israeli counsel by the ISA) of Section 331(d) of the Israeli Companies Law and pursuant to the provisions of the Israeli Securities Regulations, no withdrawal rights are available to holders who have previously tendered their shares in the Offer during such four-calendar day additional offering period. Accordingly, the Bidder is requesting an exemption from the provisions of Rule 14d-7(a)(1) in order to permit the Bidder to extend the offering period following the completion of the initial offering period by the four-calendar day additional offering period as required by Israeli law without offering withdrawal rights to shareholders who have previously tendered their shares in the Offer during such four-calendar day additional offering period.

Subject to the relief requested herein, the extension of the initial offering period to provide for the four-calendar day additional offering period will constitute an extension of the initial offering period and not a separate tender offer in respect of which a new offering period with a minimum duration of 20 business days must be provided in accordance with Rule 14e-1(a) under the Exchange Act.

With respect to the prompt payment requirements of Rule 14e-1(c) under the Exchange Act, the Bidder believes that, based on the practical payment and settlement practices in the financial community, the timing of the payment outlined in Section I.C. "Proposed Offer Structure" above satisfies such requirements; however, to remove any doubt, the Bidder nonetheless intends to rely on the exemption from the "prompt payment" requirements contained in Rule 14d-1(d)(2)(iv) under the Exchange Act that allows the Bidder to comply with Israeli law and practice, rather than the prompt payment requirements of Rule 14e-1(c) under the Exchange Act.

B. Importance of Requested Relief to the Bidder

Requiring a four-calendar day additional offering period without withdrawal rights for shares previously tendered, is a critical protective feature provided to shareholders under Israeli law, for which no Israeli exemptive relief is available under the Israeli Companies Law. In order for the Bidder to purchase any of Elron's shares in a transaction that may result in the Bidder's owning more than 45% of Elron's voting power, the Bidder must conduct a tender offer that complies with this requirement. Based on the above, there is a direct conflict between the requirements of Israeli law and the requirements of U.S. law. Without obtaining the exemptive relief requested herein, conducting the Offer in a manner that would allow withdrawal rights during the four-calendar day additional offering period for shares previously tendered in the Offer (as would otherwise be required by U.S. law) may well run afoul of Israeli law.

We note that the Bidder is not seeking to bifurcate the Offer into two separate and concurrent offers as permitted by Rule 14d-1(d)(2)(ii) under the Exchange Act. Even if the Bidder was able to bifurcate the Offer into two separate and concurrent offers, the Bidder would still be required under Section 331(d) of the Israeli Companies Law to provide a four-calendar day additional offering period without withdrawal rights to all shareholders, including those tendering in the U.S. portion of a bifurcated offer. Accordingly, bifurcating the Offer would not resolve the direct conflict between Israeli law and U.S. law and, therefore, would not enable the Bidder to complete the Offer without the exemptive relief requested in this letter.

C. Granting of Requested Relief will not Compromise Protection of U.S. Shareholders

The additional offering period under Israeli law is designed to provide additional protection to shareholders. Shareholders would be afforded the right to wait and see if all conditions to the Offer have been satisfied prior to tendering their shares. The Bidder would disclose its intention to extend the initial offering period by disclosing its intention to provide an additional offering period in the offer to purchase related to the Offer. U.S. holders of Elron's shares who are concerned about tendering their shares in a manner that will leave them without withdrawal rights during any part of the Offer can wait until the initial offering period has ended before tendering their shares in the additional offering period.

As described above, (i) the Bidder will deposit an amount sufficient to pay the maximum number of shares tendered for in the Offer (subject to proration) in an escrow account with a TASE Member prior to commencement of the Offer, (ii) once the Bidder has announced at the end of the initial offering period that the Offer has been accepted, no further conditions to the Offer apply and the Bidder becomes irrevocably bound to purchase, subject to proration, the shares tendered in the Offer, and (iii) the offer price for shares that are validly tendered (subject to proration) will be paid as soon as practicable following the four-calendar day additional offering period without further involvement from the Bidder. Such payment procedures, coupled with the irrevocability of the Offer following its acceptance at the end of the initial offering period, ensure that the Bidder will not be able to capitalize at the expense of Elron's shareholders on market information that becomes available following the completion of the initial offering period. Because all of the conditions to the Offer are irrevocably satisfied prior to the commencement of the additional offering period, the Bidder is not able to exercise any discretion that would allow it to shift the economic risk of ownership of Elron's shares (by either waiving conditions or deeming conditions to not be fulfilled) to shareholders who may have tendered their Elron's shares in the Offer.

Further, we submit that the direct conflict between Israeli law and U.S. law is not otherwise resolvable absent a grant of the requested relief from the Commission. As discussed above, no Israeli regulatory body or other governmental body has statutory authority to grant exemptive relief on a case-by-case basis from the requirement of the Israeli Companies Law to provide the four-calendar day additional offering period without withdrawal rights. We also note that there is no structural solution to this direct conflict between Israeli law and U.S. law, such as bifurcating the Offer, because, as discussed above, under Section 331(d) of the Israeli Companies Law, the Bidder would still be required to provide a four-calendar day additional offering period without withdrawal rights to all Elron's shareholders, including those tendering in the U.S. portion of a bifurcated offer.

In light of the foregoing, we believe that the relief requested herein is consistent with the guidance contained in the Commission's release: Cross-Border Tender and Exchange Offers, Business Combinations and Rights Offerings, Securities Act Release No. 33-7759 (October 26, 1999) (the "Cross-Border Release").3 Moreover, the Cross-Border Release provides that "[w]hen U.S. ownership is greater than 40 percent, the staff will consider relief on a case-by-case basis only when there is a direct conflict between the U.S. laws and practice and those of the home jurisdiction. Any relief would be limited to what is necessary to accommodate conflicts between the regulatory schemes and practices."4 In the proposed Offer, U.S. ownership will be less than 40 percent. While the Cross-Border Release appears logically to imply that a less stringent standard would apply in such an instance, the Bidder is not seeking to apply a less stringent standard as (i) a direct conflict between U.S. and Israeli law does exist and (ii) the relief sought is limited to what is necessary to accommodate conflicts between the U.S. and Israeli regulatory schemes and practices.

We also believe that the requested relief is consistent with the relief granted in a number of instances by the Commission with respect to an additional offering period (without withdrawal rights) that was conducted in connection with a third party tender offer following the time that such tender offer became irrevocable as to acceptance of shares tendered in such offer.5

In addition to the foregoing and to the intent behind the Israeli Special Tender Offer provisions being to provide additional protection to shareholders, compliance with such procedure also arguably further benefits U.S. holders in the form of additional disclosure and processes as, but for the Israeli requirement to conduct the transaction by means of Special Tender Offer, the Bidder, were Elron a U.S. company, would likely be able to effect the ownership increase contemplated by the Offer by means of open market purchases or a block purchase, without being subject to the disclosure and process requirements of a formal tender offer.

III. Requested Exemptive Relief

Based on the foregoing, the Bidder respectfully requests exemptive relief for the Offer from Rule 14d 7(a)(1) -- which requires that any person who has deposited securities pursuant to a tender offer will have the right to withdraw any such securities during the period such offer remains open -- to allow the Bidder to conduct a four-calendar day additional offering period following the completion of the initial offering period during which no withdrawal rights will be available.

Please note that the factual representations and conclusions in this letter, as well as the representations as to Israeli law contained herein, have been provided to us by other parties and we have not undertaken any independent investigation of these matters.

In light of the Bidder's short timetable, we respectfully request that the Commission issue the requested exemptive relief as soon as practicable. If you require any further information or have any questions or comments with respect to this matter, please call me at (212) 735-2526. If for any reason you do not concur with any of the views expressed in this letter, we respectfully request an opportunity to confer with you prior to any written response.

Sincerely,

Thomas H. Kennedy


Endnotes


http://www.sec.gov/divisions/corpfin/cf-noaction/dic061404.htm


Modified: 09/23/2004