UNITED STATES SECURITIES AND EXCHANGE COMMISSION MEMORANDUM OF THE OFFICE OF INTERNATIONAL CORPORATE January 1984 I. Introduction Foreign companies' are confronted with an array of statutory sections, rules and forms involving complex interrelationships. Much of the complexity in this area is caused by two principles of the Commission adopted in its early years. First, a distinction should be made between foreign companies that voluntarily enter the United States securities markets and those companies who securities are traded in the United States without any voluntary acts or encouragement by the issuer. This distinction is approximated by deeming all foreign companies having either securities listed on a United States exchange, or included in NASDAQ, or having made a public offering of securities registered under the Securities Act of 1933 as voluntarily entering the United States market. All other foreign companies whose securities are traded in the United States are deemed not to have taken any voluntary acts to enter the United States market. Second, certain Canadian companies, which have voluntarily entered the United States market are treated the same as United States companies. The table on page 5, classifies foreign issuers into the various categories discussed below and lists the statutory sections applicable to each. The Commission has taken the position that the antifraud provisions of Rule 10b-5 and Section 14(e) apply to all transactions in securities and all tender offers, respectively subject to the limits of the extraterritorial scope of U.S. law. These issuers are treated virtually the same as domestic issuers. Specifically, Canadian issuers are required to use Form 10 to list and register their securities on a national securities exchange pursuant to Section 12(b) and must file periodic reports on Forms 10-K, 10-Q and 8-K pursuant to Section 13(a). These issuers are subject to the Foreign Corrupt Practices Act ("FCPA"), i.e., Sections 13(b) and 30A. These issuers must also comply with the proxy rules, Section 14(a) and the regulations thereunder, which have little practical impact if debt securities are registered. If equity securities are registered, the Williams Act, Sections (13(d), 13(e), 13(f), 13(g), 14(d) and 14(f), and the shortswing profit provisions of Section 16 also apply to the class of securities registered. Canadian issuers with a Section 15(d) obligation resulting from a prior registered public offering file reports on Forms 10-K, 10-Q, and 8-K. These issuers are also subject to the FCPA. B. Other Foreign Issuers All non-Canadian issuers are authorized to use Form 20-F to list and register a class of securities on a national securities exchange and must file periodic reports on Forms 20-F and 6-K.' These issuers are subject to the FCPA but are exempt from 'Technically referred to as foreign private issuers to distinguish them from foreign governments. Any issuer incorporated under foreign law but meeting two conditions is considered to be an essentially U.S. issuer and subject to the same requirements as U.S. companies. The first condition is that fifty percent of the issuer's shares are held by U.S. persons. The second condition is that either the issuer's business be principally administered in the U.S. or a majority of the issuer's directors or executive officers be U.S. persons or fifty percent of the assets of the issuer be located in the U.S. Rule 3b-4. """The saving grace in this maze is that it is not quite so difficult to pick one's way through the various registration, reporting, proxy and insider-trading provisions and the relevant exemptions once he has a particular kind of foreign issuer in mind (with regard, for example, to whether or not it is Canadian, whether or not it has a security listed or wants to list on an American exchange, and whether or not it has registered under the 1933 Act so as to be subject to the reporting requirement under § 15(d) of the 1934 Act) as it is to attempt to present a composite picture." 4 Loss, Securities Regulation (Supp. 1969) 2407. 'Form 20-F is a consolidated registration and annual report form. Form 6-K is an interim report for furnishing the same type of information required to be furnished by Rule 12g3-2(b) discussed below. These forms require less information than the Forms 10-K, 10-Q, and 8-K. 7 the proxy rules, Sections 14(a), 14(b), 14(c) and 14(f) and all the provisions of Section 16 by Rule 3a12-3. However, the registered equity securities of these issuers are subject to the Williams Act. The non-Canadian issuers with Section 15(d) obligations file reports on Form 20-F and 6-K and are subject to the FCPA. III. Section 12(g) and Rule 12g3-2 A. Section 12(g) Registration Foreign private issuers with a class of equity securities meeting the criteria of Section 12(g) but which are ineligible to the use the exemptions in Rule 12g3-2(b),* must register their securities pursuant to Section 12(g). Generally, all foreign issuers, including Canadian, are authorized to use Form 20-F to register their securities under Section 12(g) and must file reports on Forms 20-F and 6-K pursuant to Section 13(a). These issuers are subject to the FCPA. The registered securities are subject to the Williams Act but are exempt from the proxy rules and Section 16 by Rule 3a12-3. Section 12(g) registration is generally required for inclusion of equity securities in NASDAQ. The Securities Act Amendments of 1964 added Section 12(g) which extended the application of Sections 13, 14 and 16 to all issuers with more than $3 million in assets and 500 shareholders of record worldwide. When it enacted Section 12(g), Congress recognized that it was imposing significant burdens and obligations on issuers. But Congress did not intend to impose these burdens on foreign issuers whose securities had been imported into the United States by brokers and arbitragers and subsequently traded in the over-the-counter market all without the foreign issuer's approval or, in some cases, knowledge. In Section 12(g)(3), Congress granted to the Commission authority to provide, by rule or order, that the securities of foreign issuers would be exempt from Section 12(g) upon a finding that the exemption is in the public interest and consistent with the public interest. Accordingly, the Commission promulgated Rule 12g3-2 in 1967, revised in 1983, which sets forth two exemptions. First, paragraph (a) of that rule provides an exemption from Section 12(g) for the securities of a foreign company that meets the tests of $3 million assets and 500 shareholders of record world-wide but has less than 300 U.S. shareholders of record, as defined. Second, paragraph (b) of the rule provides another exemption, frequently called the information-supplying exemption. Essentially, the securities of a foreign company will be exempt from Section 12(g), regardless of the number of United States shareholders, if it furnishes to the Commission for public inspection copies of the material investor information it makes public in its local jurisdiction or sends to its shareholders either voluntarily or pursuant to foreign law or exchange requirements. The rule expressly states that furnishing information pursuant to the rule is not an admission of jurisdiction and that the information so furnished is not filed for Section 18 purposes. Certain foreign issuers are not entitled to use the information-supplying exemption. These are issuers that are or have recently been subject to a reporting requirement under the Exchange Act, issuers that have acquired other issuers so subject to a reporting obligation, and issuers of equity securities to be included in NASDAQ.' Attached are several charts and tables summarizing these requirements. The attached algorithm outlines the basic structure. At the bottom of the algorithm are boxes representing the various filing requirements. Each of the other boxes contain a question that can be answered yes or no. To determine the result, start with the box at the top of the page and proceed according to the answers to the questions. 'Discussed below. 'See Securities Exchange Act Release No. 34-20264 (October 6, 1983). Non-Canadian issuers listed in Release No. 34-20265 (October 6, 1983) are grandfathered from this latter limitation and may continue to use the exemption as long as they maintain it and keep their securities on NASDAQ. Canadian issuers listed in that release may use the exemption only until January 2, 1986. 8 'Issuers which neither have nor have had recent obligations under Sections 13(a) or 15(d) nor equity securities included in NASDAQ are eligible for an exemption from Section 12(g) pursuant to the information-supplying provisions of Rule 12g3-2(b). The information furnished pursuant to that exemption is identical to that furnished under the cover of Form 6-K. Therefore, a main advantage inuring to exempt issuers is exemption from the obligation to register and file annual reports on Form 20-F. Far more issuers have relied on the exemption than have registered under Section 12(g). 'Defined in Rule 3b-4. 'The provisions of General Instructions to Form 20-F are designed to prevent an issuer that has been reporting on Form 10-K from reducing its reporting obligation to Form 20-F. "Unavailable for Canadian issuers which have or have had reporting obligations under Sections 12(b) or 15(d). 9 |