Accommodations made for foreign companies which would otherwise be fully subject to the requirements of the Securities Act and Exchange Act

Schiller v Tower Semiconductor 2nd Circuit 6.10.06

• Opinion 
• Upheld SEC authority to adopt Rule 3a12-3
• Thus, upheld SEC's exempting FPIs from proxy requirements of Exchange Act §14(a) and Rule 14a-9
• FPI Accommodations

Exchange Act deregistration

• SEC has proposed rules to address difficulty FPIs can have when seeking to terminate their Exchange Act registration and reporting requirements
• See FPI Deregistration

International financial reporting standards 2005

• One-time accommodation for
  prior period financial statements that use
  International Financial Reporting Standards IFRS
• Form 20-F
• SEC FAQ 2005

SEC Chairman speech 1.25.05

• SEC considering delayed compliance with the SOX Act § 404 internal control requirements

Rule 405  Securities Act definition

Rule 3b-4(c)  Exchange Act definition

Foreign companies are FPIs unless:

• more than 50% of voting shares are held by US residents, and

• majority of executive officers or directors
  are US citizens or residents, or
• more than 50% of assets are in US, or
• business is administered principally in US

FPI status should be re-assessed quarterly;
and upon completion of extraordinary events

SEC lists of registered foreign companies

• SEC webpage

Rule 3a12-3(b)

• FPIs exempt from proxy solicitation and
  shareholder proposal rules
• FPI insiders exempt from §16 insider trading rules
• No exemption from § 13 beneficial ownership reporting

• Text of rule

Other accommodations for FPIs

• No mandatory quarterly reporting

• Follow issuer's home country practice for interim reports
• Filed on Form 6-K

• Annual report due six months after fiscal year-end

• Filed on Form 20-F

• Financials used in offering documents
  need only be updated semi-annually
• Less disclosure of executive compensation

• Form 20-F versus Form 10-K

• Need only reconcile to US GAAP,

• No separate US GAAP financials required
• Form 20-F  Items 17 and 18

• Can use foreign currency in financials

• S-X Rule 3-20

• Safe harbor for offshore press activities

• Rule 135e

• Exempt from Regulation FD

• FD Rule 101(b)

• Can get confidential treatment of IPO registration filings

• No longer available for secondary offerings

• Possible exemption from Exchange Act § 12(g) registration

• See Rule 12g3-2

• Can sell voting securities in off-shore transactions
  under Regulation S
• Level 1 ADR programs exempt from
  Exchange Act registration and reporting

• where no affirmative efforts to enter US markets

Become subject to:

• Quarterly reporting
• Form 8-K requirements
• Proxy requirements

FPI insiders become subject to § 16 insider trading rules

Need to use US GAAP, restate prior reporting periods

• See SEC speech 2000

Rule 12g3-2(b)

SEC's list of foreign issuers using the exemption:

• 2005
• 2004
• 2003
• 2002

Release 33-7745 1999

• International disclosure standards

Release 33-7119 1994

• Accounting reconciliation for business combinations

Release 33-7118 1994

• Foreign equity investees and acquired foreign businesses

Release 33-7117 1994

• Choice of currency; hyperinflation reconciliation

Release 33-7054 1994

• Re: Hyperinflation economies

Release 33-7053 1994

• Safe harbors for certain public announcements

Release 33-6437 1982

Release 33-6493 1983

In re: Sony Corporation (SEC C&D 1998)

• Re: misleading segment reporting in Form 6-K / Form 20-F
• SEC summary

SEC Chairman speech  2002

• Addresses application of Sarbanes-Oxley Act
  to foreign issuers

Cross-Border Exemptions

Foreign Accounting

Foreign Governments

FPI Deregistration

Regulation S