Legal & Tax Guide for U.S. Issuers

4 There may be good reasons for a U.S. company that is incorporated in a U.S. jurisdiction to go public in Canada and list on TSX or TSXV without changing its jurisdiction of incorporation. Typically these considerations center on the company’s ability to otherwise qualify as a foreign private issuer (as described below). If the company has a majority of its assets in the U.S., is principally governed in the U.S., or has the holders of a majority of its shares located in the U.S., the cost (tax, legal and otherwise) and complication of restructuring the company to qualify as a foreign private issuer may be prohibitive. In other situations, the company may have substantial U.S. government contracts or other regulatory concerns that would complicate the process of becoming incorporated in a foreign jurisdiction. In other circumstances, reincorporating into a foreign jurisdiction and qualifying as a foreign private issuer may have significant advantages including more favorable tax planning, business and operational considerations, favorable exemptions available to foreign issuers under U.S. securities laws, single jurisdiction financial reporting, shareholder base considerations and future fundraising and M&A considerations. Foreign Private Issuer vs. U.S. Domestic Issuer For a company to qualify as a foreign private issuer (Foreign Private Issuer) it must be incorporated outside the United States and have a majority of its voting stock held by persons outside the United States. Even if a majority of a company’s voting stock is held by persons inside the United States, a company may still qualify as a Foreign Private Issuer so long as none of the following exist: • the business is principally administered in the United States, • a majority of the issuer’s assets are in the United States, or • a majority of the directors or executive officers are United States citizens or residents. Consequently, even foreign incorporated companies may not qualify as a Foreign Private Issuer if a majority of its voting stock is held in the United States and the company has a significant nexus to the United States. Companies that do not qualify as Foreign Private Issuers are treated as U.S. domestic companies (U.S. Domestic Issuers) by the SEC. The U.S. securities laws and rules of the SEC provide several accommodations to Foreign Private Issuers. These accommodations include: • Ability to issue unrestricted “free trading” securities in off-shore transactions outside the United States without SEC registration under Regulation S of U.S. Securities Act (Regulation S) • Exemption from reporting obligations under the U.S. Exchange Act and Sarbanes Oxley in accordance with Rule 12g3-2(b) • Simplified resale of “restricted securities” by U.S. investors through the facilities of the Toronto Stock Exchange and TSX Venture Exchange under Regulation S • Availability of special forms for SEC registration and reporting • Qualified Canadian corporations may use the Multi-Jurisdictional Disclosure System (MJDS), which simplifies public offerings of securities into the United States • Foreign Private Issuers reporting with the SEC can report on a simplified basis and are exempt from the U.S. 14A proxy rules, certain tender offer rules and Section 16 insider trading and reporting requirements Many U.S. companies have a majority of their voting shares held by U.S. persons and a business that is principally administered in the U.S., a majority of its assets in the U.S. or a majority of its directors or executive officers are U.S. citizens or residents. These companies may still reincorporate to a foreign jurisdiction and qualify as a Foreign Private Issuer by restructuring the company’s share capital to include restricted-voting stock. In order to facilitate the restricted-U.S. ownership requirements and to qualify as “foreign private issuer”, some transactions are structured so that U.S. shareholders receive a portion of their securities in the surviving public foreign corporation in the form of restricted-voting stock that is exchangeable into voting stock upon satisfaction of predetermined conditions or holding periods. Due to the nature of public companies, often holding less than 50% of a public company’s voting securities is sufficient to maintain control of the entity.