Legal & Tax Guide for U.S. Issuers

6 On-going tax filing obligations – If the inversion rules are triggered, and the reincorporated company or the acquiring parent is treated as a U.S. corporation, such corporation will be required to file U.S. tax returns and pay U.S. income tax on its world-wide income, regardless of source. In addition, distributions to non-U.S. shareholders would be subject to U.S. withholding tax. Certain other adverse tax consequences may occur. Additional rules concerning U.S. investors in a foreign corporation – There are additional U.S. federal income tax rules which may impact U.S. investors in certain foreign corporations. For example, if a foreign corporation does not have significant active business operations, and its primary sources of income are passive investment assets, the corporation may be considered a “passive foreign investment corporation,” or “PFIC.” Or, if a foreign corporation has a small group of U.S. shareholders that own at least 50% of the stock of the company, the corporation may be considered a “controlled foreign corporation,” or “CFC.” There are significant and adverse tax consequences for U.S. investors owning shares in a PFIC or a CFC, and the corporation and its investors should consult their tax advisors regarding the PFIC and CFC rules before reincorporating into Canada or investing in a foreign corporation. Foreign corporations that are subject to the “anti-inversion” rules and are treated as U.S. corporations for tax purposes would not be subject to the PFIC or CFC rules. In addition to PFIC and CFC rules, a U.S. corporation that holds U.S. real property (such as mining properties) may be considered a U.S. Real Property Holding Company and reincorporation to a foreign jurisdiction may trigger consequences under the Foreign Investment Real Property Tax Act (FIRPTA). FIRPTA was adopted to impose a tax on gains derived by foreign persons from the sale of U.S. real property. Under Section 897(a)(1) of the United States Internal Revenue Code of 1986, as amended (the “Code”), gain or loss recognized by a foreign person on the disposition of a United States real property interest (a USRPI) is generally taxable in the United States as gain or loss effectively connected with a U.S. trade or business. Foreign corporations that are subject to the “anti-inversion” rules and are treated as U.S. corporations for tax purposes would not be subject to FIRPTA. This is only a brief summary of these rules, and numerous exceptions and additional requirements may apply. The tax consequences of Section 367 and the anti-inversion rules of Section 7874 are significant, and should be well considered by the corporation and its tax advisors. SEC registration and reporting considerations A company, whether a U.S. Domestic Issuer or a Foreign Private Issuer, can generally raise capital in a Canadian IPO without filing a registration statement with the SEC. The U.S. Securities Act requires that all offers and sales of securities be registered with the SEC or exempt from such registration requirements. A traditional IPO in the United States requires filing of a registration statement with the SEC. However, a company may or may not file an SEC registration in connection with a Canadian IPO. The options are based on the company’s status as a U.S. Domestic Issuer or a Foreign Private Issuer. 1. U.S. Domestic issuer  2 Option 1: SEC Registration and SEC Reporting A company may file a registration statement under the U.S. Securities Act on Form S-1 to register the offer and sale of securities to the public  3 with the SEC. The registered securities may be offered and sold in the United States and outside the United States and will be unrestricted securities. Once a registration statement is declared effective, the company will be subject to the ongoing reporting requirements of the U.S. Exchange Act pursuant to Section 15(d) of the U.S. Exchange Act.  4 This requires a company to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. If the company elects to register the class of securities under Section 12 of the Exchange Act and become a reporting issuer, the company will become subject to the SEC 14A proxy rules, tender offer rules, and certain of its shareholders are required to file beneficial ownership reports on Schedule 13D/G and Section 16 reports. 2. In addition to the U.S. requirements described in this section, a company must also comply with Canadian securities laws and prospectus offering requirements. 3. A company may register a public offering of securities with the SEC by filing a long form registration statement with the SEC. The registration statement must comply with the requirements of Form S-1, including financial statements audited by a member in good standing with the Public Company Accounting Oversight Board. The registration statement is subject to review by the SEC. 4. A company may terminate filing SEC reports AFTER filing its first annual report if the company has fewer than 300 shareholders of record (based on record ownership). Nominees or depositaries such as the Canadian Depositary for Securities or CDS, that hold securities for the benefit of investors are counted as the record owner of all shares held for such investors.