Legal & Tax Guide for U.S. Issuers

7 Finally, SEC reporting issuers are subject to the requirements of Sarbanes-Oxley, including Section 404, unless otherwise exempt, which requires auditor certification of internal controls over financial reporting. Option 2: Exempt Offering and No SEC Reporting A U.S. Domestic Issuer may offer and sell securities outside the United States to non-U.S. Persons in reliance upon exclusions from the registration requirements of the U.S. Securities Act available under Regulation S.  5 The securities issued would be restricted securities and the company will need to comply with Regulation S Resale Restrictions  6 by adding a “.s” designation to its TSX trading symbol. The ability of U.S. investors to trade in these securities is limited, so the availability of trading support in the aftermath is a key consideration. The securities may be concurrently offered in the United States to Accredited Investors  7 under Regulation D of the U.S. Securities Act ( Regulation D ) or qualified institutional buyers  8 under Rule 144A of the U.S. Securities Act ( Rule 144A ). 9 A company that has its equity securities held of record  10 by fewer than 2,000 persons or 500 persons who are not accredited investors qualifies for exclusions from U.S. Exchange Act reporting obligations. Non-reporting issuers are not subject to the requirements of Sarbanes-Oxley. 2. Foreign private issuer Option 1: Exempt Offering and No SEC Reporting A Foreign Private Issuer can rely upon exemptions from the registration requirements of the U.S. Securities Act and issue securities in off-shore transactions outside the United States in reliance upon Regulation S. The securities issued in accordance with Regulation S are unrestricted “free trading” securities and bear no restrictive U.S. legend. A Foreign Private Issuer may offer securities concurrently in the United States to Accredited Investors under Regulation D or QIBs under Rule 144A. Securities issued in the United States are “restricted securities” and will bear a U.S. restrictive legend. A holder of restricted securities of a Foreign Private Issuer may resell the securities on Toronto Stock Exchange or TSX Venture Exchange pursuant to exclusions available under Regulation S. Foreign Private Issuers may be exempt from U.S. Exchange Act reporting obligations under Section 12g3-2(b), subject to certain disclosure requirements. Non-reporting issuers are not subject to the requirements of Sarbanes-Oxley. Option 2: SEC Registration and SEC Reporting A Foreign Private Issuer may file a registration statement under the U.S. Securities Act on Form F-1 or Form S-1 to register the offer and sale of securities to the public  11 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. 5. Alternatively, for certain offers and sales of securities in an aggregate amount less than US$50 million, a U.S. Domestic Issuer may offer and sale securities under Regulation A and such securities will be unrestricted securities. A Form 1-A is required to be filed with the SEC. 6. Regulation S Resale Restrictions – Regulation S is available to U.S. incorporated companies for sales of securities outside the United States to non-U.S. persons. Regulation S requires a one-year distribution compliance period during which securities issued under Regulation S by U.S. Domestic Issuers may not be sold in the United States or to, or for the account or benefit of, a U.S. person. Regulation S can be used in conjunction with other exemptions available for offers and sales in the United States, including private placements under Regulation D to accredited investors or under Rule 144A to qualified institutional buyers. 7. Accredited Investor - defined in Rule 501(a) of Regulation D and includes banks, insurance companies, registered investment companies, certain employee benefit plans, entities with total assets in excess of US$5 million and wealthy individuals (based on income or net worth). 8. Qualified Institutional Buyers (QIB) – Generally, institutions holding at least $100million in securities and registered broker-dealers holding at least $10million in securities. 9. Rule 144A – Another safe harbor provision, exempts resales of securities to QIBs. 10. Shareholders of Record – Calculation of shareholders of record is based on record ownership, which is distinct from beneficial ownership. Companies with greater than $10 million of total assets and which have greater than 2,000 shareholders of record, or 500 shareholders of record which are not “accredited investors” (as defined in Rule 501(a) of the U.S. Securities Act), are required to register with the SEC and comply with U.S. Exchange Act reporting obligations. U.S. Companies listed outside the U.S. where ownership is held through nominees or depositories, such as the Canadian Depository for Securities, or CDS, have less risk of crossing the 2,000 owners, or 500 unaccredited owners, of record threshold. Nonetheless, record ownership should be closely monitored. 11. A foreign private issuer 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 F-1 or Form S-1, including financial statements reconciled to U.S. GAAP and audited by a member in good standing with the Public Company Accounting Oversight Board. The registration statement is subject to review by the SEC.