Taking International Firms Public on U.S. Exchanges

International Companies: Access To U.S. Markets

Canadian and international (non-U.S. formed) companies may trade their stock or other securities either on the U.S. exchanges or through the "over the counter" markets. Companies that want to trade on Nasdaq, the Nasdaq OTC market, or the U.S. securities exchanges must register their securities with the U.S. Securities and Exchange Commission ("SEC"), a process which usually takes several months. Canadian and international issuers should also be aware that in addition to meeting the U.S. federal requirements, their company will also either need to register its securities in the various U.S. states in which it sells its securities or be exempt from registration in those states.

SEC Registration for Nasdaq, the Nasdaq OTC market, or U.S. Exchanges

Canadian and international companies having existing trading markets outside of the U.S. that wish to trade on Nasdaq - either the Small Cap Market or on the National Market System, the Nasdaq OTC market, or on a U.S. securities exchange must file a registration statement with the SEC. Foreign private issuers (defined in general as any non-U.S. non-governmental issuer that does not have significant U.S. ownership, assets, control, or administration) will be able to use SEC Form 20-F, which is less onerous than the Form 10 that U.S. companies must use. Form 20-F requires the company to disclose, among other items, details about its business and properties, material litigation, where its securities trade and the persons or companies holding a controlling interest in the company, and information about its directors and officers. The company must include financial statements for its last three fiscal years, and the statements must be prepared either according to U.S. generally accepted accounting principles ("GAAP") or according to the GAAP of the company's domicile and include a reconciliation to U.S. GAAP. The financial statements must be audited by accountants that the SEC deems have acceptable levels of compliance with U.S. auditing standards. The Form 20-F filing must include as exhibits copies of key contracts and other material documents and be accompanied by a one-time filing fee of US$250. Following SEC approval of the filing, the foreign private issuer must annually update the filing and also file periodically those items that it makes available to its shareholders or otherwise files or makes public. In addition to being SEC-registered, the company must also satisfy the listing requirements of the Nasdaq or the appropriate exchange. Please note that SEC-registered companies will be subject to the requirements of the Sarbanes-Oxley Act of 2002, including provisions regarding financial statement certification and corporate management.

Most states will exempt from registration trades in stock listed on a major U.S. exchange or on Nasdaq/National Market System. These exemptions are not available in certain states for companies on the Nasdaq Small Cap Market or the Nasdaq OTC market, and those companies must review the laws of each state in which they want their stock to trade.

Rule 12g3-2 Exemption for Informal Markets

A Canadian or other non-U.S. company that is interested in having its stock traded in the general over the counter market rather than on a Nasdaq market or securities exchange, can do so by making use of an often overlooked SEC rule, the Rule 12g3-2 exemption under the Securities Exchange Act of 1934. Subsection (a) of this rule exempts a foreign private issuer from SEC registration if less than 300 U.S. persons owns that issuer's stock directly or through brokers or others. If the foreign private issuer has more than 300 U.S. shareholders, or otherwise would like to obtain an SEC exemption number, it can file a short application with the SEC known as a Rule 12g3-2(b) application. The foreign private issuer will need to include all materials that it either has recently distributed to its shareholders, filed with the stock exchange in which its securities are traded, or otherwise made public under its own local law. There is no filing fee. Once the SEC has accepted the Rule 12g3-2(b) application, the only other filings that the foreign private issuer will need to send to the SEC are copies of all information that it makes available to its shareholders or otherwise files or makes public at its domicile.

Companies should note that most U.S. states do not recognize this exemption and will require further compliance with their laws for secondary trading purposes.

How Long Does It Take; What Is Needed To Get There?

The Rule 12g3-2(a) exemption (for less than 300 U.S. shareholders) is self-executing and requires no further action. The Rule 12g3-2(b) application could take less than two weeks to prepare and send to the SEC. SEC review time could be as short as two weeks. The company needs to designate a responsible employee to work with U.S. securities counsel and deliver the material that it has recently made public.

The Form 20-F filing (and the related applications with Nasdaq or an exchange) is a much more significant event. It requires the company to make a commitment to designate a team consisting of its chief financial officer or controller, outside accountant, and a mid-level corporate official to work with U.S. securities counsel to prepare, review, and revise the filing and related exhibits. The filing is lengthy - 80 pages (not including financial statements) is not unusual. The company should expect at least a month's preparation prior to filing and expect at least 30 days to elapse after filing before the SEC issues its first letter of comments on its initial review of the filing. The total process could take at least 120 days. In order to speed up the process, the company should ensure that its designated personnel are delegated to the Form 20-F full-time both prior to filing and then again following receipt of the SEC's letter of comments.