Foreign Private Issuer Deregistration

On December 14, the SEC voted to publish for comments rules governing termination of reporting for classes of securities registered under the '34 act by foreign private issuers. The relevant portions of the SEC's press release follow:

SEC Votes to Propose Rules on Tender Offers, Foreign Issuer Deregistration; Also Votes to Adopt Filing Acceleration Changes
FOR IMMEDIATE RELEASE2005-176
Washington, D.C., Dec. 14, 2005 - The Securities and Exchange Commission today voted to publish for comment rule proposals concerning the best-price rule on tender offers and the process whereby a foreign private issuer can terminate reporting requirements for classes of its securities registered under the Securities Exchange Act of 1934. The Commission also adopted rules concerning acceleration of filing deadlines for periodic reports required under the Exchange Act.
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2. Proposals to Allow Foreign Private Issuers to Exit the Exchange Act Reporting System
Introduction
Under current rules, a foreign private issuer may exit the Exchange Act registration and reporting regime if the class of the issuer's securities has less than 300 record holders who are U.S. residents. Under these rules, a foreign private issuer may find it difficult to terminate its Exchange Act registration and reporting obligations despite the fact that there is relatively little investor interest in the United States. In light of the increased internationalization of the U.S. securities markets that has occurred since the adoption of these rules, new Exchange Act Rule 12h-6 would allow a foreign private issuer to
terminate its registration of a class of equity securities under Exchange Act Section 12(g) and its resulting Section 13(a) reporting obligations or terminate, and not merely suspend, its Section 15(d) reporting obligations regarding a class of equity securities as long as the issuer meets specified criteria designed to measure U.S. market interest for that class of securities; and
terminate, and not merely suspend, its Section 15(d) reporting obligations regarding a class of debt securities as long as it meets conditions similar to the current requirements for suspending its reporting obligations relating to that class of debt securities.
Equity Securities
A foreign private issuer would be eligible to terminate its Exchange Act registration and reporting obligations regarding a class of equity securities under proposed Rule 12h-6 if it meets the following conditions:
the issuer has been an Exchange Act reporting company for the past two years, has filed or furnished all reports required for this period, and has filed at least two annual reports under section 13(a) of the Exchange Act;
the issuer has not directly or indirectly sold its securities, with certain exceptions, in the United States in either a registered or unregistered offering under the Securities Act during the preceding 12 months; and
during the preceding two years, the issuer has maintained a listing of the securities on an exchange in its home country, as defined on Form 20-F, which constitutes the primary trading market for the securities.
An eligible foreign private issuer would then have to meet one of a set of alternative benchmarks, depending primarily on whether the issuer is a well-known seasoned issuer:
If the issuer is a well-known seasoned issuer, either:
the U.S. average daily trading volume of the subject class of securities has been no greater than 5 percent of the average daily trading volume of that class of securities in its primary trading market and U.S. residents held no more than 10 percent of the issuer's worldwide public float; or
regardless of U.S. trading volume, U.S. residents held no more than 5 percent of the issuer's worldwide public float.
If the issuer is not a well-known seasoned issuer, regardless of U.S. trading volume, U.S. residents held no more than 5 percent of the issuer's worldwide public float.
Also, proposed Rule 12h-6 would provide that a foreign private issuer that is unable to meet one of the proposed new benchmarks, but does satisfy the rule's other conditions, could still terminate its Exchange Act registration and reporting obligations regarding a class of equity securities as long as that class of securities is held of record by less than 300 persons on a worldwide basis or less than 300 persons resident in the United States.
Today's proposals also would apply the exemption under Exchange Act Rule 12g3-2(b) to a foreign private issuer immediately upon its termination of Exchange Act registration and reporting regarding a class of equity securities. Under the exemption, however, a foreign private issuer would have to publish in English the home country materials required by Rule 12g3-2(b) on its Internet web site or through an electronic information delivery system that is generally available to the public in its primary trading market. It is intended that a foreign private issuer that regularly posts corporate information on its web site would be able to maintain this exemption.
Debt Securities
A foreign private issuer would be eligible to terminate its Section 15(d) reporting obligations regarding a class of debt securities under proposed Rule 12h-6 if it meets the following conditions:
the issuer has filed or furnished all required reports under Section 15(d), including at least one annual report pursuant to Section 13(a) of the Act; and
the class of debt securities is either held of record by less than 300 persons on a worldwide basis or less than 300 persons resident in the United States.
Counting Method
In order to facilitate a foreign private issuer's determination regarding whether U.S. residents hold no more than the applicable threshold percentage of its worldwide public float or whether the number of its U.S. resident equity or debt securities record holders meet the applicable threshold condition, proposed Rule 12h-6 would permit an issuer to
limit its inquiry regarding the amount of securities represented by accounts of customers resident in the United States to brokers, dealers, banks and other nominees located in the United States, the foreign private issuer's jurisdiction of incorporation, legal organization, or establishment and, if different, the jurisdiction of the foreign private issuer's primary trading market; and
rely in good faith on the assistance of an independent information services provider that in the regular course of business assists issuers in determining the number of, and collecting other information regarding, their shareholders.
New Form 15F
Under proposed Rule 12h-6, a foreign private issuer would have to file new Form 15F with the Commission, certifying the issuer's compliance with the requirements for termination of its Exchange Act reporting obligations and providing specified supporting information. As with the filing of Form 15 under the current rules, the filing of Form 15F would automatically suspend an issuer's reporting duties. If the Commission has not objected, the suspension would become a permanent termination 90 days after the filing of the Form 15F.
Comments on the proposal should be received by the Commission within 60 days of its publication in the Federal Register.