Cross-Border M&A Guide

Wachtell, Lipton, Rosen & Katz
Cross-Border M&A Guide
2024
© May 2024
Wachtell, Lipton, Rosen & Katz
All rights reserved.
TABLE OF CONTENTS
Page
I. Introduction ..............................................................................................1
II. Overview of U.S. Legal Considerations in Cross-Border
Transactions .................................................................................................4
A. General Framework ............................................................ 4
1. The U.S. Federal Securities Acts and the
SEC ......................................................................... 4
2. State Laws ............................................................... 5
3. Listing Rules ........................................................... 5
4. Antitrust and National Security
Considerations......................................................... 5
5. Tax Considerations ................................................. 6
B. Acquisition of a U.S. Company .......................................... 6
1. Public vs. Private Companies ................................. 7
2. Merger vs. Tender Offer ......................................... 7
3. Form of Consideration ............................................ 8
4. Tax Considerations ................................................. 9
C. Acquisition of a Non-U.S. Company .................................. 9
1. Foreign Private Issuers............................................ 9
2. Tender Offer for Securities of a Non-U.S.
Company ............................................................... 11
3. Form of Consideration .......................................... 12
4. Tax Considerations ............................................... 12
5. Negotiation, Diligence and Integration
Considerations....................................................... 13
6. Post-Transaction Securities Law Obligations ....... 13
III. Acquisition of a U.S. Company ...........................................................15
A. Acquisition of a Private U.S. Company ............................ 15
B. Acquisition of a Public U.S. Company ............................. 16
1. Mergers ................................................................. 16
2. Tender Offers ........................................................ 17
a. Section 14(e) and Regulation 14E ............ 17
b. Section 14(d) and Regulation 14D ............ 19
3. Choice of Merger vs. Tender Offer....................... 20
C. Acquisition of a U.S. Company for Stock:
Securities Law Considerations .......................................... 20
1. Registration Requirements .................................... 21
2. Listing of Securities Issued in an
Acquisition ............................................................ 23
3. Post-Registration Obligations ............................... 28
D. Tax Considerations ........................................................... 28
1. Cash (and Other Taxable) Acquisitions ................ 29
2. Business Combinations and Acquisitions
Involving Stock Consideration ............................. 30
a. Corporate-Level Considerations:
Section 7874 of the Code .......................... 30
b. Shareholder-Level Considerations:
Section 367 of the Code ............................ 31
IV. Acquisition of a Non-U.S. Company ...................................................33
A. Acquisition of a Non-U.S. Company through a
Tender Offer...................................................................... 33
1. Tender Offers and the Cross-Border Rules ........... 33
a. Determining U.S. Ownership .................... 34
b. Tier I Exemptions ..................................... 35
c. Tier II Exemptions .................................... 36
2. Avoiding U.S. Jurisdictional Means ..................... 39
B. Acquisition of a Non-U.S. Company by Means
Other Than a Tender Offer ............................................... 41
C. Securities Law Considerations with Respect to
Stock Used in Acquisition of Non-U.S. Companies ......... 41
1. Securities Act Registration ................................... 41
a. Rule 802 .................................................... 42
b. Section 3(a)(10) ........................................ 43
c. Vendor Placements ................................... 44
d. Foreign Spin-Offs ..................................... 45
e. Cashing Out U.S. Shareholders of
Target ........................................................ 46
2. Listing of Securities Issued in an
Acquisition ............................................................ 46
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3. Post-Registration Obligations ............................... 47
D. Tax Considerations ........................................................... 47
E. Non-U.S. Law Considerations .......................................... 49
V. Antitrust and National Security Considerations....................................49
A. Antitrust Considerations and the Hart-Scott-Rodino
Act ..................................................................................... 49
B. National Security Considerations and the
Committee on Foreign Investment in the United
States ................................................................................. 51
VI. Negotiation, Diligence and Integration Considerations.......................58
A. Negotiation ........................................................................ 58
B. Due Diligence and Integration Planning ........................... 62
C. ESG Considerations in Integration Planning and
Due Diligence ................................................................... 63
VII. Post-Transaction Obligations of an FPI That Lists or Registers
Securities ....................................................................................................65
A. Registration Requirements ................................................ 65
B. Periodic Reporting Obligations......................................... 67
1. Periodic Reports .................................................... 67
2. Forward-Looking Statements................................ 70
3. Director and Officer Compensation
Disclosures ............................................................ 71
4. Regulation FD ....................................................... 71
5. Conflict Minerals Disclosures............................... 71
C. Section 13(d) and 13(g) Obligations of Shareholders....... 72
D. Financial Statements ......................................................... 75
1. Accounting Standards ........................................... 75
2. Independent Audit ................................................. 76
3. Internal Controls ................................................... 77
a. Reports on Internal Controls ..................... 78
b. Disclosure Controls ................................... 78
c. Disclosure Certifications by the CEO
and CFO .................................................... 78
E. Proxy Rules ....................................................................... 79
F. Corporate Governance Obligations................................... 79
1. Director Obligations and Liabilities...................... 79
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a. Transactions and Conflicts of
Interests Involving Directors..................... 79
b. Directors’ Dealings in Securities .............. 80
2. Sarbanes-Oxley ..................................................... 81
a. Audit Committee Requirement and
Exemptions for FPIs ................................. 82
3. Dodd-Frank ........................................................... 84
a. Independent Compensation
Committee ................................................. 84
b. Incentive-Based Compensation
Clawback................................................... 84
4. Code of Ethics ....................................................... 85
5. NYSE and Nasdaq Corporate Governance
Listing Standards .................................................. 86
a. NYSE Corporate Governance
Requirements ............................................ 86
b. Nasdaq Corporate Governance
Requirements ............................................ 86
c. NYSE and Nasdaq Shareholder
Approval Requirements ............................ 87
G. Delisting and Deregistering Securities.............................. 87
1. Delisting and Deregistration under Section
12(b) ...................................................................... 88
2. Termination of Obligations under Sections
12(g) and 15(d) ..................................................... 88
a. Rule 12h-6................................................. 88
b. Termination of Section 12(g)
Obligations Pursuant to Rule 12g-4 .......... 89
c. Suspension of Section 15(d)
Obligations ................................................ 90
VIII. Sources of Liability ...........................................................................91
A. SEC Actions and Private Litigation .................................. 91
B. The Liability Provisions of the Securities Act and
Exchange Act .................................................................... 93
1. Section 10(b) and Rule 10b-5 of the
Exchange Act ........................................................ 93
2. Sections 11 and 12 of the Securities Act .............. 95
a. Section 11 of the Securities Act ................ 95
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b. Section 12 of the Securities Act ................ 97
3. Section 17 of the Securities Act ............................ 98
4. Section 14(e) of the Exchange Act ....................... 99
5. Sarbanes-Oxley and Dodd-Frank .......................... 99
C. Foreign Corrupt Practices Act ........................................ 100
D. Director Personal Liability and Directors’ and
Officers’ Insurance.......................................................... 101
E. Liability of Controlling Shareholders ............................. 102
F. Whistleblowing Procedures and Up-the-Ladder
Reporting......................................................................... 103
IX. Appendix A ........................................................................................105
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I.
Introduction
Cross-border merger and acquisition (“M&A”) transactions are a significant part of

the global M&A landscape, representing approximately one-third of all deal activity
annually in recent years. After a record-shattering year for M&A in 2021 and a reversion
to mean M&A levels in 2022, the year 2023 experienced even greater tempering in the
global M&A market. Worldwide M&A volume decreased to $2.9 trillion in 2023, from
total volume of $3.6 trillion in 2022, $6.4 trillion in 2021 and an average of $4.5 trillion
annually in the ten years prior (in 2023 dollars). This approximate 20% decline in volume
from 2022 to 2023 took a particular toll on venture capital and private equity firms, which
saw estimated volume declines of 39% and 35%, respectively, from 2022 to 2023, while
strategic deals fell by an estimated 14%. This plunge in M&A activity reflects the impact
of ongoing geopolitical tensions and the steepest monetary tightening in decades, which
have contributed to challenging debt markets and an overall uncertain economic outlook.
At the same time, an aggressive antitrust agenda in the United States deterred dealmakers
from pursuing transactions that posed risks of a significant delay or litigation with the
government.
Despite the challenges confronting dealmakers in 2023, cross-border deal volume

remained close to 2022 levels, with total volume of approximately $950 billion in 2023 as
compared to 2022 volume of approximately $1.0 trillion. The proportion of cross-border
volume to total activity in 2023 (33%) aligned with the average proportion (35%) over the
prior decade. Acquisitions of U.S. companies by non-U.S. acquirors constituted $165
billion in transaction volume and represented 17% of total 2023 cross-border M&A
volume. Canadian, Irish, French, Swiss and British acquirors accounted for 42% of the
volume of cross-border acquisitions of U.S. targets, while acquirors from China, India and
other emerging economies accounted for about 9%. With proper planning and
understanding of the relevant rules and considerations, cross-border transactions can
continue to offer compelling opportunities for U.S. and foreign acquirors in 2024 and
beyond.
* * *
Cross-border M&A transactions can be among the most complex and challenging
to execute, but can also provide substantial benefits to companies seeking to enhance their
competitive position in the global marketplace. The purpose of this Guide is to discuss
certain U.S. legal considerations relating to cross-border M&A transactions. In particular,
this Guide focuses on two common types of transactions:
 acquisitions of U.S. companies by non-U.S. companies; and
 acquisitions of non-U.S. companies.

Note in this regard that the second type of transaction above is not limited to
acquisitions of non-U.S. target companies with securities listed in the United States, nor is
it limited to cross-border transactions in which the acquiror is a U.S. company. Even a
transaction in which both parties are neither incorporated nor listed in the United States
can nonetheless implicate the U.S. federal securities laws. This illustrates a point that will
become more evident throughout this Guide: The U.S. federal securities laws have
expansive reach, more so than might be expected by transaction participants more
accustomed to regulatory schemes outside the United States, which often apply only to
companies that are organized or listed in the relevant jurisdiction.
While the U.S. federal securities laws can have significant extraterritorial
application, the U.S. Securities and Exchange Commission (the “SEC”) has adopted rules
that provide exemptions from certain U.S. federal securities law obligations. A core
component of this system-wide relief for certain companies (or transactions involving
them) is the concept of the “foreign private issuer,” or “FPI”: a foreign company that can
potentially qualify for these exemptions.
In addition to the U.S. federal securities laws and the related U.S. securities
exchange listing rules, this Guide also discusses the U.S. antitrust regime under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”),
administered by the Federal Trade Commission (“FTC”) and the Antitrust Division of the
Department of Justice (“DOJ”), and the national security regime administered by the
Committee on Foreign Investment in the United States (“CFIUS”). This Guide also
touches state corporate law matters relevant to acquisitions of U.S. companies, as well as
on certain U.S. federal income tax considerations relevant to cross-border M&A. For a
broader discussion of the legal, practical and tactical considerations for M&A involving
U.S. target companies, please see the separate publication by our Firm, Takeover Law and
Practice.
Section II of this Guide summarizes the general framework for U.S. laws applicable
to cross-border transactions (including federal securities laws, state laws, listing
requirements, tax considerations, and antitrust and national security considerations), as
well as the considerations in the two types of cross-border M&A transactions mentioned
above. It covers both those aspects that are applicable to the transaction itself and the post-
transaction obligations that potentially can be imposed on foreign acquirors that issue
securities as consideration in the transaction, and introduces the FPI concept, which is core
to understanding the treatment of foreign companies under the U.S. federal securities laws.
The remaining sections of this Guide address these topics in additional detail. Section III
discusses acquisitions of U.S. companies, with a focus on U.S. regulation of tender offers
and other business combinations, the proxy rules, the offering of securities in an M&A
transaction and certain tax considerations. Section IV discusses the U.S. securities law
aspects of acquisitions of non-U.S. companies, as well as certain tax considerations relating
to acquisitions of non-U.S. companies by U.S. acquirors. Section V discusses U.S. antitrust
and national security laws and regulations. Section VI discusses certain practical and
tactical considerations in negotiation, due diligence and integration in a cross-border
context. Section VII discusses the key ongoing obligations that can be imposed on a non-
U.S. company that lists or registers securities issued as consideration in a cross-border
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transaction. Finally, Section VIII discusses the principal sources of liability for non-U.S.
companies under U.S. laws, as well as how these obligations are enforced in practice.
This edition of the Guide reflects developments through May 2024.
As noted above, the purpose of this Guide is to discuss certain U.S. legal
considerations relating to cross-border M&A transactions. For an additional checklist of
certain legal, regulatory and political matters that should be considered in advance of any
acquisition or strategic investment in the U.S., please refer to the memo attached as
Appendix A hereto.
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II.
Overview of U.S. Legal Considerations in Cross-Border Transactions
This Section II provides a general overview of U.S. legal considerations for cross-
border transactions. These topics are discussed in greater detail in the subsequent sections
of this Guide.
A. General Framework
1. The U.S. Federal Securities Acts and the SEC
The two principal sources of U.S. federal securities law are the Securities Act of
1933, as amended (the “Securities Act”), and the Securities Exchange of 1934, as amended
(the “Exchange Act”). The Securities Act and the Exchange Act, as well as other statutes,
empower the SEC to make and enforce securities regulations that implement specific
provisions of the statutes. Using this power, the SEC has developed a complex body of
rules and regulations under the U.S. federal securities laws that are designed to ensure full
and fair disclosure to the market and the provision of sufficient information to allow
investors to make informed investment decisions.
Securities Act of 1933
The Securities Act regulates offerings and sales of securities and establishes a
disclosure system and rules of conduct for securities offerings. The regulations concerning
offerings rest on a default rule that any issuer who wishes to offer or sell a security must
either register the offer or sale with the SEC or find an exemption from such registration.
The registration requirement applies to specific transactions in securities (not a whole class
of securities), meaning additional registrations are required for future equity offerings and
sales (although SEC rules do allow for a “shelf registration” that eases the process in certain
circumstances).
Securities Exchange Act of 1934
The Exchange Act regulates the securities markets, including securities trading,
business combinations and tender offers, and imposes ongoing reporting and other
obligations on issuers with securities that are traded on a U.S. securities exchange or that
are otherwise sufficiently widely held in the United States, as well as on the issuers’
directors, officers and significant shareholders. Some of the regulatory regimes discussed
below, including tender offer regulation, proxy regulation and beneficial ownership
reporting, arise under the Exchange Act.
Antifraud Rules
U.S. federal securities laws include several key antifraud rules that generally
prohibit materially false or misleading statements. Most significantly, Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder apply in connection with the purchase of any
equity, debt or other security, regardless of whether it is registered under the Exchange Act
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or is the subject of an offering registered under the Securities Act and whether the purchase
occurs by direct acquisition, tender offer or otherwise. As discussed in more detail below,
Section 10(b) and Rule 10b-5 apply to cross-border transactions, subject to certain
limitations on their reach.
In addition, the Securities Act includes antifraud provisions that apply in

connection with registered offerings of securities, and, as noted below, certain antifraud
rules specifically apply in connection with tender offers.
2. State Laws
In addition to the U.S. federal securities laws, parties to a transaction involving a

U.S. target company must also consider the law of its state of incorporation. State corporate
law statutes and judicial doctrines cover a variety of significant matters relevant to the
acquisition of a U.S. company, such as the corporate form of the company, the basic rights
of shareholders, the mechanics of acquiring the company and the fiduciary duties of its
directors.
3. Listing Rules
The parties to a cross-border transaction involving a non-U.S. acquiror may agree

that the securities issued in the transaction will be listed on a U.S. securities exchange. A
non-U.S. company that meets the listing criteria imposed by a U.S. exchange may either
list such securities directly or issue and list American depositary receipts (“ADRs”). ADRs
are negotiable certificates that evidence an ownership interest in American depositary
shares (“ADSs”), which, in turn, represent an interest in the shares of a non-U.S. company
that have been deposited with a U.S. bank. (The terms ADR and ADS are often used
interchangeably by market participants.) ADRs and ADSs can facilitate trading in the non-
U.S. company’s securities by U.S. investors.
The listing criteria for the New York Stock Exchange (the “NYSE”) and Nasdaq,
which are found in the NYSE Listed Company Manual and the Nasdaq Stock Market
Rules, respectively, comprise a set of (i) quantitative standards concerning an issuer’s
financial situation and the market for the issuer’s securities and (ii) qualitative standards,
mostly regarding corporate governance.
4. Antitrust and National Security Considerations
Any cross-border transaction involving a U.S. company (or a non-U.S. company

with a U.S. business) could be subject to U.S. laws on antitrust and national security. These
laws could require additional filings and coordination between the transaction parties
themselves and the U.S. government and could lead to delays in the consummation of a
transaction.
The HSR Act requires parties to transactions above a certain dollar value threshold
to file notifications with the FTC and the DOJ. These notifications trigger a subsequent
waiting period, which could then be extended if the applicable government agency
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reviewing the transaction identifies competition concerns and requests additional
information.
CFIUS is a federal interagency committee that reviews certain foreign investments

in U.S. businesses for national security risks. CFIUS may conduct national security
reviews of “covered transactions,” defined as proposed or completed mergers, acquisitions
or takeovers that could result in “control” of an existing U.S. business by a non-U.S. person.
As has occurred with respect to comparable regulatory entities in other countries, the reach
of CFIUS has expanded over the past several years. The Foreign Investment Risk Review
Modernization Act of 2018 (“FIRRMA”) dramatically increased the scope of CFIUS’s
jurisdiction to include non-passive, non-controlling foreign investments in U.S. businesses
that deal in critical technology, operate critical infrastructure or collect or maintain
sensitive personal data, each as defined in the CFIUS regulations (so-called “TID U.S.
businesses”), and a mandatory filing requirement applicable to certain investments in
critical technology companies or which result in the acquisition of a “substantial interest”
(e.g., 49% or more) in a TID U.S. business by a foreign government-affiliated investor.
While notification of a foreign investment to CFIUS remains largely voluntary,
transactions that are not reviewed remain subject to potential CFIUS review in perpetuity.
Thus, conducting a risk assessment for an acquisition of a U.S. company or investment
early in the process is prudent to determine whether the investment will require a
mandatory filing or may attract CFIUS attention.
5. Tax Considerations
Cross-border transactions can involve significant structuring and tax complexity.

In addition to the “baseline” tax rules of the United States (and the other jurisdictions
involved), cross-border deals may also implicate special tax regimes and rules that apply
differently in a purely domestic context. For example, in mergers and other combinations
involving a U.S. counterparty, the U.S. “anti-inversion” rules—some of the most complex
provisions of the U.S. Internal Revenue Code (the “Code”)—must often be grappled with.
The United States also has a robust controlled-foreign-corporation (“CFC”) regime,
another set of special and complicated tax rules that will often be implicated in acquisitions
or dispositions of non-U.S. companies by U.S. companies. These rules and their
consequences for cross-border M&A are described in more detail throughout this Guide
where relevant.
While beyond the scope of this Guide, cross-border M&A participants will also
need to consider financial book-based global minimum tax systems recently adopted by
many jurisdictions, including the United States, certain European Union member countries
and others. These book minimum taxes apply on top of preexisting tax regimes and in
many cases may override the tax consequences of an M&A transaction that would obtain
under the “regular” tax rules.
B. Acquisition of a U.S. Company
In the acquisition of a U.S. company, the particular U.S. securities laws and rules
that will apply to the transaction will largely depend on three key factors: (1) whether the
target company is a public company or a private company; (2) whether the acquisition will
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be effected by a merger or tender offer; and (3) whether the consideration to be provided
in the acquisition will consist solely of cash or whether it will also include securities.
1. Public vs. Private Companies
An important distinction for understanding the methods of acquiring a U.S.

company and related legal considerations is whether the U.S. company’s common shares
are registered under Section 12 of the Exchange Act. Several key aspects of the U.S.
federal securities regulatory regime – including the proxy rules and the extent of applicable
tender offer regulation – depend on whether the securities that are sought to be acquired
are registered under Section 12 of the Exchange Act.
Under Section 12(b) of the Exchange Act, a company is required to register its
common shares if they are listed on a U.S. securities exchange, such as the NYSE or
Nasdaq. A company generally also is required to register its common shares under Section
12(g) of the Exchange Act if: (a) the company has more than $10 million of total assets;
and (b) such common shares are held of record by either 2,000 or more persons or 500 or
more persons that are not accredited investors. This Guide generally refers to companies
that have securities registered under Section 12 of the Exchange Act as “public”
companies.
2. Merger vs. Tender Offer
As discussed in more detail below, different types of transactions may implicate

different requirements under U.S. federal securities laws.
There are two principal methods for acquiring a public U.S. company: a merger,
which requires a vote of the target’s shareholders, and a two-step transaction in which a
tender offer is followed by a merger to acquire all shares not purchased in the tender offer.
A merger typically requires the approval of the shareholders of the target company, and the
U.S. proxy rules contained in Section 14(a) of the Exchange Act and Regulation 14A
thereunder regulate the solicitation of shareholder approval of a merger for a U.S. public
company.
A separate set of rules under the U.S. federal securities law applies to tender offers.
The Williams Act, which is codified in Sections 14(d) and 14(e) of the Exchange Act, and
the rules promulgated thereunder regulate the conduct of tender offers and require offerors
to disclose material information concerning their offers and to provide procedural
protections to allow subject company shareholders sufficient opportunity to consider the
offer and to participate on a level playing field with other shareholders.
Section 14(d) of the Exchange Act and Regulation 14D apply to any tender offer
for equity securities registered under Section 12 of the Exchange Act, the acquisition of
which would result in beneficial ownership of more than 5% of such class of equity
securities.1 Regulation 14D primarily governs pre-commencement communications,
tender offer documents, dissemination of tender offers to shareholders, equal treatment of
shareholders, withdrawal rights, target board recommendations and communications to
target shareholders, and offer extensions.
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Regulation 14E applies to any tender offer, without regard to whether the subject
securities are registered under Section 12 of the Exchange Act, whether equity securities
are the subject of the tender offer, or the percentage of securities sought. Section 14(e) of
the Exchange Act is a general antifraud provision that makes it unlawful for any person to
make “any untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made, in the light of the circumstances under which they
are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts
or practices, in connection with any tender offer or request or invitation for tenders, or any
solicitation of security holders in opposition to or in favor of any such offer, request, or
invitation.” Regulation 14E provides specific procedural obligations, notice requirements
and restrictions on behavior with the objective of preventing such fraudulent practices
prohibited by the Exchange Act. These rules impose requirements concerning minimum
offer periods, prompt payments, notice of extensions, withdrawal rights, target responses
to offers, purchases or sales using material information with respect to the offer, proration
risk and purchases outside the offer.
3. Form of Consideration
The form of consideration to be paid to the target company’s shareholders will also
affect the set of U.S. securities rules that apply to the transaction.
Acquisition of the target company’s securities solely for cash will generally subject
the acquiror to fewer obligations under the U.S. federal securities laws. If an acquiror
intends to issue securities to the target company’s shareholders for the acquisition, such
issuance may trigger obligations under the Securities Act, which governs offers and sales
of securities.
The registration requirements under the Securities Act can be burdensome,

particularly for new issuers. Unlike the securities law regimes of some jurisdictions, which
register a class of securities as a whole, registration under the Securities Act generally
applies to specific transactions in securities. Accordingly, subsequent transactions may
require additional registrations, even if they involve the same class of securities that was
the subject of a prior Securities Act registration.
To register a transaction under the Securities Act, issuers must file a registration
statement (of which there are several types, depending on the type of transaction and
securities) with the SEC that discloses significant information about the issuer, including
about the business, securities offered for sale, management team, financial condition and,
in some cases, financial statements certified by public accountants. The SEC has the right
to, and often does, review a registration statement and provide comments to the issuer, to
which the issuer must respond in writing and, in most cases, amend its registration
statement with another filing to make changes identified by the SEC. Although there is no
standard timetable for these reviews, they are likely to take at least two and up to four or
more months.
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An acquisition of a U.S. public company for cash is often relatively straightforward

from a U.S. tax perspective. For a variety of tax and non-tax reasons, structuring options
are largely limited to a stock sale for tax purposes, and, accordingly, selling stockholders
subject to U.S. tax recognize gain or loss in an amount equal to the difference between the
amount of cash received and the tax basis in the stock surrendered, while the buyer obtains
a cost basis in the purchased stock. However, the tax basis in the assets of the U.S. target
company remains unchanged. If the U.S. company is privately owned, other structuring
options—such as effecting the transaction as an asset sale for tax purposes in order to obtain
an asset-level basis step-up—may be available.
U.S. tax considerations can be far more complex if the deal consideration includes
stock of the non-U.S. acquiror. Under the baseline U.S. tax rules, it may be possible to
structure an acquisition of a U.S. corporation so as to obtain tax deferral for selling U.S.
shareholders in respect of any stock consideration received if at least 40% of the total
consideration is stock (or less if a “double-dummy” or “top hat” structure is used to create
a new holding company on top of both acquiror and target). However, in the cross-border
context, special rules impose additional limitations on the ability of U.S. target
shareholders to receive stock of a non-U.S. company tax-free. In addition, the Code’s anti-
inversion provisions seek to deter U.S. companies from expatriating by imposing various
adverse company-level tax consequences where historic U.S. target shareholders own
specified amounts of the combined company post-transaction. These rules are discussed
in greater detail in Section III.D.
C. Acquisition of a Non-U.S. Company
In the acquisition of a non-U.S. company, the particular U.S. laws and rules that
will apply to the transaction will largely depend on three key factors: (1) whether the non-
U.S. company qualifies as an FPI; (2) whether the acquisition will be effected by a tender
offer for the securities of the non-U.S. company (and, if so, whether the securities are
registered under Section 12 of the Exchange Act, as well as the level of U.S. shareholder
ownership of the securities); and (3) whether the consideration to be provided in the
acquisition will consist solely of cash or if it will also include securities.
1. Foreign Private Issuers
The concept of the FPI is central to understanding the specific application of the
U.S. federal securities laws to cross-border transactions and the companies that engage in
them: first, an acquiror of an FPI may be able to take advantage of certain exemptions
from the tender offer rules and the Securities Act registration requirements; and second, a
non-U.S. acquiror of an FPI that would otherwise become subject to ongoing obligations
under the U.S. federal securities laws and stock exchange listing rules as a result of the
registration or listing of securities in connection with a cross-border transaction may
benefit from exemptions available to FPIs from certain of those obligations.
To qualify as an FPI, an entity must be a “foreign issuer,” meaning “any issuer

which is a . . . national of any foreign country or a corporation or other organization
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incorporated or organized under the laws of any foreign country,”2 for which either
(a) more than 50% of its outstanding voting securities are directly or indirectly held of
record by residents outside the United States or (b) all of the following are true:
 the majority of the executive officers and directors of the foreign issuer are
not U.S. citizens or residents;
 more than 50% of the assets of the foreign issuer are located outside of the
United States; and
 the business of the foreign issuer is administered principally outside of the

United States.3
Under this rule, a foreign issuer need only satisfy one of the two prongs. Thus,
even if more than 50% of a foreign issuer’s outstanding voting securities are held by U.S.
residents, the foreign issuer would remain an FPI so long as it continued to satisfy each of
the citizenship, asset and principal place of administration tests under prong (b).
To determine the percentage of a foreign issuer’s outstanding voting shares held

“of record” by residents outside the United States under prong (a), a foreign issuer must
look through custodians and clearing houses to identify the accounts of customer residents
held by brokers, dealers, banks or other nominees located in the United States, in the
company’s jurisdiction of incorporation, and in the jurisdiction that is the primary trading
market for the company’s voting securities, if different from its jurisdiction of
incorporation.4 Foreign issuers may rely in good faith on information as to the number of
separate accounts supplied by all owners of the class of its securities that are supplied by
brokers, dealers, banks or nominees of any of the foregoing. If after conducting a
reasonable inquiry, a foreign issuer cannot obtain information on the shares represented by
the separate accounts of customers resident in the United States, it may assume that the
customers reside in the jurisdiction in which the nominee has its principal place of
business.5
Under prong (b), a foreign issuer must calculate the citizenship and residency status
of its executive officers and directors separately to satisfy the citizenship test. To identify
the location of its assets pursuant to the asset test, a foreign issuer must either use
geographical segment information used in the preparation of the issuer’s financial
statements or apply any other reasonable methodology. Lastly, the principal place of
administration test requires a foreign issuer to “assess on a consolidated basis the location
from which its officers . . . or managers primarily direct, control and coordinate” its
activities. Certain SEC “no-action letters,” through which SEC staff respond to requests
for guidance on specific facts and circumstances, clarify how an issuer can measure the
location of such administration, including obvious factors, like the location of the
shareholders’ meeting, the time executives spend in the U.S., the location of board
meetings and the location of business division headquarters and less obvious factors, such
as the percentage of revenues drawn from business activities outside the United States.
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A foreign issuer registering with the SEC for the first time must evaluate its status
as an FPI within 30 days prior to such new registrant’s filing of its initial registration
statement under either the Securities Act or Exchange Act. After being qualified as an FPI,
the foreign issuer need only reassess its status, under the foregoing criteria, once per year
as of the last business day of its second fiscal quarter. Upon qualification, an FPI is
immediately able to use the forms and rules designated for FPIs, and may continue to do
so until the first day of the fiscal year following the date on which a foreign issuer
determines it fails to qualify as an FPI. In other words, even if a foreign issuer that was an
FPI fails to requalify, it may still use the forms and rules for FPIs until the first day of the
next fiscal year. Additionally, when a foreign issuer fails to qualify, it remains unqualified
unless and until it again meets the requirements for FPI status as of the last business day of
its second fiscal quarter.
2. Tender Offer for Securities of a Non-U.S. Company
If the acquisition of a non-U.S. company involves a tender offer, then the tender
offer rules under the Williams Act will apply to the transaction. The precise set of tender
offer rules that will apply depends on: (1) whether the non-U.S. company’s common shares
(or equivalent equity securities, such as ordinary shares) are registered under Section 12 of
the Exchange Act; (2) whether the non-U.S. company is an FPI; and (3) the level of U.S.
shareholder ownership of the securities.
If the non-U.S. company’s common shares are registered under Section 12 of the
Exchange Act, then Section 14(d) of the Exchange Act and Regulation 14D, discussed
above in Section II.B.2, will generally apply to any tender offer for those securities, if the
acquisition would result in beneficial ownership of more than 5% of such class of equity
securities. Section 14(e) and Regulation 14E will apply to a tender offer for a non-U.S.
company’s securities regardless of whether its common shares are registered under Section
12 of the Exchange Act.
The SEC has adopted exemptions (referred to herein as the “Cross-Border Rules”)
to the rules applicable to tender offers for the securities of an FPI, depending on the level
of the FPI’s U.S. ownership:6
 Tier I. If, among other conditions, U.S. holders hold 10% or less of a subject
FPI’s securities, the “Tier I” exemptions apply, exempting the offeror from
all of Section 14(d) and Regulation 14D and certain of the provisions of
Regulation 14E.
 Tier II. If, among other conditions, U.S. holders hold more than 10% but
not more than 40% of a subject target’s securities, “Tier II” applies,
providing targeted relief from Regulations 14D and 14E so as to limit the
conflict between U.S. and non-U.S. tender offer rules.
If the acquisition of the non-U.S. company is to be accomplished other than through

a tender offer, then the tender offer rules will not apply. In addition, FPIs are exempt from
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the proxy rules, and accordingly a vote by an FPI’s shareholders to approve the transaction
would not be subject to Section 14(a) of the Exchange Act or Regulation 14A thereunder.
3. Form of Consideration
As with an acquisition of a U.S. public company as discussed above in Section

II.B.3, the form of consideration to be paid to the target company’s shareholders will also
affect the set of U.S. rules that apply to the transaction.
If an acquiror intends to issue securities to a target company’s shareholders to

acquire its securities, such issuance may trigger obligations under the Securities Act, unless
an exemption from registration is available.
In an acquisition of a non-U.S. company, the most commonly used exemptions

from registration under the Securities Act are:
 Rule 802, which provides an exemption from registration similar to the Tier
I exemptions from the tender offer rules, insofar as it applies when the target
is an FPI and U.S. holders hold 10% or less of the subject FPI’s securities;
and
 Section 3(a)(10), which provides an exemption from registration to issuers

for offers and sales of securities in exchange transaction schemes where
certain conditions are met, including, among others, that only securities are
exchanged and there is a governmental approval of the fairness of the
exchange’s terms. The Section 3(a)(10) exemption can sometimes be used
in an acquisition of a non-U.S. company via a scheme of arrangement or
similar court-approved transaction.
Depending on the circumstances, other exemptions or other means of avoiding

registration, such as vendor placements or cashing out U.S. shareholders of the target, may
be available.
The U.S. has a robust CFC regime that generally operates to tax 10% (or greater)
U.S. shareholders of CFCs on a current basis with respect to income earned by such CFCs.
It also modifies the U.S. tax consequences of M&A transactions that would generally
obtain in a purely domestic context. Accordingly, acquisitions of non-U.S. companies
from 10% (or greater) U.S. shareholders or by U.S. companies can raise complex U.S. tax
issues, the full evaluation of which typically requires careful modeling. One question that
will almost always need to be considered by both U.S. sellers and U.S. buyers of non-U.S.
corporations is the desirability of making an election under Section 338(g) of the Code to
treat the acquisition as an asset sale for U.S. tax purposes. U.S. buyers will also need to
consider the go-forward U.S. tax consequences of owning the non-U.S. target given that
the earnings of a CFC are potentially subject to current U.S. taxes at the U.S. shareholder
level, even when no cash is brought back to the United States. The U.S. tax rules applicable
to acquisitions of non-U.S. companies are discussed in greater detail in Section IV.D.
- 12 -
5. Negotiation, Diligence and Integration Considerations
In addition to the U.S. legal considerations, there are practical and tactical
considerations with respect to structuring and executing a cross-border transaction. The
potentially complex combination of local legal requirements and practices may be relevant
not only in transaction structuring, but also in the due diligence, negotiation and integration
phases of a transaction. When negotiating a cross-border transaction, it is important to
understand the key players in the target company’s market, including institutional
investors, hedge funds and proxy voting advisors, in addition to being mindful of local
M&A customs and the possible impact of local takeover regulations and disclosure
obligations. Cross-border transactions may also require additional due diligence focus in
order to fully understand the risks associated with a potential acquisition, including with
respect to risks related to the Foreign Corrupt Practices Act of 1977 (“FCPA”) and
international sanctions regimes.
6. Post-Transaction Securities Law Obligations
As noted above, the federal securities laws do not merely regulate transactions.
They also can impose ongoing obligations on an FPI.
Incurring Ongoing Obligations
Generally speaking, an FPI can become subject to ongoing securities law

obligations as a result of a cross-border transaction if it issues securities as consideration
in the transaction and either (a) the securities are listed on a U.S. securities exchange (as
may be the case if the acquiror issues listed ADRs to U.S. holders of the target’s shares),
triggering a registration obligation under Section 12(b) of the Exchange Act, or (b) the
issuance is registered under the Securities Act (as may be the case if an exemption from
registration is not available), triggering an obligation to file reports pursuant to
Section 15(d) of the Exchange Act.
Moreover, if the FPI acquiror issues equity securities that are not listed on a U.S.
securities exchange in a transaction that is not registered under the Securities Act, the
acquiror may, as a technical matter, have to register the securities under Section 12(g) of
the Exchange Act if the securities are held by a sufficient number of U.S. holders.
However, under Exchange Act Rule 12g3-2(b), the equity securities would be exempt from
registration under Section 12(g) so long as the primary market for the FPI’s securities is on
non-U.S. securities exchanges and the FPI makes certain information available in English
in its primary trading market.
The Scope of Ongoing Obligations
An FPI required to register securities under Section 12—as well as its shareholders
(including non-U.S. shareholders)—incurs a variety of other obligations under the
Exchange Act. The Exchange Act requires disclosure of the company’s operations
quarterly and annually and disclosures of material events shortly after they occur.
Financial information, including audited financial statements, must also be periodically
disclosed and accompanied by certifications from independent auditors and the company’s
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management. U.S. federal securities laws and, if applicable, the listing rules of the national
exchanges on which the FPI’s securities are listed also mandate certain governance
requirements, such as those involving the composition of board committees and
compensation disclosure requirements for directors and officers. Section VII of this Guide
summarizes these requirements in detail.
The shareholder disclosure provisions of Sections 13(d) and 13(g) of the Exchange
Act are intended to give notice of significant acquisitions and potential changes of control
to securities markets and other holders of the issuer’s securities. The reporting obligations
turn on the percentage of the shareholder’s beneficial ownership of the issuer’s equity
securities and are the shareholder’s responsibility.
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III.
Acquisition of a U.S. Company
This Section III describes in greater detail the principal legal considerations under
the U.S. federal securities laws for accomplishing an acquisition of a U.S. company by a
non-U.S. company, and it also describes certain tax considerations.
A. Acquisition of a Private U.S. Company
Generally speaking, the acquisition of a private U.S. company—or more

technically, as discussed above, a company that does not have a class of securities
registered under Section 12(b) or 12(g) of the Exchange Act—is more straightforward from
a U.S. securities law perspective than the acquisition of a public U.S. company. If the
acquired company has only one or a handful of shareholders, it often can be accomplished
by a direct purchase of the equity interests of the company, which implicates few federal
securities law requirements other than the basic antifraud provisions of Section 10(b) of
the Exchange Act and Rule 10b-5 thereunder.
In some cases, the acquisition of a private company is effected by a merger, which

is discussed in more detail below, rather than a direct purchase of equity interests. For
example, the company may have a somewhat more dispersed shareholder base, but still is
not “public” in the sense described above—such as a startup company that has grown
through multiple investment rounds but has not yet had its initial public offering, or a
private equity portfolio company in which management holds equity. A merger may also
be preferable for tax or other reasons. In the case of an acquisition via merger, the target
company’s shareholders must approve the merger by a vote or written consent, either at a
majority or supermajority level, depending on the relevant state law and the company’s
organizational documents. Because the company is private, the detailed process and
disclosure requirements of the federal proxy rules would not apply. Instead, the process
for obtaining shareholder approval of the merger would be governed by state law, which
typically would involve only the minimal process requirements set forth in the state
corporate law statute of the company’s jurisdiction of incorporation and its governing
documents, and any disclosure obligations would be limited to basic antifraud and fiduciary
duty principles.
In rare cases, an acquisition of a private company with numerous shareholders may

involve a tender offer. As discussed in more detail below, such a tender offer would have
to comply with the requirements of Regulation 14E, but not the more detailed requirements
of Regulation 14D.
If securities are being issued as consideration in connection with the transaction, it

will be necessary to consider whether the offering needs to be registered under the
Securities Act or if an exemption would be available for the offering. Notably, the fact that
an acquiror is a foreign entity does not itself exempt the offering from registration,
although, as discussed below, it would allow the acquiror to use a different set of Securities
Act forms for registration if required.
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B. Acquisition of a Public U.S. Company
Generally speaking, the acquisition of a public U.S. company—or more technically,

a company that has a class of securities registered under Section 12(b) or 12(g) of the
Exchange Act—implicates additional U.S. securities law obligations as compared to an
acquisition of a private U.S. company. The particular set of obligations will depend on the
manner of acquisition—specifically, merger versus tender offer—and whether the target
shareholders will receive securities as part of the consideration.
1. Mergers
In the United States, public companies often are acquired via merger. A merger is
a business combination transaction conducted pursuant to the corporate law statute of the
state in which the target company is organized. A typical form of merger involves the
target company merging with another entity (typically, but not always, a newly formed
subsidiary of the buyer). As a result of the merger, the securities of the target company are
converted into the consideration specified in the merger agreement. The merger will
require approval of the target company’s shareholders, usually by the holders of a majority
of the outstanding shares, although some states require a higher threshold, and some
companies provide for higher thresholds in their organizational documents. In certain
cases, a vote may not be required; for example, Delaware permits a “short-form” merger
without a vote if the acquiror owns at least 90% of the target company’s shares.
In addition, some acquisitions are effected in a two-step process, in which the

acquiror first completes a tender offer for the target’s shares and then, assuming a sufficient
percentage of the shares is acquired, acquires the shares not tendered through a so-called
“back-end” merger. In Delaware, such a back-end merger does not require a vote if the
buyer acquires in the first-step tender offer such percentage of the target company’s shares
that would be sufficient to approve a merger via shareholder vote.
From a U.S. securities law perspective, a merger is not treated as a tender offer and
therefore is not subject to the tender offer rules discussed below (although in a two-step
transaction, the first-step tender offer would be subject to those rules). The solicitation of
the shareholder vote to approve a public company merger, however, must comply with the
federal proxy rules. This involves the preparation and filing of a proxy statement that must
comply with Section 14(a) of the Exchange Act and Regulation 14A thereunder, including
a series of specific disclosure requirements set forth in Schedule 14A. The SEC may
review a proxy statement, although it often does not—in recent years, the SEC has been
declining to review all-cash merger proxy statements with increasing frequency. If the
SEC chooses to review an all-cash merger proxy, the review process often can be
completed more quickly than a review of a Securities Act registration statement, which is
discussed in Section III.C.
Once SEC review of the proxy statement is complete (or if the SEC declines to
review the proxy statement), the target company will mail the proxy statement to its
shareholders in advance of a shareholder meeting at which the merger agreement will be
presented for a vote. The proxy rules require that the proxy statement be mailed at least 20
business days before the shareholder meeting, subject to certain exceptions. In some cases,
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the target’s proxy solicitor may desire to have more than 20 business days in order to have
adequate time to solicit votes in favor of the merger.
2. Tender Offers
If the acquisition is structured as a tender offer, and the target company’s common
shares (or equivalent equity security, such as ordinary shares) are registered under
Section 12 of the Exchange Act, then Section 14(d) of the Exchange Act and Regulation
14D will apply to the tender offer. In addition, Section 14(e) and Regulation 14E apply to
all tender offers, whether or not they are made for equity securities registered under
Section 12 of the Exchange Act.
The Williams Act and the rules promulgated thereunder require the offeror in a
tender offer to disclose material information with respect to the offer and give shareholders
procedural protections in deciding whether to tender their securities. The tender offer rules
apply to third-party tender offers, as well as to tenders by a company or its affiliates for the
company’s equity securities, although this Guide will focus on third-party tender offers.7
The term “tender offer” is not defined in U.S. statutes and regulations. The term is
typically defined by a multifactor test first adopted by a decision of the U.S. District Court
for the Southern District of New York: (i) there is active and widespread solicitation of
shareholders; (ii) a solicitation was made for a substantial percentage of the issuer’s
securities; (iii) an offer to purchase was made at a premium; (iv) the terms of the offer are
firm rather than negotiable; (v) the offer is contingent on the tender of a fixed number of
securities; (vi) the offer is open only for a limited period of time; (vii) the offerees are
subjected to pressure to sell; and (viii) public announcements of a purchasing program
concerning the target precede or accompany rapid accumulation of large amounts of the
target’s securities.8 Not all of these factors need to be present in order for a tender offer to
be found. While in some circumstances there may be a question of whether a tender offer
may be involved, a publicly made offer to shareholders of a public company to purchase
any and all shares of the outstanding common shares of the company clearly is a tender
offer. By contrast, a merger is not a tender offer.
a. Section 14(e) and Regulation 14E
Section 14(e) of the Exchange Act and Regulation 14E apply to any tender offer
for any securities and, significantly, are not limited to equity securities or securities that
are registered under Section 12 of the Exchange Act. Section 14(e) of the Exchange Act
is a general antifraud provision applicable to tender offers. Regulation 14E provides
specific procedural obligations, notice requirements and restrictions on behavior with the
objective of preventing the fraudulent practices prohibited by the Exchange Act. The most
significant requirements under Regulation 14E include:
 Minimum Offer Period. The tender offer must remain open for at least
20 business days from the date when such tender offer is first published or
sent to shareholders.9
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 Prompt Payment. Consideration must be paid or the target’s securities must
be returned to shareholders promptly (generally, within two to three
business days) after termination of the offer or the withdrawal of tendered
securities.10
 Notice of Extensions. The tender offer must remain open at least 10 U.S.
business days after any announcement of material changes in the
information published, sent or given to shareholders that could affect their
investment decisions.11 In addition, the SEC has stated, in an interpretive
release, that a tender offer should remain open for at least 10 business days
in response to a material change relating to the “price and share levels” and
for at least five business days in respect of any other material change.12
 Target’s Response to the Offer. Within 10 business days of the

commencement of its offer, the target must publish or otherwise deliver to
its shareholders a statement recommending acceptance or rejection of the
offer (or expressing neutrality or inability to take a position with respect to
the offer). If there is any material change in the target’s recommendation
after this publication, the target must promptly provide an update to its
shareholders.13
 Purchases or Sales Using Material Information with Respect to the Tender

Offer. Regulation 14E classifies the purchase or sale of the subject
securities (or any securities convertible into the subject securities) as a
fraudulent, deceptive or manipulative act or practice under the Exchange
Act if such transaction is undertaken by a person with material information
relating to the tender offer that was obtained from the offeror, the target or
an insider of either.14 Similarly, insiders are prohibited from disclosing
such material information with respect to the tender, except when doing so
in good faith.15
 Proration Risk. Shareholders are prohibited from hedging against the risk
that not all the securities that the shareholders tender in the tender offer will
be accepted by the offeror by tendering more securities than such
shareholders actually owns. Shareholders are also prohibited from selling
tendered securities before the proration deadline to another party that could
then tender such sold securities.16
 Purchases Outside the Tender Offer. In the case of tender offers for equity
securities, after the commencement of its offer, the offeror, its agents and
any parties acting in concert may not purchase any target securities shares
except pursuant to the offer, subject to expressly identified exceptions.17
Regulation 14E does not require any filings to be made with the SEC, nor does it
include specific requirements as to the content of the offer documents or other
communications disseminated by the offeror or the target to the shareholders (although
such communications would be subject to the general antifraud rules of the Exchange Act).
- 18 -
b. Section 14(d) and Regulation 14D
Section 14(d) of the Exchange Act and Regulation 14D apply to all tender offers
for equity securities registered under Section 12 of the Exchange Act, the acquisition of
which would result in beneficial ownership of more than 5% of such class of equity
securities. If the target’s equity securities are not registered under Section 12 of the
Exchange Act, Regulation 14D does not apply. Furthermore, even if Regulation 14D is
applicable, the Cross-Border Rules provide for exemptions, discussed below, that can
separately provide relief from certain requirements of Regulation 14D.
The most significant requirements under Section 14(d) of the Exchange Act and
Regulation 14D include:
 Pre-Commencement Communications. The bidder is required to file all

communications prior to the commencement of a formal tender offer (which
is 12:01 a.m. on the date when the offeror has first published, sent or given
the means to tender to security holders) with the SEC.18
 Tender Offer Documents. The offeror is required to file specified tender

offer documents in a prescribed form, “Schedule TO,” with the SEC.
Schedule TO requires disclosure regarding the terms and conditions of the
offer, the background of the transaction, the terms of offeror financing and
other items.19
 Dissemination of Tender Offers to Shareholders. Depending on the type of

consideration offered by the offeror in the tender offer, the offeror is
required to communicate certain details with respect to the tender offer to
subject shareholders by publication or dissemination.20
 Equal Treatment. The offeror is required to make the tender offer open to
all target shareholders and to pay each shareholder the highest consideration
paid to any other shareholder in the offer.21
 Withdrawal Rights. The offeror is required to grant certain rights to

shareholders who have tendered securities pursuant to a tender offer to
withdraw any such securities during the period such offer remains open.22
In addition, Section 14(d)(5) of the Exchange Act requires the offeror to
allow tendered shares to be withdrawn by shareholders (i) at any time prior
to the expiration of seven days after the time that copies of the offering
documents are first published or sent or (ii) at any time after the 60th day
following commencement of the offer (the latter are sometimes referred to
as “back-end withdrawal rights”).
 Target Board Recommendation and Communications to Target

Shareholders. Within 10 business days of the commencement of the offer
by the offeror, the target is required to file a recommendation statement on
Schedule 14D-9, which must include the recommendation of the target’s
- 19 -
board of directors to its shareholders regarding the offer (including the
reasons therefor), with the SEC.23
 Offer Extensions. The offeror may elect to provide a subsequent offering

period of at least three business days during which tenders will be accepted,
so long as certain requirements are met.24
In some cases, the SEC may issue comments on tender offer materials filed by the
offeror or target pursuant to Regulation 14D. If such comments are received, the parties
would typically respond to the SEC’s comments by amending the tender offer materials or
explaining to the SEC why they believe that amendments are not warranted. The SEC
review process begins only after the offer is commenced (i.e., there is no requirement to
complete SEC review before launching the offer), and the SEC will often endeavor to
provide comments in a timely fashion so as not to delay the consummation of the offer. As
discussed below, this SEC review process differs from transactions that are subject to the
proxy rules, in that the SEC must first be given the opportunity to review a proxy statement
before it is mailed to target shareholders.
3. Choice of Merger vs. Tender Offer
A tender offer followed by a back-end merger can potentially be completed in less

than five weeks after entering into a definitive transaction agreement. In contrast, it
typically takes at least two to three months to receive shareholder approval of a voted
merger under similar circumstances. In a situation in which the parties expect regulatory
approval and the satisfaction of other conditions in a short timeframe, a tender offer
therefore can significantly shorten the period between signing and closing. On the other
hand, some transactions entail a long regulatory approval process. If the regulatory process
is expected to take a substantial amount of time, a tender offer would need to remain open
until regulatory approval has been received. In a one-step merger structure, however, the
parties could obtain shareholder approval during the pendency of the regulatory process
and then close the transaction promptly following receipt of regulatory approval. In this
circumstance, acquirors often prefer the one-step merger structure because a target’s ability
to accept an alternative proposal (or change its recommendation to shareholders) in a
merger agreement typically terminates upon shareholder approval, while a tender offer
remains subject to interloper risk so long as it remains open.
C. Acquisition of a U.S. Company for Stock: Securities Law Considerations
The inclusion of stock consideration in a cross-border transaction introduces

significant additional requirements under the Securities Act. If the acquisition is
accomplished via an exchange offer—i.e., a tender offer in which the consideration
includes securities—the transaction would be subject to the same tender offer rules of the
Williams Act as apply to all-cash tender offers, as well as the requirements of the Securities
Act.
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1. Registration Requirements
Under Section 5 of the Securities Act, the offer or sale of securities must either be
registered with the SEC or qualify for an exemption from registration. Securities offered
pursuant to an exchange offer as well as other statutory business combination transactions
are deemed to involve offers for this purpose.25 Therefore, absent an exemption under
Section 5, any company, U.S. or non-U.S., that seeks to offer its securities as all or part of
the consideration in an exchange offer or business combination, whether consensual or
hostile, to investors in the United States must first file a registration statement with the SEC
under the Securities Act.
To register a class of securities under the Securities Act pursuant to an exchange

offer or business combination, an issuer must file a Form S-4 (for U.S. issuers) or F-4 (for
FPIs) registration statement with the SEC. Forms S-4 and F-4 each comprise two parts:
Part I is a proxy statement or prospectus, written in narrative form, that contains
information regarding the acquiror, the target, the business combination or exchange offer,
and, as applicable, certain information incorporated by reference from the parties’ reports
under the Exchange Act. Part II includes information on the indemnification of directors
and officers, exhibits, including the merger agreement, organizational documents of both
parties, legal opinions, powers of attorney and the consents of experts, certain
undertakings, such as incorporating, as applicable, annual and quarterly reports and
subsequent Exchange Act reports by reference, and the signatures of the parties to the
transaction. Only Part I must be delivered to target shareholders, but both parts become
public when filed with the SEC.
Forms S-4 and F-4 include, among other items, disclosure with respect to the
following matters:
 summaries of the parties, their business, their financial conditions, as well

as the transaction, including its structure, information with respect to voting
and other information;
 a letter from the chief executive officer or chairman of the target (and also
the acquiror if the acquiror is required to vote or otherwise elects to do so)
providing a brief description of the transaction, the consideration payable
and the target board’s (and, if applicable, the acquiror board’s)
recommendation, as well as encouraging the shareholders to vote;
 questions and answers regarding the fundamental questions that target (and,
as applicable, acquiror) shareholders may have about the contemplated
transaction, including what proposals will be voted on at the special
meeting, what will happen as a result of the transaction, what consideration
will be payable in the transaction and what shareholders need to do now,
among others;
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 notice of the meeting required to approve the transaction, including the date,
time and location of the special meeting, as well as the purpose of the
meeting and the key matters to be voted on;
 voting information concerning all the proposals submitted for a shareholder

vote at the meeting, including the votes required for approval and
determination of the votes, including how the votes are counted and the
effect abstentions have on such count;
 risk factors associated with the parties, the transaction, the combined
company and the securities being offered in the transaction;
 descriptions of the transaction and the parties to the transaction, including

background to, and material terms of, the transaction, sufficient for
shareholders to make informed investment decisions, and the parties’
businesses, operations and financial conditions;
 a description of important merger agreement provisions;
 selected financial information, including financial statements for the

previous five fiscal years and pro forma financial statements that give effect
to the business combination;
 management’s discussion and analysis of financial condition and results of

operations for each party; and
 comparison of rights of common shareholders, describing differences in the

rights of the shareholders of the acquiror and the target.
In general, the financial statements of an FPI (whether it is the acquiror or the target)
may be prepared in accordance with U.S. GAAP, International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”),
or local GAAP/non-IASB IFRS, while the financial statements of a U.S. domestic company
(whether it is the acquiror or the target) must be presented in U.S. GAAP. An FPI that files
using IFRS as issued by the IASB is not required to reconcile to U.S. GAAP.26 However,
an FPI using another basis of reporting (e.g., local GAAP) is not eligible to omit the U.S.
GAAP reconciliation.27 Presentation of pro forma financial statements follows the basis
of the accounting presentation used by the issuer: An FPI issuer using IASB IFRS for its
own financial statements should prepare and present pro formas in IASB IFRS (and no
reconciliation to U.S. GAAP is required), while a domestic U.S. issuer must prepare and
present pro formas in U.S. GAAP.28 That said, the SEC has generally not objected if an
FPI issuer that otherwise would present its pro formas based on local GAAP with a
reconciliation to U.S. GAAP elects to present the pro formas directly in U.S. GAAP.29
Note that an FPI issuer that will cease to qualify as such following completion of a merger
remains eligible to use the forms and rules designated for FPIs (including the ability to use
Form F-4 and foreign accounting standards) for the merger and potentially for a period
thereafter, as it will only become required to use the forms and rules for U.S. domestic
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issuers on the first day of the first fiscal year following a determination that it fails to
qualify as an FPI.30
The registration statements that issuers file on Forms S-4 and F-4 are subject to
review by the SEC for compliance with applicable federal securities laws and accounting
principles. Although there is no standard timetable for these reviews, if the SEC chooses
to review, the review process is likely to take at least six weeks and up to four or more
months. The SEC typically provides comment within 30 days of the initial filing of the
first version of a registration statement. The SEC comments are in the form of a letter sent
to the filer and publicly filed (a period of time after the review is complete), which
references parts of a registration statement and identifies deficiencies or asks questions
with respect to the content of the filing. Once comments are received from the SEC, it may
take as long as two to four weeks for the parties to implement the changes required by the
SEC to a registration statement or to research and respond to SEC inquiries. If the SEC
comments relate to accounting matters, auditors and other advisors will need to be involved
in addition to counsel, adding time and cost to the response period. When a prospective
registrant has addressed the substance of the SEC comments and, if necessary, after
communication with the SEC, an amendment to a registration statement is filed, along with
a written response to the SEC’s initial comments. Thereafter, the process begins again
with SEC review of and comment on the amendment to the registration statement. SEC
comments on amendments to a registration statement often are returned in approximately
10 days, although it may take more or less time depending on the number and nature of the
outstanding comments. Only after the SEC comments are exhausted, and any other
applicable timing criteria are met, can a party request that the registration statement be
declared effective and the securities eligible for offer or sale.
2. Listing of Securities Issued in an Acquisition
In some cases, the parties to a cross-border transaction involving a foreign acquiror

may wish to list the securities being offered to target securityholders on a U.S. securities
exchange. For example, the board of a U.S. target company may be unwilling to proceed
with the transaction unless the foreign acquiror agrees to list the securities being offered to
U.S. holders in the United States. A U.S. listing provides additional liquidity for U.S.
shareholders, and may be a prerequisite for certain institutional investors to invest in a
company’s securities. Listing can therefore enhance the attractiveness of a non-U.S.
company’s shares in the U.S. capital market.
American Depositary Receipts
An acquiror may agree to issue listed ADRs to target securityholders. ADRs are
negotiable certificates that evidence ownership interests in ADSs (which themselves
represent interests in the underlying equity securities of a non-U.S. issuer held by a U.S.
depository bank). ADRs allow U.S. investors to easily invest in non-U.S. issuers, and
allow non-U.S. issuers to raise capital and establish a trading presence in the United States.
ADRs trade in U.S. dollars and clear via U.S. settlement systems, which allows U.S.
investors to avoid trading in non-U.S. currencies and the related risks. An ADR can
represent any number of underlying securities of a non-U.S. issuer; that is, an ADR can
- 23 -
represent a fraction of an underlying share or multiple underlying shares. According to
J.P. Morgan, one of the major depository banks in the U.S., as of March 2024, there are
over 2,400 depository receipt programs, of which over 1,100 are sponsored.31
ADRs are created when a non-U.S. issuer or an investor deposits the non-U.S.
issuer’s securities that will underlie the ADRs in a U.S. depository bank. After receipt of
the securities, the bank will bundle the securities into an ADS and issue the ADRs to the
depositor. The depositor may then trade the ADRs, either on a U.S. securities exchange or
over the counter. ADRs can be traded, settled and held as if they were regular securities
of a U.S. issuer. Holders of ADRs may also remove the securities underlying the ADSs
from the ADR program, at a conversion rate equal to the number of securities included in
the ADS represented by the ADR.
ADRs are either “sponsored” or “unsponsored.” Sponsored ADRs result when a

non-U.S. issuer enters into an agreement with a U.S. depository bank to hold the deposited
ADRs and manage all aspects of such deposit, including, among others, recordkeeping,
forwarding shareholder communications and paying dividends. Unsponsored ADRs result
when an ADR is created without the assistance (or the consent) of the applicable non-U.S.
issuer – the principal depositary banks will create unsponsored ADR programs in response
to market demand for the underlying securities, for the purpose of establishing a U.S.
trading market for the non-U.S. issuer’s securities. A depository bank may create an
unsponsored ADR program only if the non-U.S. issuer is either subject to the reporting
requirements under the Exchange Act or exempt from such requirements pursuant to
Rule 12g3-2.
ADRs must be registered under the Securities Act with the SEC on a Form F-6.
The disclosures required on Form F-6 include the contractual terms of deposit under the
deposit agreement, including copies of the agreements, a form of ADR certificate and legal
opinions. No information about the non-U.S. issuer is disclosed. To raise capital in the
U.S., a non-U.S. issuer would need to file a separate registration statement under the
Securities Act on Form F-1, F-3 or F-4, depending on the circumstances of the transaction.
To list its ADRs on a U.S. securities exchange, the non-U.S. issuer must file a separate
registration statement under the Exchange Act with the SEC on Form 20-F. Unlike
Form F-6, the Form 20-F registration statement used to raise capital and list securities
requires significant disclosures about the non-U.S. issuer, its business, its financial
condition and, if applicable, the transaction in connection with the capital raise.
Additionally, ADRs are generally split into three “levels,” which depend on the
degree to which the non-U.S. issuer has accessed U.S. markets:
 Level 1 ADRs. Level 1 ADRs establish a trading presence in the United

States but may not be used to raise capital. Only Level 1 ADRs may be
unsponsored and therefore may only be traded on U.S. over-the-counter
markets (i.e., not on a national exchange such as the NYSE or Nasdaq).
Only a Form F-6 need be filed, and, as a result, no information about the
non-U.S. issuer need be disclosed. No information about the non-U.S.
issuer will be available on EDGAR. Importantly, the consent of the non-
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U.S. issuer of the securities underlying an unsponsored Level 1 ADR
program is not required.

States, generally through the listing of ADRs representing preexisting
securities on a U.S. exchange. Like Level 1 ADRs, Level 2 ADRs may not
be used to raise capital. The sponsoring bank and non-U.S. issuer must file
Form F-6 and a registration statement on Form 20-F with the SEC, and,
pursuant to such registration, the non-U.S. issuer becomes subject to the
ongoing reporting requirements of the Exchange Act (including the
Sarbanes-Oxley Act (“Sarbanes-Oxley”)), which include the requirement to
file annual reports on Form 20-F.

States and allow the non-U.S. issuer to raise capital. Level 3 ADRs, like
Level 2 ADRs, must be sponsored and therefore may be traded on either
U.S. securities exchanges or U.S. over the counter markets. The sponsoring
bank and non-U.S. issuer must file Form F-6 and a registration statement on
Form F-1, Form F-3 or Form F-4 with the SEC, and, pursuant to such
registration, the non-U.S. issuer becomes subject to the ongoing reporting
requirements of the Exchange Act (including Sarbanes-Oxley), which
include the requirement to file annual reports on Form 20-F.
An FPI that lists its Level 2 or Level 3 ADRs on a U.S. securities exchange is
required to register under Section 12(b) of the Exchange Act. Even if an FPI does not list
its ADRs, an FPI may still be required to register pursuant to Section 12(g) of the Exchange
Act if it surpasses certain asset and shareholder thresholds, or may have obligations under
Section 15(d) of the Securities Act, if it files a registration statement under the Securities
Act in a public offering. When an FPI lists and registers under Section 12(b) of the
Exchange Act, it must comply with the reporting and other requirements of the Exchange
Act and Sarbanes-Oxley as long as it has listed ADRs, and thereafter until it can suspend
or terminate its reporting obligations. When an FPI registers under Section 12(g) or has
obligations under Section 15(d), it must similarly comply with the Exchange Act and
Sarbanes-Oxley (excluding sections of Sarbanes-Oxley pertaining only to listed issuers)
until it is no longer subject to Section 12(g) (by, for example, meeting the requirements of
Section 12g3-2(b), as discussed in Section VII.A) or Section 15(d).
The Listing Process
In order to list a class of securities (or ADRs) directly on a U.S. securities exchange,
an issuer must apply for listing to the applicable exchange and comply with that exchange’s
listing criteria. In a direct listing, an issuer lists its securities directly on an exchange,
creating a public market for its securities. An issuer applies for a direct listing with an
exchange’s staff and is required to provide certain supporting information, including
organizational documents, financial statements, governance undertakings and other
information about the issuer. The timeline for approval generally ranges from one to three
months.
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The NYSE provides two sets of initial listing criteria, the first of which covers U.S.
domestic standards and the second of which contains alternative criteria for FPIs. FPIs
may choose whether to apply under the U.S. domestic standards or the FPI standards. The
quantitative criteria for continued listing on the NYSE is the same for U.S. domestic
companies and FPIs. The U.S. domestic standards include the following:
 An issuer must meet one of the following financial standards:
o Earnings Test. The issuer’s aggregate adjusted pretax income for the
last three fiscal years is $10 million or more, the issuer’s adjusted pretax
income for each of the two most recent fiscal years is $2 million or more
and the issuer’s aggregate adjusted pretax income for each of the prior
three fiscal years is greater than $0.
o Global Market Capitalization Test. The issuer has a global market

capitalization of $200 million or greater.
 An issuer must also meet all of the following distribution standards: 400
round lot shareholders; 1.1 million publicly held shares; $40 million market
value of publicly held shares; and $4.00 minimum share price. For purposes
of determining the number of shareholders and the trading volume, if the
issuer is a company not organized under the laws of Canada, Mexico, or the
U.S., the NYSE may, in its discretion, include holders and trading volume
in the issuer’s home country or primary market outside the U.S. in applying
these listing standards (if such market is a regulated stock exchange).
The second set of standards, only for FPIs, includes the following standards:
 An FPI must meet one of the following financial standards:
o Earnings Test. The issuer’s aggregate adjusted pretax income for the
last three fiscal years is $100 million or more and the issuer’s adjusted
pretax income for each of the two most recent fiscal years is $25 million
or more.
o Valuation/Revenue with Cash Flow Test. Aggregate adjusted cash

flows for the last three fiscal years is $100 million or more and adjusted
cash flows for each of the two most recent fiscal years is $25 million or
more; the issuer’s global market capitalization measured over the most
recent six months of trading history is $500 million or more; and the
issuer’s revenues in the most recent 12-month period were $100 million
or more.
o Pure Valuation/Revenue Test. The issuer’s global market capitalization

over the most recent six months of trading history is $750 million or
more and the issuer’s revenues in the most recent 12-month period were
$75 million.
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o Affiliated Company Test. The issuer’s global market capitalization over
the most recent six months of trading history is $500 million or more
and the issuer’s operating history is 12 months.
 An FPI must also meet all of the following distribution standards:

5,000 worldwide round lot shareholders; 2.5 million worldwide publicly
held shares; $100 million worldwide market value of publicly held shares;
and $4.0 minimum per share price. If the FPI’s parent or affiliate is a listed
company in good standing which retains control of or is under common
control with the FPI, the required worldwide market value of publicly held
shares is decreased to $60 million.
The NYSE also contains separate financial standards for real estate investment
trusts, closed-end management investment companies and business development
companies. The earnings tests set forth above also allow for shorter two-year periods if an
issuer is an “Emerging Growth Company” under the JOBS Act and has only filed two years
of financial statements.32
Nasdaq provides three sets of standards, one for each of its three markets, Nasdaq
Capital Market, Nasdaq Global Select Market and Nasdaq Global Market. An FPI may
apply to be listed on any of Nasdaq’s three markets, although Nasdaq Capital Market is a
frequent choice given that its criteria are the most lax of the three. Nasdaq Capital Market,
for example, includes the following standards:
 An issuer must meet one of the following financial standards:
o Stockholders’ Equity. The issuer’s stockholders’ equity is $5 million;

the issuer’s publicly held shares have a market value of $15 million; and
the issuer has an operating history of at least two years.
o Market Value. The issuer’s stockholders’ equity is at least $4 million;

the issuer’s publicly held shares have a market value of at least
$15 million; and the issuer’s listed securities have a market value of $50
million.
o Net Income Standard. The issuer’s stockholders’ equity is at least

$4 million; the issuer’s net income is at least $750,000 in either the last
fiscal year or two of the last three fiscal years; the issuer’s publicly held
shares have a market value of at least $5 million.
 An issuer must also meet all of the following distribution standards: at least
300 round lot holders; at least one million publicly held shares; $4.00
minimum per share price (or as low as $2.00 in certain situations); and at
least three registered and active market makers.
Additionally, issuers seeking to list on one of the Nasdaq markets which principally
administer their business in a “Restrictive Market” jurisdiction (including China) are
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subject to additional listing criteria. Nasdaq defines “Restrictive Market” jurisdictions as
those which do not provide the Public Company Accounting Oversight Board with access
to conduct inspections of public accounting firms that audit Nasdaq-listed companies.33
If an issuer, U.S. or non-U.S., is listed directly by either the NYSE or Nasdaq, it

must also comply with certain enumerated quantitative maintenance standards or risk
suspension or delisting from the exchange. These standards require issuers to maintain,
among other requirements, a certain number of shareholders, publicly held shares, average
closing price over a 30-day trading period, and minimum global market capitalization and
stockholders’ equity values.
Registration under Exchange Act Section 12(b)
Securities listed on a national securities exchange in the United States are required
to be registered under Section 12(b) of the Exchange Act. Such registration of the
securities of an FPI is typically accomplished by filing a registration statement on Form 20-
F. If the offering of the securities was registered under the Securities Act (which will often
be the case when listed securities are offered), certain content of the Form 20-F can
generally be incorporated by reference or copied from the Securities Act registration
statement.34 After the listing is approved, the securities are admitted for trading once the
exchange certifies the listing with the SEC and the issuer’s registration of the securities
under Section 12(b) of the Exchange Act becomes effective.
Note that ADRs can either be listed or unlisted. If they are unlisted, they do not
have to be registered under Section 12(b) of the Exchange Act, although they may
potentially have to be registered under Section 12(g) of the Exchange Act, unless an
exemption (such as that afforded by Rule 12g3-2(b)) applies.
3. Post-Registration Obligations
A critical consideration in determining whether to issue securities in the acquisition

of a U.S. public company is that, if the securities are listed on a U.S. securities exchange
(or if the securities offering is registered under the Securities Act), the issuer of the
securities will have certain post-transaction securities law obligations following the
transaction, including those concerning periodic reporting requirements, the preparation of
financial statements and corporate governance. FPIs enjoy certain exemptions from such
obligations.
Additional information on the registration process, exemptions and post-transaction

obligations is provided in Section VII.
D. Tax Considerations
The principal U.S. tax issues to be considered in connection with structuring an

acquisition of a U.S. company will largely depend on the consideration mix and the nature
of the U.S. company. In general, all-cash deals involving U.S. companies are more
straightforward to structure and analyze than deals where a significant component of the
consideration is stock of a non-U.S. entity.
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1. Cash (and Other Taxable) Acquisitions
An all-cash (or other taxable) acquisition of a U.S. publicly traded target (or a
privately held U.S. corporation with a dispersed shareholder base) is typically effected as
a “reverse subsidiary merger” (which may or may not be preceded by a tender offer),
pursuant to which a newly formed U.S. subsidiary of the acquiror is merged with and into
the U.S. target, with the U.S. target surviving the merger as a wholly owned subsidiary of
the acquiror. For U.S. federal income tax purposes, this structure is viewed as a taxable
purchase of the stock of the U.S. target. As a result, U.S. shareholders of the U.S. target
will recognize taxable gain or loss in an amount equal to the difference between the amount
of the consideration received and the tax basis in the stock surrendered. Non-U.S.
stockholders are typically not subject to U.S. income tax upon a sale of U.S. corporate
stock unless they have certain connections to the United States or the target is a “U.S. real
property holding corporation” (they may, of course, be subject to income tax in their home
jurisdictions). On the buy-side, for U.S. federal income tax purposes the buyer will take
cost basis in the U.S. target stock acquired, but the tax basis of the target’s assets will
generally carry over—i.e., the transaction will not result in an asset-level tax basis step-up
(or step-down) to fair market value.
A taxable acquisition of a U.S. public target would generally not, absent unusual
circumstances or where the target is a real estate investment trust, be structured as a
“forward merger” of the target into the buyer or its subsidiary pursuant to which the legal
existence of the target ceases. This is because such a forward merger is viewed for U.S.
federal income tax purposes as a taxable sale by the U.S. target of all of its assets, thus
triggering taxable gain to the U.S. target at the corporate level, and then once again at the
shareholder level. Although this structure would result in a step-up in the tax basis of the
target’s assets if there is built-in gain, the additional depreciation benefit over time
generally does not outweigh the up-front tax cost.
Where the acquisition involves a U.S. target that is privately held, the
considerations described above also apply (except that, where there are few shareholders,
a transaction will often be structured legally as a share purchase rather than a merger).
There may be additional structuring options, however, if the seller is itself a U.S.
corporation that files a consolidated U.S. income tax return with the U.S. target. Depending
on the facts, it may be feasible for the parties to structure such a transaction as an asset sale
for U.S. federal income tax purposes—either by effecting an actual asset sale or an
acquisition of shares combined with an election under Section 338(h)(10) of the Code to
treat the sale as an asset sale for U.S. tax purposes only. In the consolidated setting, a sale
of a subsidiary’s assets generally does not result in double taxation, and an asset sale
structure can often result in manageable incremental costs to the seller that do not outweigh
the benefit of the asset basis step-up to the buyer. Finally, it should also be noted that an
acquisition of a U.S. target that is treated as a partnership or a “disregarded entity” for U.S.
federal income tax purposes is, under default U.S. federal income tax rules, generally
treated as a sale of the assets of the target. Accordingly, in these cases the buyer will be
able to obtain an asset basis step-up without the need for any additional structuring, and at
the cost of only one level of tax to the sellers due to the “flow-through” nature of the target
entity.
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2. Business Combinations and Acquisitions Involving Stock
Consideration
Compared to all-cash deals, cross-border acquisitions of U.S. companies that

involve stock consideration can be far more complex to structure and analyze. The most
significant issues typically arise in the context of a so-called “merger of equals” or business
combinations where the post-transaction ownership of the combined company by the
former shareholders of the U.S. counterparty is significant. In those cases, the threshold
question is the desired jurisdiction of organization and tax residence of the combined
company. This is usually a multi-faceted analysis that takes into account applicable legal,
corporate, political and social, as well as tax, considerations. Tax considerations do,
however, feature prominently, as the choice of parent company tax jurisdiction can have a
significant impact on the financial results of the combined group going forward.
Historically, the U.S. was perceived as an undesirable holding company jurisdiction due to
its relatively high corporate income tax rate and robust CFC regime, and a number of cross-
border business combinations were structured as so-called “inversions,” or M&A
transactions pursuant to which the U.S. counterparty becomes a subsidiary of a parent
company organized (and tax resident) outside of the United States. However, the landscape
has been significantly altered in recent years on account of, among other things, sweeping
U.S. tax reform and the significant decrease in the U.S. corporate income tax rate. The
preferred parent jurisdiction from a tax perspective will depend on the particular facts and
circumstances, and will typically require careful modelling of the various alternatives.
Where the acquiring entity in a cross-border transaction is non-U.S. (and stock

consideration is utilized), the U.S. anti-inversion rules must be considered. These rules are
generally intended to discourage inversion transactions by imposing additional tax costs
on the companies and U.S. shareholders involved. Specifically, Section 7874 of the Code
may impose adverse tax consequences at the corporate level, while Section 367 of the Code
may apply at the shareholder level. Whether these rules apply, and the consequences of
their application, are generally a function of the post-transaction ownership of the
combined company by the former shareholders of the U.S. counterparty/target.
a. Corporate-Level Considerations: Section 7874 of the Code
Under Section 7874 of the Code, a non-U.S. parent corporation will, regardless of
its home jurisdiction, be treated as a U.S. corporation for U.S. tax purposes if: (1) the non-
U.S. parent acquires, directly or indirectly, substantially all of the assets held by a U.S.
corporation (which would include an acquisition of 100% of the stock of the U.S.
corporation), (2) after the acquisition, the former shareholders of the acquired U.S.
corporation hold, by reason of their ownership of shares of that U.S. corporation, 80% or
more (by vote or value) of the stock of the non-U.S. parent, and (3) after the acquisition,
the combined group does not have “substantial business activities” in the jurisdiction in
which the non-U.S. parent is organized. If all three prongs of the test described above are
present, the consequences are severe: the non-U.S. parent will be subject to U.S. tax just
as if it actually were a U.S. corporation. This means, among other things, that the non-U.S.
acquiror will be subject to U.S. corporate income taxes on its worldwide income (even if
not sourced in the U.S.), as well as taxes imposed under the U.S. CFC regime with respect
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to its non-U.S. subsidiaries. Moreover, distributions to non-U.S. shareholders of the non-
U.S. parent will be subject to U.S. withholding tax. The U.S. tax regime will apply in
addition to the tax regime of the non-U.S. parent’s home jurisdiction, creating potential for
double taxation.
If the post-transaction ownership by former shareholders of the U.S. target is less

than 80%, the United States will respect the non-U.S. acquiror’s status as a non-U.S.
corporation for U.S. tax purposes. However, if the ownership percentage is 60% or more
(by vote or value), a number of other adverse U.S. tax rules will apply to the combined
group, including, among others, limitations on the utilization of U.S. tax attributes (such
as net operating losses) against income recognized in connection with certain intragroup
transactions. In addition, dividends paid by the non-U.S. parent will not be eligible for the
preferential rates of U.S. taxation otherwise available for dividends received by non-
corporate U.S. taxpayers (currently at a 20% rate, as compared to the top U.S. federal
income tax rate of 37%).
A typical multinational group will rarely have “substantial business activities” in

the parent jurisdiction that would allow it to avoid the application of Section 7874 of the
Code on that basis. Accordingly, the analysis will in most cases hinge on the post-
transaction percentage ownership of the non-U.S. parent by the former shareholders of the
U.S. counterparty. Importantly, the rules require a number of adjustments that generally
have the effect of increasing that percentage, making it more likely that Section 7874 of
the Code will apply. For example, new equity raised by the foreign acquiror in connection
with the transaction will generally be ignored, as will any “skinny down” special
distributions that “shrink” the U.S. company. Special distributions for this purpose may
include any cash consideration paid to the shareholders of the U.S. counterparty in the
transaction if such cash is viewed as being directly or indirectly provided by the U.S.
counterparty. These computations, and the rules generally, are highly complex. Given the
potentially severe consequences associated with their application, careful diligence,
analysis and structuring are required.
b. Shareholder-Level Considerations: Section 367 of the Code
Even if Section 7874 of the Code is not implicated, the non-U.S. status of an
acquiror of a U.S. corporation in a deal that involves stock consideration can impede
structuring the transaction in a tax-efficient manner to the shareholders of the U.S. target.
Under the baseline U.S. federal income tax rules, in an acquisition of a U.S. corporation
that involves meaningful stock consideration, there is the potential for such transaction to
be structured as either a so-called “reorganization” under Section 368 of the Code or a
contribution transaction under Section 351 of the Code, allowing the target shareholders to
defer U.S. taxation with respect to the stock portion of the consideration. Specifically, if
the transaction so qualifies, a selling U.S. shareholder will recognize no gain or loss if the
only consideration received is acquiror stock. If the consideration also includes cash, a
selling U.S. shareholder will recognize gain but not in excess of the amount of cash
received.
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Whether structuring the transaction in this manner is achievable is, among other
factors, largely a function of the amount of stock involved and the legal structure utilized.
For example, if the U.S. target is acquired by way of a reverse subsidiary merger (described
above), stock must represent at least 80% of the total consideration for the transaction to
qualify as a reorganization (assuming the other requirements for reorganization
qualification are satisfied). However, a transaction can so qualify with stock consideration
representing as little as 40% of the total consideration mix if it is structured as a forward
merger of the U.S. target. Finally, holding company acquisition structures—e.g., so-called
“top hat” or “double dummy” transactions in which a new holding company is formed to
acquire, via merger or otherwise, both the target and the acquiror—can provide U.S. target
shareholders with tax deferral with respect to the stock portion of the consideration without
any overall minimum stock requirement. While these structures provide the most
flexibility on the U.S. tax front, they can involve non-tax disadvantages, including
shareholder vote and other requirements that may not otherwise apply on the acquiror side.
The foregoing rules, however, are subject to override in the cross-border context.
The Code generally denies tax deferral where it would otherwise be available if the buyer
is non-U.S. and the U.S. target is bigger than the buyer (by fair market value). If the U.S.
target is smaller, there are yet additional requirements that must be satisfied, including that:
(1) U.S. shareholders of the U.S. target receive no more than 50% of the stock of the foreign
acquiror (by vote or value), (2) no more than 50% of the stock of the foreign acquiror may
be held by certain U.S. insiders, and (3) the foreign acquiror must be engaged in an active
trade or business outside of the United States for the preceding three years. Finally, even
where all the general requirements are met, five-percent or greater shareholders of the U.S.
target will still not be eligible for deferral unless they file a “gain recognition agreement”
with the U.S. Internal Revenue Service, generally agreeing to pay the tax that otherwise
would have been payable at closing, together with an interest charge, upon certain
subsequent “triggering events” (generally events involving a disposition of the U.S. target
or its business by the foreign acquiror in the five years following the acquisition).
In determining the relative size of the U.S. target and the amount of stock received
and held by the former shareholders of the U.S. counterparty for purposes of Section 367
of the Code, the same adjustments as those required under Section 7874 of the Code
(described above) are required. As previously noted, these adjustments generally have the
effect of increasing the size of the U.S. company and the U.S. ownership percentage,
making it more likely that Section 367 of the Code will apply.
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IV.
Acquisition of a Non-U.S. Company
This Section IV describes in greater detail the principal legal considerations under
the U.S. federal securities laws for accomplishing an acquisition of a non-U.S. company.
As noted above, the particular U.S. rules that will apply to an acquisition of a non-U.S.
company will depend on whether: (1) the non-U.S. company qualifies as an FPI; (2) the
transaction is structured as a tender offer for the securities of the non-U.S. company (and,
if so, whether the securities are registered under Section 12 of the Exchange Act, as well
as the level of U.S. shareholder ownership of the securities); and (3) whether securities will
be included as part of the consideration to be offered to the target company’s shareholders.
This Section IV discusses the rules that would apply if the non-U.S. target company
qualifies as an FPI.
A. Acquisition of a Non-U.S. Company through a Tender Offer
1. Tender Offers and the Cross-Border Rules
If the acquisition is structured as a tender offer to acquire the non-U.S. company’s

securities, then the set of U.S. rules that will apply to the transaction will depend on whether
the non-U.S. company’s securities are registered under Section 12 of the Exchange Act.
As described in Section III.B.2, Section 14(d) and Regulation 14D apply if the tender offer
is for securities registered under Section 12 of the Exchange Act, and Section 14(e) of the
Exchange Act and Regulation 14E apply to all tender offers regardless of whether the
subject securities are registered under Section 12 of the Exchange Act.
In response to the potential for conflicts between the U.S. tender offer rules and
local legal requirements and concerns that bidders were intentionally excluding U.S.
holders from participation in cross-border transactions to avoid compliance with U.S.
federal securities laws, the SEC has promulgated a set of exemptions that can provide relief
to certain of the tender offer rules in the context of a tender offer for securities of an FPI.
The SEC codified prior guidance by adopting regulations under the Securities Act and the
Exchange Act to address conflicts between U.S. and non-U.S. regulations in 1999.35 In
2008, the SEC revised these rules in part to address ongoing conflicts of law and facilitate
participation by U.S. persons in the global capital markets.36 The resulting Cross-Border
Rules provide for certain exemptions from compliance with the above tender offer rules.
While the requirements for the exemptions are specific and detailed, the applicability of
the rules is based generally on the level of U.S. interest in a transaction, measured by (i) the
percentage of U.S. holders of the subject security in such transaction or (ii) where the
acquiror cannot determine the residency of shareholders, a substitute test for ownership
based on trading volume.
The Cross-Border Rules create a two-tier system of U.S. ownership applicable to

U.S. tender offer rules. The Tier I exemptions apply where U.S. holders hold no more than
10% of an FPI target’s common shares. The Tier II exemptions apply where U.S.
ownership is above 10% but not more than 40% of an FPI target’s common shares. If U.S.
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ownership is above 40%, neither the Tier I nor Tier II exemptions apply, meaning the full
set of tender offer rules are applicable.
a. Determining U.S. Ownership
Determining U.S. ownership of the subject securities requires evaluating the

residency of security holders of the target to determine the percentage resident in the United
States. The calculation requires specific analysis of the following:37
 Timing. To determine the percentage of outstanding securities held by U.S.

holders, the offeror must calculate the U.S. ownership as of a date no more
than 60 days before and no more than 30 days after public announcement
of the tender offer. If the offeror is unable to calculate ownership as of a
date within this range, the calculation may be made as of the most recent
practicable date before public announcement, but in no event earlier than
120 days before announcement.
 Securities Counted. The securities that underlie ADSs convertible or

exchangeable into the subject securities, as well as those held by U.S.
holders, but not other convertible or exchangeable securities such as
warrants and options, should be counted in both the U.S. holder and total
securities outstanding figures. Securities held by the offeror should also be
excluded.
 Residency Determination. In determining whether a shareholder is a U.S.

resident, the offeror should use the method of calculating record ownership
in Rule 12g3-2(a), which is the rule used for calculating the number of
holders for assessing FPI status, with some modification. The inquiry for
determining U.S. holders under the Cross-Border Rules requires that an
offeror “look through” record owner accounts (like brokers, dealers and
banks) and attempt, by reasonable inquiry, to establish the residency of the
customers behind those intermediary record owners or their nominees. The
obligation to look through applies to securities held of record by
intermediaries in the United States, the subject company’s jurisdiction of
incorporation or the jurisdiction of each participant in a business
combination and (if different than the subject company’s jurisdiction of
incorporation) the jurisdiction that is the primary trading market for the
subject securities. If, after reasonable inquiry, the offeror is unable to obtain
information about the amount of securities represented by accounts of
customers resident in the United States, the offeror may assume that the
customers are residents of the jurisdiction in which the nominee has its
principal place of business. If publicly filed reports of beneficial ownership
or information otherwise provided to the offeror indicate that securities are
held by U.S. residents, the offeror should count such securities as held by
U.S. holders.
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Depending on how a target’s home jurisdiction requires companies and
intermediaries to record, and publish, residency data for the holders of the target’s
securities, the look-through analysis may be difficult or impossible in some circumstances.
At minimum, the offeror must review public filings and other information provided to the
offeror. The determination can include extensive cooperation between target and acquiror
(who share an interest in the applicability of an exemption under the Cross-Border Rules).
This need for cooperation presents complications to ascertaining which, if any, exemptions
apply in an unsolicited or hostile offer. Where the acquiror cannot determine the residency
of shareholders pursuant to the instructions described above, the acquiror may presume
that the percentage of shares held by U.S. holders is less than the 10% or 40% threshold
level, as applicable, so long as there is a primary trading market for the shares outside the
United States, unless one of several conditions exists:38
 the average daily trading volume of the subject securities in the United
States for a recent 12-month period ending on a date no more than 60 days
before the public announcement of the tender offer exceeds the applicable
threshold percentage of the average daily trading volume of that class of
shares on a worldwide basis for the same period;
 the most recent annual report or annual information filed or submitted by

the issuer with regulators of the home jurisdiction or with the SEC or any
jurisdiction in which the shares trade before the public announcement of the
offer indicates that U.S. holders hold more than the applicable threshold
percentage of the outstanding subject class of shares; or
 the offeror knows or has reason to know, before the public announcement
of the offer, that the level of U.S. ownership exceeds the applicable
threshold percentage (such as from the target, from a reasonably reliable
source or through public filings with the SEC or any regulatory body in the
target’s jurisdiction of incorporation or jurisdiction in which the primary
trading market for the subject securities is located).
b. Tier I Exemptions
The Tier I exemptions, applicable where U.S. ownership of the target company is
not more than 10%, provide the broadest relief from the U.S. tender offer rules, including
exempting the offeror from nearly all of Regulation 14D and most of Regulation 14E.
However, the exemptions apply only in limited circumstances. To qualify, the tender offer
must be for the securities of an FPI that is not an investment company registered or required
to be registered under the Investment Company Act of 1940, as amended.39 In general, the
offeror must permit U.S. holders of the subject securities to participate in the offer on terms
at least as favorable as those offered to any other holder of the same class of securities that
is the subject of the tender offer, subject to narrow exceptions to the equal treatment
requirement.40 The offeror must also comply with applicable requirements to disseminate
documents to U.S. holders (in English), including any document published in its home
jurisdiction.41
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If an offer qualifies for the Tier I exemptions, it will be exempt as follows:42
 Minimum Offer Period. A Tier I offer need not remain open for 20 business
days from the date such tender offer is first published or sent to security
holders.
 Notice of Extensions. A Tier I offer need not comply with the requirement
to provide notice of an extension to the length of a tender offer by press
release or other public announcement.
 Purchases Outside of the Tender Offer. Purchases or arrangements to

purchase by the offeror outside the offer are not prohibited, so long as
specific conditions are met.43
 Equal Treatment. A tender offer need not be open to all target shareholders
and holders are not all required to be offered the same consideration.
However, U.S. security holders must be permitted to participate in the offer
on terms at least as favorable as those offered to other security holders,
subject to certain exceptions, such as substantially equivalent cash offers in
lieu of stock.
 Withdrawal Rights. Withdrawal rights pursuant to Regulation 14D and

Section 14(d)(5) of the Exchange Act, including back-end withdrawal
rights, do not need to be extended to securities tendered in Tier I offers.
 Filing Requirements. There is no requirement to file a Schedule TO in Tier

I offers, but English-language informational documents must be provided
to U.S. shareholders on a basis comparable to that provided to shareholders
in the subject FPI’s home jurisdiction.
 Response of the Target Company. Target companies need not give

shareholders their positions with respect to Tier I offers.
 Prompt Payment of Consideration/Return of Securities. There are no

prompt payment or return requirements in Tier I offers.
c. Tier II Exemptions
If U.S. holders hold more than 10% but not more than 40% of the subject FPI’s
securities, the “Tier II” exemptions from the tender offer rules will apply. The rules
applicable to Tier II offers include the following:44
 Equal Treatment; Separate U.S. and Non-U.S. Offers. The Tier II

exemptions permit an offeror to separate a tender offer into multiple offers:
the offeror may make one offer to U.S. holders, including all holders of
ADSs representing interests in the subject securities, and one or more offers
to all non-U.S. holders. The U.S. offer must be made on terms at least as
- 36 -
favorable as those offered any other holder of the same class of securities
that is the subject of the tender offers. U.S. holders may be included in the
non-U.S. offer(s) only where the laws of the jurisdiction governing such
non-U.S. offer(s) expressly preclude the exclusion of U.S. holders from the
non-U.S. offer(s) and where the offer materials distributed to U.S. holders
fully and adequately disclose the risks of participating in the non-U.S.
offer(s).
 Notice of Extensions. Notice of extensions may be made in accordance with

the requirements of a subject FPI’s home jurisdiction law or practice will
satisfy the requirements of Rule 14e-1(d), which otherwise requires offerors
to announce the extension by press release or other public announcement
no later than the earlier of (i) 9:00 a.m. Eastern time, on the next business
day after the scheduled expiration date of the offer, and (ii) the first opening
of the exchange on which the securities are traded on the next business day
after the scheduled expiration date of the offer (if the class of securities
which is the subject of the tender offer is registered on a national securities
exchange).45
 Prompt Payment. Payment made in accordance with the requirements of a

subject FPI’s home jurisdiction law or practice will satisfy the requirements
of the tender offer rules. If payment is not made on a more expedited basis
under such home jurisdiction law or practice, payment for securities
tendered during any subsequent offering period within 20 business days
(determined with reference to the target’s home jurisdiction) of the date of
tender will satisfy the prompt payment requirements.
 Subsequent Offering Period and Withdrawal Rights. An offeror may

institute a subsequent offering period, and is not required to announce the
results of the initial offering period by 9:00 a.m. Eastern time on the
business day following the expiration of the initial offering period, so long
as:
o the offeror announces the results of the tender offer, including the
approximate number of securities deposited to date, and pays for
tendered securities in accordance with the requirements of the law or
practice of the subject FPI’s home jurisdiction; and
o the subsequent offering period commences immediately following such

announcement.
If these conditions are satisfied, the offeror also does not need to extend
withdrawal rights during the period from the closing of an initial offering
period to commencement of the subsequent offering period, as could
otherwise be required under Section 14(d)(5) of the Exchange Act.
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 Payment of Interest on Securities Tendered During Subsequent Offering
Period. The offeror may pay interest on securities tendered during a
subsequent offering period, if required under applicable non-U.S. law.
 Suspension of Withdrawal Rights During Counting of Tendered Securities.

Mandatory “back-end” withdrawal rights may interfere with an offeror’s
ability to count tendered shares (i.e., centralize and tally definitively tenders
received in accordance with non-U.S. law and practice) if such counting
process takes place at the time when back-end withdrawal rights arise. To
avoid this problem, in Tier II offers, an offeror may suspend withdrawal
rights at the expiration of its offer and during the period that tendered
securities are being counted, provided that:
o the offer has been open (including withdrawal rights) for at least 20 U.S.
business days;
o at the time withdrawal rights are suspended, all conditions to the offer
have been satisfied or waived, except to the extent that the bidder is in
the process of determining whether a minimum acceptance condition
included in the terms of the offer has been satisfied by counting tendered
securities; and
o withdrawal rights are suspended only during the period when tendered
securities are being counted and are reinstated immediately thereafter,
except to the extent that they are terminated through the acceptance of
tendered securities.
 Early Termination of an Initial Offering Period. An offeror may terminate

an initial offering period, including a voluntary extension of that period, if
at the time the initial offering period and withdrawal rights terminate:
o the initial offering period has been open for at least 20 U.S. business
days;
o the offeror has adequately discussed the possibility and impact of the
early termination in the original offer materials;
o the offeror provides a subsequent offering period after the termination

of the initial offering period;
o all offer conditions are satisfied as of the time the initial offering period
ends; and
o the offeror does not terminate the initial offering period or any extension
of that period during any mandatory extension required under U.S.
tender offer rules.
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 Purchases Outside of the Tender Offer. The offeror may purchase or
arrange to purchase subject company securities in compliance with the laws
of the subject FPI’s home jurisdiction pursuant to a foreign offer(s) where
the offeror seeks to acquire subject securities through a U.S. tender offer
and a concurrent or substantially concurrent foreign offer(s), if the
following conditions are satisfied:
o the U.S. and foreign tender offer(s) meet the conditions for reliance on
the Tier II cross-border exemptions;
o the economic terms and consideration in the U.S. tender offer and
foreign tender offer(s) are the same, provided that any cash
consideration to be paid to U.S. security holders may be converted from
the currency to be paid in the foreign tender offer(s) to U.S. dollars at
an exchange rate disclosed in the U.S. offering documents;
o the procedural terms of the U.S. tender offer are at least as favorable as
the terms of the foreign tender offer(s);
o the intention of the offeror to make purchases pursuant to the foreign

tender offer(s) is disclosed in the U.S. offering documents; and
o purchases by the offeror in the foreign tender offer(s) are made solely
pursuant to the foreign tender offer(s) and not pursuant to an open
market transaction(s), a private transaction(s), or other transaction(s).46
Purchases or arrangements to purchase by an affiliate of a financial advisor and an offeror

and its affiliates that are permissible under and will be conducted in accordance with the
applicable laws of the subject FPI’s home jurisdiction are also permissible under certain
circumstances.47
2. Avoiding U.S. Jurisdictional Means
While the U.S. federal securities laws can extend to transactions with significant
foreign involvement, their reach is not unlimited. As the SEC has stated:
“Whether U.S. tender offer rules apply in the context of a cross-border

tender offer depends on whether the bidder triggers U.S. jurisdictional
means in making a tender offer…. We have recognized that bidders who are
not U.S. persons may structure a tender offer to avoid the use of the means
or instrumentalities of interstate commerce or any facility of a national
securities exchange in making its offer and thus avoid triggering application
of our rules. A bidder making a tender offer for target securities of a foreign
private issuer may exclude U.S. target security holders if the offer is
conducted outside the United States and U.S. jurisdictional means are not
implicated. However, a bidder may implicate U.S. jurisdictional means if
it fails to take adequate measures to prevent tenders by U.S. target holders
while purporting to exclude them.”48
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There are no bright-line rules—and no assurances for acquirors—as to how to
successfully avoid U.S. jurisdictional means. The relevant principles have been developed
through market practices informed by a limited number of court decisions and occasional
SEC guidance, but have not been codified by regulation. Following the adoption of the
Cross-Border Rules, the SEC stated that there would be fewer circumstances warranting
exclusionary offers because the Cross-Border Rules would make it easier for acquirors to
balance the regulatory requirements of foreign and U.S. rules.49 In particular, the SEC
stated that it would view with skepticism exclusionary offers with a close nexus between
the target securities and the United States, including where the target securities are
registered under Section 12 of the Exchange Act, listed on a U.S. exchange or held by a
large number of U.S. holders, particularly where the participation of U.S. holders is
necessary to meet the minimum acceptance condition in the offer.50 The SEC has,
however, recognized the need for exclusion in transactions where U.S. holders hold only a
small percentage of target securities.51
In the context of a tender offer for securities of a non-U.S. company, an acquiror

may seek to avoid the territorial scope of the U.S. federal securities laws, including the
tender offer rules under the Exchange Act, by “taking reasonable measures to keep the
offer out of the United States.”52 In practice, this requires implementing controls to ensure
that (i) offer materials (and the website where they are posted, if any) include a legend
clearly stating that the offer is not available to U.S. holders; (ii) offer materials are not
distributed in the United States; (iii) tenders are not accepted from, nor securities issued (in
the case of an exchange offer) to, U.S. holders, which may require the acquiror to obtain
adequate information, such as representations, to identify U.S. holders; and (iv) U.S.
holders do not receive the offer consideration.53 A legend or disclaimer stating that the
offer is not being made in the United States, or that the offer materials may not be
distributed there, is not likely to be sufficient without other indications of the absence of
jurisdictional connection to the United States. If the bidder wants to support a claim that
the offer has no jurisdictional connection to the United States, it will generally be prudent
to take special precautions to prevent sales to or tenders from U.S. target holders.54
The same general principles apply with respect to tender offer materials posted on
the Internet. The SEC has said that such materials will not result in an offer taking place
in the United States where such offer is “reasonably designed to ensure that [it is] not
targeted to persons in the United States or to U.S. persons.”55 In the case of a non-U.S.
acquiror, a reasonably designed offer would include prominent disclaimers on any website
related to the offer that clearly state that no securities are being offered to any persons in
the United States or any U.S. persons, and controls reasonably designed to guard against
sales of securities to any U.S. persons.56 In the case of a U.S. acquiror, due to existing
contacts with the United States, additional precautions are required. The acquiror would
also need to implement password-type controls reasonably designed to ensure that only
non-U.S. persons can access the offer.57 Under this procedure, persons seeking access to
the Internet offer would have to demonstrate to the issuer or intermediary that they are not
U.S. persons before obtaining the password for the site.58
In some cases, it may be difficult to successfully avoid the use of jurisdictional

means—where, for example, applicable foreign law prohibits the exclusion of any target
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security holders in a tender offer for all outstanding securities of a subject class. In
addition, avoiding the use of jurisdictional means in the context of mergers and other
business combinations where equity is automatically converted into transaction
consideration or that require the dissemination of transaction documentation to or the
solicitation of votes from all shareholders presents additional complexities. This could
pose an issue for acquirors that must complete a second-step merger or other business
combination to consummate a transaction. The ability to avoid U.S. jurisdictional means
by excluding U.S. holders must therefore be examined on a case-by-case basis, including
with respect to whether the intended actions are achievable and permissible under local
laws and market practices.
B. Acquisition of a Non-U.S. Company by Means Other Than a Tender Offer
It may be possible or advisable to acquire a non-U.S. company by means other than

a tender offer. If the target is an FPI, the methods available for acquiring the company will
depend on the laws of its jurisdiction of incorporation and the structure chosen will often
depend on many factors, including tax, finance, shareholder approvals required and
regulatory considerations. Although mergers are less common outside of the United States,
many jurisdictions provide for similar business combination transaction structures, such as
an amalgamation or a plan or scheme of arrangement.
Such a transaction not involving a tender offer would not be subject to the tender
offer rules, and any target shareholder vote would not be subject to the proxy rules because
FPIs are exempt from the proxy rules. Acquisitions of non-U.S. companies may also occur
through a two-step tender offer followed by a “squeeze-out” merger, plan or scheme of
arrangement or another business combination structure. Any two-step transaction that
includes a tender offer would be potentially subject to U.S. federal securities laws, as
described in Section IV.A.1 of this Guide.
C. Securities Law Considerations with Respect to Stock Used in Acquisition of

Non-U.S. Companies
The U.S. securities law rules governing the acquisition of a non-U.S. company for
stock consideration are largely the same as the rules applicable in the acquisition of a U.S.
company for stock consideration described in Section III.C. Namely, the issuance of the
stock to the target company’s shareholders will need to be registered under the Securities
Act unless an exemption from registration is available. The principal exemptions for the
acquisition of a non-U.S. company are discussed below.59
1. Securities Act Registration
Pursuant to Section 5 of the Securities Act, offerings of securities require

registration with the SEC, unless an exemption from the registration requirements is
available.
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a. Rule 802
A key exemption from the registration requirements of the Securities Act is found
in Rule 802 of the Securities Act, promulgated by the SEC as a part of the Cross-Border
Rules. Like the Tier I exemptions to the tender offer rules, Rule 802 applies where U.S.
holders hold no more than 10% of the outstanding subject securities of an FPI. Specifically,
Rule 802 provides an exemption from registration, if certain conditions are met, for offers
and sales in:
 any exchange offer for a class of securities of an FPI; or
 any exchange of securities for the securities of an FPI in any business

combination.
The Rule 802 exemption is available to any issuer in such a transaction, whether it
is a U.S. issuer or a non-U.S. issuer.
Rule 800 defines “exchange offer” as a “tender offer in which securities are issued
as consideration”;60 and “business combination” as a “statutory amalgamation, merger,
arrangement or other reorganization requiring the vote of security holders of one or more
of the participating companies,” including statutory short-form mergers that do not require
such a vote.61 In a business combination in which the securities are to be issued by a
successor registrant, U.S. holders may hold no more than 10% of the class of securities of
the successor registrant, as if measured immediately after completion of the business
combination.62 The percentage of U.S. holders is determined in the same way as such
holders are determined in connection with the calculations for determining Tier I and Tier
II relief under the Williams Act, as described in Section IV.A.1 of this Guide.
The issuer must permit U.S. holders to participate in the transaction on terms at
least as favorable as those offered any other holder of the subject securities. The issuer
need not either extend the offer to shareholders in jurisdictions that require registration or
qualification or extend the same consideration to all shareholders. The issuer may, for
example, offer shareholders in such jurisdictions cash consideration instead of stock
consideration in the exchange offer or business combination. If, however, the issuer offers
shareholders in such jurisdictions cash consideration, the offeror must offer the same cash
alternative to all shareholders.63
Although there is no specific disclosure requirement under Rule 802, if the issuer
publishes or otherwise disseminates any information document to holders of subject
securities, it must furnish such information document in English to the SEC on Form CB.
Form CB submissions are not considered to be information filed with the SEC, but must
be submitted no later than the first business day after publication or dissemination. If the
issuer is a non-U.S. company, it must also file a Form F-X along with the initial Form CB
submission to appoint an agent for service of process in the United States. The issuer must
disseminate any informational documents to U.S. holders, in English, on a comparable
basis as the offeror furnishes the documents to holders in the FPI’s home jurisdiction,
including by publication.64 Significantly, financial statements prepared in accordance with
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local GAAP which are submitted on Form CB are exempt from the general requirement
for reconciliation with U.S. GAAP.
Lastly, Rule 802 also requires the following legend or an equivalent statement, in
clear, plain language, to be displayed prominently on the informational document
published or disseminated to U.S. holders:65
This exchange offer or business combination is made for the securities of a

foreign company. The offer is subject to disclosure requirements of a
foreign country that are different from those of the United States. Financial
statements included in the document, if any, have been prepared in
accordance with foreign accounting standards that may not be comparable
to the financial statements of United States companies.
It may be difficult for you to enforce your rights and any claim you may
have arising under the federal securities laws, since the issuer is located in
a foreign country, and some or all of its officers and directors may be
residents of a foreign country. You may not be able to sue a foreign
company or its officers or directors in a foreign court for violations of the
U.S. securities laws. It may be difficult to compel a foreign company and
its affiliates to subject themselves to a U.S. court’s judgment.
You should be aware that the issuer may purchase securities otherwise than
under the exchange offer, such as in open market or privately negotiated
purchases.
b. Section 3(a)(10)
Section 3(a)(10) of the Securities Act provides an exemption from registration

under the Securities Act for offers and sales of securities in specified exchange
transactions.66 The section is available to both U.S. issuers and non-U.S. issuers without
any action on the part of the SEC. An issuer must meet the following conditions to be
eligible for an exemption under Section 3(a)(10):67
 the securities must be issued in exchange for “securities, claims or property

interests, or partly in such exchange and partly for cash”;
 the fairness of the exchange’s terms and conditions must be approved by a

court or authorized government entity;
 the court or authorized government entity must: (i) find, before approving
the transaction, that the exchange’s terms and conditions are fair to those
who will be issued securities, and (ii) be advised before the hearing that the
issuer will rely on the Section 3(a)(10) exemption based on the court’s or
authorized governmental entity’s approval of the transaction;
 the court or authorized government entity must hold a hearing before

approving the fairness of the terms and conditions of the transaction;
- 43 -
 a governmental entity must be expressly authorized by law to hold the
hearing, although it is not necessary that the law require a hearing;
 the fairness hearing must be open to everyone to whom securities would be

issued in the proposed exchange;
 adequate notice must be given to all such people; and
 there cannot be any improper impediments to the appearance by such people

at the hearing.
Securities issued in a scheme of arrangement, which is a common means of

acquisition in jurisdictions such as the U.K., Ireland, the Cayman Islands, Bermuda and
elsewhere, typically can qualify for the Section 3(a)(10) exemption.
Note that an acquisition of an FPI pursuant to a scheme of arrangement where

Section 3(a)(10) applies generally would not require either a registration statement or a
proxy statement in the United States for either the acquiror (unless the acquiror is listed on
a U.S. securities exchange, is issuing 20% or more of its outstanding shares in the
transaction and is not itself an FPI, in which case a vote under securities exchange listing
rules68 and an associated proxy statement would be required) or the target.
c. Vendor Placements
Another potential means of avoiding Securities Act registration in certain cross-

border exchange offers is a vendor placement. As described by the SEC, “[a] vendor
placement in a cross-border exchange offer occurs when a bidder offers securities to
foreign target holders in an offer, but establishes an arrangement whereby securities that
would be issued to tendering U.S. target holders are sold offshore by third parties. The
bidder (or the third party) remits the proceeds of the sale (minus expenses) to tendering
U.S. target holders.”69 In a vendor placement, U.S. holders are not excluded from
participating in the offer, but they participate on terms different from those afforded other
target security holders. Where permissible, the vendor placement procedure thus allows a
bidder in a cross-border exchange offer to extend the offer into the United States without
registering the issuance of the securities offered under Section 5 of the Securities Act.
The SEC has identified the following factors as relevant when contemplating the
use of a vendor placement procedure, and whether Securities Act registration is required:70
 the level of U.S. ownership in the target company;
 the number of bidder securities to be issued in the business combination

transaction as a whole as compared to the amount of bidder securities
outstanding before the offer;
 the amount of bidder securities to be issued to tendering U.S. holders and

subject to the vendor placement, as compared to the amount of bidder
securities outstanding before the offer;
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 the liquidity and general trading market for the bidder’s securities;
 the likelihood that the vendor placement can be effected within a very short
period of time after the termination of the offer and the bidder’s acceptance
of shares tendered in the offer;
 the likelihood that the bidder plans to disclose material information around
the time of the vendor placement sales; and
 the process used to effect the vendor placement sales.
Accordingly, the SEC has stated that, “[u]nless the market for the bidder’s
securities to be sold through the vendor placement process is highly liquid and robust and
the number of bidder securities to be issued for the benefit of U.S. target holders relatively
small compared to the total number of bidder securities outstanding, a vendor placement
arrangement in a cross-border exchange offer would in our view be subject to Securities
Act registration.”71
In addition to the above factors, the SEC has indicated that it is relevant (a) whether
sales of a bidder’s securities in the vendor placement process are accomplished within a
few business days of the close of the offer and whether the bidder announces material
information, such as earning results, forecasts or other financial or operating information,
before the sales process is complete, and (b) whether the vendor placement involves special
selling efforts by brokers or others acting on behalf of the bidder, as these factors indicate
whether the market price which U.S. investors will receive when the bidder’s securities are
sold on their behalf is representative, and may ensure that U.S. investors are not effectively
making an investment decision with respect to a purchase of securities (which would
require registration under the Securities Act), but rather are making a decision to tender
their target securities in exchange for an amount of cash that can be readily determined and
estimated based on historic trading prices.72
Bidders may continue to use the vendor placement procedures in compliance with
the guidance discussed above, and avoid the need for registration of the bidder securities
sold on behalf of U.S. holders under Section 5. The SEC, however, has indicated that it
“generally believes that cross-border tender offers eligible to be conducted under the Tier
I exemption represent the appropriate circumstances under which bidders may provide cash
to U.S. target holders while offering securities to foreign target holders,”73 and,
accordingly, it does not intend to issue vendor placement no-action letters regarding the
registration requirements of Section 5.74
d. Foreign Spin-Offs
A spin-off transaction in which a non-U.S. company with a material U.S.

shareholder base spins off a portion of its business could implicate U.S. registration
requirements depending on the structure of the transaction. In the context of a spin-off
transaction where a parent company will distribute shares of a subsidiary to its
shareholders, the parent company must determine whether the transaction constitutes an
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offer or sale requiring registration under Section 5 of the Securities Act. SEC guidance set
forth in Staff Legal Bulletin No. 4 (September 16, 1997) (“SLB 4”) states that securities
issued and distributed in connection with a spin-off are exempt from registration so long
as the following conditions are satisfied:
 the parent shareholders do not provide consideration for the spun-off shares;
 the spin-off is pro rata to the parent shareholders;
 the parent provides adequate information about the spin-off and the spun-
off company to its shareholders and to the trading markets prior to the
completion of the spin-off;
 the parent has a valid business purpose for the spin-off; and
 either the spun-off shares are not “restricted securities,” or the parent has
held the spun-off shares for at least two years.
SLB 4 also states that registration is not required pursuant to Securities Act Rule
145 in connection with a shareholder vote relating to the transfer of assets in connection
with a spin-off, provided that the conditions above are satisfied and the parent wholly owns
the subsidiary issuing the new securities.
Following the completion of the spin-off, the subsidiary may be required to register
the spun-off shares with the SEC under Section 12(g) of the Exchange Act, unless it is able
to establish exemption from having to register under Section 12(g), e.g. the automatic
exemption for FPIs pursuant to Rule 12g3-2(b), as discussed in Section VII.A of this Guide.
e. Cashing Out U.S. Shareholders of Target
In other cases, an acquiror may avoid the registration requirements under the
Securities Act by cashing out U.S. shareholders of the target company. For example, an
exchange offer, merger or other transaction in which acquiror securities comprise some or
all of the consideration may by its terms provide that all U.S. holders will receive cash
rather than acquiror securities. The ability to cash out target shareholders, however,
depends on the law of the non-U.S. company’s jurisdiction. For example, some
jurisdictions require that all target shareholders be treated equally, in which case it may be
more difficult to issue securities solely to the non-U.S. shareholders of the target company.
2. Listing of Securities Issued in an Acquisition
The acquisition of a non-U.S. company may involve the listing by a foreign

acquiror of the securities being offered to target securityholders on a U.S. securities
exchange (for example, because the target has a broadly held ADR program). The listing
process is discussed above in Section III.C.2 of this Guide.
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3. Post-Registration Obligations
As with the acquisition a U.S. company, a critical consideration in determining

whether to issue securities in the acquisition of a non-U.S. company is the set of post-
transaction securities law obligations that the acquiror will incur if the securities are listed
or the offering is registered under the Securities Act, including those concerning periodic
reporting requirements, the preparation of financial statements and corporate governance.
FPIs enjoy certain exemptions from such obligations.
Additional information on the registration process, exemptions and post-transaction

obligations is provided in Section VII.
D. Tax Considerations
While U.S. tax considerations are not always relevant to acquisitions of non-U.S.
companies, they generally will be implicated if the non-U.S. company has a significant
U.S. shareholder base or if the buyer is a U.S. entity.
The United States has a robust CFC regime. A CFC is generally any non-U.S.
corporation if more than 50% of its stock (by vote or value) is owned, directly, indirectly
or constructively, by “U.S. shareholders.” For this purpose, a U.S. shareholder is any U.S.
person that owns, directly, indirectly or constructively, by vote or value, 10% or more of
the stock of the non-U.S. corporation. The constructive ownership rules that apply in
making these determinations are expansive and can yield unexpected results. For example,
a corporate non-U.S. subsidiary of a non-U.S. parent will generally be a CFC if the parent
also owns a U.S. corporate subsidiary (even if the U.S. subsidiary does not itself own any
stock in the non-U.S. subsidiary). The United States generally taxes U.S. shareholders who
own (directly or indirectly, but not constructively) stock of a CFC on a current basis on
most of the income earned by the CFC under one of two regimes: (1) the “Subpart F” rules
under Section 951 of the Code, which generally apply to tax U.S. shareholders on certain
types of passive income earned by their CFCs and (2) the “Global Intangible Low-Tax
Income” (or “GILTI”) rules under Section 951A of the Code, which generally apply to tax
U.S. shareholders on all other (non-Subpart F) income of their CFCs (subject to limited
exclusions), even if no cash is brought back to the U.S. shareholder-level.
Given this landscape, an acquisition of a non-U.S. company can meaningfully

affect the go-forward U.S. federal income tax profile of a U.S. buyer. Careful consideration
of the expected tax consequences of any such acquisition in advance can help avoid
surprises and inform structuring. One “structuring” question in particular that a U.S.
corporate buyer will want to consider is whether or not to make an election under Section
338(g) of the Code with respect to the acquisition of the non-U.S. corporate target. If the
U.S. buyer makes the election—which is generally available when a corporation purchases
80% or more of the stock of another corporation in a taxable transaction—the non-U.S.
target will, for U.S. federal income tax purposes only, be deemed to have sold its assets to
an unrelated party for the deal consideration. As a result, the non-U.S. target will, after the
acquisition, be viewed as a newly formed entity, and will have a fair market value basis in
its assets. This election can be beneficial to a U.S. buyer for a number of reasons. One
“soft” but often important benefit relates to the election’s ability to eliminate the relevance
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of the target’s U.S. tax history. Non-U.S. companies often do not maintain various
computations—such as earnings and profits calculations—that are relevant for U.S. federal
income tax purposes, and absent a Section 338(g) election it would often be necessary for
U.S. buyers to recreate that information from “scratch,” a time consuming and costly
process. A more tangible benefit of the election is the resulting asset basis step-up (if there
is built-in gain) in the non-U.S. corporation’s assets for U.S. tax purposes. The step-up
will produce additional depreciation/amortization deductions that can reduce future
Subpart F and GILTI inclusions, and, by eliminating any built-in gain for U.S. tax purposes,
greatly facilitate post-acquisition integration, in particular, the process of taking historic
U.S. operations of the non-U.S. target (if any), “out from under” the non-U.S. jurisdiction
and into the U.S. buyer’s consolidated group. However, there can be drawbacks to the
election depending on the specific facts and circumstances, including the exact profile of
the buyer’s historic and the acquired foreign operations. Modelling is typically needed to
inform a final determination. U.S. buyers acquiring non-U.S. companies will also want to
consider the impact of any applicable book-based minimum tax regimes (such as the new
corporate alternative minimum tax in the United States and the OECD’s global anti-base
erosion rules already implemented or to be implemented in the near future by the European
Union member states and elsewhere). These new regimes can operate to limit (and even
eliminate) the benefits of a Section 338(g) election and can otherwise significantly impact
the go-forward tax profile of the acquired business and the combined group.
U.S. tax considerations will also be relevant on the sell-side when a non-U.S. CFC
target has U.S. shareholders, such as where a U.S. parent corporation is selling its foreign
subsidiary. One of the principal questions will again be whether the buyer should be
contractually required to make, or be prohibited from making, an election under Section
338(g) of the Code. This election can drastically alter the U.S. tax consequences of the
transaction to a U.S. shareholder. Absent the election, a U.S. shareholder generally
recognizes gain or loss equal to the difference between the consideration received and its
tax basis in the stock sold, but any such gain will be treated as a dividend to the extent of
the CFC’s accumulated earnings and profits, which, in the case of a U.S. corporate seller
may be eligible for a dividends received deduction (and thus be exempt from U.S. tax). On
the other hand, if a Section 338(g) election is made (and, absent a contractual agreement to
the contrary, a buyer may make such an election in its discretion), then, in addition to the
stock sale that actually occurs, the target is deemed to sell its assets. As a result, the CFC
target realizes asset-level gain or loss, which is deemed to accrue while the U.S.
shareholder still owns the target stock, resulting in potential GILTI and Subpart F
inclusions to the U.S. shareholder (in addition to any gain on the stock sale, as adjusted to
reflect any stock basis adjustments resulting from the Subpart F or GILTI inclusions).
These rules, and their interaction, are complex, and all potential scenarios should be
carefully modelled and considered.
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E. Non-U.S. Law Considerations
While this Section IV of the Guide is focused on the potential application of U.S.
laws to the acquisitions of non-U.S. Companies, any target and acquiror involved in the
acquisition of a non-U.S. company should also work with local counsel to understand and
comply with applicable non-U.S. laws. Certain aspects of M&A involving non-U.S. target
companies may be expected for those familiar with U.S. laws, such as the obligation of the
target’s board of directors or other governing body to comply with applicable fiduciary
duties (though details and the beneficiary stakeholders of those duties may differ). Other
aspects of M&A involving non-U.S. targets may be less expected. For example, an Irish
target may be subject to the Irish Takeover Rules, which include various protections for
target shareholders, such as potential prompt public confirmation of an offer approach by
an acquiror in the event of a leak, while UK law restricts the ability for a UK target
company to enter into an exclusivity agreement. Depending on the jurisdiction and the type
of transaction, non-U.S. jurisdictions may also limit the ability to negotiate some
transaction terms, such as limiting the closing conditions that an offer may be contingent
upon, and limiting the size of the negotiated break-fee. Given the variety of restrictions
and considerations to be understood in each jurisdiction, it is often advisable that both U.S.
counsel and non-U.S. counsel be engaged early in the process when considering M&A
involving non-U.S. targets.
V. Antitrust and National Security Considerations
Any cross-border transaction could be subject to U.S. laws on antitrust and national
security. These laws could require additional filings and coordination between the
transaction parties themselves and the U.S. government, and sometimes more importantly
could lead to delays in the consummation of a transaction.
A. Antitrust Considerations and the Hart-Scott-Rodino Act
The HSR Act requires parties to file notifications with the FTC and the DOJ for
certain transactions and to observe certain statutory waiting periods before consummating
the transactions. The purpose of the HSR Act is to give the FTC and the DOJ an
opportunity to investigate whether the contemplated transaction would substantially lessen
competition in violation of Section 7 of the Clayton Antitrust Act of 1914, as amended,
and, if so, challenge the transaction in federal court. The transactions that fall under the
HSR Act include all acquisitions of voting securities or assets that meet both the (i) “size-
of-transaction” threshold of $111.4 million, which is generally calculated as the greater of
the purchase price or fair market value of the securities or assets being acquired, and the
(ii) “size-of-person” threshold, which is satisfied when one person to the transaction has at
least $222.7 million in total assets or revenues and the other person has at least
$22.3 million in total assets or revenues. There are two exceptions to these thresholds.
First, where the size of the transaction is $445.5 million or greater, the “size-of-person”
threshold is irrelevant and the parties will have to file, unless an exemption applies. And
second, if a buyer has at least $222.7 million in assets or revenues and the target is a non-
manufacturer, then the target’s revenues are irrelevant to the threshold, and so the second
threshold is met only when the target has at least $22.3 million in total assets.
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Additionally, certain acquisitions of non-U.S. targets, including in some cases
acquisitions by non-U.S. acquirors, may require notification under the HSR Act. In
general, and subject to several exceptions, an acquisition of non-U.S. businesses or assets
will not require notification unless the sales in or into the United States generated by such
businesses or assets exceed $111.4 million during the acquired person’s last fiscal year.
The specifics of the waiting periods under the HSR Act depend on the type of
transaction involved. For most transactions, the waiting period begins when both the FTC
and the DOJ receive complete HSR filings from both the target and acquiror; for tender
offers and other non-consensual transactions, the waiting period begins when the agencies
receive a complete HSR filing from the buyer (although both parties must comply with the
process outside of a cash tender offer). The waiting period is generally 30 days, except for
cash tender offers and acquisitions in bankruptcies under 11 U.S.C. § 363, where the period
is 15 days. The first day of the waiting period is the day following the day on which the
agencies receive the complete filings. If the last day of the waiting period does not fall on
a business day, then the waiting period ends on the next business day. The parties may
also once withdraw and refile their filings without paying an additional filing fee, before
the waiting period elapses, which triggers a new 30-day waiting period (or a 15-day waiting
period for cash tender offers and 11 U.S.C. § 363 bankruptcies).
If the waiting period elapses without either agency issuing a request for additional
information and documents (known as a “Second Request”), the parties have met their
obligations under the HSR Act and may consummate their transaction. The parties may
request early termination of the waiting period before the period has elapsed, which both
agencies must agree to grant.75 When early termination is available, the agencies will
generally grant it within two to three weeks of the initial filing when a transaction raises
no antitrust issues, in which case the parties have also met their obligations and may
consummate the transaction. But note that the agencies publish the names of the parties
who are granted an early termination publicly. When a Second Request is issued, it extends
the waiting period until both parties substantially comply with the request. The waiting
period will then end 30 days after the parties submit valid certifications of substantial
compliance with the Second Request (or 10 days for cash tender offers and 11 U.S.C. §
363 bankruptcies). A Second Request is very burdensome and resource-intensive,
requiring the search and production of substantial quantities of documents from the parties’
files, as well as cost, pricing, and other data for at least three years, and interrogatory
responses. Compliance with a Second Request can take several months depending on the
parties’ systems, document retention policies, and investment of resources. Once received,
HSR clearance is generally valid for one year after the final waiting period expires.
The agencies’ current merger guidelines set forth the primary analytical techniques
and types of evidence used to assess the anticompetitive effects of a transaction.76 The
agencies focus on the definition of the market(s) involved in the transaction, including both
product and geographic market definitions; market participants, market shares and market
concentration; specific anticompetitive effects, including price discrimination, pricing of
differentiated products, reduced innovation and product variety, coordinated effects and
powerful buyers; and new entry and expansion into said markets. Further, the key pieces
of evidence on which the agencies rely include, among others:
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 the actual anticompetitive effects observed in consummated mergers;
 the historical “natural experiments” that are informative regarding the

competitive effects of the merger, including in recent mergers, entries,
expansions, or exits, in the relevant market(s);
 the parties’ market share in the relevant market(s), the level of their
respective concentrations and the change in such concentrations caused by
the transactions;
 the existence of head-to-head competition, in the present or future (absent

the transactions) between the parties; and
 the disruptive role of a merging party (i.e., where the merger of a

“maverick” firm would lessen competition).
If there are no issues, the HSR clearance process generally takes about six weeks
to complete (including the preparation of the filings and the waiting period), and, if the
parties receive a Second Request, then it could take nine months to a year, or more than a
year in the event of litigation. Of note, where parties in a transaction do not file for review
because the transaction is not reportable, the agencies may still review the transaction,
before or after closing, if they believe the transaction may have anticompetitive effects,
and in such cases the agencies are not bound by HSR time limitations.
B. National Security Considerations and the Committee on Foreign Investment

in the United States
CFIUS is a federal interagency committee that reviews certain transactions for

national security risks. CFIUS operates pursuant to Section 721 of the Defense Production
Act of 1950 and several other federal regulations. CFIUS membership is composed of the
heads of nine federal agencies, including the departments of Treasury (chair), Justice,
Homeland Security, Commerce, Defense, State and Energy and the offices of the U.S.
Trade Representative and Science & Technology Policy, and has additional observer and
non-voting, ex-officio members.
CFIUS may conduct national security reviews of “covered control transactions,”

defined as proposed or completed mergers, acquisitions or takeovers that could result in
“control” of an existing U.S. business by a non-U.S. person, as well as “covered
investments,” defined as non-controlling investments in U.S. businesses that develop
critical technology, perform certain functions with respect to critical infrastructure, or
handle sensitive personal data of specified types and volumes that confer certain
governance rights to a foreign investor. Covered transactions generally include all
transactions with the characteristics of an equity investment. Parties must therefore
consider whether their transactions, including debt and hybrid investments, exhibit
characteristics that are equity-like in nature (i.e., acquisition of an interest in a U.S.
business, acquisition of the right to appoint board members or other equity-like financial
or governance rights).77 FIRRMA, which became law in August 2018, represents the most
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significant changes in the last 10 years to the U.S. framework for reviewing foreign
investment transactions in the United States, including an expansion of the scope of
covered transactions.78 FIRRMA extends the reach of CFIUS by adding four new types of
covered transactions:
 Non-controlling investments involving critical technologies, critical

infrastructure or sensitive personal data of U.S. citizens that afford a non-
U.S. person access to material non-public technical information in the
possession of the U.S. business, membership on the board of directors or
other decision-making rights, other than through voting of shares;
 A purchase, lease or concession by or to a non-U.S. person of real estate

located in proximity to sensitive government facilities;
 Any change in a non-U.S. investor’s rights resulting in non-U.S. control of

a U.S. business or “other investment” in certain U.S. businesses; and
 Any other transaction, transfer, agreement or arrangement designed to

circumvent the jurisdiction of CFIUS.
Some provisions of FIRRMA took effect upon enactment, while others required
formal rulemaking by CFIUS. Implementing regulations were finalized in January 2020
and became effective on February 13, 2020. Among other things, the rules introduce a
mandatory filing requirement for certain investments resulting in foreign-government
controlled entities obtaining 25% or more of the voting power in a U.S. business involved
in critical technology or infrastructure or sensitive personal data. The new regulations also
identify several categories of businesses involving “critical technology,” including the
sorts of military- and defense-related items with which CFIUS has traditionally been
associated, as well as certain technologies subject to export control and “emerging and
foundational technologies” used in industries such as computer storage, semiconductors
and telecommunications equipment. Businesses involving “critical infrastructure” are
identified by reference to a list of 28 subsectors. With respect to businesses involving
“sensitive personal data,” the new regulations include any business that maintains or
collects genetic information or other “identifiable data” such as financial, health-related,
biometric or insurance data for more than one million individuals. The rules also
implement the real estate provisions of FIRRMA by expanding CFIUS’s jurisdiction to
capture the purchase, lease or concession of certain U.S. real estate to a foreign person.
FIRRMA’s changes have resulted in an increase in the number of CFIUS notices

and declarations being filed and in longer overall review periods for many transactions,
thus further increasing the potential impact of CFIUS in cross-border deals. Rather than
the more traditional indicia such as protection of defense facilities and infrastructure,
government contracts, etc., FIRRMA mandates that CFIUS view national security through
a wider lens and acknowledges that the capability to develop emerging technologies, both
digital and otherwise, is critical to ensuring long-term U.S. national security. A September
2022 executive order formalized CFIUS’s expansive view of its national security remit,
directing CFIUS to consider five categories of risk in connection with transactions:
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1. A transaction’s effect on the resilience of critical supply chains in the United
States that may have national security implications, including certain
manufacturing capabilities, services, critical mineral resources or
technologies;
2. A transaction’s effect on U.S. technological leadership in areas affecting

U.S. national security, including artificial intelligence, microelectronics,
biotechnology, quantum computing, advanced clean energy and climate
adaption technologies;
3. Industry investment trends that may have consequences for a given

transaction’s impact on national security;
4. Whether the foreign person in a transaction may obtain the ability to harm
U.S. cybersecurity as a result of the transaction; and
5. Whether the U.S. business in a transaction has access to sensitive personal

information, and whether the foreign person or its third-party ties will have
the ability to exploit such data to the detriment of national security.79
CFIUS considers all relevant facts and circumstances with respect to a covered
transaction, regardless of industry, that have potential national security implications.
CFIUS generally considers in its review: with regard to the nature of a U.S. business,
(i) the existence of government contracts, (ii) whether the U.S. business has operations
relevant to national security and (iii) whether the U.S. business deals in certain advanced
technologies or goods and services controlled for export; and, with regard to the identity
of a non-U.S. person, (iv) the nationality of the buyer, (v) the track record of the non-U.S.
person acquiring control of the U.S. business and (vi) the nonproliferation record of the
non-U.S. person’s country of origin.80 Additionally, non-U.S. government control
constitutes a national security consideration, although certain circumstances may lessen its
significance in a transaction, and, in rare cases, corporate reorganizations may also raise
national security concerns.
CFIUS’s opposition in 2021 to South Korean chip maker Magnachip

Semiconductor Corp.’s merger with Wise Road Capital Ltd., a Chinese private equity firm,
confirms that CFIUS will take an expansive view of its jurisdiction when semiconductor
supply, even involving non-military applications, is at stake. CFIUS had “called in” the
transaction for its review even though the transacting parties indicated that they had no
U.S. nexus except for being incorporated in Delaware, having a Delaware subsidiary, and
being listed on the NYSE, with any de minimis sales into the United States only occurring
through third-party distributors and resellers. Magnachip’s 2020 annual report, though,
indicated that it had a facility in San Jose, California, which it used for “administration,
sales and marketing and research development functions,” that had been closed only in
September 2020. A notable aspect of the deal was CFIUS’s issuance on June 15, 2021 of
an interim order preventing Wise Road from completing the acquisition of Magnachip
pending its review of the transaction. While FIRRMA gave CFIUS the authority to prevent
consummation of a transaction pending its review, CFIUS has so far rarely used that
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authority. In abandoning the transaction, Magnachip cited its inability to obtain CFIUS’s
approval for the merger. Companies operating overseas with even a limited nexus to the
United States need to undertake CFIUS due diligence before engaging in a transaction in
sectors that may involve core national security areas of interest.
The CFIUS review process generally starts with the filing of a notice or declaration,
at which point CFIUS will initiate its review process. While filings for most transactions
are voluntary, as noted above FIRRMA introduced mandatory filing requirements for
certain investments by foreign-government controlled entities as well as investments in
U.S. businesses involved in critical technology. When CFIUS clears a covered transaction,
the parties receive a “safe harbor” before closing, which allows “the transaction [to]
proceed without possibility of subsequent suspension or prohibition under section 721.”81
If, however, CFIUS does not clear a covered transaction that it believes presents national
security issues before closing, it may do so after closing, which could lead to the imposition
of mitigation measures, including potentially burdensome divestitures, after the closing of
the transaction.82
In addition, FIRRMA allows mandatory and voluntary filers to use an abbreviated

“declaration” containing basic information in lieu of a full-length notice. A declaration
must be submitted at least 45 days before closing of the applicable transaction, and within
30 days of filing, CFIUS must decide whether to clear the transaction or request submission
of a full-length notice, which would commence a full review period. Statistics suggest that
the abbreviated “declaration” may present an attractive option for foreign investors in
transactions in which the risk of review is low—in 2020 and 2021, CFIUS cleared more
than two thirds of transactions filed on a declaration without requesting submission of a
full notice.
FIRRMA also lengthened CFIUS’s initial review period upon the filing of a full-
length notice from 30 days to 45 days, and allowed for investigations to be extended for an
additional 15 days (from 45 to 60 days) in extraordinary circumstances. While in theory
these changes could increase the review period from 75 days up to 105 days, in practice,
this extended timeline is unlikely to have a significant effect on sensitive transactions, as
parties to such transactions typically engage in protracted “pre-notification” discussions
with CFIUS and are often asked to withdraw and refile their notice, restarting the applicable
review period.
In circumstances in which a mandatory filing is not required, it is often still prudent

to make a voluntary filing with CFIUS if control of a U.S. business is to be acquired by a
non-U.S. acquiror and the likelihood of an investigation is reasonably high or if competing
bidders are likely to take advantage of the uncertainty of a potential investigation. If there
is significant likelihood of an investigation, it may be advantageous for the parties to forego
the opportunity to file a short-form “declaration” and instead move straight to filing a long-
form notice, so as to avoid an additional 30-day delay while CFIUS evaluates the
“declaration,” only to then require a full-length notice and full investigation. Similar
considerations with respect to the use of a “declaration” or the full-length notice will apply
for transactions where a mandatory filing is required as a result of the FIRRMA changes.
Filings typically are preceded by discussions with U.S. Treasury officials and other
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relevant agencies, and companies should consider suggesting methods of mitigation early
in the review process in order to help shape any remedial measures and avoid delay or
potential disapproval. In some cases, it may even be prudent to make the initial contact
prior to the public announcement of the transaction. Given the higher volume of filings
that have occurred in the last few years, such discussions can be instrumental in minimizing
the review period. In circumstances where no filing is required and the risk of review is
low, but the parties still want assurances that CFIUS or the U.S. president will not take
action on their own initiative, the short-form “declaration” provided for by FIRRMA will
be a useful tool to streamline the CFIUS process and remove lingering uncertainty.
Additionally, although practice varies, an increasing number of cross-border

transactions in recent years have sought to mitigate CFIUS-related non-consummation risk
by including reverse break fees specifically tied to the CFIUS review process. In some of
these transactions, U.S. sellers have sought to secure the payment of the reverse break fee
by requiring the acquiror to deposit the amount of the reverse break fee into a U.S. escrow
account in U.S. dollars, either at signing or in installments over a period of time following
signing. While still an evolving product, some insurers have also begun offering insurance
coverage for CFIUS-related non-consummation risk, covering payment of the reverse
break fee in the event a transaction does not close due to CFIUS review, at a cost of
approximately 10%–15% of the reverse break fee.
The CFIUS review process involves several steps. The parties submit a draft notice
to CFIUS, which then initiates a national security review and, if necessary, a national
security investigation. CFIUS investigates a transaction when it determines in its review
that it may impair national security. In the review and investigation, CFIUS examines the
transaction to identify and address any potential national security concerns that may arise
as a result of the transaction. Lastly, CFIUS makes its recommendations to the president
to approve, either unconditionally or with certain conditions (e.g., divestitures, forfeitures
of contracts, appointments of compliance personnel or appointments of proxy board
composed solely of U.S. persons), suspend or prohibit the transaction.
Parties to cross-border transactions must continue to give the process due

consideration. In recent years, CFIUS has loomed particularly large over cross-border
deals, especially those involving investors from China or other non-allied countries. For
example, in September 2017, President Trump issued an executive order blocking Lattice
Semiconductor’s $1.3 billion acquisition by a Chinese government-backed private equity
fund, Canyon Bridge Capital Partners, based on CFIUS concerns.83 In early January 2018,
MoneyGram and Alibaba affiliate Ant Financial terminated their proposed $1.2 billion
deal, following failure to gain CFIUS approval over concerns about protection of personal
data. And in what was likely the most high-profile CFIUS-related action, in March 2018
CFIUS ordered Qualcomm to postpone its annual shareholder meeting, at which Broadcom
had nominated a slate of directors who would constitute a majority of the Qualcomm board;
shortly thereafter, President Trump ordered Broadcom to cease pursuit of its hostile bid for
Qualcomm, ending what would have been one of the largest technology transactions in
history. In 2019, CFIUS continued to use its authority to block or cause parties to abandon
transactions, including forcing post-consummation divestitures, as was the case with two
Chinese companies’ investments in technology startups Grindr and PatientsLikeMe,
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allegedly due to concerns regarding cybersecurity or access to sensitive personal data. In
2020, CFIUS blocked a Chinese entity from acquiring a fertility clinic in San Diego,
highlighting the increasing concerns over sensitive data collection and retention of U.S.
persons by foreign entities, and forced several post-consummation divestitures on national
security grounds, including Beijing Shiji’s interest in StayNTouch, which provides
property management software for hotels and guests.
While remaining open to foreign investments in the United States, particularly from
traditional allies, the Biden administration has maintained a robust CFIUS review process.
In particular, investments from countries that are viewed by the U.S. government as
strategic competitors continue to face close scrutiny. In addition, the Covid-19 pandemic
has brought supply chain issues to the fore, with many U.S. businesses struggling to obtain
medical and personal protective equipment from foreign suppliers. The supply chain
vulnerabilities exposed by the pandemic may result in heightened CFIUS scrutiny of
transactions that may affect supply chains of U.S. industries critical to the economy and
public health.
Also, while CFIUS has historically reviewed only foreign investments in the United
States, in August 2023 President Biden issued the Executive Order on Addressing United
States Investments in Certain National Security Technologies and Products in Countries of
Concern. This order, for the first time, will give CFIUS authority to also review outbound
foreign investments by U.S. businesses. This outbound review process is often referred to
as “reverse CFIUS.” The Department of the Treasury simultaneously released an
Advanced Notice of Proposed Rulemaking with proposed details for the program. The
reverse CFIUS program will not take effect until this rulemaking is complete, and it is not
proposed that the program apply retroactively. The Executive Order attempts to thread the
needle of “taking narrowly targeted actions to protect our national security while
maintaining our longstanding commitment to open investment.” Accordingly, the reverse
CFIUS order exclusively focuses on three technologies: semiconductors and
microelectronics; quantum information technologies; and artificial intelligence. At this
point, the Biden administration has only identified China, including Hong Kong and
Macau, as a country of concern (although the President may modify this list).
The European Union has also adopted a framework to screen foreign direct
investments. The framework encourages EU member states to adopt a CFIUS-style foreign
direct investment regime focusing on national security concerns, including the protection
of critical infrastructure and technologies, and provides a consolidated mechanism through
which member states can coordinate foreign direct investment review. By the end of 2023,
most European Union countries had adopted or enhanced foreign investment screening
regimes, many of which cover a large number of industries and transactions. In January
2024, the European Commission published a proposed reform of the EU’s foreign direct
investment screening regime, which, if adopted, would introduce some notable changes,
including expanding the range of transactions that would be covered, increasing the amount
of information that foreign investors would need to provide in their notifications and, in an
attempt to increase harmonization across the EU’s 27 Member States, introducing a set of
minimum requirements that national screening mechanisms would be required to meet.
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Similarly, in early 2022, the United Kingdom adopted an enhanced foreign
investment regime. In industries with national security sensitivities, including
semiconductors, technology, pharmaceuticals, biotechnology and healthcare, these
regimes can have a significant impact on how parties structure transactions and assess
transaction risks when foreign parties are involved. In addition, another development that
may impact execution risk in deals involving foreign parties is the EU’s Regulation on
Foreign Subsidies Distorting the Internal Market, which went into effect in October 2023.
The new regulation, which aims to address distortions caused by government subsidies to
foreign companies, includes a mandatory notification and review regime for certain
acquisitions of EU-based companies by foreign investors that have received subsidies or
other contributions from non-EU governments in the three years prior to the deal. The
review process will run in parallel to the traditional merger review, and the European
Commission will have new investigatory powers and the ability to impose measures to
mitigate the effects of foreign subsidies. The new regulation defines government
contributions very broadly, including sales of goods or services to any government entity,
thus increasing the risk that deals will trigger a notification obligation. We expect that this
new screening tool will create new burdens and potential delays for M&A deals involving
companies active in the EU.
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VI.
Negotiation, Diligence and Integration Considerations
Practical and tactical considerations with respect to structuring and executing a

cross-border transaction are as important to understand as related U.S. legal considerations.
A complex combination of local laws and custom may guide the parties not only in
transaction structure and consideration, but also in the negotiation, due diligence and
integration phases of the cross-border deal.
A. Negotiation
When negotiating a potential cross-border transaction, understanding the custom

and practice of M&A in the target’s jurisdiction is essential. Successful execution is as
much art as science, and will benefit from early involvement by experienced local advisors.
For example, understanding when to respect—and when to challenge—a target’s sale
“process” may be critical. Knowing how and at what price level to enter the discussions
will often determine the success or failure of a proposal. In some situations, it is prudent
to start with an offer on the low side, while in other situations, offering a full price at the
outset may be essential to achieving a negotiated deal and discouraging competitors,
including those who might raise political or regulatory issues. Decisions as to pricing can
also fundamentally impact the timeline for a transaction—offering a full price at the outset
avoids the need for multiple rounds of negotiation. In strategically or politically sensitive
transactions, hostile maneuvers may be imprudent; in other cases, unsolicited pressure may
be the only way to force a transaction. Similarly, understanding in advance the roles of
arbitrageurs, hedge funds, institutional investors, private equity funds, proxy voting
advisors and other important market players in the target’s market—and their likely views
of the anticipated acquisition attempt as well as when they appear and disappear from the
scene—can be pivotal to the outcome of the contemplated transaction. Occasionally, local
regulators and other local constituencies may seek to intervene in a global deal. Seemingly
modest social issues, such as the name of the continuing enterprise and its corporate seat,
or the choice of the nominal acquiror in a merger, may affect the perspective of government
and labor officials. Depending on the industry involved and the geographic distribution of
the workforce, labor unions and “works councils” may be active and play a significant role
in the current political environment, and as a result, demand concessions.
Where the target is a U.S. public company, the customs and formalities surrounding
participation by the board of directors in the M&A process, including the participation of
legal and financial advisors, fairness opinion practice and the inquiry and analysis
surrounding the activities of the board and the financial advisors, can be unfamiliar and
potentially confusing to non-U.S. transaction participants and can lead to
misunderstandings that threaten to upset delicate transaction negotiations. Non-U.S.
participants must be well-advised as to the role of U.S. public company boards and the
legal, regulatory and litigation framework and risks that can constrain or prescribe board
action. In particular, the litigation framework should be kept in mind as shareholder
litigation often accompanies M&A transactions involving U.S. public companies. The
acquiror, its directors, shareholders and other offshore stakeholders should be conditioned
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in advance (to the extent possible) to expect litigation and not to necessarily view it as a
sign of trouble. In addition, it is important to understand that the U.S. discovery process
in litigation is different, and in some contexts more intrusive, than the process in other
jurisdictions. Moreover, the choice of governing law and the choice of forum to govern
any potential dispute between the parties about the terms or enforceability of the agreement
may have a substantial effect on the outcome of any such dispute, or even be outcome
determinative. Parties entering into cross-border transactions should consider with care
whether to specify the remedies available for breach of the transaction documents and the
mechanisms for obtaining or resisting such remedies.
The litigation risk and the other factors mentioned above can impact both tactics
and timing of M&A processes and the nature of communications with the target company.
Additionally, on top of U.S. securities law considerations, local takeover regulations often
differ from those in the acquiror’s home jurisdiction. For example, the mandatory offer
concept common in Europe, India and other countries—in which an acquisition of a certain
percentage of securities requires the bidder to make an offer for either the balance of the
outstanding shares or for an additional percentage—is very different from U.S. practice, as
is a regulator-supervised auction. Permissible deal-protection structures, pricing
requirements and defensive measures available to targets also differ. Sensitivity also must
be given to the contours of the target board’s fiduciary duties and decision-making
obligations in home jurisdictions, particularly with respect to consideration of stakeholder
interests other than those of shareholders and non-financial criteria.
In addition to these customs and formalities, participants in a cross-border

transaction should focus attention on the practical considerations of dealing with a
counterparty that is subject to a foreign legal regime. For example, acknowledging the
potential practical constraints around enforcing a remedy in a foreign jurisdiction can
significantly change negotiating dynamics and result in alternative deal structures. Escrow
deposit structures or letters of credit from U.S. banks have been used a number of times to
reduce enforceability risk in transactions with Chinese acquirors and may be instructive in
other contexts where enforceability is not assured.
The multifaceted overlay of foreign takeover laws and the legal and tactical
considerations they present can be particularly complex when a bid for a non-U.S. company
may be unwelcome. Careful planning and coordination with foreign counsel are critical in
hostile and unsolicited transactions, on both the bidder and target sides. For example,
Italy’s “passivity” rule, which limits defensive measures a target can take without
shareholder approval, is suspended unless the hostile bidder is itself subject to equivalent
rules. A French company’s organizational documents can provide for a similar rule, and
France’s Florange Act contains default provisions that a French company’s long-term
shareholders are granted double voting rights, which would reduce the influence of toehold
acquisitions or merger arbitrageurs. Dutch law and practice allow for the target’s use of
an independent “foundation,” or stichting, to at least temporarily defend against hostile
offers through the issuance of voting shares. The foundation, which is controlled by
independent directors appointed by the target and has a broad defensive mandate, is issued
high-vote preferred shares at a nominal cost, which allow it to control the voting outcome
of any matter put to target shareholders.
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Disclosure obligations may also vary across jurisdictions. How and when an
acquiror’s interest in the target is publicly disclosed should be carefully controlled to the
extent possible, keeping in mind the various ownership thresholds or other triggers for
mandatory disclosure under the law of the jurisdiction of the company being acquired. In
addition to mandatory disclosure thresholds under federal securities laws in the United
States, there are also regulatory agency rules applicable for particular industries, such as
those of the Federal Reserve Board, the Federal Energy Regulatory Commission and the
Federal Communications Commission.
For example, under the Irish Takeover Panel’s new “put-up or shut-up” (“PUSU”)
regime, which came into effect in July 2022, if a bidder proposing to acquire an Irish public
company has been publicly identified, the bidder has 42 days to either announce a formal
offer to acquire the company (i.e., “put-up”) or announce it does not intend to make an
offer (i.e., “shut-up”), after which time, if the bidder does not announce a formal offer, it
will be restricted from making an offer to acquire the company for six months thereafter.
The new PUSU regime also requires that a target company announcing a potential offer
(including in connection with a leak announcement, which may be mandatory in certain
circumstances under the Irish Takeover Rules) identify in such announcement all potential
offerors that it is in discussions with, which then commences the 42-day clock for all such
potential offerors to make an offer. This regime may be useful to a target company that
receives an unwanted offer as a takeover defense measure by putting a tight deadline on
the hostile bidder’s ability to submit an offer. But, the regime may also consequently chill
or impede discussions with a different, “friendly” offeror with whom the company may be
having transaction discussions, especially if those discussions were in preliminary stages
and the offeror would not be prepared to make a formal, public offer within the 42-day
timeframe (and may otherwise hamper the ability to use the veil of confidentiality as a
negotiating tool).
Treatment of derivative securities and other pecuniary interests in a target other

than equity holdings also vary by jurisdiction and have received heightened regulatory
focus in recent periods, as well as potential consequences for acquirors once a public
disclosure has been made. For example, in 2021, a panel of the Alberta Securities
Commission in Canada found that a hostile bidder’s use of cash-settled total return swaps—
which gave the bidder economic exposure to (and control of) underlying target shares—
and lack of disclosure of them was abusive to the target company’s shareholders and
ordered that the minimum tender condition be increased to take account of the shares that
were controlled by the bidder through the cash-settled swaps.
Companies are also well advised to understand jurisdictional differences in typical

M&A contracts and the impact on risk allocation between the parties. For example, U.S.
private company acquisition agreements often determine the final purchase price based on
the closing cash, debt and net working capital of the target, while U.K. acquisition
agreements typically use a “locked box” structure whereby the purchase price is fixed
based on financial statements prior to signing (with the date of such financial statements
referred to as the “locked box date”) and dividends and other “leakage” are prohibited.
While parties to U.S.-style agreements must focus on the net working capital target and
negotiate detailed purchase price adjustment mechanics, parties to U.K.-style agreements
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should be prepared to negotiate what transactions constitute “leakage” of value after the
locked box date that reduce the final purchase price. U.K. locked box agreements also
sometimes include a daily ticking fee payable by the buyer to the seller for the period
between the locked box date and the closing date. The ticking fee may be set based on the
expected daily profit of the target business after the locked box date. This structure
therefore in a sense shifts economic ownership of the target business from the seller to the
buyer at the locked box date (rather than at closing, as with the purchase price adjustment
structure), with the risks of decline (and benefit of improvement) in the target’s business
following the locked box date borne by the buyer, and the seller being compensated for the
risk of regulatory or other delays to closing. Differences between U.S.-style representation
and warranty insurance and U.K.-style representation and warranty insurance also affect
risk allocation post-closing. While U.K.-style representation and warranty insurance is
typically less expensive that U.S.-style insurance, U.K. representation and warranty
insurance policies often provide less coverage, such as by excluding from coverage any
item in the target’s data room. Parties may insist on using a U.S.-style contract or a U.K.-
style contract to take advantage of more favorable risk allocation.
It is essential that a comprehensive communications plan be in place before the

announcement of a transaction so that all the relevant constituencies can be targeted and
addressed with the appropriate messages. It is often useful to involve local public relations
firms in the planning process at an early stage. Planning for premature leaks is also critical,
especially in certain jurisdictions with regimes requiring mandatory disclosure when there
are leaks involving takeovers or material information more generally. Similarly, potential
regulatory hurdles require sophisticated advance planning. In addition to securities and
antitrust regulations, acquisitions may be subject to foreign investment review, and
acquisitions in regulated industries (e.g., energy, public utilities, gaming, insurance,
telecommunications and media, financial institutions, transportation, semiconductor and
defense contracting) may be subject to additional layers of regulatory approvals.
Regulation in these areas is often complex, and political opponents, reluctant targets and
competing bidders may seize on any perceived weaknesses in an acquiror’s ability to clear
regulatory obstacles. Most obstacles to a cross-border deal are best addressed in
partnership with local players (including, in particular, the target company’s management,
where appropriate) whose interests are aligned with those of the acquiror, as local support
reduces the appearance of a foreign threat.
It is in most cases critical that the likely concerns of national and local government
agencies, employees, customers, suppliers, communities and other interested parties be
thoroughly considered and, if possible, addressed prior to any acquisition or investment
proposal becoming public. Flexibility in transaction structures, especially in strategic or
politically sensitive situations, may be helpful in particular circumstances, such as: (i) no-
governance or low-governance investments, minority positions or joint ventures, possibly
with the right to increase to greater ownership or governance over time (though as
discussed below, recently enacted legislation and related rulemaking may decrease the
utility of these structures as tools to avoid regulatory scrutiny in the United States); (ii)
when entering a foreign market, making an acquisition in partnership with a local company
or management or in collaboration with a local source of financing or co-investor (such as
a private equity firm); or (iii) utilizing a controlled or partly controlled local acquisition
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vehicle, possibly with a board of directors having a substantial number of local citizens and
a prominent local figure as a non-executive chairman.
B. Due Diligence and Integration Planning
Due diligence and integration planning warrant special attention in the context of a
cross-border transaction. Regardless of jurisdiction, wholesale application of the
acquiror’s domestic due diligence standards to the target can cause delay, wasted time and
resources, or result in the parties missing key transaction issues.
Due diligence methods must take account of the target jurisdiction’s legal regime
and local norms, including what steps a publicly traded company can take with respect to
disclosing material non-public information to potential bidders and implications for
disclosure obligations. Many due diligence requests are best funneled through legal or
financial intermediaries as opposed to being made directly to the target company. For a
U.S. company acquiring a non-U.S. company, due diligence relating to compliance with
the sanction regulations overseen by the Treasury Department’s Office of Foreign Assets
Control is essential. Similarly, due diligence with respect to risks related to the FCPA—
and understanding the DOJ’s guidance for minimizing the risk of inheriting FCPA
liability—is critical for a U.S. company acquiring a company with non-U.S. business
activities; even acquisitions of foreign companies that do business in the United States may
be scrutinized with respect to FCPA compliance. In 2018, the DOJ established guidance
expanding its FCPA Corporate Enforcement Policy to M&A transactions. As a result,
when an acquiring company identifies misconduct through pre-transaction due diligence
or post-transaction integration, and then self-reports the relevant conduct, the DOJ is now
more likely to decline to prosecute if the company fully cooperates, remediates in a
complete and timely fashion and disgorges any ill-gotten gains. This presumption of
declination was further broadened by the DOJ’s 2019 revisions to the policy, which provide
that an acquiring company may still be eligible for a declination even if the target it
acquired presented aggravating circumstances—for example, if the target’s management
was complicit in the corruption, the presumption of declination could still apply if the
acquiror timely discovered and removed such members of management. This guidance
further underscores the importance of careful pre-acquisition due diligence and effective
post-closing compliance integration, which will place acquiring companies in the best
position to take advantage of the DOJ’s enforcement approach in appropriate cases where
misconduct is uncovered. Further information on FCPA liability and recent enforcement
actions involving FPIs can be found in Section VIII.C of this Guide. Acquirors should also
keep in mind the key sanctions imposed by the United States, European Union, and the
United Kingdom (among other nations) on Russia, Belarus and their related persons and
entities in response to Russia’s invasion of Ukraine; recent enforcement actions by the DOJ
reflect an aggressive stance towards Russia sanctions and export control evasion.84
Acquirors considering targets with multi-jurisdictional supply chains or financial
institutions or other entities involved in facilitating international trade should evaluate such
targets’ compliance programs and review their relationships with higher-risk customers
and counterparties, in particular those with connections to Russia, Belarus, and other
higher-risk jurisdictions.
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Cross-border transactions sometimes fail due to poor post-acquisition integration
where multiple cultures, languages, historic business methods and distance may create
friction. If possible, the executives and consultants who will be responsible for integration
should be involved in the early stages of the deal so that they can help formulate and “own”
the plans that they will be expected to execute. Too often, a separation between the deal
team and the integration/execution teams invites slippage in execution of a plan that in
hindsight is labeled by the new team as unrealistic or overly ambitious. However,
integration planning needs to be carefully phased in, as implementation cannot occur prior
to the time most regulatory approvals are obtained, and merging parties must exercise care
not to engage in conduct that antitrust agencies perceive as a premature transfer of
beneficial ownership or conspiracy in restraint of trade. Investigations into potential “gun-
jumping” present costly and delaying distractions during substantive merger review.
C. ESG Considerations in Integration Planning and Due Diligence
Environmental, social, and governance (“ESG”) considerations have remained an

important strategic and operational priority, exerting noticeable influence over the M&A
landscape in recent years. Senior executives and corporate boards have leveraged M&A
to advance ESG strategies and companies are integrating ESG considerations into due
diligence and post-transaction integration processes to ensure maximal synergies and long-
term value creation. Recent months have seen a wave of consolidation in the oil and gas
sector led by the announcements of Chevron’s $53 billion acquisition of Hess and Exxon’s
$59.5 billion acquisition of Pioneer Natural Resources, which were soon followed by the
announcements of Chesapeake’s $7.4 billion acquisition of Southwestern Energy,
Diamondback’s $26 billion acquisition of Endeavor and APA’s $4.5 billion acquisition of
Callon Petroleum. The latest series of mergers in the oil and gas sector reflect ongoing
pressure on fossil fuel producers to improve efficiency and scale and to secure access to
the most profitable drilling sites as they look to compete with the growing renewables
sector. Other transactions that have been in part driven by ESG-related strategic
considerations include BlackRock’s $12.5 billion acquisition of Global Infrastructure
Partners, RWE’s $6.8 billion purchase of Con Edison’s clean energy business and
Infrastructure Investment Fund’s $8.1 billion acquisition of South Jersey Industries, SSE’s
$1.8 billion sale of a minority stake in its electricity transmission network to the Ontario
Teachers’ Pension Plan Board, Alphabet’s $5.4 billion acquisition of cybersecurity firm
Mandiant, BP’s $4.1 billion acquisition of bioenergy firm Archaea, and Chevron’s $3.1
billion acquisition of Renewable Energy Group.
The influence of environmental and social considerations on M&A is likely to

persist as shareholders and regulators continue to exert pressure on companies to make
strategic and operational changes to address new risks and opportunities, in addition to
enhancing board and management oversight of such matters. Notably, in the United States
and the European Union, new and pending rules mandating disclosures on climate, human
capital, cybersecurity and board diversity will require companies to provide accurate and
timely disclosures, incentivizing acquirors and targets to carefully diligence these areas to
identify potential risks and vulnerabilities, including disclosure-related risks that may arise
from inaccurate public reporting or insufficient internal controls. In light of the continued
investor and regulatory focus on rigorous ESG-related governance and oversight, parties
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to a transaction will also need to pay close attention to the internal processes used to
identify, manage and mitigate ESG-related risks at both the management and board levels.
Acquirors will also need to make a determination of the pro forma ESG impact of a
transaction, including the impact on reputation and culture, when assessing deal synergies,
and on the target side, boards and managements will also need to be cognizant that ESG
concerns may factor into the shareholder vote.
Human capital considerations may also impact post-transaction integration

processes. Corporate culture, values and employee morale are often tested following a
transaction, and management and the board are responsible for setting the right tone at the
top. Clear leadership in this area is particularly valuable in cross-border transactions where
divergences in corporate culture and workforce expectations may be acute. Integration
efforts will also need to be sensitive to existing environmental, social and governance
goals, policies and procedures of the target and acquiror, so as not to adversely impact the
profile of the combined company or side-step growing regulatory requirements in different
jurisdictions.
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VII.
Post-Transaction Obligations of an FPI That Lists or Registers Securities
A critical consideration for an non-U.S. company that is evaluating whether to issue

securities as consideration in the transaction is the potential post-transaction securities law
obligations that may be imposed as a result of the issuance. The listing of securities on a
U.S. securities exchange, or registration of an offering under the Securities Act, can impose
post-transaction obligations, including those concerning periodic reporting requirements,
the preparation of financial statements and corporate governance. FPIs enjoy certain
exemptions from such obligations. This section summarizes these obligations and the
exemptions that are afforded to FPIs.
It is important to keep in mind that a non-U.S. company would lose the benefit the
various exemptions available to FPIs if it ceases to qualify as an FPI. In that circumstance,
the company would become subject to the full panoply of federal securities laws applicable
to U.S. companies. See Section II.C.1 for a description of FPIs and the requirements for
annual evaluation of a non-U.S. company’s status as an FPI.
A. Registration Requirements
Sources of Exchange Act Obligations
The registration requirements under the Exchange Act set forth the three ways by
which an issuer becomes a “reporting company,” and thereby must register with the SEC
and comply with the periodic reporting requirements of Sections 13(a) or 15(d) and other
obligations. Specifically, an issuer becomes a reporting company when it:
 lists a class of securities on a national securities exchange, requiring it to

register the securities under Section 12(b) of the Exchange Act;85
 has assets in excess of $10 million and its shares are held of record by
(i) 2,000 or more persons or (ii) 500 or more persons who are not accredited
investors, excluding persons who received unregistered securities pursuant
to an employee compensation plan, requiring it to register its securities
under Section 12(g) of the Exchange Act;86 and/or
 files a registration statement for a class of securities under the Securities

Act in a public offering, and, as a result, incurs ongoing reporting
obligations under Section 15(d) of the Exchange Act, which would continue
for at least the fiscal year in which the registration statement became
effective.87
The Rule 12g3-2 Exemptions
Unlike Sections 12(b) and 15(d), which an FPI can avoid by not listing its securities
on a U.S. securities exchange and not conducting an offering registered under the Securities
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Act, an FPI may be unable to avoid meeting the numerical shareholder tests of Section
12(g). However, Exchange Act Rule 12g3-2 provides two important exemptions from
Section 12(g).
Rule 12g3-2(a) exempts an FPI from having to register under Section 12(g) if it has
fewer than 300 holders of record in the United States. For this purpose, issuers must count
all beneficial U.S. holders and not only record holders. To do so, an issuer must (i) “look
through” the record ownership of the brokers, dealers, banks and nominees holding the
issuer’s securities for the accounts of their customers to identify all beneficial U.S. holders
and (ii) consider beneficial ownership reports and other similar documentation with U.S.
holder information. This exemption continues until the next fiscal year end at which the
FPI has a class of equity securities held by 300 or more persons resident in the United
States.
In 2016, the SEC adopted amendments to Rule 12g5-1 under the Exchange Act as
required by the JOBS Act, which affects how US record holders are counted for the
purposes of Rule 12g3-2(a).88 Rule 12g5-1(a)(8)(i), which was adopted as a result of these
amendments, excludes from the definition of “held of record” securities that are either:
(a) held by persons who received them under an employee compensation plan in
transactions exempt or excluded from registration under the Securities Act (for example,
under Section 4(a)(2) of, or Regulation D or S); or (b) held by persons who received them
in a transaction exempt or excluded from Securities Act registration from the issuer, a
predecessor of the issuer, or an acquired company in substitution or exchange for securities
excludable under clause (a), as long as the persons were eligible to receive securities under
Rule 701(c) at the time the excludable securities were originally issued to them. As a result,
FPIs are permitted to exclude the securities listed in Rule 12g5-1(a)(8)(i) when determining
if they have met the 300 U.S. resident holder standard under Exchange Act Rule 12g3-2(a).
Rule 12g3-2(b) exempts an FPI from having to register under Section 12(g) if it
meets the following requirements: (1) the FPI is not currently be required to file or furnish
Exchange Act reports (due to being listed on a U.S. securities exchange or having had a
Securities Act registration statement become effective); (2) the FPI maintains a listing of
the subject class of securities on a non-U.S. exchange that is its “primary trading market”89
for those securities as of its most recently completed fiscal year; and (3) the FPI has
published, in English, certain home country disclosure documents since the first day of its
most recently completed fiscal year, on its website or through an electronic information
delivery system. This exemption continues until the FPI no longer satisfies the electronic
publication condition; no longer maintains a listing of the subject class of securities on one
or more exchanges in a primary trading market; or registers a class of securities under
Section 12 of the Exchange Act or incurs reporting obligations under Section 15(d) of the
Exchange Act. Since 2008, the SEC has permitted FPIs qualifying for the Rule 12g3-2(b)
exemption to claim it automatically (as under Rule 12g3-2(a)), rather than requiring FPIs
to apply via written application.90
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B. Periodic Reporting Obligations
1. Periodic Reports
An FPI with reporting obligations must file an annual report on Form 20-F with the
SEC within four months after the FPI’s fiscal year-end.91 FPIs thus enjoy a benefit relative
to U.S. issuers, which must file their annual reports on Form 10-K within 60, 75 or 90 days
after the end of their fiscal years, depending on whether the issuer is a “large accelerated
filer,” “accelerated filer,” or “non-accelerated filer.” Form 20-F provides investors with
comprehensive information about an FPI’s business, management and operational and
financial status during a fiscal year. Among other items, Form 20-F must include:
 a description of the issuer’s business;
 selected financial data;
 a discussion of material risk factors;
 management’s discussion and analysis of financial condition and results of

operations (the “MD&A”);92
 disclosures concerning directors, management and employees;93
 major shareholders (i.e., beneficial owners of more than 5% of the FPI’s

stock, unless home country disclosure requires a lower percentage);
 information about related-party transactions (including transactions and

agreements with major shareholders);
 a summary of material litigation;
 a description of any changes to the rights of security holders;
 reports and attestations assessing the effectiveness of the company’s

internal controls over financial reporting;
 disclosures related to accountants, including fees and changes in the

certifying accountant;
 full annual audited financial statements prepared in accordance with one of

(i) U.S. Generally Accepted Accounting Principles (“U.S. GAAP”),
(ii) IFRS as issued by the IASB, or (iii) GAAP of a foreign country, together
with a U.S. GAAP-reconciliation disclosure;
 CEO and CFO certifications as required by Sarbanes-Oxley; and
 key documents filed as exhibits, including (i) charters and bylaws as

currently in effect and any amendments to either; (ii) all certificates,
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instruments and agreements defining the rights of shareholders; (iii) all
instruments and documents defining the rights of holders of long-term debt
issued (with some exceptions); (iv) any voting trust agreements and any
amendments to them; (v) material contracts; (vi) management contracts or
compensatory plans (with some exceptions); (vii) a list of subsidiaries; and
(viii) an explanation of earnings per share calculations.
SEC regulations issued under the Exchange Act pursuant to Sarbanes-Oxley further
require a U.S. issuer’s annual report to contain a report on internal controls that states
management’s responsibility for maintaining an adequate internal control structure and
procedures for financial reporting and to include an assessment of the effectiveness of such
controls as of the end of the reporting period.94 An issuer’s independent auditor is required
to attest to management’s assessment in accordance with standards adopted by the U.S.
Public Company Accounting Oversight Board (“PCAOB”).95 These requirements apply
to FPIs, although a new reporting company is not required to comply with them until it has
been required to file, or has filed, an annual report for the prior fiscal year.96
Under final rules adopted to implement the Holding Foreign Companies

Accountable Act (“HFCAA”), the SEC began provisionally identifying issuers beginning
with annual reports for the year ended December 31, 2021. An “identified issuer” under
the HFCAA is one that has filed financial statements audited by a registered public
accounting firm with a branch or office located in a foreign jurisdiction that the PCAOB
has determined impedes or prevents full PCAOB inspections. Once the SEC has
provisionally identified an issuer, the issuer has 15 business days to dispute its
classification and to provide evidence supporting its claim; absent such notification of a
dispute, the SEC will treat the issuer as conclusively identified, subjecting it to the HFCAA.
If a “foreign issuer” has been conclusively identified, in its next annual report following
identification it must disclose:
 the PCAOB-identified accounting firm that has prepared an audit

report for the issuer during the period covered by the annual report
 the percentage of the issuer’s shares held by governmental entities in

the foreign jurisdiction in which the issuer is organized;
 whether governmental entities in the applicable foreign jurisdiction

have a controlling financial interest with respect to the issuer;
 the name of each official of the Chinese Communist Party (“CCP”)

who is a member of the board of directors of the issuer or its operating
entity; and
 whether the articles of the issuer contains any charter of the CCP,
including the text of any such charter.
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After three consecutive “non-inspection years” years, the HFCAA requires the SEC
to impose a trading prohibition on an identified issuer’s securities traded on a U.S. stock
exchange or the U.S. over-the-counter market.97
As with Form 10-K, the SEC does not routinely review annual reports on Form 20-
F when filed. However, the SEC may elect at any time to review all or part of an annual
report after it has been filed, and the SEC is required to review disclosures made by issuers
in their annual reports (including their financial statements) at least once every three years.
If the SEC reviews a report, it may issue a comment letter that includes questions based on
a disclosure and/or requests that the company revise the disclosure on the basis of its
interpretation of its regulations and the information contained in the report. If the company
receives comments from the SEC, it must respond to each comment and make revisions to
its report as necessary.98 SEC comment letters and company response letters are made
public.
Unlike U.S. issuers, which are required to file quarterly reports with the SEC, FPIs
are exempt from quarterly reporting on Form 10-Q and need not file any other report on a
quarterly basis. However, both the NYSE and Nasdaq require listed FPIs to submit semi-
annual financial information to the SEC on Form 6-K.99 Additionally, if an FPI is required
to file or make public periodic reports under the laws of its home jurisdiction, it must
disclose those reports under Form 6-K, in accordance with the criteria discussed below.
An FPI must furnish to the SEC material information it makes public in its home
country or elsewhere under cover of Form 6-K. Unlike a U.S. issuer, which must make
disclosures upon the occurrence of any of the specific events itemized on Form 8-K, an
FPI must furnish information that it (i) makes or is required to make public pursuant to the
laws of the jurisdiction of its domicile or the laws in the jurisdiction in which it is
incorporated or organized, (ii) files or is required to file with a securities exchange on
which its securities are traded and which was made public by that securities exchange or
(iii) distributes or is required to distribute to its shareholders.100 This information generally
includes: changes in business; changes in management or control; acquisitions or
dispositions of assets; bankruptcy or receivership; changes in registrant’s certifying
accountants; the issuer’s financial condition and results of operations; material legal
proceedings; changes in securities; defaults upon senior securities; material increases or
decreases in the amount outstanding of securities or indebtedness; the results of shareholder
votes; transactions with directors, officers or principal shareholders; the granting of options
or payment of other compensation to directors or officers; and any other information that
the registrant deems of material importance to shareholders.
Form 6-K consists of a copy of the relevant information, as well as cover and
signature pages, and must be furnished “promptly” after the information required to be
included has been made public, although there is no precise deadline. The information and
documents furnished in a Form 6-K are not deemed to be “filed” for the purposes of Section
18 of the Exchange Act.101 U.S. issuers, by comparison, are generally required to file a
Form 8-K within four business days of the event that triggers the filing obligation, and
depending on the Form 8-K item under which the information was disclosed, such
information may be deemed “filed,” not “furnished,” in which case it is subject to liability
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under Section 18 of the Exchange Act and incorporated into the issuer’s Securities Act
registration statements.102
2. Forward-Looking Statements
When an issuer makes forward-looking statements in its periodic reports and public
statements, it can avail itself of the statutory safe harbor from securities fraud liability
created by Private Securities Litigation Reform Act (the “PSLRA”) in the event the
statements turn out to be incorrect.103 The term “forward-looking statement” is defined to
include statements that “contain[] a projection of revenues, income [or] other financial
items” or discuss the “plans and objectives of management for future operations.”104 The
safe harbor provides for three separate tests, any one of which, if met, eliminates liability.
Under the first test, a forward-looking statement is protected if it is identified as a

forward-looking statement and is “accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ materially from those
in the forward-looking statement.” Guidance on what constitute “meaningful cautionary
statements” can be found in the case law.105 In particular, such case law suggests that
(i) the cautionary language must be tailored to the forward-looking information; (ii) risk
disclosure should convey the magnitude of the risk (not just that it exists); (iii) the warnings
should be prominent; and (iv) if the forward-looking statement is based on specific
assumptions, those assumptions should be disclosed. In the case of oral communications,
the safe harbor provides more flexibility. Companies relying on the safe harbor for oral
statements must still identify the statement as forward-looking, but may reference other
“readily available” documents for the required disclosure of factors that could cause actual
results to vary. This eliminates the need to take the awkward step of including lengthy oral
risk factor recitations in every analyst conference call or offering road show. Under the
second test, the statement is protected if it is immaterial. As one important example, courts
have repeatedly held that general statements of corporate optimism, or “puffery,” are
immaterial under the U.S. securities laws because a reasonable investor would not rely on
them.106 Under the third test, the statement is protected if the plaintiff is not able to prove
that the statement was made with actual knowledge that it was false. Because the safe
harbor expressly requires actual knowledge, showing that an individual acted recklessly
does not suffice—there must be subjective, actual knowledge.107 If the forward-looking
statement is accompanied by meaningful cautionary statements, then the first test applies
and a defendant’s state of mind is irrelevant.
Additionally, if the statutory safe harbor under the PSLRA is not available, issuers
can rely on the judicially-created “bespeaks caution” doctrine, which courts recognized
prior to the adoption of the PSLRA. This doctrine provides that forward-looking
statements are not misleading if they are accompanied by “cautionary statements” that are
“substantive and tailored to the specific future projections, estimates or opinions in the
[disclosure] which the plaintiffs challenge,” on the theory that sufficient cautionary
language will “negate[] the materiality of an alleged misrepresentation or omission.”108
The legislative history surrounding the PSLRA indicates that Congress intended for the
bespeaks caution doctrine to survive and complement the PSLRA, and courts have
continued to apply it.109 The defense can protect issuers and those acting on their behalf
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from liability where the PSLRA safe harbor is unavailable. However, the doctrine will not
apply if the supposed “risk” the company identifies has in fact already materialized.110
3. Director and Officer Compensation Disclosures
FPIs must disclose in their annual reports on Form 20-F the aggregate amount of
compensation given to directors and officers, including benefits in kind, deferred
compensation accrued in the relevant fiscal year and stock option grants. Disclosure of
compensation on an individual basis is required only if the FPI’s home jurisdiction requires
it or if the FPI otherwise makes that information publicly available. Additionally, an FPI
must file as exhibits to its public filings individual management contracts and
compensatory plans if required by its home-jurisdiction requirements or if it previously
disclosed such documents.111
4. Regulation FD
Regulation FD under the Exchange Act prohibits selective disclosure of

information by public U.S. issuers by requiring public companies that disclose, whether
orally or in writing, material nonpublic information to securities analysts and shareholders
to also disclose that information to the public.112 Regulation FD applies to all issuers with
a class of securities registered under Section 12 of the Exchange Act or that are required to
file reports under Section 15(d) of the Exchange Act. The timing requirements of the
public disclosure turns on intentionality: where disclosure is intentional, an issuer must
make a public disclosure “simultaneously”; where it is unintentional, it must make it
“promptly.” Required public disclosures can be made on Form 8-K or through another
method reasonably designed to provide broad, non-exclusionary distribution of the
information to the public.
FPIs are not subject to the disclosure requirements of Regulation FD. Nonetheless,
most FPIs voluntarily comply with the rule or look to it for guidance in adopting policies
that are designed to prevent selective disclosure because Regulation FD addresses a
circumstance that can give rise to liability under Rule 10b-5 and is similar to the policies
that underlie the prohibition on insider trading that applies to all public companies.
Restrictions on public disclosure in an FPI’s home jurisdictions may overlap Regulation
FD requirements.
5. Conflict Minerals Disclosures
Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(“Dodd-Frank”) added Section 13(p) to the Exchange Act, and the SEC later adopted
Rule 13p-1, requiring all reporting companies, including FPIs, that have “conflict minerals
that are necessary to the functionality or production of a product manufactured or
contracted by that registrant” to disclose that fact on Form SD. Conflict minerals, as
defined in Form SD, include “Columbite-tantalite (coltan), cassiterite, gold, wolframite, or
their derivatives, which are limited to tantalum, tin, and tungsten, unless the Secretary of
State determines that additional derivatives are financing conflict in the Democratic
Republic of the Congo or an adjoining country.”113
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Form SD requires companies to file either a short “Conflict Minerals Disclosure”
or a longer “Conflict Minerals Report,” the latter of which also requires an “independent
private sector audit.”114 The Conflict Minerals Disclosure is filed as an exhibit to Form SD
when the issuer reasonably determines that the conflict minerals in its supply chain did not
originate in the Democratic Republic of Congo or an adjoining country or did come from
recycled or scrap sources and has no reason to believe otherwise. The Conflict Minerals
Report is filed as an exhibit to Form SD when the issuer reasonably determines that the
conflict minerals in its supply chain did originate in the Democratic Republic of Congo or
an adjoining country, or the company has reason to believe, based on its reasonable country
of origin inquiry, that conflict minerals in its supply chain originated in the Democratic
Republic of Congo or an adjoining country. In such circumstances, the company must
exercise due diligence on the source and chain of custody of its conflict minerals and make
additional disclosures about its diligence efforts and the results of that diligence.
However, as a result of legal challenges to the conflict mineral rules, the SEC has
indicated that it will not recommend enforcement action against issuers that do not comply
with Item 1.01(c) of Form SD—the provision requiring companies to conduct due diligence
to determine the source and custody of conflict minerals in their supply chain and to prepare
a Conflict Minerals Report describing their efforts and findings—although issuers are not
relieved of their obligation to file a Form SD.115
Form SD is due on May 31 following the end of an issuer’s most recent fiscal year.
C. Section 13(d) and 13(g) Obligations of Shareholders
The shareholders (including non-U.S. shareholders) of an FPI with voting equity

securities registered under Section 12 of the Exchange Act are subject to the reporting
obligations under Sections 13(d) and 13(g) of the Exchange Act. These provisions are
intended to give notice of significant acquisitions and potential changes of control to
securities markets and other holders of the issuer’s securities. The reporting obligations
thus turn on the percentage of beneficial ownership of equity securities, and each
shareholder or group of shareholders is responsible for complying with these provisions.
In 2022, the SEC proposed amendments to Schedules 13D and 13G related to beneficial
ownership reports (the “Proposed Amendments”). We have noted below where the
Proposed Amendments would modify existing deadlines under Schedules 13D and 13G.
Rule 13d-1(a) under the Exchange Act mandates that a person or group that
acquires, directly or indirectly, beneficial ownership of more than 5% of a class of
registered equity securities must file a statement containing the information required by
Schedule 13D with the SEC within 10 days of the acquisition (the Proposed Amendments
shorten this deadline to within five days of the acquisition).116 A shareholder that has filed
a Schedule 13D must promptly amend it whenever a material change occurs concerning
the facts set forth in the filing. Any increase or decrease of 1% or more in such a
shareholder’s ownership of the company’s equity securities constitutes a material change
sufficient to warrant an amended Schedule 13D, which must be filed promptly after the
triggering event (the Proposed Amendments require that the amendment be filed within
one business day after the triggering event).117 Schedule 13D requires, among other things:
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 a description of the identity and background of each filing person and each
of its controlling persons and their respective directors and officers,
including as to their occupations and criminal convictions or judgments in
civil proceedings involving violations of securities laws;
 the purpose of the transaction and the plans that the acquiror may have for
the subject company or for accumulating additional subject company
securities;
 the source(s) and amount of funds used to acquire the securities;
 the percentage of the class of securities acquired (by the filing persons as
well as by their controlling persons and their respective directors and
officers);
 details about transactions in the subject company’s securities in the

preceding 60 calendar days by the filing persons as well as by their
controlling persons and their respective directors and officers (including the
date of each transaction, the amount of securities involved, the price per
share and where and how the transaction was effected); and
 the nature of any arrangements to which the acquiror is a party relating to

the subject company’s securities.
In addition, ownership of derivative securities (such as options) may in certain

circumstances constitute beneficial ownership of the securities upon which the derivatives
are based, or otherwise require disclosure in a Schedule 13D. Even cash-settled
instruments may raise Schedule 13D concerns (the Proposed Amendments would deem
certain holders of cash-settled derivatives to have beneficial ownership to the reference
equity securities, causing the derivatives position to be counted toward the reporting
thresholds of Section 13(d)). Accordingly, if it is contemplated that a company will enter
into any derivative transactions referenced to its shares at any time before or during the
proposal or transaction process, it should be carefully discussed and the disclosure and
other implications determined.
A person who would otherwise be required to file a Schedule 13D may in some
cases file a Schedule 13G. Schedule 13G follows a similar format to Schedule 13D but
requires the filer to provide less-detailed information. There are three general types of 13G
filers: (i) passive investors, (ii) qualified institutional investors and (iii) exempt investors.
First, a shareholder may qualify as a “passive investor” under Rule 13d-1(c) if it is

a beneficial owner of more than 5% but less than 20% of a covered class that can certify
under Item 10 of Schedule 13G that the subject securities were not acquired or held for the
purpose or effect of changing or influencing the control of the issuer of such securities and
were not acquired in connection with or as a participant in any transaction having such
purpose or effect. These investors are ineligible to report beneficial ownership pursuant to
Rule 13d-1(b) or (d) but are eligible to report beneficial ownership on Schedule 13G in
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reliance upon Rule 13d-1(c).118 A passive investor must file a Schedule 13G with the SEC
within 10 days after becoming a 5% beneficial holder (the Proposed Amendments shorten
this deadline to within five days after crossing such threshold) and must amend its
Schedule 13G annually, and at times more frequently, upon certain changes to its beneficial
ownership, including promptly upon such time as the passive investor exceeds 10%
beneficial ownership or experiences a 5% increase or decrease in beneficial ownership (the
Proposed Amendments would require filing an amendment in such cases within one
business day).119
Second, a shareholder may qualify as a “qualified institutional investor” under

Rule 13d-1(b) where that person (i) acquired such securities in the ordinary course of its
business and not with the purpose nor with the effect of changing or influencing the control
of the issuer, nor in connection with or as a participant in any transaction having such
purpose or effect, including any transaction subject to Rule 13d-3(b), (ii) is one of the
qualified institutional investors enumerated in the rule, and (iii) promptly notified any other
person (or group within the meaning of Section 13(d)(3) of the Exchange Act) on whose
behalf it holds securities exceeding 5% of the class of any acquisition or transaction on
behalf of such other person which might be reportable by that person under Section 13(d).
This person must file Schedule 13G with the SEC within 45 days after the end of the
calendar year in which the person became obligated to report under this rule (the Proposed
Amendments instead require such person to file a Schedule 13G within five business days
after the month-end in which the person became obligated to report under this rule), and
must amend its Schedule 13G annually, and at times more frequently, although less
frequently than a Rule 13d-1(c) passive investor, upon certain changes to its beneficial
ownership, including within 10 days after the end of the month in which it exceeded 10%
beneficial ownership or experiences a 5% increase or decrease in beneficial ownership (the
Proposed Amendments would require filing of an amendment in such cases within five
days).120
Third, a shareholder may qualify as an “exempt investor” under Rule 13d-1(d)

where that person beneficially owned 5% or more of a class of an issuer’s equity securities
before the securities were registered under the Exchange Act. At the time the class of
securities is registered, the person must file a Schedule 13G with the SEC within 45 days
after the end of the calendar year in which the issuer’s shares were registered (the Proposed
Amendments instead require such person to file their Schedule 13G with the SEC within
five business days after the month-end in which the person became obligated to report
under this rule).121 Thereafter, the person must amend its Schedule 13G annually upon
certain changes to its beneficial ownership.122 In the event that the person acquires
additional equity securities after the registration of the issuer’s securities, it must report its
entire holdings on Schedule 13D if the most recent acquisition, when added to all other
acquisitions of securities of the same class within the prior 12-month period, aggregates to
more than 2% of the class of such securities.123
Separate from the Section 13(d) and Section 13(g) requirements discussed above,
Section 16(b) of the Exchange Act imposes reporting obligations on 10% shareholders (as
well as directors and officers) of certain U.S. issuers, and also provides for disgorgement
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by such persons of so-called “short-swing” profits. Rule 3a12-3 of the Exchange Act
exempts FPIs from the entirety of Section 16.
In addition, shareholders of FPIs that are required to report under Section 15(d), as
opposed to Sections 12(b) or 12(g), are not subject to the beneficial ownership reporting
requirements of Sections 13(d) and 13(g).124
D. Financial Statements
1. Accounting Standards
U.S. issuers are required to report audited financial statements prepared in

accordance with U.S. GAAP. As noted, however, the Exchange Act affords FPIs an
important accommodation with respect to their audited financial statements on Form 20-F:
FPIs generally have the option of reporting audited financial statements prepared in
accordance with (i) U.S. GAAP, (ii) IFRS as issued by the IASB (in which case no
reconciliation with U.S. GAAP is required) or (iii) home-jurisdiction generally accepted
accounting principles accompanied with an indication of the body of comprehensive
accounting principles used to prepare the financial statements and U.S. GAAP
reconciliation disclosure.125 Reconciliation comprises both disclosure of the material
variations between local accounting principles/non-IASB IFRS, on the one hand, and U.S.
GAAP, on the other hand, as well as a numerical quantification of those variations.126 An
FPI registering for the first time must reconcile only the two most recently completed fiscal
years (and any interim period).127
Pursuant to Sarbanes-Oxley, the SEC implemented Regulation G and amended

Item 10(e) of Regulation S-K, which require a company releasing a non-GAAP financial
measure to provide the most comparable GAAP measure and a quantitative reconciliation
of the non-GAAP measure with the comparable GAAP measure.128 For FPIs with financial
statements prepared in accordance with non-U.S. GAAP, GAAP refers to the specific
accounting principles of the country under which the financial statements are prepared;
however, if an FPI calculates a non-GAAP measure derived from or based on a measure
calculated in accordance with U.S. GAAP, then for purposes of the application of the non-
GAAP rules, GAAP for that measure would be defined as U.S. GAAP. A non-GAAP
financial measure that triggers the application of the rules is one that excludes amounts that
would otherwise be included, or includes amounts that would otherwise be excluded, from
the most directly comparable GAAP measure.129 Regulation G applies to any public
disclosure of material information, whether in writing or orally, while Regulation S-K
Item 10(e) is limited to SEC filings.
Exceptions exist for each of the two rules. An FPI is exempt from Regulation G if
(i) its securities are listed or quoted on a foreign stock exchange, (ii) the non-GAAP
financial measure is not derived from or based on a measure calculated and presented in
accordance with U.S. GAAP and (iii) the disclosure is made outside the United States.130
The SEC has confirmed that the exception is available for information released by or on
behalf of an FPI if (a) the information is released simultaneously both within and outside
the United States (and is not otherwise targeted at persons located in the United States), (b)
foreign or U.S. journalists or other third parties have access to the information, (c)
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disclosures appear on one or more of a registrant’s websites so long as the websites are not
targeted at or available exclusively to persons in the United States or (d) after disclosure of
the information outside the United States, the information is included in a submission on
Form 6-K in the United States.131 The references to GAAP in the FPI exemption from
Regulation G refer to U.S. GAAP regardless of the accounting principles used in the
primary financial statements.
Regulation S-K permits an FPI to use a non-GAAP financial measure in its SEC
filings, without complying with the requirements of Item 10(e), if the measure (i) is
required or expressly permitted by the standard-setter that establishes the GAAP principles
used in the registrant’s primary financial statements and (ii) is included in the FPI’s annual
report or financial statements used in its home-country jurisdiction.132 The SEC has stated
that a measure is “expressly permitted” if “the particular measure is clearly and specifically
identified as an acceptable measure by the standard setter that is responsible for
establishing the GAAP used in the company’s primary financial statements included in its
filing with the Commission.”133 However, note that the exemption described in this
paragraph does not cover situations where the measure is merely not prohibited by the
foreign standard-setter, but only applies where the standard-setter affirmatively acts to
require or permit the measure.
2. Independent Audit
U.S. issuers and FPIs must have their financial statements and internal controls
audited by an “independent” auditor under SEC rules. As a general matter, the SEC will
not recognize an auditor as independent vis-à-vis an audit client if the auditor is not capable
of exercising objective and impartial judgment on all issues encompassed within the
auditor’s engagement. In determining whether or not this standard has been met, the SEC
will consider all relevant circumstances, including all relationships between the accountant
and the audit client, focusing on whether any such relationship: creates a mutual or
conflicting interest between an auditor and the audit client, places an auditor in the position
of auditing its own work, results in an auditor acting as management or as an employee of
the audit client or places an auditor in a position of being an advocate of an audit client.
Audit committees, discussed in Sections VII.D.3 and VII.F.2 of this Guide, should
be aware of and ensure that they or management have implemented appropriate policies
and procedures to identify and evaluate such relationships and potential conflicts of
interest.134 As part of the inquiry concerning an auditor’s independence, an audit
committee should examine carefully the scope of work that the independent auditor has
undertaken for the company and the value of that work to the auditor, including any related
fees. An independent auditor also should be vetted carefully for any relationships that
might be perceived as affecting its independence, such as the presence of its former
employees, or relatives of its employees, on a company’s board or audit committee or
among a company’s management or senior financial staff, as well as any financial or other
business relationships between an independent auditor and a company or its officers,
directors or substantial shareholders.
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In addition to SEC rules concerning auditor independence, the PCAOB has adopted
ethics and independence rules that require an audit firm to disclose in writing to the audit
committee all relationships between the auditor and the company that, in the auditor’s
professional judgment, may reasonably be thought to bear on its independence and to
affirm to the audit committee that the auditor is independent.135
Under Section 303 of Sarbanes-Oxley and SEC rules,136 directors and officers are
prohibited from taking any action, direct or indirect, to coerce, manipulate, mislead or
“fraudulently influence” any public accountant engaged in an audit of a company’s
financial statements if they know or should have known that their action, if successful,
could render the company’s financial statements false or materially misleading.
3. Internal Controls
In accordance with Sarbanes-Oxley, all public companies in the United States must
have adequate internal controls over financial reporting: a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with proper accounting standards.
This requirement aims to require an issuer to identify material weaknesses that have a
reasonable possibility of leading to a material misstatement in the issuer’s financial
statements.
Management is primarily responsible for designing and implementing internal

controls. This includes establishing and maintaining adequate internal control structures
and procedures for financial reporting, evaluating the effectiveness of internal controls at
least annually, identifying in a timely manner weaknesses and deficiencies in internal
controls, taking appropriate corrective actions where deficiencies or weaknesses exist and
notifying the independent auditor and audit committee of significant internal control
deficiencies and any acts of fraud.
Reflecting the importance of effective internal controls, Section 404 of Sarbanes-

Oxley and the SEC rules promulgated thereunder, applicable to both U.S. issuers and FPIs,
require public companies to include in their annual reports both an assessment by
management of the company’s internal control over financial reporting and an independent
auditor’s attestation report on the company’s internal controls and financial reporting.
Sarbanes-Oxley made clear that an independent auditor’s attestation under Section 404(b)
must be based on the independent auditor’s own audit of the company’s internal controls.
PCAOB AS 2201 prescribes the standards by which an independent auditor must conduct
the Section 404(b) audit of a company’s internal control over financial reporting.
The audit committee should review the adequacy and effectiveness of a company’s
internal controls over financial reporting, the process for monitoring compliance with
applicable regulations and laws and any other legal matters that could have a significant
impact on a company’s financial reports. In overseeing compliance with applicable laws
and regulations and the integrity of the financial statements, the committee is encouraged
to pay close attention to the compliance and internal controls environment generally. The
U.S. Sentencing Commission, as well as the SEC, the DOJ and the PCAOB, have stressed
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the singular importance in this area of management’s setting the right “tone at the top” and
creating an organizational culture that encourages a commitment to compliance with law.
a. Reports on Internal Controls
Section 404 of Sarbanes-Oxley and the SEC rules adopted thereunder require
management to disclose on Form 10-K or, in the case of an FPI, Form 20-F, management’s
involvement in and opinion regarding the effectiveness of the issuer’s internal control
procedures, as well as a report and attestation by the issuer’s auditors. Also, if there will
be disclosure that there have been material changes to internal controls over financial
reporting during a quarter, the audit committee should inquire whether any significant
deficiencies or material weaknesses underlying such changes are proposed to be specially
disclosed, and, if it is determined that they will not be, ensure that this has been a properly
considered decision and that there is a firm and reasonable basis for the decision not to
disclose.
b. Disclosure Controls
In addition to financial accounting controls, issuers must assess their disclosure

controls and procedures more generally, including procedures for good business and legal
disclosure. While the SEC has not mandated any particular procedures, it recommends
that issuers create a committee with responsibility for considering the materiality of
information and determining disclosure obligations on a timely basis. The SEC has
suggested that such a committee should include the principal accounting officer or
controller, general counsel or other senior legal officer with responsibility for disclosure
matters, principal risk management officer, chief investment relations officer and other
officers or employees, including individuals associated with the issuer’s business units.137
c. Disclosure Certifications by the CEO and CFO
In addition to internal controls disclosure, Sarbanes-Oxley requires certifications

from an issuer’s CEO and CFO under Sections 302 and 906. Section 302 of Sarbanes-
Oxley, filed as exhibits to the relevant periodic report, requires a company’s CEO and CFO
to certify in each quarterly and annual report or, in the case of an FPI, Form 20-F that,
among other things:
 they have reviewed the report and, based on their knowledge, the report is
not misleading;
 based on their knowledge, the financial statements and other financial

information included in the report fairly present, in all material respects, the
financial condition and results of operations of the company for the periods
presented in the report;
 they are responsible for establishing and maintaining, and have performed
certain specified tasks with respect to, the company’s internal controls and
disclosure controls and procedures; and
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 they have disclosed to the audit committee and auditors all significant
deficiencies and material weaknesses in the design or operation of internal
controls, as well as any fraud that involves management or other employees
with a significant role in the company’s internal controls.
The certification required by Section 906 of Sarbanes-Oxley requires that each

periodic report containing financial statements be accompanied by a statement by the
company’s CEO and CFO that (i) the report fully complies with the requirements of
Section 13(a) or 15(d) of the Exchange Act and (ii) the information contained in the report
fairly presents, in all material respects, the financial condition and results of operations of
the company.138 The “fairly presents” standard, since it excludes reference to any
accounting standard, encompasses the selection and proper application of accounting
principles, the disclosure of financial information that is informative and reasonably
reflects the underlying events and the inclusion of other information necessary to give
investors a materially complete picture of a company’s financial condition, results of
operations and cash flows.139 The CEO, CFO and any other company employees making
accounting or disclosure judgments must therefore base their decisions not only on the
accounting principles applicable to the company but also on the “fairly presents” standard.
The audit committee should take appropriate steps to satisfy itself that the
company’s CEO and CFO are meeting their obligations to the audit committee, the
independent auditor and the public under the certification requirements established by the
SEC, the company’s securities market and Sarbanes-Oxley.
E. Proxy Rules
Rule 3a12-3 under the Exchange Act exempts FPIs with registered securities from
the SEC’s proxy rules. An FPI may thus prepare and distribute proxy statements in
accordance with the law of its home jurisdiction rather than Schedule 14A. An FPI that
distributes its proxy statement to shareholders in accordance with home-jurisdiction rules,
however, may be required to furnish it under cover of Form 6-K.
F. Corporate Governance Obligations
Federal law and regulations, including the federal securities laws, Sarbanes-Oxley
and Dodd-Frank, and the rules of the U.S. securities exchanges, establish corporate
governance requirements. FPIs that trade on a U.S. securities exchange may receive
exemptions from these requirements in certain circumstances, particularly with regard to
director obligations and liabilities. Additionally, FPIs may be permitted to follow certain
corporate governance practices in accordance with their home-jurisdiction rules and
regulations.
1. Director Obligations and Liabilities
a. Transactions and Conflicts of Interests Involving Directors
Sarbanes-Oxley Section 402(a) added Section 13(k) to the Exchange Act, which
makes it unlawful for any issuer, including an FPI, directly or indirectly, including through
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any subsidiary, to extend or maintain credit, to arrange for the extension of credit or to
renew an extension of credit in the form of a personal loan to or for any of its directors or
executive officers. Loans that are not prohibited include travel advances, cash advances
and issuer-sponsored credit cards, provided that they are used only in the ordinary course
of business, and, with respect to credit cards, the terms are not more favorable than the
terms the issuer offers to the public. In addition, the prohibition has been interpreted as
not applying to the advancement by the issuer of legal expenses to its directors and officers.
FPIs must disclose on Form 20-F any transactions or loans between the company
and key management personnel, meaning those persons having authority and responsibility
for planning, directing and controlling the activities of the company, including directors
and senior management and members of such individuals’ close families.140 They also
have to disclose any arrangement or understanding with major shareholders, customers,
suppliers or others, pursuant to which any director or senior manager was selected as a
director or member of senior management. In addition, FPIs must disclose any directors’
shareholdings in the FPI on Form 20-F.141
b. Directors’ Dealings in Securities
The federal securities laws in the United States generally do not restrict a director’s
ability to purchase or sell securities of a company that is publicly traded (whether a U.S.
issuer or an FPI), other than the following:
 Restrictions in relation to insider trading. A director cannot trade in the

company’s shares if he or she possesses material non-public information
about the company.142
 Blackout Trading Restrictions (“Regulation BTR”). Section 306 of

Sarbanes-Oxley prohibits directors and executive officers from acquiring or
transferring company equity securities during pension fund “blackout
periods”143 imposed by the company itself or by a fiduciary of the
company’s pension fund. Under Regulation BTR, if a director or officer is
subject to such a blackout trading restriction, the issuer must timely notify
each director or officer and the SEC of the blackout period and disclose the
reasons for the blackout period.144
 Restrictions on public resale of securities that are considered “restricted”

or “control” securities. Restricted securities are securities acquired in
unregistered, private sales from the issuer or from an affiliate of the issuer.
Directors typically receive restricted securities through private placement
offerings, Regulation D offerings or as compensation for professional
services. Control securities are any securities held by an “affiliate” of the
issuer (including directors, policymaking executive officers and potentially
significant shareholders) – even if those securities are acquired on the public
market. Public resale of restricted and control securities by directors is
permitted only if certain conditions are met, including with respect to
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holding periods, volume limitations and manner of sale, among other
conditions.145
2. Sarbanes-Oxley
Sarbanes-Oxley was a significant revision to U.S. securities laws, focused on

enhancing public disclosure, improving the quality and transparency of financial reporting
and auditing and strengthening penalties for violations of securities laws. Sarbanes-Oxley
provides that any violation of its provisions is considered a violation of the Exchange Act,
thus availing the SEC of its full range of powers, remedies and penalties under the
Exchange Act. Sarbanes-Oxley applies to all issuers, including FPIs, that have registered
securities under Section 12 of the Exchange Act, that are required to file reports under
Section 15(d) of the Exchange Act and that have filed a registration statement under the
Securities Act that has not yet become effective or been withdrawn.
There are, however, exemptions from some Sarbanes-Oxley requirements for FPIs.
Further, some Sarbanes-Oxley rules apply only to issuers with securities listed in the
United States. The principal Sarbanes-Oxley requirements that apply to FPIs include the
requirements set forth in Section VII.F.1 and the following:
 FPIs must generally include in their annual reports management’s report on

internal controls, and an independent auditor must attest to, and report on,
management’s assessment of internal controls.
 FPIs’ CEOs and CFOs must provide certifications on financial statements

and internal controls in annual reports.
 FPIs must disclose “off-balance sheet arrangements,” a table of certain

contractual obligations and a table of certain contingent liabilities and
commitments in its SEC filings.
 FPIs’ CEOs and CFOs are subject to potential clawbacks of bonus,

incentive-based compensation or equity-based compensation in the event of
an accounting restatement due to material non-compliance with any
financial reporting requirements due to misconduct, as well as any profits
that the CEO or CFO realized based on the sale of the company’s securities
during the previous 12 months.
 FPIs must disclose in their Form 20-F filings whether they have adopted a
code of ethics that applies to certain of its executive officers, and, if not,
must explain why they have not done so.
 Sarbanes-Oxley creates a series of requirements relating to the work of an

FPI’s external auditors, e.g., that the auditor must be “independent,”
requires disclosure of fees paid to such auditor, generally requires auditor
registration in the United States, and forbids the provision of certain non-
audit services by the auditor.
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 FPIs must disclose that their boards of directors have determined whether
or not they have one audit committee “financial expert,” and, if not, state
why, and must disclose the name of the audit committee “financial expert”
and whether such person is independent from management.
 FPIs with securities listed on an exchange must comply with certain audit
committee standards, as discussed below. FPIs must generally maintain an
audit committee composed solely of independent directors, although FPIs
are granted certain exemptions from the “independence” requirements as
well as a general exemption under Rule 10A-3(c). The audit committee
must be granted certain responsibilities and authorities, such as oversight of
auditors.
a. Audit Committee Requirement and Exemptions for FPIs
The audit committee of an issuer’s board of directors plays a central role in the
issuer’s corporate governance, which includes supervising management, overseeing the
internal audit and ensuring adequate disclosure. Rule 10A-3, which implemented
Section 301 of Sarbanes-Oxley, and which applies to issuers that are listed on the U.S.
securities exchanges, requires each audit committee member to be a member of the listed
issuer’s board and to otherwise meet certain independence requirements. Pursuant to the
rule, the audit committee requirements include the following:
 Independence. All members of the audit committee must be independent

from the issuer, which means, among other things, that they may not accept
consulting, advisory or other compensatory fees from the issuer or any
affiliate, or be an affiliate. Under the NYSE Listed Company Manual, a
director does not qualify as independent unless the board affirmatively
determines that the director has no material relationship with the
company.146 Similarly, under Nasdaq rules, the board of directors must
make a determination of which members or nominees are independent.147
 Responsibilities relating to registered public accounting firms. The audit

committee is responsible for the appointment, compensation, retention and
oversight of external auditors and must have the authority to resolve
disagreements between management and external auditors regarding
financial reporting.
 Complaints. The audit committee must set up procedures for receipt,

retention and treatment of complaints regarding accounting, internal
accounting controls and auditing matters, including for confidential
submissions by employees of the company.
 Authority to engage advisers. The audit committee must have the authority
to engage independent counsel and advisers as it deems necessary.
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 Funding. The audit committee must have adequate funding to compensate
external auditors and advisers as well as to cover administrative expenses.
Rule 10A-3 grants FPIs limited exemptions from the independence requirement.
The members of the audit committee may be exempt from such requirement in certain
circumstances, including non-executive employee representation on the committee, two-
tiered board systems, common in certain foreign jurisdictions, in which the committee is
drawn from members of the supervisor/non-management board, representation of a
controlling shareholder that owns more than 50% of the FPI’s voting securities and
affiliated persons with only observer status and foreign government representation.148
An FPI can therefore comply with the audit committee requirements by either:
 Forming an audit committee in full compliance with the standard

requirements with at least three independent board members. The board of
directors must approve the creation of the committee, the delegation of
powers to the committee (to the extent permitted by the law of the home
jurisdiction) and the committee’s charter, internal policies and procedures;
or
 Under the general exemption for FPIs provided in Rule 10A-3(c)(3), using
an existing board of auditors or similar body to perform the role of an audit
committee, to the extent permitted by the law of the home jurisdiction. This
exemption is available to FPIs, provided that:149
o the FPI has a board of auditors (or similar body), or statutory auditors,
set up or selected under a law or listing requirement of the home
jurisdiction that expressly requires or permits such a board or body;
o the board of auditors is either (i) separate from the board of directors or
(ii) composed of one or more members of the board of directors and one
or more members who are not members of the board of directors;
o the board of auditors is not elected by management and no executive

officer of the FPI is a member of it;
o local law stipulates standards for the board of auditors’ independence

from management;
o the board of auditors is responsible, to the extent permitted by local

jurisdiction law, for the appointment, retention and oversight of the
FPI’s independent auditors; and
o the remaining requirements of an audit committee (i.e., complaint

procedures, authority to engage advisers and funding) are complied with
to the extent permitted by the laws of the local jurisdiction.
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An FPI relying on Rule 10A-3’s exemption from independence, or the general
exemption under Rule 10A-3(c), will need to disclose on Form 20-F its reliance on the
exemptions and an assessment of whether this reliance will materially adversely affect the
audit committee’s ability to act independently and to satisfy any of the other requirements
of Rule 10A-3.150 Moreover, while NYSE and Nasdaq rules applicable to U.S. issuers
requiring at least one member of the audit committee to be a financial expert do not apply
to an FPI, it is obligated to disclose on Forms 20-F whether it has at least one financial
expert serving on its audit committees and, if so, the name(s) of the expert(s).151
3. Dodd-Frank
Signed into law in 2010 in response to the financial crisis, Dodd-Frank reformed
numerous areas of U.S. securities regulation that affect public companies in the United
States. It applies both to U.S. issuers and, in some cases, FPIs, and contains several key
provisions affecting the corporate governance of such companies, including compensation
committee disclosures, incentive-based compensation clawbacks and, as discussed in
VII.B.5, conflict mineral disclosures.
a. Independent Compensation Committee
Rule 10C-1 of the Exchange Act, added pursuant to Section 10C of the Exchange
Act and Section 952 of Dodd-Frank, directs U.S. securities exchanges to require (i) that
each member of the compensation committee of a U.S. listed company be a member of the
board and otherwise independent, (ii) that the compensation committee be given adequate
funding and authority to retain compensation consultants, independent legal counsel, and
other compensation advisors and (iii) compliance with independence considerations for all
such advisors. In determining independence, Section 10(c)(a) requires the U.S. securities
exchanges to consider certain factors, including the source of the director’s compensation
(such as any consulting, advisory or other compensatory fees paid by the company) and
whether the director is affiliated with the company or its subsidiary or affiliate. FPIs that
disclose annually the reasons why they do not have an independent compensation
committee in place are not subject to the independence requirements.152
Further, Form 20-F requires FPIs to disclose information about their compensation
committee, including the names of the committee members and a summary of the terms
under which the committee operates. Both the NYSE and Nasdaq permit an FPI to follow
home-jurisdiction practices with respect to its compensation committee so long as the FPI
discloses annually the differences between its home-jurisdiction practices and the
applicable exchange requirements as well as, for Nasdaq, the reasons why it does not have
an independent compensation committee in place.
b. Incentive-Based Compensation Clawback
Section 10D of the Exchange Act, added pursuant to Section 954 of Dodd-Frank,
requires that the SEC direct U.S. securities exchanges to require listed issuers to develop
and implement policies providing for the “clawback” of incentive-based compensation
paid to current or former executive officers following a restatement due to the company’s
material non-compliance with financial reporting requirements. Such policies must apply
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to incentive-based compensation (including stock options) paid during the three-year
period preceding the restatement and provide for recovery of the amount in excess of what
otherwise would have been paid to the officer.153 The final compensation clawback rules
were released by the SEC in October 2022.
Dodd-Frank, and Section 10D, furthers a trend in which compensation can be

clawed back even though the officers in question were not directly involved in the actions
that gave rise to the restatement. The SEC, for example, announced in 2011 a settlement
in which it “clawed back” incentive-based compensation from a former CEO who was not
accused of any wrongdoing.154 In that instance, the court rejected the notion that the
misconduct-triggering clawback must be the officer’s own and focused instead on the
misconduct of the company, acting through the efforts of its officers and employees.
The final compensation clawback rules apply broadly to all issuers with listed
securities, including foreign private issuers, with limited exceptions. In the final rules, the
SEC acknowledges that there are “practical concerns” regarding implementation of
clawback policies for FPIs, but has included an impracticability accommodation to
alleviate implementation challenges in the event that a clawback would be wholly
inconsistent with a foreign regulatory regime. The impracticability exception is only
available where (i) the direct cost of recovery would exceed the amount of recovery and
(ii) the recovery would violate home country law and additional commitments are met, but
the issuer must make a reasonable attempt to clawback the compensation before concluding
that it would be impracticable to do so, and must obtain an opinion of home company
counsel, acceptable to the applicable exchange, that recovery would result in a violation of
home country law. Additionally, to minimize any incentives for foreign countries to
change their laws in response to the final compensation clawback rules, any home country
law which an issuer could point to as inconsistent would have to be passed prior to the date
of the publication of the final compensation clawback rules in the Federal Register. The
final rules became effective on January 27, 2023.155 Restatements are less common for
FPIs than for U.S. issuers because IFRS and other foreign accounting principles often
provide for adjustments of accounting errors in current periods under circumstances in
which U.S. GAAP would require restatements, and the laws of some jurisdictions limit
restatements.
4. Code of Ethics
An FPI must disclose on Form 20-F whether it has adopted a written code of ethics
that applies to the company’s principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions. A code
of ethics is defined as written standards that are reasonably designed to deter wrongdoing
and to promote honest and ethical conduct, full and accurate disclosure, compliance with
applicable laws, prompt internal reporting of code violations and accountability for
adherence to the code. The FPI must also describe the nature of any amendment to, or
waiver of, any provision of the code. If the company has not adopted such a code, it must
explain on its Form 20-F why it has not done so.156
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5. NYSE and Nasdaq Corporate Governance Listing Standards
The NYSE and Nasdaq impose rules and regulations governing audit committee
composition and disclosures for companies that list on their exchanges, in addition to those
under law. These rules apply to listed U.S. issuers and FPIs, although the securities
exchanges offer certain accommodations for FPIs that allow them to follow home-
jurisdiction corporate governance practices. Generally, FPIs must comply with the
corporate governance standards of the relevant U.S. securities exchange or explain their
departures from those standards. Under NYSE and Nasdaq “comply or explain” rules, and
in response to certain SEC amendments to Form 20-F, FPIs must provide a concise
summary of any significant ways in which their corporate governance practices differ from
those followed by U.S. issuers under the relevant exchange rules.
a. NYSE Corporate Governance Requirements
The NYSE has granted substantial flexibility to listed FPIs by allowing them to
follow their home-jurisdiction corporate governance practices rather than its standard
corporate governance requirements as set forth in Rule 303A of the NYSE Listed Company
Manual. There are exceptions to this accommodation, however, as FPIs must comply with
the following:
 Audit Committee. Listed FPIs must have an audit committee that satisfies
the requirements of Exchange Act Rule 10A-3, described in Section
VII.F.2.a of this Guide.
 Differences in Corporate Governance Practices. Listed FPIs must disclose

any significant ways in which their corporate governance practices differ
from those followed by U.S. issuers under the NYSE listing standards. This
disclosure may be provided either on the FPI’s website and/or in its annual
report, provided that if disclosure is only provided on the website, the
annual report must state so and provide the relevant web address for
obtaining information.
 Annual Certification Relating to Observance of Corporate Governance

Standards. The CEO of a listed FPI must certify to the NYSE each year
that he or she is not aware of any violation of the NYSE corporate
governance listing standards, qualifying the certification to the extent
necessary. This certification must be disclosed in the FPI’s annual report to
shareholders or, if the company does not prepare an annual report to
shareholders, in the company’s annual report on Form 20-F filed with the
SEC. In addition, the CEO of a listed FPI must promptly notify the NYSE
in writing after any executive officer becomes aware of any material non-
compliance with the applicable NYSE corporate governance standards.
b. Nasdaq Corporate Governance Requirements
The Nasdaq corporate governance rules also permit FPIs to follow home-
jurisdiction practices (except for notification of non-compliance pursuant to Listing
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Rule 5625, the voting rights requirement pursuant to Listing Rule 5640, and the audit
committee rules under Listing Rule 5605(c)(3)) in lieu of certain Nasdaq corporate
governance requirements, but only if the issuer promptly informs Nasdaq of such
departure, as necessary, and provides a letter from outside counsel in the FPI’s home
country certifying that the FPI’s practices are not prohibited by any home-jurisdiction law.
Each Nasdaq requirement that an FPI does not follow must also be disclosed in the FPI’s
annual report on Form 20-F, along with a description of the alternative corporate
governance practices followed by the issuer. As with NYSE-listed companies, all Nasdaq-
listed companies must comply with the audit committee requirements of Exchange Act
Rule 10A-3.
c. NYSE and Nasdaq Shareholder Approval Requirements
The NYSE’s rules do not expressly exempt FPIs from its 20% shareholder vote
rule, which, subject to certain exceptions, requires an issuer to obtain shareholder approval
prior to issuances where the issued common shares equal 20% or more of the number of
common shares or voting power outstanding before such issuance. The NYSE, however,
will orally confirm to an FPI upon request at the time of a contemplated issuance that it is
not required to comply with the rule so long as the FPI provided as part of its original listing
application an opinion from local counsel certifying that a shareholder vote is not required
under the laws of its home jurisdiction for such an issuance.
Nasdaq allows FPIs to follow their home-jurisdiction rules instead of its own 20%
rule where they promptly inform Nasdaq, provide Nasdaq with an opinion from local
counsel certifying that their practices do not violate the laws of their home jurisdictions,
state in the annual Form 20-F that they are not complying with the 20% rule and explain
the home-jurisdiction practices with which they are complying.
G. Delisting and Deregistering Securities
As with U.S. companies, FPIs that wish to cease having reporting and other
obligations under the Exchange Act—that is, to “go dark”—may delist their securities from
a U.S. securities exchange, if previously listed, and deregister their securities under the
Exchange Act. Once this happens, an issuer is no longer subject to the applicable U.S.
securities exchange’s rules or the Exchange Act obligations, including the obligations
under Sarbanes-Oxley.
As described in Section VII.A of this Guide, a company, including an FPI, incurs

obligations under the Exchange Act in any of the following three ways: (i) by listing
securities on a U.S. securities exchange under Section 12(b) of the Exchange Act; (ii) by
surpassing a specific asset size and shareholder count under Section 12(g) of the Exchange
Act (unless it is then exempt under Rule 12g3-2); or (iii) by registering an offering under
the Securities Act, under Section 15(d) of the Exchange Act. To “go dark,” the registrant
must terminate or suspend its obligations under each applicable Exchange Act section.
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1. Delisting and Deregistration under Section 12(b)
To delist and deregister under Section 12(b) of the Exchange Act, an issuer must
first delist from each U.S. securities exchange on which it is listed and file a Form 25 with
the SEC.157 At least 10 days before filing a Form 25, an issuer must notify each such
exchange in writing of its intent to file a Form 25 and issue a press release, also posted to
the issuer’s website, that it intends to delist and deregister, including its reasons therefor.
Form 25 is automatically effective, as is the issuer’s delisting, 10 days after the Form 25 is
filed; the issuer’s deregistration is effective 90 days after filing. When a Form 25 becomes
effective, the issuer’s reporting obligations under Section 13(a) are suspended, meaning
the issuer need not file current or periodic reports due on or after such effectiveness, unless
the issuer is required to continue reporting pursuant to Sections 12(g) or 15(d).
Certain obligations, however, continue to apply to the FPI until its deregistration is
effective (specifically, for FPIs, the tender offer rules and Sections 13(d) and 13(g)).
2. Termination of Obligations under Sections 12(g) and 15(d)
When an issuer delists and deregisters under Section 12(b), it may still have
obligations under Sections 12(g) or 15(d) of the Exchange Act. FPIs have two main paths
for addressing these obligations:
 terminate obligations under both sections pursuant to Rule 12h-6; or
 (a) terminate obligations under Section 12(g) pursuant to Rule 12g-4 and
(b) suspend obligations under Section 15(d) either pursuant to Rule 12h-3
or pursuant to Section 15(d) itself.
These paths are discussed in turn below.
a. Rule 12h-6
The SEC adopted Rule 12h-6 in 2007 to facilitate Exchange Act deregistration by
FPIs. An FPI would be able to terminate its obligations under Sections 12(g) and 15(d) by
filing a Form 15F if it meets the following conditions:
 the FPI has had reporting obligations under the Exchange Act for at least
12 months preceding the Form 15F filing, and has filed at least one annual
report on Form 20-F;
 the FPI’s securities have not been sold in the United States in a registered
offering during the 12 months preceding the Form 15F filing, subject to
certain exceptions; and
 the FPI has maintained a listing of its securities on one or more non-U.S.
exchanges that, either singly or together with the trading in another
jurisdiction, constitutes a “primary trading market,” as defined above, for
the securities.
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In addition to the three requirements above, the FPI must also certify that it passes
at least one of the following two tests:
 The trading volume test. During the 12 months prior to the Form 15F filing,
the average U.S. daily trading volume of its securities was less than or equal
to 5% of the average daily trading volume of its securities worldwide; or
 The record holder test. On a date within 120 days before the Form 15F
filing, there were fewer than 300 holders of record of the securities (either
worldwide or in the United States).
An FPI must wait at least 12 months to file Form 15F in reliance on the Trading
Volume Test (as opposed to the Record Holder Test) if it has delisted a class of equity
securities from a U.S. securities exchange or terminated a sponsored ADR facility and at
the time of delisting or termination the U.S. average daily trading volume of the applicable
securities exceeded 5% of the worldwide average daily trading volume for the preceding
12 months. In addition, for purposes of the Record Holder Test, U.S. holders are counted
using the method in Rule 12g3-2(a) (described above in Section VII.A of this Guide),
except that the obligation to “look through” record ownership of the brokers, dealers, banks
and nominees is limited to those in the United States and certain foreign jurisdictions.
Upon filing of the Form 15F, the FPI’s duty to file reports is suspended.
Termination of registration under Section 12(g) and of the duty to file reports under
Section 15(d) is effective 90 days after filing.
b. Termination of Section 12(g) Obligations Pursuant to

Rule 12g-4
If Rule 12h-6 is unavailable, an FPI may seek to rely on Rule 12g-4, which is
available to all issuers (both U.S. issuers and FPIs). To terminate registration under Section
12(g) pursuant to Rule 12g-4, the FPI must file a Form 15 certifying that its securities are
held of record by fewer than 300 holders (or 500 holders if the company’s total assets have
not exceeded $10 million as of the last day of its last three fiscal years). Unlike Rules
12g3-2(a) and 12h-6, for purposes of Rule 12g-4, securities held in street name by a broker-
dealer are held of record only by the broker-dealer.158
An issuer cannot file a Form 15 after delisting and deregistering under

Section 12(b) until the Form 25 is effective (i.e., 10 days after the Form 25 is filed). Upon
filing of the Form 15, the issuer’s duty to file reports is suspended. Termination of
registration under Section 12(g) is effective 90 days after filing.
An FPI that terminates its registration under Section 12(g) pursuant to Rule 12g-4
may then need to claim the exemption under Rule 12g3-2(b), in case the number of record
holders of its securities later rises above the applicable threshold.
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c. Suspension of Section 15(d) Obligations
If Rule 12h-6 is not available to terminate Section 15(d) obligations, there are two
avenues for suspension of Section 15(d) reporting obligations, which are generally
available for all issuers (both U.S. issuers and FPIs):
 the first is automatic—the issuer’s reporting obligations are suspended for

any fiscal year if its securities are held by fewer than 300 record holders at
the beginning of that fiscal year; and
 the second is available at any time, but requires the issuer to file a Form 15
pursuant to Rule 12h-3 (making the same certifications described above in
the discussion of Rule 12g-4 with respect to the number of shareholders).
As with deregistration under Section 12(g), the issuer’s reporting
obligations under Section 15(d) would be suspended immediately upon
filing the Form 15. Unlike deregistration under Section 12(g), however, a
condition to filing a Form 15 to suspend Section 15(d) reporting obligations
is that the issuer be current in all of its Section 13(a) reporting obligations.
Note that reporting obligations under Section 15(d) may only be suspended, not
terminated, because they automatically retake effect with respect to a given fiscal year if
there are more than 300 holders of record on the first day of that fiscal year. The number
of record holders is counted in the same manner as for purposes of Rule 12g-4, discussed
above.
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VIII.
Sources of Liability
The Securities Act and the Exchange Act each impose liability on issuers, including
FPIs, that run afoul of U.S. federal securities laws. The key provisions of these laws that
create potential liability are Section 10(b) of the Exchange Act and Rule 10b-5 thereunder,
which create liability for intentionally false and misleading statements that impact trading
in securities, and Sections 11, 12 and 17 of the Securities Act, which create liability for
issuers and others in connection with public offerings. The SEC and, in certain cases,
private parties and the DOJ, may bring actions against parties who violate these provisions
of the U.S. securities laws.
These liability provisions adopt the general disclosure philosophy of the U.S.
federal securities laws: with few exceptions, each provision requires only fair
disclosure.159 Accordingly, while affirmative misrepresentations may lead to liability,
“[s]ilence, absent a duty to disclose, is not misleading” under the U.S. federal securities
laws.160 Liability based on the omission of information remains possible, however, if a
duty to disclose exists under applicable law (such as an SEC disclosure regulation), or if a
party makes voluntary, but incomplete, statements regarding a particular subject.161
The U.S. federal securities laws limit liability to material misrepresentation or

disclosure. A fact is material if there is “a substantial likelihood” that it would be “viewed
by the reasonable investor” as “significantly alter[ing] the ‘total mix’ of information made
available.”162 Although questions of materiality are typically decided on a case-by-case
basis, based on a thorough factual record, courts have developed some general principles
that allow the materiality question to be resolved as a matter of law. For example,
statements in a corporate code of business conduct have been found to be “‘inherently
aspirational,’” “not capable of objective verification,” and therefore not actionable under
the U.S. securities laws, in part because “[a] contrary interpretation . . . could turn all
corporate wrongdoing into securities fraud.”163
In addition to the provisions in the Securities Act and the Exchange Act, the FCPA
imposes anti-bribery and other obligations on issuers, with substantial potential penalties
for non-compliance, and other federal legislation, including Sarbanes-Oxley and Dodd-
Frank, has imposed additional obligations on issuers, increased potential penalties for
violations and expanded enforcement authorities of federal agencies.
A. SEC Actions and Private Litigation
The SEC enforces the U.S. federal securities laws through either civil proceedings
in U.S. courts or administrative proceedings before administrative law judges (“ALJs”).
The SEC’s Division of Enforcement (the “Division”) conducts investigations and
recommends that the SEC bring charges, as appropriate. The Division also prosecutes
cases on behalf of the SEC and works with U.S. and non-U.S. law enforcement agencies
with regard to criminal proceedings. The Division’s investigations involve informal
inquiries, interviews with witnesses and reviews of brokerage records and trading data,
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among other methods. When it obtains a formal order of investigation, the Division may
subpoena witnesses to testify and produce books, records and other documentation. When
an investigation is complete, the Division presents its findings to the SEC, which can
authorize the Division to file a case, either in federal district court or before an ALJ, settle
the matter before trial or take no action.
Civil actions and administrative proceedings differ both in process and possible
sanctions or remedies. In civil actions in U.S. courts, the SEC files a complaint with a
district court and asks the court for specific sanctions or remedies, which often include
injunctions to prevent further acts or practices that violate the U.S. federal securities laws,
civil money penalties, disgorgement of profits and/or barring an individual from serving as
a corporate officer or director for a certain period of time. In administrative proceedings,
ALJs preside over hearings at which the SEC and the charged individual(s) present
evidence. ALJs issue initial decisions, which include findings of fact, legal conclusions
and sanctions or remedies. Any party may appeal such initial decisions by ALJs to the
SEC, which may affirm, reverse or remand the decision for additional hearings, and final
orders from the SEC are subject to a further appeal to a U.S. appellate court. Sanctions
and remedies available in administrative hearings include cease-and-desist orders,
suspension or revocation of broker-dealer and investment advisor registrations, censures,
bars from association with the securities industry, bars from serving as an officer or director
of a public company, civil money penalties and/or disgorgement of profits.
Any violation of a provision of the U.S. securities laws can give rise to criminal
liability if the facts and circumstances are sufficiently egregious. The SEC may refer such
violations to the DOJ for criminal prosecution, and the DOJ also opens investigations at its
own initiative. Any person who willfully violates the Securities Act or any of the rules
promulgated thereunder can be sentenced to up to five years in prison and fined up to
$10,000. Willful violations of the Exchange Act or the rules thereunder carry sentences of
up to 20 years in prison and fines of up to $5 million. Companies that violate the Exchange
Act may be subject to a $25 million criminal penalty. Companies can also face civil
monetary penalties of similar magnitude in SEC enforcement actions.
Private parties may also be able to bring actions in U.S. courts for violations of the
securities laws. As the Supreme Court has explained, there are in total “eight express
liability provisions” in the Securities Act and the Exchange Act: Sections 9, 16, 18, 20 and
20A of the Exchange Act and Sections 11, 12 and 15 of the Securities Act.164
Other private rights of action have been implied by the courts. For example, and
most importantly, although the Exchange Act is silent as to whether private parties can sue
for violation of Section 10(b) of the Exchange Act, courts have long recognized a private
right of action under Rule 10b-5. In 1983, the Supreme Court, acceding to the significant
extent of case law that developed over the years in the lower courts, recognized a private
right of action under Rule 10b-5.165
The Supreme Court has also recognized an implied private right of action under
Section 14(a) of the Exchange Act (governing proxy solicitations),166 and other federal
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courts have recognized an implied private right of action under Section 14(e) of the
Exchange Act (governing tender offers).167
B. The Liability Provisions of the Securities Act and Exchange Act
1. Section 10(b) and Rule 10b-5 of the Exchange Act
Among the most significant provisions of the U.S. federal securities laws are
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. Section 10(b)
forbids the use of any “manipulative or deceptive device or contrivance” in contravention
of rules prescribed by the SEC “in connection with the purchase or sale” of any security.
Rule 10b-5, in turn, prohibits using “any device, scheme or artifice to defraud,” making
material misstatements or omissions or engaging in “any act, practice or course of
business” that would “operate as a fraud or deceit upon any person” “in connection with
the purchase or sale of any security.” Establishing a violation of Rule 10b-5 requires proof
of scienter: that the defendant acted with an “intent to deceive, manipulate, or defraud.”168
In general, to prevail on a Rule 10b-5 claim, a plaintiff must prove that the defendant
(i) made a false statement or an omission of material fact, (ii) with scienter, (iii) in
connection with the purchase or sale of a security, (iv) upon which the plaintiff justifiably
relied and (v) which proximately caused (vi) the plaintiff’s economic loss.169
Under Rule 10b-5, therefore, an issuer and its employees may be liable for
disseminating false or misleading information or suppressing material information about
the issuer that was required to be disclosed, whether or not the issuer or any of its
employees purchased or sold any securities; rather, it is enough that their conduct occurred
“in connection with” purchases or sales of securities by others. Rule 10b-5 liability can be
based on information filed in a registration statement or in a report filed with the SEC
(including on Form 6-K), or upon public statements issued by the company. Another
Exchange Act provision, Rule 12b-20, requires that public filings contain such “material
information . . . as may be necessary to make the required statements, in light of the
circumstances under which they are made not misleading,” and does not require the SEC
to prove that the issuer engaged in fraud or recklessness tantamount to fraud as would be
required under Rule 10b-5.170 All issuers should therefore carefully review their press
releases and other public information prior to release.
Liability may also arise under Rule 10b-5 from “insider” trading in securities while
material information remains undisclosed. Insiders should not trade when a material event
(including a proposed financing or acquisition) is developing but is not yet ripe for
disclosure. A corporate insider also may be held liable on an insider trading theory for the
actions of persons to whom he or she discloses material nonpublic information and who
then trade on that information, even though the insider has not personally profited.171 FPIs
should thus avoid selective disclosure of material nonpublic information out of concern for
potential liability under Rule 10b-5.
As noted, issuers, including FPIs, that violate Rule 10b-5 may be liable to private
parties and subject to federal enforcement action and, where such violation is willful,
criminal liability. Investors can sue issuers, as well as their directors and officers, in federal
court under Rule 10b-5 to recover losses sustained as a result of the issuer’s materially
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misleading statements or omissions made with scienter. U.S. courts allow investors to
bring class-action claims under Rule 10b-5, which means that an issuer can be liable to
thousands of investors for a single misstatement or omission. In the majority of cases that
advance beyond the pleadings stage, issuers ultimately reach a settlement with class-action
plaintiffs’ attorneys instead of taking a case to trial. From 2009 to 2018, the median size
across all 537 class-action settlements in Rule 10b-5-only cases in the United States was
$8.2 million.172 Settlements in several notable cases, however, have been significantly
higher, including Tyco International Ltd. ($3.7 billion), AOL Time Warner, Inc. ($2.7
billion), Nortel Networks ($2.3 billion) and Royal Ahold ($1.1 billion).
Of particular importance to FPIs, in 2010, the U.S. Supreme Court handed down a
ruling in Morrison v. National Australia Bank Ltd. that limited the liability of FPIs under
Section 10(b) and Rule 10b-5.173 The Morrison Court held that these provisions do not
apply unless the allegedly fraudulent conduct occurred “in connection with the purchase or
sale of a security listed on an American stock exchange, [or] the purchase or sale of any
other security in the United States.”174 Although Morrison itself involved non-U.S.
investors, courts have subsequently extended its holding to cases involving U.S. investors
as well.175
Under Morrison, it is clear that securities transactions that occur on a U.S. exchange
will be subject to the U.S. securities laws, and that transactions that occur on foreign
exchanges will not.176 This means that purchases or sales of ADRs which are listed on a
U.S. exchange will be subject to the U.S. securities laws. But what about securities
transactions that do not take place on an exchange, such as purchases or sales of
unsponsored ADRs? As a general rule, courts applying Morrison have held that triggering
application of the U.S. securities laws requires the plaintiff to “allege facts suggesting that
[1] irrevocable liability was incurred or [2] title was transferred within the United
States.”177 Applying this rule in a recent case, a court held that a U.S. investor had failed
to establish that its purchase of unsponsored ADRs on an over-the-counter market took
place in the United States, as required by Morrison.178
Dodd-Frank was intended to partly overrule Morrison by allowing the SEC and the
DOJ to bring actions under Rule 10b-5 (as well as other antifraud provisions of the U.S.
securities laws) against FPIs, even when an issuer’s shares are not listed on a U.S. securities
exchange. But whether that statute successfully did so remains an open question.179
Rule 10b-5 can be enforced by the SEC in injunctive and civil penalty actions,
brought pursuant to Section 21(d) of the Exchange Act, and by the DOJ in actions brought
pursuant to Section 32(a) of the Exchange Act, for willful violations of that Act. Similarly,
remedies available in private actions under Rule 10b-5 include injunctive relief as well as
damages.180 The Supreme Court has stated that the correct measure of damages under
Rule 10b-5 for a defrauded seller or purchaser is the “out-of-pocket” measure, which is the
difference between the price paid or received and the true value at the time of purchase (in
the absence of fraudulent conduct).181 It is universally accepted that punitive damages may
not be awarded under Rule 10b-5.182 The PSLRA adopted a further cap on damages in an
attempt to account for any “bounce-back” in a security’s price after full or corrective
disclosure is made.
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2. Sections 11 and 12 of the Securities Act
Sections 11 and 12 are the basic private liability provisions of the Securities Act.
In contrast with Rule 10b-5 under the Exchange Act, neither Section 11 nor Section 12
requires a plaintiff to prove scienter (that is, fraudulent intent). In fact, as discussed below,
both provisions impose strict liability on issuers who make material misstatements or omit
material information that was required to be disclosed.
In keeping with the general scheme of the Securities Act, Sections 11 and 12 protect
buyers but not sellers. The difference between the two sections is this: Section 11 makes
those responsible for a false or misleading registration statement liable in damages to any
and all purchasers regardless of from whom they bought (provided that the purchaser can
trace his or her shares to the defective registration statement), while Section 12 allows a
purchaser to rescind his or her purchase of securities, or to get damages from his or her
seller if he or she no longer holds the securities, if the seller used a false or misleading
prospectus or false or misleading oral statements in making the sale. Section 11 deals with
the “manufacturers” and “wholesalers” of securities (i.e., issuers, underwriters and experts
who aid them in preparing registration statements), has no privity requirement and provides
a remedy in damages. Section 12, on the other hand, deals with “retailers” of securities
(i.e., the securities dealers who sell to the general public), requires privity (except for
issuers in primary offerings selling through underwriters) and provides primarily for a
rescission remedy.
A purchaser may not rescind or recover damages from a seller under Section 12
and recover damages from an issuer, underwriter or their advisors under Section 11. Yet
nothing prevents a litigant from pursuing actions under both Sections 11 and 12 to
judgment and then electing his or her remedy.
a. Section 11 of the Securities Act
Section 11 provides that any person who purchases a security covered by a

registration statement has a private right of action, if at the time the registration statement
became effective it contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements therein not
misleading. The potential defendants under Section 11 include (i) the issuer, (ii) every
person who signed the registration statement (i.e., the directors and certain executive
officers of the registrant), (iii) every person named, with his or her consent, in the
registration statement as being or about to become a director, (iv) every expert, such as an
accountant, engineer or appraiser, who has with his or her consent been named as having
prepared or certified any part of the registration statement and (v) every underwriter of the
security. All of the above, except experts, are responsible for all misstatements and
omissions in the registration statement. Experts are responsible for misstatements and
omissions only in those parts of the registration statement they are named as having
prepared or certified.183
As noted above, unlike under Rule 10b-5, a plaintiff under Section 11 need not
establish a defendant’s scienter, or even negligence, to prove his or her case.184 Section 11
imposes strict liability as the baseline standard: it generally is enough if the registration
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statement is shown to have contained material misstatements or omissions.185 Moreover,
a purchaser who wishes to bring an action under Section 11 need not have purchased the
securities in question in the initial offering. So long as the purchaser can trace the securities
to a registration statement that contained a material misstatement or omission when it went
effective, and is within the statute of limitations, the purchaser may sue.
Moreover, Section 11(a) provides that a person who purchases securities after an
earning statement covering a period of at least 12 months beginning after the effective date
of the registration statement has been made available must prove that he or she acquired
the securities in reliance on a materially false or misleading statement in the registration
statement to have a right of recovery under Section 11. Yet such person need not show
that he or she read the registration statement to prove reliance on it. A Form 20-F may
constitute an “earnings statement” for purposes of this provision.186
Under Section 11, the issuer is strictly liable for material deficiencies in the
registration statement irrespective of good faith or the exercise of due diligence. By
contrast, the standard of liability imposed upon directors, officers and underwriters is
somewhat less stringent, as a “due diligence” defense is available to all non-issuer
defendants. A non-issuer defendant who is not designated as an expert may establish this
defense by proving (i) with regard to parts of the registration statement based either on
official reports or statements or on the reports or statements of experts (such as financial
statements to the extent certified by independent public accountants), that he or she had no
reason to believe that such statements or reports were false or misleading or were
inaccurately represented in the registration statement and (ii) with regard to other parts of
the registration statement, that he or she conducted a reasonable investigation, and that,
after such investigation, he or she had reasonable grounds for believing, and did believe,
that the registration statement was neither false nor misleading.187 Section 11(c) sets the
standard of reasonableness for non-experts as that required of a prudent person in the
management of his or her own property.
Thus, officers, directors and underwriters must exercise due diligence with respect
to the preparation of the registration statement. They may not avoid liability by relying
solely upon counsel or some other person to prepare the registration statement. If the issuer
has made provision for the indemnification of its officers and directors, these arrangements
must be disclosed in the registration statement. Any indemnification by the issuer of the
underwriters or their controlling persons against liability under the securities laws must
also be disclosed in the prospectus.188
The primary remedy under Section 11 is money damages. Section 11(e) provides
that the plaintiff may recover damages representing the decline in value of the plaintiff’s
securities, measured as the difference between the amount paid for the securities (not
exceeding the price at which the securities were offered to the public) and (i) the value
thereof as of the time such suit was brought, (ii) the price at which such securities were
sold in the market before suit or (iii) the price at which such securities were sold after suit
but before judgment if such damages were less than the damages representing the
difference between the amount paid for the securities (not exceeding the price at which the
securities were offered to the public) and the value thereof as of the time such suit was
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brought. Notwithstanding the above, Section 11 provides a “reverse loss causation”
affirmative defense: damages are reduced to the extent that the defendant can prove that
the plaintiff’s losses were caused by something other than the defect in the registration
statement. As with claims under Rule 10b-5, U.S. courts permit Section 11 plaintiffs to
bring class actions on behalf of thousands of investors at the same time. Section 11 has
resulted in few reported awards of damages, although Section 11 cases that survive the
defendants’ motion to dismiss are regularly settled before trial.
b. Section 12 of the Securities Act
Section 12(a)(2) provides that the purchaser of a security has a right of action for
rescission or damages against the person who offered or sold the security to him or her by
means of any prospectus or oral communication containing a material misstatement or
omission (unless the purchaser was aware of the misstatement or omission). Liability can
be based on a prospectus other than that required under Section 5 of the Securities Act.
Any offering circular will do.189 And unlike Section 11, which applies only to securities
subject to the requirements of Section 5 of the Securities Act, Section 12(a)(2) applies to
all securities except those exempted from the Securities Act by Section 3(a)(2).
The Supreme Court has held that Section 12(a)(2) does not apply to a private
contract for a secondary market sale of securities.190 That decision left unclear the
applicability of Section 12(a)(2) to private placement offerings, but a number of courts
have subsequently held that the section does not apply to offerings made by means of a
private placement memorandum.191 Moreover, the Second Circuit has held that a
Section 12(a)(2) action cannot be maintained by a plaintiff who acquires securities through
a private transaction even where the marketing of the securities relied on a prospectus
prepared for a public offering.192
As noted, Section 12(a)(2) does not require the plaintiff to prove scienter or
negligence: a person who sells securities in violation of the registration provisions of the
Securities Act is strictly liable.193 Thus, a plaintiff who proves that his or her seller made
materially false or misleading statements or used a materially false or misleading
prospectus, and that the plaintiff had no knowledge of any such untruth or omission, has
established his or her case under Section 12(a)(2).194 Section 12(a)(2), however, provides
sellers with a “due diligence” defense: the seller is not liable if he or she can prove that
“he did not know, and in the exercise of reasonable care could not have known, of such
untruth or omission.”195 The effect of this defense is to turn Section 12(a)(2) into a
negligence statute, with the burden on defendants to prove lack of negligence.196
Like Section 11, Section 12(a)(2) also provides a “negative loss causation”
affirmative defense. Specifically, the PSLRA added Section 12(b) of the Securities Act,
which provides that if a person “proves that any portion or all of the amount recoverable
under subsection [12](a)(2) of this section represents other than the depreciation in value
of the subject security resulting from such part of the prospectus or oral communication . . .
not being true or omitting to state a material fact . . . then such portion or amount . . . shall
not be recoverable.”197 Consequently, “[a] Section 12 defendant is liable only for
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depreciation that results directly from the misrepresentation at issue.”198 The defendant
bears the burden of showing this absence of loss causation.199
In contrast to Section 11, the primary remedy provided by Section 12 is rescission,

whereby a plaintiff tenders his or her securities to the defendant and receives his or her
purchase price, with interest, in return. Interest is computed at what the court deems an
equitable rate.200 But there are several wrinkles. First, where the plaintiff has received
income (i.e., dividends or interest) on his or her securities, this income is subtracted from
the purchase price in determining what he or she will get upon tendering his or her shares.
Second, where the plaintiff has, before the filing of suit, disposed of the relevant securities,
and thus cannot rescind the sale, he or she may recover damages, measured as the
difference between the purchase price and the disposal price of the securities, plus interest,
and less any income from the security received by the plaintiff.201 Of course, where the
defendant is a person from whom the plaintiff did not receive title, such as a broker (to the
extent a broker can be held liable under Section 12), the result of the Section 12 remedy is
not rescission, strictly speaking, although it will be the equivalent to the plaintiff.202
3. Section 17 of the Securities Act
Section 17 is the general antifraud provision of the Securities Act. It governs all
sales, not just those that are part of a public offering. Sections 17(a)(1), (2) and (3),
respectively, prohibit use of any means of interstate commerce (a) to employ any device,
scheme or artifice to defraud, (b) to obtain money or property by means of material
misstatements or omissions or (c) to engage in any course of business that would operate
as a fraud upon a purchaser. In keeping with the general scheme of the Securities Act,
Section 17 protects only purchasers and operates only against sellers, unlike Section 10(b)
of the Exchange Act, which operates against both purchasers and sellers. The Supreme
Court has emphasized that each of Section 17(a)(1), (2) and (3) contain different
prohibitions, to be interpreted separately.203
As previously discussed, Section 17 does not expressly create a private right of

action, and, as noted, the lower U.S. courts have generally concluded that no private right
of action should be implied from that provision. Section 17 has therefore been important
primarily in actions brought by the SEC pursuant to Section 20(b) of the Securities Act,
which authorizes the SEC to seek injunctions against violations of the Securities Act, and
in criminal actions brought by the DOJ pursuant to Section 24 of the Securities Act, which
imposes criminal liability for willful violations of that Act.
While Section 17 is textually similar to Rule 10b-5, the scope of the conduct that it
reaches is broader in significant ways. Most notably, the Supreme Court has held that
proof of negligence will suffice under Sections 17(a)(2) and 17(a)(3); scienter is not
required, as it is under Rule 10b-5 (and Section 17(a)(1)).204 The result is that if an action
can be framed under Section 17(a)(2) or (3)—as virtually any action against a seller under
Section 10(b) or Section 17(a)(1) can be—it can be tried by the SEC under a negligence,
rather than a scienter, standard. Another distinction between Section 17(a) and
Section 10(b) is that “Section 10(b) and Rule 10b-5 apply to acts committed in connection
with a purchase or sale of securities while Section 17(a) applies to acts committed in
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connection with an offer or sale of securities.”205 As a result, “Section 17(a)’s proscription
extends beyond consummated transactions.”206
The majority view is that punitive damages are not available under Section 17(a).207
Disgorgement is available, however, and often sought in SEC enforcement actions. “In
order to be entitled to disgorgement, the SEC needs to produce only a reasonable
approximation of the defendant’s ill-gotten gains.”208 In addition, under its general civil
penalty authority, the SEC can seek monetary penalties when it charges violations of
Section 17(a).
4. Section 14(e) of the Exchange Act
As noted above, Section 14(e) of the Exchange Act is a general antifraud provision
applicable to tender offers. In April 2018, the U.S. Court of Appeals for the Ninth Circuit
ruled that in the tender offer context, Section 14(e) of the Exchange Act does not require
scienter for violation, but rather a lower standard of negligence.209 This ruling arose in the
context of a buyout of a public company by tender offer, where a shareholder class action
alleged that the failure by the target to include a summary of its investment bank’s
comparable transaction premium analysis was a material omission that violated Section
14(e). By contrast, the Second, Third, Fifth, Sixth and Eleventh Circuits have held that
Section 14(e) requires a showing of scienter. In January 2019, the Supreme Court granted
certiorari on the Ninth Circuit holding and its deviation from the holdings of the other
circuits, but the Supreme Court subsequently vacated that grant, and therefore did not
address the merits.
5. Sarbanes-Oxley and Dodd-Frank
Sarbanes-Oxley and Dodd-Frank made several changes to liability under the federal
securities laws, including enhancing the SEC’s powers and creating new criminal
provisions. Specifically, Sarbanes-Oxley: (i) gave the SEC the authority to freeze possible
“extraordinary payments” to directors, officers, agents and employees during the course of
an investigation involving “possible” violations of the U.S. federal securities laws; (ii) gave
the SEC the authority to bar persons from serving as directors or officers of public
companies in cease-and-desist proceedings; (iii) created a new securities fraud crime with
respect to public companies that does not contain a purchase or sale requirement, and
simply prohibits knowingly defrauding any person (or attempting to do so) in connection
with any security of an issuer, with violators subject to fines and imprisonment of up to 25
years; (iv) imposed fines of up to $5 million and prison terms of up to 10 years for CEOs
and CFOs who knowingly make false certifications of the accuracy of SEC-filed financial
reports (20 years in the case of willfully false certifications); (v) increased maximum prison
terms for mail and wire fraud and violations of the Exchange Act; and (vi) enacted a broad
new “anti-shredding” prohibition and sweeping new obstruction of justice offenses not
limited to document destruction.
Dodd-Frank also: (i) granted the SEC the power to impose civil penalties on
persons or companies (or their directors, officers or employees) for violations of the
Securities Act and Exchange Act through out-of-court actions before ALJs; (ii) provided
federal courts with jurisdiction to hear cases brought by the SEC or other agencies of the
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U.S. government under the antifraud provisions of the Securities Act and Exchange Act
that involve either (a) conduct within the United States that constitutes significant steps in
furtherance of a violation of those provisions, even if the securities transaction occurs
outside the United States and involves only non-U.S. investors or (b) conduct outside the
United States, if that conduct would have a foreseeable substantial effect in the United
States;210 (iii) established that persons who “knowingly” or “recklessly” provide
substantial assistance to conduct that violates the antifraud provisions of the Securities Act
or Exchange Act can be criminally or civilly liable for such conduct; and (iv) extended the
statute of limitations for criminal violations of the Securities Act and Exchange Act from
five years to six years.
C. Foreign Corrupt Practices Act
The FCPA, which amended the Exchange Act, imposes requirements relating to
company records and internal controls (the “Accounting Provisions”) and generally
prohibits corrupt payments to non-U.S. officials for the purpose of obtaining or keeping
business (the “Anti-Bribery Provisions”). Issuers, including FPIs, will be subject to both
the Accounting Provisions and the Anti-Bribery Provisions if they have a class of securities
registered under Section 12 of the Exchange Act or are required to file periodic reports
under Section 15(d) of the Exchange Act. In addition, the Anti-Bribery Provisions would
apply to the issuer’s officers, directors, employees and agents, and shareholders acting on
behalf of the issuer.
FCPA violations can result in significant fines and penalties. A company can be
criminally fined up to $2 million per violation of the Anti-Bribery Provisions; culpable
individuals can be subject to a criminal fine of up to $250,000 per violation and
imprisonment for up to five years. Willful violations of the Accounting Provisions can
result in a criminal fine of up to $25 million for a company; culpable individuals can be
subject to a criminal fine of up to $5 million as well as imprisonment for up to 20 years.
Fines can be even higher in certain circumstances, depending on the gain or loss resulting
from the violation, and fines imposed on an individual may not be paid by his or her
employer. In addition, the SEC is able to seek civil monetary penalties in similar amounts,
as well as disgorgement of a company’s profits on contracts secured with improper
payments, plus interest.
U.S. enforcement authorities have charged and prosecuted an increased number of

foreign individuals and companies for FCPA violations over the last several years, with
payments to U.S. authorities ranging from the hundreds of thousands to nearly half a billion
dollars. Recent FCPA enforcement actions involving FPIs include the below:
 In 2022, a Switzerland-based automation company was ordered to pay

more than $460 million to U.S. authorities to settle criminal and civil
charges arising out of a bribery scheme in South Africa, where company
executives had colluded with a high-ranking government official at a
state-owned enterprise in South Africa to funnel bribes to third-party
service providers.211
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 In 2022, the second-largest airline in Brazil agreed to pay over $160
million to the SEC, the DOJ and Brazilian authorities to resolve anti-
bribery, books and records, internal accounting controls and other
related charges for its involvement in a bribery scheme orchestrated by
a senior executive.212
 In 2022, a Luxembourg-based global manufacturer agreed to pay more

than $78 million to resolve charges that it violated the anti-bribery,
books and records, and accounting controls provisions of the FCPA in
connection with a bribery scheme involving its Brazilian subsidiary.213
 In 2021, an investment bank agreed to pay nearly $100 million to settle

charges that it violated the anti-fraud provisions of federal securities
laws, as well as the internal accounting controls provisions of the FCPA,
in connection with its role in three financial transactions on behalf of
Mozambican state-owned entities.214
 In 2021, a separate investment bank agreed to pay more than $43 million
to settle charges that it violated the books and records and internal
accounting controls provisions of the FCPA in connection with
improper payments to intermediaries in China, the UAE, Italy and Saudi
Arabia.215
 In 2021, the former chief executive officer of a Brazilian petrochemical

company which was an FPI was sentenced to 20 months in prison for a
scheme to pay bribes to Brazilian government officials in violation of
the FCPA; he was also ordered to forfeit $2.2 million and pay a $1
million fine.216
 In 2018, the SEC settled FCPA charges against a real estate broker in
New Jersey for his attempt to bribe a foreign official in the Middle East
on behalf of an FPI as part of an effort to broker the sale of a commercial
building in Vietnam, in exchange for the broker forfeiting $225,000 in
fees.217
D. Director Personal Liability and Directors’ and Officers’ Insurance
The risk of personal liability under the federal securities laws is very slight when
directors act conscientiously. Put simply, a director who performs his or her duties in good
faith is unlikely to be found liable for losses suffered by reason of such performance.
While Sarbanes-Oxley signaled toughness by substantially increasing criminal

penalties for securities fraud and by creating a criminal offense of knowingly executing, or
attempting to execute, a scheme to defraud shareholders of public companies, as well as by
prohibiting loans to directors and coercion of auditors (violations of which could result in
SEC enforcement actions), it did not otherwise change the elements of civil liability under
the securities laws or create new rights of civil actions for which directors may be liable.
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The SEC has on occasion signaled a more rigorous enforcement posture. In 2013,
the SEC announced the creation of a “Financial Reporting and Audit Task Force,” the
purpose of which was to expand the SEC’s efforts to identify securities law violations
relating to the preparation of financial statements, issuer reporting and disclosure, and audit
failures. In 2022, the SEC notably imposed a $100 million penalty—the largest penalty
ever imposed by the SEC against an audit firm—on Ernst & Young LLP for, and the
accounting firm agreed to undertake extensive remedial measures to address, cheating by
its audit professionals on exams required to obtain and maintain Certified Public
Accountant licenses, and charged other auditors for auditing and internal controls
improprieties.218 Numerous recent SEC enforcement actions have underscored the SEC’s
focus on financial statements and issuer reporting, including in situations that do not
involve fraud or material misstatements.219
Companies should, and generally do, protect directors and officers against the risk
of personal liability for their services to the company by: (i) exculpating directors and
officers where permissible; (ii) indemnifying directors and officers to the fullest extent
permitted by law; and (iii) purchasing directors’ and officers’ insurance (“D&O
Insurance”), including Side A-only D&O Insurance to help cover non-indemnifiable
claims.
Companies should seek advice from professionals to ensure that the company has
appropriately tailored, and sufficiently broad, exculpation and indemnification provisions
for directors and officers. In addition, companies should seek guidance from specialized
D&O Insurance professionals to help ensure that the types and amounts of D&O Insurance
purchased are consistent with industry benchmarks and the company’s risk profile. The
nature and extent of D&O Insurance coverage is always a matter requiring reference to the
particular policy language since such policies can vary in material ways. In particular, it
is important for directors and officers and their counsel to understand the parameters of the
D&O Insurance coverage, with a focus on the following provisions: policy period; any
prior acts dates (i.e., dates before which conduct may be excluded); policy limits; retention
(or self-insurance) amounts; policy exclusions; severability of knowledge/wrongful acts
and policy rescission; and the general scope of policy coverage for typical claims and
corporate investigations.
If a company is in a precarious financial position, it is particularly important to

ensure that a company’s D&O Insurance policy has appropriate protections for directors
and officers in the event of a bankruptcy filing. In addition, in such situations, Side A-only
D&O Insurance coverage—which covers directors and officers only, in contrast to Side
ABC policies, which cover both the company and the individual directors and officers—
can be a critical tool to help protect directors and officers.220
E. Liability of Controlling Shareholders
Controlling shareholders can be held secondarily liable for primary violations of

the securities laws under Section 15 of the Securities Act or Section 20(a) of the Exchange
Act. Despite differences in wording, Section 15 of the Securities Act and Section 20(a) of
the Exchange Act have always been interpreted as parallel statutes.221 Section 15 imposes
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secondary liability on controlling persons for primary liabilities of controlled persons under
Sections 11 and 12 of the Securities Act. Section 20(a) imposes secondary liability on
controlling persons for primary liabilities of controlled persons under any provision of the
Exchange Act or any regulation promulgated thereunder. Because Sections 15 and 20(a)
are secondary liability provisions, establishing a primary violation is a prerequisite for
liability under both sections, yet the controlled person need not be joined in an action under
either one.222
“Control” is defined in the Securities Act as “the possession, direct or indirect, of

the power to direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract, or otherwise,”223 yet
determining exactly who meets this standard requires a case-by-case assessment. Certainly
controlling shareholders, directors and even lenders can be controlling persons, provided
they have the power or potential power to influence the activities of the controlled
person.224 Circuits remain split as to whether a plaintiff must establish that the defendant
was a “culpable participant” in the alleged violation to qualify as a “controlling person”
under these sections. Furthermore, neither section contains any scienter, or even
negligence, requirement. But Section 15 states that the controlling person is not liable if
he or she had no knowledge or reason to know the facts that establish the liability of the
controlled person. Section 20(a) states that the controlling person is not liable if he or she
acted in good faith and did not induce the acts on which the liability of the controlled person
is founded. Courts have uniformly held that these are affirmative defenses to be pleaded
and proved by defendants.225 Courts adopting the “culpable participant” standard,
however, require plaintiffs to prove some culpability as part of a prima facie case before
the burden of proving good faith shifts to the defendant.
A controlling person liable under Section 15 or 20(a) is jointly and severally liable
for any damages for which the controlled person is liable. Thus, the measure of damages
that can be assessed against a controlling person under these sections varies with the
underlying claims or possible claims against the controlled person.
F. Whistleblowing Procedures and Up-the-Ladder Reporting
Sarbanes-Oxley amended Exchange Act Section 10A and added Section 1514A to
the United States Code to require that audit committees establish “whistleblowing”
procedures for the confidential submission of concerns regarding questionable accounting
or auditing matters, as well as “up-the-ladder” reporting. This provision applies to both
U.S. issuers and FPIs. Whistleblowing procedures must include procedures for receiving,
treating and retaining any complaints received by an issuer regarding accounting, internal
accounting controls or auditing matters. An issuer may, for example, permanently appoint
a business practices officer to investigate complaints and report directly to the audit
committee. FPIs must be careful to design their retention and other whistleblowing
procedures so they comply with labor and local data protection laws and guidelines. If
found to have taken retaliatory action against employee whistleblowers, public issuers are
subject to civil and, in certain circumstances, criminal liability. In addition, whistleblowers
are given protections against wrongful dismissal by their employers, including rights to
reinstatement, back pay and damages.
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Up-the-ladder reporting requires attorneys who appear and practice before the SEC
in the representation of issuers that file periodic reports with the SEC who become aware
of evidence of a material violation of U.S. law that has occurred or is reasonably likely to
occur, by the issuer or by an officer, director, employee or agent of the issuer, to report that
violation internally to the issuer’s chief legal officer (“CLO”) forthwith and to determine
whether an appropriate response has been made. In some cases, further reports to the board
of directors or audit committee may be required or permitted. A CLO who receives such
a report must then conduct an inquiry. If the CLO determines that no material violation
has occurred, is ongoing or is about to occur, the reporting attorney must be so advised.
Unless the CLO reasonably believes no material violation has occurred, is ongoing or is
about to occur, he or she must take all reasonable steps to cause the issuer to adopt an
appropriate response and advise the reporting attorney of the response. As an alternative
to this procedure, an attorney may notify the qualified legal compliance committee, if the
issuer has previously formed such a committee. Only the SEC may enforce requirements
regarding attorneys representing issuers; that is, a private cause of action may not be
brought. And a “non-appearing foreign attorney” does not “appear and practice” before
the SEC for purposes of the rules.226
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IX.
Appendix A
[See attached]
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February 8, 2024
CROSS-BORDER M&A –
2024 CHECKLIST FOR SUCCESSFUL ACQUISITIONS IN THE UNITED
STATES
M&A activity in 2023 was subdued relative to recent record-setting volumes.

Globally, M&A volume was $2.9 trillion in 2023, compared to $3.6 trillion in 2022, $6.4
trillion in 2021 and an average of $4.5 trillion annually over the prior ten years (in 2023
dollars). In the first part of the year, persistent inflation weighed on macroeconomic
sentiment and many forecasters predicted a recession in the United States in 2023. The
steepest monetary tightening in decades destabilized regional banks and continued to chill
financing markets. At the same time, an aggressive antitrust agenda in the United States
deterred dealmakers from pursuing transactions that posed risks of a significant delay or
litigation with the government.
Despite the challenges confronting dealmakers in 2023, promising signals of a

potential recovery in M&A activity emerged at the end of the year. The U.S. economy
avoided recession in 2023, the current rate-hike cycle appears to be nearing its end and
several significant transactions were completed after withstanding regulatory scrutiny,
including Broadcom’s $69 billion acquisition of VMware and Microsoft’s $69 billion
acquisition of Activision Blizzard.
As during the recent M&A boom, cross-border M&A continued to provide

attractive opportunities to dealmakers in 2023, another indicator that M&A was cyclically
muted but not fundamentally disrupted over the last year. Cross-border deals were 33%
($950 billion) of global M&A in 2023, consistent with the average proportion over the
prior ten years (35%). Acquisitions of U.S. companies by non-U.S. acquirors were $165
billion in transaction volume and represented 6% of 2023 global M&A volume and 17%
of 2023 cross-border M&A volume. Canadian, Irish, French, Swiss and British acquirors
accounted for 42% of the volume of cross-border acquisitions of U.S. targets, while
acquirors from China, India and other emerging economies accounted for about 9%.
We expect cross-border transactions into the United States to continue to offer

compelling opportunities in 2024. Transacting parties will do better if they are well-
prepared for the cultural, political, regulatory and technical complexity inherent in cross-
border deals. Advance preparation, strategic implementation and deal structures calibrated
to likely concerns are critically important. Now, more than ever, thoughtful regulatory
strategy and creative financing approaches deserve special focus.
The following is our updated checklist of matters that should be carefully

considered in advance of an acquisition or strategic investment in the United States.
Because each cross-border deal is unique, the relative significance of the issues discussed
below will depend upon the specific facts, circumstances and dynamics of each particular
situation. There is no one-size-fits-all roadmap to success.
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 Political and Regulatory Considerations. A high percentage of investment into the
United States will be well-received and not politicized. However, a variety of
global economic fault lines continue to make it critically important that prospective
non-U.S. acquirors of U.S. businesses or assets undertake a thoughtful analysis of
U.S. political and regulatory implications well in advance of any acquisition
proposal or program. This is particularly so if the target company operates in a
sensitive industry; if post-transaction business plans contemplate major changes in
investment, employment or business strategy; or if the acquiror is sponsored or
financed by a foreign government or organized in a jurisdiction where a high level
of government involvement in business is generally understood to exist. High-
profile transactions may result in political scrutiny by federal, state and local
officials. The likely concerns of government agencies, employees, customers,
suppliers, communities and other interested parties should be thoroughly
considered and, if practical, addressed before any acquisition or investment
proposal becomes public. Anticipation of these concerns is especially important in
light of the increasingly widespread acceptance in the United States of stakeholder
governance and the ongoing relevance of ESG principles to shareholders and
companies alike. Planning for these issues is made all the more complex in the
current political climate, in which debates about corporate purpose, stakeholder
considerations and ESG factors in corporate decision-making have become
politicized.
Similarly, potential regulatory hurdles require sophisticated advance planning. In

addition to securities and antitrust regulations, acquisitions may be subject to
CFIUS review, and acquisitions in regulated industries (e.g., energy, public
utilities, gaming, insurance, telecommunications and media, financial institutions,
transportation and defense contracting) may be subject to an additional set of
regulatory approvals. Regulation in these areas is often complex, and political
opponents, reluctant targets and competitors may seize upon perceived weaknesses
in an acquiror’s ability to clear regulatory obstacles as a tactic to undermine a
proposed transaction. Finally, depending on the industry involved, the type of
transaction and the geographic distribution of the workforce, labor unions may play
an active role during the entirety of the process. Pre-announcement
communications plans must take account of all of these interests. It is essential to
implement a comprehensive communications strategy prior to the announcement
of a transaction, focusing not only on public investors but also on all other core
constituencies so that the relevant constituencies may be addressed with
appropriately tailored messages. It will often be useful, if not essential, to involve
experienced public relations advisors at an early stage when planning any
potentially sensitive deal.
 CFIUS. The scope and impact of regulatory scrutiny of foreign investments in the
United States by CFIUS has expanded significantly over the last decade,
particularly following passage of the Foreign Investment Risk Review
Modernization Act (FIRRMA) in 2018, and a series of implementing rules adopted
by the U.S. Department of Treasury. As FIRRMA has been implemented, the role
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of CFIUS and the need to factor the risks and timing of the CFIUS review process
into deal analysis and planning has been further heightened. Although notification
of most transactions remains voluntary, FIRRMA introduced mandatory
notification requirements for certain transactions, including investments in U.S.
businesses associated with critical technologies, critical infrastructure, or sensitive
personal data of U.S. citizens where a foreign government has a “substantial
interest” (e.g., 49% or more) in the acquiror. Critical technology and critical
infrastructure are broad and flexible concepts, and FIRRMA includes in that rubric
“emerging and foundational technologies” used in computer storage,
semiconductors and telecommunications equipment sectors and critical
infrastructure in a variety of sectors. Supply chain vulnerabilities during the
pandemic also increased the likelihood that investments in U.S. healthcare, pharma
and biotech companies will be closely reviewed by CFIUS.
For example, as evidenced by CFIUS’ opposition in 2021 to South Korean chip

maker Magnachip Semiconductor Corp.’s merger with Wise Road Capital Ltd., a
Chinese private equity firm, CFIUS will take an expansive view of its jurisdiction
when semiconductor supply, even involving non-military applications, is at stake.
CFIUS had “called in” the transaction for its review even though the transacting
parties indicated that they had no U.S. nexus except for being incorporated in
Delaware, having a Delaware subsidiary, and being listed on the NYSE, with any
de minimis sales into the United States only occurring through third-party
distributors and resellers. Magnachip’s 2020 annual report, however, indicated that
it had a facility in San Jose, California, which it used for “administration, sales and
marketing and research and development functions,” that had been closed only in
September 2020. A notable aspect of the deal was CFIUS’ issuance in June 2021
of an interim order preventing Wise Road from completing the acquisition of
Magnachip pending its review of the transaction. While FIRRMA gave CFIUS the
authority to prevent consummation of a transaction pending its review, CFIUS has
rarely used that authority. In abandoning the transaction, Magnachip cited its
inability to obtain CFIUS’ approval for the merger. Companies operating overseas
with even a limited nexus to the United States need to undertake CFIUS due
diligence before engaging in a transaction in sectors that may involve core national
security areas of interest.
Personal data is also a key area of scrutiny for CFIUS. Most recent enforcement
actions involved concerns about Chinese investors’ access to sensitive personal
data of U.S. citizens. CFIUS enforcement in these sectors is likely to continue, as
is a focus on domestic supply chain security to ensure that neither the United States
nor its allies will be dependent on critical supplies from certain nations, including
China. At the same time, the United States is likely to remain open to foreign
investment, even in the national security sector. Most foreign investment will still
be cleared, although it may get close review and possibly require mitigation actions,
especially to the extent involving intellectual property, personal data, and cutting-
edge or emerging technologies. While notification of a foreign investment to
CFIUS remains largely voluntary, transactions that are not reviewed pre-closing
remain subject to potential CFIUS review in perpetuity.
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Thus, conducting a risk assessment for inbound transactions or investment early in
the process is prudent to determine whether the investment will require a mandatory
filing or may attract CFIUS attention. Parties may wish to take advantage of the
“declarations” process, which provides expedited review for transactions that
present little or no significant risk to U.S. national security. Parties should also
agree on their overall CFIUS strategy and consider the appropriate allocation of
risk as well as timing considerations in light of possibly prolonged CFIUS review.
 Antitrust Issues. The U.S. antitrust enforcement agencies have had an aggressive
enforcement agenda. Recently enacted federal legislation provides for significant
increases in the budgets of these agencies. The scope of issues being reviewed in
strategic transactions has expanded, and may result in delay and further efforts
being required by the parties to get the deal cleared as quickly as possible.
Although most enforcement continues to involve situations in which a non-U.S.
acquiror directly or indirectly competes or holds an interest in a company that
competes in the same industry as the target company, antitrust concerns may also
arise if a non-U.S. acquiror operates either in an upstream or downstream market
of the target. In addition, a new law, when implemented, will require companies
to disclose information regarding subsidies they receive from a “foreign entity of
concern.” Such foreign entities include, among other things, countries determined
by the Secretary of Energy, in consultation with the Secretary of Defense and the
Director of National Intelligence, “to be engaged in unauthorized conduct that is
detrimental to the national security or foreign policy of the United States.” China,
Russia, Iran and North Korea are among the countries currently identified as
“foreign entities of concern.” Pursuant to the new law, the federal antitrust
agencies, in consultation with other government agencies, will promulgate rules
that specify the information that affected parties must include in their HSR filings
and when such changes will take effect. Once effective, filing parties should expect
increased scrutiny of any disclosed foreign subsidies, even if such subsidies are
unrelated to the transaction being notified.
For a vast majority of transactions, the ultimate outcomes of transactions remain

predictable and achievable without the need for remedies or litigation. Even in
transactions that raise concerns, careful planning and a proactive approach to
engagement with the agencies can facilitate getting the deal through.
For those transactions that raise antitrust concerns, parties should be prepared to
deal with the U.S. antitrust agencies’ strong preference for (1) divestitures in lieu
of conduct remedies that require ongoing oversight to ensure compliance and
(2) acquirors of the divestiture assets to be approved prior to closing rather than
permitting divestiture acquirors to be identified by the parties and approved by the
agency after closing. Also, the agencies have shown a greater willingness to refuse
to engage in remedies discussions in some transactions, and transacting parties
should be prepared to litigate, possibly with a remedy in place that resolves any
concerns that the court may find justified. In all transactions, pre-closing
integration efforts should be conducted with sensitivity to antitrust requirements
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that can be limiting. Home jurisdiction or other foreign competition laws may raise
their own sets of issues that should be carefully analyzed with counsel.
 Debt Financing. In the first half of 2023, borrowers deferred new debt deals,
delayed planned refinancings and paused major corporate transactions while
waiting for interest rates to top out. In the second half of the year, inflation slowed
and deal activity picked up. With the exception of high-yield bond issuance, which
increased $65 billion from the 13-year low of 2022, investment-grade bond and
leveraged loan issuance remained muted compared to the boom year of 2021.
Direct lenders sought to deploy capital in transactions with companies of all types
and sizes, including public borrowers, and began to take aim at investment-grade
issuers (though investment-grade financing remains almost entirely the purview of
the traditional markets). At the same time, banks began expanding into the private
credit space through partnerships or in-house private credit vehicles.
High interest rates drove an increase in “debt default activism,” or debtholders

deploying legal arguments to force borrowers to refinance existing low-rate debt
on market-rate terms. To guard against such challenges, borrowers should think of
their long-term, low-coupon debt as a valuable asset that must be tended carefully.
In assessing corporate transactions, borrowers should build a record with defense
in mind. Further, as the conditionality in acquisition agreements has generally
tightened, acquirers with buyer’s remorse are searching for new ways to force a
renegotiation or termination of pending acquisition agreements. Sellers, buyers and
their respective counsel should strive for as much specificity and clarity as possible
when negotiating these covenants to ensure that the parties’ expectations and needs
are met while limiting the chances for opportunistic assertions or interpretations.
 Transaction Structures. Non-U.S. acquirors should consider a variety of potential

transaction structures, particularly in strategically or politically sensitive
transactions. Structures that may be helpful in sensitive situations to overcome
potential political or regulatory resistance include no-governance and low-
governance investments, minority positions or joint ventures, possibly with the
right to increase ownership or governance rights over time; partnering with a U.S.
company or management team or collaborating with a U.S. source of financing or
co-investor (such as a private equity firm); utilizing a controlled or partly controlled
U.S. acquisition vehicle, possibly with a board of directors having a substantial
number of U.S. citizens and prominent U.S. citizens in high-profile roles; or
implementing bespoke governance structures (such as a U.S. proxy board) with
respect to specific sensitive subsidiaries or businesses of the target company. Use
of debt or preferred securities (rather than common stock) should also be
considered. Even seemingly more modest social issues, such as the name of the
continuing enterprise and its corporate location or headquarters, or the choice of the
nominal legal acquiror in a merger, can affect the perspective of government and
labor officials.
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 Acquisition Currency. All-cash transactions represented 51% by value of cross-
border deals into the United States in 2023 (below the average of 55% over the
prior five years). However, non-U.S. acquirors should also think creatively about
potential avenues for offering U.S. target shareholders a security that allows them
to participate in the resulting global enterprise. For example, publicly listed
acquirors may consider offering existing common stock or depositary receipts (e.g.,
ADRs) or special securities (e.g., contingent value rights). If U.S. target
shareholders are to obtain a continuing interest in a surviving corporation that is
not already publicly listed in the United States, non-U.S. acquirors should expect
heightened focus on the corporate governance and other ownership and structural
arrangements of the non-U.S. acquiror, including as to the presence of any
controlling or large shareholders, and heightened scrutiny placed on any de facto
controllers or promoters. Creative structures, such as issuing non-voting stock or
other special securities of a non-U.S. acquiror, may minimize or mitigate the issues
raised by U.S. corporate governance concerns. Equity markets have never been
more global, and investors’ appetite for geographic diversity never greater; equity
consideration, or an equity issuance to support a transaction, should be considered
in appropriate circumstances.
 M&A Practice. It is essential to understand the custom and practice of U.S. M&A
transactions. For instance, understanding when to respect—and when to
challenge—a target’s sale “process” may be critical. Knowing how and at what
price level to enter the discussions will often determine the success or failure of a
proposal; in some situations it is prudent to start with an offer on the low side, while
in other situations offering a full price at the outset may be essential to achieving a
negotiated deal and discouraging competitors, including those who might raise
political or regulatory issues. In strategically or politically sensitive transactions,
hostile maneuvers may be imprudent; in other cases, unsolicited pressure might be
the only way to force a transaction. Takeover regulations in the United States differ
in many significant respects from those in non-U.S. jurisdictions; for example, the
mandatory bid concept common in Europe, India and other countries is not present
in U.S. practice. Permissible deal protection structures, pricing requirements and
defensive measures available to U.S. targets will also likely differ in meaningful
ways from what non-U.S. acquirors are accustomed to in their home jurisdictions.
Sensitivity must also be shown to the distinct contours of the target board’s
fiduciary duties and decision-making obligations under state law. Consideration
also may need to be given to the concerns of the U.S. target’s management team
and employees critical to the success of the venture. Finally, often overlooked in
cross-border situations is how subtle differences in language, communication
expectations and the role of different transaction participants can affect transactions
and discussions; preparation and engagement during a transaction must take this
into account.
 U.S. Board Practice and Custom. Where the target is a U.S. public company, the
customs and formalities surrounding board of director participation in the M&A
process, including the participation of legal and financial advisors, the provision of
customary fairness opinions and the inquiry and analysis surrounding the activities
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of the board and financial advisors, can be unfamiliar and potentially confusing to
non-U.S. transaction participants and can lead to misunderstandings that threaten
to upset delicate transaction negotiations. Non-U.S. participants must be well
advised on the role of U.S. public company boards and the legal, regulatory and
litigation framework and risks that can constrain or proscribe board or management
action. These factors can impact both tactics and timing of M&A processes and
the nature of communications with the target company.
 Shareholder Approval. Because most U.S. public companies do not have one or
more controlling shareholders, public shareholder approval is typically a key
consideration in U.S. transactions. Understanding in advance the roles of
arbitrageurs, hedge funds, institutional investors, private equity funds, proxy voting
advisors and other market players—and their likely views of the anticipated
acquisition attempt as well as when they appear and disappear from the scene—can
be pivotal to the success or failure of the transaction. These considerations may
also influence certain of the substantive terms of the transaction documents. It is
advisable to retain an experienced proxy solicitation firm well before the
shareholder meeting to vote on the transaction (and sometimes prior to the
announcement of a deal) to implement an effective strategy to obtain shareholder
approval.
 Litigation. Shareholder litigation continues to accompany many transactions

involving a U.S. public company, but is generally no cause for concern. Excluding
situations involving competing bids—where litigation may play a direct role in the
contest—and going-private or other “conflict” transactions initiated by controlling
shareholders or management—which form a separate category requiring special
care and planning—there are very few examples of major acquisitions of U.S.
public companies being blocked or even delayed due to shareholder litigation or of
materially increased costs being imposed on arm’s-length acquirors. In most cases,
where a transaction has been properly planned and implemented with the benefit of
appropriate legal and investment banking advice on both sides, such litigation can
be dismissed or settled for relatively small amounts or non-financial “therapeutic”
concessions. Sophisticated counsel can usually predict the likely range of litigation
outcomes or settlement costs, which should be viewed as a cost of the deal.
While careful planning can substantially reduce the risk of U.S. shareholder
litigation, the reverse is also true: the conduct of the parties during negotiations, if
not responsibly planned in light of background legal principles, can create an
unattractive factual record that may both encourage shareholder litigation and
provoke judicial rebuke, including significant monetary judgments. Sophisticated
litigation counsel should be included in key stages of the deal negotiation process.
In all cases, the acquiror, its directors and shareholders and offshore regulators
should be conditioned in advance (to the extent possible) to expect litigation in the
United States and not to view it as a sign of trouble. In addition, it is important to
understand that the U.S. discovery process in litigation is different, and often more
intrusive, than the process in other jurisdictions. Here again, planning is key to
reducing the risk. Turning back a high-profile litigation campaign by the plaintiffs’
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bar, the New York courts recently made clear that deal-related fiduciary duty claims
not arising under U.S. law should generally not proceed in the U.S. These rulings
provide welcome comfort that U.S. courts will refuse to export their expansive
discovery and procedural rules in the mine run of situations.
The pandemic reinforced the importance of merger agreement provisions
governing the choice of law and the choice of forum in the event of disputes
between the parties—particularly disputes in which one party may seek to avoid
the obligation to consummate the transaction. In Travelport Ltd v. Wex, for
example, the English High Court interpreted the material adverse effect provisions
of the parties’ agreement under English law in a manner that surprised many U.S.
observers. Similarly, in separate decisions examining whether and when a party
can exit a merger agreement because the counterparty breached its interim
operating covenants, the Superior Court of Justice in Ontario reached a different
result than the Delaware courts. These disputes, reflecting the transactional
disruption occasioned by the pandemic, have taught again an important lesson:
cross-border transaction planners should consider the courts and laws that will
address a potential dispute and consider with care whether to specify the remedies
available for breach of the transaction documents and the mechanisms for obtaining
or resisting such remedies.
 Tax Considerations. Understanding the U.S. and non-U.S. tax issues affecting
target shareholders and the combined group is critical to structuring any cross-
border transaction. In transactions involving the receipt of acquiror stock, the
identity of the acquiring entity must be considered carefully. Although some of the
U.S. tax law changes enacted in 2017 (e.g., 21% corporate income tax rate and
deduction for dividends received from non-U.S. subsidiaries) have ameliorated
certain of the adverse tax consequences traditionally associated with being U.S.-
parented, others remain or have been exacerbated (e.g., continued application of
“controlled foreign corporation” (CFC) rules to non-U.S. subsidiaries and
expansion of such rules to provide for minimum taxation of CFC earnings
(GILTI)). Where feasible, it often remains preferable for the combined group to be
non-U.S.-parented, although this determination requires careful modeling, taking
into account the potential application of recently enacted U.S. and non-U.S.
minimum taxes, as well as adjustments to certain U.S. tax rates currently scheduled
to occur in 2026 (e.g., increase in GILTI and BEAT tax rates and reduction of the
deduction for foreign-derived intangible income). In transactions involving an
exchange of U.S. target stock for non-U.S. acquiror stock, the potential application
of “anti-inversion” rules—which could render an otherwise tax-free transaction
taxable to exchanging U.S. target shareholders and could result in significant
adverse U.S. tax consequences to the combined group—must be evaluated
carefully. Combining under a non-U.S. parent corporation frequently is feasible
only where shareholders of the U.S. corporation are deemed to receive less than
60% of the stock of the non-U.S. parent corporation, as determined under complex
computational rules.
The Inflation Reduction Act of 2022 introduced a 15% corporate alternative

minimum tax (CAMT) on the “adjusted financial statement income” of certain
- 113 -
large corporations effective for tax years beginning after December 31, 2022. The
CAMT generally applies to corporations with average annual adjusted financial
statement income over a three-year period in excess of $1 billion (but a lower
$100 million threshold applies to U.S. corporations that are members of a non-U.S.-
parented group that satisfies the $1 billion threshold). The introduction of a parallel
set of U.S. minimum tax rules—with broad regulatory authority for the Treasury
Department to “carry out the purposes” of the tax—added significant complexity
for large taxpayers, and IRS guidance on numerous topics remains to be issued.
While the CAMT shares certain features with the global minimum tax rules under
the OECD’s “Pillar Two” rules (which impose a 15% minimum tax on the book
income of certain large multinational enterprises and will be effective in many
jurisdictions as of January 1, 2024), numerous differences give rise to complex
coordination issues and may lead to double taxation.
Potential acquirors of U.S. businesses should carefully model the anticipated tax
rate of the combined business, taking into account the CAMT and Pillar Two taxes
(if applicable), limitations on the deductibility of net interest expense and related-
party payments, and limitations on the utilization of net operating losses, as well as
the consequences of owning non-U.S. subsidiaries through an intermediate U.S.
entity. Such modeling requires a detailed understanding of existing and planned
related-party transactions and payments involving the combined group.
 Employee Compensation and Benefits Matters. In the acquisition of a U.S.

company, employee compensation and benefits arrangements require careful
review as part of the diligence process and are often a key element of deal-related
negotiations. Because both existing compensation arrangements and new
arrangements that the target company seeks to implement in connection with a
transaction may have a material impact on retention of target employees (and,
therefore, the successful post-closing operation of the target’s business) and may
have significant associated costs, close coordination among the corporate
development, finance, human resources and legal teams at the acquiror, the
acquiror’s investment bankers, and the acquiror’s external transaction counsel is
critical in order to ensure that all elements are properly accounted for in the
valuation analysis, transaction terms and integration plan.
In particular, equity incentive compensation is an area that requires significant

focus as it is highly utilized at U.S. companies and, though the practices vary
depending on whether a company is publicly traded or privately held, the sector in
which it operates, the size of its employee population and other relevant factors, it
would not be uncommon for equity awards to represent 10% or more of a
company’s fully diluted equity value and for such awards to be held by a substantial
percentage of the employee population. Consequently, outstanding equity awards
will need to be addressed at multiple stages of the deal process, including
accounting for awards in the valuation analysis and purchase price negotiations,
establishment of parameters for grants of incremental equity awards between
signing and closing, and inclusion of provisions regarding treatment of all
- 114 -
outstanding equity awards in the transaction agreement (which treatment must be
consistent with the contractual terms of the awards).
Additionally, acquirors should be mindful that, because U.S. employment laws are
generally less prescriptive on compensation and benefit matters than the laws of
many other jurisdictions, some matters that are covered by applicable law outside
the United States are generally negotiated on a bespoke basis in U.S. transactions.
For example, it is customary in U.S. transaction agreements to include a covenant
requiring that the acquiror maintain compensation and benefits for target company
employees at specified levels (generally linked to either pre-closing levels or levels
applicable to similarly situated acquiror employees) for a specified period of time
following the closing (generally 12 months). While this covenant is not
individually enforceable by target company employees as a contractual matter, it is
a specific indication of the acquiror’s intended treatment of target employees and,
because the terms of the covenant are communicated to employees, a failure of the
acquiror to comply with the covenant would have significant consequences both as
to employee satisfaction and retention at the target company and more broadly for
the acquiror’s reputation when entering into future transactions. Another example
is that, in the United States, severance benefits are generally a matter of contract
rather than statute, and negotiation of specific severance protections for target
employees—generally in the form of a commitment from the acquiror to maintain
existing severance protections or to allow the target company to implement new or
enhanced protections in advance of closing—is common.
Another area that requires careful analysis and planning in U.S. acquisitions is the
potential adverse tax consequences—for both target companies and executives—
imposed under Sections 280G and 4999 of the U.S. tax code. Together, these
provisions result in a dual penalty, consisting of a loss of federal income tax
deduction for the company and a 20% excise tax for the executive, on change-in-
control related payments and benefits payable to certain officers and other highly
compensated employees of a corporation undergoing a change in control to the
extent that the value of such payments and benefits exceeds a threshold calculated
based on average historic compensation paid by the corporation to the applicable
individual. Consequently, in general, a calculation of the amount of payments and
benefits potentially subject to these penalties should be performed by specialized
accounting experts retained by the target company, and it is customary for the
acquiror and the target company, their respective legal counsel and the accounting
firm performing the calculations to work together to use widely accepted
techniques in order to mitigate, to the extent possible, the potential adverse
consequences.
 Corporate Governance and Securities Law. Current U.S. corporate governance

and securities rules can be troublesome for non-U.S. acquirors who will be issuing
securities that will become publicly traded in the U.S. as a result of an acquisition.
SEC rules, the Sarbanes-Oxley and Dodd-Frank Acts and stock exchange
requirements should be evaluated to ensure compatibility with home jurisdiction
rules and to be certain that a non-U.S. acquiror will be able to comply. Rules
- 115 -
relating to director independence, internal control reports and loans to officers and
directors, among others, can frequently raise issues for non-U.S. companies listing
in the U.S. Non-U.S. acquirors should also be mindful that U.S. securities
regulations may apply to acquisitions and other business combination activities
involving non-U.S. target companies with U.S. security holders.
 Disclosure Obligations. How and when an acquiror’s interest in the target is

publicly disclosed should be carefully controlled and considered, keeping in mind
the various ownership thresholds that trigger mandatory disclosure on a Schedule
13D under the federal securities laws and under regulatory agency rules such as
those of the Federal Reserve Board, the Federal Energy Regulatory Commission
(FERC) and the Federal Communications Commission (FCC). While the Hart-
Scott-Rodino Antitrust Improvements Act (HSR) does not require disclosure to the
general public, the HSR rules do require disclosure to the target before relatively
low ownership thresholds may be crossed. Non-U.S. acquirors should be mindful
of disclosure norms and timing requirements relating to home jurisdiction
requirements with respect to cross-border investment and acquisition activity. In
many cases, the U.S. disclosure regime is subject to greater judgment and analysis
than the strict requirements of other jurisdictions. Treatment of derivative
securities and other pecuniary interests in a target other than common stock
holdings can also vary by jurisdiction.
 Due Diligence. Wholesale application of the acquiror’s domestic due diligence

standards to the target’s jurisdiction can cause delay, waste time and resources or
result in missing a problem. Due diligence methods must take account of the target
jurisdiction’s legal regime and, particularly important in a competitive auction
situation, local norms. Many due diligence requests are best channeled through
legal or financial intermediaries as opposed to being made directly to the target
company. Due diligence requests that appear to the target as particularly unusual
or unreasonable (which occurs with some frequency in cross-border deals) can
easily create friction or cause a bidder to lose credibility. Similarly, missing a
significant local issue for lack of jurisdiction-specific knowledge or understanding
of local practices can be highly problematic and costly. Prospective acquirors
should also be familiar with the legal and regulatory context in the United States
for diligence areas of increasing focus, including cybersecurity, data privacy and
protection, Foreign Corrupt Practices Act (FCPA) compliance and other matters.
In some cases, a potential acquiror may wish to investigate obtaining representation
and warranty insurance in connection with a potential transaction, which has been
used with increasing frequency as a tool to offset losses resulting from certain
breaches of representations and warranties.
 Distressed Acquisitions. In 2023, bankruptcy filings surged as corporations dealt

with the challenges of a rising interest-rate environment, resulting in one of the
busiest years for bankruptcy since the financial crisis. Amid that upturn, the United
States has remained the forum of choice for cross-border restructurings. A new
participant in U.S. bankruptcy courts in late 2022 and 2023 was a number of
cryptocurrency companies with worldwide activities which filed U.S. bankruptcies
- 116 -
in response to the cryptocurrency downturn in 2022. Multinational companies
across a broad range of more traditional sectors including retail, manufacturing,
healthcare and finance also continued to take advantage of the debtor-friendly and
highly developed body of reorganization laws, as well as the specialized
bankruptcy courts, that have long made U.S. Chapter 11 bankruptcy filings
attractive.
Advantages of a U.S. bankruptcy include: the expansive jurisdiction of the courts

(such as a worldwide stay of actions against a debtor’s property and liberal venue
requirements); the ability of the debtor to maintain significant control over its
normal business operations; relative predictability in outcomes; the ability to bind
holdouts to debt compromises supported by a majority of holders and two-thirds of
the debt; and the ability to borrow on a super-senior basis to fund the company
during and upon exit from bankruptcy.
Another unique tool of the U.S. bankruptcy system that is being used with
increasing frequency is the “prepackaged” or “prepack” bankruptcy. A “prepack”
is a bankruptcy case filed after pre-negotiating a plan of reorganization with key
constituencies. In cases where broad creditor support can be obtained, a “prepack”
can facilitate a rapid restructuring of debt or sale of a U.S. or foreign company or
its assets in as little as 20-30 days (or even fewer). A “prepack” can also be filed
in conjunction with foreign recognition proceedings, facilitating rapid transactions
for companies with cross-border operations that still provide acquirors with the
comfort and protection of court orders in relevant jurisdictions. Prepacks are an
important means of avoiding the expense and disruption that can result from a
protracted bankruptcy case.
U.S. bankruptcy courts generally permit the sale of substantial assets or of the
whole company during, or in connection with emergence from, a Chapter 11
proceeding. Features of the Bankruptcy Code of particular importance to M&A
transactions include the ability to obtain a sale order providing title to assets free-
and-clear of all prior liabilities and liens on a worldwide basis, the ability to reject
undesirable contracts and leases while keeping those desired by the buyer, and the
easing of certain antitrust and securities regulatory burdens. The ability to sell
assets free-and-clear of prior liabilities and thus protect a purchaser from the
overhang of legacy liabilities, as well as to resolve all claims against a company in
a single forum, makes Chapter 11 an attractive and increasingly routine option for
companies facing potential mass tort liability.
Those evaluating a potential acquisition of a distressed target with a connection to

the United States should consider the full array of tools that the U.S. bankruptcy
process makes available to obtain equity or assets from a bankrupt company. Those
could include acquisition of the target’s fulcrum debt tranches that are expected to
be equitized through a restructuring, acting as a plan investor or sponsor in
connection with a plan of reorganization, backstopping a plan-related rights
offering, or participating as a bidder in a court-supervised “Section 363” auction of
a debtor’s assets.
- 117 -
Transaction certainty is critical to a debtor and its stakeholders and thus to a
potential acquiror’s success in a distressed context. Accordingly, non-U.S.
participants need to plan carefully (particularly with respect to transactions that
might be subject to CFIUS review, as discussed above) to ensure that their bid will
be considered on a level playing field with U.S. bidders. Acquirors must also be
aware that there are numerous constituencies involved in a bankruptcy case that
they will likely need to address (including bank lenders, bondholders, distressed-
focused hedge funds and holders of structured debt securities and credit default
protection, as well as landlords and trade creditors), each with its own interests and
often conflicting agendas, and that there exists an entire subculture of sophisticated
investors, lawyers and financial advisors that must be navigated.
Various options are available to troubled companies seeking to take advantage of

the U.S. bankruptcy laws. Multinational debtors often file bankruptcy petitions in
the United States and link the confirmation or consummation of a plan of
reorganization with successful administration of related foreign ancillary
insolvency proceedings. Even when the principal proceeding takes place
elsewhere, large non-U.S. companies can file cases under Chapter 15 of the U.S.
Bankruptcy Code to obtain “recognition” of foreign insolvency proceedings in a
U.S. bankruptcy court. The legal requirements for such recognition are minimal
and can include minor connections to the U.S., such as debt instruments with U.S.
choice of law or venue provisions, or payment of a retainer to U.S. counsel.
Recognition of a foreign proceeding under Chapter 15 facilitates restructurings and
asset sales by providing debtors with many of the same protections that Chapter 11
provides from creditors in the United States, and the ability to take control of and
administer U.S. assets. Chapter 15 also provides the ability to bind U.S. creditors
or holders of U.S. law debt to the terms of a restructuring plan implemented in a
foreign proceeding, so long as the proceeding accords with broadly accepted
principles of due process and creditors’ rights.
 Contingent Liabilities. The United States has an often-exaggerated but not entirely
unjustified reputation as the world’s most treacherous jurisdiction for tort, product
liability and securities law litigation. Each U.S. target company or business will
have its own history of interaction with customers, suppliers, employees, investors
and others who may have pending or future claims against the acquisition target or
its owners. Care should be taken in investigating such matters and assessing their
likely and possible outcomes. Some will be deal-killers. Many will not be. Early
and expert familiarity with the relevant subject matter and its litigation and liability
history in the United States and the particular enterprise involved in an M&A
transaction is an essential part of planning for every deal, as is negotiation of
relevant counterparty arrangements, and third-party insurance and other risk-
mitigation mechanisms.
 Collaboration. More so than ever in the face of current U.S. and global
uncertainties, most obstacles to a deal are best addressed in partnership with local
players whose interests are aligned with those of the non-U.S. acquiror. If possible,
relationships with the target company’s management and other local forces should
- 118 -
be established well in advance so that political and other concerns can be addressed
together, and so that all politicians, regulators and other stakeholders can be
approached by the whole group in a consistent, collaborative and cooperative
fashion.
Adam O. Emmerich Robin Panovka

Scott K. Charles Jodi J. Schwartz
David A. Katz Ilene Knable Gotts
Andrew J. Nussbaum Joshua R. Cammaker
Mark Gordon T. Eiko Stange
William Savitt Joshua M. Holmes
Emil A. Kleinhaus Karessa L. Cain
John R. Sobolewski Emily D. Johnson
Raaj S. Narayan Erica E. Aho
Amy R. Wolf Franco Castelli
Matthew T. Carpenter
- 119 -
Cross-Border M&A Guide Endnotes
1
See 17 C.F.R. § 240.14d-1.
2
17 C.F.R. § 240.3b-4(b), 17 C.F.R. § 240.405. The term “foreign issuer” also
includes a foreign government, but a foreign government cannot be an FPI.
3
17 C.F.R. § 240.3b-4(c), 17 C.F.R. § 240.405.
4
Note to paragraph (c)(1) of Exchange Act Rule 3b-4.
5
Id.
6
Final Rule: Commission Guidance and Revisions to the Cross-border Tender
Offer, Exchange Offer, Rights Offering, and Business Combination Rules and Beneficial
Ownership Reporting Rules for Certain Foreign Institutions, 73 Fed. Reg. 60050, 60052
(Oct. 9, 2008).
7
Rule 13e-4 under the Exchange Act applies only to tender offers that meet both of
the following conditions: (1) the tender offer is for equity securities of an issuer that (a) has
a class of equity security registered under Section 12 of the Exchange Act, or (b) is required
to file periodic reports under Section 15(d) of the Exchange Act (i.e., an issuer that has had
a registration statement under the Securities Act of 1933, as amended (the Securities Act),
declared effective), and (2) the tender offer is made by the issuer of such equity security or
by an affiliate of such issuer. Section 14(e) and Regulation 14E, discussed below, also
would apply to such a tender offer.
8
See Wellman v. Dickinson, 475 F. Supp. 783, 823-24 (S.D.N.Y. 1979), aff’d on
other grounds, 682 F.2d 355 (2d. Cir. 1982), cert. denied, Dickinson v. SEC, 460 U.S. 1069
(1983).
9
See 17 C.F.R. § 240.14e-1(a)-§ 240.14e-1(b).
10
See 17 C.F.R. § 240.14e-1(c).
11
See 17 C.F.R. § 240.14e-1(b), § 240.14e-1(d).
12
Interpretive Release Relating to Tender Offers Rules, SEC Release No. 34-24296
(Apr. 9, 1987).
13
See 17 C.F.R. § 240.14e-2.
14
See 17 C.F.R. § 240.14e-3.
15
See id.
16
See 17 C.F.R. § 240.14e-4.
17
See 17 C.F.R. § 240.14e-5.
18
See 17 C.F.R. § 240.
- 120 -
19
See id.
20
See 17 C.F.R. § 240.14d-4, 17 C.F.R. § 240.14d-6.
21
See 17 C.F.R. § 240.14d-10.
22
See 17 C.F.R. § 240.14d-7.
23
See 17 C.F.R. § 240.14d-9.
24
See 17 C.F.R. § 240.14d-11.
25
17 C.F.R. § 230.145.
26
U.S. Securities and Exchange Commission, Division of Corporate Finance,
Financial Reporting Manual, § 6310.1, available at https://www.sec.gov/files/cf-frm.pdf.
27
Id. § 6310.3.
28
Id. § 6360.1.
29
Id. § 6360.2.
30
Id. § 6120.2.
31
J.P. Morgan, Depositary Receipts Universe (data as of March 27, 2024), available
at https://www.adr.com/dr/drdirectory/.
32
For an overview of the listing rules for the NYSE and Nasdaq, see The New York
Stock Exchange, Overview of NYSE Quantitative Initial Listing Standards, available at
https://www.nyse.com/publicdocs/nyse/listing/NYSE_Initial_Listing_Standards_Summar
y.pdf; Nasdaq, Initial Listing Guide (January 2022), available at
https://listingcenter.nasdaq.com/assets/initialguide.pdf.
33
See Final Rule: Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Adopt Additional Initial Listing Criteria for
Companies Primarily Operating in Jurisdictions That Do Not Provide the PCAOB With
the Ability To Inspect Public Accounting Firms, 86 Fed. Reg. 9549, 9550 (Feb. 9, 2021).
34
17 C.F.R. § 240.12b-23.
35
See Final Rule: Cross-border Tender and Exchange Offers, Business Combinations
and Rights Offerings, 64 Fed. Reg. 61382, 61382 (Nov. 10, 1999).
36
(Oct. 9, 2008).
37
See 17 C.F.R. § 240.14d-1, Instructions to paragraphs (c) and (d).
38
See 17 C.F.R. § 240.13e-4, Instruction 3 to Paragraph (h)(8) and (i).
- 121 -
39
See 17 C.F.R. § 240.14d-1(c)(4). Note that the Tier I exemptions can apply to a
registered closed-end investment company.
40
See 17 C.F.R. § 240.14d-1(c)(2).
41
See 17 C.F.R. § 240.14d-1(c)(3).
42
See 17 C.F.R. § 240.14d-1(c) (“Any tender offer for the securities of a foreign
private issuer as defined in § 240.3b-4 is exempt from the requirements of sections 14(d)(1)
through 14(d)(7) of the Act (15 U.S.C. 78n(d)(1) through 78n(d)(7)), Regulation 14D (§§
240.14d-1 through 240.14d-10) and Schedules TO (§ 240.14d-100) and 14D-9 (§ 240.14d-
101) thereunder, and § 240.14e-1 and § 240.14e-2 of Regulation 14E under the Act . . . .”).
43
See 17 C.F.R. § 240.14e-5(b)(10). To make purchases outside the tender offer, the
offeror must satisfy the following conditions: (i) the offering documents furnished to U.S.
holders must prominently disclose the possibility of any purchase, or arrangements to
purchase, or the intent to make such purchases; (ii) the offering documents must disclose
the manner in which any information about any such purchases or arrangements to
purchase will be disclosed; (iii) the offeror must disclose information in the U.S. about any
such purchases or arrangements to purchase in a manner comparable to the disclosure made
in the home jurisdiction; and (iv) the purchases must comply with the applicable tender
offer laws and regulations of the home jurisdiction.
44
See 17 C.F.R. § 240.14d-1(d).
45
17 C.F.R. § 240.14d-1(d)(2)(iii). Cf. 17 C.F.R. § 240.14e-1(d). Rule 14e-1(d) also
requires offerors to include in the announcement the approximate number of securities
deposited to date.
46
See 17 CFR § 240.14e-5(b)(11).
47
See 17 CFR § 240.14e-5(b)(12).
48
Cross-Border Rules Securities and Exchange Commission Release No. 8917,
(proposed May 6, 2008).
49
(Oct. 9, 2008).
50
Id.
51
Id.
52
Id.
53
Id. See also 1999 Cross-Border Adopting Release, Section II.G.2.
54
Id.
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55
Interpretation: Re: Use of Internet Web Sites To Offer Securities, Solicit Securities
Transactions, or Advertise Investment Services Offshore, Securities and Exchange
Commission International Series Release No. 1125 (effective Mar. 23, 1998), available at
https://www.sec.gov/rules/interp/33-7516.htm.
56
Id.
57
Id.
58
Id.
59
Depending on the circumstances, other Securities Act exemptions may be available.
For example, Rule 903 under Regulation S provides a safe harbor for issuers, distributors,
and affiliates from registration under the Securities Act for offerings made outside the
United States. This safe harbor is non-exclusive and applies to both domestic issuers and
FPIs. An issuer seeking safe harbor under Rule 903 must meet, at minimum, two primary
requirements: (1) the offer or sale must be made in an “offshore transaction” (i.e., an offer
not made to a person in the United States and where either the buyer is outside the United
States or the transaction is executed on a foreign securities exchange); and (2) the offer or
sale cannot involve “directed selling efforts” (i.e., sales activities that tend to condition the
market) in the United States. Regulation S also contains a safe harbor for certain offshore
resales in Rule 904. However, Regulation S is primarily relevant to capital-raising
transactions and may be difficult to rely upon in business combinations.
60
17 C.F.R. § 230.800(c).
61
17 C.F.R. § 230.800(a).
62
17 C.F.R. § 230.802(a)(1).
63
17 C.F.R. § 230.802(a)(2).
64
17 C.F.R. § 230.802(a)(3).
65
17 C.F.R. § 230.802(b).
66
See 15 U.S.C. § 77c(a)(10) (“Except as hereinafter expressly provided, the
provisions of this subchapter shall not apply to any of the following classes of securities: .
. . [e]xcept with respect to a security exchanged in a case under title 11, any security which
is issued in exchange for one or more bona fide outstanding securities, claims or property
interests, or partly in such exchange and partly for cash, where the terms and conditions of
such issuance and exchange are approved, after a hearing upon the fairness of such terms
and conditions at which all persons to whom it is proposed to issue securities in such
exchange shall have the right to appear, by any court, or by any official or agency of the
United States, or by any State or Territorial banking or insurance commission or other
governmental authority expressly authorized by law to grant such approval . . . .”).
67
Id.; Staff Legal Bulletin No. 3A, Division of Corporate Finance, available at
https://www.sec.gov/interps/legal/cfslb3r.htm#FOOTNOTE_5.
- 123 -
68
NYSE Listing Company Manual Section 312.03; Nasdaq Listing Rule 5635.
69
(Oct. 9, 2008).
70
Id. at 60078. The SEC has indicated that such sales would presumably be effected
pursuant to the procedure under Category 1 of Regulation S [17 C.F.R. § 230.903(b)(1)].
71
Id. at 60078. This guidance reiterates the guidance the SEC set forth in initial
proposed revisions to the Cross-Border Rules, see Revisions to the Cross-Border Tender
Offer, Exchange Offer, and Business Combination Rules and Beneficial Ownership
Reporting Rules for Certain Foreign Institutions, Release No. 33–8917, 34–57781 (May 6,
2008), and previous no-action letters, see, e.g., Singapore Telecommunications Ltd. (May
15, 2001); Oldcastle, Inc. (July 3, 1986); Electrocomponents PLC (Sept. 23, 1982);
Equitable Life Mortgage and Realty Investors (Dec. 23, 1982); Getty Oil (Canadian
Operations) Ltd. (May 19, 1983); and Hudson Bay Mining and Smelting Co. Ltd. (June 19,
1985).
72
Id. at 60078.
73
Id.
74
Id. at 60077.
75
On two occasions, the FTC and the DOJ temporarily suspended the practice of
granting early termination. The first temporary suspension occurred during the month after
the initial Covid-19 shutdown. The FTC announced another temporary suspension on
February 4, 2021, as a result of the transition to the new Administration and heavy inflow
of HSR filings. While the FTC’s announcement indicated that the agency anticipated that
the temporary suspension would be brief, as of the publication of this Guide, this
suspension remains in place.
76
Horizontal Merger Guidelines, FTC and DOJ (Aug. 19, 2010), available at
https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf; and
Vertical Merger Guidelines, FTC and DOJ (June 30, 2020), available at
https://www.ftc.gov/system/files/documents/public_statements/1580003/vertical_merger
_guidelines_6-30-20.pdf. In September 2021, the FTC withdrew its support of the Vertical
Merger Guidelines, noting that they “include unsound economic theories that are
unsupported by the law or market realities.” And in January 2022, the FTC and the DOJ
launched a joint public inquiry aimed at modernizing the agencies’ merger guidelines with
respect to both horizontal and vertical mergers.
77
31 C.F.R. § 800.303.
- 124 -
78
31 C.F.R. § 800.207; The Foreign Investment Risk Review Modernization Act of
2018 available at https://home.treasury.gov/sites/default/files/2018-08/The-Foreign-
Investment-Risk-Review-Modernization-Act-of-2018-FIRRMA_0.pdf.
79
Executive Order: Ensuring Robust Consideration of Evolving National Security
Risks by the Committee on Foreign Investment in the United States, 87 Fed. Reg. 57369
(Sept. 20, 2022).
80
CFIUS Reform: Guidance on National Security Considerations available at
https://www.treasury.gov/resource-center/international/foreign-investment/Documents/
GuidanceSummary_12012008.pdf.
81
31 C.F.R. § 800.601; Office of Investment Security; Guidance Concerning the
National Security Review Conducted by the Committee on Foreign Investment in the
United States, 73 Fed. Reg. 74567, 74569 (Dec. 8, 2008).
82
73 Fed. Reg. 74567, 74569 (Dec. 8, 2008).
83
Executive Order: Regarding the Proposed Acquisition of Lattice Semiconductor
Corporation by China Venture Capital Fund Corporation Limited, 82 Fed. Reg. 43665
(Sept. 18, 2017).
84
Press Release, U.S. Department of Justice, Justice Department Announces Charges
and Arrests in Two Cases Involving Export Violation Schemes to Aid Russian Military
(Oct. 19, 2022), https://www.justice.gov/opa/pr/justice-department-announces-charges-
and-arrests-two-cases-involving-export-violation-schemes.
85
Exchange Act § 12(b).
86
17 C.F.R. § 240.12g-1.
87
Exchange Act § 15(d).
88
Changes to Exchange Act Registration Requirements to Implement Title V and
Title VI of the JOBS Act, SEC Release No. 33-10075 (May 3, 2016).
89
For purposes of 17 C.F.R. § 240.12g3-2(b), primary trading market means: (i) at
least 55% of the trading of the shares on a worldwide basis took place on a securities market
in one or at most two foreign jurisdictions during the FPI’s most recently completed fiscal
year; (ii) if the FPI has to aggregate the trading in two foreign jurisdictions to meet the 55%
threshold, then the trading in at least one of those two foreign jurisdictions must be greater
than the trading in the United States for those shares.
90
Exemption from Registration Under Section 12(g) of the Securities Exchange Act
of 1934 for Foreign Private Issuers, SEC Release No. 34-58465 (Sept. 5, 2008).
91
Form 20‑F, General Instruction A(b).
92
The MD&A is meant to explain the company’s performance and financial condition
during the fiscal period in a way that is easy for investors to understand, describe the
company’s earnings and cash flows, and enhance the company’s financial disclosure. This
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section may include an overview, a discussion of results of operations and a comparison of
financial information, a description of the company’s liquidity and capital resources, a
description of recently adopted accounting standards, a description of related-party
transactions, etc. An FPI should also refer to the reconciliation to U.S. GAAP and discuss
any aspects of U.S. GAAP not covered in the reconciliation which it believes are necessary
to understand the financial statements as a whole. See Form 20-F, Item 5.
93
For example, the Form 20-F must disclose the amount of executive compensation
and benefits in kind given for services to the company and its subsidiaries. While FPIs
may make this disclosure in the aggregate in certain instances, they must provide it on an
individual basis if home-jurisdiction regulation requires that they do so or they otherwise
publicly disclose such information. This requirement represents an accommodation in
comparison to the more detailed individual executive compensation disclosures that U.S.
companies are required to make.
94
Sarbanes-Oxley § 404(a).
95
Sarbanes-Oxley § 404(b).
96
Form 20-F, Item 15; Form 20-F, Item 18.
97
Holding Foreign Companies Accountable Act (Pub. L. 116-222, 134 Stat. 1063,
1064, 1065 and 1066 (Dec. 18, 2020)). Congress is currently considering legislation which
would shorten the three-year non-inspection window to two years.
98
FPIs (other than non-accelerated filers) must disclose the existence of material
unresolved SEC comments on their Forms 20-F. Form 20-F, Item 4A. For this and other
reasons, companies usually seek to resolve SEC comments expeditiously.
99
See NYSE Listed Company Manual § 203.03; Nasdaq Listed Company Manual
Rule 5250(c)(2).
100
Form 6-K, General Instruction B. Form 6-K must be submitted in English. While
English summaries are permitted for certain documents, full translations are required for
press releases, most communications distributed directly to security holders, annual audited
and interim consolidated financial information and certain other information.
101
Form 6-K, General Instruction B.
102
See generally Form 8-K.
103
Private Securities Litigation Reform Act of 1995 (Pub. L. 104-67, 109 Stat. 737
(Dec. 22, 1995)). The PSLRA added Section 21E to the Exchange Act and Section 27A to
the Securities Act, covering Exchange Act and Securities Act reports, respectively. Before
Congress enacted the PSLRA, SEC rules established safe harbors for forward-looking
statements. However, those safe harbors were tied to whether the forward-looking
statements were made without a reasonable basis or disclosed other than in good faith, and
thus provided less protection from liability than the PSLRA safe harbor. See 7 C.F.R. §
230.175 (Securities Act), 17 C.F.R. § 240.3b-6 (Exchange Act).
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104
15 U.S.C. § 78u-5(i)(1).
105
See, e.g., Harris v. Ivax Corp., 182 F.3d 799 (11th Cir. 1999); Asher v. Baxter Int’l
Inc., 377 F.3d 727 (7th Cir. 2004).
106
See, e.g., ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan
Chase Co., 553 F.3d 187, 205-06 (2d Cir. 2009).
107
See, e.g., Inst. Investors Grp. v. Avaya, Inc., 564 F.3d 242, 273-74 (3d Cir. 2009);
Slayton v. Am. Express Co., 604 F.3d 758, 773 (2d Cir. 2010).
108
See, e.g., In re Donald J. Trump Casinos Sec. Litig., 7 F.3d 357, 371-72 (3d Cir.
1993).
109
See H.R. CONF. REP. No. 104–369, at 46 (1995) (“The [PSLRA] Conference
Committee does not intend for the safe harbor provisions to replace the judicial bespeaks
caution doctrine or to foreclose further development of that doctrine by the courts.”); Roer
v. Oxbridge Inc., 198 F. Supp. 2d 212, 228 (E.D.N.Y. 2001) (“These [safe harbor]
provisions of the PSLRA were modeled after, but not meant to displace, the judicial
bespeaks caution doctrine.”).
110
See, e.g., In re Westinghouse Sec. Litig., 90 F.3d 696, 709 (3d Cir. 1996) (“In our
view, a reasonable investor would be very interested in knowing, not merely that future
economic developments might cause further losses, but that (as plaintiffs allege) current
reserves were known to be insufficient under current economic conditions.”).
111
Form 20-F, Item 6.B.
112
Financial Statements and Periodic Reports for Related Issuers and Guarantors, 65
Fed. Reg. 51,715 (Aug. 24, 2000) (codified at 17 C.F.R. §§ 240, 243 and 249).
113
Form SD Section 1, Item 1.01(d)(3).
114
Form SD Section 1, Items 1.01(b), 1.01(c).
115
U.S. Securities and Exchange Commission, Statement of Acting Chairman
Piwowar on the Court of Appeals Decision on the Conflict Minerals Rule (Apr. 7, 2017),
https://www.sec.gov/news/public-statement/piwowar-statement-court-decision-conflict-
minerals-rule.
116
ADSs are treated as the same class as the underlying equity securities for this
purpose. Any ADSs listed on a U.S. exchange have been registered under Section 12(b)
of the Exchange Act. If a registrant does not have any listed securities and is exempted
from or terminates its registration under Section 12(g), the Schedule 13D rules will no
longer apply, even if it remains obligated to file reports under Section 15(d).
117
17 C.F.R. § 240.13d-2(a).
118
Although an investor that agitates for a change of control of the company is the
classic example of a non-passive investor, the definition also excludes investors that merely
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seek to have an effect on how the company is run. Moreover, directors and officers cannot
be considered passive investors.
119
17 C.F.R. §§ 240.13d-1(c), 240.13d-2(b) and 240.13d-2(d).
120
17 C.F.R. §§ 240.13d-1(b), and 240.13d-2(b)-(c).
121
17 C.F.R. § 240.13d-1(d).
122
17 C.F.R. § 240.13d-2(b).
123
Exchange Act § 13(d)(6)(B); see also U.S. Securities and Exchange Commission
Division of Corporation Finance, Compliance and Disclosure Interpretations: Exchange
Act §§ 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting,
https://www.sec.gov/corpfin/divisionscorpfinguidancereg13d-interphtm.
124
FPIs subject only to Section 15(d) also are not subject to the third-party tender offer
rules in Section 14(d). However, they are subject to the Exchange Act provisions related
to issuer tender offers and going-private transactions.
125
Form 20-F, Items 17(c) and 18.
126
Form 20-F, Item 17(c). Items that frequently require discussion and quantification
as a result of the reconciliation requirements include stock compensation, restructuring
charges, impairments, deferred or capitalized costs, investments, foreign currency
translation, deferred taxes, pensions, derivatives, consolidation, asset retirement
obligations, research and development, and revenue recognition.
127
See SEC Division of Corporation Finance, Financial Reporting Manual, Topic
6410.2.
128
Item 10(e) of Regulation S-K additionally requires disclosure of the reasons why
management believes the non-GAAP measure provides information that is useful to
investors and, if material, any additional purposes for which management uses it that are
not otherwise disclosed. 17 C.F.R. § 240.100(a); 17 C.F.R. § 229.10(e)(1)(i).
129
17 C.F.R. § 240.101; 17 C.F.R. § 229.10(e)(2)-(5).
130
17 C.F.R. § 240.100(c).
131
Management’s Report on Internal Control Over Financial Reporting, 68 Fed. Reg.
36,635 (June 18, 2003) (Codified at 17 C.F.R. §§ 210, 228, 229, 240, 249, 270, 274).
132
Note to 17 C.F.R. § 229.10(e).
133
SEC, Non-GAAP Financial Measures (Apr. 4, 2018), https://www.sec.gov
/divisions/corpfin/guidance/nongaapinterp.htm.
134
In addition to assessing independence, the audit committee is also responsible for
assessing the competency of its independent auditors.
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135
Order Approving Proposed Ethics and Independence Rule 3526, Exchange Act
Release No. 34-58415, 93 S.E.C. Docket 3003 (Aug. 22, 2008).
136
Improper Influence on Conduct of Audits, Exchange Act Release No. 34-47890, 80
S.E.C. Docket 770 (May 20, 2003).
137
Certification of Disclosure in Companies’ Quarterly and Annual Reports, SEC
Securities Act Release No. 33-8124. 78 S.E.C. Docket 875, (Aug. 28, 2002).
138
18 U.S.C. § 1350 (2002).
139
Certification of Disclosure in Companies’ Quarterly and Annual Reports, 67 Fed.
Reg. 41877 (proposed June 14, 2002) (to be codified at 17 C.F.R. §§ 232, 240 and 249).
140
Form 20-F Item 7.B.
141
Form 20-F Item 6.E.
142
17 C.F.R. § 240.10b-5.
143
For an FPI, a “blackout period” generally means a period that occurs when (i) at
least 50% of the participants located in the United States are subject to the trading
suspension and (ii) U.S. plan participants either total 50,000 or account for 15% of all
participants worldwide.
144
In addition, the issuer must file the notice as an exhibit to its Form 20-F.
145
17 C.F.R. § 240.144.
146
NYSE Listed Company Manual § 303A.02(a).
147
Nasdaq Marketplace Rules 4200, 4350.
148
17 C.F.R. § 240.10A-3(C)-(E).
149
17 C.F.R. § 240.10A-3(c)(3).
150
Form 20-F, Item 16D.
151
Form 20-F, Item 16A.
152
The requirements relating to the compensation committee do not apply to
“controlled companies,” meaning companies with a single individual, group or other issuer
that controls more than 50% of their shares.
153
Dodd-Frank goes beyond the clawback provision contained in Sarbanes-Oxley,
which applies only (i) to compensation received by the CEO and CFO during the 12-month
period following the first issuance of the restatement and (ii) if the restatement resulted
from misconduct.
154
The case, SEC v. Jenkins, 718 F. Supp. 2d 1070 (D. Ariz. 2010) involved Maynard
L. Jenkins, the former CEO of CSK Auto Corporation. Although civil and criminal charges
were brought against four other CSK Auto executives, the SEC did not charge Jenkins with
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any wrongdoing in connection with the accounting fraud that occurred at CSK.
Nevertheless, relying on Sarbanes-Oxley Section 304, the SEC filed a complaint seeking
to claw back $4 million of incentive compensation that Jenkins received during the period
of the fraud. Jenkins moved to dismiss the complaint, but that motion was denied in June
2010. On November 15, 2011, a settlement was announced by the SEC.
155
Final Rule: Listing Standards for Recovery of Erroneously Awarded
Compensation, 87 Fed. Reg. 73076 (Nov. 28, 2022).
156
Form 20-F, Item 16B.
157
17 C.F.R. § 240.12d2-2.
158
17 C.F.R. § 240.12g5-1.
159
See, e.g., SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186 (1963)
(stating that the purpose common to the securities laws was to “substitute a philosophy of
full disclosure for the philosophy of caveat emptor”).
160
Basic Inc. v. Levinson, 485 U.S. 223, 239 n.17 (1988).
161
Rule 10b-5, for example, provides that a party that makes public statements may
not omit relevant information if the information is “necessary in order to make the
statements made, in the light of the circumstances under which they were made, not
misleading.” 17 C.F.R. § 240.10b-5. And Section 11 of the Securities Act prohibits a party
from “omit[ing] to state a material fact . . . necessary to make the statements [in the
registration statement] not misleading.” 15 U.S.C. § 77k(a).
162
TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
163
Retail Wholesale & Dep’t Store Union Local 338 Ret. Fund v. Hewlett-Packard
Co., 845 F.3d 1268, 1275-77 (9th Cir. 2017) (citation omitted).
164
Musick, Peeler & Garrett v. Emp’rs Ins. of Wausau, 508 U.S. 286, 296 (1993).
165
Herman & MacLean v. Huddleston, 459 U.S. 375, 380 (1983).
166
J.I. Case Co. v. Borak, 377 U.S. 426, 430-35 (1964).
167
See, e.g., Smallwood v. Pearl Brewing Co., 489 F.2d 579, 596 n.20 (5th Cir. 1974).
168
Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976).
169
See, e.g., Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005).
170
17 C.F.R. § 240.12b-20.
171
“Not only are insiders forbidden by their fiduciary relationship from personally
using undisclosed corporate information to their advantage, but they may not give such
information to an outsider for the same improper purpose of exploiting the information for
their personal gain.” Dirks v. SEC, 463 U.S. 646, 659 (1983) (discussing insider trading
claim brought by the SEC under Rule 10b-5).
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172
Securities Class Action Settlements, 2018 Review and Analysis, Cornerstone
Research, https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-
Settlements-2018-Review-and-Analysis.
173
The Morrison decision has been interpreted to apply to the liability provisions of
the Securities Act as well. See, e.g., In re Vivendi Universal, S.A., Sec. Litig., 842 F. Supp.
2d 522, 529 (S.D.N.Y. 2012) (applying Morrison to §§ 11, 12(a)(2) and 15 of the Securities
Act); SEC v. Goldman Sachs & Co., 790 F. Supp. 2d 147, 164 (S.D.N.Y. 2011) (applying
Morrison to § 17(a) of that Act).
174
Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 273 (2010).
175
See, e.g., City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d
173, 181-82 (2d Cir. 2014) (“The fact that OPEB was a U.S. entity, does not affect whether
the transaction was foreign or domestic.”).
176
U.S. courts have rejected the argument that whenever securities that predominantly
trade on a non-U.S. exchange are cross-listed on a U.S. exchange (such as in connection
with an ADR program), all trades in that security anywhere in the world are subject to the
U.S. securities laws. See, e.g., Liu v. Siemens AG, 763 F.3d 175, 179-80 (2d Cir. 2014)
(observing that Morrison, which involved an Australian issuer that had ADRs listed on the
NYSE, “decisively refutes Liu’s contention that the United States securities laws apply
extraterritorially to the actions abroad of any company that has issued United States-listed
securities.”). They have likewise rejected the argument that a purchase or sale of a security
on a foreign exchange takes place in the U.S. under Morrison if the purchase or sale order
is made from the U.S. See, e.g., In re Vivendi Universal, S.A. Sec. Litig., 765 F. Supp. 2d
512, 532-33 (S.D.N.Y. 2011), aff’d, 838 F.3d 223 (2d Cir. 2016).
177
Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60, 68 (2d Cir. 2012).
178
See Stoyas v. Toshiba Corp., 2022 WL 220920, at *4-5 & n.9 (C.D. Cal. Jan. 25,
2022) (finding that the “triggering event” that caused the plaintiff to “incur irrevocable
liability occurred in Japan when [the broker] acquired shares of Toshiba common stock on
the Tokyo Stock Exchange,” as the “first step in the ADR conversion process,” and
observing that the plaintiff had “not identified a single case where the purchase or sale of
unsponsored ADRs constituted or qualified as a domestic transaction”) (emphasis added).
179
The Tenth Circuit — the first U.S. appellate court to consider the issue — held that
Dodd-Frank had successfully overruled the Morrison decision in this way. See SEC v.
Scoville, 913 F.3d 1204, 1215-18 (10th Cir. 2019), cert. denied, 140 S. Ct. 483 (2019). The
First Circuit also recently observed in dicta that “[s]hortly after Morrison was decided,
Congress amended the federal securities laws to ‘apply extraterritorially’ . . . .” SEC v.
Morrone, 997 F.3d 52, 60 n.7 (1st Cir. 2021). However, “Congress, in the Dodd-Frank
Act, amended only the jurisdictional sections of the securities laws to indicate that the
antifraud provisions applied extraterritorially when a version of the conduct-and-effects
test is met. The Dodd-Frank Act did not make any explicit revisions to the substantive
antifraud provisions themselves.” Scoville, 913 F.3d at 1218 (emphases added). And in
Morrison, the Supreme Court held that the question of the extraterritorial reach of Section
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10(b) is a substantive, not a jurisdictional question. A different U.S. court, engaging in a
more literalist analysis of the statute, could find that the Dodd-Frank amendments did not
resolve the issues addressed in Morrison regarding the extraterritorial application Section
10(b). See, e.g., Wachtell, Lipton, Rosen, & Katz, Extraterritoriality of the Federal
Securities Laws After Dodd-Frank: Partly Because of a Drafting Error, the Status Quo
Should Remain Unchanged, available at
www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.17763.10.pdf; Richard
W. Painter, The Dodd-Frank Extraterritorial Jurisdiction Provision: Was It Effective,
Needed or Sufficient?, 1 Harv. Bus. L. Rev. 195, 205 (2011).
180
See, e.g., Tully v. Mott Supermarkets, Inc., 540 F.2d 187, 194 (3d Cir. 1976).
181
Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 155 (1972).
182
See, e.g., Abell v. Potomac Ins. Co., 858 F.2d 1104, 1139 (5th Cir. 1988), vacated
on other grounds sub nom. Fryar v. Abell, 492 U.S. 914 (1989); Straub v. Vaisman & Co.,
540 F.2d 591, 599 (3d Cir. 1976); Green v. Wolf Corp., 406 F.2d 291, 302-03 (2d Cir.
1968).
183
See, e.g., In re Lehman Bros. Mortg.-Backed Sec. Litig., 650 F.3d 167 (2d Cir.
2011) (finding that ratings agencies are not underwriters under Section 11).
184
Section 27A(c) of the Securities Act, added by the PSLRA, establishes a limited
exception to Section 11’s scienter-less liability. It provides that no liability will attach in
a private action based on certain statutorily defined “forward-looking statements” unless
the plaintiff proves “actual knowledge” of the false or misleading nature of the statement
on the part of a natural person making the statement or on the part of an executive officer
approving the statement if made on behalf of a business entity. See 15 U.S.C.
§ 77z-2(c)(1)(B).
185
As the Second Circuit has explained, while materiality “will rarely be dispositive
in a motion to dismiss” a Section 11 claim, it “remains a meaningful pleadings obstacle”
whereby the court must ascertain whether there is a “substantial likelihood that disclosure
of the omitted information would have been viewed by the reasonable investor as having
significantly altered the total mix of information [already] made available.” In re
ProShares Tr. Sec. Litig., 728 F.3d 96, 103 (2d Cir. 2013) (affirming dismissal after
“read[ing] the prospectus cover-to-cover” and considering “whether the disclosures and
representations, taken together and in context, would have misl[ed] a reasonable investor
about the nature of the [securities]” (second and third alterations in original) (internal
quotation marks omitted)).
186
17 C.F.R. § 230.158.
187
See 15 U.S.C. §§ 77k(b)(3)(A), (C).
188
The SEC, however, has taken the position that indemnification by the issuer of its
officers, directors or controlling persons for liability arising under the Securities Act is
against public policy and, therefore, unenforceable, and there is support for this position in
court decisions. See, e.g., Eichenholtz v. Brennan, 52 F.3d 478, 484-85 (3d Cir. 1995);
Globus v. Law Research Serv., Inc., 418 F.2d 1276, 1288 (2d Cir. 1969). The SEC has
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also indicated that in addressing requests for prompt declaration of effectiveness of a
registration statement, it will refuse to accelerate its declaration of effectiveness if the
registrant indemnifies any of its officers, directors or controlling persons, unless: (i) such
person waives the benefits of indemnification with respect to the proposed offering or
(ii) the registration statement contains a certain undertaking to submit to a court of
appropriate jurisdiction the question of whether such indemnification is against public
policy and to be governed by the final adjudication of such issue.
189
See, e.g., Sanders v. John Nuveen & Co., 619 F.2d 1222, 1227 (7th Cir. 1980)
(finding commercial paper reports to be prospectuses).
190
Gustafson v. Alloyd Co., 513 U.S. 561, 571 (1995).
191
See, e.g., Lewis v. Fresne, 252 F.3d 352, 358 (5th Cir. 2001); Maldonado v.
Dominguez, 137 F.3d 1, 8-9 (1st Cir. 1998); Whirlpool Fin. Corp. v. GN Holdings, Inc., 67
F.3d 605, 609 n.2 (7th Cir. 1995); Joseph v. Wiles, 223 F.3d 1155, 1161 (10th Cir. 2000);
Vannest v. Sage, Rutty & Co., 960 F. Supp. 651, 655 (W.D.N.Y. 1997); In re JWP Inc. Sec.
Litig., 928 F. Supp. 1239, 1259 (S.D.N.Y. 1996).
192
Yung v. Lee, 432 F.3d 142, 149 (2d Cir. 2005).
193
However, as with Section 11, after the PSLRA, a plaintiff cannot premise a
Section 12(a)(2) claim on statutorily defined “forward-looking statements” unless the
plaintiff proves “actual knowledge” of the false or misleading nature of the statement on
the part of a natural person making the statement or on the part of an executive officer
approving the statement if made on behalf of a business entity. 15 U.S.C. § 77z-2(c)(1)(B).
194
See In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 274 (3d Cir. 2004); Currie v.
Cayman Res. Corp., 835 F.2d 780, 782-83 (11th Cir. 1988); Hill York Corp. v. Am. Int’l
Franchises, Inc., 448 F.2d 680, 695 (5th Cir. 1971), abrogated on other grounds by Pinter
v. Dahl, 486 U.S. 622, 649-51 (1988), as recognized in In re Enron Corp. Sec., Derivative
& “ERISA” Litig., 540 F. Supp. 2d 759, 782 n.28 (S.D. Tex. 2007).
195
See Casella v. Webb, 883 F.2d 805, 807 n.5 (9th Cir. 1989); Gilbert v. Nixon, 429
F.2d 348, 357 (10th Cir. 1970).
196
See Dennis v. Gen. Imaging, Inc., 918 F.2d 496, 507 (5th Cir. 1990).
197
15 U.S.C. § 77l(b).
198
Miller v. Thane Int’l, Inc., 519 F.3d 879, 892 (9th Cir. 2007).
199
See Lalor v. Omtool, Ltd., 2000 WL 1843247, at *3 (D.N.H. Dec. 14, 2000) (“As
to claims under §§ 11 and 12 of the Securities Act, ‘loss causation’ is not an essential
element of a viable cause of action. It is, however, an affirmative defense that may be
raised by a defendant.”); Kennilworth Partners L.P. v. Cendant Corp., 59 F. Supp. 2d 417,
424 (D.N.J. 1999) (“If the person who sold or offered the security can prove that all or part
of the depreciation in value was caused by factors other than the false or misleading
statement, he is not liable for that amount.”). But see In re Merrill Lynch & Co. Research
Reports Sec. Litig., 289 F. Supp. 2d 429, 437 (S.D.N.Y. 2003) (dismissing a Section
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12(a)(2) claim over plaintiff’s argument that defendants bear the burden of proving
“negative causation,” where the absence of causation was clear from the face of the
complaint).
200
See Commercial Union Assurance Co. v. Milken, 17 F.3d 608, 615 (2d Cir. 1994);
Fed. Hous. Fin. Agency v. Merrill Lynch & Co., 903 F. Supp. 2d 274, 280 (S.D.N.Y. 2012);
SEC v. Tome, 638 F. Supp. 638, 640 (S.D.N.Y. 1986), aff’d, 833 F.2d 1086 (2d Cir. 1987);
Koehler v. Pulvers, 614 F. Supp. 829, 850 (S.D. Cal. 1985); Scheve v. Clark, 596 F. Supp.
592, 596 (E.D. Mo. 1984); W. Fed. Corp. v. Davis, 553 F. Supp. 818, 821 (D. Ariz. 1982),
aff’d sub nom. W. Fed. Corp. v. Erickson, 739 F.2d 1439 (9th Cir. 1984); Johns Hopkins
Univ. v. Hutton, 297 F. Supp. 1165, 1229 (D. Md. 1968), rev’d on other grounds, 422 F.2d
1124 (4th Cir. 1970).
201
See, e.g., Wigand v. Flo-Tek, Inc., 609 F.2d 1028, 1036 n.8 (2d Cir. 1979); Cady v.
Murphy, 113 F.2d 988, 990-91 (1st Cir. 1940); Reves v. Ernst & Young, 937 F. Supp. 834,
837 (W.D. Ark. 1996). But see Randall v. Loftsgaarden, 478 U.S. 647, 659-60 (1986)
(finding that Section 12(a)(2) damages need not be reduced by the amount of tax benefits
received from a shelter investment).
202
Section 12 expressly provides only for remedies in rescission or damages. The
Supreme Court has held, however, that in an appropriate case brought primarily for
rescission or damages under Section 12, ancillary relief, including injunctive relief, can be
given. Deckert v. Indep. Shares Corp., 311 U.S. 282, 287-90 (1940); see also In re
Gartenberg, 636 F.2d 16, 17-18 (2d Cir. 1980). Cf. SEC v. Beisinger Indus. Corp., 552
F.2d 15, 18-19 (1st Cir. 1977) (“It is well established that Section 22(a) of the Securities
Act of 1933 and Section 27 of the Securities Exchange Act of 1934 confer general equity
powers on the district courts.” (citations omitted)).
203
See Aaron v. SEC, 446 U.S. 680, 695-97 (1980); United States v. Naftalin, 441 U.S.
768, 773-74 (1979).
204
See Aaron, 446 U.S. at 701-02.
205
SEC v. Maio, 51 F.3d 623, 631 (7th Cir. 1995) (emphasis in original); see SEC v.
Bauer, 723 F.3d 758, 768 (7th Cir. 2013).
206
SEC v. Tourre, 2013 WL 2407172, at *6 (S.D.N.Y. June 4, 2013); see also, e.g.,
SEC v. Am. Commodity Exch., Inc., 546 F.2d 1361, 1366 (10th Cir. 1976) (holding that
“actual sales were not essential” to a claim under Section 17(a)).
207
See, e.g., Globus v. Law Research Serv., Inc., 418 F.2d 1276, 1284-87 (2d Cir.
1969); Ambrosino v. Rodman & Renshaw, Inc., 635 F. Supp. 968, 972 (N.D. Ill. 1986);
Hadad v. Deltona Corp., 535 F. Supp. 1364, 1371 (D.N.J. 1982), aff’d, 725 F.2d 668 (3d
Cir. 1983); Vogel v. Trahan, 1980 U.S. Dist. LEXIS 10539, *26-27 (E.D. Pa. Jan. 11,
1980). But see Anvil Inv. Ltd. P’ship v. Thornhill Condos., Ltd., 407 N.E.2d 645, 654 (Ill.
App. Ct. 1980) (punitive damages available under Section 17 for willful and malicious
conduct).
208
SEC v. Monterosso, 756 F.3d 1326, 1337 (11th Cir. 2014); see also SEC v. ETS
Payphones, Inc., 408 F.3d 727, 735 (11th Cir. 2005).
- 134 -
209
Varjabedian v. Emulex Corp., 888 F.3d 399 (9th Cir. 2018).
210
Note that the extraterritoriality provision of Dodd-Frank applies only to the SEC
and other U.S. government agencies, not to claims brought by private plaintiffs.
211
ABB Ltd., Exchange Act Release No. 96444 (Dec. 3, 2022).
212
GOL Linhas Aéreas Inteligentes S.A., Exchange Act Release No. 95800 (Sept. 15,
2022).
213
Tenaris S.A., Exchange Act Release No. 95030 (June 2, 2022).
214
Credit Suisse Group AG, Exchange Act Release No. 93382 (Oct. 19, 2021).
215
Deutsche Bank AG, Exchange Act Release No. 90875 (Jan. 8, 2021).
216
Press Release, U.S. Department of Justice, Former Chief Executive Officer of
Petrochemical Company Sentenced to 20 Months in Prison for Foreign Bribery Scheme
(Oct. 12, 2021), https://www.justice.gov/opa/pr/former-chief-executive-officer-
petrochemical-company-sentenced-20-months-prison-foreign.
217
JooHyun Bahn, a/k/a Dennis Bahn, Exchange Act Release No. 84054 (Sept. 6,
2018).
218
Ernst & Young LLP, Exchange Act Release No. 95167 (June 28, 2022). In 2022,
the SEC also brought charges against CohnReznick LLP and three of its partners for
improper professional conduct on engagements for two clients in 2017 causing misleading
disclosures prior to their bankruptcies and delistings, CohnReznick LLP, Exchange Act
Release No. 95066 (June 8, 2022), and against Deloitte’s Chinese affiliate for failing to
comply with fundamental U.S. auditing requirements in its component audits of U.S.
issuers and of foreign companies listed on U.S. exchanges, Deloitte Touche Tohmatsu
Certified Public Accountants, LLP, Exchange Act Release No. 95938 (Sept. 29, 2022).
See also, e.g., Farber Hass Hurley LLP, Michel Abedian, CPA, and Michael Hurley, CPA,
Exchange Act Release No. 95593 (Aug. 24, 2022) (involving SEC charges against an
accounting firm and two of its partners concerning deficient examinations of client assets
at two SEC-registered investment advisers).
219
Mattel, Inc., Exchange Act Release No. 96126 (Oct. 21, 2022) (involving SEC
charges against toymaker and its external auditor for negligence-based antifraud provisions
and the reporting, books and records, and internal controls violations relating to tax-related
valuations allowances); VMware Inc., Exchange Act Release No. 95744 (Sept. 12, 2022)
(involving SEC charges against technology company relating to manipulation of revenue
recognition); Synchronoss Technologies, Inc., Exchange Act Release No. 95049 (June 7,
2022) (involving SEC charges against software company and senior employees relating to
accounting improprieties involving improper revenue recognition and misleading
Synchronoss’s auditor about multiple transactions); Rollins Inc., Exchange Act Release
No. 94742 (Apr. 18, 2022) (involving SEC charges against a pest control company and its
former CFO for financial reporting, books and records, and internal controls violations
relating to its reporting of publicly-reported quarterly earnings per share); Baxter
International Inc., Exchange Act Release No. 94294 (Feb. 22, 2022) (involving SEC
- 135 -
charges against a healthcare company and two former employees for negligence-based
anti-fraud, reporting, books and records, and internal accounting control violations relating
to accounting of foreign exchange transactions); Grupo Simec S.A.B. de C.V., Exchange
Act Release No. 84996 (Jan. 29, 2019) (involving SEC charges for failing to maintain
internal controls over financial reporting); Lifeway Foods, Inc., Exchange Act Release No.
84995 (Jan. 29, 2019) (same); Digital Turbine, Inc., Exchange Act Release No. 84998 (Jan.
29, 2019) (same); CytoDyn, Inc., Exchange Act Release No. 84994 (Jan. 29, 2019) (same).
220
In bankruptcy cases in which the D&O Insurance policy covers both individual
directors and the company, courts have held that the proceeds will be property of the
company if depletion of the proceeds would have an adverse effect on the bankruptcy estate
of the company. See In re MF Glob. Holdings Ltd., 515 B.R. 193, 203 (Bankr. S.D.N.Y.
2014).
221
Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164
(1994).
222
See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1170 n.47 (D.C. Cir. 1978);
Kemmerer v. Weaver, 445 F.2d 76, 78-79 (7th Cir. 1971) (holding that action may continue
against controlling persons when suit against controlled persons dismissed on procedural
grounds); Keys v. Wolfe, 540 F. Supp. 1054, 1061-62 (N.D. Tex. 1982), rev’d on other
grounds, 709 F.2d 413 (5th Cir. 1983); Primavera Familienstiftung v. Askin, 1996 WL
580917, at *2 (S.D.N.Y. Oct. 9, 1996); McCarthy v. Barnett Bank of Polk Cty., 750 F.
Supp. 1119, 1126 (M.D. Fla. 1990); see also In re Stone & Webster, Inc., Sec. Litig., 424
F.3d 24, 27 (1st Cir. 2005) (holding that the dismissal of Rule 10b-5 claims against
individual defendants “is in no way incompatible” with a plaintiff’s right to establish their
secondary liability under Section 20(a) as controlling persons of a liable corporation).
223
17 C.F.R. § 230.405.
224
See, e.g., No. 84 Emp’r-Teamster Joint Council Pension Tr. Fund v. Am. W.
Holding Corp., 320 F.3d 920, 945-46 (9th Cir. 2003) (finding a prima facie showing of
control had been made where a corporation’s two largest stockholders controlled 57.4% of
the total voting power and “had some of their own officers seated on” the corporation’s
board); Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151, 1162-63 (9th Cir.
1996) (discussing standards for finding lenders and directors to be “controlling persons”);
Arthur Children’s Trust v. Keim, 994 F.2d 1390, 1396-97 (9th Cir. 1993) (directors); In re
Gaming Lottery Sec. Litig., 1998 WL 276177, at *8 (S.D.N.Y. May 27, 1998) (officers),
vacated on other grounds sub nom. Pecarsky v. Galaxiworld.com Ltd., 249 F.3d 167 (2d
Cir. 2001); Stern v. Am. Bankshares Corp., 429 F. Supp. 818, 824 (E.D. Wis. 1977)
(directors); Klapmeier v. Telecheck Int’l, Inc., 315 F. Supp. 1360, 1361 (D. Minn. 1970)
(stating that a “majority shareholder might as a matter of law be held to ‘control’ the entity
regardless of his actual participation in management decisions and the specific transaction
in question”). But see In re Lehman Bros. Mortg.-Backed Sec. Litig., 650 F.3d 167, 187
(2d Cir. 2011) (finding that rating agencies were not controlling persons of banks that
issued rated securities because “providing advice that the banks chose to follow does not
suggest control”).
- 136 -
225
See, e.g., Kaplan v. Rose, 49 F.3d 1363, 1382-83 (9th Cir. 1994); Marbury Mgmt.,
Inc. v. Kohn, 629 F.2d 705, 716 (2d Cir. 1980); Gould v. Am.-Hawaiian S.S. Co., 535 F.2d
761, 779 (3d Cir. 1976).
226
A “non-appearing foreign attorney” is defined as an attorney admitted to practice
in a jurisdiction outside the U.S., who does not hold himself out as practicing and does not
give legal advice regarding U.S. laws, who conducts activities before the SEC only
incidental to and in the ordinary course of practice of law in a jurisdiction outside the U.S.,
and appears before the SEC only in consultation with counsel admitted to practice law in
the United States.
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Wachtell, Lipton, Rosen & Katz

Cross-Border M&A Guide

Cross-border merger and acquisition (“M&A”) transactions are a significant part of

Despite the challenges confronting dealmakers in 2023, cross-border deal volume

 acquisitions of U.S. companies by non-U.S. companies; and

 acquisitions of non-U.S. companies.

This edition of the Guide reflects developments through May 2024.

Overview of U.S. Legal Considerations in Cross-Border Transactions

1. The U.S. Federal Securities Acts and the SEC

Securities Act of 1933

Securities Exchange Act of 1934

In addition, the Securities Act includes antifraud provisions that apply in

In addition to the U.S. federal securities laws, parties to a transaction involving a

The parties to a cross-border transaction involving a non-U.S. acquiror may agree

4. Antitrust and National Security Considerations

Any cross-border transaction involving a U.S. company (or a non-U.S. company

CFIUS is a federal interagency committee that reviews certain foreign investments

Cross-border transactions can involve significant structuring and tax complexity.

B. Acquisition of a U.S. Company

1. Public vs. Private Companies

An important distinction for understanding the methods of acquiring a U.S.

2. Merger vs. Tender Offer

As discussed in more detail below, different types of transactions may implicate

The registration requirements under the Securities Act can be burdensome,

An acquisition of a U.S. public company for cash is often relatively straightforward

C. Acquisition of a Non-U.S. Company

1. Foreign Private Issuers

To qualify as an FPI, an entity must be a “foreign issuer,” meaning “any issuer

 the business of the foreign issuer is administered principally outside of the

To determine the percentage of a foreign issuer’s outstanding voting shares held

2. Tender Offer for Securities of a Non-U.S. Company

If the acquisition of the non-U.S. company is to be accomplished other than through

As with an acquisition of a U.S. public company as discussed above in Section

If an acquiror intends to issue securities to a target company’s shareholders to

In an acquisition of a non-U.S. company, the most commonly used exemptions

 Section 3(a)(10), which provides an exemption from registration to issuers

Depending on the circumstances, other exemptions or other means of avoiding

6. Post-Transaction Securities Law Obligations

Incurring Ongoing Obligations

Generally speaking, an FPI can become subject to ongoing securities law

The Scope of Ongoing Obligations

Acquisition of a U.S. Company

A. Acquisition of a Private U.S. Company

Generally speaking, the acquisition of a private U.S. company—or more

In some cases, the acquisition of a private company is effected by a merger, which

In rare cases, an acquisition of a private company with numerous shareholders may

If securities are being issued as consideration in connection with the transaction, it

Generally speaking, the acquisition of a public U.S. company—or more technically,

In addition, some acquisitions are effected in a two-step process, in which the

a. Section 14(e) and Regulation 14E

 Target’s Response to the Offer. Within 10 business days of the

 Purchases or Sales Using Material Information with Respect to the Tender

 Pre-Commencement Communications. The bidder is required to file all

 Tender Offer Documents. The offeror is required to file specified tender

 Dissemination of Tender Offers to Shareholders. Depending on the type of

 Withdrawal Rights. The offeror is required to grant certain rights to

 Target Board Recommendation and Communications to Target

 Offer Extensions. The offeror may elect to provide a subsequent offering

3. Choice of Merger vs. Tender Offer

A tender offer followed by a back-end merger can potentially be completed in less