Cross-Border Counselor

Way back in 2017, one of our earliest posts discussed the legal and financial risks to both the issuer and the finder if an issuer pays a finder’s fee in connection with a sale of securities in the United States, and the person receiving the fee is not a U.S. registered broker-dealer. In many cases, this type of fee violates U.S. securities laws. However, this continues to occur from time to time, especially in deals where U.S. counsel is not consulted prior to the closing. For a brief summary of the risks of paying this type of finder’s fee, and an example of one issuer that declared bankruptcy as a result, read on. The Securities and Exchange Commission (SEC) has taken the position that a person receiving a finder’s fee with respect to a purchase of securities by a U.S. investor will, in many cases, be treated as having acted as a “broker” within the meaning of federal securities laws.[1] In those cases, the unregistered finder has violated the federal securities laws. Similarly, the issuer may have violated the federal securities laws (under an agency theory, or otherwise) by having paid such fee. In many states, state regulators take similar positions under applicable state law. The filing of post-closing notices of sale with the SEC and the states disclosing such a fee may result in federal and state regulatory enforcement actions to seek injunctions, monetary penalties or criminal sanctions against the issuer and/or finder. Perhaps more importantly, the payment of the fee may provide the relevant investor(s) with a right to rescind their investment, and create uncertainty about whether and the extent to which such rights should be reflected in the issuer’s financial statements. Such disclosures may adversely affect the issuer’s ability to raise funds, and may further increase the risk of such a rescission claim or regulatory enforcement action. One real life example is the case of Neogenix Oncology Inc. In a series of financings, Neogenix paid finder’s fees to unregistered persons.  In Q4 2011, the SEC initiated a regulatory inquiry.  Neogenix was soon dealing both with the SEC and its auditors.  Neogenix disclosed that its auditors were unwilling to review or audit Neogenix’s financial statements because of their uncertainty as to how to reflect any possible rescission rights. Without that review and audit, Neogenix was unable to timely complete and file with the SEC its quarterly report for Q3 2011, its annual report for FY 2011, and its quarterly reports for 2012. As a result, Neogenix was also unable to raise additional funds.  Several directors and employees departed, and in July 2012 Neogenix filed for bankruptcy protection under Chapter 11. [1] This blog post does not address the exemption available under federal securities law to “M&A brokers” with respect to certain transactions involving a transfer of control of a private company.    

As discussed in our eUpdate published today, the SEC on January 24, 2024 adopted final rules amending the disclosure and registration requirements applicable to special purpose acquisition companies (SPACs) and shell companies that register or file reports with the SEC. These amendments impose significant new requirements on SPAC IPOs, as well as de-SPAC and similar transactions for SEC reporting shell companies. The new SEC rules do not apply to Canadian capital pool companies, SPACs, or shell companies unless they register or file reports with the SEC. As part of the final rule package, the SEC also amended its guidance for all SEC reporting companies on how to make economic projections in SEC filings, as well as issuing guidance on when a SPAC may be considered an investment company. We will address this Investment Company Act guidance in a further post.

As noted in our post of December 18, Canadian companies with U.S. subsidiaries have been gearing up all year to file beneficial ownership reports with FinCEN pursuant to the Corporate Transparency Act, in advance of a January 1, 2025 deadline for entities that were formed prior to 2024. Many have already completed their analysis and either determined that they qualify for an exemption or filed their initial beneficial ownership reports. On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the January 1, 2025 deadline. On December 23, 2024, the motions panel of the United States Court of Appeals for the Fifth Circuit granted the government’s emergency motion and stayed the temporary nationwide injunction. Shortly thereafter, FinCEN issued a notice confirming that compliance with the CTA and the FinCEN Regulations was once again effective—but issued new and slightly extended compliance deadlines (for most reporting companies – to January 13, 2025). On December 26, 2024, in order to “preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments”, the merits panel of the United States Court of Appeals for the Fifth Circuit vacated that decision and reinstated the temporary preliminary injunction. On December 27, 2024, FinCEN swiftly confirmed that beneficial ownership information reports were, once again, not currently required, but that reporting companies may continue to submit reports on a voluntary basis. The continued back and forth between the courts (and even within the same court) demonstrates the legal and political tensions (and accompanying confusion) that reporting companies are facing as they continue to grapple with their obligations under the CTA. While this latest development may be welcome relief for many, reporting companies should continue to be prepared to file their BOI Reports on short notice - particularly as the case in issue, Texas Top Cop Shop v Garland et al., is on expedited appeal.

On October 10, 2023, the Securities and Exchange Commission approved amendments to the Regulation 13D-G reporting regime for persons who beneficially own more than 5% of a class of securities (“5% Owners”) that is registered under Section 12 of the Securities and Exchange Act of 1934, as amended.  The amendments accelerate the deadlines by which 5% Owners must file initial reports and amendments on Schedule 13D or 13G, mandate the use of machine-readable language in those reports, and provide for additional amendments and guidance.  The amendments apply to 5% Owners of all Section 12 registered securities, including 5% Owners of Canadian foreign private issuers and MJDS filers listed on Nasdaq, the New York Stock Exchange and the NYSE American. For more information, see our eUpdate.

Did you know that the Canada-U.S. multijurisdictional disclosure system (MJDS) includes an SEC form that does not include any minimum market capitalization requirement, and can be used to complete a public offering of securities in the United States without triggering any ongoing SEC reporting requirements?  It’s true. Form F-7 allows certain TSX and TSXV-listed Canadian companies to extend a rights offering to its United States shareholders on a public offering basis, provided they satisfy certain form eligibility requirements.  U.S. information legends are included in the Canadian offering documents, which are filed with the SEC under cover of Form F-7, together with certain consents.  A Form F-7 is not normally reviewed by the SEC.  The shares issued to U.S. shareholders are “free trading” and are issued without any U.S. restrictive legend.  Exemptions from state registration requirements are available in most states.  A company does not need to satisfy any minimum market capitalization in order to use Form F-7, nor must it be an SEC reporting company.  Perhaps most surprisingly, filing a Form F-7 and completing the rights offering does not subject the company to ongoing SEC reporting requirements, so the form can be used by companies that wish to avoid the Sarbanes-Oxley Act and other ongoing SEC requirements. Form F-7 can be a useful tool in a Canadian company’s toolkit.

As many of our readers will have heard, the Canadian Securities Administrators (“CSA”) has announced the adoption of a new prospectus exemption for certain reporting issuers listed on a Canadian stock exchange (the “Listed Issuer Financing Exemption”), effective November 21, 2022.  To date, little attention has been given to the potential effect of the Listed Issuer Financing Exemption on the practices of Canadian listed companies raising funds from U.S. investors.  In this post, we discuss those implications and suggest methods for relying on the Listed Issuer Financing Exemption while still preserving the ability to raise funds from U.S. investors. Overview of the Listed Issuer Financing Exemption The Listed Issuer Financing Exemption will allow certain reporting issuers listed on a Canadian stock exchange to complete a public offering of securities in Canada for cash to raise up to C$5 million (up to C$10 million for larger companies), with no investor qualifications, no legends or hold periods on the securities sold in the public offering, and no prospectus (an “Offering”).  As such, the Listed Issuer Financing Exemption may become an important fundraising tool for Canadian public companies, especially those with smaller market capitalizations. Many Canadian law firms have published summaries of the Listed Issuer Financing Exemption and its requirements.  The most important requirements for our purposes are that the issuer publish a press release describing the Offering, and file and post on the issuer’s website a completed Form 45-106F19 which outlines certain brief information about the Offering (the “Offering Document”).  The intention of the CSA appears to have been to reduce the burdens on reporting issuers when conducting a relatively small Offering, as long as the issuer is current in its continuous disclosure requirements, meets certain other requirements, and publishes certain basic information about itself and the Offering. Overview of U.S. Private Placement Exemptions The U.S. federal securities laws do not provide an equivalent exemption to the Listed Issuer Financing Exemption.  Most Canadian public companies that offer and sell securities to U.S. investors as part of an Offering (a “U.S. Offering”) conduct the U.S. Offering either: In a fully underwritten offering, as resales by the underwriter to U.S. qualified institutional buyers in reliance upon Rule 144A under the U.S. Securities Act; or In non-brokered or agency offerings, as a sale by the issuer exclusively to U.S. accredited investors, without any general solicitation or general advertising, pursuant to Rule 506(b) of Regulation D under, or Section 4(a)(2) of, the U.S. Securities Act. Therefore, outside of underwritten Rule 144A offerings, most U.S. Offerings by Canadian public companies are undertaken on the basis that no general solicitation or general advertising has been made in the U.S. Offering. General solicitation and general advertising includes, without limitation: Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and Subject to limited exceptions, any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. As the internet became more prevalent, the SEC issued an interpretation confirming that the “use of an unrestricted, publicly available website to offer or sell securities constitutes a general solicitation and is not consistent with the prohibition on general solicitation and advertising … if the website contains an offer of securities”. Notwithstanding the foregoing, the SEC has published rules governing the purpose, content and use of press releases which, if complied with, provide a safe harbor under which a press release will not be deemed to be general solicitation or general advertising for a U.S. Offering. Rule 506(c) of Regulation D under the U.S. Securities Act is an alternative exemption that allows an issuer to make sales to U.S. accredited investors in an Offering in which general solicitation or general advertising is employed, but only if the issuer takes certain steps that the SEC deems to be “reasonable” in verifying the accuracy of the investor’s claim of being an accredited investor.  The SEC has provided some non-exclusive examples of steps that may be considered reasonable, include obtaining and reviewing an individual investor’s tax returns to establish net income, or obtaining a recent certification from the investor’s U.S. broker, lawyer or accountant.  To date, this exemption has been used relatively rarely, due to the significant additional burden on issuers and investors of satisfying this due diligence requirement, and the risk that asking for this information will scare off investors who consider it an invasion of privacy. Planning a U.S. Offering Under the Listed Issuer Financing Exemption An issuer that consults with its U.S. counsel in advance should be able to ensure its ability to proceed with a U.S. Offering as a part of a broader Offering under the new Listed Issuer Financing Exemption.  Whichever U.S. exemption will be used, the issuer’s forms of offering documents will need to be updated.  More importantly, issuers that intend to continue relying on the Rule 506(b) or Section 4(a)(2) exemptions must ensure that their use of the Listed Issuer Financing Exemption for the Offering will not involve any general solicitation or general advertising for purposes of the U.S. Offering.  Of particular concern are the purpose, content and use of the mandated press release, the method of using and posting the Offering Document on the issuer’s website, and the method by which U.S. investors are brought into the U.S. Offering.  Issuers that intend to allow general solicitation and rely on the Rule 506(c) exemption must prepare new due diligence procedures. To ensure compliance under the new rules, the following matters should be discussed with U.S. counsel in advance: The issuer’s eligibility for, and selection of, the U.S. securities exemption for the U.S. Offering; The purpose, content and use of the press release announcing the Offering – in many cases, the names of underwriters or agents participating in the Offering may not be included in the press release; The approach toward posting the Offering Document on the issuer’s website, including whether the issuer should employ geofencing or geoblocking technology, mandatory questionnaires or other means to prevent users in the United States from accessing the Offering Document on the website; The description of the U.S. Offering restrictions within the Offering Document and/or in a U.S. “wrap” around the Offering Document that is used for purposes of explaining the U.S. Offering; The portions of the subscription agreement to be completed by U.S. investors, or separate U.S. subscription agreement, if applicable; The response to any prospective U.S. investor that became interested in the U.S. Offering by viewing the press release or Offering Document, and how to reduce the risk of this occurring; In a Rule 506(c) offering, the method of verifying an investor’s status as an accredited investor; Any underwriters, agents or finders, or the payment of fees or commissions to U.S. persons or for soliciting U.S. investors; and Any applicable U.S. notice filing or state securities law requirements.

In 2022, many SEC reporting companies with mineral resource assets completed their inaugural SEC annual report on Form 10-K or 20-F subject to the SEC’s mining disclosure rules in subpart 1300 of Regulation S-K (“subpart 1300”), and filed their inaugural subpart 1300 technical report summaries, if applicable. As 2023’s annual reporting season approaches, we outline for our readers some important factors to consider in preparing for Year 2 of subpart 1300 compliance.  Depending on the situation, an issuer may need to begin its preparations well in advance of its fiscal year end (“FYE”), or risk being in default of its reporting requirements. Overview Subpart 1300 requires an issuer with material mining assets that is filing a new Form 10-K or 20-F (“Annual Report”) to report mineral resources and reserves as of the end of the fiscal year, with a comparison to prior year figures. Determinations of mineral resources and reserves must be based on information provided by a qualified person (“QP). If an individual property is material to the issuer and the issuer will be disclosing any mineral resources or reserves for that property, the issuer must file with the SEC a technical report summary by a QP that complies with subpart 1300. For most issuers subject to subpart 1300, the first Annual Report for a year ended on or after December 31, 2021, filed in 2022, was the first report required to comply with subpart 1300 and to be accompanied by a subpart 1300 compliant technical report summary, where applicable. Accordingly, for most issuers subject to subpart 1300, preparing for its first Annual Report for a fiscal year ended on or after December 31, 2022, to be filed in 2023, will be the first time the issuer has needed to assess the requirements for updating subpart 1300 disclosure. An updated technical report summary is not required every year. In conversations with the Staff of the SEC, they expected most technical report summaries would be good for 3-5 years before updating was required, although material changes at a project (for example, a significant and sustained cost increase) would require that it be updated sooner. As part of subpart 1300 disclosure in Year 2 (and each year in the future), issuers will be required, among other things, to: reassess, as at the FYE, which mineral properties are material to the issuer; have a QP determine, as at the FYE, for each material property that has a previously-filed subpart 1300 technical report summary, whether all material assumptions and information set forth in the technical report summary, including assumptions relating to modifying factors, price estimates, and scientific and technical information (e.g., sampling data, estimation assumptions and methods), remain current; have a QP assess, as at the FYE, whether any changes have occurred in mineral resources or reserves, and explain the changes if any (including the comparison discussion required by Item 1304(e) of the current year’s mineral resources or reserves against the prior year’s mineral resources or reserves); determine which QP will update prior estimates of mineral resources and reserves as of the new FYE or confirm that the estimates remain current as at the FYE; if there are material changes to the information in a technical report summary, prepare the new technical report summary if required. Subpart 1300 does not require the use of the same QP who prepared the initial technical report summary; however, in some cases a consent may be required from the previous QP. Year 2 Reporting Disclosure For Annual Reports where the mineral reserves and mineral resources remain unchanged as of the FYE, the Staff of the SEC has indicated that they expect to see a statement in the Annual Report that the QP has determined that all material assumptions and information, including those related to price estimates, remain current as of the FYE. Year 2 Backup Documentation Except with respect to an updated technical report summary, there is no specified backup procedure or documentation for updating or confirming estimates in Year 2. We recommend some form of backup memo or certification from the QPs relating to the Year 2 disclosure as part of an issuer’s disclosure controls and procedures. Procedures For New Material Properties If any new material property is identified, the issuer may not disclose any mineral resources or mineral reserves for that property in the Annual Report unless the Annual Report is accompanied by a subpart 1300 compliant technical report summary. If a material property has an existing subpart 1300 technical report summary, but the QP is unable to determine that all material assumptions and information set forth in the report remain current as of the new FYE, the issuer similarly may not disclose any mineral resources or mineral reserves for that property in the Annual Report unless the Annual Report is accompanied by a new or updated subpart 1300 compliant technical report summary. We recommend that issuers begin their assessment of these matters prior to the FYE, because the preparation of any required new or updated technical report summaries may take significant time. If an issuer is unable to finalize any required new or updated subpart 1300 technical report summary by the date of the Annual Report, the Annual Report must report that the property has no mineral resources or reserves. While this approach may be permissible under the Annual Report form requirements, it may result in an adverse reaction from investors and analysts.  Depending on the circumstances, it may also require the issuer to suspend sales under certain SEC registration statements if it may constitute or result in a material misstatement or omission. Procedures For New Properties That Are Not Material Whether or not a property is material, the issuer may not disclose any mineral resources or mineral reserves for that property in the Annual Report unless those mineral resources or mineral reserves are determined in accordance with subpart 1300. For non-material properties that are discussed in the summary disclosure section, a technical report summary is not required but a QP must still conduct the required procedures to determine mineral resources or mineral reserves as of the FYE. Internal Controls Disclosure for Resource and Reserve Estimates in Year 2 We note that the language of Item 1305 relating to internal controls disclosure is open to significant interpretation by the reader.  In discussions with the Staff of the SEC, they noted the internal control disclosure was intended to be at the corporate level, not the project level.  In other words, are there board committees or members of senior management that are responsible for the oversight of mineral estimates?  What are the company’s procedures?  To see examples of this type of disclosure, keep in mind that oil and gas companies have been subject to this requirement for a number of years.

In Canada it’s considered no big deal to ask shareholders to approve a continuance or redomicile of a company from one province to another, or between Canadian provincial and federal jurisdictions. That’s also largely true from a U.S. securities perspective, but only because the continuance is being made within the same country. If a continuance or redomicile is made from one country to a different country, it’s a completely different story. Canadian counsel and their clients are sometimes surprised to hear that if a company continues from Canada to another country, or if a company continues into Canada, the failure to comply with U.S. securities laws may subject the company to rescission rights by all U.S. securityholders. The SEC takes the position that if a company subject to the jurisdiction of one country asks its shareholders to approve a continuance or redomicile into another country, the transaction involves the offer and sale of securities by the continued company to all of the existing shareholders. Under Section 5 of the U.S. Securities Act, these offers and sales must be made pursuant to an effective registration statement, filed and cleared with the SEC, unless an exemption is available. Regulation S may exempt the sales to persons outside the U.S. For U.S. securityholders, certain exemptions such as Section 3(a)(10) or Rule 802 may be available, but these exemptions require U.S. legal and structuring advice during the course of the transaction, because they require specific procedures, disclosures and filings that cannot be completed after the fact. Other, less demanding, exemptions may not be available if the company is publicly traded. If no exemption is complied with or available, then generally speaking, all U.S. securityholders will have an automatic right of rescission under the U.S. Securities Act for a period of one year. For a public company, this can raise meaningful disclosure considerations even if no U.S. securityholder makes a claim. The company may also be subject to enforcement actions by U.S. securities regulators.

As discussed in more detail here, on August 6, 2021, the United States Securities and Exchange Commission (the “SEC”) approved NASDAQ Rules 5605(f) and 5606, which require each NASDAQ listed company (subject to certain narrow exceptions) to (i) publicly disclose, to the extent permitted by applicable law, information on the voluntary self disclosed gender, racial characteristics and LGBTQ+ status of the issuer’s board members, and (ii) have at least two “diverse” board members or explain why it does not have two diverse members meeting the applicable requirements. Issuers with five or fewer board members are required only to have one “diverse” board member. Canadian issuers that are NASDAQ listed are subject to the new rules. However, a Canadian issuer that is either (i) a “foreign private issuer” as defined under SEC rules or (ii) any other issuer that is incorporated under the laws of a jurisdiction other than the United States and has its its principal executive office outside the United States, may satisfy the board composition requirements by having at least two female directors, or one female director and one director who is either (i) an underrepresented individual (based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the county in which the issuer’s principal executive office is located) or (ii) a member of the LGBTQ+ community. The new rules are subject to a transition period, but will begin to take effect for all on the later of August 7, 2023, or the date the issuer files the proxy or information statement (or Form 10-K or 20-F) for the issuer’s annual shareholder meeting in 2023. While the new rules affect only NASDAQ listed companies, the SEC’s rule making agenda indicates that it may also propose new values regarding board diversity disclosure, which suggests that similar rules may be applicable to a broader range of listed companies in the future.

On September 28, 2021, companies trading in the United States over-the-counter securities markets (“OTC Markets”) that do not comply with amended Rule 15c-211 will no longer be eligible for quotation on the OTC Markets, effectively eliminating their public quotation in the United States. Amended Rule 15c-211 requires that broker-dealers obtain and review basic information about an issuer and its security before initiating or resuming quotation of a security in the OTC Markets. The amendments should have no effect on companies that are traded on a national securities exchange (i.e., NASDAQ, New York Stock Exchange, NYSE American, etc.), the OTCQX or OTCQB. Companies trading on the OTC Pink or OTC Grey Market will need to have current and public disclosure available to broker-dealers and investors and verified before a broker-dealer can initiate or resume quotation of a security in the OTC Markets. OTC Markets Group has created a program for Rule 15c-211 verification for companies that trade on the OTC Pink through the OTC Disclosure & News Service that can be relied upon by broker-dealers. Immediate action is required for these companies if they intend to remain eligible for quotation in the United States OTC Markets. If not already done, Canadian issuers trading on the OTCQX or OTCQB will need to verify compliance with Rule 12g3-2(b) on their OTCIQ profile immediately so that OTC Markets compliance team can confirm Rule 15c-211 compliance. Companies that satisfy the Rule 15c-211 public information eligibility requirements include (i) issuers that are subject to reporting under the Securities Exchange Act of 1934, as amended, Regulation A or Regulation Crowdfunding; (ii) foreign private issuers that are exempt from registration under the Exchange Act pursuant to Rule 12g3-2(b); and (iii) issuers that provide disclosure specified in Rule 15c-211. Other exemptions are for unsolicited quotations and seasoned issuers that satisfy trading and capitalization requirements. Companies that are quoted for trading on over-the-counter securities markets should consult with their legal advisor at Dorsey & Whitney LLP on the application of Rule 15c-211 on eligibility for quotation in the United States.

We are seeing a significant increase in cases where a qualified person (QP) or related engineering firm has prepared a technical report or other required disclosure for a mining company, but then resisted, or outright refused, to provide the written consent that the mining company is required to obtain in order to be permitted to disclose the name of the QP and the conclusions of the QP in a prospectus that forms part of an SEC registration statement for a public offering or for the mining company’s annual report that is filed with the SEC.  This can be costly and damaging to the mining company, because it may put the company in a position where it cannot satisfy both the SEC consent requirements and the requirements of Canada’s National Instrument 43-101 (NI 43-101) without having another QP redo the first QP’s work. The incidence of QPs taking this position seems to be increasing as the SEC’s new mining disclosure rules under subpart 1300 come into effect.  For companies that file with the SEC on non-MJDS forms (Forms 10-K, S-1 and S-3 for domestic issuers, and Forms 20-F, F-1 and F-3 for foreign private issuers), the subpart 1300 rules will impose new requirements on QPs that will increase their exposure to potential liability.  The subpart 1300 rules will not apply to MJDS forms.  For the many Canadian mining companies that file with the SEC under the MJDS system (e.g., Forms 40-F and F-10), their QPs will not be subject to any increased exposure.  Nevertheless, we are seeing QPs taking a more cautious approach to consents as they become more aware of the potential liability to which they have always been subject as “experts”. To avoid the potential for unpleasantness at a later date, mining companies that may require an SEC consent from a QP should raise this requirement with the QP as part of the process of initially engaging the QP and consider building the QP’s obligation to provide any required consents into the express terms of any written agreement with the QP.

On April 29, 2020, the SEC issued new Compliance & Disclosure Interpretations (the “New C&DIs”) that clarified the compliance deadline for many mining companies that file with the SEC on non-MJDS forms such as Form 10-K or Form 20-F to comply with the SEC’s new mining disclosure rules in Subpart 1300 of Regulation S-K. The New C&DIs follow closely on the heels of the National Mining Association having submitted a letter on April 24, 2020, to the SEC’s Chairman, Jay Clayton, requesting a one-year delay in the Subpart 1300 compliance deadline in light of the COVID-19 pandemic. The SEC’s adopting release for Subpart 1300 on October 31, 2018, had required that mining companies begin complying with the new rules, including the filing of technical report summaries, beginning with the annual report filed for the company’s first fiscal year beginning on or after January 1, 2021 (in other words, in early 2022 for calendar year companies, and later in 2022 or very early 2023 for other companies). However, that timeline was to be accelerated for new registrants and also, apparently, for companies accessing the public markets, with compliance required beginning January 1, 2021, for any registration statement filed on or after that date. The treatment of shelf takedowns from existing registration statements after January 1, 2021, was not specifically addressed. The New C&DIs provide much-needed clarity regarding the Subpart 1300 compliance deadline for many mining companies: For non-calendar year companies, Subpart 1300 will not apply until the beginning of the company’s first fiscal year on or after January 1, 2021. For example, a company with a June 30 fiscal year end will not in any circumstance become subject to Subpart 1300 until July 1, 2021. If a company files a Securities Act registration statement after the beginning of its first fiscal year on or after January 1, 2021, and prior to its annual report for such fiscal year,[1] it is not required to comply with Subpart 1300 in the Securities Act registration statement if the form being used permits incorporation by reference of information from a prior annual report that was not subject to Subpart 1300, and such disclosure is not otherwise prohibited under the SEC’s rules. For example, if a calendar-year end company files a Form S-3 or Form F-3 during 2021, it may incorporate its annual report on Form 10-K or Form 20-F for the fiscal year ended December 31, 2020, even if that report contains disclosure in accordance with SEC Industry Guide 7. As a result of the New C&DIs, many mining companies that are working on implementing Subpart 1300 will not be required to comply with the new rules until the date in 2022 when they file their annual report for their first fiscal year beginning on or after January 1, 2021. The exception to this rule will be companies that file an initial Exchange Act registration statement or a Securities Act registration statement that does not permit incorporation by reference[2] after the start of their first fiscal year beginning on or after January 1, 2021. Those filings will trigger early compliance with Subpart 1300. The New C&DIs are available at sec.gov/divisions/corpfin/guidance/regs-kinterp.htm#section155. The SEC’s adopting release for Subpart 1300 is available at sec.gov/rules/final/2018/33-10570.pdf. Links for Dorsey's prior Q&A and webinar regarding Subpart 1300 are available at dorsey.com/newsresources/publications/client-alerts/2019/02/new-mining-disclosure-rules-2019 and dorsey.com/newsresources/events/videos/2019/02/webinar-playback-sec-new-mining-rules, respectively.   [1] Technically, the New C&DIs refer to the date on which audited financial statements for such fiscal year are required to be included in the Securities Act registration statement. [2] For example, Forms F-1 and S-1, the SEC’s equivalents to a “long form” prospectus, do not permit incorporation by reference if the company (i) is a new registrant, (ii) has not yet filed its SEC annual report for its most recently completed fiscal year, (iii) is delinquent in its SEC reports, (iii) is or was, or has a predecessor that was, within the last three years, a blank check company, a shell company, or a registrant for an offering of penny stock, or (iv) is registering a business combination. Forms F-4 and S-4, which are used to register business combinations, also include restrictions on incorporation by reference, depending on the nature of the registrant and the company being acquired.

In response to the COVID-19 pandemic, NASDAQ and NYSE are providing temporary relief from certain continued listing standards. As of now, NYSE American has not provided similar relief from its continued listing standards as a result of COVID-19. Specifically, NASDAQ is providing relief from the continued listing bid price ($1.00) and market value of publicly held shares listing requirements through June 30, 2020. While NASDAQ will continue to notify companies about new instances of non-compliance with bid price and market value of publicly held shares requirements during this period, compliance periods for any newly identified non-compliance will not begin until July 1, 2020. In addition, the compliance periods for any company previously notified about non-compliance will be suspended and resume on July 1. Starting on July 1, companies would receive the balance of any pending compliance period in effect at the start of the tolling period to regain compliance. NASDAQ will continue to monitor securities to determine if a company regains compliance during the relief period. A company can regain compliance by satisfying the minimum requirement for a minimum of 10 consecutive days. The NASDAQ’s Listing Center FAQ for COVID-19 can be found at the link below: https://listingcenter.nasdaq.com/assets/Listing%20Center%20Coronavirus%20FAQs%20for%20Nasdaq-listed%20Companies.pdf Similarly, the New York Stock Exchange (“NYSE”) has announced a number of measures to assist companies during this tumultuous time. NYSE has agreed to toll any applicable compliance periods through June 30, 2020, related to having (i) both stockholders’ equity of less than $50 million and an average global market capitalization over a consecutive 30 trading-day period of less than $50 million (the “$50 Million Standard”) or (ii) an average closing price of a company’s shares below $1.00 over a consecutive 30 day trading period (“Dollar Price Standard”). NYSE will continue to identify companies that fall below the $50 Million Standard and the Dollar Price Standard and such companies will be required to (i) comply with the standard disclosure requirements set out in the Listed Company Manual (the “Manual”), and (ii) submit compliance plans within the standard time frames set out in the Manual. However, the time period to cure such deficiency (i.e., 18 months for the $50 Million Standard and six months for the Dollar Price Standard) will only commence on July 1, 2020. Companies that are currently in a compliance period will have their compliance period tolled and it will recommence on July 1, 2020. A company can regain compliance during the tolling period by satisfying the standard cure requirements set out in the Manual. NYSE has also suspended until June 30, 2020, the requirement that companies maintain an average global market capitalization over a consecutive 30 trading-day period of at least $15 million (the “Market Capitalization Standard”). Under the suspension of NYSE’s Market Capitalization Standard, companies will not be notified of new events of noncompliance during the suspension period. However, following the temporary rule suspension, any new events of noncompliance with NYSE’s Market Capitalization Standard would be determined based on a consecutive 30 trading-day period commencing on or after July 1, 2020. In addition, NYSE has instituted a partial waiver of the application of Section 312.03(b) of the Manual, which requires shareholder approval of any issuance to a director, officer or substantial security holder of the company (each a "Related Party") or to an affiliate of a Related Party if the number of shares of common stock to be issued, or if the number of shares of common stock into which the securities may be convertible or exercisable, exceeds either 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance. The waiver eliminates the shareholder approval requirement through June 30, 2020, but is specifically limited to transactions that involve the sale of the company’s securities for cash at a price that meets the Minimum Price requirement as set forth in Section 312.04 of the Manual. In addition, to qualify for this waiver, a transaction must be reviewed and approved by the company’s audit committee or a comparable committee comprised solely of independent directors. Furthermore, this temporary exemption may not be available if the proceeds are used to fund an acquisition. Furthermore, NYSE has instituted a waiver of the shareholder approval requirement of Section 312.03(c) of the Manual until June 30, 2020, such that no shareholder approval is required to (i) issue on a private placement basis, greater than 20% of an issuer’s issued and outstanding shares, (ii) issue greater than 5% of the company’s issued and outstanding shares to a single investor, and (iii) undertake a “bona fide private financing” during that period in which there is only a single purchaser, so long as the issuances are for cash at a price greater than the Minimum Price. If any purchaser in such a transaction is a Related Party, the transaction must be reviewed and approved by the company’s audit committee or a comparable committee comprised solely of independent directors. The SEC’s releases related to the rule changes can be found at the following links: sec.gov/rules/sro/nyse/2020/34-88572.pdf; sec.gov/rules/sro/nyse/2020/34-88441.pdf; sec.gov/rules/sro/nyse/2020/34-88717.pdf

The OTC Markets Group Inc. (the “OTC”) has announced that due to the Covid-19 pandemic, it is providing relief to certain OTCQB and OTCQX issuers until June 30, 2020. Until June 30, 2020, no new compliance deficiency notices will be sent related to having a low bid price, low market capitalization, or low market value of public float (as those terms are used in the OTCQB Standards, the OTCQX Rules for International Companies or the OTCQX Rules for U.S. Companies, as applicable). Additionally, any OTCQX or OTCQB company that has already received a compliance notice related to bid price, market capitalization, or market value of public float with a cure period expiring between March and June will automatically receive an extension until June 30, 2020, to cure the deficiency. The OTC is also extending the implementation date for compliance with Sections 2.3(3) and 2.3(4) of the OTCQB Standards regarding having at least 50 beneficial shareholders and having a minimum public float of 10% or $2 million in market value of public float, respectively, until June 30, 2020. This extension applies only to companies that were traded on the OTCQB as of May 20, 2018, as all other companies were subject to the requirements effective May 20, 2018. The OTC’s notices related to COVID-19 can be found at the following website: otcmarkets.com/learn/resources-for-companies-impacted-by-covid19.

During the current coronavirus crisis, the SEC has issued an Order providing filing extensions that apply to Canadian issuers. The following is a summary of the SEC’s new filing requirements. Form 40-F For Canadian issuers eligible to file their SEC annual report on Form 40-F under the Canada-U.S. Multi-jurisdictional Disclosure System (“MJDS”), Form 40-F continues to be required to be filed on the date on which the included Canadian documents (in most cases, the Annual Information Form) is filed in Canada. We understand that the Canadian Securities Administrators have temporarily provided a blanket 45-day filing extension for Canadian filings, including the Annual Information Form. Therefore, as a practical matter, Form 40-F filers have also automatically received a 45-day filing extension for the filing of the Form 40-F. We have confirmed with the SEC that such 45-day filing extension is available to Form 40-F filers notwithstanding that it could result in a Form 40-F being filed later than the filing deadline for an Annual Report on Form 20-F (four months after the applicable year end). We have also confirmed with the SEC that MJDS filers taking advantage of such filing deadline extension are not required to comply with the SEC’s conditional filing relief described below. Other SEC Filings For non-MJDS filers, the SEC has issued an Order that provides a conditional 45-day filing extension for SEC filings due prior to July 1, 2020. In order to be eligible to utilize the provided relief, the person making the filing must meet the following conditions: (a)  the filer must be unable to meet a filing deadline due to circumstances related to COVID-19 (i.e. it is not a blanket exemption); (b)  any person relying upon the SEC’s Order must furnish a Form 6-K or Form 8-K to the SEC by the original filing deadline of the applicable report, stating: a.  it is relying on this Order; b.  a brief description of the reasons why it could not file such report, schedule or form on a timely basis; c.  the estimated date by which the report, schedule, or form is expected to be filed; d.  a company specific risk factor or factors explaining the impact, if material, of COVID-19 on its business; and e.  if the reason the subject report cannot be filed timely relates to the inability of any person, other than the registrant, to furnish any required opinion, report or certification, the report must include as an exhibit a statement signed by such person stating the specific reasons why such person is unable to furnish the required opinion, report or certification on or before the date such report must be filed. Therefore, Canadian issuers that file on Form 20-F or Form 10-K might be ineligible to fully benefit from the 45-day filing extension provided by the Canadian Securities Administrators. Form 6-K Reports on Form 6-K continue to be due “promptly” following the filing or required public disclosure of the included information in Canada.

On March 25, the SEC issued CF Disclosure Guidance Topic No. 9 that provides the Division of Corporation Finance’s current views regarding disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions. In the guidance, the SEC recognizes that it may be difficult to assess or predict with precision the broad effects of COVID-19 on industries or individual companies. Never the less, the guidance is clear that the SEC considers COVID-19 developments to be material and that public companies have an obligation to address these risks even as the business risks are evolving and impacts on a specific company are uncertain. As a result, disclosure of these risks and COVID-19-related effects may be necessary or appropriate in management’s discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and the financial statements. The guidance provides a checklist of topics related to COVID-19 to be considered by public companies as they prepare their periodic reports and other public disclosures: The impact of on the company’s financial condition and results of operations in the near term and longer term. The impact of on the company’s capital and financial resources, including liquidity, cost and access to capital (such as access to revolving credit facilities), sources and uses of cash, the company’s ability to meet financial covenants, new material expenditures in response to COVID-19 and other matters. The impact on the company’s balance sheet and assets, including any impairment charges. The impact on operations, including remote work, productivity, human resources, supply chain, product distribution and travel restrictions. The impact on demand for the company’s goods and services. The impact on internal controls, disclosure controls, accounting judgments or financial statements. The guidance highlights public companies’ obligations to address management’s expectations for future periods and to discuss trends and uncertainties. The guidance notes that these statements are likely to be forward looking information, based on assumptions and expectations regarding future events, which may be covered by the safe harbor protections. The guidance further notes that the disclosure should be tailored for the specific company and allow investors to see the impact of COVID-19 through the eyes of management. The guidance reminds companies that as they consider the impacts of COVID-19 on their financial condition and operations, their directors and officers, and other corporate insiders, who are aware that COVID-19 has affected their companies in ways that would be material to investors, should refrain from trading in the companies’ securities until such information is disclosed to the public. The guidance also reminds companies to take the necessary steps to avoid selective disclosures by disseminating material information related to the impacts of COVID-19 broadly to the public. In addition, the guidance addressed earnings releases and non-GAAP financial measures. As to earning releases the guidance is primarily a caution to prepare early to address novel issues and accounting judgments that may arise from COVID-19. To the extent a company presents a non-GAAP financial measure or performance metric to adjust for or explain the impact of COVID-19, the guidance is that the disclosure should highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company’s financial position and results of operations. The guidance also states that if a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments, requiring additional information and analysis to complete, the staff would not object to companies reconciling a non-GAAP financial measure to preliminary GAAP results that either include provisional amount(s) based on reasonable estimates, or a range of reasonably estimable GAAP results. The provisional amount or range should reflect a reasonable estimate of COVID-19 related charges not yet finalized, such as impairment charges. Under the guidance, a company presenting non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures, should explain, to the extent practicable, why the line item(s) or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting. The guidance is clear that the other rules for disclosure of non-GAAP financial measures continue to apply, including that companies should avoid “cherry-picking”. In addition, companies should limit the measures they present to those non-GAAP financial measures they are using to report financial results to their Boards of Directors.

On March 4, 2020, the Securities and Exchange Commission (the “Commission”) proposed amendments to the private offering exemptive framework under the Securities Act of 1933, as amended (the “Securities Act”) to “simplify, harmonize, and improve certain aspects of the framework” with the goal of promoting capital formation while maintaining investor protections. The current private offering framework is a set of exemptions and safe harbors which permit issuers to raise capital through various, differing rules which don’t require the filing of a registration statement with the Commission under the Securities Act. These rules are meant to provide issuers with a less expensive and more efficient alternative to a registered public offering in exchange for certain limitations and requirements being placed on the offering, typically regarding the number and type of investors, the type and context of solicitations, the size of the offering and individual investments and certain limited information requirements. The conflicting requirements of the current, differing rules and the potential integration (determination of whether multiple transactions are part of the same offering) of offerings conducted under this “patchwork system” has resulted in a complex and sometimes confusing regulatory framework where the interaction of offerings conducted under the various exemptions and safe harbors is often uncertain, leading to potential violations of the Securities Act. As Chairman Clayton stated in relation to the proposed amendments, “[t]he complexity of the current framework is confusing for many involved in the process, particularly for those smaller companies whose limited resources spent on navigating our overly complex rules are diverted from direct investments in the companies’ growth.” As noted in the Commission’s press release, “[t]he Commission’s proposed amendments are intended to reduce potential friction points to make the capital raising process more effective and efficient to meet evolving market needs.” The proposed amendments would: address, in one broadly applicable rule, the ability of issuers to move from one exemption to another, and ultimately to a registered offering; increase the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings, and revise certain individual investment limits; provide greater certainty to issuers and protection to investors by setting clear and consistent rules governing offering communications between investors and issuers, including permitting certain “demo day” activity without running afoul of the prohibition on general solicitation; and harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions to reduce differences between exemptions. For more information on the proposed rules, see our recent eUpdate here.

For Form 10-K filers, the SEC's March 12 amendments to the “accelerated filer” definition made sense and helped better coordinate the “smaller reporting company” definition with the “accelerated filer” definition. The amendments would, in part, exclude from the definition of “accelerated filer” and “large accelerated filer” issuers that are eligible to be a smaller reporting company and which do not have $100 million in revenues in their most recent fiscal year for which audited financial statements are available. As a result, the amendments will expand the number of Form 10-K filers which are exempted from having to provide an auditor attestation report on internal control over financial reporting in the annual report they file with the SEC. A more detailed discussion of the amendments can be found here: governancecomplianceinsider.com/sec-amends-definition-of-accelerated-and-large-accelerated-filer/. However, for foreign private issuers that file their annual report on Form 20-F or Form 40-F, the benefits from the March 12 amendments are limited. A foreign private issuer filing on Form 20-F or Form 40-F is not eligible to use the requirements for smaller reporting companies, and so is excluded from the expanded accelerated filer exemption. The following table helps illustrate the disparity: Relationships between SRCs, Non-Accelerated and Accelerated Filers under the Final Amendments for 10-K Filers and 20-F or 40-F Filers Public Float Annual Revenues 20-F or 40-F Filer Status* 10-K Filer Status Less than $75 million N/A Non-Accelerated SRC and Non-Accelerated $75 million to less than $700 million Less than $100 million Accelerated SRC and Non-Accelerated $75 million to less than $250 million $100 million or more Accelerated SRC and Accelerated Filer $250 million to less than $700 million $100 million or more Accelerated Accelerated Filer (not SRC) Note: This table addresses initial determinations of filer status and does not consider requirements for transitions between filer status. In other words, if a 10-K filer, a 20-F filer and a 40-F filer each had a public float of $90 million and no revenue, only the 20-F filer and the 40-F filer would be categorized as an accelerated issuer and required to provide an auditor attestation report on its internal control over financial reporting. The final release noted that foreign private issuers reporting on the forms available to them (20-F or 40-F) have other accommodations that 10-K filers do not have. While that is true, it may be cold comfort for an issuer faced with the expense and effort associated with getting an auditor attestation on its internal control over financial reporting. The amendments will become effective 30 days after publication in the Federal Register. The final amendments will apply to annual report filings due on or after the effective date.

On March 2, the Securities and Exchange Commission adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. The final amendments amend Rule 3-10 of Regulation S-X and partially relocate its provisions to new Rule 13-01 and completely relocate Rule 3-16 into new Rule 13-02 (Rule 3-16 will continue to exist during the transition period). The Commission stated that the amendments are intended to: Improve existing Rules 3-10 and 3-16 by requiring disclosures that focus investors on the information that is material given the specific facts and circumstances and by making the disclosures easier to understand; Reduce the cost of compliance for registrants and encourage potential issuers to offer guaranteed or collateralized securities on a registered basis, thereby affording investors protections they may not be provided in offerings conducted on an unregistered basis; and Facilitate, through lower costs and burdens of compliance, issuers' flexibility to include guarantees or pledges of affiliate securities as collateral when they structure debt offerings, which may increase the number of registered offerings that include these credit enhancements and could result in a lower cost of capital and an increased level of investor protection. The amendments as adopted are substantially similar to the amendments proposed by the Commission on July 24, 2018. The amendments will be effective on January 4, 2021, but voluntary compliance will be permitted in advance of the effective date. Amendments to Rule 3-10 and New Rule 13-01 Prior to the amendments, Rule 3-10 required financial statements to be filed for all issuers and guarantors of securities that are registered or being registered, subject to several exceptions. Under the amendments, Rule 3-10 will continue to permit the omission of separate financial statements of subsidiary issuers and guarantors when certain conditions are met and the parent company provides supplemental financial and non-financial disclosure about the subsidiary issuers and/or guarantors and the guarantees. Similar to the existing rule, the amended rule will provide the conditions that must be met in order to omit separate subsidiary issuer or guarantor financial statements. New Rule 13-01 sets forth the accompanying amended disclosure requirements, as follows: The condition that a subsidiary issuer or guarantor be 100%-owned by the parent company is replaced with a condition that it be consolidated in the parent company's consolidated financial statements; The condensed consolidating financial information, as specified in existing Rule 3-10, is replaced with certain new financial and non-financial disclosures. The amended financial disclosures will consist of summarized financial information of the issuers and guarantors, which may be presented on a combined basis, and reduce the number of periods presented. The amended non-financial disclosures, among other matters, will expand the qualitative disclosures about the guarantees and the issuers and guarantors. Consistent with the existing rule, disclosure of additional information about each guarantor will be required if it would be material for investors to evaluate the sufficiency of the guarantee; The amended disclosures may be provided outside the footnotes to the parent company’s audited annual and unaudited interim consolidated financial statements in all filings; and The amended financial and non-financial disclosures are required for as long as an issuer or guarantor has an Exchange Act reporting obligation with respect to the guaranteed securities rather than for as long as the guaranteed securities are outstanding. Amendments to Rule 3-16 and New Rule 13-02 Rule 3-16 requires a registrant to provide separate financial statements for each affiliate whose securities constitute a substantial portion of the collateral, based on a numerical threshold, for any class of registered securities as if the affiliate were a separate registrant. Under the amendments, the requirements in Rule 3-16 will be replaced with the disclosure requirements in new Rule 13-02 (although existing Rule 3-16 will remain in place for transitional purposes). Among other things, the amendments will: Replace the existing requirement to provide separate financial statements for each affiliate whose securities are pledged as collateral with amended financial and non-financial disclosures about the affiliate(s) and the collateral arrangement as a supplement to the consolidated financial statements of the registrant that issues the collateralized security. The registrant will be permitted to provide the amended financial and non-financial disclosures outside the footnotes to its audited annual and unaudited interim consolidated financial statements in all filings; and Replace the requirement to provide disclosure only when the pledged securities meet or exceed a numerical threshold relative to the registered securities with a requirement to provide the proposed financial and non-financial disclosures in all cases, unless they are immaterial.

In connection with the order issued by the Securities and Exchange Commission on March 4 providing filing relief for companies that are affected by the coronavirus, the Commission reminded all companies to be vigilant regarding their disclosure obligations related to the evolving coronavirus scenario. A company’s assessment of, and plans for addressing, material risks to its business and operations resulting from the coronavirus can be material to investors, and companies are encouraged, to the fullest extent practicable, to keep investors and markets informed of material developments. As a reminder, under the federal securities laws: When a company has become aware of a risk related to the coronavirus that would be material to its investors, it should refrain from engaging in securities transactions with the public and take steps to prevent its directors, officers and other corporate insiders who are aware of these matters from initiating such transactions until investors have been appropriately informed about the risk. When a company does disclose material information related to the impacts of the coronavirus, it should take the necessary steps to avoid selective disclosures and to disseminate such information broadly in compliance with Regulation FD. Companies should consider whether they may need to revisit, refresh or update previous disclosure to the extent that such information becomes materially inaccurate. Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding the coronavirus, should take steps to avail themselves of the safe harbor in Section 21E of the Securities Exchange Act of 1934 for this information. While the need to seek filing relief due to the coronavirus will hopefully be limited to very few companies, these disclosure obligations are likely to impact most companies.

Issuers quoted on the OTCQB are now required to promptly disclose the issuance of any promissory notes, convertible notes, convertible debentures, or any other debt instruments that may be converted into a class of the issuer’s equity securities. In addition, OTCQB issuers are now required to promptly post copies on the OTC Disclosure & News Service or, if an SEC reporting company, on the SEC’s EDGAR reporting system, of the securities purchase agreement(s) or similar agreement(s) setting forth the terms of such arrangement, any related promissory notes or similar evidence of indebtedness, and any irrevocable transfer agent instructions. These new listing requirements will apply to OTCQB issuers even if applicable Canadian and U.S. laws do not otherwise require such disclosure. We have been informed by the OTC that redacting personal information is permitted and if there are multiple investors that have signed identical agreements, only the “form of” the relevant agreement needs to be filed. Investors’ names are required to be disclosed unless there are multiple identical definitive agreements and the issuer elects to file only the “form of.” Issuers should ensure that any confidentiality clauses in the relevant agreements are drafted taking into account these new disclosure requirements. In addition, issuers are now required as part of their initial and annual OTCQB Certification to list out promissory notes, convertible notes, convertible debentures, or any other debt instruments that may be converted into a class of the issuer’s equity securities that were issued or outstanding at any time during the last completed fiscal year and any interim period between the last fiscal year end and the date of the OTCQB Certification. The updated form of OTCQB Certification can be found at the following link: otcmarkets.com/files/OTCQBCertificationTemplate.docx.

On January 17, 2020, the Committee on Foreign Investment in the United States (“CFIUS”) published two new rules that will greatly expand the scope of minority investments by foreign persons in U.S. businesses that are subject to CFIUS review. The rules take effect on February 13, 2020. Importantly for certain Canadian investors, the rules include an exemption for the next two years. These new rules implement changes in U.S. law mandated by Congress in its 2018 Foreign Investment Risk Review Modernization Act (“FIRRMA”). The first rule expands coverage over minority investments by foreign persons in U.S. businesses that involve critical technologies, critical infrastructure, or sensitive personal data (as those terms are defined in the rules). Depending on the investor involved and the nature of the U.S. business, the parties to the transaction are required to either submit a “mandatory declaration” to CFIUS 30 days before closing or file a voluntary notice with CFIUS. If the investment is subject to this new rule and the parties fail to file a declaration with CFIUS, CFIUS could impose a potential civil penalty in an amount equal to the entire transaction value (and the deal could be potentially unwound if CFIUS were to determine there was a national security threat). For two years from the rule’s effective date, CFIUS will exempt certain investors from Canada, Australia, and the United Kingdom. However, not all Canadian, Australian, and U.K. investors will benefit from this exemption. The exemption expressly excludes foreign individuals with non-exempt dual nationalities; firms that exceed certain thresholds for foreign ownership, board membership, or voting interests held by persons with non-exempt nationalities; investors who fall under any of the listed national security-related exclusions; and certain investors who lose eligibility for the exemption within three years after completing the relevant transaction. The second rule addresses foreign investments in most forms of real estate. In general, a foreign real estate investment will now be subject to scrutiny if it involves properties located within, or that function as part of, major U.S. airports or seaports, or that are within one mile (about 1.6 km) of a listed military installation in urban environments. Further, outside of urban areas, this “proximity” standard under the new real estate rule extends up to 100 miles (about 160 km) from certain U.S. military facilities and, in certain instances, includes entire counties of a U.S. state. This real estate rule contains the same exemption for Canadian, Australian and U.K. investors and is subject to the same express exclusions as noted for the first new rule. Foreign investors should understand that both of these new CFIUS rules are in addition to its previous well-known jurisdiction over investments that transfer control of a U.S. business to a foreign party. Moreover, that existing jurisdiction over change-of-control transactions does not contain the above carve-out for Canadian, Australian or U.K. investors. For more information about the new CFIUS rules, please see this synopsis of the proposed texts released in late 2019 (and which remain mostly unchanged in the final rules as promulgated): dorsey.com/newsresources/publications/client-alerts/2019/10/cfius-proposed-regulations-expanding-jurisdiction.