December 2, 1999
Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: File No. S7-22-99
On November 29, 1999, we submitted our comments on the Proposed Rule of the Securities and Exchange Commission (Commission), Audit Committee Disclosure. We are hereby submitting an addendum to that comment letter to address an additional matter not commented on previously.
The Proposed Rule would not apply to foreign private issuers. However, we note that footnote 79 states that the proposed amendments would, however, apply to a foreign private issuer that elected to file reports under the disclosure rules for U.S. companies.
There are a large number of Canadian companies that are foreign private issuers but that elect to file on domestic forms. We do not believe that the provisions of the proposed rules regarding disclosure in the proxy should be applicable to foreign private issuers as defined by Rule 3b-4 of the Exchange Act. Rule 3a12-3 of the Exchange Act specifically exempts foreign private issuers from Sections 14(a), 14(b), 14(c), and 14(f) of the Exchange Act.
This exemption is not conditional on the issuer filing on foreign forms. It is equally applicable if the issuer files on domestic forms. The Commission confirmed this concept when it issued the final rules on the Multijursidictional Disclosure and Modifications to the Current Registration and Reporting System for Canadian Issuers that was presented in Securities Act Release No. 6902. In part, the Commission stated the following:
The adopted revisions also affect the application of the Commission's proxy
rules and share ownership reporting requirements and short-swing profit
recapture rules to Canadian issuers. As revised, Rule 3a12-3 under the
Exchange Act \139/ exempts foreign private issuers, including Canadians, from
Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act. \140/
Despite the revisions being adopted, Canadian foreign private issuers continue
to be eligible to use forms prescribed for U.S. companies, if they so elect. A
Canadian foreign private issuer who chooses to report or register on forms
designed for U.S. companies does not thereby become ineligible to rely on the
exemption from the Commission's proxy, share ownership and short-swing profit
provisions noted above. While Canadian issuers using Form 10-K are accustomed
to satisfying certain disclosure item requirements by incorporating sections
of their proxy statements filed with the Commission, Canadian issuers relying
on the exemption will be unable to do so. In that case, such 10-K item
requirements must be satisfied by directly supplying the information within
the Form. \141/
We recommend that the Commission indicate in the final rules that foreign private issuers are not subject to the disclosure requirements of Item 306 of Regulation S-K/S-B. Rather, a foreign private issuer would only disclose the information that it would otherwise disclose to its security holders or makes available to the public. This condition would be consistent with the distinction made for foreign private issuers in Items 402 (executive compensation) and 404 (certain relationships and related transactions) of Regulation S-K.
In addition to the reasons stated above, we believe the distinction is necessary because the safe harbor that is provided by the Commission would not be applicable in a foreign jurisdiction. Thus, the risks associated with the disclosure would be greater for a foreign private issuer than a domestic issuer.
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We would welcome the opportunity to discuss our comments further. You may contact Robert H. Herz at (973) 236-7217 or Wayne Carnall at (973) 236-7233 for further information.
Very truly yours,