GREENBERG TRAURIG, LLP | ATTORNEYS AT LAW | Sarbanes-Oxley Act of 2002 Highlights for Foreign Private Issuers February 16, 2005 James P.S. Leshaw Zarifa M. Brown

Intended Purpose of Sarbanes Lofty goals/poor execution Increased disclosure for investors Renewal of faith in U.S. capital markets Ensure accuracy of reported financial information Increased penalties (incentives) for directors and senior executives

Sarbanes Broadens the Reach of the US Securities Laws Sarbanes was a reaction to the Enron and WorldCom scandals –Lauded by President Bush as one of “the most far- reaching reforms of American business practices since the time of Franklin Delano Roosevelt.” –Sarbanes was passed in Congress during an election year, only 29 days after WorldCom announced its $3.8 billion cash flow overstatement –Sarbanes does not contain a single reference to foreign issuers and the Congressional Record contains only a single reference to foreign private issuers (FPIs)

Sarbanes Broadens the Reach of the US Securities Laws Sarbanes creates a strict regulatory regime for FPIs, who were historically exempt from many of the non-fraud related provisions of the US securities laws –FPIs are not required to file proxy statements –Officers, directors and 10% shareholders of FPIs are not required to report transactions in the issuer’s securities –No liability for short swing profits –FPIs are not required to file quarterly reports –FPIs are not required to comply with Reg FD’s prohibitions against selective disclosure –Disclosure requirements for FPIs are more lax than for domestic issuers

Sarbanes Broadens the Reach of the US Securities Laws What is a foreign private issuer (“FPI”)? –A "foreign private issuer" is any issuer, other than a foreign government, that does not have more than 50% of its outstanding voting securities held by U.S. residents and that does not satisfy any one of the three conditions: (i) more than 50% of directors or executive officers are U.S. citizens or residents; (ii) more than 50% of the issuer's assets are located in the U.S.; or (iii) the issuer's business is administered principally in the U.S. Which FPIs are subject to Sarbanes? –FPIs that have securities registered or are required to file reports under the Securities Exchange Act of 1934; and –FPIs that have filed a registration statement under the Securities Act of 1933 that is not yet effective

Sarbanes Puts Many Smaller FPIs at a Competitive Disadvantage to their Non-Regulated Local Competition It is difficult and expensive for small and mid- market companies to comply with Sarbanes –FPIs are required to develop, maintain and document internal controls and procedures over financial reporting Estimate of 25,000 man-hours at a cost of more than $1 million –Sarbanes increases the cost and scope of an audit and puts issuers at the mercy of their accountants

Sarbanes Puts Many Smaller FPIs at a Competitive Disadvantage to their Non-Regulated Local Competition –Listed FPIs required to have an “independent” audit committee, which imposes additional costs on closely- held FPIs FPIs were frequently exempted from the requirement for a separate audit committee Sarbanes requires that the audit committee must be “directly responsible for the appointment, compensation and oversight of the work of any registered public accounting firm employed by that issuer.” Audit committee must be authorized to hire independent legal counsel and other advisors, at the expense of the issuer –FPIs required to disclose off-balance sheet transactions with increased specificity and are subject to limits on the use of non-GAAP information.

Sarbanes Puts Many Smaller FPIs at a Competitive Disadvantage to their Non-Regulated Local Competition Sarbanes Makes it More Difficult for FPIs to Attract and Retain Top-Notch Management and Directors –Increased liability for officers and directors –Section 302 and 906 Certifications -- CEOs and CFOs required to “personally” certify accuracy of periodic reports and adequacy of controls and procedures –CEOs and CFOs required to “disgorge their bonuses” paid in respect of any period for which there is an “accounting restatement” which is the “result of misconduct” or other “material non-compliance” with any financial reporting requirements under the securities laws –Sarbanes prohibits loans to directors and executive officers

What Are An FPI’s Alternatives in light of Sarbanes? Comply with Sarbanes Deregister/go private –Going private is expensive, complicated and time consuming –Potentially sends a bad message to investors, customers and employees –Decreased access to capital Locate other sources of capital –Listing on alternative non-U.S. exchanges –Private placements –Strategic partnerships/JV’s –Merger