Cross-Border Transactions Handbook

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Cross-Border Transactions Handbook

Baker & McKenzie

© Baker & McKenzie 2006 All rights reserved. The precedent documents included in this volume have not been prepared with any particular transaction in mind. It is not offered as advice on any particular matter and should not be taken as such. Save where otherwise indicated. law and practice are stated in this volume as at January 2006. nor of the law relating to such issues. In accordance with the common terminology used in professional service organizations. IMPORTANT DISCLAIMER: The material in this volume is of the nature of general comment only and is not intended to be a comprehensive exposition of all potential issues arising in the context of a cross-border or multi-jurisdictional transaction. . Before any action is taken or decision not to act is made. no part may be reproduced or transmitted by any process or means without the prior permission of the editors. or equivalent. reference to a “partner” means a person who is a partner. This publication is copyright. specific legal advice should be taken in light of the relevant circumstances and no reliance should be placed on the statements made or documents reproduced in this volume. Similarly. Baker & McKenzie. in such a law firm. Baker & McKenzie International is a Swiss Verein with member law firms around the world. reference to an “office” means an office of any such law firm. the editors and the contributing authors disclaim all liability to any person in respect of anything done and the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or part of this volume. Apart from any fair dealing for the purposes of private study or research permitted under applicable copyright legislation.

e. antitrust/competition. finance. The editors are extremely grateful to these knowledgeable lawyers for their work. develop synergies and generate value for shareholders. Chicago Tel: +1 312 861 8621 john. your Baker & McKenzie contact partner or any of the contributing lawyers listed on the next page. environmental. including the contributing lawyers listed on the next page. internationally experienced lawyers in 38 countries. It is hoped that this handbook provides readers with a clearer appreciation for the breadth and depth of business and legal considerations associated with cross-border transactions. real property. please contact either of the editors. securities. For more than 50 years. Further details on the firm. employment. Austrian or Swiss companies who either plan to enter the US market or already conduct business in the United States. specifically relevant to a situation where a company wishes to dispose of a business or undertake a disposal program. commercial.com . our people and our practice may be found at www.000 locally qualified. IT. For further details on any of the information contained in this handbook or to obtain copies of any of the related publications listed above. to save costs. Baker & McKenzie has expertise in all of the disciplines that are typically relevant to a cross-border transaction.bakernet. Working in experienced inter-disciplinary teams to advise on corporate. intellectual property.Cross-Border Transactions Handbook Editors’ Note EDITORS’ NOTE Baker & McKenzie was founded in 1949. M&A Editor Baker & McKenzie LLP Tel: +1 312 861 8160 lewis.popoff@bakernet. John Morrow Partner Senior Editor Baker & McKenzie.com. Baker & McKenzie’s Rapid Dispositions Handbook summarizes the issues to be considered when selling a business and provides an organized collection of practical know-how. This handbook is a product of the efforts of numerous lawyers throughout Baker & McKenzie.d. Baker & McKenzie is in a unique position to assist companies in planning and implementing cross-border transactions and to deliver integrated solutions which take into account all relevant business and legal factors. Baker & McKenzie’s Acquiring Companies and Businesses in Europe provides a country-bycountry introduction to the main legal issues to be considered when contemplating the acquisition of shares in a company or the assets of a business in Europe. trade and other compliance and regulatory matters. Baker & McKenzie has provided sophisticated advice and legal services to many of the world’s most dynamic and successful organizations. With a network of more than 3. Baker & McKenzie’s Willkommen in Amerika Handbook: A Legal Guide to Doing Business in the United States of America provides an overview of several areas of US law that are of significant interest for German. tax.morrow@bakernet.com Lewis Popoff Knowledge Manager–North America. employee benefits. Related Publications Baker & McKenzie’s Post-Acquisition Integration Handbook summarizes the issues to be considered when integrating an existing and newly acquired business operating in the same field.

Chicago Closing the Transaction–Section 10 Helen Mantel. Washington. Associate Baker & McKenzie. Associate Baker & McKenzie. Partner Allison Stafford Powell. M&A Editor Baker & McKenzie LLP Section Contributors Discrete Financing Issues–Section 4 Jose Moran. Partner Julia Walk. Chicago Sarbanes-Oxley Act–Section 6 Nathan Dooley. Global Knowledge Officer– Securities Baker & McKenzie LLP Foreign Corrupt Practices Act–Section 6 Carrie DiSanto. Partner Baker & McKenzie. Chicago and Valerie Diamond. Partner Baker & McKenzie. DC Regulatory Framework–Section 7 Regine Corrado. Chicago Trade. Associate Baker & McKenzie. Chicago . Partner Baker & McKenzie. Chicago Preliminary Agreements–Section 5 David Malliband. Chicago Employee Transfers and Benefits–Section 8 David Ellis.Cross-Border Transactions Handbook Contributing Lawyers Contributing Lawyers Editors John Morrow Partner Senior Editor Baker & McKenzie. London Business Process Outsourcing–Section 9 Peter George. Partner Baker & McKenzie. Chicago Post-Closing Actions–Section 11 Olivia Tyrrell. Partner Alexandra Lee. Associate Baker & McKenzie. Chicago Lewis Popoff Knowledge Manager–North America. Partner Baker & McKenzie. Chicago Dispute Resolution–Section 12 Michael Morkin. Partner Baker & McKenzie. Partner Ethan Berghoff. Associate Baker & McKenzie. San Francisco Documenting the Transaction–Section 9 David Chmiel. Export and Antiboycott–Section 6 Janet Kim. Chicago Global Equity Compensation–Section 8 Brian Wydajewski. Associate Baker & McKenzie. Partner Baker & McKenzie.

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...................... 33 4.................. 53 4. 16 BUDGETING FOR THE TRANSACTION.................... Organizational Meeting ................ 2 2..... Financial Assistance............... 39 1.... 55 5......................... General Considerations for Lenders in Cross-Border Financings ....... Privacy and Data Protection Laws ... Scope of the Project .............. Diligence Requests............................. Creating the Budget Template... 12 5....... 51 1....................... Roles and Responsibilities..................... 44 DILIGENCE ............ Extra-Territorial Reach of Laws ........................................................................... 21 3.............. Focus of the Handbook ................. Transaction-Specific Factors............... 59 9. 9 4......... Assembling the Transaction Team ................................................ 3 PROJECT MANAGEMENT .............................................................. 19 1.................................................................................... Confidentiality Agreements ........................................... 34 5................... Security Interests and Subordination Issues..... 57 7.............. 30 3.... 27 1...................... Cross-Border Legal Opinions.. 9 3.......... Closing Cross-Border Financings ... Scope of Review .............. 51 2........... Timely Reporting.............................................. Organization of the Handbook ....... 25 DISCRETE FINANCING ISSUES .. 67 SECTION 2 SECTION 3 SECTION 4 SECTION 5 SECTION 6 ........... 58 8....... 1 1.............. 7 1................... Scope of Diligence...................................................... 40 2................................................................... 27 2............................ Role of Advisors ............... Scope of Advisors’ Roles in the Transaction ........................................... Debt vs......................... Public Record Searches ............................................ Nature of the Report ........... 8 2..... 66 10... Specific Matters for Investigation.................Cross-Border Transactions Handbook Table of Contents TABLE OF CONTENTS SECTION 1 INTRODUCTION... 52 3............................................................................... 19 2.............................. 38 PRELIMINARY AGREEMENTS.............. Letters of Intent ..................................................... 56 6. Organizing Principle............. 37 6.............................................. Role of Review .................................. 24 4............... Equity Financing.............

.129 5..................... 69 1................. 81 7................................................................122 6....................................................... 76 5....... 89 3................. 85 1....................................... Consultations and Notices...................................................... Payroll .................. Competition Analysis............ The Governing Law Debate......................... Time Differences: Escrow Closing ..........117 2... Severance/Termination Indemnities....124 POST-CLOSING ACTIONS ............Cross-Border Transactions Handbook Table of Contents 11..129 4....... Operational Requirements...128 3........... Availability of Key Personnel............................................ 96 9. Local Closings ...... “Gun Jumping” Issues......... 90 4.. 127 1.. Local Business Rules and Reporting Obligations........ Exchange Control Approvals ....... 92 6.... 75 4.................. Automatic Transfer vs...........................................130 SECTION 8 SECTION 9 SECTION 10 SECTION 11 ... Transitional Services .........120 4........103 2............119 3............ SECTION 7 Diligence in the Context of Other Forms of Transactions ................................................................ Licenses.......... 69 2........................... 83 EMPLOYEE TRANSFERS AND BENEFITS ............................127 2....................................................................... Releases and Third-Party Consents..........121 5..........................................112 CLOSING THE TRANSACTION ........... 94 8......... 103 1...... Overview ....... 86 2........ Employee Benefit Plan Issues .....123 7............................. Notaries ............................ Moving Funds ............... Terms and Conditions .......................................... Global Equity Compensation Issues .. Centralized vs..105 3............................................................................................. Permits and Registrations ... 117 1... Director and Officer Changes............................. Funding Issues ................. Foreign Investment Approvals and Notifications..................................... Industry-Specific Regulations .................... Auditor...... Approvals.... 93 7......................... 82 8.100 DOCUMENTING THE TRANSACTION....... Bank Accounts....................... 91 5.... 80 6................. Offer/Acceptance .... Cross-Border Acquisition Agreements .................................................. Listing of Assets ................ 71 3........ Identification of Employees .... Exchange of Competition-Sensitive Information ................................. Business Process Outsourcing ......... 68 REGULATORY FRAMEWORK ....

.................. Litigation vs..................................133 1...................138 5........141 8..............139 6...............................................................143 10.1 BAKER & McKENZIE OFFICES WORLDWIDE....167 LETTER OF INTENT CHECKLIST .142 9....... General Options for Dispute Resolution Clauses ..................................................Cross-Border Transactions Handbook Table of Contents 6....1 APPENDIX 3.......................... Damages....... Costs ..............134 3.........................131 DISPUTE RESOLUTION ....144 12........144 11. Delays ..................................... Enforcement of Judgments and Awards ...................131 Signage and Letterhead.......... Interim Relief ......... Key Initial Questions............................. 7..... 8............................169 BUYER’S INTERNATIONAL HR CHECKLIST FOR NON-US EMPLOYEE TRANSFERS AND BENEFITS.......1 APPENDIX 5.........................145 ACQUISITIONS FLOWCHART.......................................................................................................140 7.131 Ongoing Compliance ................................................... SECTION 12 Fiscal Year and Other Corporate Changes ....163 CONFIDENTIALITY AGREEMENT CHECKLIST..1 APPENDIX 5...............................171 APPENDIX 2........ Arbitration ........2 APPENDIX 8.......................................... Confidentiality...........147 BUDGET TEMPLATE ............................................................................136 4........................................................................................133 2. Multiple Parties...................................................................................175 .................. Discovery...... Choice of Law ...........................................

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(vi) properly identifying and addressing the risks associated with the transaction. acquisitions. companies seeking to generate cash or focus on core businesses may explore dispositions.” or “multijurisdictional” or “international” transactions. (iv) shortening the time frame in which the transaction is completed. new technologies. there will be goals that are common in carrying out all transactions: (i) achieving certainty of execution. dispositions. When we speak in this handbook of “cross-border. Companies pursuing revenue growth. and companies looking to control costs or focus on core business capabilities may explore business process outsourcing. we are referring to Baker & McKenzie 1 . joint ventures and strategic alliances fail. strategic alliances and business process outsourcing. Similar to a transaction within a single jurisdiction. in large part. organization and coordination of the internal transaction team and outside advisors. Successful transaction management is challenging in a strictly domestic context: more than half of acquisitions. and (vii) effectively managing exposure to liabilities. joint ventures. The successful attainment of these goals depends. companies rely on a variety of corporate transactions that are familiar in a strictly domestic context. (iii) reducing the amount of management time absorbed by the process. (ii) maximizing the economic benefit of the transaction. Whatever the transaction structure most appropriate for achieving a company’s business objectives. successful transaction management is even more difficult. alternative production sites or economies of scale may explore mergers and acquisitions. including mergers. companies looking to gain access to new markets or technologies may explore joint ventures or strategic alliances. on the successful planning. In the crossborder context.Cross-Border Transactions Handbook Section 1 – Introduction SECTION 1 INTRODUCTION In looking to realize on the opportunities presented by the expansion of global markets. the choice of which transaction structure to utilize will depend on a company’s overall business strategy. (v) controlling the associated transaction costs.

often as many as 20 to 30. but in some cases much larger (such as 80 or more). For example. such as exchange control restrictions. In an acquisition. quantified. In discussing the project and risk management aspects of cross-border transactions.g.. notarial deeds). an acquisition and a joint venture clearly are differentiated by the extent of the business relationship between the parties required to effect the transaction. this handbook highlights the commonalities of the main transaction structures as they pertain to cross-border transactions. From a practical point of view. Accordingly. the 2 Baker & McKenzie . to name a few. a crossborder transaction is essentially a large-scale. with a general focus on acquisitions. with minimal error. foreign investment law approvals and local formalization requirements (e. The differences between a purely domestic versus cross-border transaction arise on both a substantive and practical level. global undertaking involving many moving variables. a cross-border transaction calls for an understanding of local laws in each relevant jurisdiction to ensure that the structuring and implementation of the transaction is legally valid under local law and consistent with local practice. 1. addressed in an overall negotiation strategy and reflected in the final transaction documents and procedures. the relationship between the parties terminates for most purposes at the close of the transaction. crossborder transactions raise a set of issues that are specific to the international context. discusses various relevant legal issues in a transaction management context and treats these legal issues as risks that should be identified. Focus of the Handbook This handbook focuses on the project management challenge of executing cross-border transactions.Cross-Border Transactions Handbook Section 1 – Introduction transactions involving 2 or more countries. Substantively. While a cross-border transaction will involve most of the complexities inherent in the domestic context. managing a cross-border transaction requires active and experienced coordination to increase the likelihood that the transaction is successfully completed in a cost-efficient and timely manner.

and assessing and paying transfer tax obligations. identifying and managing third party consents. In addition. allocating the risks of the transaction between the parties via representations and warranties and indemnification provisions. purchase price adjustments and disputes that arise with respect to indemnification obligations.1 contains a flow chart of the decisions. in which case the transaction will involve many of the same actions required in a typical acquisition or disposition: conducting “due diligence” on the contributed business. Baker & McKenzie publishes other handbooks. on the other hand. exchange control obligations and pre-merger competition filings. Appendix 2. Accordingly. Each section includes a narrative describing a recommended approach to a major aspect of cross-border transactions. Materials have been included with the goal of being useful both to companies that conduct most transactions through their in-house legal teams and those companies that rely on outside legal advisors to execute their transactions. including those listed in the Editor’s Note under the heading “Related Publications. employee notification requirements. ongoing financial commitments. For example. Joint ventures. depend on an ongoing business relationship that requires a meeting of the minds on the nature of the joint venture business. 2. Nevertheless. a joint venture may require the parties to contribute existing businesses with assets in multiple jurisdictions. Organization of the Handbook This handbook describes and collects best practices in managing crossborder transactions. management of the venture and the rights of the parties to terminate the venture.” that look at individual transactions in greater depth. some valuable know-how and tools for managing crossborder transactions are included as appendices.Cross-Border Transactions Handbook Section 1 – Introduction post-closing relationship is generally limited to managing the mechanics of the short-term transitional arrangements. Please contact Baker & McKenzie if you would like a copy of the firm’s other publications. forming special purpose companies to accept local transfers of assets and liabilities. this handbook does not attempt to provide a detailed discussion of each major transaction structure. Baker & McKenzie 3 . foreign investment approvals.

a better understanding of the cross-border acquisition process can help the in-house team to more effectively manage outside counsel and determine how to allocate its scarce legal resources to the transaction. For a company with a large in-house legal department. Nevertheless. Section 4 (Discrete Financing Issues) discusses the elements that should be considered in financing a cross-border transaction. The next two sections address discrete issues that highlight how common considerations and assumptions in the domestic context should be augmented or modified in the cross-border setting. the negotiation of the deal is often a very good indicator of how the parties will work together going forward. The next two sections of this handbook focus on process. a transaction that takes six months rather than one month to close will be more expensive. this type of business process tool can be useful in defining and standardizing the in-house team’s approach to cross-border acquisitions.Cross-Border Transactions Handbook Section 1 – Introduction information and actions that typically come into play in a cross-border acquisition. Nevertheless. Effective project management is one of several conditions to accurate budget estimates: often. Section 2 (Project Management) focuses on the challenge of assembling and managing an effective transaction team. In the joint venture and strategic alliance context. For a company that relies heavily on outside advisors. The transaction team must identify the risks and assure appropriate control and exit opportunities. including potential regulatory 4 Baker & McKenzie . proper communication and a clear understanding of the risk profile. Section 3 (Budgeting for the Transaction) discusses strategies for ensuring that the internal legal team and external legal advisors are on the same page with respect to the legal fees that will be incurred on the transaction. strategic objectives and main cost variables will help to ensure that surprises are kept to a minimum. In the acquisition and disposition context. effective project management is essential for identifying positive and negative value drivers and informing negotiations. The ability of the internal transaction team to work together effectively will be a key factor in constructive negotiations and potentially will be a key determinant in the success of the joint venture or strategic alliance. which ultimately may be interpreted by a court or arbitration panel. Much of the project management effort will be reflected in the final transaction documents. the project management challenge is more subtle.

This section also addresses the significant issues involved in implementing equity compensation and benefit plans in multiple countries. defining the role and scope of the review and the materiality thresholds is critical. Section 8 (Employee Transfers and Benefits) discuses the major issues with respect to the transfer of employees and benefit plans that arise in cross-border transactions. this exercise can become extremely challenging. the characteristics of debt versus equity financing and the challenges of taking secured interests in the cross-border context. Section 11 (Post-Closing Actions) discusses post-closing operational actions that often fall through the cracks as the transaction team focuses on the next transaction. The final sections discuss the process of documenting and closing a crossborder transaction and the considerations that come into play after the transaction has closed. Lastly. Baker & McKenzie 5 . Section 12 (Dispute Resolution) discusses the considerations for crafting an appropriate and strategically beneficial dispute resolution mechanism. In a multi-jurisdictional context. including agreeing to an unfamiliar governing law and enforceability of preliminary agreements. Section 5 (Preliminary Agreements) discusses the potential pitfalls of entering into preliminary agreements in the crossborder context. a failed transaction. Section 7 (Regulatory Framework) discusses the main regulatory issues that should be addressed in a cross-border transaction.Cross-Border Transactions Handbook Section 1 – Introduction obstacles to common financing structures. ultimately. The next three sections focus on identifying the main risks that need to be managed in a cross-border transaction. Failure to identify key regulatory requirements can lead to delay. Section 6 (Diligence) discusses the challenge of conducting a diligence investigation in a multijurisdictional context. Section 10 (Closing the Transaction) discusses the challenges of closing transactions with differing local requirements and multiple time zones. increased cost or. Section 9 (Documenting the Transaction) discusses how documentation used in a strictly domestic context may need to be modified to properly identify and allocate the risks associated with a cross-border transaction. In a strictly domestic context.

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Language and cultural barriers. The necessity of agreeing on an allocation of the purchase price among assets located in various jurisdictions. (ii) appropriate project and communications plans. Exchange control approvals or consents. which give rise to numerous additional obstacles. Unusual problems arising in the acquisition review (or “due diligence”) investigation of a foreign target. These additional factors may take the form of: x x x x x x x x Investment approvals. Tax clearances. considerations and tasks that are absent in the purely domestic context. The transaction management challenge in the cross-border setting is exacerbated by the multiple and often unfamiliar legal systems and local practices. (iii) efficient access to and management of internal and external know-how.Cross-Border Transactions Handbook Section 2 – Project Management SECTION 2 PROJECT MANAGEMENT The ability of a company to realize its objectives in any major corporate transaction will depend on effective transaction management. The sheer volume of issues and tasks that often arise in the jurisdictions involved in a cross-border transaction elevates the importance of careful organization and planning early on in the transaction in a way not typically encountered in a domestic transaction. or Burdensome or unusual mechanics required to comply with local law or practice relating to the documentation necessary to effect the transaction for local purposes. This is because poor global coordination of the transaction can easily produce inefficiencies and Baker & McKenzie 7 . including: (i) clearly defined roles and responsibilities. and (iv) risk identification and management. Clearances under local or international competition laws.

it is incumbent on the legal team to not just “paper the deal. or assets and liabilities have been defined poorly. the in-house legal team 8 Baker & McKenzie . risks have been misestimated. disposition. the cost and time required to enforce such a mechanism.Cross-Border Transactions Handbook Section 2 – Project Management delays that result in costs to both parties of a much greater magnitude than the already significant costs that might arise from the poor management of a typical domestic transaction. at the end of the day. Appendix 2. The legal structure therefore offers a practical organizing principle for all members of the transaction team. strategic alliance or outsourcing transaction ultimately relates to a legal process or legal document. Organizing Principle A major cross-border transaction such as an acquisition. While this flowchart focuses on the legal aspects and documentation. the deal is captured in a set of transaction documents that are typically the responsibility of the legal team. The overarching requirement for managing a cross-border transaction is thus an understanding of how each aspect of the transaction relates to every other aspect. from the naming of the transaction team to the closing of the transaction and thereafter. while the transaction documents will typically provide a mechanism to claw back a significant portion of the transaction proceeds in the event that issues have not been fully disclosed in the acquisition review process.” but also to ensure that adequate deal management is in place so that the documents retain their client’s benefit of the bargain. it also outlines the fundamental progress of the transaction and serves as a useful project management tool for organizing the entire transaction.1 (Acquisitions Flowchart) illustrates this. can be considerable. 1. Securing adequate deal management in the cross-border setting can be a tall order for the in-house legal team. Furthermore. Therefore. joint venture. Although it may have the ultimate responsibility for documenting the transaction. particularly when multiple jurisdictions are involved. Perhaps even more important. The legal team must therefore ensure that the documents reflect the agreed business arrangements and the level of risk appropriate for their client’s bargaining position.

Cross-Border Transactions Handbook Section 2 – Project Management

may not have the overall responsibility for managing it. In addition, inhouse legal departments often are thinly staffed (often with limited personnel outside corporate headquarters) and oriented to serving internal clients, many of whom have strong opinions about how the transaction should be managed and, as “revenue generators” rather than “cost centers,” are more influential organizationally. As a result, in crossborder transactions the external legal teams often play a critical role in supplementing the internal legal team with strategies and tools to ensure a smooth transaction.

2.

Scope of the Project

As a threshold matter the parties involved must fully understand the scope of the transaction before they can begin to manage it effectively. For example, what is the strategic rationale for the transaction? Is the deal being done to realize economies of scale or to obtain a particular product line or piece of know-how? Do the parties intend to realize significant synergies as a result of the transaction? Are the parties public or private and of what nationality? What internal and external resources will the parties engage for the transaction? Are 80 countries involved or just 2? Is the target subject to significant political, economic or legal risks in the countries where it operates? Does the target conduct manufacturing or other extensive operations in each country where it has a presence, or does it merely operate sales companies in certain countries? Are the parties involved in highly regulated or highly specialized industries? Has the target’s management done a good job running the target’s business? Will the buyer need to obtain financing from a third party to do the deal? Is this a negotiated transaction or is it an auction? The answers to these types of questions will dictate how the project should be managed and the particular areas of expertise that should be brought to bear on it.

3.

Assembling the Transaction Team

Perhaps the most critical element in a successful cross-border transaction is the ability to move the entire process forward evenly and in an organized fashion, with free and complete communication among those charged with responsibility for it. The first step, then, is identifying the persons inside and outside the company who will be charged with
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Cross-Border Transactions Handbook Section 2 – Project Management

effecting the transaction. Depending on the scope of the transaction, the transaction team is likely to include internal members or groups from the legal department, human resources, finance, tax, business development and regulatory departments, as well as outside advisors such as lawyers, investment bankers, strategic consultants, benefits consultants, environmental consultants and accountants. While the exact participants and the timing of their inclusion in the transaction team will depend on the type, size, structure and timing of the transaction and the parties involved, the key players – and their respective roles – typically include the following:

x

Officers/Senior Managers (including General Counsel). The officers and senior managers are often responsible for driving the transaction (e.g., setting the timeline and tone of the process). They are critical to the decision to initiate and proceed with the transaction and often participate in the acquisition review or “due diligence” process. In the disposition context, they also help gather the information that goes into both the information or offering memorandum and data room, are actively involved in management presentations and may serve as a front-line contact for potential buyers. Once the parties enter into negotiations, senior officers and members of the legal department may also be involved in negotiating particular deal terms. Local Management. It is often helpful to involve the local management of the parties in multi-jurisdictional transactions subject to confidentiality constraints as discussed below in subsection 4 (Organizational Meeting). They may assist with the acquisition review process and coordinate with local advisors as to the implementation of the transaction at the local level. In addition, many buyers will want to include key local managers in the list of those to whom “knowledge” is ascribed for purposes of the representations and warranties contained in the transaction documentation, thereby making their involvement prior to the execution of the documents all the more crucial.

x

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x

Directors and Shareholders. In the disposition context, directors and shareholders of the seller who are also part of senior management may be quite involved in the transaction. Other directors and shareholders may also participate if the seller is a small company or privately held or if the target business represents a significant percentage of the seller’s overall enterprise. For example, if the seller is a small, private company, directors and shareholders may be involved in identifying potential buyers. Ultimately, the directors (and possibly the shareholders) will need to approve the transaction. In many jurisdictions, the directors will need to make their decision based on the principle that the transaction is in the best interests of the company and, as such, their involvement and understanding is critical from an early stage. Investment Bankers. Investment bankers usually identify potential transactions and help bring the parties together to consummate the transaction. They often help determine the optimal transaction structure and assist in identifying synergies and with valuations, in addition to providing strategic and other business advice. In the disposition context, they frequently identify appropriate bidders, prepare information memoranda and lead the sales effort. Investment bankers may also be involved in negotiating key deal terms that affect valuation and other financial and strategic aspects of the transaction. Outside Legal Counsel. Given the multiple and often unfamiliar legal systems and local practices at play in crossborder transactions, the role of principal project coordinator often falls upon the legal advisors to the respective parties, although it is not unusual for this role to be assumed (at least in the early stages) by business development personnel in conjunction with the party’s financial advisors, particularly in the auction context. Typically, the responsibilities of outside legal counsel will include: reviewing and/or compiling all relevant documents for the acquisition review process; taking the primary role in drafting the principal transaction documents and ancillary agreements and assisting in negotiating these
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agreements; liaising with specialized counsel, local counsel and financial advisors; counseling on specific legal issues, such as corporate and tax structure, environmental concerns, employment/labor law, employee benefits, intellectual property, real estate, antitrust/competition, compliance, trade and other regulatory matters; and coordinating the overall process so that senior management can continue to meet their day-to-day responsibilities. It is imperative in the cross-border setting that the coordinating lawyer have a global view of the law and a degree of familiarity with the legal systems of the significant jurisdictions involved in the deal. Having seen similar problems on previous transactions and knowing the nature of possible resolutions of these problems is indispensable.

x

Accountants. The accountants’ main role is to review and analyze the financial statements and tax documents, particularly as they relate to certain compliance issues, the structure of the transaction and the valuation of the target. Sometimes, accountants will work in conjunction with financial advisors and legal counsel to determine the optimal tax structure for the transaction. Other Professional Advisors. In a large cross-border transaction is it also fairly common for the buyer to retain other professional advisors to assist with discreet areas of concern. These may include employee benefits, environmental, human resources, insurance and other industry-specific advisors or consultants.

x

4.

Organizational Meeting

All core members of the initial transaction team should be included in an organizational meeting as soon as the basic decision is made to proceed with the transaction. Participation by all core team members in the organizational meeting is the first opportunity to give them the full picture of the intended transaction and to get them to buy into it. The specific objectives for the deal should be explained, including expectations as to timing and value. The role of each participant should be clearly defined and communicated, not just in general terms but in
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and the business and legal teams developing a negotiation strategy designed to allocate those risks in a manner that preserves the value of the transaction. ultimately reporting to that person. with everyone else. all communication Baker & McKenzie 13 . the other internal teams and external consultants should complete a virtual circle. All members subsequently joining the team should receive similar information. Communications Plan The organizational meeting should strongly emphasize the need for clear and complete communication among team members. Therefore. Their participation is also particularly important in analyzing the target business and the likely concerns that may affect the value of the transaction. Managing the information required to document any deal can be challenging. Participants should obviously be given guidelines for preparing for the organizational meeting. Moreover. While not wishing to overwhelm members with irrelevant communications. A second person should be designated as the organizer or the coordinator of everyone else’s efforts. their active participation in the meeting discussions can be very beneficial in getting them to buy into the transaction as a priority. This person would be charged with making sure that the process is moving forward evenly on all fronts. with the business team communicating the proposed valuation of the target business and the associated positive and negative value drivers. the legal team and other outside advisors identifying risks that may affect the value drivers and communicating those risks back to the business team. there should be a presumption that any significant communication would be of interest to and would enhance the performance of other team members. If they do prepare.Cross-Border Transactions Handbook Section 2 – Project Management detail and for each stage of the transaction. communications among the legal team. particularly if the members of the transaction team do not fully appreciate that the legal team’s charge is far broader than identifying and managing the “legal issues” associated with the transaction. Identifying these concerns at the outset (even if they are subsequently refined) is vital in determining how to analyze the transaction’s key value drivers and addressing important issues that arise later in the transaction process. inside and outside the company. One member should be designated as the team leader.

but this attitude leads to miscommunication. including outside advisors and local management (subject to any confidentiality constraints) in each country is an important first step in establishing clear and open lines of communication. However. acquisition reviews. In principle. Web-based collaboration platforms and “deal rooms” are alternative means for collaborating on transactions. email collaboration has become increasingly challenging given the high volume of email traffic and substantial number of documents involved in the transaction setting. including cross-border transactions. including on-line data rooms. Even among US employees. This message may be particularly difficult to convey to non-US employees who may not view full disclosure as a basic element of a transaction. what 14 Baker & McKenzie . However. Email is far and away the predominant form of collaboration on these types of transactions. web-based transaction management systems can be used for most aspects of a transaction. not to mention the sheer number of team members that may be involved in various locations around the globe. are executed. The preparation and distribution of a working group list reflecting the names. All members of the transaction team are familiar with email.Cross-Border Transactions Handbook Section 2 – Project Management should be proactive – every effort should be made to provide the recipient of a communication with all of the information that the sender knows to be relevant. It is a natural tendency to want to respond only to the question asked. technological advances have created opportunities to improve communication and deal management and these advances have changed fundamentally the way in which all transactions. contractual negotiations and general transaction management. and can even put the entire transaction in jeopardy. in considering whether to utilize a web-based collaboration platform. it is necessary to consider how difficult the platform is to set up and use. there is a natural tendency to say only what appears to be absolutely necessary. This communications challenge is exacerbated in the cross-border setting by the differing legal and cultural frameworks that come to bear on the transaction. not only among the team members but with the counterpart to the transaction. In addition. addresses and contact information of each transaction team member. and communication is almost instantaneous.

each party should ensure that adequate controls are in place to protect against inadvertent disclosure of the existence of the proposed transaction or the other party’s confidential information. The sharing between the parties of competitively sensitive information may also be subject to antitrust or competition rules prohibiting “gun jumping. Timeline Another important element in ensuring that the transaction proceeds efficiently is communicating the intended timeframe to the transaction team. Baker & McKenzie 15 . There may also be a desire by a prospective buyer. as well as the seller. Thus. it is imperative that clear instructions be provided at the outset to the entire transaction team as to the sensitive nature of the transaction and the limits on disclosure. Parties typically enter into confidentiality agreements for this purpose that will limit access to the information concerning the transaction only to those people who “need to know” it in connection with the deal. A timetable distributed to all team members at the outset of the transaction serves not only as an organizational tool. Confidentiality While open communication is essential for the smooth functioning of the transaction team. it will be possible for the project manager to coordinate individual efforts and maintain the overall pace of the project. Confidentiality agreements and “gun jumping” issues are discussed in greater detail in Section 5.” When the internal and external transaction teams are spread throughout many foreign jurisdictions. respectively.Cross-Border Transactions Handbook Section 2 – Project Management the security features are that will ensure confidentiality of information and who is responsible for managing the platform. it is essential that confidential transactions remain confidential.3 (Regulatory Framework–“Gun Jumping” Issues).1 (Preliminary Agreements–Confidentiality Agreements) and Section 7. The project manager must see to it that each participant meets deadlines and that information is communicated expeditiously to all relevant members of the team. If instructions are sufficiently clear and communication channels are established. to keep the proposed transaction confidential within their respective organizations until definitive documentation is signed. but puts pressure on each member to perform in a timely manner.

each member should be given a clear concept of what he or she is to accomplish and when he or she is expected to accomplish it.Cross-Border Transactions Handbook Section 2 – Project Management 5. Similarly. For example. Accordingly. it is also critical to establish the respective responsibilities of each team member with respect to each phase of the transaction. Since many areas of the transaction overlap. 16 Baker & McKenzie . it is important to clarify at an early stage who will have decision-making authority initially and from time to time during the transaction as new issues arise or assume greater significance. Investing time at the outset to establish fundamental parameters for the roles and responsibilities of the members of the transaction team will inevitably reduce the likelihood of miscommunication. For example. the structure of any acquisition financing may involve input from financial advisors. or whether the parties’ internal management or external employee benefits consultants will have sole responsibility for those matters. the lawyers need to know whether they will be charged with the employee benefits analysis. tax specialists and foreign law specialists. duplication of efforts and significant matters being overlooked or belatedly and hastily addressed. From the individual’s point of view. Many cross-border transaction are hamstrung by the natural tendency of each person to view the entire transaction solely from the vantage point of his or her function or particular jurisdiction. error and other significant inefficiencies. during the diligence phase. local counsel in a particular country may insist that specific provisions be included in the transaction agreement to address a jurisdiction-specific risk without realizing that the particular risk is relatively trivial in the scope of the global transaction. Particularly in the cross-border setting with the numerous legal frameworks involved. the responsibilities inherent in these roles require coordination and clear and continuous communication among team members in order to avoid gaps in addressing new issues as they arise during the course of the transaction. The scope of the project as a whole should also be clearly defined for all participants. Roles and Responsibilities The organizational meeting also provides a good opportunity to convey the responsibilities for the project in terms of each team member as well as the transaction as a whole. Key goals are to prevent runaway services.

in particular. the various roles of the individual participants on the project team. should be clearly explained. is the transaction budget. In the next section. Local contact information should be exchanged among the client’s local advisors where and when appropriate. including the scope and applicable materiality thresholds. In particular. as should the rules regarding confidentiality and other sensitive issues. it is imperative for the principal legal advisors to prepare clear instructions to local legal advisors describing the transaction. and is also critical for managing costs. * * * Another key factor that influences the project management endeavor and. Procedures regarding the acquisition review process. timeline and relative roles and responsibilities of all of the local counsel. This facilitates project management. clear instructions should be provided to local legal counsel as to their respective roles in the cross-border transaction.Cross-Border Transactions Handbook Section 2 – Project Management Managing Local Legal Counsel Likewise. Baker & McKenzie 17 . we discuss the key issues to consider in establishing a budget for the transaction. There should be a clear feedback loop for any questions or new information from the local legal advisors to the coordinating office.

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Cross-Border Transactions Handbook Section 3 – Budgeting for the Transaction

SECTION 3 BUDGETING FOR THE TRANSACTION
While effective project management is critical to keeping the crossborder project under control, a thoughtful budget established at the outset of the transaction also plays a vital role in controlling transaction costs. This section discusses the key variables that effect the budget in the cross-border setting: the scope of diligence, various transaction-specific factors, and the scope of the advisors’ roles in the transaction. This section concludes with a discussion of a template that serves as a useful tool for setting the budget in a cross-border transaction.

1.

Scope of Diligence

The diligence effort is often a significant component of the buyer’s budget (and the seller’s as well, to the extent of any pre-transaction self-diligence and data room assembly) and it is often at the budgeting phase where the parties agree on the scope of the diligence effort. The key variables that impact the cost of diligence include the party’s risk profile, the transaction timetable and the diligence logistics, each of which is discussed below.
Risk Profile

One of the key budget drivers in any transaction is the party’s risk profile. A party’s tolerance for risk will affect how thoroughly it wants to investigate, negotiate and document the issues that may arise. The more investigation, negotiation and documentation involved in the transaction, the more the transaction will cost. Ultimately, the buyer will need to put a value on the issues uncovered during its diligence and develop a negotiating strategy to use those issues to its advantage in order to complete the transaction with an acceptable level of risk. A buyer who is interested in acquiring a large portfolio of companies knowing that many will fail, but hoping for one or two “home runs” might have a fairly high tolerance for risk. In that situation, the buyer accepts that many of its investments will fail and might perceive that
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Cross-Border Transactions Handbook Section 3 – Budgeting for the Transaction

anything but a very cursory diligence effort is not cost-justified. On the other hand, a buyer might be presented with a transformational opportunity that offers a chance to access a significant new market, acquire break-through technology or, in general, revolutionize its business. The price tag for this type of deal is often quite high and, as such, there is generally a higher risk of failure. Accordingly, this buyer would be well-advised to conduct extensive diligence. Although these examples represent two extremes, the buyer’s risk tolerance nevertheless will greatly impact the amount of resources the buyer is willing to commit to uncovering potential issues.
Transaction Timetable

The time available for completion of the transaction will also significantly impact the scope of the review that can be undertaken. Sometimes the needs of the parties to get the deal done quickly limits the review. Other times, the transaction setting influences the timetable for the review. In the auction setting, for example, the seller often restricts the amount of time potential bidders are allowed to spend in the data room. However, the initial review cycle may be the buyer’s best opportunity to conduct a detailed review of the target business, which may lead the buyer to expend considerable resources to complete its review in a tight time frame. Section 6.3 (Diligence–Scope of Review) discusses in greater detail the tension at play in the auction setting with respect to the buyer’s diligence exercise.
Logistics of Diligence

The logistics of the diligence itself often impacts the budget. For example, the existence of a well-organized physical or electronic data room appropriately populated with material documents and information can result in a less-costly diligence exercise from the reviewing party’s perspective. Similarly, in a large multi-jurisdictional transaction it is often less costly to conduct a review if duplicate data rooms are maintained on a regional basis. The cost to the disclosing party of photocopying, assembling and staffing duplicate physical data rooms is often outweighed by the cost-savings to the reviewing party if it is able to send local personnel and advisors to local data rooms. Where appropriate, the reviewing party would be wise to suggest such an
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Cross-Border Transactions Handbook Section 3 – Budgeting for the Transaction

approach at the outset. Alternatively, an electronic data room will facilitate worldwide access to the data room contents by appropriate personnel with the requisite language and other skills (e.g., legal, accounting and tax) necessary for the review without attendant travel costs.

2.

Transaction-Specific Factors

Several transaction-specific factors also impact the budget, including the transaction structure, the nature of the target’s business, and the extent of the representations and warranties and post-closing indemnification that the parties expect. These factors are discussed below.
Transaction Structure

Tax planning often drives the transaction structure, but the identification of whether assets or shares or a mixture of both assets and shares are being acquired is a key first step in setting the budget. For example, in an asset purchase as opposed to a share purchase, the parties are generally able to specify the liabilities that will be assumed by the buyer, at least between the buyer and seller. This might limit the scope of potential liabilities that need to be investigated, but the parties often engage in considerable negotiation over the assumption and retention of specific liabilities. Further, the transfer of ownership of individual assets and contractual rights often requires numerous third-party (including governmental) consents and notices. Determining whether third-party or governmental consents are necessary often requires considerable diligence and could lead to extensive negotiations with the parties from whom consent must be obtained. Finally, in many jurisdictions the sale of a business by way of an asset transfer often gives rise to a host of employee transfer and benefits issues, as discussed in greater detail in Section 8 (Employee Transfers and Benefits). Accordingly, asset transactions are often costlier to implement than share transactions. Outsourcing transactions and joint ventures often involve asset transfers and, as such, generally present many of the same issues as in a traditional asset acquisition (e.g., negotiating and obtaining required consents and assessing the various liabilities that are to be assumed by the buyer). In an outsourcing or joint venture transaction, however, the continuing
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Cross-Border Transactions Handbook Section 3 – Budgeting for the Transaction

business relationship generally means that the parties’ interests are aligned to a much greater extent than in the acquisition context. Generally, parties to these types of transactions are more forthcoming at an earlier stage in the process with respect to diligence matters, which often means that the cost of diligence is easier to estimate. In the auction setting, by contrast, the seller is often not very cooperative until the winning bidder has emerged. In addition to the basic form of the transaction, the need for financing to pay for the transaction should also be considered when setting the budget. The buyer usually understands its basic financing needs at the outset of the transaction. When raising equity to finance a cross-border transaction, particular consideration should be given to compliance with local securities laws, including any local registration requirements. In the context of a debt financing, particular consideration should also be give to the local legal requirements with respect to the mechanics for granting security interests over shares or assets in the relevant jurisdictions. These and other crossborder financing issues are discussed in greater detail in Section 4 (Discrete Financing Issues).
Nature of the Target’s Business

The nature of the target’s business also plays a key role in formulating the budget. If the target operates in a highly regulated industry, such as banking, health care or energy, the transaction is likely to present specialized legal issues and may give rise to various notification and consent requirements pursuant to relevant industry-specific regulations. A target operating in a high-tech industry, or one which is dependent upon a few key patents or other intellectual property rights, will command specialized input in order to verify the transaction value drivers. Similarly, the number and nature of the target’s employees and employee benefit plans, and the presence of any labor unions or other employee representatives (e.g., works councils), will present numerous issues in the closing and post-closing integration context that will require specialized input. On a somewhat more mundane level, a manufacturing entity typically commands more attention than a consulting or sales business given the potentially greater exposure to environmental, real property and various
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Certainly. as well as the nature of the activities it conducts at its various sites. On the other hand. a transaction involving 20 to 40 countries will present many more issues and. The number of jurisdictions in which the target operates also significantly impacts the transaction costs. whether the target owns or leases its real property. An acquirer of a public company can expect very few representations and warranties. an investigation may be the only means of uncovering problems which would not be covered by negotiated representations and warranties but which nevertheless may involve substantial amounts.Cross-Border Transactions Handbook Section 3 – Budgeting for the Transaction operational risks. On the other hand. because matters which are not material to the business as a whole are often excluded from warranty protection. The same is generally true (with some variations on survival and recourse) for acquirers of targets from financial sellers such as private equity funds who require certainty as to the transaction consideration in light of required distributions to limited partners. title investigation and environmental testing may be advisable. for example. can also significantly impact the budget. In some large transactions. surveys. the operations in no single foreign country will be viewed as being material to the overall transaction. Nevertheless. along with little or no post-closing recourse or indemnification. there is a premium in those types of transactions on conducting a relatively thorough review during the diligence phase so that Baker & McKenzie 23 . a detailed review of the operations in that country may not be warranted. hence. Likewise. where the target leases its administrative and sales offices in each jurisdiction the investigation might focus more on reviewing the lease terms. This fact may weigh against conducting an investigation in any of these jurisdictions. As a result. Extent of Representations and Warranties and Post-Closing Indemnification Accordingly. where the value allocated to the target’s operations in a particular country represents only a small fraction of the total transaction value. a greater diligence and project management challenge than will a transaction involving just three countries. a significant factor which should be considered when establishing the budget is the extent of the representations and warranties and post-closing indemnification that the buyer can expect from the seller. If the target owns manufacturing or assembly facilities.

Identifying and obtaining governmental and third-party approvals and consents (e. which is usually covered as a separate budget item).g. Scope of Advisors’ Roles in the Transaction The extent to which outside advisors will be relied upon throughout the transaction can significantly impact the budget. foreign investment control.Cross-Border Transactions Handbook Section 3 – Budgeting for the Transaction the buyer can seek appropriate protection. exchange control. Financing of the transaction (e. including the following: x x x x Structuring (in particular tax advice. if the seller consists of individuals or an entity that will distribute the sales proceeds and be wound up after the transaction. with respect to credit agreements. Hence. antitrust/competition approvals. thorough diligence becomes increasingly crucial. Diligence (e.. it is critical to establishing an accurate budget (let alone for purposes of efficient project management) to clarify the respective roles and expectations of the parties and their internal resources and advisors with respect to the key elements of the transaction. Even if the buyer expects to receive extensive representations and warranties and post-closing indemnification coverage. Baker & McKenzie x x 24 ... As in domestic transactions. often in the form of a negotiated purchase price reduction.g. security interests and capital raising): Transaction initiating agreements (e. confidentiality agreement.g. Where the escrow is limited or not available at all.. this issue can be mitigated through the use of an escrow. the costs of enforcing the indemnification might not be justified in light of the difficulties in actually collecting an award. however. Formation of acquisition vehicles or other pre-closing corporate reorganization.g. 3. bid documents and letter of intent). industryspecific regulation and contractual restrictions). with respect to the scope of the review and the nature of the diligence report).

Preparing this type of template generally requires at least a cursory review of the data room index and materials in order to determine the comprehensiveness of the seller’s initial level of disclosure and to identify key areas for review. where possible. by specific areas of law. employee benefits. Specific areas of law in respect of which advice may be sought (e. Closing (both at the master and local levels). the scope of the diligence. employment. Baker & McKenzie 25 . employment agreements and ancillary commercial and transitional agreements.Cross-Border Transactions Handbook Section 3 – Budgeting for the Transaction x Drafting and negotiating the principal transaction agreements (e. real estate. litigation. corporate.. master agreement. local transfer agreements. Since the diligence phase is where most of the initial effort is expended. x x x x x 4. insurance. banking and finance. trade and other regulatory and industry-specific compliance matters). that information should be factored into the budget. intellectual property. customs. environmental. tax.g. privacy.g. Legal opinions (whether in connection with the acquisition financing or otherwise). Creating the Budget Template Once the nature of the engagement. Post-closing integration (both at the master and local levels.1 contains a sample budget template in this regard. securities. but it can be tailored for most types of transactions.. service and license agreements). the various transaction-specific factors and the roles of the respective advisors have been assessed and established. antitrust/competition. Appendix 3. The template is designed for use in connection with the first phase of a buy-side engagement in the auction setting. including supply. it is sometimes helpful in multi-jurisdictional transactions to prepare a budget template that breaks out the components of the budget on a jurisdiction-by-jurisdiction basis and. labor. and Project management. which is also usually covered as a separate budget item).

However. sells and services its products through agents or distributors. 26 Baker & McKenzie . A separate category for other jurisdictions might be included as well where. while the budget is being determined) the parties should consider the mechanics of financing the potential transaction. * * * Once the budget issues are addressed (and in many cases. Primary jurisdictions are those that are identified as being most material to the target business and are generally where the review is focused. The level of review conducted in secondary jurisdictions is often comparable to that conducted in the primary jurisdictions. it may also be helpful to categorize the target jurisdictions as primary and secondary. In the next section. The diligence process in cross-border transactions is discussed in greater detail in Section 6 (Diligence).e. based on the desired level of review in light of the party’s risk profile and the nature of the target’s operations. the review in secondary jurisdictions often consumes less resources due to the more limited nature of the operations in these jurisdictions (i. the information memorandum merely indicates that the target markets. The location of material research and development centers may be of particular importance and also require special attention. essentially where only sales and service facilities are located). for example.Cross-Border Transactions Handbook Section 3 – Budgeting for the Transaction As the template indicates. we discuss some of the key elements that should be considered in financing a cross-border transaction. The review in these other jurisdictions usually consumes fewer resources and sometimes does not involve the direct engagement of local advisors unless the initial review of the available information warrants their involvement..

Debt financing can be either short-term (i. however. Debt vs. obtaining appropriate financing for the deal is often a crucial element of transaction planning. This section discusses some of the key elements that should be considered in financing a cross-border transaction. capital formation is increasingly viewed and accomplished on a worldwide basis.e. legal opinions and closing issues.e. subsidiaries and possibly other affiliates are likely to be required under standard loan documentation. guarantees from its shareholders. Baker & McKenzie 27 .. When the borrower itself is insufficiently credit-worthy to support the entire credit extended. full repayment due in less than one year) or long-term (i. It is not surprising that within this environment. Unless the parties have the requisite cash on hand. enter new markets or acquire new production facilities. financial assistance concerns. obtain new technologies. including the decision to pursue debt versus equity financing. purely local banks or credit markets are unable to satisfy all capital requirements of companies with multinational interests or aspirations. the lender does not gain an ownership interest in the business of the buyer or the target and generally the obligations of the borrower are limited to repaying the loan and complying with the covenants set forth in the loan documentation. Equity Financing Efficient access to capital is a critical impetus for many transactions. In many cases.. the key legal issues that confront the lender (the costs of which are often borne by the borrower). security and subordination issues. usually with interest that is deductible for tax purposes. While from the buyer’s perspective the transaction itself is generally intended to add or create value. 1.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues SECTION 4 DISCRETE FINANCING ISSUES Acquisitions and other strategic transactions are often driven by the desire to leverage economies of scale. equity or some type of hybrid. Debt Financing Debt financing entails borrowing funds that are to be repaid over a specific period of time. repayment due over more than one year). Typically. the traditional financing source for a transaction is debt.

If the financing is intended to be obtained through a public offering. This is generally a hybrid form of capital as it is often structured as subordinated debt with an equity component such as warrants. including dividend rights. until the project or asset has reached commercial operation) or in perpetuity. liquidation preferences and redemption features. Further. Further. Mezzanine Financing Another financing development which has received considerable attention has been the increasing use of mezzanine financing. Mezzanine financing thus fills a 28 Baker & McKenzie .Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues Equity Financing Equity financing requires an exchange of funds for a share of business ownership. In its simplest form. dividends and other distributions on equity generally are not deductible for tax purposes. this can be a very time consuming and costly process in any jurisdiction. One of the key drawbacks to equity financing is the dilution of outstanding ownership interests and the possible loss of control that may result from sharing ownership with additional investors.. These types of investments often take the form of quasi-equity and normally include convertible debentures. a warrant is often issued together with a bond or preferred stock and entitles the holder to buy a proportionate amount of equity in the project company at a specified price. without having to repay a specific amount of money at any particular time. usually higher than the market price at the time of issuance. It is not uncommon for development banks that finance large energy and/or heavy infrastructure cross-border projects to invest in the project companies that are developing or managing the particular project or asset. equity financing generally allows the borrower or acquirer to obtain funds without incurring direct indebtedness. That said. subordinated loans and warrants. in other words. the issuer could be obligated to grant certain “preferred” rights to the equity holders.e. Equity financing also requires compliance with the securities laws and regulations of the jurisdictions where the equity is to be issued. equity financing comes at a considerable cost as the issuer will need to generate a sufficient return in order to preserve access to capital markets. for a set period of time (i. Generally.

the proceeds from second liens were used to pay off maturing debt. for example in certain forms of project finance. Leverage Ratios Debt and equity financing provide different avenues for raising funds. In the venture capital arena. On the other hand. Second lien financings were originally considered as provisional or “rescue” capital and. traditionally. as corporations and lenders have grown more at ease with second liens. and the borrower typically desires to maintain a commercially acceptable ratio between its debt and equity levels. This type of financing generally has been associated with corporate restructurings and in connection with leveraged buyouts.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues gap between senior secured debt and equity in a company’s capital structure. If the borrower incurs too much debt. Also referred to as “tranche B” or junior secured debt. mezzanine financing is often utilized between early round financings and a liquidity event such as an initial public offering. where the actual project involved generates a particular future flow of cash. an unsafe investment. However. they are being used more often and in a broader range of applications including leveraged buyouts. ultimately. Lenders commonly consider Baker & McKenzie 29 . insufficient equity may suggest that the shareholders are not committed to the business of the borrower. Second Lien Financings Second lien financings have also become quite popular in the United States. but it has other applications. its business may be considered overextended. Second lien financings are now frequently considered as an alternative to traditional mezzanine and equity financing when structuring a leveraged deal. From the lender’s point of view. reduce bank debt or provide incremental liquidity. acquisition or re-financing. a second lien financing often works in tandem with an asset-based loan in which second lien term loans and second lien bonds are secured by a junior lien on a pool of collateral that also secures first priority debt. Generally. risky and. excessive debt financing may impair the borrower’s credit rating and its ability to raise more funds in the future. whether for a middle-market private company or a larger public company. the debt-to-equity ratio measures the amount of available assets or “cushion” accessible for repayment of a debt in the case of a potential default.

g.g. These rules are of particular importance when shareholder or affiliate debt is intended as a financing source (e. 2. Since dividends and other distributions on equity generally are not tax deductible.. a lender considering making a cross-border loan to either the buyer or the acquisition vehicle (e. Prior to issuing any sort of commitment letter to the borrower. in connection with a leveraged buyout). While these rules generally apply only to related party debt. Thin Capitalization Rules While general leverage ratios are often scrutinized to assess a company’s financial viability.. but interest payments on debt generally are tax deductible. an acquisition loan is not considerably different from any other secured corporate credit in that the senior lenders typically do not share in the upside from successful operations following the closing of the transaction.g. General Considerations for Lenders in CrossBorder Financings Commercial banks and other financial institutions generally provide the greater part of the acquisition debt.. As a result. they may also apply to third party debt (e. formal thin capitalization or “thin cap” rules exist in many jurisdictions throughout the world that limit the interest expense deduction for loans from related parties once certain debt levels are reached. for example. a special purpose vehicle organized by the investors to purchase the stock or assets in question) will typically need to address the following issues: 30 Baker & McKenzie . provides for a 3-to-1 debt-toequity ratio. bank debt) in certain situations. creditworthy style. above which interest will not be tax deductible. From a senior lender’s perspective.5-to-1 ratio. senior lenders are unwilling to endure any unusual risk associated with the transaction per se. The current German thin cap rule applies a 1. thin cap rules serve to limit the parties’ ability to use debt to shift tax charges from the jurisdiction where the investment is made to the jurisdiction of the investor. The thin cap rule in Mexico (enacted in January 2005).Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues the debt-to-equity ratio in assessing whether the company is being operated in a reasonable.

Further. such as mandatory deposit requirements with the central bank of the jurisdiction where the borrower is located. lenders in the cross-border context obtain protections in the loan documents from liability for any transaction-related taxes. Licensing Requirements and Other Approvals If the lender is not licensed to do business in the jurisdiction where the borrower is located. such as stamp taxes. Lenders also normally include in the loan documentation a “gross-up” provision to protect themselves against foreign withholding taxes on interest payments made by foreign borrowers. The lender will also need to take into consideration any licensing or required approvals that any officers of the lender may need to obtain if on an ongoing and systematic basis they visit jurisdictions to originate or structure new loans where the lender does not have a permanent presence. accordingly. The receipt also provides proof of payment so that the lender can claim a tax credit. foreign borrowers often must provide lenders with a tax receipt so the lenders will have evidence of payment to ensure that the lenders will not be held secondarily liable for the tax. income or otherwise) in that jurisdiction. Generally.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues Tax Registration. if available. whether the lender needs to obtain any licenses or agency authorizations in the borrower’s jurisdiction.g. the lender will need to analyze whether the extension of financing from abroad would be deemed by the laws of the jurisdiction of the borrower as doing business in that jurisdiction and. registration and/or reporting requirements Any lender providing financing in a foreign jurisdiction will typically need to ensure that the borrower will be able repay the lender in the same currency that the loan was denominated and that the funds advanced to the borrower do not need to be converted into its equal in the currency Baker & McKenzie 31 . (ii) whether the jurisdiction where the borrower is located will impose withholding tax on the amount of interest to be paid in connection with the financing and (iii) whether the lender has to make any other payments or deposits.. Interest Withholdings and Other Payments A lender of a cross-border loan will typically need to determine (i) whether extending financing to a borrower incorporated in another jurisdiction will subject the lender to any tax (e. Exchange controls. franchise.

directly or indirectly. in the United States and the United Kingdom. to the refusal to grant a loan after originally promising to do so. Generally. the lender could be required to compensate the borrower for any damages suffered as a result of the lender’s omissions or actions. lenders in cross-border financings typically obtain protections against exchange risks by adopting a “judgment clause” in the underlying loan documentation. in the United States a lender could be held liable for damages relating. Likewise. the Federal Reserve Board has issued regulations (known as Regulation U) that prohibit a lender from extending credit in excess of 50% of the value of collateral consisting generally of certain publicly traded securities directly or indirectly securing the loan (commonly referred to as “margin stock”) or extending credit for the purpose of buying or carrying margin stock which is secured directly or indirectly by such stock in an amount that exceeds 50% the value of the margin stock securing the loan. 32 Baker & McKenzie . if the lender fails to renew a loan or line of credit without apparent cause. with the equivalency to be determined at the time the lender actually receives payment. A related regulation (known as Regulation X) prohibits borrowers from borrowing outside the United States to circumvent Regulation U. In addition. Lender Liability Particularly at the origination and structuring phase and prior to the issuance of any commitment letter or mandate letter with respect to the financing. financing the purchase or carrying of the stock of a private company would not be subject to Regulation U or X. Margin Regulations In the United States. For example. the lender will need to understand whether under the laws of the jurisdiction of the borrower the lender could be held legally accountable for a borrower’s financial losses due to various actions undertaken by the lender.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues of the jurisdiction where the borrower is located. or if it improperly forecloses on a loan without adequate notice to the borrower. This type of clause provides that if a judgment is obtained by the lender against the borrower in a foreign country the judgment must nevertheless be satisfied in the currency called for in the loan documents or its readily transferable equivalent in another currency.

For this purpose. The corporate codes and regulations of many jurisdictions limit a company’s ability to create any security or provide any type of financial assistance in connection with the acquisition of its shares or those of its holding company. for example. for example. the title and voting rights transfer to the borrower. “Net assets” in this context is generally defined as an excess of assets over liabilities. as security for the buyer’s financing for the transaction. the borrower agrees to return the loaned securities. secure the loan with collateral of equal or greater value than the loaned securities. pay any user fees (implicit or explicit) and remit to the lender any dividends. Under the whitewash procedure. based on current book value. all amounts reasonably necessary to provide for liabilities or losses which are either likely to be incurred or certain to be incurred. but uncertain as to time or amount. Sections 155 to 158 of the Companies Act 1985 allow a private company to provide financial assistance in connection with the acquisition of its shares or those of its holding company (provided the holding company is itself a private company and there is no intermediate public company) only if the so-called “whitewash procedure” is followed.” Financial assistance could arise. an English private company must have net assets and the financial assistance must not have the effect of reducing those net assets or.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues Although these regulations are specific to the United States. who can sell or re-lend the borrowed securities during the life of the loan. In these types of transactions. or the target company gives a guarantee. In England. the reduction must be covered by distributable profits. Financial Assistance Another issue that should be given considerable attention in a crossborder share transaction when determining the appropriate financing structure is whether any applicable laws prohibit or restrict the seller from financing the acquisition of its shares – a practice commonly referred to as “financial assistance. if it does. In return. 3. coupon interest or other distributions that occur during the time the securities are on loan. when the shares of the target company are pledged. similar requirements apply around the world in the context of securities lending when an owner of certain securities temporarily transfers those securities to another investor or financial intermediary. must be included in the calculation of Baker & McKenzie 33 .

particularly based on the nature and amount of the assets and operations involved. creditors may look to fraudulent conveyance laws to avoid the transfer that gave rise to the security interest. if the target fails to pay its debts after the consummation of the purchase of its shares secured by its assets. the risk of failure is borne not only by the target itself. The costs and time spent in complying with this process will vary significantly from company to company. the director’s opinion must be supported by an auditor’s report that the director’s opinion is not unreasonable in all the circumstances.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues liabilities. There is an exception to the whitewash procedure in the instance where the company’s principal purpose in giving the financial assistance is not the acquisition of the relevant shares but is only “an incidental part of some larger purpose” and the financial assistance is given in good faith in the interests of the company. Security Interests Usually. Security Interests and Subordination Issues As is typically the case in domestic transactions. When the target defaults on the loan. 4. Further. but also by its unsecured creditors who have lost the protection of recourse to unencumbered assets. a transaction in which the purchase of shares in the target corporation is financed by the target itself or is secured by the target’s assets is generally permissible. the directors of the company must make a statutory declaration (which must be publicly filed) containing the particulars of the financial assistance to be provided and stating that in their opinion the company will continue to be able to pay its debts during the next 12 months. by contrast. Creating and perfecting security interests and granting credit support in financing cross-border transactions deserves devoted attention by local legal counsel. However. In addition. all security documents covering assets located in the jurisdiction where the borrower is located must be governed by the law of that jurisdiction in order for the security interest to be valid and enforceable. This exception is very rarely relied upon. lenders providing financing in connection with cross-border transactions seek to reduce their risk by requiring that the borrower provide security interests and/or other forms of credit support. 34 Baker & McKenzie . In the United States.

judicial foreclosure would be required to legally effect repossession or attachment over the collateral. this approach simplifies the process of obtaining security in the account where the monies are ultimately paid. including Spain. France and Italy. the lender would also typically impose a covenant requiring the borrower to cause its customers to make all payments to the off-shore collection account in hard currencies for whatever goods or services they purchase from the borrower or its affiliates. than in civil law jurisdictions such as in Continental Europe or Latin America. do not have central filing systems for publicly registering security interests over certain types of collateral. Some jurisdictions. such Baker & McKenzie 35 . liens over all assets of the borrower.g. In that case... including both real and personal property) are generally less intricate to create and perfect in common law jurisdictions. including self-repossession mechanisms to enforce the security interest created in its favor. On the other hand. Generally. it is important to note that security interests over personal property and floating liens or blanket liens (i.e. self-help remedies for foreclosing on security interests are prohibited. such as the United States. the collection account would be subject to an account control agreement in favor of the lender. In civil law jurisdictions (e. While the lender would still need to create and perfect security interests over the underlying accounts receivable in each of the jurisdictions where the obligors are located. Continental European jurisdictions) for example. which is often a lengthy and costly process.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues Cross-border security packages can thus be cumbersome to implement where the borrower’s assets are scattered in several jurisdictions in addition to its home jurisdiction. where the security documents often need to be very specific and often need to be amended every time the assets that comprise the collateral have been replaced or modified. Additionally. it may be more beneficial for a lender to create a security interest over assets of the borrower located outside of the lender’s home jurisdiction especially if that other jurisdiction provides a more efficient and pro-creditor environment. In this type of arrangement. One mechanism lenders employ in cross-border transactions to address the difficulties in obtaining security interests in the borrower’s accounts receivable across multiple jurisdictions is to require the borrower to establish an off-shore collection account and to grant a security interest in that collection account to the lender as security for the loans.

The subordination of mezzanine or junior debt generally can be achieved either structurally or contractually. The senior lenders thus effectively subordinate the junior debt by ensuring that the senior lenders. in both second lien term loans and second lien bond transactions the intercreditor agreement will prohibit the second 36 Baker & McKenzie . Structural subordination refers to the de facto subordination of a lender’s claim against a borrower when the borrower’s principal assets are held and operations conducted at a subsidiary level. as well as any formal notice to the borrower’s customers or other parties. Even prior to preparing a term sheet. duties or taxes such as stamp duties. as creditors of the operating company. With the “junior” debt incurred at the holding company level.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues as accounts receivable. will be repaid before any distributions up to the holding company can be made. and therefore it is almost impossible to confirm whether any particular accounts of a borrower have previously been made subject to a security interest in favor of another party. Subordination Issues Another general way lenders attempt to reduce their risk in a financing transaction apart from obtaining collateral is to require that the loans of other creditors be subordinate to those of the senior lenders. To this end. a lender in a cross-border finance transaction should thus obtain certain assurances related to the feasibility of obtaining a valid security package in the jurisdictions where the borrower and its assets are located. (ii) whether the relevant security agreements need to be filed with a commercial or company registry to become valid and what fees apply to those filings and (iii) whether the security agreements will require the payment of any other fees. the junior lender’s claim will be limited to the holding company’s equity interest in the operating subsidiary. Contractual subordination is generally accomplished through the use of subordination provisions housed in intercreditor or subordination agreements entered into among the senior and subordinated lenders and the debtor. the lender’s preliminary diligence will entail determining (i) whether the perfection of a first priority security interest requires a notarized public deed or any legalized or consularized document. For example.

(ii) challenging any exercise of remedies against the collateral by the first lien lenders with respect to their first liens and (iii) challenging the enforceability or the priority of the first liens on the collateral. (iv) the applicability of stamp duties. the loan agreement. In many European jurisdictions creating a valid security interest over a particular asset requires possession by the secured party and. the laws of the jurisdictions of the lenders’ incorporation. the promissory notes. At a minimum. local counsel should be given sufficient advance notice as to the Baker & McKenzie 37 . The financing of a cross-border transaction often implicates the laws of several jurisdictions. the laws governing the financing documentation and the laws of the jurisdictions where any collateral is situated.g. Accordingly. enforceability and perfection of the security. Cross-Border Legal Opinions Lenders in cross-border transactions typically require formal legal opinions from their own counsel and from borrower’s counsel as a condition to extending any financing. These include the laws of the jurisdiction of the borrower’s incorporation. taxes and exchange controls in relevant jurisdictions.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues lien creditors from (i) exercising remedies against collateral with respect to their second liens. These opinions generally are limited to specific legal aspects involved in financing the transaction and commonly address the following issues: (i) the validity and enforceability of the financing documentation (e. it may not be possible to take a second lien over such asset. as a result. lenders generally require that legal opinions be provided with respect to the laws of two critical jurisdictions: the laws of the jurisdiction of the borrower’s incorporation and the laws governing the financing documentation. the guaranties and the security agreements). Given the complex legal issues that are often addressed in these types of opinions.. 5. second lien financings are still at an early stage of development in Europe. (v) licensing and registration requirements and other approvals that must be obtained in connection with financing the transaction. (ii) the valid incorporation and existence of the borrower. and (vi) where the financing is secured. the validity. (iii) the authority of the borrower to enter into the financing transaction.

* * * With the anticipated financing needs in mind.. Closing Cross-Border Financings Perhaps the most important condition for a successful closing of a crossborder financing is advance planning and organization. 38 Baker & McKenzie . and the business decision as to the commercial viability of a particular financing remains with the lenders. significantly in advance of closing. country risk) associated with the financing. See Section 10 (Closing the Transaction) for more information on closing cross-border transactions generally. legal system and time zone).g. these requirements are magnified when dealing with more than one jurisdiction (and quite likely. which specify the responsibility for the various critical path items and all other conditions that must be completed in order to close the financing in a timely manner. and the stated opinions are often based on several assumptions and limited by various qualifications.Cross-Border Transactions Handbook Section 4 – Discrete Financing Issues particulars of the opinion they will be required to provide and should be kept informed as to the status of the deal throughout the transaction. Legal opinions. 6. the parties often turn their attention to discussing the key terms of the deal. legal opinions do not address commercial aspects or the business risks (e. legal opinions are limited to the legal aspects of the transaction. Accordingly. In the next section. For example. we discuss the basic elements of the key preliminary agreements that the parties often rely on to commence meaningful discussions regarding the transaction. more than one language. Lender’s counsel often prepare comprehensive checklists. Although legal opinions do serve a key role in providing lenders with some degree of comfort in financings. are not guarantees. While closing any financing requires the satisfaction of various conditions and significant coordination. as lawyers often say. one should not lose sight of the fact that opinions do have significant limitations.

there may not be a letter of intent if the buyer is identified through the bid process. Letter of intent (sometimes referred to as. This section discusses some of the basic elements of the typical preliminary agreements and highlights some of the key pitfalls to be mindful of when contemplating entering into these agreements in the cross-border setting. or preceded by. Preliminary agreements would. Lock-out agreement (sometimes referred to as an exclusivity agreement). but the winning bidder and the target nevertheless might enter into an exclusivity agreement. heads of agreement or term sheet). and Break fee agreement (sometimes referred to as a termination fee or failure costs agreement). a memorandum of understanding. For example. x x The preliminary agreements will be somewhat different in the auction setting. we have taken the term “preliminary agreements” to include the usual array of documents that parties may enter into in the cross-border transaction context prior to the entry into formal definitive transaction agreements. some sort of expressed intention on the part of the parties to do a deal. While the use of preliminary agreements is fairly commonplace in the cross-border setting. include the following (which may be incorporated into one or more documents): x x Confidentiality agreement. For purposes of this section. therefore.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements SECTION 5 PRELIMINARY AGREEMENTS The main driving force for proceeding with a domestic or cross-border transaction is. often in the form of a written preliminary agreement. necessarily. In addition. the parties should take care to ensure that these types of agreements do not have unintended consequences in light of the differing legal landscapes involved in the deal. the Baker & McKenzie 39 .

This is not typically an issue as the consideration for disclosure is usually found in the undertakings of the investigating party to maintain the confidentiality of the information it receives. Generally in civil law jurisdictions (e. Continental European jurisdictions). the target often prepares an informational memorandum which it uses to solicit initial indications of interest. Generally.g.. specific confidentiality agreements are not strictly necessary to safeguard the secrecy of a party’s confidential information. for a certain number of years after negotiations have terminated) or it may continue indefinitely. contractual obligations of confidentiality need to be supported by consideration. Baker & McKenzie’s Rapid Dispositions Handbook provides greater detail on these and other procedural aspects of the auction process. respectively.1 contains a general checklist of provisions for a typical confidentiality agreement. however. Hence. as courts in some 40 Baker & McKenzie .g. This obligation may be for a fixed period (e. Nevertheless. Confidentiality Agreements Confidentiality agreements are very common at the outset of negotiations or diligence for transactions in most jurisdictions. For example. Appendix 5. as the laws of the jurisdiction often provide sufficient statutory protection. however.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements auction setting necessitates the use of other procedural or informational preliminary documents. which govern access to the data room and the mechanics for submitting bids. which is generally limited to the evaluation of the target and proposed transaction. While confidentiality obligations might be contained within a letter of intent. to be enforceable. In addition. 1. at the core of most confidentiality agreements is the obligation of the investigating party to keep the disclosing party’s information secret and to use it only for a specified purpose.. and to specify the relevant rights and obligations of the parties. the target generally distributes data room rules and a bid process letter. it is more common for parties to enter into a separate confidentiality agreement prior to exchanging any confidential information and conducting negotiations with respect to the underlying transaction. Care should be taken with these terms. confidentiality agreements may still be useful in civil law jurisdictions to clearly identify the information that is considered confidential.

In these circumstances. Generally. the parties will include the term “trade secrets” within the definition of confidential information to incorporate specific types of information protected by law (e. however. the selling shareholders will be party to the definitive acquisition agreement but most of the actual disclosures will be made by the target company. which is likely to possess and own the relevant confidential information.. appropriate carve-outs are typically included with respect to information which is already known by the investigating party or which is already in the public domain. Parties and Representatives Care should also be taken to ensure that all relevant parties are bound by and can enforce the applicable provisions of their confidentiality agreement in the relevant jurisdictions.” to which the relevant obligations of confidentiality will apply. These issues. In a sale of shares. Some of the key elements to consider when contemplating a confidentiality agreement in the cross-border setting are discussed below. local laws should be consulted and local terminology included to ensure appropriate protection for this type of information. where appropriate. Trade secret law varies from jurisdiction to jurisdiction and. formulas. Definition of “Confidential Information” A key provision in any confidentiality agreement is the definition of “confidential information. are often covered by separate covenants in the confidentiality agreement. therefore. processes and the like that are secret and commercially useful). the disclosing party seeks to define the term broadly to capture essentially all commercial information provided to the recipient during the course of its evaluation of the target and transaction. Often. the target company should. rather than the definition of confidential information itself.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements jurisdictions may be unwilling to enforce obligations that have a very long or unlimited duration due to public policy concerns. If this approach is adopted. It is equally important to ensure the confidentiality of the fact that negotiations are taking place as well as the content and conditions of those negotiations (including the terms of the ultimate agreement). patterns. be the Baker & McKenzie 41 .g.

Restrictions on Sharing Certain Types of Information The mere presence of a confidentiality agreement is not a free ticket to disclosing any type of information the parties wish. Alternatively. which will own the target company upon closing. work product doctrine.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements appropriate party to the confidentiality agreement. or rules of similar effect. a party’s employees. This might be appropriate where. the investigating party is a financial buyer that refuses to bear any indemnity obligation with respect to the actions by its third party representatives. Often. the disclosing party may require notification. data protection laws in many jurisdictions restrict disclosure of personal information about individual employees.10 (Diligence–Privacy and Data Protection Laws) and Section 7. it may be appropriate to include an express acknowledgement in the confidentiality agreement that the disclosing party may be entitled to these protections with respect to parts of the 42 Baker & McKenzie .. In an asset sale. These respective issues are discussed in greater detail in Section 6.e. the seller and the disclosing party will typically be the same entity (i. consent or that the receiving party procure that its third party representatives comply with the relevant confidentiality undertakings. competition laws throughout the world restrict the parties’ ability to share competition-sensitive information. Similarly.4 (Regulatory Framework–Exchange of Competition-Sensitive Information). In some circumstances the disclosing party might require the investigating party to undertake to have each of its third party representatives enter into a separate confidentiality agreement. advisers and other third parties (including lenders) involved in the transaction will require access to the information. For example.e. the company that owns the relevant assets) and would thus be the relevant party to the confidentiality agreement. for example. The parties should also consider the persons to whom the investigating party is permitted to disclose the confidential information. the buyer).. Attorney-Client Privilege Due to the importance of maintaining the protections afforded by any applicable attorney-client privilege. however. This automatically eliminates any post-closing obligations on the part of the investigating party (i.

In the United States. a disclosing party should not rely too heavily on a provision in the confidentiality agreement devoted to protecting the privileges.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements confidential information. However. Further. but not the underlying facts that are the subject of that communication. and that any such breach could not be adequately compensated by monetary damages alone. Alternatively. the confidentiality agreement could expressly provide that the disclosing party is not waiving. This provision may not be necessary. even in a jurisdiction that recognizes these concepts. or if the transaction never closes. if the Baker & McKenzie 43 . while the parties might include a provision in the confidentiality agreement relating to these concepts. the privilege generally protects only communication between the attorney and his or her client. if at all. particularly when the harm associated with waiving the privilege is relatively minimal. may also desire that the target retain the benefits of the protections afforded by the privilege after closing and thus might be equally hesitant to rely on a contractual provision in this regard. Accordingly. US parties might disclose the facts but not any related privileged legal advice. In this light. however. any of its attorney-client privileges as a result of the disclosure of confidential information in connection with the proposed transaction. Therefore. the parties may simply decide that the deal is too beneficial to be held up over an attempt to preserve an applicable privilege. jurisdictions vary in their application of the attorney-client privilege and work product doctrine and some apply them quite narrowly. and will not be deemed to have waived or diminished. leaving the investigating party free to draw its own legal conclusions. as the investigating party. Remedies for Breach The main remedy available for breach of a confidentiality agreement is a claim for damages and/or injunctive relief to prevent further disclosure. Accordingly. The buyer. A court may ignore it (particularly if the parties become adverse) if a third party claims that the privilege has been waived. it is common in many confidentiality agreements to include an acknowledgement that the disclosing party would be damaged irreparably if any of the provisions of the agreement were breached. the disclosing party should nevertheless carefully monitor the disclosure of any information that may be protected.

2. a letter of intent is adopted for the following key purposes: x x to memorialize the parties’ expression of interest in a potential transaction. negotiation and finalization of the definitive transaction documents. An alternative to judicial determination of disputes under confidentiality agreements is arbitration. evaluation and offer process do not become a matter of public record. Generally.2 contains a general checklist of provisions for a typical letter of intent in a cross-border acquisition. One advantage of arbitration is that disputes over the confidential sale.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements action would only be brought in a civil law country where “irreparable damage” is not a prerequisite to obtaining the equivalent of specific performance or an injunction. and to impose certain binding obligations on the parties with respect to their discussions on the proposed transaction. the law of the jurisdiction governing the letter and the purpose for which the parties’ seek to use it. x x While letters of intent are common for most transactions except auctions. Letters of Intent The form that a letter of intent can take may vary widely. depending on the size and nature of the proposed transaction. to establish a timeframe for the deal (which may be especially useful when the time between handshake and signing of definitive agreements is lengthy). to provide an understanding of the major deal points that will serve as a frame of reference for the eventual drafting. care should be taken to ensure that the time spent negotiating 44 Baker & McKenzie . Disadvantages include the plaintiff’s difficulty in obtaining injunctive relief and the general unavailability of extensive discovery unless the parties agree to it up front. A more detailed discussion of dispute resolution mechanisms in the cross-border context is contained in Section 12 (Dispute Resolution). Appendix 5.

In certain circumstances (e. This is particularly the case from the buyer’s perspective where the buyer has not yet conducted diligence on the target business. or weaken the parties’ leverage with respect to. clear and unambiguous language as to the parties’ intent with respect to the provisions that are meant to be legally binding is generally sufficient to give rise to a binding obligation. if a letter of intent contains terms that are intended to be binding. the contract may need to be executed before a notary. these should be clearly identified and the requirements for the creation of a valid contract under local law should be satisfied. provisions governing transaction expenses and noncompetition/solicitation provisions. such as the United Kingdom and the United States. depending on the jurisdiction. Accordingly. Also. consideration may be required to create a valid contract (although mutual promises are generally sufficient for this purpose). Baker & McKenzie 45 . it may not be prudent for the parties to commit in a letter of intent to the terms of a possible transaction (even if only from a moral perspective) because doing so could limit the scope of. Some of the key elements to consider when contemplating a letter of intent in the cross-border setting are discussed below. Also. particularly in civil law countries and depending on the subject matter of the deal. In certain jurisdictions. The provisions in a letter of intent that are commonly intended to be legally binding include obligations of confidentiality and exclusivity. To that end.g.. The parties should also take care to ensure that no adverse tax consequences result from the letter of intent. it may simply be more efficient to proceed with the negotiation of definitive agreements. termination fee arrangements. where the parties have established an extremely short timeframe). Binding/Non-binding While the parties may intend that certain aspects of a letter of intent be binding. future negotiations. these documents are generally intended to be non-binding with respect to the terms of the underlying transaction. and that the letter does not create difficulties for a party to later change its position on the likely tax treatment of the proposed transaction.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements them does not outweigh the intended benefits.

as parties. care should be taken to ensure that non-binding terms do not inadvertently create binding. a party could be held liable for damages if it is found to have not negotiated in good faith at any point during the commercial relationship. if there is any subsequent litigation on the contract. Italy and other Continental European jurisdictions..g. General terminology. As a result. a French judge. such as “subject to contract. The precise scope of the duty varies among jurisdictions but the following principles generally apply: x A party must not disclose personal or financial information of the other party during the course of negotiations where that disclosure may cause damage to the other party. Baker & McKenzie 46 . contractual obligations. Duty of Good Faith A duty of good faith during the execution and performance of contracts is commonly present under the laws of many civil law countries. will often refer to the letter of intent to interpret the common will of the parties. for example. a judicial finding could be made that a contract has been formed and is enforceable against the parties where a letter of intent evidences an agreement on the principal terms (e. parties should be cognizant of their obligations in this regard from the outset of negotiations because they could impact their conduct as they proceed with the transaction. including many Continental European and Latin American jurisdictions. object and price).Cross-Border Transactions Handbook Section 5 – Preliminary Agreements and other formalities may need to be complied with. If the duty applies. In these jurisdictions the duty of good faith could be triggered not only upon entering into a letter of intent but also with respect to the negotiation of the letter of intent itself. even where a letter of intent is replaced by definitive agreements. One of the more troublesome aspects of the letter of intent in crossborder transactions is that legally binding obligations may be created which are unintended by the parties.” is rarely sufficient to avoid this outcome in many jurisdictions. This is particularly the case in jurisdictions which recognize a duty to negotiate in good faith. For instance. in order for it to be binding. Therefore. Moreover. in France.

To that end. and The parties should exercise reasonable diligence in seeking to progress the negotiations. a penalty if negotiations are terminated early. Exclusivity. and the payment of a party’s costs plus. in almost every jurisdiction. the language in the letter of intent would need to be crafted carefully to accomplish this end under the specific laws of the local jurisdiction.” “no shop” or “lock out” agreements and they are usually Baker & McKenzie 47 . a party is generally obligated not to break off negotiations without due cause. Furthermore. or to expressly state that the seller wishes to reserve the right to negotiate with more than one prospective buyer. it may be expedient to include an express waiver of any claim for termination of negotiations. irrespective of the language used in the letter of intent. in some cases. however. However. In some jurisdictions. Further. fraud and deliberate bad faith (such as entering into a letter of intent for the purpose of injuring the other party) may be actionable. x In limited cases. It is neither possible nor desirable to try to eliminate liability for this type of conduct by a party in the letter of intent. These agreements are sometimes called “exclusivity. a party may not propose an unreasonable position in order to terminate negotiations. and not resort to unwarranted delays or raising immaterial objections.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements x The parties must not intentionally conceal material facts. and are generally obligated to disclose accurate information to each other which is relevant to their commercial relationship. particularly where that information is not readily discoverable through other means. For instance. parties may be able to avoid these obligations by expressly agreeing to the contrary in the letter of intent. particularly where the other party has a reasonable expectation that an agreement will be entered into. No shop and Lock Out Provisions Letters of intent often contain provisions dealing with the exclusiveness of the negotiations between the parties for a fixed period of time. including the United Kingdom and the United States. it may not be possible to contractually avoid the duty to negotiate in good faith under local law.

e. the existence of an exclusivity agreement should not be viewed as a ticket for a party to simply walk away from negotiations once the exclusivity period has expired. another prospective buyer during the period of exclusivity. A break fee provision may take many forms but it generally requires that one party pay a fee to the other if the transaction does not proceed to signing or closing. Wherever these provisions reside. As their names imply. While relatively common in large US transactions. care should be taken to specify the duration of the exclusivity period as it may be unenforceable if it is not keyed to a clearly defined. the good faith principle discussed above may be applicable. including with respect to the following: 48 Baker & McKenzie . In some jurisdictions. however. these agreements generally prohibit the seller from providing information to. the remedies available to the buyer for the seller’s breach of an exclusivity agreement include either an injunction to prevent the seller from negotiating with other potential buyers during the exclusivity period and/or damages.. or negotiating with. these provisions are less prevalent in other jurisdictions and a number of legal issues need to be considered when proposing and negotiating them. the failure to obtain the requisite shareholder approval or the failure to obtain required regulatory or merger control approvals. Damages. a party terminating the negotiations without good cause may be subject to a damages claim where the termination amounts to a breach of the duty of good faith. are usually limited to the reimbursement of costs incurred up to that point in connection with the transaction. Break Fees Another type of provision that is often included as a binding term in the letter of intent is a “termination” or “break fee” provision.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements embodied in the binding provisions of the letter of intent or in a standalone agreement. In these jurisdictions. Generally. Instead. the action or inaction of a party) and the most likely triggers include the breach of an exclusivity provision. The obligation to pay the break fee is usually fault-based (i. fixed period of time. regardless of any language in the agreement to the contrary.

e. However. Regulatory Filing Triggers Letters of intent can also form the basis for a submission for clearance or guidance from the relevant competition. before executing a binding agreement and on.. where required in a US transaction. Baker & McKenzie 49 . this filing may be made at any time after the parties have agreed in good faith to undertake the transaction (i. the execution of a letter of intent).e. the parties could agree to make Hart-Scott-Rodino filings once a letter of intent is signed. geography and scope (such as a specific field of activity). in most jurisdictions these provisions need to be reasonable and limited in time. and Whether the break fee provision would be deemed an unenforceable penalty (i. For example. rather than the sellers). the structure of the transaction generally needs to be sufficiently formalized for the relevant governmental agencies to commence their review. x x Non-Competition and Non-Solicitation Provisions Letters of intent (and confidentiality agreements) often contain provisions relating to non-competition as to the business at issue and the nonsolicitation of the parties’ customers and employees.. for example. Section 4.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements x Ensuring that the provision will not contravene any prohibition on the giving of financial assistance by the target in connection with the acquisition of its own shares (e. or that unduly fetters the discretion of the directors. Generally.3 (Discrete Financing Issues–Financial Assistance) discusses financial assistance in greater detail. These provisions should be crafted carefully in order to be enforceable under applicable law..g. when the break fee is required to be paid by the target. For instance. Ensuring that directors do not breach their fiduciary duties by agreeing to enter into an inappropriately rigid break fee provision that could be viewed as not in the company’s best interests. where the payment required for the relevant breach of contract does not amount to a genuine estimate of the loss likely to be suffered by the innocent party). tax or other governmental authorities.

” which. Conditions Precedent While it is common to find conditions precedent in a letter of intent.” The position long maintained by the Brazilian antitrust authority (CADE) is that this threshold is met upon the execution of the “first binding document. France. In Brazil.. the parties could end up stuck with a binding commitment in a jurisdiction (e. the parties often turn their attention to the acquisition review (or “due diligence”) phase of the transaction. an antitrust filing will be required (assuming the relevant economic thresholds are met) within 15 business days of “realization of the agreement.. for example. in some jurisdictions any condition which is subject to the exclusive will of one of the parties (e. Italy and other Continental European jurisdictions) where a contract will be deemed to exist once the parties evidence their agreement on the principal terms.Cross-Border Transactions Handbook Section 5 – Preliminary Agreements Moreover. which we discuss in the next section.g. * * * With the key preliminary agreements in place. 50 Baker & McKenzie . a condition tied to the approval of a party’s board of directors) will be considered null and void.g. If the letter of intent is subject only to these types of conditions precedent and these conditions are latter held to be void. entry into a preliminary agreement may automatically start the antitrust clock in certain jurisdictions. depending on its content. could include a letter of intent.

It is useful for validating the strategic rationale for the transaction and for verifying material information about the target that is the basis of the deal. 1. Differing legal systems. the concept originated under the Securities Act of 1933 out of the “reasonable investigation” defense of underwriters and their counsel in connection with securities offerings. In addition. This section highlights significant aspects of the diligence process that should be understood in the cross-border setting. The more jurisdictions involved in the transaction. the diligence investigation plays an essential role in ensuring seamless postclosing integration of the target business. In the United States. types of business organizations and the unique legal characteristics of each jurisdiction around the globe. present obstacles to the diligence investigation which are wholly absent in the domestic context. Further. From the seller’s perspective. but the process now plays an important role in transactions throughout most of the world. troublesome matters. whether involving public or private companies. The diligence investigation serves many purposes in the context of a transaction. accounting standards. and possibly a housecleaning effort that enables the seller to rectify.Cross-Border Transactions Handbook Section 6 – Diligence SECTION 6 DILIGENCE In the context of a cross-border transaction the acquisition review (or “due diligence”) investigation is often a daunting and expensive exercise. Baker & McKenzie 51 . the more these obstacles serve to magnify the risks of inefficient diligence. in addition to language and cultural barriers. the exercise often precipitates a greater awareness of. Role of Review The term “due diligence” encompasses the process of obtaining and verifying material information about the target’s business and identifying material issues and liabilities affecting the business and the proposed transaction. it helps identify legal and business risks and deal-stoppers that could impede fulfillment of the parties’ objectives for the transaction.

because of local custom. these representations and warranties may not be very extensive. As in a typical domestic transaction. access to the relevant documents and information. the legal diligence coordinator should centrally coordinate the investigation and ensure consistency across jurisdictions so that the results of the investigation can be presented in a meaningful way. the reporting channels and any specific matters to be investigated at the outset. the diligence exercise is important in framing the representations and warranties and bringing to the fore issues that may be addressed in advance of closing by way of negotiating an acceptable resolution or specifically allocating risks in the transaction document in order to minimize the likelihood of costly and contentious post-closing warranty claims. 52 Baker & McKenzie . It thus becomes critical to allocate responsibility for performing the diligence tasks and to clearly communicate the various responsibilities in order to avoid duplication of efforts or gaps in coverage. Therefore. including the scope of the review. Moreover. scope and timing of the diligence report. even if an unsophisticated seller is willing to make certain representations. the nature. Role of Advisors As discussed in Section 2 (Project Management). Further. a large cross-border transaction involving a multitude of countries is likely to involve the participation of several players in numerous jurisdictions.Cross-Border Transactions Handbook Section 6 – Diligence The diligence process also plays a direct role in the documentation phase of the transaction. 2. the representations and warranties in the principal cross-border transaction document are designed in part to cause the seller to disclose material information of greatest concern to the buyer. Having available standardized instructions in this regard will help to ensure that the diligence exercise commences efficiently and is carried out in a consistent manner from jurisdiction to jurisdiction. it is important for the coordinating lawyer to provide the local lawyers assisting with the investigation in various jurisdictions clear instructions as to the critical elements of the investigation. To help achieve this goal. it may not fully appreciate all their ramifications. In certain cases.

Accordingly. the key variables that often determine the scope of the diligence effort are the buyer’s risk profile. depending on the transaction dynamics at that point. However. As discussed in Section 3 (Budgeting for the Transaction). through to a very detailed review and summary of all issues and documents likely to impact the risk and pricing profile of the target and.Cross-Border Transactions Handbook Section 6 – Diligence 3. bidders will be afforded the opportunity to perform further diligence prior to submitting a final bid. so as to not expend too many resources too early in the process (i. In that case. Scope of Review Diligence can involve varying levels of review – from a very cursory review of major issues and limited documents. In determining where a buyer falls on this continuum. As also discussed in Section 3. several transaction-specific factors impact the level of diligence as well. the initial review cycle may be the buyer’s best opportunity for conducting a reasonably detailed investigation of the target business. before being selected as the successful bidder) and in conducting a meaningful review of all relevant risk areas and opportunities for purposes of validating the pricing model and forming a post-closing integration plan. it is critical to set the parameters for the scope of the investigation and establish appropriate materiality standards in light of the operative cost and time constraints. Baker & McKenzie 53 . the transaction timetable and the logistics of the diligence itself. however. it simply may be cost. or it may only be provided on an expedited timeline.e.. the integration of the newly acquired business. Setting the general scope of the diligence investigation usually occurs during the budgeting phase. Auction sellers often suggest that. the nature of the target’s business and the extent of any representations and warranties and post-closing indemnification the buyer can expect to receive from the seller. Given the sheer volume of information that is likely to be available in a large cross-border transaction. if selected to proceed to the next round. ultimately. there is often a tension at play in these exercises (particularly in the auction context) between implementing a “quick pass” over the relevant documents in a data room. including the transaction structure.or timeprohibitive to conduct a detailed review of all issues and documents. further review may not be available.

it would be important for the diligence team to understand the intended synergistic benefits of the transaction and. a subsidiary whose sole assets are the intellectual property rights of the target business is likely to be critical to the value of the deal even though the subsidiary may have a low book value. these materiality levels should be designed carefully. value or term of contracts and nature or size of litigation) should be established at the outset and communicated to each transaction team member and local lawyer so that the transaction team is not inundated with disclosures which. This will help the team focus its review on the consequences of any planned termination of those operations.Cross-Border Transactions Handbook Section 6 – Diligence In order for the diligence team to carry out the investigation within the general parameters that have been established at the budgeting phase. subject matter. Materiality Thresholds There should also be established a monetary level below which disclosure of particular problems becomes counter-productive or at least not costeffective. For example. setting a flat contract value for reviewable contracts may cause certain agreements that could give rise to significant risks (including governmental contracts) to slip through the cracks. a more detailed investigation can be conducted with respect to those relationships.. it is critical that the team be mindful of the business objectives for the transaction and the established materiality thresholds. 54 Baker & McKenzie . if the diligence team understands at the outset that certain of the target’s business relationships are key transaction value drivers. while potentially significant at the local level.g. Business Objectives An understanding of the business objectives is necessary to enable the transaction team to prioritize its investigation within the established parameters. However. specifically. Threshold amounts and other parameters for various types of matters or problems (e. Likewise. are inconsequential in the context of the global transaction. For example. Similarly. whether certain operations are intended to be eliminated following the transaction.

consistent and uniform investigation. depending upon the nature and size of the operations conducted in and from those jurisdictions and the relevant legal and factual considerations that are material in the local context. strategic plans. What may be commercially sensitive for a competitor may not be for a potential buyer who acquires the target to enter a new line of Baker & McKenzie 55 . the request should be consistent across all jurisdictions so that the materials produced and their subsequent review are comparable across each jurisdiction. Supplemental Requests In addition. To complicate matters. Commercially sensitive data. which may be tailored to reflect the nature or size of the local operations or the local legal environment. many multinationals have established holding company structures (usually for tax or liability purposes). there is frequently a need for buyers to submit supplemental information requests. the terminology of the request will often need to be modified from country to country. a party might request a copy of an English company’s certificate of incorporation. for example. questionnaires and checklists. Nevertheless. is important for the coordinating lawyer to ensure efficient. Having available standardized instructions. parts of the request may be inappropriate for certain jurisdictions. may consist of pricing information. the definition of commercially sensitive data will change depending on who is ultimately invited into the data room to review the information. For example. For example. This is particularly the case in the auction setting where the data room will omit information that cannot or should not be shown to potential buyers because it is either commercially sensitive or contractually or legally restricted. Further. sales figures or even the identity of key customers or distributors.Cross-Border Transactions Handbook Section 6 – Diligence 4. but in Spain a party would need to request a copy of the public deed of incorporation. Ideally. Sending an extensive questionnaire to the holding company would have little value since the holding company merely holds the stock of various subsidiaries. the scope and materiality thresholds will often be the subject of negotiation between the parties. Diligence Requests In a negotiated transaction where the buyer has the ability to submit a diligence information request or questionnaire to the target.

are likely to be addressed in great detail in the report for a transaction where intellectual property is 56 Baker & McKenzie . Nature of the Report Diligence reports can vary widely.4 (Regulatory Framework–Exchange of Competition-Sensitive Information) discusses commercially sensitive information in greater detail. On the one hand. some companies prefer a full legal summary in which the report summarizes the details of all contracts. the report produced in the early stages of the auction setting will typically contain far less detail than the report produced in the later. For example. for example. what may be important to one bidder may not be as important to another bidder. some companies prefer an “exceptions only” report.Cross-Border Transactions Handbook Section 6 – Diligence business. it is not uncommon for these reports to exceed several hundred pages. In addition. Licensing agreements. In a large transaction. the extent of the detail may vary depending upon the subject area or type of issue. These reports are often considerably shorter than the full legal summary. 5. On the other hand. Also. Further. but the cost to produce them may not be much less because the diligence team still must go through the exercise of analyzing the relevant information in order to ferret out the areas of exposure. pre-signing stage. These reports can be helpful for identifying information that relates to the transaction as well as the post-acquisition integration process. depending on the bidder’s rationale for doing the deal. which highlights only the significant problems and high-risk aspects of the target’s business. The seller should also carefully coordinate its response to supplemental requests to ensure compliance with applicable legal requirements. For example. the nature of the delivered report may vary depending upon the stage of the transaction. a financial or private equity buyer is likely to place significant emphasis on cash-flow generation. while a strategic buyer is likely to place greater emphasis on synergies or access to new markets. but the initial data room is likely to be identical for all bidders. It is important that buyers coordinate their requests for additional information among all team members to avoid duplication of efforts. Section 7. business relationships and legal aspects of the target’s business.

Timely Reporting Whatever the style of the report. it is critical that clear lines of reporting be established between local counsel.. it is most efficient for the report to be organized by jurisdiction following a consistent format and sequence of topics.g. the coordinating legal advisor and the client in order that the client can be notified of significant issues as soon as they are discovered. Accordingly. Having the investigation conducted in as many jurisdictions as possible by lawyers who are associated in practice or Baker & McKenzie 57 . In addition. The formality with which lawyers are accustomed to dealing at arm’s length will slow the flow of information from the local jurisdictions to the coordinating lawyer. Similarly. local lawyers conducting the diligence investigation should be comfortable working with the coordinating lawyer on an informal basis. Periodic reporting mechanisms. In the cross-border context. a realistic time schedule for the mechanics of reporting the results of the investigation to the client should be established at the outset. An executive summary will highlight the major issues uncovered during the course of the investigation. 6. or contracts with government agencies) also may be highlighted in detail due to their impact on the target’s business.Cross-Border Transactions Handbook Section 6 – Diligence critical. the report will often end up someplace in the middle of the full legal summary and exceptions only approach. critical supply or distribution agreements. Also. Accordingly. Certain types of commercial contracts (e. ongoing informal reports of the discovery of potentially significant problems should be provided to the coordinating lawyer as soon as they are discovered so that a decision can be made with the business team as to the necessity of any additional investigation of the particular matter. legacy exposure under prior acquisition or disposition agreements often merits considerable attention in the report where the exposure under those agreements is potentially significant. and a more detailed report will follow that contains additional relevant information. such as weekly (or more frequent) email updates or conference calls should be arranged so that the coordinating lawyer can be kept aware of the status of all significant issues and report back to the business team as necessary.

the existence of long-standing relationships with local lawyers is also helpful in ensuring that a degree of sophistication is brought by those local lawyers to the sometimes mundane and tedious task of conducting a diligence investigation. Specific Matters for Investigation The very nature of the investigation will vary in each country because of the differing legal systems. Thus. many matters that typically appear on a domestic checklist often need to be considered with increased scrutiny in light of the cross-border nature of the transaction. Furthermore. The transfer or assignment of intellectual property rights and related licenses is regulated in many countries by technology transfer. even in major transactions. 58 Baker & McKenzie . in which case assignments of those rights will have to be separately obtained. may be unable to propose a suitable solution in the limited time available. Again. It is also often found that intellectual property rights are owned by a parent or related company not being sold. This should not present an insurmountable problem but it can be cumbersome in that the buyer will require assurances of the chain of title from the registered owner to the seller. Approvals and notices to appropriate authorities may be necessary. types of business organizations and unique legal characteristics of that jurisdiction. Changing the registrations in many jurisdictions is a slow procedure and recent sale transactions may not yet be reflected in the registry. 7. such as: x Transfers and assignments of intellectual property rights. if they do. Furthermore. exchange control or similar legislation. local lawyers have a tendency to pass diligence work to junior lawyers who may not have the experience to identify a problem area or.Cross-Border Transactions Handbook Section 6 – Diligence who have established and long-standing correspondent relationships with the coordinating lawyer can greatly increase efficiency and speed. searches may reveal registrations in the name of predecessor companies or previous owners. sufficient time must be allowed for this procedure and transitional arrangements may be necessary. In this regard.

the employees could have a claim for constructive termination of employment and be entitled to severance payments. Unlike in the United States. Intercompany arrangements. intercompany agreements reflecting the dependency of the business being sold on the head office or other affiliates will typically need to be assessed. Substituting a new guarantor may require exchange control approval. replacement credit support arrangements typically must be implemented before closing. Information technology. If obligations of foreign subsidiaries are guaranteed by a company not being sold. Examples of the extra-territorial reach of US laws that are often considered by US parties in this regard include the following: Baker & McKenzie 59 . Otherwise. In this regard. administrative services and similar functions may be centralized and the diligence investigation may be the only way of uncovering intercompany arrangements relating to these matters. the transfer of the target’s employees often merits considerable diligence. the buyer will need to determine whether it is possible or desirable from a business standpoint to provide the same or substantially similar terms. must generally remain the same. Guarantees. In a far-flung. x x 8. Extra-Territorial Reach of Laws In addition. for example. As discussed in greater detail in Section 8 (Employee Transfers and Benefits).Cross-Border Transactions Handbook Section 6 – Diligence x Transfers of employment. certain domestic laws may be triggered with respect to the business of a foreign target upon closing the transaction. including employee benefits. which often requires carefully coordinated diligence by specialists in each jurisdiction. Parent or related company guarantees of credit facilities or term lease obligations of foreign subsidiaries are quite common. multi-location business. in many jurisdictions the employees automatically transfer to the buyer in an assets transfer and the terms and conditions of employment for the transferred employees.

Often of particular concern in the financial diligence phase are the rules that require the maintenance of internal control over financial reporting that conforms to US accounting and securities law standards. In a cross-border transaction. its reforms impact many different areas of law and business practice. may make it difficult to render the CEO and CFO certifications. each requiring specific analysis. financial and accounting differences. accounting and other procedural matters. together with related regulatory reforms.Cross-Border Transactions Handbook Section 6 – Diligence Sarbanes-Oxley Act The Sarbanes-Oxley Act of 2002. depending on such factors as the level of the US company’s ownership. if the cross-border transaction involves the acquisition of an enterprise or line of business. all relationships with auditing firms should be scrutinized carefully to ensure that there is no violation of auditor independence 60 Baker & McKenzie . Because non-US companies are not normally required to maintain this level of control. a US public company may seek to acquire a non-US company that does not have sufficient internal control structures in place. For example. internal control issues still arise to varying degrees. In addition. a cross-border transaction can raise significant internal control issues. Even in situations where the US company will own less than 100% of a non-US entity. the acquiring company should conduct careful inquiries into financial. traded or otherwise registered in the United States. significantly changed the corporate governance practices not only of US public companies but also of non-US companies with securities that are listed. This is of particular importance to CEOs and CFOs that are required to file public certifications with the US Securities and Exchange Commission as to these matters. Although the overall purpose of this law was to address corporate financial scandals. or may seek to outsource operations in a manner that will require the service provider to maintain adequate internal control with respect to the outsourced operations. the materiality of the investment to the US company and the level of control that the US company exerts. particularly those relating to disclosure controls and procedures. and (as discussed above) internal control over financial reporting. Further. as well as differences in the public disclosure and internal control regimes.

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requirements. If auditors are deemed not to be independent of their clients, they will be unable to render audit opinions acceptable to the US Securities and Exchange Commission. Because non-US jurisdictions have differing requirements for auditor independence, the independence of any non-US auditors should be analyzed under US standards. Thus, it becomes important to examine all audit firms’ relationships to all companies, entities and individuals involved in the cross-border transaction. The Sarbanes-Oxley Act also contains fairly specific rules regarding director independence, nominations for directors, CEO and officer compensation, and personal loans to directors and executive officers, which may need to be analyzed depending on the transaction structure. These rules often apply different standards than the rules, if any, that may exist in the target’s home jurisdiction.
Foreign Corrupt Practices Act

The US Foreign Corrupt Practices Act of 1977, or “FCPA” for short, generally prohibits bribery of foreign government officials, whether directly or indirectly through employees, agents or other third parties. Under this law, the term “foreign officials” includes not just officials themselves, but also officers and employees of government-owned or controlled commercial enterprises (e.g., hospitals, universities and public transportation facilities) and public international organizations. Bribery of political parties, political party officials and candidates for political office also are covered by the FCPA. In appropriate circumstances, the FCPA can apply to US and non-US publicly traded and non-publicly traded companies and US and non-US individuals. In many circumstances, potential targets will not be subject to the FCPA prior to an acquisition, but may be subject to local antibribery laws or laws enacted pursuant to the OECD Convention on AntiBribery. The FCPA also requires US issuers to maintain accurate books and records and an adequate system of internal accounting controls. These controls usually are considered in connection with other diligence activities. The FCPA is enforced by the US Department of Justice and the US Securities and Exchange Commission, and penalties for violations
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include severe civil and criminal fines, as well as imprisonment for guilty personnel, potential debarment and loss of export privileges, in addition to potentially serious damage to the entity’s business reputation. Only in unusual cases would potential FCPA violations be detectible from a review of the types of documents generally contained in a data room or otherwise provided in the course of the diligence phase. However, certain diligence can be conducted at an early stage that will enable the buyer to gauge the overall quality of the target’s compliance program, if any, and detect red flags. For example, document review may reveal the existence of relevant audits or internal investigations, or irregularities in contract terms that require further inquiry and more extensive and targeted diligence efforts (e.g., extremely large commission payments, lack of compliance representations in agreements, commissioned agents in countries with extremely high corruption perception). Generally speaking, a more thorough investigation of the target business (including interviews of management, employees and third party intermediaries) will be necessary to more conclusively determine the level of exposure to any issues that are currently FCPA violations, or would be violations of the FCPA if they continued post-closing. This type of thorough investigation of a target’s non-US operations, however, can be costly and time consuming, and often may be instead addressed through contractual terms, such as certifications, pre-closing covenants and indemnification provisions. To that end, it is often helpful to investigate a few preliminary matters that will help gauge potential exposure before undertaking a more comprehensive review, including:

x

Is the target or its parent a US public company or a non-US company with securities that are listed, traded or otherwise registered in the United States? Does the target operate in countries with a high incidence of corruption? The “TI Corruption Perception Index” published by Transparency International, which is an international organization devoted to combating corruption, is a helpful guide in this area. In the 2005 index, 70 countries (i.e., more than half of those included in the index) scored less than 3 out of 10, which indicates a severe corruption problem.
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x

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x

Does the target regularly do business with government agencies (including government-owned or controlled enterprises), require government approvals or otherwise employ or pay monies (including consulting fees) to government officials or employees of government-owned or controlled enterprises? Does the target have key or essential licenses, concessions, permits or other assets that are subject to government regulation? Does the target use third party intermediaries, such as sales representatives, commission agents, consultants, distributors or middlemen? Is the target involved in any joint ventures and what level of control does the target have over legal and ethical compliance by the joint venture? Does the target include these third parties within the scope of its compliance program and does the target have written diligence procedures for identifying, appointing, retaining, compensating and renewing agreements with such third parties? Has the target been subject to any audits or investigations by any governmental authorities relating to corruption or anti-money laundering issues?

x

x

x

x

x

Trade Sanctions and Export Controls

The United States currently maintains country-specific trade and investment sanctions and export controls against various countries and/or their governments, including Cuba, Iran, Sudan, Syria and, to a lesser extent, Burma (Myanmar), Iraq, Libya and North Korea, among other countries. The sanctions and export controls also prohibit or restrict transactions with certain proscribed persons (including designated terrorists and narcotics traffickers), regardless of the country in which they are located. The US trade and investment sanctions generally prohibit a wide variety of transactions (including exports to and imports from the sanctioned
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countries or entities) conducted by “US persons.” The sanctions generally define “US persons” to include entities organized under the laws of the United States (including any of their non-US branches), as well as US citizens or permanent resident aliens, wherever located or employed, and all persons physically within the United States. In addition, non-US entities that are owned or controlled by US persons are themselves considered US persons under the sanctions against Cuba. US export controls apply to exports from the United States and reexports from other countries by any person (US or non-US) of US-origin items (goods, software and technology) and foreign-made items that incorporate US content exceeding certain de minimis levels. These controls apply regardless of the nationality, location or ownership of the exporter/re-exporter, and are not limited to exports or re-exports to sanctioned countries. Licensing requirements depend not only on the sensitivity of the export/re-export destination, but also on the sensitivity of the item in question (i.e., its inherent physical or technical characteristics), as well as whether any restricted end-users or restricted end-uses are involved. Violations of US sanctions and export controls are punishable by civil, criminal and administrative penalties, including fines, imprisonment and the denial of export privileges. Collateral sanctions can also be imposed by other US government agencies for certain violations of these laws. For diligence purposes, documents should be reviewed to confirm whether any contracts or activities involve countries or transactions that are affected by sanctions or export controls. In addition, to the extent that a target has been subject to US jurisdiction under these rules, it would be appropriate to conduct a review of contracts and related documents from the previous five-year period to take into account the five-year general statute of limitations period and identify potential successor liability exposure. For US companies being acquired by non-US buyers, the diligence itself could trigger export control issues to the extent controlled technology must be evaluated or reviewed by or discussed with the buyers. There are situations, primarily under the trade and investment sanctions, where the act of acquiring a company with business involving prohibited
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The Treasury Department rules apply to all US taxpayers and members of their controlled group.” Both sets of rules impose periodic reporting requirements with respect to the receipt of boycott-related requests. or with other countries that boycott Israel. The Department of Commerce rules apply to transactions by entities organized under the laws of the United States. as well as transactions by their controlled-in-fact non-US affiliates to the extent those transactions affect the foreign or interstate commerce of the United States. Antiboycott US antiboycott laws and regulations prohibit or penalize US companies and. and assistance or involvement by US citizens or permanent resident aliens employed outside the United States with respect to sanctioned country transactions. where the Arab League boycott of Israel is in effect. Prohibited US person involvement can take many forms. For example. A thorough compliance review should identify any contracts that may require termination prior to closing or exclusion from the transaction. These laws and regulations are particularly relevant for companies doing business in the Middle East. regardless of whether the transaction is “in US commerce.Cross-Border Transactions Handbook Section 6 – Diligence countries will itself trigger the application of the sanctions. even if the recipient does not comply with such requests. from participating in or cooperating with foreign boycotts against countries that are “friendly” to the United States. the mere act of acquiring a company will not implicate these rules. The US antiboycott rules are administered under two separate regulatory schemes by the US Department of Commerce and the US Department of the Treasury. the sanctions generally prohibit US person involvement in or “facilitation” of non-US transactions involving sanctioned countries. including non-US subsidiaries. Baker & McKenzie 65 . US parent company review or approval of specific transactions with sanctioned countries. In other cases. Transactions generally are considered to be in US commerce if they involve US-origin goods. for example. but the continued performance of contracts by the acquired companies could implicate them. under both the sanctions and export controls. in some cases. as well as intercompany transactions (such as the purchase of capital equipment) earmarked for a non-US subsidiary’s business with sanctioned countries. including. respectively. their foreign subsidiaries.

For diligence purposes. documents should be screened for existing transactions or ongoing contracts that contain boycott-related commitments. their authorization to represent the company. to the extent a target has been subject to US jurisdiction under the antiboycott rules. Public Record Searches The amount of publicly available information that may exist with respect to the target company. but in some jurisdictions are unobtainable or only obtainable at substantial cost or 66 Baker & McKenzie . varies widely from jurisdiction to jurisdiction. title and litigation searches are frequently requested. such as tender invitations and bidding documents. while violations of the Treasury Department rules can result in tax penalties in the form of the loss of certain tax benefits (such as foreign tax credits or tax deferral of income of a non-US subsidiary). whether directly or indirectly. the address of the company’s principal place of business and its capital (including issued but not fully paid-in capital). Lien. a five-year statute of limitations period applies. annual financial statements of even privately owned companies will be on file at the companies register. In England and many other countries. any restrictions on that authority intended to be binding on third parties. The document review should include executed contracts. the commercial registry information on a share company will. in many jurisdictions. 9. In addition. as well as pre-contractual documents. pre-closing amendments to or renunciations of the offending boycott clauses may be required. the mere acquisition by a US company. For example. and the cost to obtain that information.Cross-Border Transactions Handbook Section 6 – Diligence Violations of the Department of Commerce rules are subject to civil and criminal penalties. as with US trade sanctions and export controls. include the names of a company’s directors. of companies with ongoing boycott-related commitments can trigger liability. so a five-year period of review would be appropriate in order to determine the extent of any potential successor liability for a new owner. To the extent boycott-related agreements are found. among others. under the antiboycott rules. Furthermore. including US tax penalties. The existence of a commercial registry in most civil law countries means that some fairly useful corporate information about a target may be publicly available.

g. Switzerland. except for specific types of assets where title is registered (e. These laws vary from jurisdiction to jurisdiction. Baker & McKenzie 67 . the disclosing party will need to ensure that the contemplated disclosure does not violate any applicable data protection or privacy law or any privacy policy or representation that the disclosing party has made to the affected individuals with respect to the protection of that information. searches for “liens” or other security interests are not generally possible in most civil law jurisdictions. Accordingly. the confidential information or the investigating party is located in any such jurisdiction. 10. depending on the particular circumstances. Privacy and Data Protection Laws Data privacy laws in many jurisdictions including the throughout the European Union. the disclosing party should closely monitor how the investigating party intends to use and disclose any personally identifiable information. there is no centralized litigation registry in China. conditions might need to be imposed on the investigating party’s use of such information. As in any jurisdiction. while the disclosing party may negotiate for appropriate indemnities in the confidentiality agreement. Argentina and Australia pose another potential obstacle with respect to a multi-jurisdictional diligence exercise. but they generally may apply to prevent or restrict the disclosure of personal information about individuals and they may be triggered if the seller. For example. Further. Also. the United States. real property and vehicles). it may be necessary to ensure that information about employees be edited so that it is anonymous and. Hungary. before disclosing any personally identifiable information.. In many jurisdictions.Cross-Border Transactions Handbook Section 6 – Diligence after considerable delays. where this is not possible. Japan and many European countries so it may not be practical to conduct litigation searches in those countries unless the searching party knows the particular court in which a lawsuit has been filed. care should be taken not to request particular searches where the value of the results is likely to be outweighed by the expense incurred or time it takes to obtain them. Canada. Accordingly. the disclosing party could be held primarily liable for any violations of data protection laws that are caused by the investigating party.

is the impact that competition and other regulatory matters can have on the deal. * * * As mentioned above. we discuss the regulatory framework at play in the cross-border setting. the need for an investigation also arises in the context of an outsourcing transaction. and one that is more focused on the laws of the jurisdictions involved.Cross-Border Transactions Handbook Section 6 – Diligence 11. consistent and uniform investigation in the cross-border context. but the focus of the review in this setting is often quite different than in the acquisition context. particular attention should be afforded to the comprehensiveness of the request and related disclosure in order to ensure that all information relevant to the contributed businesses. No matter the transaction structure. a critical component of the diligence exercise in the multi-jurisdictional setting. the diligence in the outsourcing context typically also focuses on performance obligations to enable the service provider to validate the assumptions made in its service proposal to the service recipient. but the need to conduct a similar review also arises in connection with joint ventures and strategic alliances where the parties are contributing existing businesses. Likewise. heavily focused on the delivery of the services that the service recipient currently receives using the to-be acquired assets. In these types of transactions. 68 Baker & McKenzie . therefore. In an outsourcing transaction. Diligence in the Context of Other Forms of Transactions The diligence process often receives the most attention in the context of an acquisition or divestiture. In the next section. and the parties’ abilities to participate in the transaction and perform their respective obligations. The scope of the review is. is captured. the service provider will use the to-be-acquired assets to provide services to the service recipient who is selling those assets to the service provider. While the service provider often conducts diligence to confirm the value of the assets to be acquired and any restrictions on transferability (similar to the diligence conducted in a typical acquisition). centralized coordination of the diligence exercise is critical to ensure efficient.

including one or more of the following: x x x x Antitrust or antimonopoly notices or consents. size and structure of the target business and the manner in which it is acquired. Moreover. Exchange control approvals. one of the most critical considerations in a cross-border transaction is whether the contemplated transaction will be permitted and effective under the laws of each material jurisdiction and. including the typical issues that arise in the context of a merger control or competition analysis. The assets and business of the acquiring entity and its entire company group are quite often considered relevant as well. strategic alliances and other business Baker & McKenzie 69 . In many cross-border transactions regulatory considerations turn out to be one of the most crucial drivers of the overall feasibility and timing of the transaction. common industry-specific regulations and exchange control requirements. These may vary depending on the nature. Overview The acquisition of a sizeable non-US company (or a sizeable US company with non-US subsidiaries) will often be subject to government approvals and notices.Cross-Border Transactions Handbook Section 7 – Regulatory Framework SECTION 7 REGULATORY FRAMEWORK Often. particularly in the analysis by competition authorities.” exchanges of competition-sensitive information. “gun jumping issues. Foreign investment approvals. This section addresses the regulatory framework applicable to crossborder business combinations. 1. many of the regulations discussed in this section may also apply to joint ventures. typical foreign investment regulations. if so. and Tax clearances and other tax filings. the impact that any required regulatory approvals and clearances may have on the overall timing of the transaction.

it may be appropriate to arrange a “bifurcated” closing where the transaction agreements are signed and the principal transaction closed effective as of a certain date but a subsequent closing (or series of closings) is held sometime in the future in order to permit the parties to obtain the necessary approvals for the acquisition of those operations. In many cases where an approval. it will have to be obtained in advance of the acquisition and the acquisition may not be closed prior to the expiration of applicable review or waiting periods. it is crucial to ensure that the mere act of closing part of the transaction in another jurisdiction does not violate applicable “gun 70 Baker & McKenzie . the parties should provide for a reduction in the purchase price or other consequences (e. In a cross-border business combination. the entire transaction should be made subject to obtaining all necessary approvals for its acquisition. In other cases. the failure may not affect the validity of the acquisition. the relevant operation is sold to a third party with the net proceeds to the buyer’s account) if a required approval is not obtained. If an entity or business segment in a particular jurisdiction is vital to the entire enterprise.g. Legal counsel should be consulted to determine how a particular transaction may be affected by these considerations. clearance or consent is required. the parties may need to consider whether they want to delay closing (or the implementation of a strategic alliance or similar transaction) until all required government approvals are obtained.Cross-Border Transactions Handbook Section 7 – Regulatory Framework combinations. In the latter case. or whether it would be possible and desirable to proceed with certain portions of the acquisition in some countries while leaving other portions for a delayed closing after the requisite approvals have been received. or where approval is highly likely but time consuming. but may deny the buyer the right to remit earnings or repatriate capital. Prior to agreeing to defer closing in a jurisdiction while awaiting approval. it is necessary only to notify the appropriate governmental authority. Failure to obtain a required governmental approval or clearance may make the acquisition void or voidable under the laws and regulations of a jurisdiction. In other cases. Where operations in a particular jurisdiction are not vital to the enterprise as a whole.. or cause it to lose tax or other benefits or incentives.

however. In order to avoid these consequences. as it may be deemed “anticompetitive. Early in the negotiation process. In addition. the parties should understand the procedures and timelines to file the required notices or applications with the relevant governmental authorities and agree in advance as to which party will bear the primary responsibility in this regard. impose fines.. the acquisition agreement should make the closing in a given jurisdiction subject to obtaining all necessary government approvals in that jurisdiction. The need for government approvals may also affect the structure of the acquisition.Cross-Border Transactions Handbook Section 7 – Regulatory Framework jumping” rules or any other competition laws of the jurisdiction where the deferred closing is to occur. Generally. the acquisition of shares in a holding company that owns shares in a foreign entity may not be subject to the same approval requirements (e. the parties will need to identify which regulatory authorities have the power to delay. the sharing of certain kinds of information prior to obtaining the required competition approvals should be treated with particular sensitivity. For example.” In any case. prohibit or even order the “unwinding” of a business combination that is deemed to be unlawful under their respective regulations. antitrust or competition approval requirements are not affected by structure. In fact.g. Indeed. it may even be a violation of foreign law to sign an unconditional acquisition agreement. 2. more than one-third of the countries recognized by the United Nations have some form of merger control law currently in effect. a foreign investment approval) as a direct acquisition of the shares or other equity interests in the local entity. Government approvals are of such importance that they should be considered in detail during the course of negotiations and prior to the execution of the definitive transaction agreement. Competition Analysis The overarching theory of merger control regulation (also known as “competition” or “antitrust” regulation in some jurisdictions) is to promote effective competition for the benefit of end-users of products and services. Many of these laws contain a statement similar to that contained in the European Union’s regulations that their intent is to cover all Baker & McKenzie 71 .

Substantive Review First. the parties should undertake a substantive review to determine which jurisdictions’ merger control authorities may claim jurisdiction over the proposed transaction. The idea of coordinating a thorough competition review may seem daunting in the context of a large multi-jurisdictional transaction. implementing regulations and interpretive statements vary widely from jurisdiction to jurisdiction. Each of the more than 60 jurisdictions that actively enforce their merger control regulations has published specific thresholds that may trigger either a mandatory or voluntary (but under certain conditions advisable) application and review or a notification to the relevant competition authorities. In general. merger control authorities base their jurisdiction on one or a combination of the following criteria: (i) gross revenues of the parties (typically revenues of the entire buyer group and revenues of the target.Cross-Border Transactions Handbook Section 7 – Regulatory Framework mergers that “significantly impede effective competition . there are three critical elements in a thorough competition review: x x x conducting a substantive review. 2004 O. 139/2004 of 20 January 2004 on the Control of Concentrations Between Undertakings. . Broadly speaking.”1 Although similar themes echo around the world. and incorporating the review timetable into the overall transaction timetable. in particular as a result of the creation or strengthening of a dominant position. Baker & McKenzie 72 . . Enlisting the assistance of competent legal counsel at the outset of the strategic planning phase can help make the process much more manageable. but the potential consequences of failing to comply with the relevant merger control laws and regulations make it a critical step in the acquisition process.J. but not those of the entire seller group) for the last fiscal year within the territorial borders of 1 Council Regulation (EC) No. the specifics of the merger control laws. developing a coordinated filing strategy. (L 24) 1.

(ii) physical presence of an entity (often.Cross-Border Transactions Handbook Section 7 – Regulatory Framework the particular jurisdiction (so-called “destination sales”). a target subsidiary). despite the sometimes strong temptation to manipulate a market definition to play down potential anticompetitive effects in individual jurisdictions. These market definitions are important not only for the purpose of collecting and analyzing the necessary information about the parties’ business and the anticipated competitive effects and market shares (i. and the relevant geographic market for those products may vary. a proposed combination affects more than one product market. Additionally. even if the parties technically meet the thresholds for EU review. to be sure that the parties are comparing “apples to apples”). the parties would be well advised to ensure that any merger control notifications filed with respect to an Baker & McKenzie 73 . and in particular. it is strongly advisable to maintain a consistent and coordinated approach among the various jurisdictions in which filings are required. parties can now request EU review under certain circumstances where EU review is not otherwise required. Accordingly. In addition. they may ask the EU commission (by way of a “reasoned submission” or “Form RS”) to cede its authority back to one or more of the Member States for review by their national competition authorities. but also in presenting the information to the relevant authorities. On the other hand. in an effort to streamline the competition review process for companies with significant business in three or more of its Member States. or (iii) anticipated anticompetitive effect that the proposed business combination may have on the “domestic” market. More often than not. Coordinated Filing Strategy A second important element in a thorough competition review is that the parties should develop a coordinated filing strategy.e. but not always. Notably.. the European Union has instituted a “one-stop-shop” review process for vetting larger cross-border mergers. agree upon consistent definitions of the relevant markets. Because competition authorities increasingly collaborate in their review procedures and pay close attention to the decisions taken by their counterparts. national review by the EU Member States is pre-empted if parties to a merger meet the thresholds for EU Commission review.

g. Post-closing notices and filings are typically required to be made within 15-30 days of closing. the parties are jointly responsible. many sellers begin working with their counsel early in the process to compile a preliminary analysis based on destination sales and market shares. it is essential for the parties to clearly understand the timetable for the review process and to incorporate this into their overall transaction timetable. To that end. Timetable Finally. allow the parties to request an “early termination” of this waiting period. these periods can be extended if the authority considers a filing to be incomplete.. Where consent of merger control authorities is required. 30 to 45-day waiting periods are most common. including Germany and the United States. However. but longer periods apply in a few cases (e. it often proves to be a good investment for the seller to begin collecting the relevant information well ahead of time. From a project management standpoint. Failure to anticipate the post-closing integration of local subsidiaries may result in further notifications to the competition authorities. thus giving rise to unnecessary additional costs and potential delays in the post-closing integration process. In practice. it is also important to take into account the fact that in many countries the administrative and government offices are closed during holiday periods (most commonly December-January). although longer periods may apply in some cases. In planning the timeline for this process. and waiting periods may also be suspended for the duration of public holidays.Cross-Border Transactions Handbook Section 7 – Regulatory Framework acquisition also address the subsequent integration of the companies at the local level. regardless of statutory obligation. Accordingly. although in a few places. as any potential buyer will eventually require this information. This can be 74 Baker & McKenzie . however. suspension of closing is typically mandatory. some jurisdictions. it is quite common for both parties to collaborate on the preparation of the filings. in non-controversial situations. In many jurisdictions. the buyer is often legally responsible for filing the requisite merger control notifications. 2 months for Poland). Filing Responsibility In most jurisdictions. requests additional information or gives notice of an extended review.

A preliminary analysis also enables the seller’s management to better control expectations as to the timing of closing and. such as adoption of any annual business plan or budget or the appointment of senior management. the anticipated costs to get there. the acquisition of legal title by one party over the other’s assets (in the case of an asset transaction).Cross-Border Transactions Handbook Section 7 – Regulatory Framework particularly useful in the auction setting. 3. to some degree. the US antitrust authorities have fined companies for unlawful activities prior to the expiration of the waiting period under the Hart-Scott-Rodino Act. Although the parties are entitled to take integration steps during any waiting period. Accordingly. the acquisition by one party of the right to veto strategic decisions. although this does not prevent the imposition of obligations to ensure that the acquired business operates “in the ordinary course” during the 75 x x x Baker & McKenzie . “Gun Jumping” Issues The waiting periods imposed by most merger control laws worldwide require parties to suspend the conclusion and implementation of a transaction prior to approval or the expiration of the waiting period. Competition authorities worldwide are increasingly pursuing procedural violations of merger control rules. administrative board or other bodies controlling the other party. the acquisition and exercise by one party of the right to appoint members to the other’s board of directors. where the relative complexity of the competition review process and the likelihood of substantive issues due to elevated market shares resulting in protracted review periods or conditional approvals may be a factor in the selection among several potential bidders. these steps should fall short of de facto implementing the transaction. In particular. the parties should avoid: x the acquisition of legal title in shares with sufficient voting rights for one party to have decisive influence over the other (this definitely occurs where a buyer acquires the ability to exercise over half of the voting rights in the target).

including de facto integration. employees being transferred or seconded between the parties (although it is generally permissible for an employee to apply for a position properly advertised in the ordinary course of business). These are generic guidelines based on US and EU competition laws and regulations regarding the exchange of 76 Baker & McKenzie . for whatever legitimate purpose. electronically or in written format. whether orally. It is therefore important to ensure that information transfers between the parties comply with the applicable competition laws. etc. remain fully in competition with one another until the conclusion of the project in question (or. Joint customer or supplier contact limited to explaining the transaction and future operations of the business is generally acceptable. Exchange of Competition-Sensitive Information In many transactions. going into the future). marketing. The following guidelines are designed to highlight the need to distinguish between the different categories of information and the competition law prohibitions or restrictions on the exchange of sensitive information falling within each category. x one party beginning to manage the other’s business on a de facto basis. however.Cross-Border Transactions Handbook Section 7 – Regulatory Framework interim period but without otherwise restricting pricing. in the event that the project discussions do not succeed. One of the overriding purposes behind the existence of a competition law regime. x x 4. at the diligence stage. and the parties jointly contacting customers or suppliers to discuss price or future terms of supply (even if such a discussion is initiated at the request of the relevant customer or supplier). or later when there is a time lag between signing and completion) will inevitably involve the transfer of competition-sensitive information. joint marketing. the negotiation process (either initially. is to ensure that the entities engaged in transfers of information. customer relationships or product development. integration of sales forces.

77 x x x x Baker & McKenzie . information relating to the integration of the parties’ accounting. employees and staff from any allegations that the project negotiations facilitated either the transfer of sensitive information between the parties or the coordination of their competitive behavior. and prohibited information. Permitted Information The following data can be freely transferred: x publicly available information (including information on overall capacity utilization in the market and published projections concerning general and specific market trends). Jurisdiction-specific competition advice should always be obtained in connection with any contemplated disclosure of potentially competition-sensitive information. Before exchanging any information.Cross-Border Transactions Handbook Section 7 – Regulatory Framework information between actual or potential competitors in the context of a proposed acquisition. controlled release information. general descriptions of available products or services. general assumptions intended to assist with a financial model to be used to value the target (but not internal assumptions about future prices of specific products in respect of which the companies concerned are competitors or potential competitors). Only then can they protect themselves and their officers. information relating to the integration of the parties’ computer systems. General Rules Information can broadly be divided into three categories: x x x permitted information. treasury and information management methods. the parties to the transaction should always consider and determine what category each item of information falls into.

non-aggregated) product margin information.e. personnel information (but not detailed cost/salary information). more than one year old) regional sales by volume and product type (but not broken down by customer). it may be possible to release some of the following to a limited number of designated recipients for the purposes of the diligence investigation: x x x x marketing plans and strategies. historic individual (i. Controlled Release Information Subject to review and approval by legal counsel. 78 Baker & McKenzie .e. announced capital expansion or closure plans. supplies and facilities.e. historic aggregate profit margin information. The following data can be exchanged in the appropriate format: x x x x historic (i.Cross-Border Transactions Handbook Section 7 – Regulatory Framework x x x x x x facility descriptions. published financial statements of the target. including capacity utilization.. not broken down by product/supplier) costs of inputs.e. historic (i. supplies and facilities.. environmental information of a non-competitively sensitive nature. historic individual costs of input. historic aggregate (i. and historic aggregate expenses and overhead charges.. more than one year old) pricing data and customer information. and corporate structure and shareholding investments..

current wage and salary information. Use of Independent Third Parties The use of independent consultants. even with the use of a third party. by aggregating data or by removing specific price or customer information). and current individual costs of input. supplies and facilities.. accountants and lawyers may alleviate concerns over the exchange of information between the parties concerned. information should only be exchanged upon approval of legal counsel and pursuant to a confidentiality agreement with the third party Baker & McKenzie 79 . unannounced capital expansion or closure plans.g. A third party may be able to review the competitively sensitive information and provide the receiving company with a nonconfidential summary (e. Prohibited Information Subject to the use of independent third parties as discussed in the next paragraph. future pricing intentions. current specific customer information. current bids or negotiations with specific customers. However. future customer strategies. including discounts and rebates and other terms and conditions of sale.Cross-Border Transactions Handbook Section 7 – Regulatory Framework x x x x current regional sales information and projected revenues by volume and product type (but not broken down by customer). new product development or discontinuation of existing products. and proprietary technical know-how and data. current individual product margin information. there must be no transfer of the following information between the parties: x x x x x x x x current pricing data.

France extends its notification requirement to include indirect 80 Baker & McKenzie .g. the parties are subject to the antitrust rules and penalties. Argentina and China) or because of the nature of the asset being acquired (e. The penalties for competition law infringements are severe.. including treble damages. be used by that company to affect competition on a market within the European Union or that particular Member State. In addition. Penalties Under EU law (and the laws of every EU Member State) it is considered illegal for a company to obtain information from a competitor which could.000 per day per party. In some cases governments may require pre-merger notification or approval where a proposed transaction involves a foreign buyer. 5. in the United States. Varying restrictions appear throughout Latin America.g. At the EU level.Cross-Border Transactions Handbook Section 7 – Regulatory Framework that. Foreign Investment Approvals and Notifications A number of countries impose approval or registration requirements on foreign buyers simply because they are nonresidents of the jurisdiction in which the target enterprise is located (e. but the government must be notified after the fact. limits the information provided by the third party. the Middle East and Asia. prior to the merger or acquisition. the European Commission has the power to fine a company up to 10% of its annual worldwide turnover. among other things. parties who are subject to premerger notification filing under the Hart-Scott-Rodino Act and “jump the gun” and begin to consolidate operations before closing may be subject to civil penalties of up to $11. In other countries (including Italy.. Canada and New Zealand). Each Member State provides for similar penalties in their national laws. Similarly. even on a purely theoretical basis. but there is a trend toward liberalization in this area. provided that the target business is not engaged in a sensitive industry. with respect to collusion and agreements among competitors. no prior approval is needed for an acquisition by a foreign-owned or controlled entity. a power which it uses on a regular basis to levy fines of tens of millions of Euros. the United States and Venezuela).

Industry-Specific Regulations As noted above. an acquisition of an entity that owns a French company). In the United States.Cross-Border Transactions Handbook Section 7 – Regulatory Framework acquisitions (i. The Exon-Florio rules do not actually define “national security” and it thus may have broad application. capacity and technological leadership. communications. The Committee on Foreign Investment in the United States. defense. “national security” concerns may limit or prohibit acquisitions that the government believes could jeopardize domestic capability. as evidenced by the failed bid by Chinese oil company CNOOC Ltd.e. Regardless of the ultimate threat to national security. but may take up to 90 days if an in-depth investigation is deemed to be warranted. For California-based Unocal in June 2005. these rules provided an avenue for reviewing and potentially delaying or modifying a transaction that had enormous political impact in the United States during Baker & McKenzie 81 . computers. In yet other jurisdictions. the so-called “Exon-Florio” provision of the Omnibus Trade and Competitiveness Act authorizes the President to suspend or prohibit any foreign acquisition of a US corporation that is determined to threaten the national security of the United States. the foreign shareholder will need to lodge a notice in connection with the local entity’s corporate maintenance requirements. was established to receive notices of proposed acquisitions. Some examples of industries that are commonly considered sensitive include banking.. The review by CFIUS typically takes 30 days or less. or “CFIUS” for short. CFIUS was apparently preparing to review that transaction due to the fact that many oil companies have underground mapping technologies and deep water drilling capabilities that could have military application. shipping and transportation. Apart from the obvious examples of sales of weapons components or technology transfers to states that are believed to support terrorism. public utilities. any acquisition that results in the transfer of an enterprise from local to foreign control may come under intense governmental scrutiny if a particularly sensitive industry is involved. and to review and report to the President on their conclusions regarding the potential effect of the transaction on national security or domestic capabilities related to national defense. 6.

local asset sales in the context of a global acquisition). for example. in which case the transfer of funds in connection with the acquisition will often require approval as well. Moreover. Approval of cross-border transactions involving these industries may not be available at all or may be made conditional upon continued substantial French participation. That said. payment of the purchase price locally in local currencies is required unless an advance approval is obtained. profits may be freely repatriated (subject to applicable withholding tax and possibly reduced rates under the 82 Baker & McKenzie . for example. A medical device manufacturer. government approvals may be fairly routine. The uncertainty created by the potential for government review was the main reason given by CNOOC for withdrawing its bid for Unocal in August 2005 and serves as a reminder of the importance of anticipating and planning for government review so that appropriate steps can be taken to mitigate political fall-out early in the transaction process and before a bid becomes public. including electronics. is likely to hold important permits. The United Kingdom. 7. local permits and registrations may also need to be transferred depending on the particular industry and transaction structure. requiring anything from two weeks to six months to obtain. and in controversial situations. the transfers of which must be anticipated and addressed early in the process. sometimes even longer. Exchange Control Approvals In some countries. data processing and defense. even routine approvals may be quite time consuming.g.Cross-Border Transactions Handbook Section 7 – Regulatory Framework a period of high oil prices. In some cases (e. without such approval. the investment may also be subject to exchange control approval. capital. it may not be possible to repatriate profits. Thus. abolished all such restrictions in 1979. France has also established restrictions on foreign acquisitions in certain industries. Outside of these sensitive industries. in addition to requiring prior approval for an acquisition by a foreign buyer.. Most Western European countries no longer impose these types of requirements. Furthermore. interest or royalties.

particularly in Latin America (e. Brazil) and Asia-Pacific (e. Local Business Rules and Reporting Obligations In addition to pre-closing regulatory considerations. Like the competition and other regulatory matters discussed in this section.g. China). Management will need to develop a coordinated system of corporate maintenance for all of its subsidiaries to ensure timely compliance as necessary to begin and maintain the business as a going concern. prudent buyers (or business venture partners) should take time to familiarize themselves with the local rules applicable to doing business in the countries in which the business will be operating after closing. The ease of obtaining foreign exchange approvals may depend on whether the seller is already in full compliance with local exchange control laws. still impose foreign exchange controls. Baker & McKenzie 83 . * * * Another highly regulated aspect of doing business that can impact the timing and structure of a cross-border transaction is the transfer of the target’s employees and benefits plans. Section 11 (Post-Closing Actions) discusses some of the common post-closing issues that should be considered in this regard. In the next section. we discuss the broad areas of inquiry surrounding the transfers of employees and benefits plans. If the seller is not in full compliance and does not hold all appropriate approvals.g.. 8. Many jurisdictions. it may be difficult and time consuming to obtain approval for the acquisition. the employee-related issues generally need to be addressed on a jurisdiction-by-jurisdiction basis. however..Cross-Border Transactions Handbook Section 7 – Regulatory Framework applicable double taxation treaties) without advance approval of the investment or acquisition.

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if so. which party will be responsible for paying that liability. That is. there are a few main areas of inquiry in this connection: x x whether employees transfer automatically by operation of law or whether they must accept an offer of new employment. whether there are local approvals. and whether the former employer retains any liabilities or remains jointly responsible with the new employer for liabilities to the employees. of the employee transfer and employee benefits issues in a cross-border transaction will flow from the structure of the transaction. which party is obligated to secure them. if so. careful diligence. consultations and notices required as part of this process and. x x x x Baker & McKenzie 85 . whether the new employer assumes any liabilities to the employees by operation of law. whether the transfer of employees triggers severance and termination indemnities under local law and.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits SECTION 8 EMPLOYEE TRANSFERS AND BENEFITS Another crucial component of a cross-border (as well as domestic) transaction is the transfer of the target’s employees and their corresponding benefits. Generally speaking. Most. the structure of the transaction will dictate the range of issues under local law regarding how employees and employee benefit plans will be handled. if not all. whether employee benefit plans and their related liabilities transfer automatically or whether the parties must take special action to replicate plans or transfer a plan to another entity. correspondingly. due to their propensity to affect the transaction timeframe. Employee-related issues often require significant advance planning and. how to identify the employees who need to transfer with the target business.

the status of the employees becomes an important issue.. if a transaction involves a transfer or exchange of the equity ownership of the target business. 1. If no offer is made to an employee. which party will be responsible for the underfunding. In this form of transaction. then all of the assets and liabilities remain with the target business and only the target’s equity ownership changes.g. the buyer can pick and choose which employees are worthy of an offer. x x This section addresses these broad areas of inquiry. depending on the needs of the business. and whether any transitional services will be required until all employment-related functions can properly be performed by the target business after closing. Offer/Acceptance In general under US employment law. Generally speaking. whether the target’s employees are covered (or are intended to be covered) by any sort of global equity compensation arrangement. collective bargaining agreements) require otherwise. if a transaction involves the sale or transfer of the underlying assets and liabilities of a business. the US rules described above do not necessarily apply. In a cross-border transaction. an offer of employment does not need to be made to all employees. 86 Baker & McKenzie . On the other hand.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits x whether the funding levels of funded employee benefit plans are acceptable to the parties and. Automatic Transfer vs. if not. Whether and how employees transfer in a particular jurisdiction depends on the employee transfer laws of that jurisdiction. If the employees are intended to transfer along with the assets and liabilities. that employee remains employed by the existing business and does not transfer with the underlying assets and liabilities. they must formally accept a new offer of employment. no termination of employment occurs because the employees of the acquired entity remain employed the same as before. Except where contractual provisions (e.

an assets transaction) then the result depends on the jurisdiction. an employee does not transfer unless he or she accepts a formal offer of employment. Canada (other than Quebec). whether in the form of a share transaction or an asset transaction. the result is the same as in the United States.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits Cross-Border Share Transfers In most jurisdictions outside of the United States. is too long to discuss in comprehensive detail in this handbook. and they include the following. the transfer of a business in an automatic transfer jurisdiction. China. the Acquired Rights Directive has two goals: x to provide for a contractual continuity of employment notwithstanding a change of employer as a result of a transfer of a business. The Acquired Rights Directive. promulgated by the European Council on February 14. most notably the members of the European Union and many Latin America jurisdictions (including Mexico and Brazil). which each EU member was obligated to implement through suitable legislation. Members of the European Union are bound by the Acquired Rights Directive. The transaction will not affect the continued employment of the employees in the target company. and to require that there be a certain minimum of consultation with representatives of the employees who are being transferred. if the form of the transaction is a transfer or exchange of equity. We refer to these jurisdictions as “automatic transfer” jurisdictions. then. x Therefore. however. 1977. In other jurisdictions. Hong Kong and the United States. Generally speaking. which provides this result. similar to the rule in the United States. among others: Australia. Cross-Border Asset Transfers If the transaction involves a sale or transfer of a business as a going concern (that is. That is. For purposes of this handbook. does Baker & McKenzie 87 . a sale or transfer of the business will cause the employees who are dedicated to that business to transfer automatically with the business. we refer to these jurisdictions as “offer/acceptance” jurisdictions. the employees will continue in employment the same as before. In some jurisdictions.

business or part of a business to another employer as a result of legal transfer or merger. For example. For Singapore employees who are covered by the SEA. Also.” Accordingly. in Japan). Article 1 of the Directive provides that it applies to the “transfer of an undertaking. Determining the employee’s local language may not be easy. there may be special requirements under local law as to the form. an offer letter and acceptance by the employee is typically required. some care should be taken in these jurisdictions to identify who is likely to consent and who will not. there is no uniform approach to this issue.” Given the different legislation enacted by each of the EU members to implement this Directive. In Singapore. Germany) the employees nonetheless have the right to object to the transfer of employment occasioned by an asset sale and remain employed by the seller. Another local 88 Baker & McKenzie . executive or confidential” employee. what constitutes a “business” for purposes of the Acquired Rights Directive is not the same in each of the EU member jurisdictions. however. content and timing of that offer. Furthermore. especially in countries such as Belgium. where the local language could be either French. Each jurisdiction has a potentially different answer of what is a “business.g. then the provisions of the SEA do not apply to that person’s employment. Where a formal offer of employment must be extended to a transferring employee. depending on the region. the issue of whether an employee transfers automatically by operation of law depends on that individual’s status under the Singapore Employment Act. Dutch or Flemish. local legal guidance is recommended to determine whether a particular transaction constitutes a transfer of a “business” for these purposes. in some EU jurisdictions (e. employment transfers automatically by operation of law. provided certain notification procedures are complied with.. At least one jurisdiction is both an “automatic transfer” jurisdiction and an “offer/acceptance” jurisdiction. particularly if the employee is not fluent in English (for example. or “SEA” for short. For those employees. Thus. If the employee falls into the category of a “managerial.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits not terminate the employment of the business’ employees. there may be a requirement that the offer be drafted in the local language. The employees continue in employment with the target business the same as before the transaction.

it is important to be aware of the differences in terminology with respect to an “asset transfer” and a “transfer of a business” in certain jurisdictions. there is an exception for pension rights. triggering potential severance payments. Terms and Conditions In automatic transfer jurisdictions the terms and conditions of employment. bonus. A US-trained M&A specialist who assumes that a “transfer of a business” outside the United States is comparable to a US asset deal. the employees of certain of the target’s subsidiaries transferred automatically with the business. as discussed in greater detail in subsection 5 (Severance/Termination Indemnities) below. In any transaction. including employee benefits. instead.) That is.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits requirement may be that the offer be provided a certain number of days or weeks in advance of the closing of the transaction. This can have drastic consequences from a cost and synergy standpoint as those automatically transferred employees may be entitled to the same terms and conditions of employment as were provided by the seller (including compensation and benefits). are no less favorable than those enjoyed by the employees before the transaction took place. employee benefit plans or fringe benefits/perquisites. (In EU jurisdictions. In offer/acceptance jurisdictions. as discussed in the following section. the buyer might not be in a position to provide equity Baker & McKenzie 89 . must generally remain the same. the employees would likely have a claim for constructive termination of employment. in the aggregate. Otherwise. the employees might be entitled to a generous incentive bonus program that is inconsistent with the type of bonus program the buyer wants to provide for its employees. would be in for a surprise to find out that. the buyer will have to determine whether providing the same or substantially similar terms and conditions is in fact possible or desirable from a business standpoint. such that the employees of the target would not transfer unless they accept a formal offer from the buyer. However. Or. however. the buyer is not permitted to change an employee’s base salary. For example. for business reasons it is typical for offers to be on terms that. 2. Given these results. the terms and conditions are not bound by the same restrictions.

conditions and benefits. as an automatic transfer jurisdiction. The local laws may include requirements regarding when to notify employees regarding the transaction. The parties to the transaction must inform employee representatives of the reasons for the transfer. the diligence process is key. and the measures envisaged in relation to the employees. For these reasons. Depending on the jurisdiction. the legal. such as offering a higher base salary in lieu of a benefit the new employer cannot provide. Mexico. Where the buyer is unable to provide such terms. conditions and benefits. it should seek to provide comparable terms. Approvals. as permitted by the Acquired Rights Directive. Some EU member jurisdictions have. the buyer of a business must consult with the local works council with respect to the intended transaction. Works Council and Similar Notice/Consultation Requirements Approvals and consents are not limited to the employees of the business being transferred. Article 6 of the Acquired Rights Directive (discussed above) sets out provisions for disseminating information to employees involved in a transfer of a business. conditions and benefits the employees previously enjoyed under their former employment. the content of the notice. limited this obligation to only those transfers involving a certain threshold number of employees.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits compensation to the employees. Consultations and Notices In many non-US jurisdictions. Further. and so forth. economic and social implications of the transfer to the employees. requires that the new employer deliver a “substitution notice” to the transferred employees notifying them of the effective date of the transfer as well as other pertinent information. the seller must provide this information to the employees in good time before the transfer is carried out. although the particular 90 Baker & McKenzie . consultation or notification. an employee cannot transfer to new employment without there being first some type of approval (or consent). for example. 3. In the European Union. In some jurisdictions. where previously they participated in a stock option or stock purchase plan. the burden may be on either or both parties to a crossborder transaction to fulfill these requirements. It is imperative that the buyer take the time to understand what terms. for example.

An employee who works 95 percent of the time in the target business may be easily identified as one who should transfer.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits requirements differ from jurisdiction to jurisdiction.e. where the transaction involves the transfer of employees from one employer to another (i. In that case.g. the issue is much less clear when an employee works in the neighborhood of 50 or 60 Baker & McKenzie 91 . Employees who do not transfer with the target business increase the potential severance liabilities for the employer transferring the business. particularly when a business is being transferred in an asset transaction. In the case of a transaction involving the transfer of equity ownership of a business. Similarly. is the identification of the employees who work for the target business. it may be necessary to determine exactly how much time the employee works in the target business as a percentage of his or her entire working time. However. 4. Identification of Employees Another issue that can prompt significant attention in a cross-border transaction. For example. some employees may work both in the business being transferred and another business that is not part of the transaction (e. all of the employees working in the target business remain employed by the target business. The consultation process may be a notification to a particular entity. Employees who transfer with the target business potentially increase the amount of liabilities incurred by the buyer to run the business. they generally run hand-in-hand with the local rules that implement the Acquired Rights Directive. However.. the buyer may be required to consult with representatives of the local trade unions regarding the transaction.. support function employees or employees who also work for another line of the seller’s business). or it may involve substantive discussion and negotiation. an asset transfer). particularly if that employer is unable to use those employees in another line of business. headquarters employees. Often the required consultation must be conducted a prescribed amount of time in advance of the closing. both parties will want to understand who works in the business in order to ensure that the right people transfer and to account for any associated liabilities and notification or consultation requirements that may impact the transaction value and timeframe.

Furthermore.10 (Diligence–Privacy and Data Protection Laws) for a further discussion regarding data privacy issues in crossborder transactions. Further. To the extent that schedules of employees are prepared as part of a data room. the names of the employees may need to be deleted (and perhaps replaced by numbers). especially in automatic transfer jurisdictions. See Section 6. thereby triggering the payment of severance or termination indemnities. for example. identifying employees is important because those employees who do not transfer and remain behind may ultimately be terminated. and careful diligence will be important in this regard. The employees who transfer may also have rights to severance if the new employer does not provide the same terms and conditions of employment. there are expensive severance obligations under local law if an employee is involuntarily terminated. It is rare that these types of obligations are pre-funded or are reflected on the target business’ balance sheet. the issue may need to be resolved in negotiations between the parties. In many non-US jurisdictions. employees may be able to claim severance even if they are transferred to a new employer and even if they receive the same terms and conditions of employment as before. There. The seller usually seeks to have the buyer indemnify it for the cost of this severance liability 92 Baker & McKenzie .Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits percent of the time in the target business. the identification of employees (and their personal information) may need to be conducted in a manner that does not run afoul of local data privacy rules. Severance/Termination Indemnities As indicated above. The parties often negotiate in the principal transaction agreement which party will be responsible for paying these liabilities. the subject of severance or termination indemnities is a very sensitive one for both parties in a cross-border transaction. These obligations are typically statutory in nature and may not be waived by the employee. 5. In some jurisdictions. the amount of the severance obligation may represent a substantial liability to the employer. depending on the jurisdiction and on how many years the employee has been employed. Accordingly.

. the buyer may need to independently determine the potential cost and adjust the purchase price accordingly. In some cases. then the new owner will “step into the shoes of” the former owner and. even though the employees are not constructively terminated in connection with the transaction. Furthermore. the buyer. all employee benefit plans maintained or sponsored by the target business will remain with the target business under its new ownership. it is also common for the buyer to seek to avoid severance liability for employees who do not transfer and to accept liability only for employees who do transfer and who subsequently terminate employment. the employee benefit plans may cover more Baker & McKenzie 93 . On the other hand. but for the transaction. unlike in the United States. whether directly (in an asset deal) or indirectly (in a share deal). That said. the form of the transaction will determine whether and how employee benefit plans will transfer.g. the seller would not have incurred the liability. Just because an employee transfers automatically by operation of law does not mean that the employee benefit plans providing benefits to that employee also transfer. however. the target’s pre-closing parent company) often will not remain with the target business and some type of plan spin off or replication of benefits may be required. the rules with respect to employee benefit plans do not parallel the rules for the transfer of employees.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits on the basis that. Since these obligations often are unfunded and do not appear on the target’s balance sheet. inherits substantial severance and retirement obligations. Cross-Border Asset Transfers In an asset transaction. 6. since only the equity ownership has changed. particularly when an aging workforce is involved. Cross-Border Share Transfers If the transaction involves the transfer of the equity ownership of the business. Employee Benefit Plan Issues Similar to the rules described above with respect to employee transfer issues. employee benefit plans maintained or sponsored by another entity (e.

under TUPE in the United Kingdom. Here. Where possible. With regard to pension plans. it is critical for the buyer to understand what types of benefits the seller extended to its employees. 7. In that case. Funding Issues There are a number of important reasons why funding of the employee benefit plans is an issue for both parties to a cross-border transaction. for example. for example. the new employer may seek to have assets transferred from the former employer’s benefit plans to provide the new employer with the ability to fund the benefits. too. Thus. even though the employees working exclusively in the business are transferred.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits than one line of business and will remain in place to continue to provide benefits to the employees in the lines of business that are not being transferred. The diligence phase is therefore extremely important to the parties. where the employees are unable to continue in their current benefit plans while working for the joint venture. the joint venture entity may be required to create new plans for the transferred employees mirroring the plans they previously participated in when employed by their former employers. the issue of whether the employee benefit plans transfer with the business is different from the issue of whether the buyer is obligated to provide the transferred employees with the same terms and conditions of employment. First. It is possible (and common) for a buyer to have the obligation to provide benefits to employees even though the seller’s benefit plan that gave rise to those benefits does not itself transfer with the target business. so it can provide substantially similar benefits following closing. This situation arises in many joint venture transactions. a pension trust established for employees in a business to be transferred to a buyer would not itself transfer to the buyer automatically by operation of law. the Acquired Rights Directive as it applies to member states of the European Union does not require that private and supplementary pension schemes be transferred to the transferee employer. Further. the buyer will want to know whether any assumed plans are pre94 Baker & McKenzie .

Typically. the amount of the employer’s liability to pay the pension promise is greater than the amount accrued on the financial statements of the employer. In Germany. The term “funded” is not a universal term. and if not. for example. this language is very specific and refers to liabilities calculated on a “PBO” (projected benefit obligation) basis. and it is not synonymous with “setting aside assets in a trust. To that end. A businessman in Germany might say that his company’s pension plan is “fully funded. for example. where the employer does not set aside assets to fund its pension obligation but instead accrues an obligation on its balance sheet for its pension promise. a typical pension plan is “funded” through a book reserve system.” The type of plans most commonly associated with funding issues are pension or retirement plans. the issue will be whether the plan is fully funded on the date of closing. The accrual gives rise to a tax deduction for the employer. the transaction agreement should set forth the appropriate transfer mechanism for the parties to follow in order to calculate and then transfer the requisite amount of assets. In that case. In other words. Often. the buyer will want some assurance that the assets it receives will be sufficient to cover its liabilities. or perhaps financed through the purchase of one or more insurance contracts.” even though in US terms the plan is under funded. If the plan is funded on a pay-asyou-go basis. This might occur. but is establishing its own employee benefit plan and accepting a transfer of assets equal to the liabilities accrued for the transferred employees. Private pension plans may be funded through a trust.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits funded or funded on a pay-as-you-go basis. or on an “ABO” (actual benefit obligation) basis. the parties will need to Baker & McKenzie 95 . Funding is also extremely important if the buyer is not assuming the seller’s employee benefit plan. where the seller maintains an employee benefit plan covering the employees of more than one line of business and the buyer is required to set up its own plan to cover the transferred employees. the buyer will want to know what extra financial liabilities it will have as a result of assuming the employee benefit plans. the amount of the underfunding. What is unique about the German system is that the amount of the accrual for accounting purposes is not 100% of the liability. If a plan is pre-funded. however.

a transaction may necessitate non-US securities law filing obligations for equity awards that need to be satisfied prior to completion of the transaction. restricted stock units and other forms of equity compensation globally has created a myriad of additional tax and legal issues that sometimes are overlooked or glossed over in a cross-border transaction given the timing and other complexities of the transaction. the parties to any crossborder transaction should thoughtfully consider the impact of the transaction on equity compensation to avoid potentially significant legal and regulatory exposures. Similarly. labor and employment consequences associated with changing or ceasing equity compensation arrangements as a result of the transaction may arise. in some instances the form of transaction (e. the adjustment and conversion of equity awards as a result of the transaction may trigger adverse tax consequences for the optionee and/or for the issuer. restricted stock. the parties will need to address any outstanding equity compensation awards involving shares of the target. As discussed above. Global Equity Compensation Issues The use of stock options. For instance. In other situations. a share transfer or an asset transfer) may quickly flush out issues that the parties will need to address and similarly may foreclose alternatives for dealing with global equity compensation awards. Similarly. we will briefly discuss how equity compensation issues arise and are shaped in a cross-border transaction. Nevertheless. Form of Transaction and Governing Documents The structure of the transaction and the terms of the equity compensation plan documents typically guide the treatment of the equity compensation awards in a transaction. For example. In this subsection. and identify some of the common tax and legal issues arising in different types of transactions. where a target will be merged into a buyer with the buyer surviving. 8. where two unrelated parties establish a joint venture entity that is not part of either 96 Baker & McKenzie .Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits engage the services of an actuary or benefits consultant to assist with this process.. equity compensation awards raise potentially significant issues not only in the United States but also in many other countries. Regardless of the nature of the transaction itself.g.

the governing plan documents often limit what may happen with outstanding equity compensation awards in the event of a transaction. the conversion of awards (particularly stock options) may be considered a taxable event from an employee’s perspective. Similarly. this approach requires sufficient diligence by the parties. In some countries. Tax Considerations Many transactions involve the conversion of stock options and other forms of equity compensation from awards covering shares of a target to awards covering shares of the buyer. Notwithstanding the governing plan documents. the options do not vest within two years of grant. among other conditions. In Spain. In other countries. an acceleration of vesting (caused by a transaction) may trigger a taxable event. This same issue also arises when equity Baker & McKenzie 97 . the parties sometimes may be able to negotiate alternatives for addressing equity compensation awards as part of the transaction itself. In some instances. such as Venezuela. and accelerated vesting of awards can affect the tax treatment. affected issuer’s compensation committee and/or board of directors. for example. where stock options become taxable upon vesting. For example.Cross-Border Transactions Handbook Section 8 – Employee Transfers and Benefits parties’ consolidated group (as determined under either US or local law). employees in Spain will lose the ability to utilize this tax exemption. employees may take advantage of a tax exemption for income derived from stock options provided. Most US equity compensation plans include provisions regarding the treatment of stock options and other types of awards in the event of a change in control. this approach also may require amendments to the underlying equity compensation plan and also may require prior approval from the optionee. However. and negotiation and drafting of appropriate provisions for the transaction agreement. many plans provide for accelerated vesting upon certain events tied to a transaction. the joint venture parties will need to consider how to grant equity compensation awards to the joint venture’s employees in light of the restrictions often placed on an issuer’s ability to grant awards to nonemployees of the issuer or the issuer’s consolidated group. Where a transaction triggers an acceleration of vesting within two years of grant.

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compensation awards are adjusted to reflect a spin-off. More specifically, some countries treat a conversion of equity compensation awards as a disposal of one award followed by the grant of a new award. For example, in countries where stock options are subject to taxation on the date of grant (e.g., Belgium and Switzerland), the “grant” of the converted option may result in new taxable event, thus exposing employees to double-taxation on essentially the same award. Similarly, the conversion of equity compensation awards may impact any preferential tax status previously obtained by a party to a transaction. For example, French-qualified options granted by a target likely will lose their qualified status upon being converted to stock options for the buyer’s shares (although the disqualification depends upon the nature of the corporate transaction). Similarly, for options granted by a target under an Inland Revenue share option scheme in the United Kingdom, the parties may be able to obtain specific approval from the Inland Revenue to maintain or “roll over” the favorable tax treatment for those stock options upon their conversion to options covering the buyer’s shares.
Securities Issues

Securities issues often arise in cross-border transactions in various scenarios where global equity plans are at play. For example, where an issuer will be granting awards in jurisdictions where the issuer previously granted awards, the new grants may prevent the issuer from relying upon previously-used registration exemptions and may trigger new registration and prospectus obligations (a similar issue arises where an issuer is granting awards in a jurisdiction where it has not previously granted awards). For example, in Belgium, an issuer is required to submit an abbreviated prospectus to the Banking Commission where stock options are granted to more than 50 employees. If an issuer previously granted stock options to 30 employees earlier in a year and then grants stock options to an additional 30 employees who became employees of that issuer as a result of a stock acquisition later that same year, the issuer will be required to submit an abbreviated prospectus prior to issuing the grants to the new employees. Where the parties intend for the grants to be made upon closing of the transaction careful diligence and advance planning will be critical.
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Similarly, where awards will be converted from awards covering a target’s shares to awards covering a buyer’s shares, the parties will need to consider whether the target previously satisfied the local securities law requirements for issuing those awards. Often, this issue is addressed in the representations and warranties contained in the principal transaction agreement. Additionally, the parties will need to consider whether any exemptions previously used by the target, or securities-related approvals previously obtained by the target, will remain effective. At a minimum, the parties often will need to notify the local securities authorities of a change in corporate structure and the change in the underlying shares that will be issued under the converted awards.
Cessation of Benefits

As noted above, in automatic transfer jurisdictions, the terms and conditions of employment of the transferred employees must generally remain the same after the transfer. However, where the target’s employees participate in a broad-based employee stock purchase plan, for example, but the buyer does not maintain such a plan, the buyer’s failure to offer similar benefits to the transferring employees may be viewed as a breach of the essential terms and conditions of employment. This may constitute a constructive termination of the employment of those employees, which, in turn, may trigger severance obligations under local law.
After the Transaction

Following any cross-border transaction where equity compensation is used globally, the surviving issuer of the awards will be faced with multiple tasks. For example, the new issuer will need to memorialize any new and/or converted awards by delivering new award agreements and related documentation to the affected employees. The new issuer will also need to integrate any new and/or converted awards into its existing stock plan administration, which may involve the establishment of new brokerage accounts. Further, the new issuer will need to ensure the ongoing legal and regulatory compliance of the awards for example, by providing notices to the applicable local governmental and regulatory authorities. Here again, careful diligence will be important to ensuring that these tasks are handled expeditiously following closing.
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9.

Transitional Services

It often happens in a cross-border transaction that the buyer will not have sufficient time to accomplish all of the necessary steps for employee transfers and employee benefit programs on the date of closing. In that case, the buyer may need transitional services; that is, the services of another party, perhaps a third party, to provide certain payroll, administrative and employee benefit plan coverage to the transferred employees for a period of time. The period of transitional services depends on the needs of the buyer and it may last anywhere from a few weeks to a few months or longer. The period should be long enough for the buyer to take whatever steps it needs to establish its own plans, programs and arrangements for employees. The most common type of transitional service is payroll. Particularly in a new jurisdiction, there may be no way of delivering paychecks to local employees, calculating withholding taxes, and so forth. Employee benefit plan coverage is another area where transitional services may be helpful. The buyer may find it difficult to obtain life insurance or health insurance coverage on short notice, for example. In that case, the buyer might contract with the seller to cover the transferred employees under their former employee benefit plans during the transitional services period. Whether this type of transitional service is legally permissible, and how this coverage is structured, varies from jurisdiction to jurisdiction. International transactions no doubt pose some challenging human resource issues. The complexity of foreign legal principles coupled with the speed and timing of the transaction will make it difficult to analyze all the issues and resolve them prior to closing. Appendix 8.1 contains a general checklist from the buyer’s perspective of the key issues to plan for in the cross-border setting when dealing with non-US employee transfers and benefits. The more the parties can anticipate these issues, the better off they will be in making the transaction a successful one. * * *

Although there is often considerable overlap in the processes, once the parties develop a sufficient understanding of the key diligence and
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regulatory issues involved in the deal, they often proceed with drafting and negotiating the principal transaction agreements. In the next section, we discuss some of the key documentation issues that arise in crossborder transactions.

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a joint venture. This section considers the reasons for that inherent complexity before examining how a cross-border transaction may give rise to specific drafting concerns and how the transaction documentation will need to be drafted carefully to ensure that the transaction has legal effect in each jurisdiction. in part..Cross-Border Transactions Handbook Section 9 – Documenting the Transaction SECTION 9 DOCUMENTING THE TRANSACTION In a cross-border transaction.g. the decision as to which law will govern the transaction agreement will also affect many other aspects of the management of the transaction. acquisition agreements in common law jurisdictions (e. so will the transaction documentation require an extra degree of complexity. the United States. to the fact that common law jurisdictions have placed a greater emphasis on the use of representations and warranties for the purposes of both buyer and seller protection. Furthermore. Continental European jurisdictions).g. For instance. there will generally be one principal transaction agreement. including the intent and areas of focus of the diligence investigation. 1. It is crucial for all parties to agree on the governing law as soon as the transaction commences since the structure and content of transaction documentation vary greatly from jurisdiction to jurisdiction. Canada and the component jurisdictions of the United Kingdom) have always tended to be lengthier than the agreements typically used in civil law jurisdictions (e. as with any purely domestic transaction. be it an acquisition or divestiture of assets. Historically. shares or other equity interests. an outsourcing arrangement or some other form of business transaction. This is due. Just as project management and pre-transaction review procedures will be inherently more complex in a multi-jurisdictional transaction than in a purely domestic one. Baker & McKenzie 103 . the choice of governing law has impacted significantly on the structure of the transaction documentation. The Governing Law Debate One of the most significant issues facing parties in cross-border transactions concerns the choice of law that will govern the transaction and its documentation..

Even once a decision is made about which law will govern the transaction documentation. In many civil law countries. thereby. with the lengthier “common law” form agreement now becoming more of the norm. Hence. the parties should ensure that the cross-border 104 Baker & McKenzie . As such. does not recognize any general obligation of good faith in the law of contract. the fact remains that parties to common law-governed transaction documents continue to make considerable use of extensive representation and warranty provisions. Furthermore. Accordingly. by contrast. Accordingly. legally obligated. an aggrieved party in a contractual arrangement governed by common law has typically not been able to rely on any rights of recourse other than those occasioned by a breach of the express contractual terms. there has tended to be something of a convergence in transaction documentation. parties will need to be prepared for inevitable differences of opinion if dealing with counterparts in foreign jurisdictions whose practice is somewhat different than that with which people in common law jurisdictions are more familiar. to reach a meaningful allocation of liability. This obligation generally requires the parties to engage in a more comprehensive. While the “good faith” concept is gradually creeping into the law of common law jurisdictions such as England and Wales. parties in common law jurisdictions have come to rely heavily on the use of extensive representation and warranty provisions in transactional agreements to draw out disclosure of issues and problems and. In spite of this. as business becomes more “global” and crossborder transactions more common. disclosure of issues and problems than is typical in common law jurisdictions. parties to contracts in common law jurisdictions have typically been guided by the principle of caveat emptor or “buyer beware” when entering into contractual arrangements. as discussed above in Section 5 (Preliminary Agreements).Cross-Border Transactions Handbook Section 9 – Documenting the Transaction English common law. and many of its descendant jurisdictions. the use of extensive representations and warranties in the principal transaction agreements has been less common in many civil law jurisdictions as the parties are already under an obligation to deal with one another in good faith and make appropriate disclosures as a matter of course. parties are typically under obligations of good faith to each other.

agree to procure that their subsidiaries or affiliates will do all things necessary to give legal effect to the transaction? Will the parent or another member of the contracting parties’ corporate group be required to act as a guarantor in connection with the transaction? Will the parties be able to conduct extensive diligence in each jurisdiction prior to signing the principal transaction agreement or will they need to contract around potential risks? What sort of balance needs to be struck between ensuring that representations and warranties are sufficiently broad to cover 105 x x Baker & McKenzie . however. It is therefore very important for parties in multijurisdictional transactions to ensure that their legal counsel are versed in the broad range of international legal issues that will affect the drafting of the documentation. These include. 2.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction agreements are drafted with sufficient breadth so as to encompass legal concepts in other jurisdictions which may be included in the transaction. This will range from ensuring that definitions are sufficiently broad to cover both foreign and domestic concepts. as result. but are not limited to. to drafting closing provisions to ensure that local closing formalities are respected in each relevant jurisdiction. several key issues (in addition to the governing law choice) should be considered at the outset of the documentation phase in a cross-border share or asset transfer. is fairly straightforward: to give legal effect to the transfer of assets. shares or other equity interests in each jurisdiction which is part of the transaction. the following types of questions: x Who will be the parties to the acquisition agreement? Will only one member of each party’s corporate group enter into the master agreement and. We will now discuss some of the key aspects to consider when drafting cross-border transaction agreements in the context of share and asset acquisitions and business process outsourcing transactions. Cross-Border Acquisition Agreements The principal aim of any acquisition documentation. whether in the crossborder or domestic context. Beneath this surface simplicity.

through representations and warranties. the issues reflected above are critical and will have long-run implications for the ultimate allocation of risk and liability between the parties. therefore. (ii) the means by which the parties intend to allocate risks with respect to the transferred shares or assets (e.g. often. (iii) the mechanics leading up to and following closing (e. notarial deed or other instrument of transfer for shares or equity interests. The form which many of these base documents takes is. negotiating and finalizing the transaction agreements.g. purchase price adjustments. Giving Effect to the Transaction in Local Jurisdictions In many cross-border transactions. However. conditions to closing. None of these issues should be of any surprise to anyone familiar with transaction documentation in a purely domestic context. the compensation to which they are entitled... what specific method will the parties agree to use in any specific case? These are only some of the multitude of questions which both parties will need to consider when drafting. and (iv) how the parties intend to resolve any dispute that may arise in relation to the transaction following closing. it is important for the parties to ensure that all of these relatively mundane and straightforward local transfer instruments are governed by an “umbrella” agreement which deals with material issues such as: (i) the terms on which the shares and assets will be acquired and certain liabilities assumed. local law will stipulate the required documents and actions necessary to give effect to the share or asset transfers in the local jurisdictions (e. post-closing covenants and other obligations). quite disarmingly simple.. Nevertheless. That said. given 106 Baker & McKenzie .Cross-Border Transactions Handbook Section 9 – Documenting the Transaction both foreign and domestic issues and yet sufficiently specific and detailed to cover particular items of concern that may have been discovered during the diligence process? x Given that different jurisdictions often use different means for calculating the damages suffered by an aggrieved party and. a stock transfer form accompanied by delivery of share certificates when certificated.g. indemnities and carve outs of certain liabilities). or a bill of sale and assignment and assumption agreement or business transfer agreement for assets).

In all cases. it is not advisable from a risk or project management standpoint for the parties to set out negotiating a master purchase agreement and then conduct a similar exercise for the documentation in each local jurisdiction that will actually give legal effect to the transaction at the local level.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction the interplay of various legal systems and cultural mores. share transfer form or other instrument of transfer which merely specifies the names of the parties to the local share sale. the key objective is to ensure that the master “umbrella” purchase agreement which has been negotiated (often heavily) by the parties governs the transaction. the importance of an overarching master acquisition agreement. If the master “umbrella” agreement contemplates a purchase price adjustment based on some financial or other measure. as discussed in Section 10. Rather. As such. the quantity and value of. the local documentation is often very simple and straightforward.7 (Closing the Transaction–Moving Funds). given the wide variety of asset classes often Baker & McKenzie 107 . and the consideration payable for. the parties will need to contemplate the local implications of that adjustment. the aim should be to ensure that local documentation is kept subordinate to the master agreement and serves only as the bare minimum necessary to give legal effect to the asset or equity transfer in the local jurisdiction. In certain civil law jurisdictions. the transferred equity interests. who will execute a notarial deed giving effect to the transfer of the relevant equity interests. linking together the documents required to give effect to the transaction in each jurisdiction is magnified in the cross-border context. Local Asset/Business Transfer Documents The documentation gets more complicated when the assets of a going business are being transferred. the parties may be required to appear before a civil law notary. For example.2 (Closing the Transaction–Notaries) discusses the function of notaries in closing crossborder transactions in greater detail. the parties often need to allocate the purchase price to the local target in the local transfer documents. Pursuing such a course of action would greatly increase the likelihood of issues receiving inconsistent treatment in the documents across the jurisdictions. It normally takes the form of a simple stock power. Local Share Transfer Documents In the case of share transfers. Section 10.

in the context of a divisional sale). Issues of particular concern include effecting the transfer of contractual rights and obligations. the issue is a bit trickier. the listing of assets should be more specific and detailed (in some cases by asset categories) in civil law jurisdictions.g. Business Transfer Agreements Parties to domestic asset transactions will typically be familiar with the use of a bill of sale to effect the transfer of assets and an assignment and 108 Baker & McKenzie . a catch-all-clause should be added providing that the asset schedules are not exclusive and that the transferor transfers to the transferee all assets relating to the business. for example. except those which are not owned by the transferor or are otherwise intended to be carved out of the transaction (which. In Germany. In that situation. Nevertheless. if the assets are not scheduled in accordance with local legal requirements. In some countries. Generally speaking. depending on how precisely the business is described. even a catch-all clause may not completely eliminate the risk that title to all of the relevant assets will not pass to the transferee. whereas it is usually sufficient to provide general descriptions of asset categories under the laws of most common law countries. Often. the parties should ensure that they comply with applicable local legal requirements in order to legally affect the contemplated transfer of assets and liabilities. Ideally. the transferring party would list every single asset that is being transferred to the transferee. and these lists can often be printed out and attached as schedules to the asset transfer documents. as well as employees and related benefit plans in accordance with local laws.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction involved. In addition. comprehensive schedules listing every single asset are not available. however. the schedules of assets must be prepared with a high degree of specificity. they may be deemed not to have validly transferred from the seller to the buyer. Some entities keep detailed asset lists in the normal course of business. the issue is simply one of identification of the transferring assets and a general reference to “all assets located at [a specific identifiable location]” will often suffice. should also be listed in a schedule). In an asset deal where an entire company’s assets are being transferred.. or where they might be mixed with other assets that are not transferring (e. Where the relevant assets are not housed in separately identifiable locations. however. in turn.

rather than select assets. Typically. the local subsidiaries of the parties. the governing law and dispute resolution language in the BTA will expressly replicate the language of the master agreement..g. France). Despite its relatively simple nature. often enter into a business transfer agreement.g. indemnities and covenants. or “BTA” for short.. To ensure that the master agreement controls the whole transaction. As such. the legal transfer of assets used in the business. Further.g. This approach assures consistency with the master agreement and deal terms. including representations and warranties. the BTA will usually contain many cross references back to the master agreement and will be deliberately silent on most issues covered by the master agreement. including the following: x The form of the BTA is typically negotiated and agreed by the lead counsel and distributed to local counsel for comment. for each jurisdiction in which assets are transferring in order to establish that a going business. the BTA would be based upon and consistent with the overall master purchase agreement. In the international context. 109 Baker & McKenzie . however. are being transferred in the local jurisdiction. While there are certain exceptions (e.. as the local seller and buyer. To that end. however. the BTA is a relatively short document which addresses only those issues relevant to the local transaction (e. the use of a BTA offers a number of particular benefits. This will ensure that any post-closing disputes between the parties are “channeled up” to the master agreement and not dealt with at the purely local level.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction assumption agreement to effect the transfer of liabilities. or only a few. closing conditions (e. the assumption of liabilities related to the business and the local legal formalities surrounding the transfer of employees dedicated to the business). the BTA will contain no. references to locally required government approvals) since it is signed and delivered in conjunction with the closing under the master agreement. the BTA will typically include language stating that it is expressly subject to the master agreement in the event of any inconsistency. Local negotiation of the BTA in each country is often severely restricted. facilitates preparation of the required local documentation and reduces cost.

The BTA provides greater flexibility for minimizing these stamp duties by enabling language to be included that provides for the transfer of tangible assets by way of delivery of possession and eliminating the stampable bill of sale. serves as a useful tool for demonstrating that the assets transferred constitute the transfer of a business as a going concern.. the BTA. All jurisdictions have particular requirements for the means by which employees are transferred in connection with the transfer of a business as a going concern. In many jurisdictions.g. While the use of a bill of sale. as the sole operative transfer document. assignment and assumption agreement or other document will not necessarily lead to such an exemption being refused. accounts receivable and goodwill). if the parties can satisfy local tax authorities that the transaction constitutes the sale of a business as a going concern (as opposed to the sale of isolated assets) the local transfer may be exempt from value added or goods and services taxes. intellectual property rights. The use of the BTA provides a more efficient means for local counsel to comment on transfer mechanics from a local law perspective without the need to review the entire master agreement. The BTA serves as a convenient document in which to lay out the particular local legal requirements for the transfer of those employees in conjunction with all other transfer mechanics. stamp duty will not be assessed on assets transferring by delivery of possession but would generally be assessed on all assets transferred pursuant to a bill of sale. a stamp duty is assessed on the written documentation used to transfer assets that cannot otherwise be transferred by physical delivery (e. In many jurisdictions. Baker & McKenzie x x x 110 . particularly in civil law jurisdictions. often have limited experience with bills of sale and other transfer documentation.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction x Local counsel. Therefore. thus potentially reducing the associated time delays and cost implications.

The BTA will often include schedules that set forth the particular assets and liabilities transferring in the relevant jurisdiction. IT support. Similarly. The parties may decide to enter into specific documents providing for indemnification against certain liabilities (e. the parties may need to enter into some sort of transitional services arrangement for an interim period until the buyer is able to provide for itself various functions such as treasury services. as discussed in greater detail in Section 12 (Dispute Resolution). if a target is being divested from a larger group.. Due to its relative brevity. Accordingly. and properly reflect the local applicable tax regime. payroll and others. In addition. x Ancillary Documentation It is important to note that the master acquisition agreement (and the associated local transfer documentation) will not necessarily be the only documents entered into by the parties in cross-border share or asset transactions.g.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction x In certain circumstances. the ancillary documents will need to be drafted carefully to ensure that they are sufficiently broad to cover legal concepts that are relevant to both the governing law of the acquisition and any applicable local legal requirements. tax covenants and deeds of indemnity for environmental liabilities in particular jurisdictions) rather than including extensive jurisdiction-specific indemnification language in the master agreement. the BTA will prove to be an easier document to translate when compared to the master agreement. The drafting of these ancillary documents will often present similar issues to those encountered when drafting the principal asset or share acquisition agreement. parties often include a provision expressly stating which agreement will prevail in the event of inconsistencies. local authorities may require a local language translation of the operative transfer documents. the parties will need to review the ancillary documentation carefully to ensure that it is consistent with the terms of the master agreement. Baker & McKenzie 111 . To this end. In addition. For instance. each BTA will serve as a useful future reference of the assets transferred in the corresponding jurisdiction. the parties should ensure that all documentation is consistent from the perspective of the dispute resolution provisions.

indemnification obligations. the parties to a cross-border outsourcing transaction are faced with many of the same documentation issues that arise in the cross112 Baker & McKenzie . any service transition and transformation obligations. For example. The master agreement may also provide a process for implementing the local agreements. intangibles. governance structures and dispute resolution procedures that apply at the global and local levels of the transaction. On the other hand. when a party transfers the performance of a business function to a service provider across multiple countries. Master Agreement In the context of business process outsourcing agreements. Business Process Outsourcing As a service-driven transaction. While the party delivering the outsourcing services may acquire assets (including facilities.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction 3. term and termination procedures and the licensing and ownership of any intellectual property rights involved in the transaction. Accordingly. the parties may utilize an umbrella master agreement that sets forth the general business and legal terms that apply to any local companion agreements entered into underneath the master agreement. pricing and payment structures. rights under third party contracts and employees) from the party receiving the outsourced services. the master agreement typically will address the intended scope of the services to be provided. This structure permits the parties to allocate business and legal risks in a consistent and efficient manner while still respecting the independence and unique business process and technical constraints of the local entities involved in the business process outsourcing transaction. liability limitations and disclaimers. outsourcing transactions generally involve delivery obligations that distinguish them from typical share and asset acquisition transactions and make them more akin to traditional longterm commercial arrangements. the issues involved in documenting the transaction have much in common with the issues involved in structuring and documenting traditional multijurisdictional share and asset acquisitions. the asset transfer is often of secondary importance to the delivery obligations assumed by the service provider. equipment. The master agreement generally will also contain representations and warranties.

These schedules typically include detailed statements of work. Local Companion Agreements The local companion agreements sit underneath the master agreement and generally are entered into by and between the particular service recipient and service provider at the local level. security and confidentiality commitments. The detailed business requirements of the outsourcing transaction are generally addressed in schedules that are appended to the master outsourcing agreement. certain service towers may fall outside the scope of the services to be provided in a given local jurisdiction. or the process for delivering payroll services may be significantly different in a jurisdiction where the local entity has not migrated to a global payroll processing application. service level agreements. payroll processing may not be outsourced in every jurisdiction. pricing mechanisms. In addition. In the context of a human resource outsourcing transaction. all prepared in accordance with local legal requirements. or the process used to perform a particular service function may be unique to certain jurisdictions. Local companion agreements allow the parties to specifically address these types of divergent issues where relevant to the particular local jurisdiction. In this regard. the extensiveness of the representations and warranties and the manner in which damages are calculated. local companion agreements in the outsourcing context are often considerably more substantive than Baker & McKenzie 113 . transition plans. For example. the master agreement in the outsourcing context may include affirmative covenants from the outsourcing services customer and vendor to procure that their respective local entities enter into appropriate local companion agreements to implement the outsourcing transactions contemplated at the global level. for example. The local companion agreements provide the context for creating specific amendments and modifications to the master agreement as may be necessary to address local business process issues and technical constraints. These schedules are generally incorporated by reference as applicable through the terms of the master agreement and local companion agreements. transferring asset inventories.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction border acquisition context. employee transfer provisions and disaster recovery and business continuity plans. including the choice of governing law.

these contracts may also help minimize the risk of local disputes by clearly defining each entity’s obligations at the local level through local statements of work and service level agreements. the master agreement typically would include a transition plan that sets out the schedule for implementing the local companion agreements. for implementing local companion agreements in order to avoid claims that the parent company or the company executing the master agreement has made binding commitments on behalf of local subsidiaries or affiliates. the parties may implement the outsourcing services on a gradual. From a legal perspective. as the various local legal formalities are complied with. To this end. as opposed to a mandate. 114 Baker & McKenzie . Properly structured. Employee Transfers The global master agreement in the outsourcing context is typically structured to provide a process. This is of significant importance in the outsourcing context where the success of the overall relationship depends on the ability of services to be provided efficiently at several levels and locations of the recipient’s business.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction the local business transfer agreements utilized in cross-border share and asset acquisitions. which allows the local entities to form binding contracts that local courts are likely to respect and enforce. For example. This process may allow the parties greater flexibility and timing opportunities for dealing with local works counsels and other interested parties with respect to employee transfers by deferring decisions regarding local business transfers until the local companion agreements have been properly considered by the applicable local entities. a local companion agreement can thus facilitate the processing and recordation of local asset transfers. Local companion agreements also allow the parties to comply with and accommodate mandatory requirements of local law without obligating the parties to adopt each and every mandatory local requirement across the entire scope of the transaction. Similar to a business transfer agreement. jurisdiction-by-jurisdiction basis. the local companion agreements in the outsourcing context provide privity of contract between the local business presences of the customer and the supplier in each applicable jurisdiction.

the VAT expense may become a real cost that should be factored against any savings that the outsourcing transaction may otherwise generate for the customer. the next major phase. Alternative structures may include regional agreements with local participation agreements. if the service provider’s local entity delivers services to the customer’s local entity and is able to invoice the customer locally. any VAT chargeable on the delivery of the services may be creditable by the customer against its other VAT obligations. after any remaining diligence is conducted. we discuss some of the key elements of a cross-border closing. choosing an appropriate structure may have significant short. If instead. neither parent entity may have an opportunity to offset the related VAT expense against any other VAT obligations. and countless other variations.Cross-Border Transactions Handbook Section 9 – Documenting the Transaction Tax Minimization The master/local agreement structure in the context of a business process outsourcing transaction can also facilitate local invoicing. Variations While the master/local agreement structure has many benefits in the outsourcing context. the service provider’s local entity is obligated to invoice its parent entity (which.and long-term consequences which should be carefully considered in the context of the specific facts and circumstances of the particular business process outsourcing transaction. For example. In that case. master agreements with localized statements of work. which may help simplify overall transaction taxes and VAT compliance expenses. is for the parties to close the transaction. In the next section. Baker & McKenzie 115 . and may prompt the parties to re-think the structure of the transaction. invoices the customer’s parent entity for the locally provided services). In any case. * * * Assuming the deal proceeds as planned. in turn. collections of local business process outsourcing agreements uniquely negotiated in each jurisdiction. the ultimate structure of the business outsourcing agreement no doubt depends on the specific facts and circumstances of the transaction and the objectives of the parties involved.

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Either way. This will depend on whether board approval is required in a particular jurisdiction and if the relevant local laws require meeting attendance (in contrast to signing written consents. assets or shares in exchange for the agreed upon consideration and carry out their other respective closing obligations. Availability of Key Personnel One of the most critical elements for a successful closing is to ensure the availability of key personnel well in advance of the time contemplated for the actual closing. The underlying theme that emerges is that thorough planning and the ability to anticipate issues are critical to a successful closing. Second. transfer the contemplated business. the transaction cannot close. However. Where meetings are required by local law. Key personnel may be required to attend board meetings to approve certain aspects of the transaction. First. Without their signatures on key documents. we discuss some of the important elements and processes of a cross-border closing. This is necessary for two main reasons. as such. and perhaps more importantly.Cross-Border Transactions Handbook Section 10 – Closing the Transaction SECTION 10 CLOSING THE TRANSACTION Cross-border closings and domestic closings share many of the same essential elements: the parties must execute and deliver various transaction documents. cross-border closings are made more complicated due to the sheer scope of the transaction and the differing local requirements that may arise when legal systems from multiple jurisdictions are involved. might be the only people authorized to sign the transaction documents. which can usually be circulated via email or fax and signed in counterparts). holding a board meeting requires advance notice. board members can typically attend in person or by telephone. key personnel are often the directors or officers of the entities involved in the closing (or are otherwise authorized to represent the entities) and. In this section. 1. key personnel are sometimes needed to make decisions about material issues that may arise right before closing and that must be resolved before one or both parties are willing to close. coordination of Baker & McKenzie 117 .

This approach has the benefit of consolidating the authority to execute the transaction documents in the hands of a few key individuals whose accessibility can be secured easily in advance of the closing. how their local entity is involved. As key personnel. Once located. Quite often. which can be a time-consuming process given that most key personnel are extremely busy. especially if local laws require the powers of attorney to be legalized before a consulate. authorizing individuals in the country where the closing will take place to execute the documents on behalf of the respective local entities. on the other hand. adopting authorizing resolutions and/or obtaining powers of attorney also takes time. This way. it will not be necessary to spend time chasing people around the globe to get their signatures. That said. traveling on business and may have multiple offices and residential addresses. as there will almost certainly be more substantive deal issues requiring attention before closing. this could present an unexpected and unwelcome demand on 118 Baker & McKenzie . Therefore. powers of attorney should be obtained very early in the transaction so as to avoid potentially holding up the closing due to a “technical” issue. it will be necessary to follow up with key personnel to ensure that they sign and return the documentation in time for the closing. The first option is to locate and contact the key personnel in each jurisdiction. The second option is to arrange for the adoption of authorizing resolutions and/or the grant of powers of attorney by the key personnel in each jurisdiction. There are two basic options in this case for securing signatures from key personnel. which presents time demands on the key personnel. it may be necessary to explain the transaction to the key personnel. what decisions they are being asked to authorize and what documents they are being asked to execute. it will be easier to identify who must sign the transaction documents. but those same individuals will have to bear the burden of reviewing and executing numerous documents.Cross-Border Transactions Handbook Section 10 – Closing the Transaction schedules and the execution of documents. In many cross-border transactions. If. the multinational corporation has appointed an identical (or almost identical) slate of directors and officers to manage its affiliates around the world. one or both of the parties will be a multinational corporation that has appointed many different individuals to serve as officers or directors for its different affiliates around the world.

to ensure that proper title has been conveyed. It is almost always necessary to make an appointment with the notary in advance. their signatures will be obtained in advance of the closing and the documents will be held “in escrow” until the closing date. In these cases. asset transfers and the transfer of title to real estate. the buyer will often rely instead on title insurance or an opinion of its counsel based on an examination of publicly available records at the registry of deeds or other equivalent agency. acting in effect for both parties. including Mexico and Germany. and whether the parties or their advisors have a good history or existing relationship with the notary. certain actions. The civil law notary plays a function far beyond that of a notary public in the United States. real property can only be transferred by notarial deed. the closing is not dependent upon the availability of a small number of individuals.Cross-Border Transactions Handbook Section 10 – Closing the Transaction their time. it is important to schedule the appointment well in advance of the closing date. In any case. including share transfers. Baker & McKenzie 119 . Authorizing resolutions or powers of attorney authorizing others to sign the documents might nevertheless be beneficial if the directors and officers have unexpected travel schedules or know that they will not be available in the period before closing. in many civil law countries. it may be possible to schedule an appointment quickly. including recording the deed of transfer in accordance with local law. 2. including the United States. For instance. The notary will deal with all other formalities of transfer as well. By contrast. the key personnel should be forewarned to set aside sufficient time to review and execute the transaction documents. The civil law notary functions as a government-appointed attorney. This is so because in many civil law jurisdictions. Notaries A notary is another individual whose involvement is often critical in a cross-border closing. Depending on the notary’s schedule. This way. can only be effected validly in the presence of a notary who must make appropriate certifications or registrations in accordance with local law. Often. and it is up to the notary to ensure that there are no material encumbrances on the property. in most common law jurisdictions.

But. when determining whether a consent is in fact necessary in a particular situation. Some notaries are very specific about whether the wire transfer must come from the buyer or seller and whether it must come directly from the actual entity buying or selling in the local jurisdiction (as opposed to an affiliate). Sellers will often arrange for the outstanding debt to be repaid. 3.9 (Diligence–Public Record Searches). Therefore. The fee varies from jurisdiction to jurisdiction and it can be a flat rate or a percentage of the transaction value. Releases and Third-Party Consents Obtaining necessary releases and third-party consents may be complicated in the cross-border setting by the location of the creditors and the differing local rules which may come into play. In the cross-border setting. it would not be unusual for a creditor to be located in a 120 Baker & McKenzie . assets and real estate in many jurisdictions. the amount of publicly available information (and the cost to obtain it) varies widely from jurisdiction to jurisdiction. or it could be calculated on a scale that changes depending on the transaction value but not necessarily in proportion to the transaction value. The existence of liens or encumbrances may be uncovered through local public records searches or investigation of the local subsidiary’s documents. it is critical to locate the creditor and obtain the creditor’s cooperation in connection with the transaction. a portion of the consideration from the buyer will need to be paid directly to the creditor at the closing in exchange for the simultaneous release of the encumbrances. Accordingly. for example. as discussed in Section 6.Cross-Border Transactions Handbook Section 10 – Closing the Transaction A notarial fee is applicable to the transfer of shares. The notary will usually require the parties to deposit the notarial fee into the notary’s bank account before formalizing the transaction. and the encumbrances released. One or more of the target subsidiaries may own assets on which there are liens or other encumbrances securing outstanding debt. it is important for the parties to determine who will pay the notarial fee and to ensure that it will be wired to the notary’s bank account (and that the notary confirms receipt) before the meeting with the notary. If the repayment and release is to occur simultaneously with the closing. before closing or simultaneously with closing.

g. but also on a jurisdiction-by-jurisdiction basis. if any. Finally. this is achieved through the adoption of authorizing resolutions and/or the granting of powers of attorney to individuals located in the country where the closing will take place (some of whom will. in the acquisition context where assets or shares of the target’s subsidiaries will be acquired directly at the local level). centralized closing. the seller should determine early in the transaction whether any third party consents are required to consummate the transaction as the buyer may consider certain contracts to be material to the overall valuation of the business. Centralized vs. Often. For example. asset sale or stock sale) has on the issue. an understanding of the local legal requirements to extinguish the debt and release the lien is necessary to ensure that this is accomplished properly and in time for closing. all of the transaction documents are executed by the same people in the same city. In a centralized closing. leases or licenses that otherwise may be breached in connection with or as a result of the transaction. most likely.g. in a transaction involving asset transfers in multiple jurisdictions around the Baker & McKenzie 121 . and are all physically located in organized files at the closing. or whether to hold several localized closings under the purview of the master agreement.. as in a typical domestic transaction. that the transaction structure (e. required to assign a contract when the contract is silent.Cross-Border Transactions Handbook Section 10 – Closing the Transaction jurisdiction other than the jurisdiction in which the lien is registered. as well as the impact. 4. the parties should be mindful of the fact that many third parties may refuse to give consent without additional consideration. The possible outcomes vary not only on a contract-by-contract basis. Accordingly. thought should be given as to whether to hold a single. the parties should ensure compliance with change of control or anti-assignment provisions in material agreements. Local Closings In a cross-border transaction where distinct local transactions will occur (e.. Furthermore. or for the creditor’s whereabouts to be unknown. in fact. merger. One would typically need to confirm the local legal requirements as to whether consent is. attend the actual closing themselves in case last-minute signatures are required). In addition.

depending upon the cultural issues involved among the parties to the transaction. This decision is usually driven by the local legal requirements for effecting the transaction. The notary must be presented with the parties’ original signatures on the version of the notarial deed that is to be notarized. the individuals authorized to sign the relevant asset transfer documents on behalf of the local buyer and the local seller would grant authority to their respective representatives who are located in the master jurisdiction. in those cases where there are only a few local jurisdictions (e. as opposed to 30).. Where there are no particular local legal requirements for the transfer of property. Or.g. For instance. in most civil law jurisdictions the parties will need to appear before a notary who must certify or register the notarial deed conveying title to the property from the seller to the buyer. It also saves the parties from the having to spend precious time chasing people around the world to sign documents on the eve of closing. it may be more cost-efficient to hold local closings in each jurisdiction and to coordinate them remotely from the parent entities’ respective home offices. Listing of Assets When assets are being transferred as part of the transaction it is important to determine how detailed those assets must be described in the schedules 122 Baker & McKenzie . however. 5. the parties may decide to have local closings in some or all of the jurisdictions involved in the transaction. The authorized representatives would then execute the asset transfer documents in time for or at the closing. 2 or 3. The benefit of this approach is that it puts control over the execution of the documents in the hands of the individuals who are responsible for closing the transaction. For example. if real property is being conveyed. non-legal reasons. the parties may decide that it will be smoother for purposes of the closing. as discussed above. In other cases. to hold a local closing in certain jurisdictions. It would be insufficient in that case for the parties to execute a purchase agreement offshore in counterparts and exchange signatures by fax. and for their relations post-closing.Cross-Border Transactions Handbook Section 10 – Closing the Transaction world. the parties may nevertheless decide to hold local closings for other. as this would not qualify as a valid transfer of title to the real property under relevant local law.

.. or is not fully supportive of the transaction. 6. they may be deemed not to have validly transferred from the seller to the buyer. If local management is not fully aware of the transaction. legal. all of the executed documents often will be left with a local lawyer pursuant to a letter agreement providing that the local closing documents will be delivered to the parties when the lawyer is notified that the closing under the master agreement has taken place. but very often the schedules will need to be reviewed at several management levels within the parties’ respective internal organizations depending upon where the financial responsibility for a particular country or region lies within the organization (e. As discussed in Section 9.2 (Documenting the Transaction–Cross-Border Acquisition Agreements). the parties should begin preparing the schedules early on in the transaction because this task can be particularly time-consuming in the cross-border context given the volume of jurisdictions and issues that typically come into play. These time differences could make it difficult to hold actual local closings simultaneously with the closing under the master agreement. If the assets are not scheduled in accordance with local legal requirements. The parties can often overcome this problem through the use of informal escrows or pre-closings where the local closings take place one or two days in advance of the master closing. Alternatively. This can lead to delays that could potentially hold up the closing. Regardless of the local legal requirements.g. Those jurisdictions Baker & McKenzie 123 . In that event. This may be achieved by specifying in the master agreement and local agreements that the closings will occur on a particular date and at a particular effective time. the parties may decide to schedule all of the local closings so that they will actually occur on the same date and as of the same effective time. management at the local country.Cross-Border Transactions Handbook Section 10 – Closing the Transaction to the transaction agreement. the preparation of schedules might take on a low priority. the jurisdictions involved will be located in different time zones. Time Differences: Escrow Closing In most cross-border transactions. Not only will the schedules need to be reviewed by representatives of various disciplines (e. tax. regional and headquarters level). business and accounting). the rules for scheduling assets vary from jurisdiction to jurisdiction.g.

In that case. in which case they will typically execute the local documents themselves on or before the closing date. Alternatively. The executed documents would then be held in escrow by local counsel until the parties are notified that the closing under the master agreement has taken place.Cross-Border Transactions Handbook Section 10 – Closing the Transaction ahead in time of the master jurisdiction would execute their respective local closings first. with the other countries to follow depending upon their order in the international time zones. The procedure will differ where the parties do not hold any local closings. The parent buyer or one of its affiliates will often pay the total aggregate consideration for all jurisdictions in one lump sum. often via fax or email (except where actual originals are required or desired). on behalf of itself and its subsidiaries. and copies would then be provided to the individuals responsible for the closing. Lead counsel in the master jurisdiction will then hold all of the documents until they can confirm that all required closing actions (including the execution and delivery of the transaction documents) have taken place in each jurisdiction in order to formally effect the master closing. representatives in the master jurisdiction may have been granted a power of attorney to execute the local transaction documents. In this case. as discussed above. Moving Funds The transfer of funds at the closing of a cross-border transaction also gives rise to concerns not present in the domestic setting and requires advance planning. which may be necessary to the preservation of key local relationships. however. This process is similar to the one described in the previous paragraph. Where the transaction consideration consists of cash. holding actual closings at the time specifically contemplated in the master agreement tends to convey a bit more importance to the local jurisdictions. the local documents can be executed at the central closing or be executed and sent in advance to the location of the master closing. for itself and on behalf of its 124 Baker & McKenzie . payment will normally be made by wire transfer. to the parent seller. the master agreement would specify that the buyer is paying the entire purchase price. but instead hold a centralized or “master” closing for all jurisdictions at the location for the closing under the master agreement. 7.

To the extent that the local buyer does not already have local currency on hand to pay for the assets.Cross-Border Transactions Handbook Section 10 – Closing the Transaction subsidiaries. * * * Baker & McKenzie 125 . the payee’s bank account details and the amount of the payment. This may successfully avoid the pitfalls of local exchange control laws. the payee. If the transaction contemplates the local transfer of assets in individual jurisdictions. and the seller has received. A flow of funds memorandum is commonly used in cross-border transactions as a convenient tool for illustrating the flow of money as agreed by the parties. and it serves as a useful project management tool for ensuring that the funds get where they need to be for the closing. The memorandum will typically specify the payor. that local purchase price. lends money to the local subsidiary. payment of the purchase price may have to be made locally between the local buyer and the local seller.g. often in the local currency. and would indicate that the buyer has paid. The more individual payments there are.7 (Regulatory Framework–Exchange Control Approvals) discusses exchange control issues in greater detail. The local agreements would refer to the agreed purchase price for the transaction effected in their respective jurisdictions. which require the registration of the loan or new capital. This registration process can be a very document-intensive and timeconsuming process. although the legal. Section 7. where the parent company opens a line of credit at its bank and the bank. In some cases. accounting and business representatives will also find the document extremely useful for confirming the crucial steps involved in the payment of the transaction consideration. The buyer and seller would then account internally (e. payees. currencies and banks. in turn. The memorandum will often be most useful to the parties’ respective treasury groups. the more valuable a flow of funds memorandum will be to the success of the closing.. the parent company of the local buyer will likely have to make a loan or a capital contribution to the local buyer. it may be possible to arrange for back-to-back loans. This could implicate the exchange control laws in some jurisdictions. and the more payors. potentially holding up the local closing unless the issue is identified early in the transaction. among other things. through intercompany loans) for the payment of the purchase price.

126 Baker & McKenzie . we highlight several of these issues. In the next section. the parties are often faced with addressing numerous short-term operational issues so that the operations of the target business may proceed smoothly after the closing.Cross-Border Transactions Handbook Section 10 – Closing the Transaction Once the transaction closes.

In this section. In the joint venture and strategic alliance context. permits and other registrations that may be necessary to run the target’s business largely depends on the requirements of the particular industries and jurisdictions in which the target operates. Anticipating and planning for these issues in advance of closing is often important in order that the day-to-day operations of the new or newly acquired business may proceed smoothly after the closing. In an acquisition or divestiture the parties often part ways. permits or registrations (assuming the seller does not require them to operate any retained business) or make fresh applications for new registrations postclosing (to the extent this was not practically or legally possible prior to closing). Permits and Registrations The types of licenses. however. the buyer will often have to apply for the assignment of the seller’s licenses. In the acquisition context the buyer is often faced with a significant integration challenge – and Baker & McKenzie’s Post-Acquisition Integration Handbook addresses the key issues arising in that context. several important operational actions often must occur shortly after the transaction closes in order that the target business may carry on or begin its business activities in the manner the parties desire and in compliance with local laws. It is important for the buyer to establish a plan for transferring Baker & McKenzie 127 . 1. In the context of an asset deal.Cross-Border Transactions Handbook Section 11 – Post-Closing Actions SECTION 11 POST-CLOSING ACTIONS The closing of the transaction signifies a new beginning for the parties. with the buyer in control of a new business or entity. the parties find themselves with new roles and responsibilities with respect to operating the target business. save perhaps for transitional arrangements for a defined period of time. we discuss some of the common post-closing operational actions that often fall through the cracks as the transaction team shifts its focus to the next transaction. While in the outsourcing context. No matter the transaction structure. the service provider and customer maintain an important link as the service provider takes over the provision of key services to the customer. Licenses.

.g. in order to maintain a local entity’s “good standing” in its jurisdiction of organization. Where this is not the case. the buyer should consider whether existing signatories should be removed and replaced. Otherwise. the buyer could wait until after the closing to set up a local bank account. many countries also require the filing of annual reports or annual accounts with the local companies’ house (or. the Commercial Registry). In a share deal.e. A failure to file (or late filing) may result in financial penalties. Accordingly. by contrast. This often takes time to obtain depending on the buyer’s pre-existing relationship with its bankers and the size of the bank. the buyer should determine the types of documents that each bank will require as soon as possible. permits or registrations prior to closing. the buyer will need to determine the particular requirements that the local jurisdiction may impose on bank account signatories (e. On a more general level. the licenses. 2. or even personal liability for directors and officers. the buyer may be left owning a business that it is not licensed to operate. Bank Accounts If bank accounts are acquired as part of the transaction. If the transaction represents the buyer’s first entry into a particular local jurisdiction. residency requirements or that signatories be executive-level employees).. in an asset deal). in addition to the requisite tax returns. If the buyer has formed a local legal entity to effect the transaction in a particular local jurisdiction (i. the buyer may have already set up a local bank account either as part of the formation process or because the purchase price must be paid locally. Often this consideration will depend on whether existing signatories are employees who will transfer to the buyer as part of the acquisition and whether the buyer has a company policy with respect to which certain of its employees can act as bank account signatories. In addition. permits and registrations generally remain with the target business since only the target’s ownership changes. the local bank might require a letter of recommendation from the buyer’s existing corporate banker. in the case of civil law countries.Cross-Border Transactions Handbook Section 11 – Post-Closing Actions or applying for new licenses. limitation of corporate services available to the company. 128 Baker & McKenzie .

under the laws of most jurisdictions. Payroll Depending on the buyer’s internal capabilities. all transferred employees can be paid and all necessary deductions made and remitted to appropriate government or private organizations. Often. In particular. payroll may be handled within the buyer’s organization or it may be outsourced. Auditor. These resolutions are also usually among the closing documents that are executed and delivered at closing. A number of jurisdictions require a list of other entities in which the newly appointed director already holds directorships. such as submitting government forms and registering the change with the local commercial registry. Although these additional formalities can often be handled Baker & McKenzie 129 . During this period (or prior to closing if the buyer will take on this role immediately following closing) the buyer must ensure that it obtains all necessary employment and tax registrations and that it hires any necessary consultants or service-providers to assist with the payroll function. Many local jurisdictions require other formalities to change directors and officers. the buyer will often require some or all of the directors and officers of the target entity to resign from their positions as officers and directors. The resignation of old directors and officers and the appointment of new ones usually can be achieved simultaneously on. and as of. a transition services agreement between the buyer and the seller will obligate the seller to continue to handle the payroll function for a period of time following closing. the closing date. 4. it is typical for these resignation letters to be one of the conditions to closing. Furthermore. Director and Officer Changes In the case of a share purchase. Corporate resolutions are also required in most cases to accept the resignations of the outgoing directors and officers and to appoint the new directors and officers. it is sufficient for the purpose of the closing for the outgoing directors and officers to tender their resignation letters at the closing.Cross-Border Transactions Handbook Section 11 – Post-Closing Actions 3. The buyer must also ensure that once the transition services arrangement with respect to payroll services expires (or upon closing if the buyer does not require transitional payroll services). The buyer is usually interested in appointing its own individuals to these posts.

This can be inconvenient for companies who are used to having the same slate of individuals serve as the directors or officers for all subsidiaries.. In addition to coming into play at the time the company is formed. if the subsidiary in question does not employ a qualified individual to serve as a director or officer (i. On a more day-to-day level. the preparation of the necessary documentation often becomes a time-consuming exercise. including with respect to any real estate. these rules also require that companies maintain a certain minimum debtto-equity ratio as a condition of their continued existence and good standing. Australia. Operational Requirements Some jurisdictions (e..e.g.Cross-Border Transactions Handbook Section 11 – Post-Closing Actions shortly after closing. The buyer should also ensure that all necessary insurance is obtained with respect to the new assets and operations acquired as part of the transaction. Spain. it is sometimes possible to retain a third party to act in this capacity. and what limitations should be imposed on that authority.g. The obvious solution for an entity with an operational presence is to appoint one or more of the local managers to fulfill this requirement. the buyer should verify that all new directors and officers will be protected under existing policies.. sales staff are present locally but operational staff are not). Likewise. On the other hand. Italy. 5. It is also important to note that some countries (e. Japan. 130 Baker & McKenzie . Netherlands and Venezuela) impose a certain minimum capitalization for companies organized under their laws. the requirements for granting a power of attorney or similar authority to non-directors and non-officers differ from jurisdiction to jurisdiction. buyers should also promptly assess who within the organization in each jurisdiction should have the power to enter into contracts on behalf of the company. Sweden and Switzerland) have nationality and/or residency requirements for directors and officers of local companies. To that end.

Signage and Letterhead Many companies. letterhead. fax cover sheets. Following closing. Singapore law requires companies to include (in Romanized letters) their full registered name and registration number on all letterhead and invoices. as well as tending to day-to-day operational matters. particularly those for whom the transaction represents the commencement of international operations. in extreme cases. These changes can usually be included in the corporate resolutions discussed above regarding director.g. as opposed to merely formalizing them (in which case the matters usually can be handled sometime after closing). to ensure that appropriate legal entities are established in relevant jurisdictions to consummate the transaction.. including obtaining advice from legal counsel and tax advisors. business cards and envelopes. however.Cross-Border Transactions Handbook Section 11 – Post-Closing Actions 6. the full registered name must be prominently displayed (in Romanized letters) on all premises signage. criminal ramifications. 7. can have monetary and. Failures in this regard. Other documentation may be required under relevant local laws with respect to these changes. officer and auditor changes. In addition. For example. * Baker & McKenzie * * 131 . Ongoing Compliance The buyer often spends considerable time and effort. Australia). fiscal year and domicile of the acquired entity. Fiscal Year and Other Corporate Changes The buyer often uses the closing as an opportunity to change the corporate name. The consequences of failing to comply with these requirements range from warnings or minimal financial fines to criminal liability (e. 8. The buyer should check with local counsel well in advance of the closing to confirm if any additional documentation is required to actually effect the changes (in which case these documents should be executed at the closing). buyers often become occupied with transition and integration issues. and they often overlook the corporate and tax formalities necessary to keep the newly formed entity in compliance with local law. overlook the fact that local law in many jurisdictions dictates that certain information be included on company signage.

Unfortunately. In the next section. once the transaction closes and the on-going compliance issues have been considered. the parties would go forward peacefully and without controversy. we discuss some of the key factors to consider early on in the deal process to establish a proper mechanism for resolving disputes. disputes and controversies sometimes do arise. 132 Baker & McKenzie .Cross-Border Transactions Handbook Section 11 – Post-Closing Actions In a perfect world.

The answers to these questions will differ with each transaction and. a key first step to crafting an appropriate dispute resolution mechanism is for the parties to understand the critical components of their relationship that might impact the successful resolution of a dispute. Nevertheless. This section discusses some of the key considerations that will inevitably cause one or another dispute resolution mechanism and forum to be a more strategic option than another in the cross-border setting. so will the dispute resolution mechanism: x x Which party is more likely to be the plaintiff and which will be the defendant? What types of disputes are likely to arise and are they likely to be about non-payment. As a result. there is often a tendency for the parties to believe that future disputes are unlikely to arise between them or. This is not to suggest that the dispute resolution clause must become the focus of contractual negotiations. To that end. performance or something more complicated? 133 Baker & McKenzie . if they do occur. as a result. parties who consider how best to resolve potential disputes in the context of the overall deal they strike.Cross-Border Transactions Handbook Section 12 – Dispute Resolution SECTION 12 DISPUTE RESOLUTION Once the deal closes. the following are a few examples of the kinds of questions a party should ask itself before deciding on the best type of dispute resolution for a particular deal. either as an extra benefit or an additional risk. 1. the parties often give the dispute resolution clauses in many transaction documents little or no consideration. to believe that they can simply work them out through the course of good business. may be able to gain a leg up on achieving a favorable result in the face of a dispute and may be able to save substantial time and expense in the process. Key Initial Questions As in the domestic context. Yet disputes can and do arise following signing or closing and a significant one could wipe out many of the transaction’s intended benefits.

if so. dispute resolution clauses take one of only a few forms but practical experience and logic teaches us that no single approach to dispute resolution and no single approach to forum selection is appropriate for every deal.Cross-Border Transactions Handbook Section 12 – Dispute Resolution x x x x x x x x x x Who will be holding the money or assets and in what jurisdiction? Is there any key intellectual property involved in the transaction and. General Options for Dispute Resolution Clauses In general. if the dispute 134 Baker & McKenzie . 2. who owns it? How difficult will it be to locate and serve the opposing party after the transaction has closed? How difficult will it be to get jurisdiction in the preferred forum? Will discovery be necessary to prove claims that are more likely to arise? Is there a likelihood that a dispute may involve more than two parties? Are there quality. Like so many terms in a deal. fairness or other concerns with the local courts in the country where the counterparty is located? Is it likely or desirable that the parties’ relationship will continue after resolution of the dispute? Which party will be most concerned about the publicity associated with any disputes? How difficult will it be to have a foreign country judgment enforced in the countries where enforcement is most likely to occur? Whether a party is better off utilizing a particular form of dispute resolution or resolving the disputes in a particular country will depend largely on the answers to questions like these.

including the United States and England. with various levels of negotiation or mediation often agreed upon as a preliminary step. The first option is simply not to provide for any dispute resolution clause in the transaction agreement. that state’s law must be the governing law for the underlying agreement and a minimum dollar threshold must be met. in part because unless the parties agree to another approach. enforcement and other critical issues.. Courts in the United States and in most other industrialized countries typically will enforce forum selection and arbitration clauses in accordance with the parties’ agreement. This approach results in the most uncertainty. the thoughtful drafting of a forum selection clause can provide significant benefits. For those parties opting to include a dispute resolution clause in the transaction agreement.e. several states. it will typically be adverse to the other party. personal jurisdiction. neutral country (i. away or neutral). have passed statutes expressly permitting the selection of their courts for crossborder disputes even if there is no other contact with the forum. Typically. home. Litigation remains the most common dispute resolution mechanism. for example. leaving either party free to file a lawsuit in any court it believes will exercise jurisdiction. they will be forced to litigate their disputes by default. although most countries also require some level of contact with the selected forum. including the avoidance of expensive and protracted fights over service of process. To date. this approach can be a strategic fallback when the other party refuses to include any dispute resolution clause except for one you simply cannot live with.Cross-Border Transactions Handbook Section 12 – Dispute Resolution resolution provision is written to address one party’s concerns. When the parties in fact prefer litigation. including New York and Illinois. Baker & McKenzie 135 . Litigation in a neutral court is a relatively new concept and is only available in a few jurisdictions. However. the choice generally comes down to litigation or arbitration. The forum for the arbitration or litigation usually will be the home country (or state) of either party or a third. In the United States. there are very few jurisdictions outside the United States and England that will accept jurisdiction over disputes on this so-called “neutral basis” as most courts require some level of contact with the forum.

These steps can save time and money if both parties are motivated to fully participate and thus tend to be more common in longterm relationships like joint ventures or outsourcing transactions. discovery is largely unique to the United States and is generally unavailable in other countries. many parties opt to require various levels of negotiation or mediation prior to resorting to binding arbitration or litigation. Understanding their unique characteristics and the characteristics of the potential forum in the context of the types of questions set forth at the beginning of this chapter is a critical first step in the development of a strategically beneficial dispute resolution clause. which are presumed at the outset to be more cooperative in nature.Cross-Border Transactions Handbook Section 12 – Dispute Resolution As mentioned above. the process is typically a matter of public record and thus is not generally confidential. the fairness and quality of courts can vary significantly depending on the country or even within a particular country. Litigation vs. potentially lengthy delays. the language of the proceedings (and pleadings) is generally the language of the local jurisdiction. established procedures for adding third parties. various procedural formalities are required to initiate the process including service of process and jurisdiction. Characteristics of litigation in most jurisdictions generally include: x x x x x x x x x the right to an appeal. Arbitration Litigation and arbitration each offer definable benefits and risks. but often significant long-term costs to see it through to conclusion. 136 Baker & McKenzie . relatively low costs to initiate the process. 3.

For example. the parties can consent expressly to jurisdiction in a particular court and an agent for purposes of accepting service of process. fewer technical procedural requirements are needed to initiate the process (e. awards are often easier to enforce abroad than court judgments. The parties can also empower the court to award Baker & McKenzie 137 . the ability to select arbitrators with specific qualifications. greater costs to initiate the process compared to litigation. no service of process or jurisdiction requirements). the same counsel may be used in almost every forum. include: x x x x x the lack of the right to an appeal. discovery is generally not available unless the parties specifically agree to it. and potential difficulties in obtaining emergency relief on an urgent basis. but often lower costs to see it through to conclusion. a flexible process that may be tailored by the parties to best suit their needs (including as to the language of the arbitration).g.Cross-Border Transactions Handbook Section 12 – Dispute Resolution x court rulings in the United States generally create binding precedent. on the other hand. but this is generally not the case in other countries. x x x x x x Some of the drawbacks of litigation can be addressed in the dispute resolution clause itself. and potential difficulties enforcing judgments abroad. a process that can be significantly faster than litigation.. which may result in a more appropriate or practical resolution. the process is generally confidential. x The characteristics of a typical international arbitration.

unless enforcement 138 Baker & McKenzie . has made arbitral awards significantly easier to enforce across international borders. while US courts are often more inclined to enforce a judgment rendered by a foreign court. the courts of the United States are generally more receptive to the enforcement of foreign court judgments than are the courts of most other countries. which more than 130 countries have signed. including one that balances the parties’ competing concerns as to how disputes should be resolved based on experience in their home countries. Accordingly. no matter how carefully the parties draft the clause. some countries will not enforce the judgments of foreign courts. Nevertheless. On the other hand. regarding the recognition of court judgments within and among various signatory countries. the United States is not a party to any convention or any other treaty providing for the enforcement of judgments rendered by foreign courts. however. a crossborder transaction involving parties from different countries presents a compelling argument for arbitration over litigation because the parties likely come to the table with different rules and expectations for litigation. 4. including the United States. Several European conventions exist. including those of the United States. As such. is extremely flexible in that the parties are generally free to craft almost any process they want. including the Brussels and Lugano Conventions. Enforcement of Judgments and Awards One of the most unique issues in cross-border disputes relates to the uncertainty surrounding the enforcement of foreign country judgments or arbitration awards. While parties may more easily appeal a court judgment in the jurisdiction in which it was rendered. on the other hand. the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly referred to as the “New York Convention”). a US judgment is less likely to be enforced abroad. Thus. Unfortunately. nothing in the agreement can force a court to act more quickly or enable a judgment to be more enforceable in another country. Arbitration.Cross-Border Transactions Handbook Section 12 – Dispute Resolution attorney’s fees. Some of the key elements to consider when drafting the dispute resolution clause in a cross-border transaction are discussed below.

The most obvious location for enforcement is the place of business of the other party. Conversely. the likely plaintiff will also generally be more interested in avoiding delays in resolving disputes. enforcement can be sought anywhere that the judgment debtor has assets.Cross-Border Transactions Handbook Section 12 – Dispute Resolution will occur in the same jurisdiction in which the dispute is decided. The delays and risks associated with these very Baker & McKenzie 139 . With this understanding. 5. proper service of process and personal jurisdiction over the parties are unavoidable prerequisites to a court’s ability to hear a dispute. Delays Just as a likely plaintiff will generally be more concerned about enforcement. Litigation typically takes longer than arbitration in all three phases. and these delays are generally thought to be a disadvantage for a plaintiff and an advantage for a defendant. a party is likely to spend six months or more obtaining service of process on a foreign party and perhaps another six months fighting over whether the chosen court has jurisdiction or is an appropriate forum for the dispute in question. however. hear and decide appeals and rule on matters of enforcement. however. This choice should be balanced. by a careful consideration of the actual rules in the particular jurisdiction where enforcement will likely need to occur. ways to reduce the delays associated with litigation and arbitration. For example. including the length of time required for a court or arbitrator to render a judgment or award. Delays can affect several phases of the dispute resolution process. in litigation under most judicial systems throughout the world. Without an express clause in the agreement concerning these issues. a US plaintiff is typically better off choosing arbitration in a cross-border transaction in order to increase the likelihood that it will be able to enforce a decision should the need arise. a party who is more likely to be a defendant might press for litigation in order to make it more difficult for the plaintiff to enforce a judgment. however. once a party determines that it is more likely to be the plaintiff in significant disputes. There are. it might be compelled to require arbitration as the mechanism for resolving disputes under the transaction agreements in order to increase the chance that an award will be enforceable in a foreign jurisdiction.

how quickly an award must be rendered and what damages are available. US discovery is typically one of the most intrusive.g. the more the parties are able to agree on the procedural aspects during the relatively cooperative period while they are negotiating the transaction agreements. all within the arbitration clause contained in the transaction agreement. but it becomes critically important if proving or defending against the potential claims requires information that is uniquely in the possession of another party (e. If the arbitration 140 Baker & McKenzie . whether to appoint arbitrators with specific industry experience. the parties will be able to focus their efforts on resolving the underlying dispute. whether the arbitration should proceed under the purview of an administrative body. 6. Discovery Discovery is a concept that is largely unique to the US legal system. the parties can choose the language to be used in the arbitration proceedings. At that point.Cross-Border Transactions Handbook Section 12 – Dispute Resolution provincial litigation issues can be mitigated in a clause where the parties expressly consent to a specific jurisdiction and expressly appoint a local agent to accept service of process on a party’s behalf. With arbitration the parties have the ability to potentially create a more efficient resolution process by tailoring the procedures to best fit the transaction and the anticipated disputes. Whether opting for arbitration or litigation. the parties are generally free to agree on a procedure for discovery in the context of arbitration. how much discovery is permissible. For example. proving knowledge of a particular factual circumstance as it may be relevant to a “knowledge” qualifier in a representation contained in the principal transaction agreement). what procedural rules will apply to the conduct of the arbitration. prolonged and expensive phases of a lawsuit. with the haggling over procedural aspects behind them. the more time and money they could save in the future should a dispute arise and the relationship turns contentious. are unavailable in almost every other legal system in the world. While US courts provide an obvious forum in the event pre-trial discovery is necessary.. while common in the United States. Pretrial depositions and very expansive document productions.

a party to a cross-border transaction should also consider whether the default rule of the applicable forum is that the loser pays the winner’s legal fees or whether each side pays its own fees. Baker & McKenzie 141 . which will be greatly influenced by the arbitrators’ personal experience. Regardless of the arbitrators’ background or inclination. Even if the overall legal expenses are less. however. can independently cause fees to increase significantly if. but outside the United States where legal systems do not permit discovery or jury trials. discovery is permitted as part of the arbitration. or one side’s counsel. Moreover. the default rules of most international arbitration associations specifically empower the arbitrators to award arbitration expenses. US arbitrators tend to permit discovery and non-US arbitrators do not. the cost to litigate can be much more in line with the cost to arbitrate.Cross-Border Transactions Handbook Section 12 – Dispute Resolution clause is silent as to discovery. International arbitration has become a highly advanced and sophisticated dispute resolution mechanism and the arbitrators. for example. including attorney’s fees. the arbitrators must allow it. Similarly. certain arbitration organizations charge significant up-front fees and many arbitrators require significant advance payments. 7. Costs Litigation is often thought to be more expensive than arbitration. they can also provide a strategic benefit to the would-be defendant by deterring the other party from filing some or all of their potential claims. no one selecting arbitration should be confused into thinking that arbitration will be cheap. the availability of discovery will largely depend on the arbitrators’ willingness to allow it. Generally. By contrast. in the litigation context. the general default rule in the United States is that the parties pay their own legal fees. When evaluating the relative costs of the dispute resolution mechanisms. In the arbitration context. While these up-front costs can be a drawback. as part of the final award. whereas in Europe the general default rule is that the loser pays. if the parties specifically provide for discovery in the applicable dispute resolution clause. the general default rule for arbitrations conducted in accordance with US rules is for each side to be responsible for their own legal fees regardless of who prevails. which can make it very costly just to begin the dispute resolution process.

While the parties might be able to preserve the confidentiality of some documents produced during the discovery process. however. In evaluating whether to expressly provide for this type of confidentiality. Litigation in the United States. Often the parties will have entered into a confidentiality agreement or will include a confidentiality clause within the main transaction agreement that prevents the parties from disclosing the transaction and any proprietary information shared in connection with it. another significant concern for many parties to cross-border transactions is preserving confidentiality. Arbitration. both with respect to the dispute itself and with respect to the components of the underlying transaction. the parties should also consider the powerful effect of negative publicity (including 142 Baker & McKenzie . that party may be inclined to contract around the applicable default rule by including an express provision in the dispute resolution clause as to the responsibility for payment of legal fees. including England. the laws governing the arbitration process in many countries. Europe and Asia is a public process. so these clauses can lose much if not all of their intended effect during the course of litigation. While several laws and arbitration rules require the institution and the individual arbitrators to maintain confidentiality. 8. the proceedings and the award confidential. The trial itself and the judgment will also typically become a matter of public record. most of the documents will become publicly available information.Cross-Border Transactions Handbook Section 12 – Dispute Resolution Accordingly. if the parties desire. actually require arbitration hearings to be kept private unless the parties agree otherwise. is generally a private process and the parties are typically free to agree among themselves to keep documents. Accordingly. they could expressly tailor their arbitration clause to provide for the confidentiality of the arbitration proceeding and everything disclosed in connection with it. Confidentiality As in the domestic context. on the other hand. Depending on which side of the dispute a party is more likely to find itself. as well as the rules of many arbitration organizations. very few of these rules provide for similar restrictions on disclosure by the parties to the arbitration. the default rules can be a significant deterrent to a party’s ability to bring a claim. In addition.

9. there is a delay associated with the selection of the arbitrators. the parties should consider expressly providing for the right to bypass any preliminary requirement to negotiate or seek mediation in the event emergency relief is necessary. on the other hand. the matter is significantly more complicated. The courts of most jurisdictions have well-established procedures to both facilitate the adjudication of requests for interim relief and to impose the necessary relief immediately. the parties could expressly provide for it in their arbitration clause. This is yet another example of why it is important to understand the rules selected and the arbitration law of the chosen forum when opting for arbitration in a cross-border transaction. This interim relief may take the form of a temporary restraining order or a preliminary injunction and it may be necessary to protect a party’s intellectual property or to preserve assets. the parties must agree to special procedures and those procedures are not very tested yet. that party may have little other recourse than to head to the courts to seek interim relief. Further. While many arbitration organizations are starting to adopt rules for granting interim relief. including the International Centre for Dispute Resolution and the International Chamber of Commerce. evidence or other rights that are essential to a party’s business. If there is no arbitral tribunal in place at the time a party requires interim relief. This consideration is even more critical in the arbitration Baker & McKenzie 143 . particularly if an arbitration on the merits will be practically meaningless absent interim protection. In arbitration. expressly provide that a party may go to the local courts to seek interim relief without waiving or otherwise affecting the ongoing obligation to arbitrate. cross-border transactions often present situations in which one party may require immediate relief at the outset of a dispute in order to prevent irreparable harm. Interim Relief As in domestic transactions. Even so. Certain national arbitration laws as well as the arbitration rules of certain organizations. If the applicable arbitration rules do not provide this right.Cross-Border Transactions Handbook Section 12 – Dispute Resolution the threat of it) as that can sometimes weigh in favor of avoiding confidentiality.

the parties may expressly state in the arbitration clause that the arbitrators have no authority to render an award in excess of the limitations provided for in the agreement. This type of express link to the scope of the arbitrator’s authority should give the parties stronger grounds for vacating any award that is inconsistent with the limitations on liability provisions. This is so because most disputes in the transaction setting tend to relate to breach of contract claims and contract law is relatively consistent from one country to the next. however. Damages Another important reason why parties select arbitration over litigation. Often. 10. While punitive damages are against the public policy of most non-US jurisdictions. with one party settling for the forum of its choice and the other settling for its desired choice of law. Choice of Law While choice of law provisions are not always housed in the dispute resolution clause. whether litigation or arbitration is the chosen mechanism. the selected forum for arbitration will have significant impact on the arbitrator pool. and some arbitral rules. as well as other undesirable or speculative damages can be specifically excluded in most dispute resolution clauses. the forum of the arbitration is often much more valuable than the choice of law. including those of the International Centre for Dispute Resolution. punitive damages. the parties will trade these two terms. 11. including the state of New York. some US jurisdictions. in practice they are frequently negotiated in connection with the forum selection provision of the dispute resolution clause. prohibit arbitrators from awarding these types of damages as well. That said.Cross-Border Transactions Handbook Section 12 – Dispute Resolution setting given that the orders of an arbitral tribunal granting interim relief may be difficult to enforce abroad. True. procedural laws and the quality of the courts can vary significantly from country to country. the 144 Baker & McKenzie . However. In the context of arbitration. especially non-US parties. In order to ensure that the arbitrators adhere to any contractual limitations on damages. is to avoid the possibility of excessive damages.

Multiple Parties Disputes involving multiple parties are common. The following is an example of the type of language that is sometimes included to effectuate consolidation when necessary: “Arbitration proceedings under this agreement may be consolidated with arbitration proceedings pending between other parties if the arbitration proceedings arise from the same transaction or relate to the same subject matter. but it also raises the risk of inconsistent awards. When a cross-border transaction involves multiple parties or multiple agreements. how much the local courts can interfere. it is not as easy to bring in a third party. A supplier. care should be taken to include the same disputes clause in each of the agreements. Not only could this lead to additional expenses. While some courts may order consolidation when the disputes are related. more often than not.” Baker & McKenzie 145 . The most troubling aspect of the multiple party arbitration dilemma occurs when one party has an arbitration agreement in its contract with party A and a different arbitration provision in its contract with party B. since arbitration is governed by contract. However. Consolidation will be by an order of the arbitrator in any of the pending cases or. Most jurisdictions have procedural rules that govern the involvement of multiple parties in the litigation context. especially when that third party is not a signatory to the arbitration agreement. a contractor and the owner might have related disputes. the parties may apply to any court of competent jurisdiction for such an order. the party will have to arbitrate against A and B separately. 12. if the arbitrator fails to make such an order.Cross-Border Transactions Handbook Section 12 – Dispute Resolution procedures to be applied to the arbitration itself. or the parent and local entities could be involved in a dispute with a third party. The solution to this dilemma is to ensure consistency among disputes provisions and to expressly provide for consolidation of arbitrations. and the grounds for vacating or appealing an award.

particularly with respect to the issues of cost. the parties should also ensure that the applicable rules address the methodology for the selection of arbitrators or include an express provision to that effect within the agreement. careful attention to the dispute resolution clause at the drafting and negotiation stage.Cross-Border Transactions Handbook Section 12 – Dispute Resolution Where consolidated arbitration proceedings are a possibility. 146 Baker & McKenzie . Again. could prove strategically advantageous if and when a dispute does arise. and they seldom need to become complicated or long. dispute resolution clauses very rarely need to become a central focus in cross-border negotiations. However. delay and the potential impact on the intended allocation of risk between the parties. This precaution will prevent the inevitable conflict created when one or more parties feels left out of the arbitrator selection process.

Cross-Border Transactions Handbook Appendix 2.1 – Acquisitions Flowchart APPENDIX 2.1 ACQUISITIONS FLOWCHART Cross-Border (Multi-Jurisdictional) Mixed (Asset & Share) Acquisition – Buyer Process Flow Overview Letter of Intent Prepare for Acquisition Review Initiate Transaction Confidentiality Agreement Acquisition Review Analyze and Research Analysis and Certain Filings Draft Purchase and Ancillary Agreements Prepare for Negotiations Draft Disclosure Schedules Finalize Disclosure Schedules Sign Definitive Agreements Further Regulatory Filings Complete Implementing Documents Finalize and Close the Transaction Key: Process Step Decision Document Predefined Process End Terminate Transaction Baker & McKenzie 147 .

Conflict Check and possible Waiver . . Target.General Business Information If Conflict.. investment bankers.Name of Seller.Letter of Intent Information to Gather: .Confidentiality Agreement .Jurisdictions in which Send Conflict Waiver Letter Client located to Client and Seller Target located .Timeline Yes Client Client Contacts B & M about a Transaction Provide Information about Transaction Conflict Waiver Letter Conflict Waiver Signed? No Terminate Transaction Seller's Counsel Seller Conflict Waiver Letter 148 Baker & McKenzie .1 – Acquisitions Flowchart B&M Coordinating Office Determine who the Client is and who the Seller and Target are Gather Information about Transaction Conduct Conflict Check & issue Conflict Alert Establish Ethical Screen B&M Local Offices & Correspondents Answer Affects: . lenders) .Reason for Deal .Scope of Engagement .Structure .Cross-Border Transactions Handbook Appendix 2.g. Buyer and other parties or Advisors (e.

Cross-Border Transactions Handbook Appendix 2.1 – Acquisitions Flowchart Initiate Transaction Confidentiality Agreement B&M Coordinating Office Prepare Preliminary Working Group List Review Confidentiality Agreement B&M Local Offices & Correspondents Preliminary Working Group List Client Negotiate If Necessary Sign Confidentiality Agreement OR Seller's Counsel Terminate Transaction OR Seller Prepare and Send Confidentiality Agreement Sign Confidentiality Agreement Baker & McKenzie 149 .

Seller.Payment of Purchase Price/Consideration .Key Employees .Cross-Border Transactions Handbook Appendix 2.1 – Acquisitions Flowchart Letter of Intent No B&M Coordinating Office Letter of Intent Required? Yes Collect information on Target & Draft Letter of Intent Draft Letter of Intent Send Letter of Intent Send Letter of Intent for Signature Destroy or Return Information & Documents B&M Local Offices & Correspondents Letter of Intent Information: .Shareholders/Capital Structure .Names and Jurisdiction of Target.Transaction Structure . and Buyer .Timeline/Duration Review & Revise Destroy or Return Information & Documents Negotiate Client Provide information on Target and Terms for Draft Letter of Intent Draft Letter of Intent Sign Letter of Intent Destroy or Return Information & Documents OR Seller's Counsel Review Letter of Intent Terminate Transaction Request Destruction or Return of Information & Documents OR Seller Sign Letter of Intent 150 Baker & McKenzie .Purchase Price/ Consideration .Conditions to Closing .

Other Practice Groups and offices Seller's Counsel Prepare Working Group List Working Group List Coordinate Seller Prepare Working Group List Working Group List Client Deal Team: .Finance . IT .Risk Management .Corporate/Compliance .Cross-Border Transactions Handbook Appendix 2. Tax and Business Concerns Coordinate B&M Local Offices & Correspondents Prepare Working Group List Working Group List Local Legal Advisors Corporate Organization Chart Employment/Labor Matrix Group Summary Matrix Real Property Matrix Regulatory Matrix Instructions to Coordinate & Conduct Coordinate & Conduct Acquisition Review Buyer Determine Acquisition Vehicle(s) Coordinate Coordinate Client Prepare Working Group List Working Group List Baker & McKenzie Deal Team: .Intellectual Property.Others Baker & McKenzie 151 .Benefits.1 – Acquisitions Flowchart Prepare for Acquisition Review Acquisition Review Analyze and Research B&M Coordinating Office Finalize Working Group List Send Working Group List Prepare Transaction Description and Relevant Matrices Acquisition Review Buyer Prepare and Send Instructions to Local Legal Advisors Determine Acquisition Vehicle(s) Identify & Analyze Legal. Employment & Labor .Regulatory .Banking .Tax .Real Estate .Tax/Accounting .Investment Bank .Antitrust/Competition .Intellectual Property.Operations .Environmental/Facilities .Litigation .Environmental . IT .Business Development .Real Estate .Human Resources & Employee Benefits .Legal Department .

Notarization.Compliance Information Labor Issues .Worldwide Sales .Cross-Border Transactions Handbook Appendix 2.Employee Headcount/Labor Data Identify and .Destination Sales . Notarization. Localization and/or Apostille Coordinate Regulatory Filings Identified Jurisdictions for Transaction OR Pick-List of all Countries Coordinate Plan & Organize Yes Yes B&M Local Offices & Correspondents Coordinate Determine need for any POA for Regulatory or other purposes. as appropriate Prepare & Make Regulatory Filings No Coordinate Coordinate Seller's Counsel Gather Information for Regulatory and Labor Analysis Identify and Analyze Regulatory and Labor Issues Prepare & Make Regulatory Filings Coordinate Coordinate Seller Gather Information for Regulatory and Labor Analysis Make Regulatory Filings 152 Baker & McKenzie .1 – Acquisitions Flowchart Analysis and Certain Filings No B&M Coordinating Office Gather Information for Regulatory and Labor Analysis Identify and Analyze Regulatory and Labor Issues Any Regulatory Filing Necessary? Determine need for any POA for Regulatory or other purposes.Change of Control .Investment or other Government Incentive Grants Coordinate . Prepare & arrange for Signature.Plant/Warehouse Locations .Gross Assets (book) Value Analyze . Localization and/or Apostille.Market Shares Regulatory and . Localization and/or Apostille Prepare & Make Regulatory Filings Gather Relevant Information: Coordinate .Corporate Structure . Prepare & arrange for Signature.Industry Specific Regulations Coordinate Client Gather Information for Regulatory and Labor Analysis File Notification at this time? Identify and Analyze Regulatory and Labor Issues Sign POA and arrange for Notarization.

Intellectual Property Transfer Documents .Cross-Border Transactions Handbook Appendix 2.Corporate/Compliance .Assignment and Assumption Agreement .Investment Bank .Intellectual Property.Intellectual Property.Release .Regulatory . Employment & Labor .Human Resources & Employee Benefits .Transitional Services Agreement .Tax .Finance .Employment Agreement .Real Estate .Benefits.Antitrust/Competition .Environmental/Facilities .Litigation . IT .Business Development .Real Estate .Purchase Agreement .Other Practice Groups and offices Purchase and Ancillary Agreements Purchase and Ancillary Agreements Receive Purchase and Ancillary Agreements Review Purchase and Ancillary Agreements Review & Revise Seller Client Deal Team: .Transitional Intellectual Property License Review & Revise Review & Prepare for Negotiations Client Seller's Counsel Baker & McKenzie Deal Team: .Banking .Environmental .Tax/Accounting .Business Transfer Agreement Form .Risk Management .Escrow Agreement (Indemnification) .Others Purchase and Ancillary Agreements Baker & McKenzie 153 .1 – Acquisitions Flowchart Draft Purchase and Ancillary Agreements Prepare for Negotiations B&M Coordinating Office Prepare Document List Draft Purchase and Ancillary Agreements Purchase and Ancillary Agreements Purchase and Ancillary Agreements B&M Local Offices & Correspondents Master Documents: . IT .Noncompetition Agreement .Consulting Agreement .Legal Department .Employee Benefits Allocation Agreement .Operations .

Acquisition Review . Revise & Finalize Yes Destroy or Return Acquisition Review Documents Compare Documents Review. Revise & Finalize Seller's Counsel Purchase and Ancillary Agreements Prepare Seller Disclosure Schedules Receive Draft Buyer's Disclosure Schedules Request Destruction or Return of Acquisition Review Documents Prepare Final Seller's Disclosure Schedules Negotiate.Seller's Representations in Purchase Agreement Coordinate B&M Local Offices & Correspondents Negotiate.Cross-Border Transactions Handbook Appendix 2.Draft Disclosure Schedules . Revise & Finalize Client Purchase and Ancillary Agreements Negotiations Successful? No Terminate Transaction Destroy or Return Acquisition Review Documents Buyer's and Seller's Disclosure Schedules Negotiate.1 – Acquisitions Flowchart Draft Disclosure Schedules Finalize Disclosure Schedules B&M Coordinating Office Purchase and Ancillary Agreements Receive Draft Seller Disclosure Schedules Prepare Draft Buyer's Disclosure Schedules Destroy or Return Acquisition Review Documents Compare Documents Prepare Final Buyer's Disclosure Schedules . Revise & Finalize Seller Purchase and Ancillary Agreements 154 Baker & McKenzie . Revise & Finalize Review.

1 – Acquisitions Flowchart Further Regulatory Filings No Sign Definitive Agreement Complete Implementing Documents B&M Coordinating Office Definitive Purchase and Ancillary Agreements Any Further Regulatory ("PreMerger") Filing or Labor Notification Required at this Time? Yes Identify and Analyze Regulatory and Labor Notification Issues Complete & Make Regulatory Filings and Labor Notifications Coordinate Coordinate Identified Jurisdictions for Transaction OR Pick-List of all Countries B&M Local Offices & Correspondents .Other 3rd Parties Under Negotiated Structure / Obtain Missing Information Coordinate Identify and Analyze Regulatory and Labor Notification Issues Complete & Make Regulatory Filings and Labor Notifications Coordinate Client Definitive Purchase and Ancillary Agreements Obtain Approvals Required for Signing Identify and Analyze Regulatory and Labor Notification Issues Complete & Make Regulatory Filings and Labor Notifications Seller's Counsel Identify and Analyze Regulatory and Labor Notification Issues Coordinate Regulatory Filings and Labor Notifications with Buyer's Counsel Coordinate Coordinate Seller Definitive Purchase and Ancillary Agreements Obtain Approvals Required for Signing Identify and Analyze Regulatory and Labor Notification Issues Complete & Make Regulatory Filings and Labor Notifications Baker & McKenzie 155 .Directors .Shareholders .Cross-Border Transactions Handbook Appendix 2.

1 – Acquisitions Flowchart Finalize and Close the Transaction B&M Coordinating Office Acquisition Vehicle(s) Identified Jurisdictions for Transaction OR Pick-List of all Countries Plan & Organize B&M Local Offices & Correspondents Acquisition Vehicle(s) Plan & Organize Simultaneous Sign & Close Client Acquisition Vehicle(s) Simultaneous or Bifurcated Close END Bifurcated Sign & Close Seller Seller's Counsel 156 Baker & McKenzie .Cross-Border Transactions Handbook Appendix 2.

IT .Antitrust/Competition . Revise & Finalize Coordinate Coordinate Seller Review Draft Acquisition Review Request Prepare Response to Acquisition Review Request Send Response to Acquisition Review Request to Buyer's Counsel Prepare Draft Disclosure Schedules & Send to Buyer's Counsel Baker & McKenzie 157 .Tax .Corporate/Compliance .Environmental .Investment Bank .Real Estate . Revise & Finalize Acquisition Review Instructions Analyze Response & Prepare Preliminary Acquisition Review Report Review Draft Seller Disclosure Schedules Review & Revise Negotiate Coordinate Client Draft Acquisition Review Request Preliminary Acquisition Review Report Final Acquisition Review Report Baker & McKenzie Deal Team: .Human Resources & Employee Benefits .Business Development .Benefits.Intellectual Property. Prepare & Coordinate Preliminary Acquisition Review Report Review Draft Seller Disclosure Schedules Final Acquisition Review Report Coordinate Review & Revise Coordinate B&M Local Offices & Correspondents Conduct Public Records Search Negotiate Scope.Benefits.Intellectual Property.Cross-Border Transactions Handbook Appendix 2.Tax .Risk Management .Other Practice Groups and offices Prepare Draft Disclosure Schedules & Send to Buyer's Counsel Negotiate Scope.Intellectual Property.Corporate/Compliance .Regulatory . Employment & Labor .Real Estate .Litigation . Revise & Finalize Client Deal Team: . Employment & Labor .Environmental/Facilities .Other Practice Groups and offices Yes Review Draft Seller Disclosure Schedules Negotiate Scope.Legal Department .page 1 of 1 No B&M Coordinating Office Conduct Public Records Search & obtain any Seller Acquisition Review Report Draft Acquisition Review Request Prepare and Send Acquisition Review Instructions to Local Advisors Acquisition Review Adequate? Analyze Response.Tax/Accounting . IT .Banking . IT .Finance .Antitrust/Competition .Operations .Litigation .Others Seller's Counsel Review Draft Acquisition Review Request Prepare Response to Acquisition Review Request Baker & McKenzie Deal Team: .Banking .Real Estate .Environmental .1 – Acquisitions Flowchart Acquisition Review .

Novation Agreement .Share Purchase Agreement . Review and Revise Local Closing Documents Compare & Finalize Coordinate Documents: .Escrow Agreement (Indemnification) .page 1 of 2 Identified Jurisdictions for Transaction OR Pick-List of all Countries B&M Coordinating Office Prepare Closing Checklists Prepare.Shareholders Consent or Minutes of Meeting and/or Directors Consent or Minutes of Meeting .Tax Certificates Coordinate Coordinate Seller Review Local Closing Documents Local Closing Documents 158 Baker & McKenzie .Charter Amendments .Share Transfer Documents .Resignation of Officers and Directors.Good Standing Certificates or Nearest Equivalent . Review .Registration of Trade Name Forms . if necessary Coordinate Negotiate .Labor Notifications .Consulting Agreement .Employment Agreement .Transitional Intellectual Property License .Share Transfer Documents .Registration of Trade Name Forms Revise & Finalize .Third Party Consents .Security Agreement .Bring-Down Certificate .Legal Opinions .Cross-Border Transactions Handbook Appendix 2.Transitional Services Agreement . if necessary .1 – Acquisitions Flowchart Simultaneous Sign and Close .Officer's Certificates Regarding: Closing Charter Documents Documents Corporate Approvals Incumbency .Officer's Certificates Regarding: Charter Documents Corporate Approvals Incumbency .Lease/Sublease .Letter of Credit .Disclosure Schedules/Letter .Tax Certificates Client Review Local Closing Documents Local Closing Documents Seller's Counsel Prepare Closing Checklists Review Local Closing Documents Local Closing Documents Closing Checklist: .Regulatory Approvals/Clearances .Letter Offering or Confirming Transfer or Continuation of Employment .Name Change Filings. if necessary .Intellectual Property Transfer Documents .Board/Shareholder Authorizing Resolutions .Promissory Note .Corporate Books and Records .Resignation of Officers and Directors.Share Certificates.Business Transfer Agreements .VAT Invoices .Other Required Transfer Documents Coordinate . if any .Noncompetition Agreement . Review and Revise Local Closing Documents Local Closing Documents Coordinate Coordinate B&M Local Office & Correspondents Prepare Closing Checklists Prepare.Financing Agreement . if necessary .Charter Amendments .Closing Sequence and Flow of Funds Memorandum .Guarantee .Payment of Seller's Debt .Payment of Purchase Price .Good Standing Certificates or Nearest Equivalent and Revise Local .Name Change Filings.Powers of Attorney Prepare.

page 2 of 2 B&M Coordinating Office Prepare Execution Copies of Purchase & Ancillary Agreements Prepare and Assemble Other Closing Deliveries Post Closing Action Items Manage Signing and Closing of the Transaction Coordinate and Make Regulatory Filings and Labor Notifications.Cross-Border Transactions Handbook Appendix 2. if Necessary Coordinate Client Review Closing Documents Sign and Close the Transaction Post Closing Action Items Make Regulatory Filings and Labor Notifications. if Necessary Baker & McKenzie 159 .1 – Acquisitions Flowchart Simultaneous Sign and Close . if Necessary Coordinate Coordinate Coordinate B&M Local Offices & Correspondents Prepare and Assemble Other Closing Deliveries Close the Transaction Make Regulatory Filings and Labor Notifications. if Necessary Seller's Counsel Prepare and Assemble Other Closing Deliveries Coordinate Regulatory Filings and Labor Notifications with Buyer's Counsel Coordinate Seller Review Closing Documents Sign and Close the Transaction Post Closing Action Items Make Regulatory Filings and Labor Notifications.

if Necessary Coordinate Client Sign Purchase Agreement and Do Not Close Make Regulatory Filings and Labor Notifications.No Proceedings .Seller's Performance of Pre-Closing Covenants .Cross-Border Transactions Handbook Appendix 2.Required Government Authorizations Obtained? . if Necessary Closing Conditions Fulfilled by Closing Date? No Waive Closing Conditions? No Closing Conditions Fulfilled By Termination Date? No Terminate Transaction Destroy or Return Acquisition Review Documents Seller's Counsel Coordinate Regulatory Filings and Labor Notifications with Buyer's Counsel Buyer's Closing Conditions: .Buyer Satisfied with Acquisition Review? .No Conflict with Legal Requirements or Orders Request Destruction or Return of Acquisition Review Documents Coordinate Seller Sign Purchase Agreement Make Regulatory Filings and Labor Notifications.Required 3rd Party Consents Obtained? . Regulatory Filings or Labor Notifications required and not previously filed or made based on Letter of Intent Coordinate and Make Regulatory Filings and Labor Notifications.page 1 of 3 B&M Coordinating Office Necessary if.Required Regulatory Approvals/Clearances Obtained? . if Necessary 160 Baker & McKenzie .1 – Acquisitions Flowchart Bifurcated Sign and Close .Required Labor Notifications Made? .Financing Obtained? . if Necessary Destroy or Return Acquisition Review Documents Coordinate Yes Yes Yes Destroy or Return Acquisition Review Documents B&M Local Offices & Correspondents Make Regulatory Filings and Labor Notifications.Accuracy of Seller's Representations .

Noncompetition Agreement .Disclosure Schedules/Letter .Transitional Intellectual Property License .Name Change Filings.Legal Opinions .Share Transfer Documents .Labor Notifications .Escrow Agreement (Indemnification) .Resignation of Officers and Directors.Officer's Certificates Regarding: Closing Charter Documents Documents Corporate Approvals Incumbency .Resignation of Officers and Directors.Intellectual Property Transfer Documents .Transitional Services Agreement .Good Standing Certificates or Nearest Equivalent . Review .Security Agreement .Registration of Trade Name Forms .Tax Certificates Client Review Local Closing Documents Local Closing Documents Seller's Counsel Prepare Closing Checklists Review Local Closing Documents Local Closing Documents Closing Checklist: .Corporate Books and Records .Charter Amendments .Officer's Certificates Regarding: Charter Documents Corporate Approvals Incumbency .Registration of Trade Name Forms Revise & Finalize .Charter Amendments Coordinate .page 2 of 3 Identified Jurisdictions for Transaction OR Pick-List of all Countries B&M Coordinating Office Prepare Closing Checklists Prepare. if necessary .Regulatory Approvals/Clearances . if any .Promissory Note .Guarantee .Bring-Down Certificate .Powers of Attorney Prepare.Employment Agreement .Financing Agreement .Other Required Transfer Documents Coordinate . Review and Revise Local Closing Documents Compare & Finalize Coordinate Documents: .Payment of Purchase Price .VAT Invoices .Third Party Consents .Tax Certificates Coordinate Coordinate Seller Review Local Closing Documents Local Closing Documents Baker & McKenzie 161 .1 – Acquisitions Flowchart Bifurcated Sign and Close .Name Change Filings.Share Certificates.Shareholders Consent or Minutes of Meeting and/or Directors Consent or Minutes of Meeting .Good Standing Certificates or Nearest Equivalent and Revise Local .Letter of Credit . if necessary .Board/Shareholder Authorizing Resolutions . if necessary Negotiate .Lease/Sublease .Payment of Seller's Debt .Closing Sequence and Flow of Funds Memorandum .Novation Agreement .Consulting Agreement .Letter Offering or Confirming Transfer or Continuation of Employment .Business Transfer Agreements . if necessary .Cross-Border Transactions Handbook Appendix 2.Share Purchase Agreement .Share Transfer Documents . Review and Revise Local Closing Documents Local Closing Documents Coordinate Coordinate B&M Local Offices & Correspondents Prepare Closing Checklists Prepare.

if Necessary 162 Baker & McKenzie . if Necessary Coordinate Client Review Closing Documents Close the Transaction Post Closing Action Items Make Regulatory Filings and Labor Notifications.1 – Acquisitions Flowchart Bifurcated Sign and Close .page 3 of 3 B&M Coordinating Office Prepare Execution Copies of Ancillary Agreements Prepare and Assemble Other Closing Deliveries Manage Closing of the Transaction Post Closing Action Items Coordinate and Make Regulatory Filings and Labor Notifications. if Necessary Seller's Counsel Prepare and Assemble Other Closing Deliveries Coordinate Regulatory Filings and Labor Notifications with Buyer's Counsel Coordinate Seller Review Closing Documents Close the Transaction Post Closing Action Items Make Regulatory Filings and Labor Notifications.Cross-Border Transactions Handbook Appendix 2. if Necessary Coordinate Coordinate Coordinate B&M Local Offices & Correspondents Prepare and Assemble Other Closing Deliveries Close the Transaction Make Regulatory Filings and Labor Notifications.

Cross-Border Transactions Handbook Appendix 3. Environmental/ Health/ Safety Real Estate/ Labor/ IP1 Property/ Employee Leases Benefits Credit Tax & 2 Finance Review of Data Room Materials Litigation/ Regulatory/ Insurance Trade Compliance Other areas Total per Country Country Corporate Commercial (Customers/ Suppliers/ Distributors etc.1 – Budget Template APPENDIX 3.1 BUDGET TEMPLATE Fee Estimate – Auction Setting (Initial Phase of Project) 1.) Primary Jurisdictions3 [country] [country] Secondary Jurisdiction4 [country] [country] Other Jurisdictions5 TOTAL Baker & McKenzie 163 .

Expenses (approximate): TOTAL: 164 Baker & McKenzie . 4. Summary of amounts: $ __________ __________ __________ __________ $ __________ a. 7.Cross-Border Transactions Handbook Appendix 3. Diligence (including Report): b. Assistance with bid: c. Prepare Supplemental Request Lists Included in 1. Prepare Report (regarding findings/open issues associated with 1 and 2)6 Included in 1. Assess Regulatory/Merger Control Filing Requirements7 Total of $___________. 3. Expenses Approximately ____% of fees.1 – Budget Template 2. 6. Regulatory assessment d. 5. Assistance with Preparation of Initial Bid Total of $___________.

with some of the secondary jurisdictions likely to be above. A jurisdiction which would otherwise be categorized as “secondary” might move to the “primary” category (at least for IP purposes) if an R&D facility is located in that jurisdiction. Instead. but detailed information as to the nature of the activities in those jurisdictions is lacking.Cross-Border Transactions Handbook Appendix 3.. along with any liens or security interests. sells or services its products. 165 Baker & McKenzie . limited IP investigation. 6 The structure and nature of the report (e.” “exceptions only” or some combination) would be discussed with the client. this would include investigating substantive issues and possible counter arguments to assist with final bid preparation. The fee estimate would reflect only this initial. However. 3 The “primary” jurisdictions would generally be those in which the target owns or leases manufacturing or assembly facilities. the report often takes the form of an executive summary (highlighting major value drivers and possible liability issues) as this is likely to be of most assistance in informing and finalizing the client’s next bid. the protection of its intellectual property rights and the more material items of IP. litigation. and others likely to be below. often through agents or distributors. the client’s internal team will review the detailed terms of the target’s financing documents. 7 Where applicable. along with any related license agreements. that figure.g.1 – Budget Template (footnotes) ___________________ 1 Generally. particularly those at the “parent” level. and procedures for. 5 A catch-all is often included. we would not propose undertaking a detailed review of every patent and trademark registered around the world in the initial phase of the investigation in the auction setting. whether a “full legal review. etc. we would typically propose focusing on change in control triggers (and applicable penalty payments) in the credit documents at the local level. we would typically propose working closely with the client’s internal team to focus the review on the target’s pattern of. 2 Often. generates a material level of sales or has established a holding company for material subsidiaries and/or IP. for example. these figures would be more of a rough estimate. If the bid is structured on a “debt free” basis. 4 The “secondary” jurisdictions would generally be those jurisdictions in which the target has less significant sales and service facilities. Due to the limited nature of information that is typically included in the offering memorandum with respect to secondary jurisdictions. if the offering memorandum references other jurisdictions where the target markets. for purposes of the initial diligence phase in the auction setting.

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” Restricted use and nondisclosure obligations. Disclosing party contacts (to control the lines of communication). Remedies. Nondisclosure of transaction and content of negotiations. No obligation to negotiate definitive agreement. Legal compulsion to disclose confidential information. Non-solicitation provisions. Governing law.1 CONFIDENTIALITY AGREEMENT CHECKLIST x x x x x x x x x x x x x Definition of “Confidential Information. Baker & McKenzie 167 . No representations or warranties with respect to information provided. Return or destroy obligations with respect to the confidential information.Cross-Border Transactions Handbook Appendix 5. Attorney work product and attorney-client privilege.1 – Confidentiality Agreement Checklist APPENDIX 5. Data protection and privacy restrictions.

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the availability of efficient legal remedies in the event that the seller fails to pay and any setoff rights that the buyer may have. including: A description of the target and whether shares or assets and any liabilities are being acquired.2 – Letter of Intent Checklist APPENDIX 5. satisfaction of conditions and/or closing.2 x - x Description of expectations as to the timing of the diligence process (including the level of access and communication channels).. adverse findings in due diligence and/or by reference to relevant financial measures1 based on closing financial statements). These may include: Governmental and regulatory consents or approvals.Cross-Border Transactions Handbook Appendix 5. Conditions precedent. x 1 The terminology used in the letter of intent with respect to financial matters should conform to local usage. Clear and unambiguous statement as to whether the letter or specific clauses are intended to be legally binding (the parties should be cognizant of the effect of local laws in this regard). Price and/or pricing formula. Other buyer-favorable protections such as an escrow or holdback of a certain part of the purchase price to secure future indemnification or adjustment payments. including the size of the parties (particularly the seller).g. Description of the terms of the proposed transaction. and adjustments to the price in certain circumstances (e. signing. both corporate and accounting. Baker & McKenzie 169 .g.. 2 The need for an escrow or alternative means of securing the seller’s payment obligations (e. No material adverse change in the target business. a bank guaranty) will depend upon an evaluation of several factors.2 LETTER OF INTENT CHECKLIST x x Parties.

Description of any non-compete/non-solicitation covenant required from the seller.3 Accuracy of representations and warranties at closing. Exclusivity. The buyer having obtained financing. 3 The inclusion of board approval and/or satisfactory completion of diligence leaves considerable discretion with the buyer and may be regarded as void in certain jurisdictions or. may be objected to by the seller as converting the definitive agreement into an option. Confidentiality (particularly if no earlier confidentiality agreement exists). Termination date for negotiations and any obligations (such as confidentiality) that survive termination. Board and/or shareholder approval.g. order or legal proceeding challenging the transaction. employment agreements with key personnel. and Entry into certain ancillary agreements (e.or long-term service agreement. at the very least. short.Cross-Border Transactions Handbook Appendix 5. x x x x x x x x General description of the level of representations and warranties to be included in the definitive agreements. supply contract or transition services agreement). Break fee.. Costs and expenses (including transfer taxes).2 – Letter of Intent Checklist - No law. Governing law. 170 Baker & McKenzie .

or have a right to object to their transfer by operation of law. the employees. Pre. and if so. For each jurisdiction.1 BUYER’S INTERNATIONAL HR CHECKLIST FOR NON-US EMPLOYEE TRANSFERS AND BENEFITS 1. 171 x x x x Baker & McKenzie . or consultation with. For each jurisdiction. determine whether any notification to. whether at closing or subsequently. negotiate with the seller whether the buyer or the seller will be responsible for local severance liabilities and termination indemnities payable to those employees who do not accept the buyer’s offer of employment. In those jurisdictions where employees must be offered new employment by the buyer. determine whether employees will be automatically assumed by operation of law (and with which benefits). or object to the transfer. determine with the seller the mechanics for.Signing Jurisdictions Identify each jurisdiction where the buyer will assume or hire employees. or whether employees must be offered new employment by the buyer. notice to employees of the proposed transaction. Transfer of Employees x Identify all employees who will be assumed or offered employment by the buyer. and consider alternatives where the buyer does not currently have a presence.1 – Employee Transfers/Benefits Checklist APPENDIX 8. For each jurisdiction. including employees who work less than 100% of their time in the target business. any works council or other entity is required.Cross-Border Transactions Handbook Appendix 8. and the content of. when and upon what terms the offer must be extended.

and whether those contributions are current. determine: annual employer contributions. With respect to each such employee benefit plan. and whether the buyer must take any other action with respect to the plans prior to closing. Employee Benefit Plans x Identify all employee benefit plans covering employees who will be assumed by operation of law by the buyer or who will be offered employment by the buyer. x - - x Assess equity compensation plans. Purchase Agreement Negotiate with the seller the necessary employee and employee benefits representations and warranties. whether assets are set aside to fund or finance the employee benefit plan obligations. and if so.Cross-Border Transactions Handbook Appendix 8. covenants. whether the plan is fully funded and whether the assets appear on the target’s balance sheet. including change in control provisions and tax and securities consequences arising from the transaction. If employees are to remain covered by the seller’s employee benefit plans after closing for a period of time.1 – Employee Transfers/Benefits Checklist x Review employment agreements and collective bargaining or other labor agreements for unusual terms or conditions and any provisions triggered by the proposed transaction. negotiate with the seller the terms of an appropriate transitional services arrangement. 172 Baker & McKenzie . if any. whether the buyer will assume the employee benefit plans or be required to establish mirror or similar plans to cover the employees. whether there will be a transfer of seller-owned assets or insurance policies to fund or finance the employee benefit plan obligations at closing. schedules and other language. indemnities.

retain employee benefit consultants to advise on equivalent terms of employment and integration of assumed employee benefit plans with the buyer’s employee benefit plans. where necessary. After Signing/Pre-Closing Transfer of Employees x In those jurisdictions where the buyer does not currently have a presence. works councils and labor unions concerning the transfer of employees and employee benefit plans. x x 3. Comply with applicable securities and tax rules and prospectus delivery requirements with respect to equity-based compensation plans. x x Post-Closing Complete the transfer of assumed employee benefit plans.1 – Employee Transfers/Benefits Checklist 2. Commence steps to implement the transfer after closing of those plans to be transferred subsequent to closing.Cross-Border Transactions Handbook Appendix 8. determine who will be the employer of assumed or hired employees. Determine the extent to which transitional assistance by the seller will be needed and arrange for same. x x x Employee Benefit Plans x x Determine which benefit plans will transfer at closing and take any action necessary to effect their transfer. Establish new employee benefit plans to provide benefits not otherwise covered by assumed employee benefit plans. extend those offers on the part of the buyer. To the extent necessary. 173 Baker & McKenzie . Effect notifications to and conduct consultations/negotiations with employees. For those jurisdictions in which formal offers of employment must be extended.

Cross-Border Transactions Handbook Appendix 8.1 – Employee Transfers/Benefits Checklist x x Memorialize new and/or converted equity awards and integrate those awards into existing stock plan administration. Ensure on-going legal and regulatory compliance. 174 Baker & McKenzie .

Box R126. Belgium Telephone: +32 2 639 3611 Facsimile: +32 2 639 3699 BELGIUM – ELC BRUSSELS Baker & McKenzie 149 Avenue Louise Seventh Floor 1050 Brussels. 5776 2399 AUSTRALIA – MELBOURNE Baker & McKenzie Level 39 Rialto 525 Collins Street Melbourne.CIS.M. Piso 13.Cross-Border Transactions Handbook Baker & McKenzie offices worldwide BAKER & McKENZIE OFFICES WORLDWIDE ARGENTINA . Kingdom of Bahrain Telephone: +97 3 538 800 Facsimile: +97 3 533 379 BELGIUM – ANTWERP Baker & McKenzie Meir 24 2000 Antwerp.W. Victoria 3001 Telephone: +61 2 9225 0200 Facsimile: +61 2 9225 1595 AUSTRIA – VIENNA Kerres & Diwok Rechtsanwälte GmbH AZERBAIJAN – BAKU Baker & McKenzie . Limited The Landmark Building 96 Nizami Street Baku. Victoria 3000 Postal Address: GPO Box 2119T Melbourne. 6th Floor Diplomatic Area P. Belgium Telephone: +32 2 639 3766 Facsimile: +32 2 538 7726 Schubertring 2 Wien 1010 Austria Telephone: +43 1 51 660 Facsimile: +43 1 51 660 60 Baker & McKenzie 175 . Victoria 3001 Telephone: +61 3 9617 4200 Facsimile: +61 3 9614 2103 AUSTRALIA – SYDNEY Baker & McKenzie Level 26.P. Belgium Telephone: +32 3 213 4040 Facsimile: +32 3 213 4045 BELGIUM – BRUSSELS Baker & McKenzie Avenue Louise 149 Louizalaan 1050 Brussels. Azerbaijan AZ10000 Telephone: +99 412 971 801 Facsimile: +99 412 971 805 BAHRAIN Baker & McKenzie Limited Al Salam Tower. Alem 1110. Argentina Telephone: +54 11 4310 2200.O. 5776 2300 Facsimile: +54 11 4310 2299. Centre 50 Bridge Street Sydney. Royal Exchange Sydney. NSW 1223 Melbourne.BUENOS AIRES Baker & McKenzie Sociedad Civil Avenida Leandro N. A. N.S. 1001AAT Buenos Aires. 1223 Postal Address: P. Box 11981 Manama.O.

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88 Century Boulevard.2845 0490 CHINA . England Telephone: +44 20 7919 1000 Facsimile: +44 20 7919 1999 FRANCE – PARIS Baker & McKenzie SCP 32 avenue Kléber . France Telephone: +33 1 4417 5300 Facsimile: +33 1 4417 4575 GERMANY – BERLIN Baker & McKenzie LLP Friedrichstrasse 79-80 10117 Berlin. Hamza & Partners/ Baker & McKenzie World Trade Center 1191 Cornich El Nil Eighteenth Floor Cairo. Praha City Center Klimentská 46 110 02 Prague 1. 6th Floor Bogota.. Czech Republic Telephone: +42 236 045 001 Facsimile: +42 236 045 055 EGYPT – CAIRO Helmy. Jin Mao Tower. Germany Telephone: +49 211 311 160 Facsimile: +49 211 311 16199 Baker & McKenzie 177 . Hutchison House 10 Harcourt Road.Cross-Border Transactions Handbook Baker & McKenzie offices worldwide CHINA HONG KONG – SAR Baker & McKenzie 14th Floor.s. Colombia Postal Address: Apartado Aereo No.C. 644 9595 Facsimile: +57 1 376 2211 CZECH REPUBLIC – PRAGUE Baker & McKenzie v.BP 2112 75771 Paris Cedex 16. People’s Republic of China Telephone: +86 21 5047 8558 Facsimile: +86 21 5047 0020 COLOMBIA – BOGOTA Baker & McKenzie Bogota Avenida 82 No. 2845 0487. Central Hong Kong SAR Telephone: +85 2 2846 1888 Facsimiles: +85 2 2845 0476. Germany Telephone: +49 30 2038 7600 Facsimile: +49 30 2038 7699 GERMANY – DUSSELDORF Baker & McKenzie LLP Neuer Zollhof 2 40221 Düsseldorf. 10-62. D. Colombia Telephone: +57 1 634 1500. Egypt Telephone: +20 2 579 1801 to 1806 Facsimile: +20 2 579 1808 ENGLAND – LONDON Baker & McKenzie LLP 100 New Bridge Street London EC4V 6JA.3746 Bogotá. Pudong Shanghai 200121.SHANGHAI Baker & McKenzie LLP Unit 1601.o.

CIS. Italy Telephone: +39 51 240 788 Facsimile: +39 51 240 131 178 ITALY – MILAN Baker & McKenzie Milano StP 3 Piazza Meda 20121 Milan. 57 00161 Rome. Germany Telephone: + 49 89 552 380 Facsimile: + 49 89 552 381 99 HUNGARY – BUDAPEST Martonyi és Kajtár Baker & McKenzie Attorneys at Law Andrássy út 102 1062 Budapest. Japan Telephone: +81 3 5157 2700 Facsimile: +81 3 5157 2900 KAZAKHSTAN – ALMATY Baker & McKenzie . Italy Telephone: +39 6 440 631 Facsimile: +39 6 440 63306 JAPAN – TOKYO The Prudential Tower. 14th Floor 97 Zholdasbekov Street Almaty. Hungary Telephone: +36 1 302 3330 Facsimile: +36 1 302 3331 INDONESIA – JAKARTA Hadiputranto. Hadinoto & Partners The Jakarta Stock Exchange Building Tower II. 11th Floor 13-10 Nagatacho 2-chome Chiyoda-ku. 515 4850. 515 5092. 94-96 40126 Bologna. 21st Floor Sudirman Central Business District Jl. 515 4860. 515 4855.Cross-Border Transactions Handbook Baker & McKenzie offices worldwide GERMANY – FRANKFURT Baker & McKenzie LLP Bethmannstrasse 50-54 60311 Frankfurt/Main.515 5093 Facsimiles: +62 21 515 4840.52 53 Jakarta 12190. Limited Samal Towers. Indonesia Telephone: +62 21 515 5090. 515 4865 ITALY – BOLOGNA Studio Bernini Associato a Baker & McKenzie Via Mascarella. Menara Maxis Kuala Lumpur City Centre 50088 Kuala Lumpur Malaysia Telephone: +60 3 2055 1888 Facsimile: +60 3 2161 2919 Baker & McKenzie . 515 4845. Tokyo 100 0014 Postal Address: CPO Box 1576 Tokyo 100 8694. Kazakhstan 050051 Telephone: +7 3272 509 945 Facsimile: +7 3272 509 579 MALAYSIA – KUALA LUMPUR Wong & Partners Level 41 Suite A. Jendral Sudirman Kav. Italy Telephone: +39 2 762 311 Facsimile: +39 2 762 31620 ITALY .ROME Baker & McKenzie Rome StP Viale di Villa Massimo. Germany Telephone: +49 69 299 080 Facsimile: +49 69 299 08108 GERMANY – MUNICH Baker & McKenzie LLP Theatinerstrasse 23 80333 Munich. Samal-2. 515 5091.

Avila Camacho 1 Col. M. Texas 79995 Telephone: +52 656 629 1300 Facsimile:+52 656 629 1399 MEXICO – MEXICO CITY Baker & McKenzie.C. Nichupté 19. Edificio Baker & McKenzie. Edificio Oficinas en el Parque Torre I Piso 10 Blvd. Aviacion 22420 Tijuana. S.O. Piso 2 Av.Cross-Border Transactions Handbook Baker & McKenzie offices worldwide MEXICO – CANCUN Baker & McKenzie Abogados S. Agua Caliente 10611 Col. Edificio Galerías Infinity.O.T de la Republica 3304. México Telephone: +52 998 881 1970 Facsimile: +52 998 881 1989 MEXICO – CHIHUAHUA Baker & McKenzie Abogados S. D. Antonio L. Piso 2 P. Leidseplein 29 1017 PS Amsterdam.V. Desarrollo El Saucito 31125 Chihuahua. S.C. Chihuahua Postal Address: P. Piso 4 Av. Puerta de Hierro 5090 Fraccionamiento Puerta de Hierro 45110 Zapopan.Partido Escobedo 32330 Juarez. S.C. Jalisco. B. Blvd. México Telephone: +52 81 8399 1300 Facsimile: +52 81 8399 1399 MEXICO – TIJUANA Baker & McKenzie Abogados. Q. Nuevo León. Edificio Scotiabank Inverlat. Santa Maria 64650 Monterrey.C. Edificio Centura. Valle Escondido 5500 Fracc.C. México Postal Address: P.O. Chihuahua Telephone: +52 614 180 1300 Facsimile: + 52 614 180 1329 MEXICO – GUADALAJARA Baker & McKenzie Abogados S. The Netherlands P. S. Mza 2 SM 19 77500 Cancún. Col. Box 2720 1000 CS Amsterdam Telephone: + 31 20 551 7555 Facsimile: + 31 20 626 7949 Baker & McKenzie 179 . Col.C. Edificio Punto Alto. Telephone: +52 55 5279 2900 Facsimile: +52 55 5279 2999 MEXICO – MONTERREY Baker & McKenzie Abogados. Piso 12 Blvd. Box 1205 Chula Vista. Piso 1 Blvd.C. California 91912 1205 Telephone: +52 664 633 4300 Facsimile: +52 664 633 4399 THE NETHERLANDS – AMSTERDAM Baker & McKenzie Amsterdam N. Box 9338 El Paso. Rodriguez 1884 Pte. México Telephone: + 52 33 3848 5300 Facsimile: + 52 33 3848 5399 MEXICO – JUAREZ Baker & McKenzie Abogados. Polanco 11009 Mexico.F. Roo.C.

Spain Telephone: +34 91 230 4500 Facsimile: +34 91 391 5149 SWEDEN – STOCKHOLM Baker & McKenzie Advokatbyrå Linnegatan 18 P. Armii Ludowej 26 00-609 Warsaw.L. Limited 57.CIS. 8th floor 08034 Barcelona.Cross-Border Transactions Handbook Baker & McKenzie offices worldwide PHILIPPINES – MANILA Baker & McKenzie 12th Floor. Philippines Telephone: +63 2 819 4700 Facsimiles: +63 2 816 0080.Wong & Leow #27 01 Millenia Tower 1 Temasek Avenue Singapore 039192 Telephone: +65 6338 1888 Facsimile: +65 6337 5100 SPAIN . Morskaya Street St.11487 Stockholm. Paseo de la Castellana. Avda. Spain Telephone: +34 93 206 0820 Facsimile: +34 93 205 4959 SPAIN – MADRID Baker & McKenzie Madrid S. Russia 190000 Telephone: +7 812 303 9000 Facsimile: +7 812 325 6013 SAUDI ARABIA – RIYADH Baker & McKenzie Gulf Limited Olayan Centre Tower II Al Ahsa Road PO Box 4288 Riyadh 11491. Petersburg.CIS. D. Net One Center 26th Street Corner 3rd Avenue Crescent Park West Bonifacio Global City Taguig. Metro Manila.O. Russia 127006 Telephone: +7 495 787 2700 Facsimile: +7 495 787 2701 RUSSIA – ST. Poland Telephone: +48 22 576 3100 Facsimile: +48 22 576 3200 RUSSIA – MOSCOW Baker & McKenzie . 11th Floor 7 Dolgorukovskaya Street Moscow.BARCELONA Baker & McKenzie Barcelona S. Saudi Arabia Telephone: +966 1 291 5561 Facsimile: +966 1 291 5571 SINGAPORE Baker & McKenzie. 92 28046 Madrid. B.PETERSBURG Baker & McKenzie . Sweden Telephone: +46 8 5661 7700 Facsimile: +46 8 5661 7799 180 Baker & McKenzie .Diagonal. Box 5719 SE . Philippines 1634 Postal Address: MCPO Box 1578 Makati City 1299. Limited Sadovaya Plaza.728 7777 POLAND – WARSAW Baker & McKenzie Gruszczynski i Wspolnicy Attorneys at Law LP Focus Building Al. 652 Edif.L.

US Telephone: +1 305 789 8900 Facsimile: +1 305 789 8953 UNITED STATES .O. Taiwan 105 Telephone: +886 2 2712 6151 Facsimiles: +886 2 2716 9250. Illinois 60601. US Telephone: +1 214 978 3000 Facsimile: +1 214 978 3099 UNITED STATES – HOUSTON Baker & McKenzie LLP 711 Louisiana. 2712 8292 THAILAND – BANGKOK Baker & McKenzie Ltd.CIS. 25th Floor. Thailand Telephone: +66 2636 2000. 12a Volodymyrska Street Kyiv. Texas 77002-2716. Box 8034 Zürich Switzerland Telephone: +41 1 384 1414 Facsimile: +41 1 384 1284 TAIWAN – TAIPEI Baker & McKenzie 15th Floor. Tun Hwa North Road Taipei. Hung Tai Center No. 2636 2222 Facsimile: +66 2636 2111 UKRAINE – KYIV Baker & McKenzie . US Telephone: +1 713 427 5000 Facsimile: +1 713 427 5099 UNITED STATES . US Telephone: +1 312 861 8000 Facsimiles: +1 312 861 2899. Florida 33131. Switzerland Telephone: +41 22 707 9800 Facsimile: +41 22 707 9801 SWITZERLAND – ZURICH Baker & McKenzie Zurich Zollikerstrasse 225 P.168. Ukraine 01025 Telephone: +380 44 490 7070 Facsimile: +380 44 490 6787 UNITED STATES – CHICAGO Baker & McKenzie LLP One Prudential Plaza 130 East Randolph Drive Chicago.MIAMI Baker & McKenzie LLP Mellon Financial Centre 1111 Brickell Avenue Suite 1700 Miami.Cross-Border Transactions Handbook Baker & McKenzie offices worldwide SWITZERLAND – GENEVA Baker & McKenzie Geneva Chemin des Vergers 4 1208 Geneva. Limited Millennium Business Center Fifth Floor. Suite 3400 Houston. US Telephone: +1 212 626 4100 Facsimile: +1 212 310 1600 Baker & McKenzie 181 .NEW YORK Baker & McKenzie LLP 1114 Avenue of the Americas New York. 861 8080 UNITED STATES – DALLAS Baker & McKenzie LLP 2300 Trammell Crow Center 2001 Ross Avenue Dallas. New York 10036. Texas 75201. Abdulrahim Place 990 Rama IV Road Bangkok 10500.

Venezuela US Mailing Address: Baker & McKenzie M-287. 264 1637 VENEZUELA – VALENCIA Baker & McKenzie SC Edificio Torre Venezuela. 101West Broadway San Diego. Bolivar cruce con Calle 154 (Misael Delgado) Urbanizacion La Alegria Postal Address: PO Box 1155 Valencia. Jet Cargo International P. Vietcombank Tower 198 Tran Quang Khai Street Hoan Kiem District Hanoi.C. Caracas 1060 Postal Address: PO Box 1286 Caracas 1010-A. Box 020010 Miami.4 Av. US Telephone: +1 415 576 3000 Facsimiles: +1 415 576 3099. USA: Telephone: +58 212 276 5111. 576 3098 UNITED STATES WASHINGTON. 825 1430 Facsimile: +84 4 825 1432 182 Baker & McKenzie . 276 5112 Facsimiles: +58 212 264 1532. Piso No. Socialist Republic of Vietnam Telephone: +84 4 825 1428. +1 800 786 1022 Facsimile: +1 619 236 0429 UNITED STATES – SAN FRANCISCO Baker & McKenzie LLP Two Embarcadero Center Twenty-Fourth Floor San Francisco. D. 825 1429. Venezuela Telephone: +58 241 824 8711 Facsimile: +58 241 824 6166 VIETNAM – HANOI Baker & McKenzie LLP 13th Floor. US Telephone: +1 619 236 1441. 94111-3909. US Telephone: +1 202 452 7000 Facsimile: +1 202 452 7074 VENEZUELA – CARACAS Baker & McKenzie SC Torre Edicampo. Estado Carabobo.Cross-Border Transactions Handbook Baker & McKenzie offices worldwide UNITED STATES .SAN DIEGO Baker & McKenzie LLP Twelfth Floor. NW Washington. US Telephone: +1 650 856 2400 Facsimile: +1 650 856 9299 UNITED STATES . Florida 33102-0010. PH Avenida Francisco de Miranda Cruce con Avenida Del Parque Urbanización Campo Alegre. D. California 92101.PALO ALTO Baker & McKenzie LLP 660 Hansen Way Palo Alto. Baker & McKenzie LLP 815 Connecticut Avenue. 20006-4078. California.O. California 94304.C.

829 5602 Facsimile: +84 8 829 5618 Baker & McKenzie 183 . Saigon Tower 29 Le Duan Blvd. District 1. 829 5601. Ho Chi Minh City Socialist Republic of Vietnam Telephone: +84 8 829 5585.Cross-Border Transactions Handbook Baker & McKenzie offices worldwide VIETNAM – HO CHI MINH CITY Baker & McKenzie LLP 12th Floor.

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