Cross Border Transactions Handbook

North America
Corporate & Securities
Cross-Border Transactions
Handbook
The leading cross-border firm
Baker & McKenzies

Cross-Border
Transactions Handbook
2014 Edition
Baker & McKenzie 2014

www.bakermckenzie.com
All rights reserved.
This handbook is designed only to provide general information. It is not offered as
advice on any particular matter, whether it be legal, procedural or otherwise, and it
should not be considered as such. Baker & McKenzie, the editor and the contributing
authors expressly disclaim any and all liability to any person in respect of the
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handbook is subject to change and is current only as of January 2014.
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This handbook does not create any attorney-client relationship between you and Baker
& McKenzie.
Cross-Border Transactions Handbook

Editors Note
Editors Note
We are pleased to present the 2014 edition of our Cross-Border
Transactions Handbook. This handbook is intended primarily to help
clients (lawyers and non-lawyers) understand the breadth and depth of
business and legal considerations associated with cross-border
transactions and suggests some ways to navigate the transaction
journey. This handbook is not a comprehensive treatise. It seeks only
to provide a framework for those contemplating a cross-border
transaction and it focuses on the project management challenge of
executing such transactions.
A list of additional publications and resources provided by our firm is
located on the last page of this handbook. To request a copy of these
materials, please email our marketing department at the address
located on the last page of this handbook, or contact the Baker &
McKenzie attorney with whom you work.
This handbook is a product numerous contributions from several
practitioners in our firm, including Matthew Allison, Rekha Auld,
Regine Corrado, Valerie Diamond, Michael Duffy, David Ellis,
Katherine Funk, Peter George, Kelly Going, Steven Hill, Janet Kim,
Alexandra Lee, Duffy Lorenz, David Malliband, Helen Mantel, Jose
Moran, Michael Morkin, Allison Stafford Powell, Carole Spink,
Jerome Tomas, Peter Tomczak, Olivia Tyrrell, Brian Wydajewski, and
editor, Kelly OLeary.
The materials in this guide are current only as of January 2014. The
laws and regulations discussed herein change frequently. Additionally,
this handbook is designed only to provide general information. It is
not offered as advice on a particular matter. Accordingly, we
recommend that you consult with the Baker & McKenzie attorney
with whom you work about the particular facts and circumstances at
issue before taking any action on the basis of the information included
in this handbook.

Editors Note
Baker & McKenzie

Baker & McKenzie is continuously ranked as the No. 1 cross-border
M&A firm by deal count. With more than 800 corporate & securities
lawyers in 74 offices globally, we have one of the largest and most
active transactional practices in the world and we do more crossborder deals than any other global law firm. Our clients trust the
unparalleled experience and on-the-ground insight we bring to crossborder transactions, and value our depth in developed and emerging
economies. As a trusted advisor for successful companies doing
business globally, we provide ongoing guidance on managing capital,
people, products and processes in global markets.

Table of Contents
Table of Contents
Section 1 Introduction ...........................................................................1
Section 2 Project Management .............................................................5
2.1.
2.2.
2.3.
2.4.
2.5.
2.6.
Organizing Principle .........................................................6

Scope of the Project ..........................................................7
Assembling the Transaction Team ....................................7
Organizational Meeting ...................................................10
Roles and Responsibilities ..............................................14
Managing Local Legal Counsel ......................................15
Section 3 Budgeting for the Transaction ............................................17

3.1.
3.2.
3.3.
3.4.
Scope of Diligence ..........................................................17

Transaction-Specific Factors ...........................................19
Scope of Advisors Roles in the Transaction ..................22
Creating the Budget Template ........................................24
Section 4 Discrete Financing Issues ...................................................27

4.1.
4.2.
4.3.
4.4.
4.5.
4.6.
Debt vs. Equity Financing ...............................................27

General Considerations for Lenders in Cross-Border
Financings .......................................................................31
Financial Assistance ........................................................34
Security Interests and Subordination Issues ...................35
Cross-Border Legal Opinions .........................................38
Closing Cross-Border Financings ...................................39
Section 5 Preliminary Agreements .....................................................41

5.1.
5.2.
Confidentiality Agreements ............................................42

Letters of Intent ...............................................................47
Section 6 Diligence .............................................................................55

6.1.
6.2.
6.3.
Role of Review ................................................................55

Role of Advisors..............................................................56
Scope of Review..............................................................57
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Table of Contents
6.4.
6.5.
6.6.
6.7.
6.8.
6.9.
6.10.
6.11.
Diligence Requests ..........................................................59

Nature of the Report ........................................................60
Timely Reporting ............................................................62
Specific Matters for Investigation ...................................63
Extra-Territorial Reach of Laws .....................................64
Public Record Searches ...................................................72
Privacy and Data Protection Laws ..................................73
Diligence in the Context of Other Forms of
Transactions ....................................................................74
Section 7 Regulatory Framework .......................................................77

7.1.
7.2.
7.3.
7.4.
7.5.
7.6.
7.7.
7.8.
Overview .........................................................................77
Competition Analysis ......................................................80
Gun Jumping Issues .....................................................83
Exchange of Competition-Sensitive Information ...........85
Foreign Investment Approvals and Notifications ...........90
Industry-Specific Regulations .........................................90
Exchange Control Approvals ..........................................92
Local Business Rules and Reporting Obligations...........93
Section 8 Employee Transfers and Benefits .......................................95

8.1.
8.2.
8.3.
8.4.
8.5.
8.6.
8.7.
8.8.
8.9.
Automatic Transfer vs. Termination/Rehire ...................97

Terms and Conditions .................................................. 102
Approvals, Consultations and Notices ......................... 103
Identification of Employees ......................................... 104
Severance/Termination Indemnities ............................ 105
Employee Benefit Plan Issues ...................................... 107
Funding Issues .............................................................. 108
Global Equity Compensation Issues ............................ 110
Transitional Services .................................................... 113
Section 9 Documenting the Transaction .......................................... 117

9.1.
9.2.
9.3.
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The Governing Law Debate ......................................... 117

Cross-Border Acquisition Agreements ........................ 119
Business Process Outsourcing ..................................... 126
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Table of Contents
Section 10 Closing the Transaction ................................................. 133

10.1.
10.2.
10.3.
10.4.
10.5.
10.6.
10.7.
Availability of Key Personnel ...................................... 133

Notaries ........................................................................ 135
Releases and Third-Party Consents.............................. 136
Centralized vs. Local Closings..................................... 138
Listing of Assets ........................................................... 139
Time Differences: Escrow Closing .............................. 140
Moving Funds .............................................................. 141
Section 11 "Day One" Readiness and Post-Closing Actions .......... 143

11.1.
11.2.
11.3.
11.4.
11.5.
11.6.
11.7.
11.8.
11.9.
Licenses, Permits and Registrations............................. 144

Bank Accounts ............................................................. 145
Payroll .......................................................................... 146
Auditor, Director and Officer Changes ........................ 146
Operational Requirements ............................................ 147
Fiscal Year and Other Corporate Changes ................... 148
Signage and Letterhead ................................................ 148
Ongoing Compliance ................................................... 149
Supply Chain Rationalization ...................................... 150
Section 12 Dispute Resolution ......................................................... 153

12.1.
12.2.
12.3.
12.4.
12.5.
12.6.
12.7.
12.8.
12.9.
12.10.
12.11.
12.12.
Key Initial Questions.................................................... 153

General Options for Dispute Resolution Clauses ........ 155
Litigation vs. Arbitration .............................................. 156
Enforcement of Judgments and Awards ...................... 159
Delays ........................................................................... 160
Discovery ..................................................................... 161
Costs ............................................................................. 162
Confidentiality.............................................................. 163
Interim Relief ............................................................... 164
Damages ....................................................................... 165
Choice of Law .............................................................. 165
Multiple Parties ............................................................ 166
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Table of Contents
Appendix 2.1 Acquisitions Flowchart ............................................. 169

Appendix 2.2 Scoping Checklist ..................................................... 185
Appendix 3.1 Budget Template ....................................................... 197
Appendix 5.1 Confidentiality Agreement Checklist ....................... 201
Appendix 5.2 Letter of Intent Checklist .......................................... 203
Appendix 8.1 Buyers International HR Checklist for Non-US
Employee Transfers and Benefits .................................................... 207
Baker & McKenzie Offices Worldwide .......................................... 211
Related Publications......................................................................... 221
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Section 1 Introduction
Section 1
Introduction
In looking to capitalize on the opportunities presented by the
expansion of global markets, companies rely on a variety of corporate
transactions that are familiar in a strictly domestic context, including
mergers, acquisitions, dispositions, joint ventures, strategic alliances
and business process outsourcing. Similar to a transaction within a
single jurisdiction, the choice of which transaction structure to utilize
will depend on a companys overall business strategy.
Whatever the transaction structure most appropriate for achieving a
companys business objectives, there will be goals that are common in
carrying out all transactions: (i) achieving certainty of execution; (ii)
maximizing the economic benefit of the transaction; (iii) reducing the
amount of management time absorbed by the process; (iv) shortening
the time frame in which the transaction is completed; (v) controlling
the associated transaction costs; (vi) properly identifying and
addressing the risks associated with the transaction; and (vii)
effectively managing exposure to liabilities.
The successful attainment of these goals depends, in large part, on the
successful planning, 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, joint ventures and strategic alliances fail. In the
cross-border context, successful transaction management is even more
difficult.
When we speak in this handbook of cross-border, or multijurisdictional or international transactions, we are referring to
transactions involving 2 or more countries, often as many as 20 to 30,
but in some cases much larger (such as 80 or more). The differences
between a purely domestic versus cross-border transaction arise on
both a substantive and practical level.
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While cross-border transactions will involve most of the complexities

inherent in the domestic context, they raise a set of issues that are
specific to the international context, such as exchange control
restrictions, foreign investment law approvals and local formalization
requirements (e.g., notarial deeds), to name a few. Substantively, 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.
From a practical point of view, a cross-border transaction is
essentially a large-scale, global undertaking involving many moving
variables. Accordingly, 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, with minimal error.
This handbook describes and collects best practices in managing
cross-border transactions. Each section includes a narrative describing
a recommended approach to a major aspect of cross-border
transactions. In addition, some valuable know-how and tools for
managing cross-border transactions are included as appendices.
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. For example, Appendix 2.1 contains a flow
chart of the decisions, information and actions that typically come into
play in a cross-border acquisition. For a company with a large inhouse legal department, this type of business process tool can be
useful in defining and standardizing the in-house teams approach to
cross-border acquisitions. For a company that relies heavily on outside
advisors, 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.
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In discussing the project and risk management aspects of cross-border

transactions, this handbook highlights the commonalities of the main
transaction structures as they pertain to cross-border transactions, with
a general focus on acquisitions. However, this handbook does not
attempt to provide a detailed discussion of each major transaction
structure. Baker & McKenzie publishes other handbooks, including
those listed on the last page of this handbook, that look at individual
transactions in greater depth. Please contact Baker & McKenzie if you
would like a copy of the firms other publications.
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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, including: (i) clearly defined roles and responsibilities;
(ii) appropriate project and communications plans; (iii) efficient
access to and management of internal and external know-how; and
(iv) risk identification and management. The transaction management
challenge in the cross-border setting is exacerbated by the multiple
and often unfamiliar legal systems and local practices, which give rise
to numerous additional obstacles, considerations and tasks that are
absent in the purely domestic context. These additional factors may
take the form of:
Investment approvals;
Exchange control approvals or consents;
Tax clearances;
Clearances under local or international competition laws;
Unusual problems arising in the acquisition review (or due

diligence) investigation of a foreign target;
Language and cultural barriers;
The necessity of agreeing on an allocation of the purchase

price among assets located in various jurisdictions; 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.
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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. This is because poor global coordination of the transaction
can easily produce inefficiencies and 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.
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. Appendix 2.1 (Acquisitions Flowchart)
illustrates this, from the naming of the transaction team to the closing
of the transaction and thereafter. While this flowchart focuses on the
legal aspects and documentation, it also outlines the fundamental
progress of the transaction and serves as a useful project management
tool for organizing the entire transaction.
2.1.
Organizing Principle
A major cross-border transaction such as an acquisition, disposition,

joint venture, strategic alliance or outsourcing transaction ultimately
relates to a legal process or legal document. The legal structure
therefore offers a practical organizing principle for all members of the
transaction team. Securing adequate deal management in the crossborder setting can be a tall order for the in-house legal team. In-house
legal departments often are thinly staffed, with limited personnel
outside corporate headquarters. As a result, in cross-border
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.
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2.2.
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.
Appendix 2.2 (Scoping Checklist) includes a set of guideline
questions designed to assist the project leader in obtaining a better
sense of the business drivers and other key information to scope the
transaction. 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.
2.3.
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 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:
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 (if
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applicable) 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
Section 2.4 (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.
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 sellers
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.
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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 (if applicable), coordinate due
diligence logistics 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 partys 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 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
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problems on previous transactions and knowing the nature of

possible resolutions of these problems is indispensable.
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.
2.4.
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 encourage them to
prioritize it. Participants should be given guidelines for preparing for
the organizational meeting. If they prepare, their active participation
in the meeting discussions can be very beneficial in getting them to
prioritize the transaction. Their participation is also particularly
important in analyzing the target business and the likely concerns that
may affect the value of the transaction. Identifying these concerns at
the outset (even if they are subsequently refined) is vital in
determining how to analyze the transactions key value drivers and
addressing important issues that arise later in the transaction process.
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2.4.1.
Objectives and Roles
At the organizational meeting, 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 detail and for each
stage of the transaction. One member should be designated as the team
leader, with everyone else, inside and outside the company, ultimately
reporting to that person. A second person should be designated as the
organizer or the coordinator of everyone elses efforts. This person
would be charged with making sure that the process is moving
forward evenly on all fronts. It is also 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. All members subsequently joining the team should
receive similar information.
2.4.2.
Timeline
Another important element in ensuring that the transaction proceeds

efficiently is communicating the intended timeframe to the transaction
team. 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, it will be possible for the
project manager to coordinate individual efforts and maintain the
overall pace of the project. A timetable distributed to all team
members at the outset of the transaction serves not only as an
organizational tool, but puts pressure on each member to perform in a
timely manner.
2.4.3.
Scope
The organizational meeting also provides a good opportunity to

clearly define the scope of the project as a whole for all participants.
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. For example,
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local counsel in a particular country may insist that specific provisions

be included in the transaction agreement to address a jurisdictionspecific risk without realizing that the particular risk is relatively
trivial in the scope of the global transaction. Clearly defining the
scope of the project will allow all participants to put their particular
piece of the transaction in the proper context.
2.4.4.
Communications Plan
The organizational meeting should strongly emphasize the need for

clear and complete communication among team members. Managing
the information required to document any deal can be challenging,
particularly if the members of the transaction team do not fully
appreciate that the legal teams charge is far broader than identifying
and managing the legal issues associated with the transaction.
Therefore, communications among the legal team, the other internal
teams and external consultants should complete a virtual circle, 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, 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.
While not wishing to overwhelm members with irrelevant
communications, there should be a presumption that any significant
communication would be of interest to and would enhance the
performance of other team members. Moreover, all communication
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, but this attitude leads to
miscommunication, not only among the team members but with the
counterpart to the transaction, and can even put the entire transaction
in jeopardy. This message may be particularly difficult to convey to
non-US employees who may not view full disclosure as a basic
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element of a transaction. Even among US employees, 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 to mention the sheer number of team
members that may be involved in various locations around the globe.
The preparation and distribution of a working group list reflecting the
names, addresses and contact information of each transaction team
member, 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.
In addition, technological advances have created opportunities to
improve communication and deal management and these advances
have changed fundamentally the way in which all transactions,
including cross-border transactions, are executed. Email is far and
away the predominant form of collaboration on these types of
transactions. All members of the transaction team are familiar with
email, and communication is almost instantaneous. However, email
collaboration has become increasingly challenging given the high
volume of email traffic and substantial number of documents involved
in the transaction setting.
Web-based collaboration platforms and deal rooms are alternative
means for collaborating on transactions. In principle, web-based
transaction management systems can be used for most aspects of a
transaction, including on-line data rooms, acquisition reviews,
contractual negotiations and general transaction management.
However, 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, what the security features are that will ensure
confidentiality of information and who is responsible for managing
the platform.
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2.4.5.
Confidentiality
While open communication is essential for the smooth functioning of

the transaction team, it is essential that confidential transactions
remain confidential. There may also be a desire by a prospective
buyer, as well as the seller, to keep the proposed transaction
confidential within their respective organizations until definitive
documentation is signed. 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. Thus, 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 partys
confidential information.
The sharing between the parties of competitively sensitive information
may also be subject to antitrust or competition rules prohibiting gun
jumping. When the internal and external transaction teams are spread
throughout many foreign jurisdictions, 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.
Confidentiality agreements and gun jumping issues are discussed in
greater detail in Section 5.1 (Preliminary AgreementsConfidentiality
Agreements) and Section 7.3 (Regulatory FrameworkGun Jumping
Issues), respectively.
2.5.
Roles and Responsibilities
Since many areas of the transaction overlap, it is critical to establish

the respective responsibilities of each team member with respect to
each phase of the transaction. For example, during the diligence
phase, the lawyers need to know whether they will be charged with
the employee benefits analysis, or whether the parties internal
management or external employee benefits consultants will have sole
responsibility for those matters. Similarly, the structure of any
acquisition financing may involve input from financial advisors, tax
specialists and foreign law specialists.
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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. 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, error and other significant
inefficiencies. Key goals are to prevent runaway services, duplication
of efforts and significant matters being overlooked or belatedly and
hastily addressed.
2.6.
Managing Local Legal Counsel
Likewise, clear instructions should be provided to local legal counsel

as to their respective roles in the cross-border transaction. In
particular, it is imperative for the principal legal advisors to prepare
clear instructions to local legal advisors describing the transaction,
timeline and relative roles and responsibilities of all of the local
counsel. Procedures regarding the acquisition review process,
including the scope and applicable materiality thresholds, should be
clearly explained, as should the rules regarding confidentiality and
other sensitive issues. Local contact information should be exchanged
among the clients local advisors where and when appropriate. There
should be a clear feedback loop for any questions or new information
from the local legal advisors to the coordinating office. This is a
crucial part of project management, and is also critical for managing
costs.
* * *
Another key factor that influences the project management endeavor
and, in particular, the various roles of the individual participants on
the project team, is the transaction budget. In the next section, we
discuss the key issues to consider in establishing a budget for the
transaction.
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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.
3.1.
Scope of Diligence
The diligence effort is often a significant component of the buyers

budget (and the sellers 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 partys risk
profile, the transaction timetable and the diligence logistics, each of
which is discussed below.
3.1.1.
Risk Profile
One of the key budget drivers in any transaction is the partys risk
profile. A partys 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.
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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
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 buyers risk tolerance
nevertheless will greatly impact the amount of resources the buyer is
willing to commit to uncovering potential issues.
3.1.2.
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 need 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
buyers 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 buyers diligence exercise.
3.1.3.
Logistics of Diligence
The logistics of the diligence itself often impacts the budget. For
example, the existence of a well-organized data room appropriately
populated with material documents and information can result in a
less-costly diligence exercise from the reviewing partys perspective.
For reasons of cost, efficiency and security, virtual data rooms have
widely replaced the more traditional physical data rooms that were
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assembled for a transaction in the past. Virtual data rooms are hosted
by a data room service provider and allow reviewing parties to access
documentation needed during due diligence at any time through a
secure web connection. Restrictions may be applied to the viewers
ability to release information to third parties (by means of forwarding,
copying or printing). Virtual data rooms facilitate worldwide access to
the data room contents by appropriate individuals without attendant
travel costs or costs of photocopying, assembling and staffing physical
data rooms. Where appropriate, the reviewing party would be wise to
suggest using a virtual data room at the outset.
3.2.
Transaction-Specific Factors
Several transaction-specific factors also impact the budget, including

the transaction structure, the nature of the targets business, and the
extent of the representations and warranties and post-closing
indemnification that the parties expect. These factors are discussed
below.
3.2.1.
Transaction Structure
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. However, 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,
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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).
In an outsourcing or joint venture transaction, however, the continuing
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.
3.2.2.
Financing
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, the financing may present
specialized legal issues relating to compliance with local securities
laws, including any local registration requirements. In the context of a
debt financing, specialized input will be required to assess local legal
requirements with respect to the mechanics for granting security
interests over shares or assets in the relevant jurisdictions. These and
other cross-border financing issues are discussed in greater detail in
Section 4 (Discrete Financing Issues).
3.2.3.
Nature of the Targets Business
The nature of the targets business also plays a key role in formulating
the budget. The type of industry the target operates in can significantly
impact 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
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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. A manufacturing entity typically commands
more attention than a consulting or sales business given the potentially
greater exposure to environmental, real property and various
operational risks.
Similarly, the number and nature of the targets employees and
employee benefit plans can also have a significant impact on the
budget. For example, 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.
Likewise, whether the target owns or leases its real property, as well
as the nature of the activities it conducts at its various sites, can also
significantly impact the budget. If the target owns manufacturing or
assembly facilities, for example, surveys, title investigation and
environmental testing may be advisable. On the other hand, where the
target leases its administrative and sales offices in each jurisdiction the
investigation might focus more on reviewing the lease terms.
The number of jurisdictions in which the target operates also
significantly impacts the transaction costs. Certainly, a transaction
involving 20 to 40 countries will present many more issues and,
hence, a greater diligence and project management challenge than will
a transaction involving just three countries. Nevertheless, where the
value allocated to the targets operations in a particular country
represents only a small fraction of the total transaction value, a
detailed review of the operations in that country may not be
warranted. In some large transactions, the operations in no single
foreign country will be viewed as being material to the overall
transaction. This fact may weigh against conducting an investigation
in any of these jurisdictions. On the other hand, because matters which
are not material to the business as a whole are often excluded from
warranty protection, an investigation may be the only means of
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uncovering problems which would not be covered by negotiated

representations and warranties but which nevertheless may involve
substantial amounts.
3.2.4.
Extent of Representations and Warranties and Post-Closing

Indemnification
A significant factor which should be considered when establishing the

budget is the extent of the representations and warranties and postclosing indemnification that the buyer can expect from the seller. An
acquirer of a public company can expect very few representations and
warranties, along with little or no post-closing recourse or
indemnification. The same is generally true (with some variations on
survival and recourse) for acquirers of targets from financial sellers
such as private equity funds that require certainty as to the transaction
consideration in light of required distributions to limited partners. In
transactions with few representations and warranties and little or no
post-closing indemnification, there is a premium on conducting a
relatively thorough review during the diligence phase so that the buyer
can seek appropriate protection, often in the form of a negotiated
purchase price reduction. This diligence can significantly impact the
budget for a transaction.
Even if the buyer expects to receive extensive representations and
warranties and post-closing indemnification coverage, if the seller
consists of individuals or an entity that will distribute the sales
proceeds and be wound up after the transaction, the costs of enforcing
the indemnification might not be justified in light of the difficulties in
actually collecting an award. As in domestic transactions, this issue
can be mitigated through the use of an escrow. Where the escrow is
limited or not available at all, however, thorough diligence becomes
increasingly crucial and will increase the budget accordingly.
3.3.
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. Therefore, it is
critical to clarify the respective roles and expectations of the parties
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and their advisors in order to establish an accurate budget (as well as

to maintain efficient project management). Responsibilities for key
elements of the transaction should be assigned, including the
following:
Structuring (in particular tax advice, which is usually covered

as a separate budget item);
Formation of acquisition vehicles or other pre-closing

corporate reorganization;
Diligence (e.g., assigning the scope of the review and the

nature of the diligence report);
Identifying and obtaining governmental and third-party

approvals and consents (e.g., foreign investment control,
exchange control, antitrust/competition approvals, industryspecific regulation and contractual restrictions);
Financing of the transaction (e.g., credit agreements, security

interests and capital raising):
Transaction initiating agreements (e.g., confidentiality

agreement, bid documents and letter of intent);
Drafting and negotiating the principal transaction agreements

(e.g., master agreement, local transfer agreements,
employment agreements and ancillary commercial and
transitional agreements, including supply, service and license
agreements);
Specific areas of law in respect of which advice may be

sought (e.g., securities, corporate, antitrust/competition,
banking and finance, tax, environmental, employment,
employee benefits, labor, litigation, insurance, intellectual
property, privacy, real estate, customs, trade and other
regulatory and industry-specific compliance matters);
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Legal opinions (whether in connection with the acquisition

financing or otherwise);
Closing (both at the master and local levels);
Post-closing integration (both at the master and local levels,

which is also usually covered as a separate budget item); and
Project management.
3.4.
Creating the Budget Template
Once the nature of the engagement, the scope of the diligence, the
various transaction-specific factors and the roles of the respective
advisors have been assessed and established, that information should
be factored into the budget. Since the diligence phase is where most of
the initial effort is expended, it is sometimes helpful in multijurisdictional transactions to prepare a budget template that breaks out
the components of the budget on a jurisdiction-by-jurisdiction basis
and, where possible, by specific areas of law. Appendix 3.1 contains a
sample budget template in this regard. The template is designed for
use by a buyer in connection with the first phase of an auction, but it
can be tailored for most types of transactions. 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 sellers initial level of disclosure and to identify key areas for
review.
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As the template indicates, it may also be helpful to categorize the

target jurisdictions as primary and secondary, based on the nature of
the targets operations. 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. However, the review in secondary jurisdictions
often consumes less resources due to the more limited nature of the
operations in these jurisdictions (i.e., essentially where only sales and
service facilities are located, however, the location of material
research and development centers may be of particular importance and
require special attention).
A separate category for other jurisdictions might be included as well
where, for example, the information memorandum merely indicates
that the target markets, sells and services its products through agents
or distributors. 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.
The diligence process in cross-border transactions is discussed in
greater detail in Section 6 (Diligence).
* * *
Once the budget issues are addressed (and in many cases, while the
budget is being determined) the parties should consider the mechanics
of financing the potential transaction. In the next section, we discuss
some of the key elements that should be considered in financing a
cross-border transaction.
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Section 4 Discrete Financing Issues
Section 4
Discrete Financing Issues
Obtaining appropriate financing for a deal is often a crucial element of
transaction planning. In many cases, purely local banks or credit
markets are unable to satisfy all capital requirements of companies
with multinational interests or aspirations. It is not surprising that
within this environment, capital formation is increasingly viewed and
accomplished on a worldwide basis.
This section discusses some of the key elements that should be
considered in financing a cross-border transaction, including the
decision to pursue debt versus equity financing, the key legal issues
that confront the lender (the costs of which are often borne by the
borrower), financial assistance concerns, security and subordination
issues, legal opinions and closing issues.
4.1.
Debt vs. Equity Financing
Unless the parties have the requisite cash on hand, the traditional
financing source for a transaction is debt, equity or some type of
hybrid.
4.1.1.
Debt Financing
Debt financing entails borrowing funds that are to be repaid over a

specific period of time, usually with interest that is deductible for tax
purposes. Debt financing can be either short-term (i.e., full repayment
due in less than one year) or long-term (i.e., repayment due over more
than one year). Typically, the lender does not gain an ownership
interest in the business of the buyer or the target, and the obligations
of the borrower are generally limited to repaying the loan and
complying with the covenants set forth in the loan documentation.
When the borrower itself is insufficiently credit-worthy to support the
entire credit extended, guarantees from its shareholders, subsidiaries
and possibly other affiliates and/or collateral are likely to be required
under standard loan documentation.
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4.1.2.
Equity Financing
Equity financing requires an exchange of funds for a share of business

ownership. In its simplest form, equity financing generally allows the
borrower or acquirer to obtain funds without incurring direct
indebtedness; in other words, without having to repay a specific
amount of money at any particular time. That said, 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. Further,
the issuer could be obligated to grant certain preferred rights to the
equity holders, including dividend rights, liquidation preferences, antidilution rights and redemption features.
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. Further,
dividends and other distributions on equity generally are not
deductible for tax purposes. Equity financing also requires compliance
with the securities laws and regulations of the jurisdictions where the
equity is to be issued. If the financing is intended to be obtained
through a public offering, this can be a very time consuming and
costly process in any jurisdiction.
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. These types of investments often take the form of
quasi-equity and normally include convertible debentures,
subordinated loans and warrants. Frequently, a warrant is 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, usually higher than the market price at the time of issuance, for
a set period of time (i.e., until the project or asset has reached
commercial operation) or in perpetuity.
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4.1.3.
Mezzanine Financing
Mezzanine financing is generally a hybrid form of capital, as it is

often structured as subordinated debt with an equity component such
as warrants. Mezzanine financing thus fills a gap between senior
secured debt and equity in a companys capital structure. For many
years mezzanine financing was primarily utilized in a few select areas,
such as real estate and growth capital for smaller companies. The
financial crisis and the scarcity of capital in 2008 and early 2009,
however, led to the increased prominence of mezzanine financing for
a broader array of transactions. Since the financial crisis, this type of
financing generally has been associated with corporate restructurings
and in connection with leveraged buyouts, but it has other
applications, for example in certain forms of project finance, where
the actual project involved generates a particular future flow of cash.
In the venture capital arena, mezzanine financing is often utilized
between early round financings and a liquidity event such as an initial
public offering, acquisition or refinancing.
4.1.4.
Second Lien Financings
Another form of financing that has been quite popular in the United
States is second lien financings. Also referred to as tranche B or
junior secured debt, in a second lien loan transaction, the second lien
lenders hold a second priority security interest on the assets of the
borrower. Their security interest ranks second to the liens in the same
assets securing the first priority lien debt. Second lien financing
generally provides an additional source of capital at interest rates that
are typically lower than with respect to subordinated or mezzanine
debt.
Second lien financings were originally considered as provisional or
rescue capital and, traditionally, the proceeds from second liens
were used to pay off maturing debt, reduce bank debt or provide
incremental liquidity. However, prior to the financial crisis, as
corporations and lenders grew more at ease with second liens, they
were being used more often and in a broader range of applications
including leveraged buyouts. There was a significant drop in the use
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of second lien loans in late 2007 and much of 2008 resulting from the
financial crisis and the following scarcity of capital. Since the second
lien debt markets picked up again in 2009, transactions have typically
included an intercreditor agreement on terms more akin to a
mezzanine financing.
4.1.5.
Leverage Ratios
Debt and equity financing provide different avenues for raising funds.
Leverage ratios provide an idea of a companys methods of financing
and measure its ability to meet financial obligations. From the lenders
point of view, 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. Generally, excessive debt financing may
impair the borrowers credit rating and its ability to raise more funds
in the future. If the borrower incurs too much debt, its business may
be considered overextended, risky and, ultimately, an unsafe
investment. On the other hand, insufficient equity may suggest that the
shareholders are not committed to the business of the borrower.
Lenders commonly consider the debt-to-equity ratio in assessing
whether the company is being operated in a reasonable and
creditworthy manner. Accordingly, borrowers typically desire to
maintain a commercially acceptable ratio between their debt and
equity levels. Lenders also typically consider the interest coverage
ratio. Instead of looking at the aggregate amount of debt, the interest
coverage ratio measures the ability of the borrower to service its
outstanding debt by comparing cost of interest payments to income.
4.1.6.
Thin Capitalization and Interest Deduction Rules
While general leverage ratios are often scrutinized to assess a

companys financial viability, formal thin capitalization (or thin
cap) and interest deduction rules exist in many jurisdictions
throughout the world that limit the interest expense deduction for
loans in order to regulate excessively leveraged financing structures.
These rules are of particular importance when shareholder or affiliate
debt is intended as a financing source (e.g., in connection with a
leveraged buyout). Since dividends and other distributions on equity
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generally are not tax deductible, but interest payments on debt

generally are tax deductible, 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.
While these rules more frequently apply only to related party debt,
they may also apply to third party debt (e.g., bank debt) in certain
situations. Thin capitalization rules limit a companys debt-to-equity
ratio to control highly leveraged structures. Interest deduction
regulations directly limit the tax-deductible interest expense a
company can recognize. Some countries employ either thin
capitalization rules or interest deduction limitations, but many
countries use a combination of regulations to combat excessive
financial leverage.
4.2.
General Considerations for Lenders in CrossBorder Financings
Commercial banks and other financial institutions generally provide

the greater part of the acquisition debt. From a senior lenders
perspective, 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. As a result, senior lenders are unwilling to
endure any unusual risk associated with the transaction per se.
Prior to issuing any sort of commitment letter to the borrower, a
lender considering making a cross-border loan to either the buyer or
the acquisition vehicle (e.g., a special purpose vehicle organized by
the investors to purchase the stock or assets in question) will typically
need to address the following issues:
4.2.1.
Tax Registration, 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.g., franchise, income
or otherwise) in that jurisdiction, (ii) whether the jurisdiction where
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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, such as
mandatory deposit requirements with the central bank of the
jurisdiction where the borrower is located. Generally, lenders in the
cross-border context obtain protections in the loan documents from
liability for any transaction-related taxes, 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. Further, 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. The receipt also provides proof of
payment so that the lender can claim a tax credit, if available.
4.2.2.
Licensing Requirements and Other Approvals
If the lender is not licensed to do business in the jurisdiction where the

borrower is located, 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, accordingly, whether the lender needs to obtain any licenses or
agency authorizations in the borrowers jurisdiction. 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.
4.2.3.
Exchange controls, 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 of the jurisdiction where the borrower is located. In
addition, lenders in cross-border financings typically obtain
protections against exchange risks by adopting a judgment currency
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clause in the underlying loan documentation. 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, with the equivalency to be
determined at the time the lender actually receives payment.
4.2.4.
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, 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 borrowers financial losses due to various
actions undertaken by the lender. For example, in the United States a
lender could be held liable for damages relating, directly or indirectly,
to the refusal to grant a loan after originally promising to do so.
Likewise, in the United States and the United Kingdom, if the lender
fails to renew a loan or line of credit without apparent cause, or if it
improperly forecloses on a loan without adequate notice to the
borrower, the lender could be required to compensate the borrower for
any damages suffered as a result of the lenders omissions or actions.
4.2.5.
Margin Regulations
In the United States, the Federal Reserve Board has issued regulations
(known as Regulation U) that prohibit a lender (but not including
securities brokers and dealers) 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. A related regulation (known as Regulation X)
prohibits borrowers from borrowing outside the United States to
circumvent Regulation U. Generally, financing the purchase or
carrying of the stock of a private company would not be subject to
Regulation U or X.
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Although these regulations are specific to the United States, 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. In these
types of transactions, the title and voting rights transfer to the
borrower, who can sell or re-lend the borrowed securities during the
life of the loan. In return, 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, coupon interest or other distributions that
occur during the time the securities are on loan.
4.3.
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. Financial assistance could arise,
for example, when the shares of the target company are pledged, or
the target company gives a guarantee, as security for the buyers
financing for the transaction. The corporate codes and regulations of
many jurisdictions limit a companys 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.
In the United States, a transaction in which the purchase of shares in
the target corporation is financed by the target itself or is secured by
the targets assets is generally permissible. However, if the target fails
to pay its debts after the consummation of the purchase of its shares
secured by its assets, creditors may look to fraudulent conveyance
laws to avoid the transfer that gave rise to the security interest. When
the target defaults on the loan, the risk of failure is borne not only by
the target itself, but also by its unsecured creditors who have lost the
protection of recourse to unencumbered assets.
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4.4.
Security Interests and Subordination Issues
As is typically the case in domestic transactions, lenders providing

financing in connection with cross-border transactions typically seek
to reduce their risk by requiring that the borrower provide security
interests and/or other forms of credit support. Creating and perfecting
security interests and granting credit support in financings for crossborder transactions deserve devoted attention by local legal counsel.
4.4.1.
Security Interests
Usually, 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. Cross-border security packages can thus be cumbersome
to implement where the borrowers assets are scattered in several
jurisdictions in addition to its home jurisdiction. On the other hand, it
may be more beneficial for a lender to create a security interest over
assets of the borrower located outside of the lenders home
jurisdiction especially if that other jurisdiction provides a more
efficient and pro-creditor environment, including self-repossession
mechanisms to enforce the security interest created in its favor. In
civil law jurisdictions (e.g., Continental European jurisdictions) for
example, self-help remedies for foreclosing on security interests are
generally prohibited. In that case, judicial foreclosure would be
required to legally effect repossession or attachment over the
collateral, which is often a lengthy and costly process.
One mechanism lenders employ in cross-border transactions to
address the difficulties in obtaining security interests in the borrowers
revenue streams 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. Generally, the collection account would be subject to an
account control agreement in favor of the lender, pursuant to which
the bank agrees to comply with instructions from the lender with
regard to the funds held in the account. In this type of arrangement,
the lender would also typically impose a covenant requiring the
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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. 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, this approach simplifies the process of obtaining
security in the account where the monies are ultimately paid.
Additionally, it is important to note that security interests over
personal property and floating liens or blanket liens (i.e., liens over all
assets of the borrower, including both real and personal property) are
generally less intricate to create and perfect in common law
jurisdictions, such as the United States, than in civil law jurisdictions
such as in Continental Europe or Latin America, 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. Some jurisdictions, including Spain, France and
Italy, do not have central filing systems for publicly registering
security interests over certain types of collateral, such as accounts
receivable, 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.
Even prior to preparing a term sheet, 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. To this end, the lenders
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, as well as any
formal notice to the borrowers customers or other parties, (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,
(iii) whether the security agreements will require the payment of any
other fees, duties or taxes such as stamp duties and (iv) what
confirmatory diligence can be done to determine whether any prior
liens exist.
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4.4.2.
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. The
subordination of mezzanine or junior debt generally can be achieved
either structurally or contractually.
Structural subordination refers to the de facto subordination of a
lenders claim against a borrower when the borrowers principal assets
are held and operations conducted at a subsidiary level. With the
junior debt incurred at the holding company level, the junior
lenders claim will be limited to the holding companys equity interest
in the operating subsidiary. The senior lenders thus effectively
subordinate the junior debt by ensuring that the senior lenders, as
creditors of the operating company, will be repaid before any
distributions up to the holding company can be made.
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. For example, in both second lien term loans and
second lien bond transactions the intercreditor agreement will prohibit
the second lien creditors from (i) exercising remedies against
collateral with respect to their second liens, (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.
In many European jurisdictions creating a valid security interest over a
particular asset requires possession by the secured party and, as a
result, it may not be possible to take a second lien over such asset.
Accordingly, second lien financings are still at an early stage of
development in Europe.
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4.5.
Cross-Border Legal Opinions
Lenders in cross-border transactions typically require formal legal

opinions from their own counsel and from borrowers counsel as a
condition to extending any financing. 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.g., the loan
agreement, the promissory notes, the guaranties and the security
agreements); (ii) the valid incorporation and existence of the
borrower; (iii) the power and authority of the borrower to enter into
the financing transaction; (iv) the applicability of stamp duties, taxes
and exchange controls in relevant jurisdictions; (v) licensing and
registration requirements and other approvals that must be obtained in
connection with financing the transaction; (vi) where the financing is
secured, the validity, enforceability and perfection of the security and
(vii) transaction-specific opinions with respect to regulatory matters.
The financing of a cross-border transaction often implicates the laws
of several jurisdictions. These include the laws of the jurisdiction of
the borrowers incorporation, the laws of the jurisdictions of the
lenders incorporation, the laws governing the financing
documentation and the laws of the jurisdictions where any collateral is
situated. At a minimum, lenders generally require that legal opinions
be provided with respect to the laws of three critical jurisdictions: the
laws of the jurisdiction of the borrowers incorporation, the laws
governing the financing documentation and if a secured transaction,
the laws of the jurisdiction where any collateral is situated.
Given the complex legal issues that are often addressed in these types
of opinions, local counsel should be given sufficient advance notice as
to the 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.
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Although legal opinions do serve a key role in providing lenders with

some degree of comfort in financings, one should not lose sight of the
fact that opinions do have significant limitations. For example, legal
opinions are limited to the legal aspects of the transaction, and the
stated opinions will be based on assumptions and limited by various
qualifications. Accordingly, legal opinions do not address commercial
aspects or the business risks (e.g., country risk) associated with the
financing, and the business decision as to the commercial viability of a
particular financing remains with the lenders. Legal opinions, as
lawyers often say, are not guarantees.
4.6.
Closing Cross-Border Financings
Perhaps the most important condition for a successful closing of a

cross-border financing is advance planning and organization. While
closing any financing requires the satisfaction of various conditions
and significant coordination, these requirements are magnified when
dealing with more than one jurisdiction (and quite likely, more than
one language, legal system and time zone). Lenders counsel often
prepare comprehensive checklists, significantly in advance of closing,
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. See Section 10 (Closing the
Transaction) for more information on closing cross-border
transactions generally.
* * *
With the anticipated financing needs in mind, the parties often turn
their attention to discussing the key terms of the deal. In the next
section, we discuss the basic elements of the key preliminary
agreements that the parties often rely on to commence meaningful
discussions regarding the transaction.
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Section 5 Preliminary Agreements
Section 5
Preliminary Agreements
The main driving force for proceeding with a domestic or cross-border
transaction is, necessarily, some sort of expressed intention on the part
of the parties to do a deal, often in the form of a written preliminary
agreement. While the use of preliminary agreements is fairly
commonplace in the cross-border setting, 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. 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.
For purposes of this section, 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. Preliminary agreements
would, therefore, include the following (which may be incorporated
into one or more documents):
Confidentiality agreement;
Letter of intent (sometimes referred to as, or preceded by, a

memorandum of understanding, heads of agreement or term
sheet);
Lock-out agreement (sometimes referred to as an exclusivity

agreement); and
Break fee agreement (sometimes referred to as a termination

fee or failure costs agreement).
The preliminary agreements will be somewhat different in the auction

setting. For example, there may not be a letter of intent if the buyer is
identified through the bid process, but the winning bidder and the
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target nevertheless might enter into an exclusivity agreement. In

addition, the auction setting necessitates the use of other procedural or
informational preliminary documents. For example, the target
generally distributes data room rules and a bid process letter, which
govern access to the data room and the mechanics for submitting bids,
respectively. In addition, the target often prepares an informational
memorandum which it uses to solicit initial indications of interest.
Baker & McKenzies Guide to Business Dispositions provides greater
detail on these and other procedural aspects of the auction process.
5.1.
Confidentiality Agreements
Confidentiality agreements are very common at the outset of

negotiations or diligence for transactions in most jurisdictions. While
confidentiality obligations might be contained within a letter of intent,
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.
Generally in civil law jurisdictions (e.g., Continental European
jurisdictions), however, specific confidentiality agreements are not
strictly necessary to safeguard the secrecy of a partys confidential
information, as the laws of the jurisdiction often provide sufficient
statutory protection. Nevertheless, confidentiality agreements may still
be useful in civil law jurisdictions to clearly identify the information
that is considered confidential, and to specify the relevant rights and
obligations of the parties. Appendix 5.1 contains a general checklist of
provisions for a typical confidentiality agreement.
Generally, to be enforceable, contractual obligations of confidentiality
need to be supported by consideration. 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. Hence, at the core of most confidentiality
agreements is the obligation of the investigating party to keep the
disclosing partys information secret and to use it only for a specified
purpose, which is generally limited to the evaluation of the target and
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proposed transaction. This obligation may be for a fixed period (e.g.,

for a certain number of years after negotiations have terminated) or it
may continue indefinitely. Care should be taken with these terms,
however, as courts in some jurisdictions may be unwilling to enforce
obligations that have a very long or unlimited duration due to public
policy concerns.
Some of the key elements to consider when contemplating a
confidentiality agreement in the cross-border setting are discussed
below.
5.1.1.
Definition of Confidential Information
A key provision in any confidentiality agreement is the definition of

confidential information, to which the relevant obligations of
confidentiality will apply. Generally, 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. If this approach is adopted,
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.
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).
These issues, however, are often covered by separate covenants in the
confidentiality agreement, rather than the definition of confidential
information itself.
Often, the parties will include the term trade secrets within the
definition of confidential information to incorporate specific types of
information protected by law (e.g., formulas, patterns, processes and
the like that are secret and commercially useful). Trade secret law
varies from jurisdiction to jurisdiction and, where appropriate, local
laws should be consulted and local terminology included to ensure
appropriate protection for this type of information.
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5.1.2.
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. In a sale of shares, 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. In these circumstances, the target company should,
therefore, be the appropriate party to the confidentiality agreement.
This automatically eliminates any post-closing obligations on the part
of the investigating party (i.e., the buyer), which will own the target
company upon closing. In an asset sale, the seller and the disclosing
party will typically be the same entity (i.e., the company that owns the
relevant assets) and would thus be the relevant party to the
confidentiality agreement.
The parties should also consider the persons to whom the investigating
party is permitted to disclose the confidential information. Often, a
partys employees, advisers and other third parties (including lenders)
involved in the transaction will require access to the 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. This
might be appropriate where, for example, the investigating party is a
financial buyer that refuses to bear any indemnity obligation with
respect to the actions by its third party representatives. Alternatively,
the disclosing party may require notification, consent or that the
receiving party procure that its third party representatives comply with
the relevant confidentiality undertakings.
5.1.3.
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, however. For
example, data protection laws in many jurisdictions restrict disclosure
of personal information about individual employees. Similarly,
competition laws throughout the world restrict the parties ability to
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share competition-sensitive information. These respective issues are

discussed in greater detail in Section 6.10 (DiligencePrivacy and
Data Protection Laws) and Section 7.4 (Regulatory Framework
Exchange of Competition-Sensitive Information).
5.1.4.
Attorney-Client Privilege
Due to the importance of maintaining the protections afforded by any

applicable attorney-client privilege, work product doctrine, or rules of
similar effect, 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
confidential information. Further, the confidentiality agreement could
expressly provide that the disclosing party is not waiving, and will not
be deemed to have waived or diminished, any of its attorney-client
privileges as a result of the disclosure of confidential information in
connection with the proposed transaction.
However, jurisdictions vary in their application of the attorney-client
privilege and work product doctrine and some apply them quite
narrowly, if at all. Accordingly, even in a jurisdiction that recognizes
these concepts, a disclosing party should not rely too heavily on a
provision in the confidentiality agreement devoted to protecting the
privileges. A court may ignore it (particularly if the parties become
adverse) if a third party claims that the privilege has been waived, or if
the transaction never closes. Therefore, while the parties might
include a provision in the confidentiality agreement relating to these
concepts, the disclosing party should nevertheless carefully monitor
the disclosure of any information that may be protected. The buyer, as
the investigating party, 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.
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In the United States, the privilege generally protects only

communication between the attorney and his or her client, but not the
underlying facts that are the subject of that communication. In this
light, US parties might disclose the facts but not any related privileged
legal advice, leaving the investigating party free to draw its own legal
conclusions. Alternatively, the parties may simply decide that the deal
is too beneficial to be held up over an attempt to preserve an
applicable privilege, particularly when the harm associated with
waiving the privilege is relatively minimal.
5.1.5.
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, 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, and that any such breach could not be
adequately compensated by monetary damages alone. This provision
may not be necessary, however, if the 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.
An alternative to judicial determination of disputes under
confidentiality agreements is arbitration. One advantage of arbitration
is that disputes over the confidential sale, evaluation and offer process
do not become a matter of public record. Disadvantages include the
plaintiffs 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).
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5.2.
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, the law of the
jurisdiction governing the letter and the purpose for which the parties
seek to use it. Appendix 5.2 contains a general checklist of provisions
for a typical letter of intent in a cross-border acquisition.
Generally, a letter of intent is adopted for the following key purposes:
to memorialize the parties expression of interest in a potential

transaction;
to provide an understanding of the major deal points that will

serve as a frame of reference for the eventual drafting,
negotiation and finalization of the definitive transaction
documents;
to establish a timeframe for the deal (which may be especially

useful when the time between handshake and signing of
definitive agreements is lengthy); and
to impose certain binding obligations on the parties with

respect to their discussions on the proposed transaction.
While letters of intent are common for most transactions except

auctions, care should be taken to ensure that the time spent negotiating
them does not outweigh the intended benefits. In certain
circumstances (e.g., where the parties have established an extremely
short timeframe), it may simply be more efficient to proceed with the
negotiation of definitive agreements. Also, 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, or weaken the parties leverage with respect
to, future negotiations. This is particularly the case from the buyers
perspective where the buyer has not yet conducted diligence on the
target business. The parties should also take care to ensure that no
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adverse tax consequences result from the letter of intent, 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.
Some of the key elements to consider when contemplating a letter of
intent in the cross-border setting are discussed below.
5.2.1.
Binding/Non-binding
While the parties may intend that certain aspects of a letter of intent be
binding, these documents are generally intended to be non-binding
with respect to the terms of the underlying transaction. The provisions
in a letter of intent that are commonly intended to be legally binding
include obligations of confidentiality and exclusivity, termination fee
arrangements, provisions governing transaction expenses and noncompetition/solicitation provisions.
In certain jurisdictions, such as the United Kingdom and the United
States, 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. Accordingly,
if a letter of intent contains terms that are intended to be binding, these
should be clearly identified and the requirements for the creation of a
valid contract under local law should be satisfied. To that end,
depending on the jurisdiction, consideration may be required to create
a valid contract (although mutual promises are generally sufficient for
this purpose). Also, particularly in civil law countries and depending
on the subject matter of the deal, the contract may need to be executed
before a notary, and other formalities may need to be complied with,
in order for it to be binding.
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. This is particularly the case in
jurisdictions which recognize a duty to negotiate in good faith.
Therefore, care should be taken to ensure that non-binding terms do
not inadvertently create binding, contractual obligations.
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General terminology, such as subject to contract, is rarely sufficient

to avoid this outcome in many jurisdictions. For instance, in France,
Italy and other Continental European jurisdictions, 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.g., as parties, object and price). Moreover, even
where a letter of intent is replaced by definitive agreements, if there is
any subsequent litigation on the contract, a French judge, for example,
will often refer to the letter of intent to interpret the common will of
the parties.
5.2.2.
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, including many Continental European and Latin American
jurisdictions. 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. If the duty
applies, 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. As a result, 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.
The precise scope of the duty varies among jurisdictions but the
following principles generally apply:
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;
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; and
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The parties should exercise reasonable diligence in seeking to

progress the negotiations, and not resort to unwarranted
delays or raising immaterial objections. Further, a party is
generally obligated not to break off negotiations without due
cause, particularly where the other party has a reasonable
expectation that an agreement will be entered into. To that
end, a party may not propose an unreasonable position in
order to terminate negotiations.
In limited cases, parties may be able to avoid these obligations by

expressly agreeing to the contrary in the letter of intent. However, 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.
For instance, it may be expedient to include an express waiver of any
claim for termination of negotiations, or to expressly state that the
seller wishes to reserve the right to negotiate with more than one
prospective buyer. In some jurisdictions, however, irrespective of the
language used in the letter of intent, it may not be possible to
contractually avoid the duty to negotiate in good faith under local law.
Furthermore, in almost every jurisdiction, including the United
Kingdom and the United States, fraud and deliberate bad faith (such as
entering into a letter of intent for the purpose of injuring the other
party) may be actionable. It is neither possible nor desirable to try to
eliminate liability for this type of conduct by a party in the letter of
intent.
5.2.3.
Exclusivity, 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, and the payment of a partys costs plus, in some cases,
a penalty if negotiations are terminated early. These agreements are
sometimes called exclusivity, no shop or lock out agreements
and they are usually embodied in the binding provisions of the letter
of intent or in a stand-alone agreement. Wherever these provisions
reside, care should be taken to specify the duration of the exclusivity
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period as it may be unenforceable if it is not keyed to a clearly

defined, fixed period of time.
As their names imply, these agreements generally prohibit the seller
from providing information to, or negotiating with, another
prospective buyer during the period of exclusivity. In some
jurisdictions, the good faith principle discussed above may be
applicable. In these jurisdictions, 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.
Instead, 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, regardless of any language in the
agreement to the contrary.
Generally, the remedies available to the buyer for the sellers 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. Damages, however, are usually
limited to the reimbursement of costs incurred up to that point in
connection with the transaction.
5.2.4.
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. 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. The obligation to pay the break fee is usually faultbased (i.e., the action or inaction of a party) and the most likely
triggers include the breach of an exclusivity provision, the failure to
obtain the requisite shareholder approval or the failure to obtain
required regulatory or merger control approvals.
While relatively common in large US transactions, these provisions
are less prevalent in other jurisdictions and a number of legal issues
need to be considered when proposing and negotiating them, including
with respect to the following:
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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.g.,
when the break fee is required to be paid by the target, rather
than the sellers). Section 4.3 (Discrete Financing Issues
Financial Assistance) discusses financial assistance in greater
detail;
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 companys best
interests, or that unduly fetters the discretion of the directors;
and
Whether the break fee provision would be deemed an

unenforceable penalty (i.e., 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).
5.2.5.
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 non-solicitation of the parties customers and employees. These
provisions should be crafted carefully in order to be enforceable under
applicable law. For example, in most jurisdictions these provisions
need to be reasonable and limited in time, geography and scope (such
as a specific field of activity).
5.2.6.
Regulatory Filing Triggers
Letters of intent can also form the basis for a submission for clearance
or guidance from the relevant competition, tax or other governmental
authorities. For instance, where required in a US transaction, the
parties could agree to make Hart-Scott-Rodino filings once a letter of
intent is signed. Generally, this filing may be made at any time after
the parties have agreed in good faith to undertake the transaction (i.e.,
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before executing a binding agreement and on, for example, the

execution of a letter of intent). However, the structure of the
transaction generally needs to be sufficiently formalized for the
relevant governmental agencies to commence their review.
Moreover, entry into a preliminary agreement may automatically start
the antitrust clock in certain jurisdictions. In Brazil, for example, an
antitrust filing will be required (assuming the relevant economic
thresholds are met) within 15 business days of realization of the
agreement. The position long maintained by the Brazilian antitrust
authority (CADE) is that this threshold is met upon the execution of
the first binding document, which, depending on its content, could
include a letter of intent.
5.2.7.
Conditions Precedent
While it is common to find conditions precedent in a letter of intent, in

some jurisdictions any condition which is subject to the exclusive will
of one of the parties (e.g., a condition tied to the approval of a partys
board of directors) will be considered null and void. If the letter of
intent is subject only to these types of conditions precedent and these
conditions are later held to be void, the parties could end up stuck with
a binding commitment in a jurisdiction (e.g., France, Italy and other
Continental European jurisdictions) where a contract will be deemed
to exist once the parties evidence their agreement on the principal
terms.
* * *
With the key preliminary agreements in place, the parties often turn
their attention to the acquisition review (or due diligence) phase of
the transaction, which we discuss in the next section.
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Section 6 Diligence
Section 6
Diligence
In the context of a cross-border transaction the due diligence
investigation is often a daunting and expensive exercise. Differing
legal systems, accounting standards, types of business organizations
and the unique legal characteristics of each jurisdiction around the
globe, in addition to language and cultural barriers, present obstacles
to the diligence investigation which are wholly absent in the domestic
context. The more jurisdictions involved in the transaction, the more
these obstacles serve to magnify the risks of inefficient diligence. This
section highlights significant aspects of the diligence process that
should be understood in the cross-border setting.
6.1.
Role of Review
The term due diligence encompasses the process of obtaining and

verifying material information about the targets business and
identifying material issues and liabilities affecting the business and the
proposed transaction. In the United States, 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, but the process now plays an important role in transactions
throughout most of the world, whether involving public or private
companies.
The diligence investigation serves many purposes in the context of a
transaction. 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. Further, it helps identify legal and business
risks and deal-stoppers that could impede fulfillment of the parties
objectives for the transaction. From the sellers perspective, the
exercise often precipitates a greater awareness of, and possibly a
housecleaning effort that enables the seller to rectify, troublesome
matters. In addition, the diligence investigation plays an essential role
in ensuring seamless post-closing integration of the target business.
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Section 6 Diligence
The diligence process also plays a direct role in the documentation

phase of the transaction. As in a typical domestic transaction, 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. In
certain cases, because of local custom, these representations and
warranties may not be very extensive. Moreover, even if an
unsophisticated seller is willing to make certain representations, it
may not fully appreciate all their ramifications. Therefore, the
diligence exercise is important in framing the representations and
warranties and bringing to the forefront 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.
6.2.
Role of Advisors
As discussed in Section 2 (Project Management), a large cross-border

transaction involving a multitude of countries is likely to involve the
participation of several players in numerous jurisdictions. 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. Further, 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.
To help achieve this goal, 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, including the scope of the review, access to the relevant
documents and information, the nature, scope and timing of the
diligence report, the reporting channels and any specific matters to be
investigated at the outset. Having available standardized instructions
in this regard will help to ensure that the diligence exercise
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commences efficiently and is carried out in a consistent manner from

jurisdiction to jurisdiction.
6.3.
Scope of Review
Diligence can involve varying levels of review from a very cursory

review of major issues and limited documents, to a very detailed
review and summary of all issues and documents likely to impact the
risk and pricing profile of the target and, ultimately, the integration of
the newly acquired business. In determining where a buyer falls on
this continuum, there is often a tension at play (particularly in the
auction context) between implementing a quick pass over the
relevant documents in a data room looking for red flags or dealstoppers, so as to not expend too many resources too early in the
process (i.e., before being selected as the successful bidder), and
conducting a meaningful review of all relevant risk areas and available
documents in order to validate the pricing model and form a postclosing integration plan.
Auction sellers often suggest that, if selected to proceed to the next
round, bidders will be afforded the opportunity to perform further
diligence prior to submitting a final bid. However, depending on the
transaction dynamics at that point, further review may not be
available, or it may only be provided on an expedited timeline.
Accordingly, the initial review cycle may be the buyers best
opportunity for conducting a reasonably detailed investigation of the
target business.
However, given the sheer volume of information that is likely to be
available in a large cross-border transaction, it may simply be cost- or
time-prohibitive to conduct a detailed review of all issues and
documents. In that case, 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.
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Setting the general scope of the diligence investigation usually occurs

during the budgeting phase. As discussed in Section 3 (Budgeting for
the Transaction), the key variables that often determine the scope of
the diligence effort are the buyers risk profile, the transaction
timetable and the logistics of the diligence itself. As also discussed in
Section 3, several transaction-specific factors impact the level of
diligence as well, including the transaction structure, the nature of the
targets business and the extent of any representations and warranties
and post-closing indemnification the buyer can expect to receive from
the seller.
In order for the diligence team to carry out the investigation within the
general parameters that have been established at the budgeting phase,
it is critical that the team be mindful of the business objectives for the
transaction and the established materiality thresholds.
6.3.1.
Business Objectives
An understanding of the business objectives is necessary to enable the

transaction team to prioritize its investigation within the established
parameters. For example, if the diligence team understands at the
outset that certain of the targets business relationships are key
transaction value drivers, a more detailed investigation can be
conducted with respect to those relationships. Likewise, it would be
important for the diligence team to understand the synergies intended
from the transaction and, specifically, whether certain operations are
intended to be eliminated following the transaction. This will help the
team focus its review on the consequences of any planned termination
of those operations.
6.3.2.
Materiality Thresholds
There should also be established a monetary level below which

disclosure of particular problems becomes counter-productive or at
least not cost-effective. Threshold amounts and other parameters for
various types of matters or problems (e.g., subject matter, 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
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local lawyer so that the transaction team is not inundated with

disclosures which, while potentially significant at the local level, are
inconsequential in the context of the global transaction. However,
these materiality levels should be designed carefully. For example, 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. Similarly, 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.
6.4.
Diligence Requests
In a negotiated transaction where the buyer has the ability to submit a

diligence information request or questionnaire to the target, the scope
and materiality thresholds will often be the subject of negotiation
between the parties. Ideally, the request should be consistent across all
jurisdictions so that the materials produced and their subsequent
review are comparable across each jurisdiction.
Nevertheless, parts of the request may be inappropriate for certain
jurisdictions, 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. For
example, many multinationals have established holding company
structures (usually for tax or liability purposes). Sending an extensive
questionnaire to the holding company would have little value since the
holding company merely holds the stock of various subsidiaries.
Further, the terminology of the request will often need to be modified
from country to country. For example, a party might request a copy of
an English companys certificate of incorporation, but in Spain a
party would need to request a copy of the public deed of
incorporation.
Having available standardized instructions, questionnaires and
checklists, which may be tailored to reflect the nature or size of the
local operations or the local legal environment, is important for the
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coordinating lawyer to ensure efficient, consistent and uniform

investigation.
6.4.1.
Supplemental Requests
In addition, there is frequently a need for buyers to submit

supplemental information requests. 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.
Commercially sensitive data, for example, may consist of pricing
information, strategic plans, sales figures or even the identity of key
customers or distributors. To complicate matters, the definition of
commercially sensitive data will change depending on who is
ultimately invited into the data room to review the information. 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 business,
but the initial data room is likely to be identical for all bidders. Section
7.4 (Regulatory FrameworkExchange of Competition-Sensitive
Information) discusses commercially sensitive information in greater
detail.
Further, what may be important to one bidder may not be as important
to another bidder, depending on the bidders rationale for doing the
deal. For example, 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. It is important that a buyer coordinate its requests for
additional information among all team members to avoid duplication
of efforts. The seller should also carefully coordinate its response to
supplemental requests to ensure compliance with applicable legal
requirements.
6.5.
Nature of the Report
Diligence reports can vary widely. On the one hand, some companies
prefer a full legal summary in which the report summarizes the details
of all contracts, business relationships and legal aspects of the targets
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business. These reports can be helpful for identifying information that

relates to the transaction as well as the post-acquisition integration
process. In a large transaction, it is not uncommon for these reports to
exceed several hundred pages.
On the other hand, some companies prefer an exceptions only
report, which highlights only the significant problems and high-risk
aspects of the targets business. These reports are often considerably
shorter than the full legal summary, 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 identify the
areas of exposure.
In addition, the nature of the delivered report may vary depending
upon the stage of the transaction. For example, the report produced in
the early stages of the auction setting will typically contain far less
detail than the report produced in the later, pre-signing stage. Also, the
extent of the detail may vary depending upon the subject area or type
of issue. Licensing agreements, for example, are likely to be addressed
in great detail in the report for a transaction where intellectual
property is critical. Certain types of commercial contracts (e.g.,
critical supply or distribution agreements, or contracts with
government agencies) also may be highlighted in detail due to their
impact on the targets business. Similarly, legacy exposure under prior
acquisition or disposition agreements often merits considerable
attention in the report where the exposure under those agreements is
potentially significant.
Accordingly, the report will often end up someplace in the middle of
the full legal summary and exceptions only approach. An executive
summary will highlight the major issues uncovered during the course
of the investigation, and a more detailed report will follow that
contains additional relevant information. In the cross-border context, it
is most efficient for the report to be organized by jurisdiction
following a consistent format and sequence of topics.
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6.6.
Timely Reporting
Whatever the style of the report, it is critical that clear lines of

reporting be established between local counsel, the coordinating legal
advisor and the client in order that the client can be notified of
significant issues as soon as they are discovered. Also, a realistic time
schedule for the mechanics of reporting the results of the investigation
to the client should be established at the outset. Periodic reporting
mechanisms, 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. In addition, 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.
Accordingly, local lawyers conducting the diligence investigation
should be comfortable working with the coordinating lawyer on an
informal basis. The formality with which lawyers are accustomed to
when dealing with someone at arms length will slow the flow of
information from the local jurisdictions to the coordinating lawyer.
Having the investigation conducted in as many jurisdictions as
possible by lawyers who are associated in practice or who have
established and long-standing correspondent relationships with the
coordinating lawyer can greatly increase efficiency and speed.
Furthermore, even in major transactions, local lawyers have a
tendency to pass diligence work to junior lawyers who may not have
the experience to identify a problem area or, if they do, may be unable
to propose a suitable solution in the limited time available. In this
regard, 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.
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6.7.
Specific Matters for Investigation
The very nature of the investigation will vary in each country because
of the differing legal systems, types of business organizations and
unique legal characteristics of that jurisdiction. 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, such as:
Transfers and assignments of intellectual property rights.

The transfer or assignment of intellectual property rights and
related licenses is regulated in many countries by technology
transfer, exchange control or similar legislation. Approvals
and notices to appropriate authorities may be necessary. It is
also often found that intellectual property rights are owned by
a parent or related company not being sold, in which case
assignments of those rights will have to be separately
obtained. Again, sufficient time must be allowed for these
assignments and transitional arrangements may be necessary.
Furthermore, searches may reveal registrations in the name of
predecessor companies or previous owners. Changing the
registrations in many jurisdictions is a slow procedure and
recent sale transactions may not yet be reflected in the
registry. 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.
Transfers of employment. As discussed in greater detail in

Section 8 (Employee Transfers and Benefits), the transfer of
the targets employees often merits considerable diligence.
Unlike in the United States, for example, in many
jurisdictions the employees automatically transfer to the buyer
in an asset transfer and the terms and conditions of
employment for the transferred employees, including
employee benefits, must generally remain the same.
Otherwise, the employees could have a claim for constructive
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termination of employment and be entitled to severance

payments. In this regard, the buyer will need to determine
whether it is possible or desirable from a business standpoint
to provide the same or substantially similar terms, which often
requires carefully coordinated diligence by specialists in each
jurisdiction.
Intercompany arrangements. In a far-reaching, multilocation business, intercompany agreements reflecting the

dependency of the business being sold on the head office or
other affiliates will typically need to be assessed. Information
technology, 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.
Guarantees. Parent or related company guarantees of credit

facilities or term lease obligations of foreign subsidiaries are
quite common. If obligations of foreign subsidiaries are
guaranteed by a company not being sold, replacement credit
support arrangements typically must be implemented before
closing. Substituting a new guarantor may require exchange
control approval.
6.8.
Extra-Territorial Reach of Laws
In addition to local laws in the jurisdictions where a foreign target is

located, certain domestic laws may be triggered with respect to the
business of a foreign target upon closing the transaction. Examples of
the extra-territorial reach of US laws that are often considered by US
parties include the following:
6.8.1.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002, together with related regulatory

reforms, significantly changed the corporate governance practices not
only of US public companies but also of non-US companies with
securities that are listed, traded or otherwise registered in the United
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States. Although the overall purpose of this law was to address

corporate financial scandals, its reforms impact many different areas
of law and business practice, each requiring specific analysis.
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.
Because non-US companies are not normally required to maintain this
level of control, a cross-border transaction can raise significant
internal control issues. For example, a US public company may seek
to acquire a non-US company that does not have sufficient internal
control structures in place, 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. Even in
situations where the US company will own less than 100% of a nonUS entity, internal control issues still arise to varying degrees,
depending on such factors as the level of the US companys
ownership, the materiality of the investment to the US company and
the level of control that the US company exerts.
Also of concern are the rules that require CEOs and CFOs to file
public certifications with the US Securities and Exchange
Commission as to a companys disclosure controls and procedures and
(as discussed above) internal control over financial reporting. If the
cross-border transaction involves the acquisition of an enterprise or
line of business, the acquiring company should conduct careful
inquiries into financial, accounting and other procedural matters. In a
cross-border transaction, financial and accounting differences, as well
as differences in the public disclosure and internal control regimes,
may make it difficult to for the CEO and CFO to render such
certifications.
The Sarbanes-Oxley Act also contains specific rules on auditor
independence. All relationships with audit firms should be scrutinized
carefully to ensure that there is no violation of these auditor
independence requirements. Because non-US jurisdictions have
differing requirements for auditor independence, the independence of
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any non-US auditors should be analyzed under US standards. The

Sarbanes-Oxley Act also requires an independent auditor to opine on
the effectiveness of internal control over financial reporting and the
fair presentation of a companys financial statements. 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.
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 targets home jurisdiction.
6.8.2.
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 nonUS individuals. In many circumstances, potential targets will not be
subject to the FCPA prior to an acquisition, but may be subject to
local anti-bribery laws or laws enacted pursuant to the OECD
Convention on Anti-Bribery.
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
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the US Securities and Exchange Commission, and penalties for

violations 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
entitys 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 targets
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 postclosing. This type of thorough investigation of a targets 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:
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?
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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 2012 index, which scores counties on
a scale of 1 to 100 (with 0 being highly corrupt and 100 being
very clean), 70% of the 176 countries surveyed scored less
than 50. This percentage was even higher in certain areas such
as Eastern Europe and Central Asia, where 95% of the
countries surveyed scored below 50.
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?
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?
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?
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Has the target been subject to any audits or investigations by

any governmental authorities relating to corruption or antimoney laundering issues?
6.8.3.
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) 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 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 any 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 and Iran.
US export controls apply to exports from the United States and reexports from other countries by any person (US or non-US) of USorigin items (goods, software and technology), foreign-made items
that incorporate US content exceeding certain de minimis levels and,
in limited cases, foreign-produced items that are the direct product of
certain US technology. 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
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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, and transaction
parties should be screened to confirm they are not designated as
subject to sanctions. 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 countries will itself trigger the application of the
sanctions. In other cases, under both the sanctions and export controls,
the mere act of acquiring a company will not implicate these rules, but
the continued performance of contracts by the acquired companies
could implicate them. For example, the sanctions generally prohibit
US person involvement in or facilitation of non-US transactions
involving sanctioned countries. Prohibited US person involvement can
take many forms, including, for example, US parent company review
or approval of specific transactions with sanctioned countries, as well
as intercompany transactions (such as the purchase of capital
equipment) earmarked for a non-US subsidiarys business with
sanctioned countries, and assistance or involvement by US citizens or
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permanent resident aliens employed outside the United States with

respect to sanctioned country transactions. A thorough compliance
review should identify any contracts that may require termination
prior to closing or exclusion from the transaction.
6.8.4.
Antiboycott
US antiboycott laws and regulations prohibit or penalize US

companies and, in some cases, their foreign subsidiaries, from
participating in or cooperating with foreign boycotts against countries
that are friendly to the United States. These laws and regulations are
particularly relevant for companies doing business in the Middle East,
where the Arab League boycott of Israel is in effect, or with other
countries that boycott Israel.
The US antiboycott rules are administered under two separate
regulatory schemes by the US Department of Commerce and the US
Department of the Treasury, respectively. The Department of
Commerce rules apply to transactions by entities organized under the
laws of the United States, as well as transactions by their controlledin-fact non-US affiliates to the extent those transactions affect the
foreign or interstate commerce of the United States. Transactions
generally are considered to be in US commerce if they involve USorigin goods. The Treasury Department rules apply to all US
taxpayers and members of their controlled group, including non-US
subsidiaries, regardless of whether the transaction is in US
commerce. Both sets of rules impose periodic reporting requirements
with respect to the receipt of boycott-related requests, even if the
recipient does not comply with such requests.
Violations of the Department of Commerce rules are subject to civil
and criminal penalties, 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 nonUS subsidiary). Furthermore, the mere acquisition by a US company,
whether directly or indirectly, of companies with ongoing boycott-
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related commitments can trigger liability, including US tax penalties,

under the antiboycott rules.
For diligence purposes, documents should be screened for existing
transactions or ongoing contracts that contain boycott-related
commitments. The document review should include executed
contracts, as well as pre-contractual documents, such as tender
invitations and bidding documents, among others. To the extent
boycott-related agreements are found, pre-closing amendments to or
renunciations of the offending boycott clauses may be required. In
addition, as with US trade sanctions and export controls, to the extent
a target has been subject to US jurisdiction under the antiboycott rules,
a five-year statute of limitations period applies, 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.
6.9.
Public Record Searches
The amount of publicly available information that may exist with

respect to the target company, and the cost to obtain that information,
varies widely from jurisdiction to jurisdiction. 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.
For example, the commercial registry information on a share company
will, in many jurisdictions, include the names of a companys
directors, their authorization to represent the company, any restrictions
on that authority intended to be binding on third parties, the address of
the companys principal place of business and its capital (including
issued but not fully paid-in capital). In England and many other
countries, annual financial statements of even privately owned
companies will be on file at the companies register.
Lien, title and litigation searches are frequently requested, but in some
jurisdictions are unobtainable or only obtainable at substantial cost or
after considerable delays. For example, searches for liens or other
security interests are not generally possible in most civil law
jurisdictions, except for specific types of assets where title is
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registered (e.g., real property and vehicles). Also, there is no

centralized litigation registry in China, 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. As in any jurisdiction, 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.
6.10. Privacy and Data Protection Laws

Data privacy laws in many jurisdictions, including the United States,
Switzerland, Hungary, Canada, Argentina, Australia and countries
throughout the European Union, pose another potential obstacle with
respect to a multi-jurisdictional diligence exercise. These laws vary
from jurisdiction to jurisdiction, but they generally are applicable to
prevent or restrict the disclosure of personal information about
individuals and are triggered if the seller, the confidential information
or the investigating party is located in any such jurisdiction.
Accordingly, before disclosing any personally identifiable
information, 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. Further, it may be necessary to
ensure that information about employees be edited so that it is
anonymous and, where this is not possible, conditions might need to
be imposed on the investigating partys use of such information.
In many jurisdictions, depending on the particular circumstances, the
disclosing party could be held primarily liable for any violations of
data protection laws that is caused by the investigating party.
Accordingly, while the disclosing party may negotiate for appropriate
indemnities in the confidentiality agreement, the disclosing party
should closely monitor how the investigating party intends to use and
disclose any personally identifiable information.
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6.11. 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, 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. In
these types of transactions, 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, and
the parties abilities to participate in the transaction and perform their
respective obligations, is captured.
Likewise, the need for an investigation also arises in the context of an
outsourcing transaction, but the focus of the review in this setting is
often quite different than in the acquisition context. In an outsourcing
transaction, 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), 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. The scope of the review is, therefore, heavily focused on the
delivery of the services that the service recipient currently receives
using the to-be acquired assets.
No matter the transaction structure, centralized coordination of the
diligence exercise is critical to ensure efficient, consistent and uniform
investigation in the cross-border context.
* * *
As mentioned above, a critical component of the diligence exercise in
the multi-jurisdictional setting, and one that is more focused on the
laws of the jurisdictions involved, is the impact that competition and
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Section 6 Diligence
other regulatory matters can have on the deal. In the next section, we
discuss the regulatory framework at play in the cross-border setting.
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Section 7 Regulatory Framework
Section 7
Regulatory Framework
Often, 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, if so,
the impact that any required regulatory approvals and clearances may
have on the overall timing of the transaction. 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.
This section addresses the regulatory framework applicable to crossborder business combinations, including the typical issues that arise in
the context of a merger control or competition analysis, gun jumping
issues, exchanges of competition-sensitive information, typical
foreign investment regulations, common industry-specific regulations
and exchange control requirements.
7.1.
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, including one or more of the
following:
Antitrust or antimonopoly notices or consents;
Foreign investment approvals;
Exchange control approvals; and
Tax clearances and other tax filings.
These may vary depending on the nature, size and structure of the
target business and the manner in which it is acquired. The assets and
business of the acquiring entity and its entire company group are quite
often considered relevant as well, particularly in the analysis by
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competition authorities. Moreover, many of the regulations discussed

in this section may also apply to joint ventures, strategic alliances and
other business combinations. Legal counsel should be consulted to
determine how a particular transaction may be affected by these
considerations.
In many cases where an approval, clearance or consent is required, 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. In other cases, 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, the failure may not affect the validity of the acquisition, but
may deny the buyer the right to remit earnings or repatriate capital, or
cause it to lose tax or other benefits or incentives.
In a cross-border business combination, 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, 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. In the latter case, the
parties should provide for a reduction in the purchase price or other
consequences (e.g., the relevant operation is sold to a third party with
the net proceeds to the buyers account) if a required approval is not
obtained.
If an entity or business segment in a particular jurisdiction is vital to
the entire enterprise, the entire transaction should be made subject to
obtaining all necessary approvals for its acquisition. Where operations
in a particular jurisdiction are not vital to the enterprise as a whole, or
where approval is highly likely but time consuming, 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
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sometime in the future in order to permit the parties to obtain the

necessary approvals for the acquisition of those operations.
Prior to agreeing to defer closing in a jurisdiction while awaiting
approval, it is crucial to ensure that the mere act of closing part of the
transaction in another jurisdiction does not violate applicable gun
jumping rules or any other competition laws of the jurisdiction where
the deferred closing is to occur. In addition, the sharing of certain
kinds of information prior to obtaining the required competition
approvals should be treated with particular sensitivity, as it may be
deemed anticompetitive. In any case, the acquisition agreement
should make the closing in a given jurisdiction subject to obtaining all
necessary government approvals in that jurisdiction. In fact, it may
even be a violation of foreign law to sign an unconditional acquisition
agreement.
The need for government approvals may also affect the structure of
the acquisition. For example, 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.g., a foreign investment approval) as a
direct acquisition of the shares or other equity interests in the local
entity. Generally, however, antitrust or competition approval
requirements are not affected by structure.
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. Early in the
negotiation process, the parties will need to identify which regulatory
authorities have the power to delay, impose fines, prohibit or even
order the unwinding of a business combination that is deemed to be
unlawful under their respective regulations. In order to avoid these
consequences, 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.
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7.2.
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. Indeed, more than one-third of the countries recognized
by the United Nations have some form of merger control law currently
in effect. Many of these laws contain a statement similar to that
contained in the European Unions regulations that their intent is to
cover all mergers that significantly impede effective competition . . .
in particular as a result of the creation or strengthening of a dominant
position. 1
Although similar themes echo around the world, the specifics of the
merger control laws, 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. The idea of coordinating a thorough competition review
may seem daunting in the context of a large multi-jurisdictional
transaction, 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. Enlisting the assistance of competent legal
counsel at the outset of the strategic planning phase can help make the
process much more manageable.
In general, there are three critical elements in a thorough competition
review:
conducting a substantive review;
developing a coordinated filing strategy; and
Council Regulation (EC) No. 139/2004 of 20 January 2004 on the Control

of Concentrations Between Undertakings, 2004 O.J. (L 24) 1.
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incorporating the review timetable into the overall transaction

timetable.
7.2.1.
Substantive Review
First, the parties should undertake a substantive review to determine

which jurisdictions merger control authorities may claim jurisdiction
over the proposed transaction. Broadly speaking, 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, but not those of
the entire seller group) for the last fiscal year within the territorial
borders of the particular jurisdiction (so-called destination sales);
(ii) physical presence of an entity (often, but not always, a target
subsidiary); or (iii) anticipated anticompetitive effect that the proposed
business combination may have on the domestic market.
Notably, in an effort to streamline the competition review process for
companies with significant business in three or more of its Member
States, the European Union has instituted a one-stop-shop review
process for vetting larger cross-border mergers. Accordingly, national
review by the EU Member States is pre-empted if parties to a merger
meet the thresholds for EU Commission review. On the other hand,
even if the parties technically meet the thresholds for EU review, 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.
Additionally, parties can now request EU review under certain
circumstances where EU review is not otherwise required.
7.2.2.
Coordinated Filing Strategy
A second important element in a thorough competition review is that

the parties develop a coordinated filing strategy, and in particular,
agree upon consistent definitions of the relevant markets. More often
than not, a proposed combination affects more than one product
market, and the relevant geographic market for those products may
vary. These market definitions are important not only for the purpose
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of collecting and analyzing the necessary information about the

parties business and the anticipated competitive effects and market
shares (i.e., to be sure that the parties are comparing apples to
apples), but also in presenting the information to the relevant
authorities.
Because competition authorities increasingly collaborate in their
review procedures and pay close attention to the decisions taken by
their counterparts, it is strongly advisable to maintain a consistent and
coordinated approach among the various jurisdictions in which filings
are required, despite the sometimes strong temptation to manipulate a
market definition to play down potential anticompetitive effects in
individual jurisdictions. In addition, the parties would be well advised
to ensure that any merger control notifications filed with respect to an
acquisition also address the subsequent integration of the companies at
the local level. 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.
7.2.3.
Timetable
Finally, it is essential for the parties to clearly understand the

timetable for the review process and to incorporate this into their
overall transaction timetable. Where consent of merger control
authorities is required, suspension of closing is typically mandatory.
To that end, 30 to 45-day waiting periods are most common, but
longer periods apply in a few cases (e.g., 2 months for Poland). In
many jurisdictions, these periods can be extended if the authority
considers a filing to be incomplete, requests additional information or
gives notice of an extended review. However, in non-controversial
situations, some jurisdictions, including Germany and the United
States, allow the parties to request an early termination of this
waiting period.
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In planning the timeline for this process, 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), and waiting periods may also be
suspended for the duration of public holidays. Post-closing notices and
filings are typically required to be made within 15-30 days of closing,
although longer periods may apply in some cases.
7.2.4.
Filing Responsibility
In most jurisdictions, the buyer is often legally responsible for filing

the requisite merger control notifications, although in a few places, the
parties are jointly responsible. In practice, however, it is quite
common for both parties to collaborate on the preparation of the
filings, regardless of statutory obligation. From a project management
standpoint, it often proves to be a good investment for the seller to
begin collecting the relevant information well ahead of time, as any
potential buyer will eventually require this information. Accordingly,
many sellers begin working with their counsel early in the process to
compile a preliminary analysis based on destination sales and market
shares. This can be particularly useful in the auction setting, 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. A
preliminary analysis also enables the sellers management to better
control expectations as to the timing of closing and, to some degree,
the anticipated costs to get there.
7.3.
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. In particular, the US
antitrust authorities have fined companies for unlawful activities prior
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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, these steps should fall short of de facto implementing
the transaction. Accordingly, the parties should avoid:
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);
the acquisition of legal title by one party over the others

assets (in the case of an asset transaction);
the acquisition and exercise by one party of the right to

appoint members to the others board of directors,
administrative board or other bodies controlling the other
party;
the acquisition by one party of the right to veto strategic

decisions, such as adoption of any annual business plan or
budget or the appointment of senior management, although
this does not prevent the imposition of obligations to ensure
that the acquired business operates in the ordinary course
during the interim period but without otherwise restricting
pricing, marketing, customer relationships or product
development;
one party beginning to manage the others business on a de

facto basis, including de facto integration, joint marketing,
integration of sales forces, etc;
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); and
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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).
Joint customer or supplier contact limited to explaining the
transaction and future operations of the business is generally
acceptable.
7.4.
Exchange of Competition-Sensitive Information
In many transactions, the negotiation process (either initially, at the

diligence stage, or later when there is a time lag between signing and
completion) will inevitably involve the transfer of competitionsensitive information, whether orally, electronically or in written
format. One of the overriding purposes behind the existence of a
competition law regime, however, is to ensure that the entities
engaged in transfers of information, for whatever legitimate purpose,
remain fully in competition with one another until the conclusion of
the project in question (or, in the event that the project discussions do
not succeed, going into the future). It is therefore important to ensure
that information transfers between the parties comply with the
applicable competition laws.
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. These are generic
guidelines based on US and EU competition laws and regulations
regarding the exchange of information between actual or potential
competitors in the context of a proposed acquisition. Jurisdictionspecific competition advice should always be obtained in connection
with any contemplated disclosure of potentially competition-sensitive
information.
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7.4.1.
General Rules
Information can broadly be divided into three categories:
permitted information;
controlled release information; and
prohibited information.
Before exchanging any information, the parties to the transaction

should always consider and determine what category each item of
information falls into. Only then can they protect themselves and their
officers, 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.
7.4.2.
Permitted Information
The following data can be freely transferred:
publicly available information (including information on

overall capacity utilization in the market and published
projections concerning general and specific market trends);
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);
information relating to the integration of the parties computer

systems;
information relating to the integration of the parties

accounting, treasury and information management methods;
general descriptions of available products or services;
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facility descriptions, including capacity utilization;
environmental information of a non-competitively sensitive

nature;
announced capital expansion or closure plans;
personnel information (but not detailed cost/salary

information; and note that these may be subject to data
privacy rules);
published financial statements of the target; and
corporate structure and shareholding investments.
The following data can be exchanged in the appropriate format:
historic (i.e., more than one year old) regional sales by

volume and product type (but not broken down by customer);
historic aggregate (i.e., not broken down by product/supplier)

costs of inputs, supplies and facilities;
historic aggregate profit margin information; and
historic aggregate expenses and overhead charges.
7.4.3.
Controlled Release Information
Subject to review and approval by legal counsel, it may be possible to

release some of the following to a limited number of designated
recipients for the purposes of the diligence investigation:
marketing plans and strategies;
historic (i.e., more than one year old) pricing data and
customer information;
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historic individual (i.e., non-aggregated) product margin

information;
historic individual costs of input, supplies and facilities;
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;
unannounced capital expansion or closure plans; and
proprietary technical know-how and data.
7.4.4.
Prohibited Information
Subject to the use of independent third parties as discussed in the next

paragraph, there must be no transfer of the following information
between the parties:
current pricing data, including discounts and rebates and other

terms and conditions of sale;
current bids or negotiations with specific customers;
current specific customer information;
current wage and salary information;
future pricing intentions;
future customer strategies;
current individual product margin information; and
current individual costs of input, supplies and facilities.
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7.4.5.
Use of Independent Third Parties
The use of independent consultants, accountants and lawyers may

alleviate concerns over the exchange of information between the
parties concerned. A third party may be able to review the
competitively sensitive information and provide the receiving
company with a non-confidential summary (e.g., by aggregating data
or by removing specific price or customer information). However,
even with the use of a third party, information should only be
exchanged upon approval of legal counsel and pursuant to a
confidentiality agreement with the third party that, among other
things, limits the information provided by the third party.
7.4.6.
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, even on a purely theoretical basis, be used by
that company to affect competition on a market within the European
Union or that particular Member State. The penalties for competition
law infringements are severe. At the EU level, the European
Commission has the power to fine a company up to 10% of its annual
worldwide turnover, a power which it uses on a regular basis to levy
fines of tens of millions of Euros. Each Member State provides for
similar penalties in their national laws.
Similarly, in the United States, 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 $16,000 per day per party. In
addition, prior to the merger or acquisition, the parties are subject to
the antitrust rules and penalties, including treble damages, with
respect to collusion and agreements among competitors.
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7.5.
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.g., Argentina
and China) or because of the nature of the asset being acquired (e.g.,
Canada and New Zealand). In some cases governments may require
pre-merger notification or approval where a proposed transaction
involves a foreign buyer, but there is a trend toward liberalization in
this area. Varying restrictions appear throughout Latin America, the
Middle East and Asia.
In other countries (including Italy, the United States and Venezuela),
no prior approval is needed for an acquisition by a foreign-owned or
controlled entity, provided that the target business is not engaged in a
sensitive industry, but the government must be notified after the fact.
France extends its notification requirement to include indirect
acquisitions (i.e., an acquisition of an entity that owns a French
company). In yet other jurisdictions, the foreign shareholder will need
to lodge a notice in connection with the local entitys corporate
maintenance requirements.
7.6.
Industry-Specific Regulations
As noted above, 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.
Apart from the obvious examples of sales of weapons components or
technology transfers to states that are believed to support terrorism,
national security concerns may limit or prohibit acquisitions that the
government believes could jeopardize domestic capability, capacity
and technological leadership. Some examples of industries that are
commonly considered sensitive include banking, communications,
computers, defense, public utilities, shipping and transportation.
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In the United States, 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
Committee on Foreign Investment in the United States, or CFIUS
for short, was established to receive notices of proposed acquisitions,
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. The review by
CFIUS typically takes 30 days or less, but may take up to 90 days if
an in-depth investigation is deemed to be warranted.
The Exon-Florio rules do not actually define national security and it
thus may have broad application, as evidenced by the 2013 order
requiring Chinese controlled Ralls Corporation to divest itself of
certain wind farm projects located in proximity to a restricted US
Navy training facility in Oregon. In dismissing all but one claim in a
subsequent lawsuit filed by Ralls, the DC Circuit Court affirmed that
CFIUS and the President were within their authority, and that such
orders were not subject to review by the courts. The Court also noted
that since Ralls had not elected to submit the potential acquisition for
prior review by CFIUS (but only submitted it once requested to do
so), the divestiture order was an appropriate means of effecting the
Presidential Order prohibiting the acquisition. The Ralls case 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.
France has also established restrictions on foreign acquisitions in
certain industries, including electronics, data processing and defense.
Approval of cross-border transactions involving these industries may
not be available at all or may be made conditional upon continued
substantial French participation.
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Outside of these sensitive industries, government approvals may be

fairly routine. That said, even routine approvals may be quite time
consuming, requiring anything from two weeks to six months to
obtain, and in controversial situations, sometimes even longer.
Furthermore, local permits and registrations may also need to be
transferred depending on the particular industry and transaction
structure. A medical device manufacturer, for example, is likely to
hold important permits, the transfers of which must be anticipated and
addressed early in the process.
7.7.
Exchange Control Approvals
In some countries, in addition to requiring prior approval for an

acquisition by a foreign buyer, the investment may also be subject to
exchange control approval, in which case the transfer of funds in
connection with the acquisition will often require approval as well.
Moreover, without such approval, it may not be possible to repatriate
profits, capital, interest or royalties. In some cases (e.g., local asset
sales in the context of a global acquisition), payment of the purchase
price locally in local currencies is required unless an advance approval
is obtained.
Most Western European countries no longer impose these types of
requirements. The United Kingdom, for example, abolished all such
restrictions in 1979. Thus, profits may be freely repatriated (subject to
applicable withholding tax and possibly reduced rates under the
applicable double taxation treaties) without advance approval of the
investment or acquisition.
Many jurisdictions, however, still impose foreign exchange controls,
particularly in Latin America (e.g., Brazil) and Asia-Pacific (e.g.,
China). The ease of obtaining foreign exchange approvals may depend
on whether the seller is already in full compliance with local exchange
control laws. If the seller is not in full compliance and does not hold
all appropriate approvals, it may be difficult and time consuming to
obtain approval for the acquisition.
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7.8.
Local Business Rules and Reporting Obligations
In addition to pre-closing regulatory considerations, 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.
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.
Section 11 (Post-Closing Actions) discusses some of the common
post-closing issues that should be considered in this regard.
* * *
Another highly regulated aspect of doing business that can impact the
timing and structure of a cross-border transaction is the transfer of the
targets employees and benefits plans. Like the competition and other
regulatory matters discussed in this section, the employee-related
issues generally need to be addressed on a jurisdiction-by-jurisdiction
basis. In the next section, we discuss the broad areas of inquiry
surrounding the transfers of employees and benefits plans.
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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 targets employees and their
corresponding benefits, where required or desired. Employee-related
issues in connection with the transfer of employees can require
significant advance planning and, correspondingly, careful diligence,
due to their propensity to affect the transaction timeframe. Most, if not
all, of the employee transfer and employee benefits issues in a crossborder transaction will flow from the structure of the transaction. That
is, the structure of the transaction will dictate the range of issues under
local law regarding how employees and employee benefit plans will
be handled.
As a starting point, this analysis will depend on whether the
transaction at the local level is a sale of shares, or a sale of assets. If
the transaction is structured to be a sale of shares at the local level,
then the employees of the local entity will not be impacted directly by
the transaction and will remain employed by their current local
employer and will not transfer.
If, however, the local transaction is structured to be the sale of assets,
then the employees who are subject to the sale would need to be
transferred to the new employer on or following close of the
transaction. Generally speaking, there are a few main areas of inquiry
in this connection:
the method of transfer, that is, whether employees transfer to

the new employer automatically by operation of law, by way
of employer substitution or assumption of contract, or whether
they must transfer by way of termination by the current
employer and hire under a new employment agreement by the
new employer;
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regardless of the method of transfer, whether there are local

approvals, consultations and notices required as part of this
process and, if so, which party is required to fulfill these
obligations;
identifying the employees who need to transfer with the target

business (including identifying any shared services employees
who may need to be transferred or who may transfer
automatically with the business);
whether the transfer of employees triggers severance and

termination indemnities under local law and, if so, which
party will be responsible for paying that liability;
whether the new employer assumes any employment

liabilities accrued by the transferring employees with the
former employer by operation of law, and whether the former
employer retains any liabilities or remains jointly responsible
with the new employer for liabilities to the employees;
whether employee benefit plans and their related assets and

liabilities transfer automatically or whether the parties must
take special action to replicate plans or transfer a plan to
another entity, as well as whether the current employers
benefit plans will be impacted by the transfer of employees
(where only part of the business will be transferring);
whether the funding levels of certain funded employee benefit

plans (e.g., pension plans) are acceptable to the parties and, if
not, which party will be responsible for the underfunding;
whether the targets employees are covered (or are intended to

be covered) by an equity compensation arrangement; and
whether any transitional services will be required until all

employment-related functions can properly be performed by
the target business after closing.
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This section addresses these broad areas of inquiry.
8.1.
Automatic Transfer vs. Termination/Rehire
In general under federal and state employment laws in the United

States, if a transaction involves a transfer or exchange of the equity
ownership of the target business, then all of the assets and liabilities
remain with the target business and only the targets equity ownership
changes. In this form of transaction, no termination of employment
occurs from the transaction itself because the employees of the
acquired entity remain employed with their current employer, the
same as before the transaction. On the other hand, if a transaction
involves the sale or transfer of the underlying assets and liabilities of a
business, the status of the employees becomes an important issue. If
the employees are intended to transfer along with the assets and
liabilities, they must be terminated by the current employer and
formally accept a new offer of employment with the new employer. If
no offer is made to an employee, or is accepted by the employee, that
employee remains employed by the existing business and does not
transfer with the underlying assets and liabilities. Generally speaking,
unless the buyer is obligated under the terms of the deal or an
applicable collective bargaining agreement, there is no requirement by
the new employer to offer employment to all employees working for
the business. Therefore in the United States,, except where contractual
provisions require otherwise, the buyer can pick and choose which
employees are worthy of an offer, depending on the needs of the
business.
In a cross-border transaction, however, the rules described above do
not necessarily apply. Whether and how employees transfer in a
particular jurisdiction depends on the employee transfer laws of that
jurisdiction.
8.1.1.
Cross-Border Share Transfers
In most jurisdictions outside of the United States, if the form of the

transaction is a transfer or exchange of equity, then, similar to the rule
in the United States, the employees of the acquired entity remain
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employed with their current employer, the same as before the

transaction . The transaction will not affect the continued employment
of the employees in the target company or its subsidiaries (assuming
the local transactions are also exchange of equity and not asset sales).
8.1.2.
Cross-Border Asset Transfers
If the transaction involves a sale or transfer of a business as a going

concern (that is, an assets transaction), then the required method of
transfer depends on the local laws in each jurisdiction. In some
jurisdictions, the method of transfer will be similar as in the United
States. That is, the employees must be transferred by way of
termination (or resignation) from their current employer and hire by
the new employer . In that case, there is no legal requirement for the
new employer to offer the same or better terms and conditions of
employment, but from a practical perspective it is common to do so
because otherwise the employees may not accept the offer of
employment from the new employer. For purposes of this handbook,
we refer to these jurisdictions as termination/rehire jurisdictions,
and they include the following, by way of a sample group: Australia,
Canada (other than Quebec, where employees transfer automatically
with the business), China, Hong Kong, Japan, India (with the
exception of workmen employees, who transfer automatically with
the business), Malaysia, Russia, Singapore (with the exception of
Employment Act employees, who will transfer automatically with
the business ), Taiwan, Thailand, and the United States.
In Latin American jurisdictions, including Argentina, Brazil, Chile,
Costa Rica, Colombia, Mexico, and Venezuela (among others), if the
transaction involves a sale of assets, then the employees can be
transferred on the same terms and conditions of employment by way
of employer substitution, which avoids triggering notice and
severance requirements, although it requires all employee-related
liabilities be transferred to the new employer, including recognition of
seniority accrued with the old employer. Alternatively, employees in
the Latin American jurisdictions can be transferred by way of
termination/rehire.
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In other jurisdictions, most notably the members of the European

Union, a sale or transfer of the business as a going concern will cause
the employees who are dedicated to that business (including, possibly,
any shared services employees) to transfer automatically with the
business on the same terms and conditions of employment. Similar to
the employer substitution method of transfer in Latin America, this
transfer method avoids triggering notice and severance requirements,
although it does require the new employer to step into the shoes of the
former employer and assume all employee-related liabilities
associated with the transferring employees and recognize all seniority
accrued with the former employer. Unlike in the Latin American
jurisdictions, however, where the parties can generally chose whether
the employees will transfer by way of employer substitution or
termination/rehire (assuming there is an underlying asset sale at the
local level), with a few exceptions (e.g., Russia), in the European
Union the parties will not be able to chose the method of transfer. If
the sale constitutes a sale of a business as a going concern, the
employees working for that business will transfer automatically by
operation of law. For this reason, we refer to these jurisdictions as
automatic transfer jurisdictions.
To explain this concept in more detail, members of the European
Union are bound by the Acquired Rights Directive (ARD),
promulgated by the European Council on February 14, 1977, which
provides this required method of transfer where there is a sale or
transfer of a business at the local level. The ARD, which each EU
member was obligated to implement through suitable local legislation,
is too long to discuss in comprehensive detail in this handbook.
Generally speaking, however, the ARD has two goals:
to provide for a contractual continuity of employment on the

same terms and conditions notwithstanding a change of
employer as a result of a transfer of a business; and
to require that there be a certain minimum consultation with

representatives of the employees who are being transferred.
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Therefore, under the ARD, where employees transfer automatically on

the same terms and conditions as part of a transfer of a business, there
is no termination of employment. Rather, the transferring employees
employment is deemed to be continued with the new employer
following the transfer. In most automatic transfer jurisdictions the
employees may not refuse to transfer, and must resign if they do not
wish to transfer to the new employer (e.g., France, Spain, the UK,
etc.). In some automatic transfer countries, however (e.g., Germany,
Austria, etc.) the employees have the right to object to the transfer of
employment occasioned by an asset sale and, if they exercise such
right, would remain employed by the current employer. Thus, in these
jurisdictions the parties should be careful to identify who is likely to
consent and who is not, as well as the timing that may be affected by
the employees ability to reject the transfer. For example, in Germany
and Austria, an appropriate, legally compliant notice should be
provided at least one month prior to the proposed transfer date, to
allow the one month objection period to run prior to the transfer date).
Furthermore, what constitutes a business for purposes of the ARD is
not the same in each of the EU member jurisdictions. Article 1 of the
ARD provides that it applies to the transfer of an undertaking,
business or part of a business to another employer as a result of legal
transfer or merger. Given the different legislation enacted by each of
the EU members to implement the ARD in their respective
jurisdictions, there is no uniform approach to what constitutes a
business. Each jurisdiction has a potentially different answer.
Accordingly, local legal guidance is recommended to determine
whether a particular transaction constitutes a transfer of a business
for purposes of determining whether the local regulations
implementing the ARD apply in any EU jurisdiction.
There are some jurisdictions that are both an automatic transfer
jurisdiction and termination/rehire jurisdiction. In Singapore, for
example, whether an employee transfers automatically by operation of
law depends on that individuals status under the Singapore
Employment Act, or EA for short. For a Singapore employee who is
covered by the EA, employment transfers automatically by operation
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of law, the same as in the EU, provided certain notification procedures

are complied with. If the employee falls into the category of a
managerial, or executive employee, however, then the provisions of
the EA do not apply to that persons employment. For those
employees, the method of transfer is by way of termination by the
current employer and rehire by the new employer. India has similar
concepts, where workmen employees (i.e., employees who are
engaged to do any manual, skilled, unskilled, technical, operational,
clerical or supervisory work and earn less than Rs. 10,000/ month)
generally must be transferred automatically with the business, and
non-workmen employees transfer by way of termination (or
resignation) and rehire .
Where a formal offer of employment must be extended to a
transferring employee, there may be special requirements under local
law as to the form, content and timing of that offer. For example, there
may be a requirement that the offer be drafted in the local language,
(e.g., in Russia), or it be recommended to do so if it is likely the
employee is not fluent in English (e.g., in in Japan, Korea, China,
etc.). Similarly, in automatic transfer jurisdictions, the notice of
transfer may be required to be provided in the local language (e.g.,
Belgium, Czech Republic, France, Poland, etc.). Determining the
employees local language may not be easy, especially in countries
such as Belgium, where the local language could be either French,
Dutch or Flemish, depending on the region. Another local requirement
may be that the offer be provided a certain number of days or weeks in
advance of the closing of the transaction.
Given these potential issues, 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. A US-trained M&A
specialist who assumes that a transfer of a business outside the
United States is comparable to an assets deal in the United States,
such that the employees of the target would not transfer unless they
accept a formal offer from the buyer, would be in for a surprise to find
out that, instead, the employees of certain of the targets subsidiaries
are transferred automatically with the business. This result can have
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drastic consequences from a cost and synergy standpoint, as the

automatically transferred employees may be entitled to the same terms
and conditions of employment as were provided by the seller
(including compensation and benefits), as discussed in the following
section.
8.2.
Terms and Conditions
In automatic transfer jurisdictions, the terms and conditions of

employment, including employee benefits, must generally remain the
same. (In most EU jurisdictions, however, there is an exception for
pension and equity entitlements.) That is, the buyer is not permitted to
change an employees remuneration, bonus, commission, other
incentives, employee benefit plans or fringe benefits/perquisites.
Otherwise, the employees would likely have a claim for constructive
termination of employment, triggering potential severance payments,
as discussed in greater detail in Section 8.5 (Severance/Termination
Indemnities) below, or else would be entitled to have his/her old
terms and conditions reinstated (with backpay, as applicable). In
termination/rehire jurisdictions, the buyer is not bound to maintain the
same terms and conditions. However, for business reasons it is typical
for offers to be made on terms that, in the aggregate, are no less
favorable than those enjoyed by the employees before the transaction
took place. In Latin American jurisdictions, if the employees transfer
by way of employer substitution, typically one requirement is that the
terms and conditions of employment remain the same or better
following the transfer.
In any transaction, 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. For example, 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. Or, the buyer might not be in a position to
provide equity compensation to the employees, where previously they
participated in a stock option or stock purchase plan. For these
reasons, the diligence process is key. It is imperative that the buyer
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take the time to understand what terms, conditions and benefits the
employees previously enjoyed under their former employment, and
what rights the employees have to enjoy the same terms and
conditions following the transfer of employment. Where the buyer is
unable to provide such terms, conditions and benefits, it should seek
to provide comparable terms, conditions and benefits, such as offering
a higher base salary in lieu of a benefit the new employer cannot
provide, although there may be some risk with this approach,
depending on whether the ARD is applicable and the local
requirements.
8.3.
Approvals, Consultations and Notices
In many non-US jurisdictions, an employee cannot transfer to new

employment without there being first some type of approval (or
consent), consultation or notification. The local laws may include
requirements regarding when to notify employees regarding the
transaction, the content of the notice, and so forth. Depending on the
jurisdiction, the burden may be on either or both parties to a crossborder transaction to fulfill these requirements. Mexico, for example,
as an automatic transfer jurisdiction, 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.
Article 6 of the ARD sets out provisions for disseminating information
to employees involved in a transfer of a business. The parties to the
transaction must inform employee representatives of the reasons for
the transfer; the legal, economic and social implications of the transfer
to the employees; and the measures contemplated in relation to the
employees. Further, the seller must provide this information to the
employees in good time before the transfer is carried out. Some EU
member jurisdictions have, as permitted by the ARD, limited this
obligation to only those transfers involving a certain threshold number
of employees.
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Approvals and consents are not limited to the employees of the

business being transferred. In some jurisdictions, for example, the
parties must consult with the local works council with respect to the
intended transaction. In the European Union, although the particular
requirements differ from jurisdiction to jurisdiction, they generally run
hand-in-hand with the local rules that implement the ARD. For
example, in France the seller must consult with the works council
before a decision is made, which often times means before a purchase
agreement is executed. In other jurisdictions, the required consultation
must be conducted a prescribed amount of time in advance of the
closing. Similarly, the parties may be required to consult with
representatives of the local trade unions regarding the transaction. If
there are no works councils or unions, the parties may still be required
to consult with a representative group of employees, such as is
required in China and the United Kingdom. The consultation process
may be a notification to a particular entity, or it may involve
substantive discussion and negotiation, which is generally the case if
measures are envisaged in connection with the transaction, for
example, redundancies or changes in terms and conditions of
employment.
8.4.
Identification of Employees
Another issue that can prompt significant attention in a cross-border

transaction, particularly when a business is being transferred in an
asset transaction, is the identification of the employees who work for
the target business. Employees who transfer with the target business
potentially increase the amount of liabilities incurred by the buyer to
run the business. Employees who do not transfer with the target
business increase the potential severance liabilities for the employer
transferring the business, particularly if that employer is unable to use
those employees in another line of business.
Where the transaction involves the transfer of employees from one
employer to another (i.e., an asset transfer), 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
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notification or consultation requirements that may impact the

transaction value and timeframe.
For example, some employees may work both in the business being
transferred and another business that is not part of the transaction
(e.g., headquarters employees, support function employees or
employees who also work for another line of the sellers business). In
that case, the determination of whether a shared service employee is
part of the business that transfers to the buyer may be determined by
how much time the employee works in the target business as a
percentage of his or her entire working time. An employee who works
95 percent of the time in the target business may be easily identified
as one who should transfer. However, the issue is much less clear
when an employee works in the neighborhood of 50 or 60 percent of
the time in the target business. In many jurisdictions, there is no
guidance under case law for classifying such shared service
employees. Therefore, the issue may need to be resolved in
negotiations between the parties, especially in automatic transfer
jurisdictions, and careful diligence will be important in this regard.
Furthermore, 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. To the extent that schedules of
employees are prepared as part of a data room, for example, the names
of the employees may need to be deleted (and perhaps replaced by
numbers). See Section 6.10 (DiligencePrivacy and Data Protection
Laws) for a further discussion regarding data privacy issues in crossborder transactions.
8.5.
Severance/Termination Indemnities
As indicated above, identifying employees is important because those

employees who do not transfer and remain with the seller may
ultimately be terminated, thereby triggering the payment of severance
or termination indemnities. The employees who transfer may also
have rights to severance if the new employer does not provide the
same terms and conditions of employment. In some jurisdictions,
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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. For example, in China, unless the
buyer, the seller and the employee agree to the terms of a mutual
termination and transfer contract (including the crediting of service),
the employee is entitled to severance and all termination-related
indemnities. Likewise, in Argentina, Brazil and Mexico, severance
and other termination-related indemnities must be made unless the
parties agree to transfer employment by way of employer substitution,
which requires the same terms and conditions of employment and the
crediting of service. Accordingly, the allocation of responsibility for
severance or termination indemnities is a very sensitive one for both
parties in a cross-border transaction.
In many non-US jurisdictions, there are expensive severance
obligations under local law if an employee is involuntarily terminated.
These obligations are typically statutory in nature and may not be
waived by the employee. Further, depending on the jurisdiction and on
how many years the employee has been employed, the amount of the
severance obligation may represent a substantial liability to the
employer. It is rare that these types of obligations are pre-funded or
are reflected on the target business balance sheet.
The parties often negotiate in the principal transaction agreement
which party will be responsible for paying these liabilities. The seller
usually seeks to have the buyer indemnify it for the cost of this
severance liability on the basis that, but for the transaction, the seller
would not have incurred the liability. On the other hand, 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.
Furthermore, the buyer, whether directly (in an assets deal) or
indirectly (in a share deal),often inherits substantial severance and
retirement obligations, particularly when an aging workforce is
involved. Since these obligations often are unfunded outside of the
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United States and do not appear on the targets balance sheet, the
buyer may need to independently determine the potential cost and
adjust the purchase price accordingly.
8.6.
Employee Benefit Plan Issues
Similar to the rules described above with respect to employee transfer

issues, the form of the transaction will determine whether and how
employee benefit plans will transfer.
8.6.1.
Cross-Border Share Transfers
If the transaction involves the transfer of the equity ownership of the

business, then the new owner will step into the shoes of the former
owner and, since only the equity ownership has changed, all employee
benefit plans maintained or sponsored by the target business will
remain with the target business under its new ownership. That said,
employee benefit plans maintained or sponsored by another entity
(e.g., the targets former parent company) often will not continue to be
offered to employees of the target business and some type of plan spin
off or replication of benefits post-closing may be required.
8.6.2.
Cross-Border Asset Transfers
In an asset transaction, however, the rules with respect to employee

benefit plans do not parallel the rules for the transfer of employees.
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. In some cases, the employee benefit plans
may cover more 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.
Further, 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. It is possible (and common) for a
buyer to have the obligation to provide benefits to employees even
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though the sellers benefit plan that gave rise to those benefits does
not itself transfer with the target business. This situation arises in
many joint venture transactions, for example, where the employees are
unable to continue in their current benefit plans while working for the
joint venture. In that case, 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. Where possible, the new employer may seek to have assets
transferred from the former employers benefit plans to provide the
new employer with the ability to fund the benefits.
With regard to pension plans, the ARD 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, even though the employees working exclusively in the
business are transferred. Thus, under TUPE in the United Kingdom,
for example, 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.
Here, too, it is critical for the buyer to understand what types of
benefits the seller extended to its employees, so the buyer can provide
substantially similar benefits following closing. The diligence phase is
therefore extremely important to the parties.
8.7.
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.
First, the buyer will want to know whether any assumed plans are prefunded (for example, assets are set aside in a trust or insurance policy)
or funded on a pay-as-you-go basis. If a plan is pre-funded, the issue
will be whether the plan is fully funded on the date of closing, and if
not, what is the amount of the underfunding. If the plan is funded on a
pay-as-you-go basis, the buyer will want to know what financial
liabilities it will assume as a result of assuming the employee benefit
plans.
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The term funded is not a universal term, however, and it is not

synonymous with setting aside assets in a trust. The type of plans
most commonly associated with funding issues are pension or
retirement plans. Private pension plans may be funded through a trust,
or perhaps financed through the purchase of one or more insurance
contracts.
In Germany, for example, a typical pension plan is funded through a
book reserve system, 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. The accrual gives rise to a tax
deduction for the employer. What is unique about the German system
is that the amount of the accrual for accounting purposes is not 100%
of the liability. In other words, the amount of the employers liability
to pay the pension promise is greater than the amount accrued on the
financial statements of the employer. A businessman in Germany
might say that his companys pension plan is fully funded, even
though in when viewed in terms that a US lawyer might apply, the
plan appears to be under funded.
Funding is also extremely important if the buyer is not assuming the
sellers employee benefit plan, but is establishing its own employee
benefit plan and accepting a transfer of assets equal to the liabilities
accrued for the transferred employees. This result might occur, for
example, 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. In that case, the buyer will want some assurance that the
assets it receives will be sufficient to cover its liabilities. To that end,
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. Typically, this language is very
specific and refers to liabilities calculated on a PBO (projected
benefit obligation) basis, or on an ABO (actual benefit obligation)
basis. Often, the parties will need to engage the services of an actuary
or benefits consultant to assist with this process.
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8.8.
Global Equity Compensation Issues
The use of stock options, restricted stock, 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. Nevertheless, equity compensation
awards raise potentially significant issues not only in the United States
but also in many other countries. For instance, 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.
Similarly, a transaction may necessitate non-US securities law filing
obligations for equity awards that need to be satisfied prior to
completion of the transaction. In other situations, labor and
employment consequences associated with changing or ceasing equity
compensation arrangements as a result of the transaction may arise.
Regardless of the nature of the transaction itself, the parties to any
cross-border transaction should thoughtfully consider the impact of
the transaction on equity compensation to avoid potentially significant
legal and regulatory exposures. In this subsection, we will briefly
discuss how equity compensation issues arise and are shaped in a
cross-border transaction, and identify some of the common tax and
legal issues arising in different types of transactions.
8.8.1.
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. As discussed above, in
some instances the form of transaction (e.g., a share transfer or an
assets transfer) may quickly determine issues that the parties will need
to address and similarly may foreclose alternatives for dealing with
global equity compensation awards. For example, where a target will
be merged into a buyer with the buyer surviving, the parties will need
to address any outstanding equity compensation awards involving
shares of the target. Similarly, where two unrelated parties establish a
joint venture entity that is not part of either parties consolidated
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group (as determined under either US or local law), the joint venture
parties will need to consider how to grant equity compensation awards
to the joint ventures employees in light of the restrictions often
placed on an issuers ability to grant awards to non-employees of the
issuer or the issuers consolidated group.
Similarly, the governing plan documents often prescribe what may
happen to outstanding equity compensation awards in the event of a
change in control or other corporate transaction. 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. For example, many plans provide for accelerated vesting upon
certain events tied to a corporate transaction, and accelerated vesting
of awards can affect the tax treatment. In Spain, for example,
employees may take advantage of a tax exemption for income derived
from stock options provided, among other conditions, the options do
not vest within two years of grant. Where a transaction triggers an
acceleration of vesting within two years of grant, employees in Spain
will lose the ability to utilize this tax exemption. In other countries,
such as Venezuela, where stock options become taxable upon vesting,
an acceleration of vesting (caused by a transaction) may trigger a
taxable event.
Notwithstanding the governing plan documents, the parties sometimes
may be able to negotiate alternatives for addressing equity
compensation awards as part of the transaction itself. However, this
approach requires sufficient diligence by the parties, and negotiation
and drafting of appropriate provisions for the transaction agreement.
In some instances, this approach also may require amendments to the
underlying equity compensation plan and also may require prior
approval from the optionee, affected issuers compensation committee
and/or board of directors.
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8.8.2.
Tax Considerations
Many transactions involve the conversion of stock options and other

forms of equity compensation from awards covering shares of a target
company to awards covering shares of the buyer. In some countries,
this conversion of awards (particularly stock options) may be
considered a taxable event to the employee. This same issue also
arises when equity compensation awards are adjusted to reflect a spinoff. 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
company likely will lose their qualified status upon being converted to
stock options for the buyers shares (although the disqualification
depends upon the nature of the corporate transaction). Similarly, for
options granted by a target company under an approved share option
scheme in the United Kingdom, the parties may be able to obtain
specific approval from HMRC to maintain or roll over the favorable
tax treatment for those stock options upon their conversion to options
covering the buyers shares.
8.8.3.
Securities Issues
Securities issues often arise in cross-border transactions in various

scenarios where global equity plans are involved. . 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. Where the parties intend for the
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grants to be made upon closing of the transaction, careful diligence

and advance planning in this regard will be critical.
Similarly, where awards will be converted from awards covering a
targets shares to awards covering a buyers shares, the parties will
need to consider whether the target company previously satisfied the
local securities law requirements for issuing those awards. As a result,
this issue should be covered by the sellers representations and
warranties contained in the principal transaction agreement.
Additionally, the parties will need to consider whether any exemptions
previously used by the target company, or securities-related approvals
previously obtained by the target company, 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.
8.8.4.
After the Transaction
Following any cross-border transaction where equity compensation is

used globally, the new 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.
8.9.
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,
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the services of another party, such as the seller or 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 as well as the terms of the benefit plan
documents.
*
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 buyers perspective of the key
issues to plan for in the cross-border setting when dealing with nonUS 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.
* * *
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Although there is often considerable overlap in the processes, once the

parties develop a sufficient understanding of the key diligence and
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
cross-border transactions.
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Section 9 Documenting the Transaction
Section 9
Documenting the Transaction
In a cross-border transaction, as with any purely domestic transaction,
there will generally be one principal transaction agreement, be it an
acquisition or divestiture of assets, shares or other equity interests, a
joint venture, an outsourcing arrangement or some other form of
business transaction. Just as project management and pre-transaction
review procedures will be inherently more complex in a multijurisdictional transaction than in a purely domestic one, so will the
transaction documentation require an extra degree of complexity. 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.
9.1.
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. 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. Furthermore, the decision as to which law
will govern the transaction agreement will also affect many other
aspects of the management of the transaction, including the intent and
areas of focus of the diligence investigation.
Historically, the choice of governing law has had a significant impact
on the structure of the transaction documentation. For instance,
acquisition agreements in common law jurisdictions (e.g., the United
States, 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.g., Continental European
jurisdictions). This is due, in part, to the fact that common law
jurisdictions have placed a greater emphasis on the use of
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representations and warranties for the purposes of both buyer and

seller protection.
English common law and many of its descendant jurisdictions do not
recognize any general obligation of good faith in the law of contract.
Accordingly, 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 such, 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.
Hence, 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, thereby, reach a meaningful allocation of liability.
In many civil law countries, by contrast, parties are typically under
obligations of good faith to each other, as discussed above in Section
5 (Preliminary Agreements). This obligation generally requires the
parties to engage in a more comprehensive, legally obligated,
disclosure of issues and problems than is typical in common law
jurisdictions. Accordingly, 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.
While the good faith concept is gradually creeping into the law of
common law jurisdictions such as England and Wales, the fact
remains that parties to common law-governed transaction documents
continue to make considerable use of extensive representation and
warranty provisions. Furthermore, as business becomes more global
and cross-border transactions more common, there has tended to be
something of a convergence in transaction documentation, with the
lengthier common law form agreement now becoming more of the
norm. In spite of this, parties will need to be prepared for inevitable
differences of opinion if dealing with counterparts in foreign
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jurisdictions whose practice is somewhat different than that with

which people in common law jurisdictions are more familiar.
Even once a decision is made about which law will govern the
transaction documentation, the parties should ensure that the crossborder 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, to drafting closing provisions to ensure that local closing
formalities are respected in each relevant jurisdiction. It is therefore
very important for parties in multi-jurisdictional 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.
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.
9.2.
Cross-Border Acquisition Agreements
The principal aim of any acquisition documentation, whether in the

cross-border or domestic context, 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. Beneath this surface
simplicity, however, 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. These include, but are
not limited to, the following types of questions:
Who will be the parties to the acquisition agreement? Will

only one member of each partys corporate group enter into
the master agreement and, as result, 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
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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
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?
Given that different jurisdictions often use different means for

calculating the damages suffered by an aggrieved party and,
therefore, 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, negotiating and finalizing the
transaction agreements. That said, the issues reflected above are
critical and will have long-run implications for the ultimate allocation
of risk and liability between the parties.
9.2.1.
Giving Effect to the Transaction in Local Jurisdictions
In many cross-border transactions, local law will stipulate the required

documents and actions necessary to give effect to the share or asset
transfers in the local jurisdictions (e.g., a stock transfer form
accompanied by delivery of share certificates when certificated,
notarial deed or other instrument of transfer for shares or equity
interests, or a bill of sale and assignment and assumption agreement or
business transfer agreement for assets). The form which many of these
base documents takes is, often, quite disarmingly simple.
Nevertheless, it is important for the parties to ensure that all of these
relatively mundane and straightforward local transfer instruments are
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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; (ii) the means by which the
parties intend to allocate risks with respect to the transferred shares or
assets (e.g., through representations and warranties, indemnities and
carve outs of certain liabilities); (iii) the mechanics leading up to and
following closing (e.g., conditions to closing, purchase price
adjustments, post-closing covenants and other obligations); and (iv)
how the parties intend to resolve any dispute that may arise in relation
to the transaction following closing.
None of these issues should be of any surprise to anyone familiar with
transaction documentation in a purely domestic context. However,
given the interplay of various legal systems and cultural mores, the
importance of an overarching master acquisition agreement, linking
together the documents required to give effect to the transaction in
each jurisdiction is magnified in the cross-border context. For
example, as discussed in Section 10.7 (Closing the Transaction
Moving Funds), the parties often need to allocate the purchase price to
the local target in the local transfer documents. If the master
umbrella agreement contemplates a purchase price adjustment based
on some financial or other measure, the parties will need to
contemplate the local implications of that adjustment.
In all cases, the key objective is to ensure that the master umbrella
purchase agreement which has been negotiated (often heavily) by the
parties governs the transaction. As such, 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. Pursuing such a course
of action would greatly increase the likelihood of issues receiving
inconsistent treatment in the documents across the jurisdictions.
Rather, 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.
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9.2.2.
Local Share Transfer Documents
In the case of share transfers, the local documentation is often very

simple and straightforward. It normally takes the form of a simple
stock power, share transfer form or other instrument of transfer which
merely specifies the names of the parties to the local share sale, the
quantity and value of, and the consideration payable for, the
transferred equity interests. In certain civil law jurisdictions, the
parties may be required to appear before a civil law notary, who will
execute a notarial deed giving effect to the transfer of the relevant
equity interests. Section 10.2 (Closing the TransactionNotaries)
discusses the function of notaries in closing cross-border transactions
in greater detail.
9.2.3.
Local Asset/Business Transfer Documents
The documentation gets more complicated when the assets of a going

concern are being transferred, given the wide variety of asset classes
often involved. Issues of particular concern include effecting the
transfer of contractual rights and obligations, as well as employees
and related benefit plans in accordance with local laws. In addition,
the parties should ensure that they comply with applicable local legal
requirements in order to legally affect the contemplated transfer of
assets and liabilities. In some countries, if the assets are not scheduled
in accordance with local legal requirements, they may be deemed not
to have validly transferred from the seller to the buyer. Generally
speaking, the listing of assets should be more specific and detailed (in
some cases by asset categories) in civil law jurisdictions, whereas it is
usually sufficient to provide general descriptions of asset categories
under the laws of most common law countries.
In Germany, for example, the schedules of assets must be prepared
with a high degree of specificity. Ideally, the transferring party would
list every single asset that is being transferred to the transferee. Some
entities keep detailed asset lists in the normal course of business, and
these lists can often be printed out and attached as schedules to the
asset transfer documents. Often, however, comprehensive schedules
listing every single asset are not available. In an asset deal where an
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entire companys assets are being transferred, 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. Where the relevant assets are not housed in separately
identifiable locations, however, or where they might be mixed with
other assets that are not transferring (e.g., in the context of a divisional
sale), the issue is a bit trickier. In that situation, 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, except those which are not owned by the transferor or
are otherwise intended to be carved out of the transaction (which, in
turn, should also be listed in a schedule). Nevertheless, 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.
9.2.4.
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 assumption agreement to effect the transfer of
liabilities. In the international context, however, the local subsidiaries
of the parties, as the local seller and buyer, often enter into a business
transfer agreement, or BTA for short, for each jurisdiction in which
assets are transferring in order to establish that a business as a going
concern, rather than select assets, is being transferred in the local
jurisdiction. To that end, the BTA would be based upon and consistent
with the overall master purchase agreement. As such, the BTA is a
relatively short document which addresses only those issues relevant
to the local transaction (e.g., the legal transfer of assets used in the
business, the assumption of liabilities related to the business and the
local legal formalities surrounding the transfer of employees dedicated
to the business).
While there are certain exceptions (e.g., France), 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,
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including representations and warranties, indemnities and covenants.

Typically, the BTA will contain no, or only a few, closing conditions
(e.g., references to locally required government approvals) since it is
signed and delivered in conjunction with the closing under the master
agreement. To ensure that the master agreement controls the whole
transaction, however, the BTA will typically include language stating
that it is expressly subject to the master agreement in the event of any
inconsistency. Further, the governing law and dispute resolution
language in the BTA will expressly replicate the language of the
master agreement. 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.
Despite its relatively simple nature, the use of a BTA offers a number
of particular benefits, including the following:
The form of the BTA is typically negotiated and agreed by the

lead counsel and distributed to local counsel for comment.
Local negotiation of the BTA in each country is often severely
restricted. This approach assures consistency with the master
agreement and deal terms, facilitates preparation of the
required local documentation and reduces cost. Local counsel,
particularly in civil law jurisdictions, often have limited
experience with bills of sale and other transfer documentation.
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, thus potentially reducing the associated time
delays and cost implications.
In many jurisdictions, 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. While the use of a bill of sale,
assignment and assumption agreement or other document will
not necessarily lead to such an exemption being refused, the
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BTA, as the sole operative transfer document, serves as a

useful tool for demonstrating that the assets transferred
constitute the transfer of a business as a going concern.
In many jurisdictions, a stamp duty is assessed on the written

documentation used to transfer assets that cannot otherwise be
transferred by physical delivery (e.g., intellectual property
rights, accounts receivable and goodwill). Therefore, 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. 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.
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. 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.
In certain circumstances, local authorities may require a local

language translation of the operative transfer documents. Due
to its relative brevity, the BTA will prove to be an easier
document to translate when compared to the master
agreement.
The BTA will often include schedules that set forth the
particular assets and liabilities to be transferred in the relevant
jurisdiction. Accordingly, each BTA will serve as a useful
future reference of the assets transferred in the corresponding
jurisdiction.
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9.2.5.
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. The parties may decide to enter into specific
documents providing for indemnification against certain liabilities
(e.g., tax covenants and deeds of indemnity for environmental
liabilities in particular jurisdictions) rather than including extensive
jurisdiction-specific indemnification language in the master
agreement. In addition, if a target is being divested from a larger
group, 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, IT
support, payroll and others.
The drafting of these ancillary documents will often present similar
issues to those encountered when drafting the principal asset or share
acquisition agreement. For instance, 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, and properly
reflect the local applicable tax regime. In addition, the parties will
need to review the ancillary documentation carefully to ensure that it
is consistent with the terms of the master agreement. To this end,
parties often include a provision expressly stating which agreement
will prevail in the event of inconsistencies. Similarly, the parties
should ensure that all documentation is consistent from the
perspective of the dispute resolution provisions, as discussed in
greater detail in Section 12 (Dispute Resolution).
9.3.
Business Process Outsourcing
As a service-driven transaction, outsourcing transactions generally

involve delivery obligations that distinguish them from typical share
and asset acquisition transactions and make them more akin to
traditional long-term commercial arrangements. While the party
delivering the outsourcing services may acquire assets (including
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facilities, equipment, intangibles, rights under third party contracts

and employees) from the party receiving the outsourced services, the
asset transfer is often of secondary importance to the delivery
obligations assumed by the service provider.
On the other hand, when a party transfers the performance of a
business function to a service provider across multiple countries, the
issues involved in documenting the transaction have much in common
with the issues involved in structuring and documenting traditional
multi-jurisdictional share and asset acquisitions. For example, 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. The master
agreement may also provide a process for implementing the local
agreements. 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.
9.3.1.
Master Agreement
In the context of business process outsourcing agreements, the master

agreement typically will address the intended scope of the services to
be provided, any service transition and transformation obligations,
pricing and payment structures, term and termination procedures and
the licensing and ownership of any intellectual property rights
involved in the transaction. The master agreement generally will also
contain representations and warranties, indemnification obligations,
liability limitations and disclaimers, governance structures and dispute
resolution procedures that apply at the global and local levels of the
transaction. Accordingly, the parties to a cross-border outsourcing
transaction are faced with many of the same documentation issues that
arise in the cross-border acquisition context, including the choice of
governing law, the extensiveness of the representations and warranties
and the manner in which damages are calculated.
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The detailed business requirements of the outsourcing transaction are

generally addressed in schedules that are appended to the master
outsourcing agreement. These schedules typically include detailed
statements of work, service level agreements, transition plans, pricing
mechanisms, transferring asset inventories, security and
confidentiality commitments, employee transfer provisions and
disaster recovery and business continuity plans, all prepared in
accordance with local legal requirements. These schedules are
generally incorporated by reference as applicable through the terms of
the master agreement and local companion agreements. In addition,
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.
9.3.2.
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. 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. For example,
certain service towers may fall outside the scope of the services to be
provided in a given local jurisdiction, or the process used to perform a
particular service function may be unique to certain jurisdictions. In
the context of a human resource outsourcing transaction, for example,
payroll processing may not be outsourced in every 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. Local companion agreements allow the
parties to specifically address these types of divergent issues where
relevant to the particular local jurisdiction. In this regard, local
companion agreements in the outsourcing context are often
considerably more substantive than the local business transfer
agreements utilized in cross-border share and asset acquisitions.
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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, a local companion agreement can thus
facilitate the processing and recordation of local asset transfers.
From a legal perspective, 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, which allows the local entities to form binding contracts
that local courts are likely to respect and enforce. Properly structured,
these contracts may also help minimize the risk of local disputes by
clearly defining each entitys obligations at the local level through
local statements of work and service level agreements. 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 recipients
business.
9.3.3.
Employee Transfers
The global master agreement in the outsourcing context is typically

structured to provide a process, as opposed to a mandate, 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. 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. For example, the parties may implement the
outsourcing services on a gradual, jurisdiction-by-jurisdiction basis, as
the various local legal formalities are complied with. To this end, the
master agreement typically would include a transition plan that sets
out the schedule for implementing the local companion agreements.
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9.3.4.
Tax Minimization
The master/local agreement structure in the context of a business

process outsourcing transaction can also facilitate local invoicing,
which may help simplify overall transaction taxes and VAT
compliance expenses. For example, if the service providers local
entity delivers services to the customers 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. If instead, the service providers local entity is obligated
to invoice its parent entity (which, in turn, invoices the customers
parent entity for the locally provided services), neither parent entity
may have an opportunity to offset the related VAT expense against
any other VAT obligations. In that case, 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, and
may prompt the parties to re-think the structure of the transaction.
9.3.5.
Variations
While the master/local agreement structure has many benefits in the

outsourcing context, 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.
Alternative structures may include regional agreements with local
participation agreements, master agreements with localized statements
of work, collections of local business process outsourcing agreements
uniquely negotiated in each jurisdiction and countless other variations.
In any case, choosing an appropriate structure may have significant
short- 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.
* * *
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Assuming the deal proceeds as planned, the next major phase, after
any remaining diligence is conducted, is for the parties to close the
transaction. In the next section, we discuss some of the key elements
of a cross-border closing.
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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, transfer the contemplated business, assets or
shares in exchange for the agreed upon consideration and carry out
their other respective closing obligations. However, 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. In this section,
we discuss some of the important elements and processes of a crossborder closing. The underlying theme that emerges is that thorough
planning and the ability to anticipate issues are critical to a successful
closing.
10.1. 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. This is necessary for two main
reasons. First, 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. Second,
and perhaps more importantly, key personnel are often the directors or
officers of the entities involved in the closing (or are otherwise
authorized to represent the entities) and, as such, might be the only
people authorized to sign the transaction documents. Without their
signatures on key documents, the transaction cannot close.
Key personnel may be required to attend board meetings to approve
certain aspects of the transaction. 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, which can usually be circulated via email and signed in
counterparts). Where meetings are required by local law, board
members can typically attend in person or by telephone. Either way,
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holding a board meeting requires advance notice, coordination of

schedules and the execution of documents, which presents time
demands on the key personnel.
In many cross-border transactions, 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. There are two basic options in this case for securing
signatures from key personnel. The first option is to locate and contact
the key personnel in each jurisdiction, which can be a time-consuming
process given that most key personnel are extremely busy, traveling
on business and may have multiple offices and residential addresses.
Once located, it may be necessary to explain the transaction to the key
personnel, how their local entity is involved, what decisions they are
being asked to authorize and what documents they are being asked to
execute. Quite often, 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 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, authorizing individuals in the country
where the closing will take place to execute the documents on behalf
of the respective local entities. 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. This way, it will not be necessary to
spend time chasing people around the globe to get their signatures, as
there will almost certainly be more substantive deal issues requiring
attention before closing. That said, adopting authorizing resolutions
and/or obtaining powers of attorney also takes time, especially if local
laws require the powers of attorney to be legalized before a consulate.
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.
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If, on the other hand, the multinational corporation has appointed an

identical (or almost identical) slate of directors and officers to manage
its affiliates around the world, 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.
As key personnel, this could present an unexpected and unwelcome
demand on their time. In these cases, the key personnel should be
forewarned to set aside sufficient time to review and execute the
transaction documents. Often, their signatures will be obtained in
advance of the closing and the documents will be held in escrow
until the closing date. 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. This way, the closing is not dependent upon the availability of
a small number of individuals.
10.2. Notaries
A notary is another individual whose involvement is often critical in a
cross-border closing. This is so because in many civil law
jurisdictions, certain actions, including share transfers, asset transfers
and the transfer of title to real estate, can only be effected validly in
the presence of a notary who must make appropriate certifications or
registrations in accordance with local law.
The civil law notary functions as a government-appointed attorney,
acting in effect for both parties, to ensure that proper title has been
conveyed. The civil law notary plays a function far beyond that of a
notary public in the United States. For instance, in many civil law
countries, including Mexico and Germany, real property can only be
transferred by notarial deed, and it is up to the notary to ensure that
there are no material encumbrances on the property. By contrast, in
most common law jurisdictions, including the United States, 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. The notary will deal with all
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other formalities of transfer as well, including recording the deed of

transfer in accordance with local law.
It is almost always necessary to make an appointment with the notary
in advance. Depending on the notarys schedule, and whether the
parties or their advisors have a good history or existing relationship
with the notary, it may be possible to schedule an appointment
quickly. In any case, it is important to schedule the appointment well
in advance of the closing date.
A notarial fee is applicable to the transfer of shares, assets and real
estate in many jurisdictions. The fee varies from jurisdiction to
jurisdiction and it can be a flat rate or a percentage of the transaction
value, 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 notary will usually require the parties to deposit
the notarial fee into the notarys bank account before formalizing the
transaction. Therefore, it is important for the parties to determine who
will pay the notarial fee and to ensure that it will be wired to the
notarys bank account (and that the notary confirms receipt) before the
meeting with the notary. 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).
10.3. 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, for example,
when determining whether a consent is in fact necessary in a
particular situation.
One or more of the target subsidiaries may own assets on which there
are liens or other encumbrances securing outstanding debt. The
existence of liens or encumbrances may be uncovered through local
public records searches or investigation of the local subsidiarys
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documents. But, as discussed in Section 6.9 (DiligencePublic Record

Searches), the amount of publicly available information (and the cost
to obtain it) varies widely from jurisdiction to jurisdiction. Sellers will
often arrange for the outstanding debt to be repaid, and the
encumbrances released, before closing or simultaneously with closing.
If the repayment and release is to occur simultaneously with the
closing, 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.
In order to obtain the release in advance or simultaneously with
closing, it is critical to locate the creditor and obtain the creditors
cooperation in connection with the transaction. In the cross-border
setting, it would not be unusual for a creditor to be located in a
jurisdiction other than the jurisdiction in which the lien is registered,
or for the creditors whereabouts to be unknown. In addition, 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.
Furthermore, as in a typical domestic transaction, the parties should
ensure compliance with change of control or anti-assignment
provisions in material agreements, leases or licenses that otherwise
may be breached in connection with or as a result of the transaction.
The buyer may consider certain contracts to be material to the overall
valuation of the business. Accordingly, the seller should determine
early in the transaction whether any third party consents are required
to consummate the transaction. The possible outcomes vary not only
on a contract-by-contract basis, but also on a jurisdiction-byjurisdiction basis. One would typically need to confirm the local legal
requirements as to whether consent is, in fact, required to assign a
contract when the contract is silent, as well as the impact, if any, that
the transaction structure (e.g., merger, asset sale or stock sale) has on
the issue. Finally, the parties should be mindful of the fact that many
third parties may refuse to give consent without additional
consideration.
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10.4. Centralized vs. Local Closings

In a cross-border transaction where distinct local transactions will
occur (e.g., in the acquisition context where assets or shares of the
targets subsidiaries will be acquired directly at the local level),
thought should be given as to whether to hold a single, centralized
closing, or whether to hold several localized closings under the
purview of the master agreement.
In a centralized closing, all of the transaction documents are either
executed by the same people in the same city and are physically
located in organized files at the closing, or executed and sent in
advance to the location of the master closing, often via email (except
where actual originals are required or desired). Often, this is facilitated
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, most likely, attend the
actual closing themselves in case last-minute signatures are required).
For example, in a transaction involving asset transfers in multiple
jurisdictions around the world, 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. The authorized
representatives would then execute the asset transfer documents in
time for or at the closing. 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. 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.
In other cases, however, the parties may decide to have local closings
in some or all of the jurisdictions involved in the transaction. This
decision is usually driven by the local legal requirements for effecting
the transaction. For example, as discussed above, if real property is
being conveyed, 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. The notary
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must be presented with the parties original signatures on the version

of the notarial deed that is to be notarized. It would be insufficient in
that case for the parties to execute a purchase agreement offshore in
counterparts and exchange signatures by email, as this would not
qualify as a valid transfer of title to the real property under relevant
local law.
Where there are no particular local legal requirements for the transfer
of property, the parties may nevertheless decide to hold local closings
for other, non-legal reasons. For instance, depending upon the cultural
issues involved among the parties to the transaction, the parties may
decide that it will be smoother for purposes of the closing, and for
their relations post-closing, to hold a local closing in certain
jurisdictions. Or, in those cases where there are only a few local
jurisdictions (e.g., 2 or 3, as opposed to 30), it may be more costefficient to hold local closings in each jurisdiction and to coordinate
them remotely from the parent entities respective home offices.
10.5. 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 to the transaction agreement. As discussed in Section
9.2 (Documenting the TransactionCross-Border Acquisition
Agreements), the rules for scheduling assets vary from jurisdiction to
jurisdiction. If the assets are not scheduled in accordance with local
legal requirements, they may be deemed not to have validly
transferred from the seller to the buyer.
Regardless of the local legal requirements, 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.
Not only will the schedules need to be reviewed by representatives of
various disciplines (e.g., legal, tax, business and accounting), but very
often the schedules will need to be reviewed at several management
levels within the parties respective internal organizations depending
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upon where the financial responsibility for a particular country or

region lies within the organization (e.g., management at the local
country, regional and headquarters level). If local management is not
fully aware of the transaction, or is not fully supportive of the
transaction, the preparation of schedules might take on a low priority.
This can lead to delays that could potentially hold up the closing.
10.6. Time Differences: Escrow Closing

In most cross-border transactions, the jurisdictions involved will be
located in different time zones. These time differences can make it
difficult to hold actual local closings simultaneously with the closing
under the master agreement. The parties can often overcome this
problem through the use of a centralized or master closing for all
jurisdictions at the location for the closing under the master
agreement. In this case, the local documents can be executed at the
central closing or be executed and sent in advance to the location of
the master closing, often via email (except where actual originals are
required or desired), and copies would then be provided to the
individuals responsible for the closing. Alternatively, as discussed
above, representatives in the master jurisdiction may have been
granted a power of attorney to execute the local transaction
documents, in which case they will typically execute the local
documents themselves on or before the closing date. 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.
The procedure will differ where the parties hold local closings. One
approach is the use of informal escrows or pre-closings where the
local closing documents are exchanged in advance of the master
closing. In that event, 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.
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Alternatively, 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. 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. Those jurisdictions
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 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.
This process is similar to the one described in the previous paragraph;
however, holding actual closings at the time specifically contemplated
in the master agreement tends to convey a bit more importance to the
local jurisdictions, which may be necessary to the preservation of key
local relationships.
10.7. 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. Where the transaction consideration consists of
cash, payment will normally be made by wire transfer. The parent
buyer or one of its affiliates will often pay the total aggregate
consideration for all jurisdictions in one lump sum. In that case, the
master agreement would specify that the buyer is paying the entire
purchase price, on behalf of itself and its subsidiaries, to the parent
seller, for itself and on behalf of its subsidiaries. The local agreements
would refer to the agreed purchase price for the transaction effected in
their respective jurisdictions, and would indicate that the buyer has
paid, and the seller has received, that local purchase price. The buyer
and seller would then account internally (e.g., through intercompany
loans) for the payment of the purchase price.
If the transaction contemplates the local transfer of assets in individual
jurisdictions, payment of the purchase price may have to be made
locally between the local buyer and the local seller, often in the local
currency. To the extent that the local buyer does not already have
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local currency on hand to pay for the assets, the parent company of the
local buyer will likely have to make a loan or a capital contribution to
the local buyer. This could implicate the exchange control laws in
some jurisdictions, which require the registration of the loan or new
capital. This registration process can be a very document-intensive
and time-consuming process, potentially holding up the local closing
unless the issue is identified early in the transaction. Section 7.7
(Regulatory FrameworkExchange Control Approvals) discusses
exchange control issues in greater detail. In some cases, it may be
possible to arrange for back-to-back loans, where the parent company
opens a line of credit at its bank and the bank, in turn, lends money to
the local subsidiary. This may successfully avoid the pitfalls of local
exchange control laws.
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. The memorandum will typically specify the
payor, the payee, the payees bank account details and the amount of
the payment, among other things, and it serves as a useful project
management tool for ensuring that the funds get where they need to be
for the closing. The more individual payments there are, and the more
payors, payees, currencies and banks, the more valuable a flow of
funds memorandum will be to the success of the closing. The
memorandum will often be most useful to the parties respective
treasury groups, although the legal, accounting and business
representatives will also find the document extremely useful for
confirming the crucial steps involved in the payment of the transaction
consideration.
* * *
Once the transaction closes, 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. In the next
section, we highlight several of these issues.
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Section 11 "Day One" Readiness and Post-Closing Actions
Section 11
"Day One" Readiness and Post-Closing Actions
The closing of the transaction signifies a new beginning for the
parties. In an acquisition or divestiture the parties often part ways,
with the buyer in control of a new business or entity, save perhaps for
transitional arrangements for a defined period of time. In the joint
venture and strategic alliance context, the parties find themselves with
new roles and responsibilities with respect to operating the target
business. In the outsourcing context, the service provider and
customer maintain an important link as the service provider takes over
the provision of key services to the customer.
No matter the transaction structure, several important operational
actions often must occur virtually instantaneously upon closing or
very shortly after the transaction closes in order for the target business
to carry on or begin its business activities in the manner the parties
desire and in compliance with local laws. As such, appropriate
preparations should be made well in advance of closing in order to
ensure a smooth transition. Typically, this includes tasking a separate
working group that is representative of each functional area to take
charge of transition planning and "Day One" readiness. This
integration team will need to maximize the pre-closing integration
planning in order to maximize the value of the transaction. However,
as mentioned earlier, any such preparations will need to be made
within the parameters of antitrust considerations to prevent "gun
jumping" and exercising de facto operational control (see Section 7.3)
or the exchange of competitively sensitive information (see Section
7.4) by the parties prior to closing. A good rule of thumb is that while
planning towards integration may be permissible, the actual
implementation of those plans may not take place until after closing.
Nevertheless, there are many areas in which pre-closing preparations
can and should be made. In the acquisition context, the buyer is often
faced with a significant integration challenge and Baker &
McKenzies Post-Acquisition Integration Handbook addresses the key
issues in greater depth. While a full integration will naturally take
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Section 11 Post-Closing Actions
some time to effect, it can be advantageous in terms of both time and

expense to make near term decisions against a backdrop of longer
term integration plans. Central to this effort is to utilize the transaction
due diligence process and budget to gather information and establish
strategic priorities.
In this section, we discuss some of the common "Day One" readiness
and near term post-closing operational actions that should be
anticipated and planned for in advance of closing.
11.1. Licenses, Permits and Registrations

The types of licenses, permits and other registrations that may be
necessary to run the targets business largely depends on the
requirements of the particular industries and jurisdictions in which the
target operates. In the context of an asset deal, the buyer will often
have to apply for the assignment of the sellers licenses, permits or
registrations (assuming the seller does not require them to operate any
retained business) or make fresh applications for new registrations
post-closing (to the extent this was not practically or legally possible
prior to closing). It is important for the buyer to establish a plan for
transferring or applying for new licenses, permits or registrations prior
to closing. Otherwise, the buyer may be left owning a business that it
is not licensed to operate. In a share deal, by contrast, the licenses,
permits and registrations generally remain with the target business
since only the targets ownership changes. Nevertheless, a change of
control may sometimes trigger a notification or other requirement, and
therefore should be confirmed on a case by case basis.
On a more general level, in order to maintain a local entitys good
standing in its jurisdiction of organization, in addition to the requisite
tax returns, many countries also require the filing of annual reports or
annual accounts with the local companies house (or, in the case of
civil law countries, the Commercial Registry). A failure to file (or late
filing) may result in financial penalties, limitation of corporate
services available to the company, or even personal liability for
directors and officers. From a practical perspective, being out of
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compliance may mean that the commercial registry may refuse to

accept and register the documentation changing the directors and
officers from seller nominees to buyer nominees following closing
until the overdue accounts or reports have been lodged, thus limiting
the buyer's effective control of the affected entity. To avoid these
corporate housekeeping headaches, if relative negotiating strength
permits, the buyer may wish to utilize the diligence process to ask
seller to produce documentary evidence of the good standing of each
entity within the target group. Then, to the extent that any remediation
is necessary, the buyer can require that seller do so as a condition to
closing.
11.2. Bank Accounts

If bank accounts are acquired as part of the transaction, the buyer
should consider whether existing signatories should be removed and
replaced. 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 of its employees can act as bank account signatories.
In addition, the buyer will need to determine the particular
requirements that the local jurisdiction may impose on bank account
signatories (e.g., residency requirements or that signatories be
executive-level employees). If the buyer has formed a local legal
entity to effect the transaction in a particular local jurisdiction (i.e., in
an asset deal), 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. Where this is not the case, the buyer could wait
until after the closing to set up a local bank account. If the transaction
represents the buyers first entry into a particular local jurisdiction, the
local bank might be required to perform so-called know your client
due diligence on the buyer pursuant to local anti-money-laundering
laws. Other times, the bank may require a letter of recommendation
from the buyers existing corporate banker. Bankers due diligence
often takes time and can be expedited by leveraging buyers preexisting relationship with its bankers. Accordingly, the buyer should
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determine the types of documents that each bank will require as soon
as possible.
11.3. Payroll
Depending on the buyers internal capabilities, payroll may be
handled within the buyers organization or it may be outsourced.
Often, 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. 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.
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), all
transferred employees can be paid and all necessary deductions made
and remitted to appropriate government or private organizations.
11.4. Auditor, Director and Officer Changes

In the case of a share purchase, 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 buyer is usually interested in
appointing its own individuals to these posts. The resignation of old
directors and officers and the appointment of new ones usually can be
achieved simultaneously on, and as of, the closing date. In particular,
under the laws of most jurisdictions, it is sufficient for the purpose of
the closing for the outgoing directors and officers to tender their
resignation letters at the closing. Furthermore, it is typical for these
resignation letters to be one of the conditions to closing.
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. These resolutions are also usually among
the closing documents that are executed and delivered at closing.
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Many local jurisdictions require other formalities to change directors

and officers, such as submitting government forms and registering the
change with the local commercial registry. A number of jurisdictions
require a list of other entities in which the newly appointed director
already holds directorships. Although these additional formalities can
often be handled shortly after closing, the preparation of the necessary
documentation often becomes a time-consuming exercise. Therefore,
to the extent that such information can be gathered ahead of closing,
the effective window will be shortened.
It is also important to note that some countries (e.g., Australia, Japan,
Sweden and Switzerland) have nationality and/or residency
requirements for directors and officers of local companies. 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. The
obvious solution for an entity with an operational presence is to
appoint one or more of the local managers to fulfill this requirement.
On the other hand, if the subsidiary in question does not employ a
qualified individual to serve as a director or officer (i.e., sales staff are
present locally but operational staff are not), it is sometimes possible
to retain a third party service provider to act in this capacity.
11.5. Operational Requirements

Some jurisdictions (e.g., Italy, Spain, Netherlands and Venezuela)
impose a certain minimum capitalization for companies organized
under their laws. In addition to coming into play at the time the
company is formed, these rules also require that companies maintain a
certain minimum debt-to-equity ratio as a condition of their continued
existence and good standing.
On a more day-to-day level, 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, and what limitations
should be imposed on that authority. The diligence process should
reveal to whom local operational powers of attorney have been
granted, and an assessment should be made as to whether such
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individuals should continue in such capacity, or be replaced by buyer

representatives. To that end, the requirements for granting a power of
attorney or similar authority to non-directors and non-officers differ
from jurisdiction to jurisdiction. As above, if these determinations can
be made prior to closing, and documents drafted, they can then be
implemented relatively quickly following 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, including with respect to any real estate. Such insurance
should be effective immediately upon closing, so that there are no
gaps in coverage. Likewise, the buyer should verify that all new
directors and officers will be protected under existing policies.
11.6. Fiscal Year and Other Corporate Changes

The buyer often uses the closing as an opportunity to change the
corporate name, fiscal year and domicile of the acquired entity. In
some jurisdictions, these changes can be included in the corporate
resolutions discussed above regarding director, officer and auditor
changes. In other jurisdictions, such changes require the amendment
of the Articles of Association by notarial deeds. Also, sometimes
fiscal year changes require the approval by the respective tax
authorities that may be granted routinely or only if the buyer meets
certain tests. The buyer should check with local counsel well in
advance of the closing to explore whether these changes can be
effected as of closing or will need to be handled sometime after
closing.
11.7. Signage and Letterhead

Many companies, particularly those for whom the transaction
represents the commencement of international operations, overlook
the fact that local law in many jurisdictions dictates that certain
information be included on company signage, letterhead, fax cover
sheets, business cards and envelopes. For example, Singapore law
requires companies to include (in Romanized letters) their full
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registered name, address, phone and fax numbers and registration

number on all letterhead and invoices. In addition, the full registered
name must be prominently displayed (in Romanized letters) on all
premises signage. The consequences of failing to comply with these
requirements range from warnings or minimal financial fines to
criminal liability (e.g., Australia). Planning for the roll out of new
names, logos, etc., should be carefully coordinated with intellectual
property counsel in addition to the buyers operations and marketing
teams.
11.8. Ongoing Compliance

It is important to carefully review the compliance policies, including
Corporate Social Responsibility (CSR) commitments, in order to
ensure that the newly acquired or merged entity can, in fact, deliver on
regulatory compliance as well as its promised CSR standards
immediately upon closing. Failure to do so can leave the newly
combined company with a potentially significant exposure, especially
if the transaction involves high risk jurisdictions (see Section 7.8). By
contrast, a well managed transition can substantially mitigate this
compliance risk. There are several key steps: first, the diligence
process can be leveraged in order to determine top level areas of
concern for ongoing business risk and to evaluate the status of existing
policies and process. Second, with this information in hand, the
legal/compliance/audit team can make strategic decisions regarding
harmonized policy and key compliance priorities. Finally, advanced
planning will help to prepare for a prompt roll out and implementation
of company wide policies, including coordinated communication of
changes to employees and stakeholders.
The buyer often spends considerable time and effort, including
obtaining advice from legal counsel and tax advisors, to ensure that
appropriate legal entities are established in relevant jurisdictions to
consummate the transaction. Following closing, buyers often become
occupied with transition and integration issues, as well as tending to
day-to-day operational matters, and they often overlook the corporate
and tax formalities necessary to keep the newly formed entity in
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compliance with local law. Failures in this regard, however, can have
monetary and, in extreme cases, criminal ramifications.
11.9. Supply Chain Rationalization

As companies shift more and more responsibility in their supply chain
to third parties, the risk that that supply chain breaks down increases
resulting in disruptions that can significantly damage a company's
business operations and financial performance. This is all the more
complicated when one inherits a parallel supply chain as the result of
an acquisition. It is prudent to undertake a careful examination of the
supply chains prior to closing, and then to ensure that the
rationalization of the supply chains, to the extent necessary, is
prioritized among the first post-closing integration activities. As noted
above, because of sensitivity to "gun jumping" issues, no actual
changes can be undertaken or negotiated with third parties prior to
closing, but the diligence process can nevertheless be harnessed to
identify and prioritize areas of particular concern.
Specifically, as mentioned above, ensuring compliance with laws
throughout the organization, and including its third party suppliers,
distributors, subcontractors and agents is a key element in protecting
the value of the business. Proactive companies will use the diligence
process to identify which third party contracts may need to be updated
in order to bring them in line with current international and local laws,
or company policies. To keep costs down and to better manage the
process, the review can be based on a risk assessment in which the
existing contracts are rated on a scale of one to five, according to how
old they are (or how soon they are due for renewal), what type of
products they involve, and what regions they involve. Those
agreements in the highest risk category can then be reviewed and
renegotiated as a matter of first priority.
Another area of potential concern that should be examined prior to
closing is in relation to exclusivity arrangements with respect to
suppliers or distributors. For example, the target company may have
agreed to purchase a component or ingredient exclusively from a
particular supplier, or to sell a particular product within a defined
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territory exclusively through a distributor. Depending on how broadly

this exclusivity obligation is worded, buyer's own exclusivity
obligations to its suppliers or distributors may be in conflict with this
provision, or the integration plans may be constrained by such
obligations. Accordingly, to the extent that these constraints have the
potential to have a material impact on the supply chain economics,
care should be taken during integration planning to examine contracts
for such potential pitfalls and to prioritize them for renegotiation
promptly following closing.
* * *
In a perfect world, once the transaction closes and the on-going
compliance issues have been considered, the parties would go forward
peacefully and without controversy. Unfortunately, disputes and
controversies sometimes do arise. In the next section, we discuss some
of the key factors to consider early on in the deal process to establish a
proper mechanism for resolving disputes.
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Section 12 Dispute Resolution
Section 12
Dispute Resolution
Once the deal closes, there is often a tendency for the parties to
believe that future disputes are unlikely to arise between them or, if
they do occur, to believe that they can simply work them out through
the course of good business. As a result, the parties often give the
dispute resolution clauses in many transaction documents little or no
consideration. Yet disputes can and do arise following signing or
closing and a significant one could wipe out many of the transactions
intended benefits. This is not to suggest that the dispute resolution
clause must become the focus of contractual negotiations.
Nevertheless, parties who consider how best to resolve potential
disputes in the context of the overall deal they strike, either as an extra
benefit or an additional risk, 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. This section discusses
some of the key considerations that will inevitably cause one dispute
resolution mechanism and forum to be a more strategic option than
another in the cross-border setting.
12.1. Key Initial Questions

As in the domestic context, 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. To that end, 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.
The answers to these questions will differ with each transaction and,
as a result, so will the dispute resolution mechanism:
Which party is more likely to be the plaintiff and which will

be the defendant?
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What types of disputes are likely to arise and are they likely to
be about non-payment, performance or something more
complicated?
Who will be holding the money or assets and in what

jurisdiction?
Is there any key intellectual property involved in the

transaction and, if so, 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, 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?
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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.
12.2. General Options for Dispute Resolution Clauses

In general, dispute resolution clauses take one of only a few forms.
However, 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. Like so many terms in a deal, if
the dispute resolution provision is written to address one partys
concerns, it will typically be adverse to the other party.
The first option is simply not to provide for any dispute resolution
clause in the transaction agreement. This approach results in the most
uncertainty, leaving either party free to file a lawsuit in any court it
believes will exercise jurisdiction. However, 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.
For those parties opting to include a dispute resolution clause in the
transaction agreement, the choice generally comes down to litigation
or arbitration, with various levels of negotiation or mediation often
agreed upon as a preliminary step. The forum for the arbitration or
litigation usually will be the home country (or state) of either party or
a third, neutral country (i.e., home, away or neutral). Litigation in a
neutral court is a relatively new concept and is only available in a few
jurisdictions, including the United States and England. In the United
States, for example, several states, including New York and Illinois,
have passed statutes expressly permitting the selection of their courts
for cross-border disputes even if there is no other contact with the
forum. Typically, that states law must be the governing law for the
underlying agreement and a minimum dollar threshold must be met.
To date, 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.
Baker & McKenzie
155

Litigation remains the most common dispute resolution mechanism, in

part because unless the parties agree to another approach, they will be
forced to litigate their disputes by default. When the parties in fact
prefer litigation, the thoughtful drafting of a forum selection clause
can provide significant benefits, including the avoidance of expensive
and protracted fights over service of process, personal jurisdiction,
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, although most countries also require some level of contact
with the selected forum.
As mentioned above, many parties opt to require various levels of
negotiation or mediation prior to resorting to binding arbitration or
litigation. These steps can save time and money if both parties are
motivated to fully participate and thus tend to be more common in
long-term relationships like joint ventures or outsourcing transactions,
which are presumed at the outset to be more cooperative in nature.
12.3. Litigation vs. Arbitration

Litigation and arbitration each offer definable benefits and risks.
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.
The fairness and quality of courts can vary significantly depending on
the country or even within a particular country. Characteristics of
litigation in most jurisdictions generally include:
the right to an appeal;
potentially lengthy delays;
relatively low costs to initiate the process, but often

significant long-term costs to see it through to conclusion;
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the language of the proceedings (and pleadings) being the

language of the local jurisdiction;
various procedural formalities being required to initiate the

process including service of process and jurisdiction;
established procedures for adding third parties;
the process being a matter of public record and thus not

confidential; and
potential difficulties enforcing judgments abroad.
In the United States, there are certain additional characteristics of

litigation that are largely unique, including discovery (which is
generally unavailable in other countries) and court rulings creating
binding precedent (which is generally not the case in other countries).
The characteristics of a typical international arbitration, on the other
hand, include:
the lack of the right to an appeal;
a flexible process that may be tailored by the parties to best

suit their needs (including as to the language of the
arbitration);
a process that can be significantly faster than litigation;
greater costs to initiate the process compared to litigation, but

often lower costs to see it through to conclusion;
fewer technical procedural requirements to initiate the process

(e.g., no service of process or jurisdiction requirements);
the ability to select arbitrators with specific qualifications,

which may result in a more appropriate or practical resolution;
Baker & McKenzie
157

the ability to use the same counsel in almost every forum;
a generally confidential process;
discovery generally not being available unless the parties

specifically agree to it;
an often easier enforce of awards abroad than court

judgments; and
potential difficulties in obtaining emergency relief on an

urgent basis.
Some of the drawbacks of litigation can be addressed in the dispute

resolution clause itself. For example, the parties can consent expressly
to jurisdiction in a particular court and an agent for purposes of
accepting service of process. The parties can also empower the court
to award attorneys fees. Unfortunately, no matter how carefully the
parties draft the clause, nothing in the agreement can force a court to
act more quickly or enable a judgment to be more enforceable in
another country.
Arbitration, on the other hand, is extremely flexible in that the parties
are generally free to craft almost any process they want, including one
that balances the parties competing concerns as to how disputes
should be resolved based on experience in their home countries. As
such, a cross-border 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.
Some of the key elements to consider when drafting the dispute
resolution clause in a cross-border transaction are discussed below.
158
Baker & McKenzie

12.4. 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, some countries
will not enforce the judgments of foreign courts, including those of the
United States. Several European conventions exist, including the
Brussels and Lugano Conventions, regarding the recognition of court
judgments within and among various signatory countries; however,
the United States is not a party to any convention or any other treaty
providing for the enforcement of judgments rendered by foreign
courts. Nevertheless, 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. Accordingly, a US judgment is less
likely to be enforced abroad, while US courts are often more inclined
to enforce a judgment rendered by a foreign court.
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), which more than 130 countries have
signed, including the United States, has made arbitral awards
significantly easier to enforce across international borders. Thus,
unless enforcement will occur in the same jurisdiction in which the
dispute is decided, 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.
With this understanding, once a party determines that it is more likely
to be the plaintiff in significant disputes, 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. Conversely, 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. This
choice should be balanced, however, by a careful consideration of the
Baker & McKenzie
159

actual rules in the particular jurisdiction where enforcement will likely

need to occur. The most obvious location for enforcement is the place
of business of the other party; however, enforcement can be sought
anywhere that the judgment debtor has assets.
12.5. Delays
Just as a likely plaintiff will generally be more concerned about
enforcement, the likely plaintiff will also generally be more interested
in avoiding delays in resolving disputes. Delays can affect several
phases of the dispute resolution process, including the length of time
required for a court or arbitrator to render a judgment or award, hear
and decide appeals and rule on matters of 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.
There are, however, ways to reduce the delays associated with
litigation and arbitration. For example, in litigation under most
judicial systems throughout the world, proper service of process and
personal jurisdiction over the parties are unavoidable prerequisites to a
courts ability to hear a dispute. Without an express clause in the
agreement concerning these issues, 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. The
delays and risks associated with these very 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 partys 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. For example, the parties
can choose the language to be used in the arbitration proceedings,
whether the arbitration should proceed under the purview of an
administrative body, whether to appoint arbitrators with specific
160
Baker & McKenzie

industry experience, what procedural rules will apply to the conduct of

the arbitration, how much discovery is permissible, how quickly an
award must be rendered and what damages are available, all within the
arbitration clause contained in the transaction agreement.
Whether opting for arbitration or litigation, the more the parties are
able to agree on the procedural aspects during the relatively
cooperative period in which they are negotiating the transaction
agreements, the more time and money they could save in the future
should a dispute arise and the relationship turn contentious. At that
point, with the haggling over procedural aspects behind them, the
parties will be able to focus their efforts on resolving the underlying
dispute.
12.6. Discovery
Discovery is a concept that is largely unique to the US legal system.
Pre-trial depositions and very expansive document productions, while
common in the United States, are unavailable in almost every other
legal system in the world. US discovery is typically one of the most
intrusive, prolonged and expensive phases of a lawsuit, 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.g., 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).
While US courts provide an obvious forum in the event pre-trial
discovery is necessary, the parties are generally free to agree on a
procedure for discovery in the context of arbitration. If the arbitration
clause is silent as to discovery, the availability of discovery will
largely depend on the arbitrators willingness to allow it, which will
be greatly influenced by the arbitrators personal experience.
Generally, US arbitrators tend to permit discovery and non-US
arbitrators do not. Regardless of the arbitrators background or
inclination, however, if the parties specifically provide for discovery
Baker & McKenzie
161

in the applicable dispute resolution clause, the arbitrators must allow

it.
12.7. Costs
Litigation is often thought to be more expensive than arbitration, but
outside the United States where legal systems do not permit discovery
or jury trials, the cost to litigate can be much more in line with the cost
to arbitrate. Even if the overall legal expenses are less, no one
selecting arbitration should be confused into thinking that arbitration
will be cheap. International arbitration has become a highly advanced
and sophisticated dispute resolution mechanism and the arbitrators, or
one sides counsel, can independently cause fees to increase
significantly if, for example, discovery is permitted as part of the
arbitration. Moreover, certain arbitration organizations charge
significant up-front fees and many arbitrators require significant
advance payments, which can make it very costly just to begin the
dispute resolution process. While these up-front costs can be a
drawback, 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.
When evaluating the relative costs of the dispute resolution
mechanisms, a party to a cross-border transaction should also consider
whether the default rule of the applicable forum is that the loser pays
the winners legal fees or whether each side pays its own fees. In the
arbitration context, the default rules of most international arbitration
associations specifically empower the arbitrators to award arbitration
expenses, including attorneys fees, as part of the final award. By
contrast, 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. Similarly, in the litigation
context, the general default rule in the United States is that the parties
pay their own legal fees, whereas in Europe the general default rule is
that the loser pays.
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Baker & McKenzie

Accordingly, the default rules can be a significant deterrent to a

partys ability to bring a claim. Depending on which side of the
dispute a party is more likely to find itself, 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.
12.8. Confidentiality
As in the domestic context, another significant concern for many
parties to cross-border transactions is preserving confidentiality, both
with respect to the dispute itself and with respect to the components of
the underlying transaction. 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. Litigation in the United States, Europe and Asia is
a public process, however, so these clauses can lose much if not all of
their intended effect during the course of litigation. While the parties
might be able to preserve the confidentiality of some documents
produced during the discovery process, most of the documents will
become publicly available information. The trial itself and the
judgment will also typically become a matter of public record.
Arbitration, on the other hand, is generally a private process and the
parties are typically free to agree among themselves to keep
documents, the proceedings and the award confidential. In addition,
the laws governing the arbitration process in many countries,
including England, as well as the rules of many arbitration
organizations, actually require arbitration hearings to be kept private
unless the parties agree otherwise.
While several laws and arbitration rules require the institution and the
individual arbitrators to maintain confidentiality, very few of these
rules provide for similar restrictions on disclosure by the parties to the
arbitration. Accordingly, if the parties desire, they could expressly
tailor their arbitration clause to provide for the confidentiality of the
Baker & McKenzie
163

arbitration proceeding and everything disclosed in connection with it.

In evaluating whether to expressly provide for this type of
confidentiality, the parties should also consider the powerful effect of
negative publicity (including the threat of it) as that can sometimes
weigh in favor of avoiding confidentiality.
12.9. Interim Relief

As in domestic transactions, 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. This interim
relief may take the form of a temporary restraining order or a
preliminary injunction and it may be necessary to protect a partys
intellectual property or to preserve assets, evidence or other rights that
are essential to a partys business. 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. Even so, 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.
In arbitration, on the other hand, the matter is significantly more
complicated. While many arbitration organizations are starting to
adopt rules for granting interim relief, the parties must agree to special
procedures and those procedures are not very tested yet. Further, there
is a delay associated with the selection of the arbitrators. If there is no
arbitral tribunal in place at the time a party requires interim relief, that
party may have little other recourse than to head to the courts to seek
interim relief, particularly if an arbitration on the merits will be
practically meaningless absent interim protection.
Certain national arbitration laws as well as the arbitration rules of
certain organizations, including the International Centre for Dispute
Resolution and the International Chamber of Commerce, 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. If the applicable arbitration rules do not provide this right,
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Baker & McKenzie

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 consideration is even
more critical in the arbitration setting given that the orders of an
arbitral tribunal granting interim relief may be difficult to enforce
abroad.
12.10. Damages
Another important reason why parties select arbitration over litigation,
especially non-US parties, is to avoid the possibility of excessive
damages. That said, punitive damages, as well as other undesirable or
speculative damages can be specifically excluded in most dispute
resolution clauses, whether litigation or arbitration is the chosen
mechanism. While punitive damages are against the public policy of
most non-US jurisdictions, some US jurisdictions, including the state
of New York, and some arbitral rules, including those of the
International Centre for Dispute Resolution, prohibit arbitrators from
awarding these types of damages as well.
In order to ensure that the arbitrators adhere to any contractual
limitations on damages, 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 arbitrators authority should
give the parties stronger grounds for vacating any award that is
inconsistent with the limitations on liability provisions.
12.11. Choice of Law

While choice of law provisions are not always housed in the dispute
resolution clause, in practice they are frequently negotiated in
connection with the forum selection provision of the dispute
resolution clause. Often, the parties will trade these two terms, with
one party settling for the forum of its choice and the other settling for
its desired choice of law. In the context of arbitration, however, the
Baker & McKenzie
165

forum of the arbitration is often much more valuable than the choice
of law. 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. True, procedural laws and the
quality of the courts can vary significantly from country to country.
However, the selected forum for arbitration will have significant
impact on the arbitrator pool, the procedures to be applied to the
arbitration itself, how much the local courts can interfere, and the
grounds for vacating or appealing an award.
12.12. Multiple Parties

Disputes involving multiple parties are common. A supplier, a
contractor and the owner might have related disputes, or the parent
and local entities could be involved in a dispute with a third party.
Most jurisdictions have procedural rules that govern the involvement
of multiple parties in the litigation context. However, since arbitration
is governed by contract, it is not as easy to bring in a third party,
especially when that third party is not a signatory to the arbitration
agreement. 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. While some courts may order consolidation
when the disputes are related, more often than not, the party will have
to arbitrate against A and B separately. Not only could this lead to
additional expenses, but it also raises the risk of inconsistent awards.
The solution to this dilemma is to ensure consistency among disputes
provisions and to expressly provide for consolidation of arbitrations.
When a cross-border transaction involves multiple parties or multiple
agreements, care should be taken to include the same disputes clause
in each of the agreements. The following is an example of the type of
language that is sometimes included to effectuate consolidation when
necessary:
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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. Consolidation will be by an order of
the arbitrator in any of the pending cases or, if the
arbitrator fails to make such an order, the parties may
apply to any court of competent jurisdiction for such
an order.
Where consolidated arbitration proceedings are a possibility, 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. This precaution will
prevent the inevitable conflict created when one or more parties feels
left out of the arbitrator selection process.
Again, dispute resolution clauses very rarely need to become a central
focus in cross-border negotiations, and they seldom need to become
complicated or long. However, careful attention to the dispute
resolution clause at the drafting and negotiation stage, particularly
with respect to the issues of cost, delay and the potential impact on the
intended allocation of risk between the parties, could prove
strategically advantageous if and when a dispute does arise.
Baker & McKenzie
167
APPENDIX 2.1
ACQUISITIONS FLOWCHART
Cross-Border (Multi-Jurisdictional)
Mixed (Asset & Share) Acquisition Buyer
Process Flow Overview
Initiate
Transaction
Draft
Purchase
and Ancillary
Agreements
Confidentiality
Agreement
Draft
Disclosure
Schedules
Prepare for
Negotiations
Prepare for
Acquisition
Review
Letter of
Intent
Finalize
Disclosure
Schedules
Acquisition
Review
Sign
Definitive
Agreements
Analyze and
Research
Further
Regulatory
Filings
Complete
Implementing
Documents
Analysis and
Certain
Filings
Finalize and
Close the
Transaction
Key:
Process Step
Decision
Document
Predefined
Process
End
Terminate
Transaction
B&M Coordinating
Office
B&M Local Offices &
Correspondents
Gather Information
about Transaction
Answer Affects:
- Conflict Check and possible Waiver
- Confidentiality Agreement
- Letter of Intent
Client Contacts
B & M about a
Transaction
Conduct Conflict
Check & issue
Conflict Alert
Information to Gather:
- Name of Seller, Target, Buyer and other parties
or Advisors (e.g., investment bankers, lenders)
- Reason for Deal
- General Business Information
If Conflict,
- Jurisdictions in which
Send Conflict Waiver Letter
Client located
to Client and Seller
Target located
- Scope of Engagement
- Structure
- Timeline
Provide
Information about
Transaction
Conflict Waiver
Letter
Seller
Seller's Counsel
Client
Determine who the

Client is and who
the Seller and
Target are
Conflict Waiver
Letter
Establish
Ethical Screen
Yes
Conflict Waiver
Signed?
No
Terminate
Transaction
Prepare
Preliminary
Working Group
List
Confidentiality Agreement
Review
Confidentiality
Agreement
Preliminary
Working Group
List
Negotiate
If Necessary
Sign
Confidentiality
Agreement
OR
Seller's Counsel
Client
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Initiate Transaction
Terminate
Transaction
Seller
OR
Prepare and Send

Confidentiality
Agreement
Sign
Confidentiality
Agreement
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Letter of Intent
No
Letter of Intent
Required?
Yes
Collect information
on Target & Draft
Letter of Intent
Draft Letter of
Intent
Letter of Intent Information:

- Names and Jurisdiction of
Target, Seller, and Buyer
- Shareholders/Capital Structure
- Transaction Structure
- Purchase Price/ Consideration
- Payment of Purchase
Price/Consideration
- Conditions to Closing
- Key Employees
- Timeline/Duration
Send Letter of
Intent
Send Letter of
Intent for
Signature
Destroy or Return
Information &
Documents
Destroy or Return
Information &
Documents
Review
& Revise
Client
Negotiate
Provide
information on
Target and Terms
for Draft Letter of
Intent
Draft Letter of
Intent
Sign Letter of
Intent
Destroy or Return
Information &
Documents
Seller's Counsel
OR
Review
Letter of Intent
Terminate
Transaction
Seller
OR
Sign Letter of
Intent
Request
Destruction or
Return of
Information &
Documents
B&M Coordinating
Office
Prepare for Acquisition Review
Finalize Working
Group List
Send Working
Group List
B&M Local Offices &

Correspondents
Coordinate
Prepare Working
Group List
Working Group
List
Prepare
Transaction
Description and
Relevant Matrices
Prepare and Send

Instructions to
Local Legal
Advisors
Corporate Organization
Chart
Employment/Labor Matrix
Group Summary Matrix
Real Property Matrix
Regulatory Matrix
Instructions to
Local Legal
Advisors
Acquisition Review
Acquisition
Review Buyer
Analyze and Research
Identify & Analyze

Legal, Tax and
Business
Concerns
Determine
Acquisition
Vehicle(s)
Coordinate
& Conduct
Coordinate
& Conduct
Acquisition
Review Buyer
Determine
Acquisition
Vehicle(s)
Coordinate
Client
Prepare Working
Group List
Seller's Counsel
Coordinate
Prepare Working
Group List
Working Group
List
Working Group
List
Seller
Coordinate
Prepare Working
Group List
Working Group
List
Baker & McKenzie Deal Team:

- Antitrust/Competition
- Banking
- Benefits, Employment & Labor
- Corporate/Compliance
- Environmental
- Intellectual Property, IT
- Litigation
- Real Estate
- Tax
- Other Practice Groups and offices
Client Deal Team:
- Business Development
- Environmental/Facilities
- Finance
- Human Resources &
Employee Benefits
- Investment Bank
- Legal Department
- Operations
- Real Estate
- Regulatory
- Risk Management
- Tax/Accounting
- Others
Client
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Analysis and Certain Filings

No
Gather Information
for Regulatory and
Labor Analysis
Coordinate
Gather Information
for Regulatory and
Labor Analysis
Identify and
Analyze
Regulatory and
Labor Issues
Gather Relevant Information:

Coordinate
- Worldwide Sales
- Destination Sales
- Employee Headcount/Labor
Data
Identify and
- Gross Assets (book) Value
Analyze
- Market Shares
Regulatory and
- Compliance Information
Labor Issues
- Corporate Structure
- Change of Control
- Plant/Warehouse Locations
- Investment or other
Government Incentive Grants Coordinate
- Industry Specific Regulations
Identify and
Analyze
Regulatory and
Labor Issues
Any
Regulatory Filing
Necessary?
Identified Jurisdictions for

Transaction
OR
Pick-List of all Countries
Yes
Yes
Determine need for any

POA for Regulatory or
other purposes. Prepare &
arrange for Signature,
Notarization, Localization
and/or Apostille
Coordinate
Regulatory
Filings
Coordinate
Plan &
Organize
Determine need for any

POA for Regulatory or
other purposes. Prepare &
arrange for Signature,
and/or Apostille
Prepare & Make

Regulatory
Filings
Coordinate
File Notification
at this time?
Sign POA and arrange for

and/or Apostille, as
appropriate
Prepare & Make

Regulatory
Filings
No
Seller
Seller's Counsel
Coordinate
Gather Information
for Regulatory and
Labor Analysis
Coordinate
Identify and
Analyze
Regulatory and
Labor Issues
Prepare & Make

Regulatory
Filings
Coordinate
Coordinate
Gather Information
for Regulatory and
Labor Analysis
Make
Regulatory
Filings
Seller
Seller's Counsel
Client
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Draft Purchase and Ancillary Agreements
Prepare
Document List
Draft Purchase
and Ancillary
Agreements
Master Documents:
- Purchase Agreement
- Assignment and Assumption
Agreement
- Business Transfer Agreement Form
- Escrow Agreement (Indemnification)
- Intellectual Property Transfer
Documents
- Release
- Employee Benefits Allocation Agreement
- Employment Agreement
- Consulting Agreement
- Noncompetition Agreement
- Transitional Services Agreement
- Transitional Intellectual Property License
- Banking
- Environmental
- Litigation
- Real Estate
- Tax
- Other Practice Groups and offices
Client Deal Team:
- Finance
- Human Resources &
Employee Benefits
- Investment Bank
- Legal Department
- Operations
- Real Estate
- Regulatory
- Risk Management
- Tax/Accounting
- Others
Prepare for Negotiations
Purchase and
Ancillary
Agreements
Purchase and
Ancillary
Agreements
Review
&
Revise
Review & Prepare

for Negotiations
Purchase and
Ancillary
Agreements
Purchase and
Ancillary
Agreements
Receive
Purchase and
Ancillary
Agreements
Review
Purchase and
Ancillary
Agreements
Review
&
Revise
Purchase and
Ancillary
Agreements
Client
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Draft Disclosure Schedules
Purchase and
Ancillary
Agreements
Receive
Draft Seller
Disclosure
Schedules
Prepare Draft
Buyer's
Disclosure
Schedules
Destroy or Return
Acquisition Review
Documents
Negotiate,
Revise & Finalize
Yes
Purchase and
Ancillary
Agreements
Negotiations
Successful?
Destroy or Return
Acquisition Review
Documents
No
Terminate
Transaction
Destroy or Return
Acquisition Review
Documents
Seller's Counsel
Purchase and
Ancillary
Agreements
Negotiate,
Revise & Finalize
Purchase and
Ancillary
Agreements
Prepare Final
Buyer's
Disclosure
Schedules
Compare
Documents
- Draft Disclosure Schedules

- Acquisition Review
- Seller's Representations in
Purchase Agreement
Compare
Documents
Coordinate
Review,
Revise
&
Finalize
Buyer's and
Seller's
Disclosure
Schedules
Review,
Revise
&
Finalize
Negotiate,
Revise & Finalize
Seller
Finalize Disclosure Schedules
Prepare Seller
Disclosure
Schedules
Receive Draft
Buyer's
Disclosure
Schedules
Request
Destruction or
Return of
Acquisition Review
Documents
Prepare Final
Seller's Disclosure
Schedules
Seller
Further Regulatory Filings

No
Any Further
Regulatory ("PreMerger") Filing or
Labor Notification
Required at this
Time?
Definitive
Purchase and
Ancillary
Agreements
Yes

Transaction
OR
- Shareholders
- Directors
- Other 3rd Parties
Definitive
Purchase and
Ancillary
Agreements
Under Negotiated
Structure / Obtain
Missing Information
Obtain Approvals
Required for
Signing
Seller's Counsel
Client
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Sign Definitive Agreement
Definitive
Purchase and
Ancillary
Agreements
Obtain Approvals
Required for
Signing
Complete Implementing
Documents
Identify and
Analyze
Regulatory and
Labor Notification
Issues
Complete & Make

Regulatory
Filings and Labor
Notifications
Coordinate
Coordinate
Identify and
Analyze
Regulatory and
Labor Notification
Issues
Complete & Make

Regulatory
Filings and Labor
Notifications
Coordinate
Coordinate
Identify and
Analyze
Regulatory and
Labor Notification
Issues
Complete & Make

Regulatory
Filings and Labor
Notifications
Identify and
Analyze
Regulatory and
Labor Notification
Issues
Coordinate
Regulatory
Filings and Labor
Notifications with
Buyer's Counsel
Coordinate
Coordinate
Identify and
Analyze
Regulatory and
Labor Notification
Issues
Complete & Make

Regulatory
Filings and Labor
Notifications
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Finalize and Close the Transaction
Acquisition
Vehicle(s)

Transaction
OR
Plan &
Organize
Acquisition
Vehicle(s)
Plan &
Organize
Client
Simultaneous
Sign & Close
Acquisition
Vehicle(s)
Simultaneous
or Bifurcated
Close
END
Seller
Seller's Counsel
Bifurcated
Sign & Close
B&M Coordinating
Office
Acquisition Review - page 1 of 1

No
Conduct Public
Records Search &
obtain any Seller
Acquisition Review
Report
Draft
Acquisition
Review Request
Prepare and Send

Acquisition Review
Instructions to
Local Advisors
Client
B&M Local Offices &

Correspondents
Coordinate
Conduct Public
Records Search

- Banking
- Environmental
- Litigation
- Real Estate
- Tax
- Other Practice Groups and
offices
Seller's Counsel
Acquisition
Review
Adequate?
Review Draft
Seller Disclosure
Schedules
Negotiate
Scope, Revise & Finalize
Draft
Acquisition
Review Request
Acquisition Review
Instructions
Client Deal Team:

- Finance
- Human Resources &
Employee Benefits
- Investment Bank
- Legal Department
- Operations
- Real Estate
- Regulatory
- Risk Management
- Tax/Accounting
- Others
Review Draft
Acquisition Review
Request
Prepare Response
to Acquisition
Review Request
Negotiate
Coordinate
Review Draft
Acquisition Review
Request
Prepare Response
to Acquisition
Review Request
Analyze Response
& Prepare
Preliminary
Acquisition Review
Report
Review & Revise
Preliminary
Acquisition Review
Report
- Banking
- Environmental
- Litigation
- Real Estate
- Tax
- Other Practice Groups and
offices
Review Draft
Seller Disclosure
Schedules
Negotiate
Yes
Coordinate
Review Draft
Seller Disclosure
Schedules
Prepare Draft
Disclosure
Schedules & Send
to Buyer's Counsel
Coordinate
Send Response to
Acquisition Review
Request to
Buyer's Counsel
Final Acquisition
Review Report
Coordinate
Review & Revise
Negotiate
Seller
Analyze
Response,
Prepare &
Coordinate
Preliminary
Acquisition Review
Report
Prepare Draft
Disclosure
Schedules & Send
to Buyer's Counsel
Final Acquisition
Review Report
B&M Coordinating
Office
Simultaneous Sign and Close - page 1 of 2
Prepare Closing
Checklists
B&M Local Office &

Correspondents
Coordinate
Prepare Closing
Checklists
Seller
Seller's Counsel
Client
Compare
&
Finalize
Prepare
Closing Checklists

Transaction
OR
Closing Checklist:
- Share Purchase Agreement
- Share Transfer Documents
- Promissory Note
- Guarantee
- Letter of Credit
- Security Agreement
- Financing Agreement
- Intellectual Property Transfer Documents
- Regulatory Approvals/Clearances
- Labor Notifications
- Third Party Consents
- Lease/Sublease
- Novation Agreement
- Legal Opinions
- Shareholders Consent or Minutes of Meeting
and/or Directors Consent or Minutes of Meeting
- Disclosure Schedules/Letter
- Bring-Down Certificate
- Good Standing Certificates or Nearest Equivalent
- Officer's Certificates Regarding:
Charter Documents
Corporate Approvals
Incumbency
- Resignation of Officers and Directors, if necessary
- Corporate Books and Records
- Charter Amendments
- Name Change Filings, if necessary
- Registration of Trade Name Forms
- Closing Sequence and Flow of Funds
Memorandum
- Payment of Seller's Debt
- Payment of Purchase Price
- Share Certificates, if any
- Tax Certificates
Prepare, Review
and Revise Local
Closing
Documents
Coordinate
Prepare, Review
and Revise Local
Closing
Documents
Coordinate
Local Closing
Documents
Documents:
- Business Transfer Agreements
- Other Required Transfer Documents
Coordinate
- Board/Shareholder Authorizing Resolutions
- Letter Offering or Confirming Transfer or
Continuation of Employment
- Powers of Attorney
Prepare, Review
and Revise Local
Closing
Charter Documents
Documents
Corporate Approvals
Incumbency
Coordinate
Negotiate
Revise & Finalize
- VAT Invoices
- Tax Certificates
Review Local
Closing
Documents
Local Closing
Documents
Review Local
Closing
Documents
Local Closing
Documents
Coordinate
Coordinate
Review Local
Closing
Documents
Local Closing
Documents
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Simultaneous Sign and Close - page 2 of 2
Prepare Execution
Copies of
Purchase &
Ancillary
Agreements
Coordinate and
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Prepare and
Assemble Other
Closing Deliveries
Manage Signing
and Closing of the
Transaction
Coordinate
Coordinate
Coordinate
Prepare and
Assemble Other
Closing Deliveries
Close the
Transaction
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Post Closing
Action Items
Client
Review Closing
Documents
Seller's Counsel
Coordinate
Prepare and
Assemble Other
Closing Deliveries
Sign and
Close the
Transaction
Post Closing
Action Items
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Coordinate
Regulatory Filings
and Labor
Notifications with
Buyer's Counsel
Seller
Coordinate
Review Closing
Documents
Sign and
Close the
Transaction
Post Closing
Action Items
Make Regulatory
Filings and Labor
Notifications, if
Necessary
B&M Coordinating
Office
Bifurcated Sign and Close - page 1 of 3

Necessary if, 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, if
Necessary
Destroy or Return
Acquisition Review
Documents
B&M Local Offices &

Correspondents
Coordinate
Yes
Yes
Yes
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Destroy or Return
Acquisition Review
Documents
Sign Purchase
Agreement and Do
Not Close
Seller's Counsel
Client
Coordinate
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Coordinate
Regulatory Filings
and Labor
Notifications with
Buyer's Counsel
Seller
Coordinate
Sign Purchase
Agreement
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Closing
Conditions
Fulfilled by
Closing
Date?
No
Waive Closing
Conditions?
No
Closing
Conditions
Fulfilled By
Termination
Date?
Buyer's Closing Conditions:

- Required Government Authorizations Obtained?
- Financing Obtained?
- Buyer Satisfied with Acquisition Review?
- Required Regulatory Approvals/Clearances Obtained?
- Required Labor Notifications Made?
- Required 3rd Party Consents Obtained?
- Accuracy of Seller's Representations
- Seller's Performance of Pre-Closing Covenants
- No Proceedings
- No Conflict with Legal Requirements or Orders
No
Terminate
Transaction
Destroy or Return
Acquisition Review
Documents
Request
Destruction or
Return of
Acquisition Review
Documents
B&M Coordinating
Office
Prepare Closing
Checklists
B&M Local Offices &

Correspondents
Coordinate
Prepare Closing
Checklists
Seller
Seller's Counsel
Client
Compare
&
Finalize
Prepare
Closing Checklists

Transaction
OR
Closing Checklist:
- Share Purchase Agreement
- Promissory Note
- Guarantee
- Letter of Credit
- Security Agreement
- Financing Agreement
- Intellectual Property Transfer Documents
- Regulatory Approvals/Clearances
- Labor Notifications
- Third Party Consents
- Lease/Sublease
- Novation Agreement
- Legal Opinions
- Shareholders Consent or Minutes of Meeting
and/or Directors Consent or Minutes of Meeting
- Disclosure Schedules/Letter
- Bring-Down Certificate
Charter Documents
Corporate Approvals
Incumbency
- Corporate Books and Records
- Closing Sequence and Flow of Funds
Memorandum
- Payment of Seller's Debt
- Payment of Purchase Price
- Share Certificates, if any
- Tax Certificates
Prepare, Review
and Revise Local
Closing
Documents
Coordinate
Prepare, Review
and Revise Local
Closing
Documents
Coordinate
Local Closing
Documents
Documents:
- Business Transfer Agreements
- Other Required Transfer Documents
Coordinate
- Board/Shareholder Authorizing Resolutions
- Letter Offering or Confirming Transfer or
Continuation of Employment
- Powers of Attorney
Prepare, Review
and Revise Local
Closing
Charter Documents
Documents
Corporate Approvals
Incumbency
Coordinate
Negotiate
Revise & Finalize
- VAT Invoices
- Tax Certificates
Review Local
Closing
Documents
Local Closing
Documents
Review Local
Closing
Documents
Local Closing
Documents
Coordinate
Coordinate
Review Local
Closing
Documents
Local Closing
Documents
B&M Local Offices &

Correspondents
B&M Coordinating
Office
Prepare Execution
Copies of
Ancillary
Agreements
Coordinate and
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Prepare and
Assemble Other
Closing Deliveries
Manage Closing of
the Transaction
Coordinate
Coordinate
Coordinate
Prepare and
Assemble Other
Closing Deliveries
Close the
Transaction
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Post Closing
Action Items
Client
Review Closing
Documents
Seller's Counsel
Coordinate
Prepare and
Assemble Other
Closing Deliveries
Close the
Transaction
Post Closing
Action Items
Make Regulatory
Filings and Labor
Notifications, if
Necessary
Coordinate
Regulatory Filings
and Labor
Notifications with
Buyer's Counsel
Seller
Coordinate
Review Closing
Documents
Close the
Transaction
Post Closing
Action Items
Make Regulatory
Filings and Labor
Notifications, if
Necessary

Appendix 2.2 Scoping Checklist
Appendix 2.2
Scoping Checklist
Question
1.
The Target
1.1
What is the nature of the target business?
1.2
What are the key economic drivers of the target business

(sales, earnings, employees, etc.)?
1.3
In what jurisdiction(s) does the target do business? What is

the nature of the targets business in each jurisdiction? What
is the relative importance of the different jurisdictions to us?
1.4
Are there specific parts of the target business that our

company is not interested in?
1.5
Is the target business exposed to any particular major risks?

For example:
1.5.1
highly regulated industry?
1.5.2
government contracts?
1.5.3
operation in countries with high perception of

corruption?
Baker & McKenzie
Response
Effect on Scope
185

Question
1.5.4
overseas investment restrictions?
1.5.5
bulk transfer restrictions?
1.5.6
environmental matters?
1.5.7
product liability issues?
1.6
Are any listed entities involved? If so, what exchanges are

involved?
1.7
What is the known reputation of the target in the market and

what is the market perception of how the target has been
run?
1.8
Is the target in distress and if so, what impact may this have
on the transaction?
1.9
How integral is IP to the target business? In particular:
1.10
186
1.9.1
what IP is material to the business?
1.9.2
in what jurisdictions is it to be used?
1.9.3
is it owned or licensed by the target business?
Response
Effect on Scope
Are there any license agreements the stability and/or

transferability of which in the course of the transaction is key
Baker & McKenzie

Question
Response
Effect on Scope
for us?
1.11
Are infringements of IP an issue that is frequently of concern

in the industry of the target business and in the relevant
jurisdictions?
1.12
Are there any environmental permits that are key for the
target business?
1.13
Does the nature of the business (e.g. extraction,

manufacturing, processing, disposal or emissions ) or the
location and history of any properties give any indication
about the probability of contamination and/or environmental
regulation and compliance issues?
1.14
Do we intend to downsize the target workforce? When?

What jurisdictions will be affected?
1.15
Do we intend to relocate employees?
1.16
Are there any individual employees or groups of employees

who are key for the business?
Baker & McKenzie
187

Question
1.17
Response
Effect on Scope
Will there be any changes to the existing management of the

target? If so:
1.17.1 what changes are envisaged?
1.17.2 who will be exiting / who will be staying on and on
what terms?
1.17.3 will there be new incoming management?
1.18
Are we aware of any current or pending disputes or

circumstances which could lead to a dispute involving the
target?
1.19
How important are real estate matters for the target business
overall? What properties are material to the conduct of the
target business?
1.20
Are the key operations of the business carried out on owned

and/or leased property?
1.21
What are our objectives and strategies regarding property

and leases:
1.21.1 secure continued use of any key or other premises?
1.21.2 sell any properties, or let or sub-let any premises?
188
Baker & McKenzie

Question
Response
Effect on Scope
1.21.3 shut-down and/or abandon any premises, or

terminate and/or re-negotiate any leases?
1.22
Are the properties or leases to be transferred to the purchaser

or will they remain with the seller and be leased or subleased to target or the purchaser?
2.
Strategic Rationale
2.1
What is our strategic rationale for the transaction (e.g.

market share, strategic fit, key employees / IP / assets, etc.)?
In particular:
2.1.1
what are the parts of the target business that are most
strategically important to us, and why?
2.1.2
what are the parts of the target business that

contribute the majority of the earnings?
2.1.3
are there parts of the business that are strategically

important to us but which dont contribute as heavily
by way of earnings?
Baker & McKenzie
189

Question
2.2
Effect on Scope
How do we value the target business? (i.e. what is the

particular valuation methodology used to value the target
business?)
2.2.1
What are the key drivers for the valuation? In

particular, are there cost synergies that we hope to
realize?
2.2.2
What are the key uncertainties for the valuation?
2.3
Do we have any particular sensitivities that we should be

aware of (e.g. compliance, product liability, environmental,
competition, market-specific, previous experience, etc.)?
3.
The Seller(s) and Other Relevant Parties
3.1
Who and what type of vendor is the seller (e.g. institutional

investor, trade seller, etc.)?
3.2
What is the sellers strategic rationale for the transaction

(e.g., in distress, non-core asset divestment strategy,
financial restructuring, etc.)?
190
Response
Baker & McKenzie

Question
3.3
What particular risks arise from the nature of the seller (e.g.
nature of seller (sovereign wealth fund, financial health,
reputation, etc.); nature of sellers business (e.g. polluting
industry, closeness to government, etc.)?
3.4
Do we have any history with the seller?
3.5
What other parties are relevant for the transaction (e.g.

consortium of investors, joint venture partners, major
suppliers or customers, etc.)?
3.6
What particular risks result from the nature of the other

parties?
4.
Transaction Process
4.1
What is the transaction process (auction, private treaty or

other)?
4.2
What are the chances of us being the successful bidder

(low/medium/high)?
4.3
Will there be a data room? Virtual or physical?
4.4
Will the transaction be subject to merger control in any

jurisdictions (thresholds are mostly based on global
Baker & McKenzie
Response
Effect on Scope
191

Question
Response
Effect on Scope
revenues, revenues in the jurisdiction or asset value in the

jurisdiction)?
4.5
Where:
4.5.1
the transaction is subject to merger control;
4.5.2
information exchanged is highly confidential; or
4.5.3
parties are key competitors,
how should we deal with the information, based on its

confidentiality and/or restrictions to release?
5.
Transaction Structure
5.1
How is the transaction to be structured (share deal, asset

deal, outright sale or option, etc.)?
5.2
How much seller flexibility on structure, or what the sale

involves, is there likely to be?
5.3
If we do not intend to acquire 100%, what shareholders or

assets will remain behind? Will we seek an option to acquire
these shares or assets?
192
Baker & McKenzie

Question
5.4
Will transitional services (e.g. accounting, tax,

administrative, facilities, IT, etc.) be required?
5.5
5.5.1
How is the target business financed (equity, debt,

mezzanine, stand-alone, own-financing with group
support, group cash pool etc.)?
5.5.2
Are we planning on retaining existing finance

arrangements or replacing them as part of the
transaction?
5.5.3
If the target group will be refinanced at closing, what

financings are to be repaid?
6.
Post-Acquisition Integration
6.1
Do we intend to maintain the target business on a standalone basis after the transaction or integrate it into our
organization?
6.2
Do we intend to change the organizational structure of the

target business? When?
6.3
Do we intend to change the management of the target

business? When?
Baker & McKenzie
Response
Effect on Scope
193

Question
6.4
Do we intend to close or divest parts of the target business?

When? (cf. Q1.4 above)
6.5
Does the target intend to expand the business into

overseas/additional markets? When?
6.6
Are there any other key strategic plans involving the target
or its business which may represent a significant departure
from its existing operations?
6.7
How will existing IT platforms currently used in our

business be integrated with those of the target business?
7.
Due Diligence in General
7.1
What areas of investigation will generally be covered by our

own staff or other advisors?
7.2
What thresholds or other criteria can/are to be applied to

identify material issues? Are there any particular areas where
different materiality criteria should apply?
7.3
What depth of review do we expect at this stage of the

transaction (e.g., quick issue spotting, review of major
issues, full review, etc.)?
194
Response
Effect on Scope
Baker & McKenzie

Question
7.4
Are there any particular areas where depth of review will

differ from the general depth of review?
7.5
Is the current stage of due diligence the sole stage of due

diligence in the transaction process or will there be further
stages (Phase II etc.)? If so, what are the proposed time
frames for each phase?
Baker & McKenzie
Response
Effect on Scope
195

Appendix 3.1 Budget Template
Appendix 3.1
Budget Template
Fee Estimate Initial Phase of Auction
1.
Review of Data Room Materials
Country
Corporate Commercial
(Customers/
Suppliers/
Distributors
etc.)
Environ-mental/ Real
Labor
Health/Safety
Estate/Property /Employee
/Leases
Benefits
IP 1
Credit &
Finance 2
Tax
Litigation/ Regulatory/
Insurance Trade
Compliance
Other
areas
Total per
Country
Primary
Jurisdictions 3
Generally, 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. Instead, we would typically propose working closely
with the clients internal team to focus the review on the targets pattern of, and procedures for, the protection of its
intellectual property rights and the more material items of IP, along with any related license agreements, litigation, etc.
The fee estimate would reflect only this initial, limited IP investigation.
2
Often, the clients internal team will review the detailed terms of the targets financing documents, particularly those at
the parent level. If the bid is structured on a debt free basis, we would typically propose focusing on change in
control triggers (and applicable penalty payments) in the credit documents at the local level, along with any liens or
security interests.
Baker & McKenzie
197

Country
Corporate Commercial
(Customers/
Suppliers/
Distributors
etc.)
Environ-mental/ Real
Labor
Health/Safety
Estate/Property /Employee
/Leases
Benefits
IP 1
Credit &
Finance 2
Tax
Litigation/ Regulatory/
Insurance Trade
Compliance
Other
areas
Total per
Country
[country]
[country]
Secondary
Jurisdiction 4
[country]
[country]
Other
Jurisdictions 5
TOTAL
3
The primary jurisdictions would generally be those in which the target owns or leases manufacturing or assembly
facilities, generates a material level of sales or has established a holding company for material subsidiaries and/or IP.
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, these figures would be more of a rough estimate, with some of the secondary
jurisdictions likely to be above, and others likely to be below, that figure. 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.
5
A catch-all is often included, for example, if the offering memorandum references other jurisdictions where the target
markets, sells or services its products, often through agents or distributors, but detailed information as to the nature of the
activities in those jurisdictions is lacking.
198
Baker & McKenzie

2.
Prepare Supplemental Request Lists
Included in 1.
3.
Prepare Report (regarding findings/open issues associated with 1 and 2) 6
Included in 1.
4.
Assistance with Preparation of Initial Bid
Total of $___________.
5.
Assess Regulatory/Merger Control Filing Requirements 7
Total of $___________.
The structure and nature of the report (e.g., whether a full legal review, exceptions only or some combination)
would be discussed with the client. However, for purposes of the initial diligence phase in the auction setting, 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 clients next bid.
7
Where applicable, this would include investigating substantive issues and possible counter arguments to assist with final
bid preparation.
Baker & McKenzie
199

6.
Expenses
Approximately ____% of fees.

7.
Summary of amounts:
a.
Diligence (including Report):
b.
Assistance with bid:
c.
Regulatory assessment
d.
Expenses (approximate):
TOTAL:
200
Baker & McKenzie

Appendix 5.1 Confidentiality Agreement Checklist
Appendix 5.1
Confidentiality Agreement Checklist
Definition of Confidential Information.
Restricted use and nondisclosure obligations.
Nondisclosure of transaction and content of negotiations.
Legal compulsion to disclose confidential information.
Disclosing party contacts (to control the lines of

communication).
Non-solicitation provisions.
Return or destroy obligations with respect to the confidential

information.
Attorney work product and attorney-client privilege.
No obligation to negotiate definitive agreement.
No representations or warranties with respect to information

provided.
Data protection and privacy restrictions.
Remedies.
Governing law.
Baker & McKenzie
201

Appendix 5.2 Letter of Intent Checklist
Appendix 5.2
Letter of Intent Checklist
Parties.
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).
Description of the terms of the proposed transaction,

including:
A description of the target and whether shares or

assets and any liabilities are being acquired;
Price and/or pricing formula, and adjustments to the

price in certain circumstances (e.g., adverse findings
in due diligence and/or by reference to relevant
financial measures 1 based on closing financial
statements);
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; 2
Description of expectations as to the timing of the diligence

process (including the level of access and communication
channels), signing, satisfaction of conditions and/or closing.
The terminology used in the letter of intent with respect to financial matters
should conform to local usage, both corporate and accounting.
2
The need for an escrow or alternative means of securing the sellers
payment obligations (e.g., a bank guaranty) will depend upon an evaluation
of several factors, including the size of the parties (particularly the seller), the
availability of efficient legal remedies in the event that the seller fails to pay
and any setoff rights that the buyer may have.
Baker & McKenzie
203

Conditions precedent. These may include:

o
Governmental and regulatory consents or approvals;
No material adverse change in the target business;
No law, order or legal proceeding challenging the

transaction;
Board and/or shareholder approval; 3
Accuracy of representations and warranties at closing;
The buyer having obtained financing; and
Entry into certain ancillary agreements (e.g.,

employment agreements with key personnel, short- or
long-term service agreement, supply contract or
transition services agreement).
General description of the level of representations and

warranties to be included in the definitive agreements.
Description of any non-compete/non-solicitation covenant

required from the seller.
Exclusivity.
Break fee.
Confidentiality (particularly if no earlier confidentiality

agreement exists).
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, at the very least, may be objected to by the seller as
converting the definitive agreement into an option.
204
Baker & McKenzie

Termination date for negotiations and any obligations (such as

confidentiality) that survive termination.
Costs and expenses (including transfer taxes).
Governing law.
Baker & McKenzie
205

Appendix 8.1 Employee Transfers/Benefits Checklist
Appendix 8.1
Buyers International HR Checklist for Non-US
Employee Transfers and Benefits
1.
Pre- Signing
Jurisdictions
Identify each jurisdiction where the buyer will assume or hire

employees, whether at closing or subsequently, and consider
alternatives where the buyer does not currently have a presence.
Transfer of Employees
Identify all employees who will be assumed or offered

employment by the buyer, including employees who work
less than 100% of their time in the target business.
For each jurisdiction, determine whether employees will be

automatically assumed by operation of law (and with which
benefits), or whether employees must be offered new
employment by the buyer, and if so, when and upon what
terms the offer must be extended.
In those jurisdictions where employees must be offered new

employment by the buyer, or have a right to object to their
transfer by operation of law, 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 buyers offer of
employment, or object to the transfer.
For each jurisdiction, determine whether any notification to,

or consultation with, the employees, any works council or
other entity is required.
Baker & McKenzie
207

For each jurisdiction, determine with the seller the mechanics

for, and the content of, notice to employees of the proposed
transaction.
Review employment agreements and collective bargaining or

other labor agreements for unusual terms or conditions and
any provisions triggered by the proposed transaction.
Employee Benefit Plans
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.
With respect to each such employee benefit plan, determine:
208
annual employer contributions, if any, and whether

those contributions are current;
whether assets are set aside to fund or finance the

employee benefit plan obligations, and if so, whether
the plan is fully funded and whether the assets appear
on the targets balance sheet;
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; and
whether the buyer must take any other action with

respect to the plans prior to closing.
Assess equity compensation plans, including change in

control provisions and tax and securities consequences arising
from the transaction.
Baker & McKenzie

Purchase Agreement
Negotiate with the seller the necessary employee and employee

benefits representations and warranties, indemnities, covenants,
schedules and other language. If employees are to remain covered by
the sellers employee benefit plans after closing for a period of time,
negotiate with the seller the terms of an appropriate transitional
services arrangement.
2.
After Signing/Pre-Closing
Transfer of Employees
In those jurisdictions where the buyer does not currently have

a presence, determine who will be the employer of assumed or
hired employees.
Effect notifications to and conduct consultations/negotiations

with employees, works councils and labor unions concerning
the transfer of employees and employee benefit plans, where
necessary.
To the extent necessary, retain employee benefit consultants

to advise on equivalent terms of employment and integration
of assumed employee benefit plans with the buyers employee
benefit plans.
For those jurisdictions in which formal offers of employment

must be extended, extend those offers on the part of the buyer.
Employee Benefit Plans
Determine which benefit plans, or assets or liabilities related

to benefit plans, will be assumed by buyer or otherwise
transfer at closing and take any action necessary to effect their
transfer.
Baker & McKenzie
209

Comply with applicable securities and tax rules and

prospectus delivery requirements with respect to equity-based
compensation plans.
Determine the extent to which transitional assistance by the

seller will be needed and arrange for same.
Commence steps to implement the transfer after closing of

those plans to be transferred subsequent to closing.
3.
Post-Closing
Complete the transfer of any assumed employee benefit plans

and/or assets or liabilities related thereto.
Establish new employee benefit plans to provide benefits not

otherwise covered by assumed employee benefit plans.
Memorialize new and/or converted equity awards and

integrate those awards into existing stock plan administration.
Ensure on-going legal and regulatory compliance.
210
Baker & McKenzie

Baker & McKenzie Offices Worldwide

Office phone numbers and addresses change from time to time. Please
refer to www.bakermckenzie.com for current contact information.
Argentina - Buenos Aires
Baker & McKenzie SC
Avenida Leandro N. Alem 1110, Piso 13
C1001AAT Buenos Aires
Argentina
Tel: +54 11 4310 2200
Fax: +54 11 4310 2299
Australia - Melbourne
Baker & McKenzie
Level 19, CBW
181 William Street
Melbourne Victoria 3000
Australia
Tel: +61 3 9617 4200
Fax: +61 3 9614 2103
Australia - Sydney
Baker & McKenzie
Level 27, A.M.P. Centre
50 Bridge Street
Sydney, NSW 2000
Australia
Tel: +61 2 9225 0200
Fax: +61 2 9225 1595
Austria - Vienna
Diwok Hermann Petsche Rechtsanwlte
GmbH
Schottenring 25
1010 Vienna
Austria
Tel: +43 (1) 24 250
Fax: +43 (1) 24 250 600
Baker & McKenzie
Azerbaijan - Baku
Baker & McKenzie - CIS, Limited
The Landmark III, 8th Floor
96 Nizami Street
Baku AZ1010
Azerbaijan
Tel: +994 12 497 18 01
Fax: +994 12 497 18 05
Bahrain - Manama
Baker & McKenzie Limited
18th Floor, West Tower
Bahrain Financial Harbour
PO Box 11981, Manama
Kingdom of Bahrain
Tel: +973 1710 2000
Fax: +973 1710 2020
Belgium - Antwerp
Baker & McKenzie CVBA/SCRL
Meir 24
2000 Antwerp
Belgium
Tel: +32 3 213 40 40
Fax: +32 3 213 40 45
Belgium - Brussels
Avenue Louise 149 Louizalaan
11th Floor
1050 Brussels
Belgium
Tel: +32 2 639 36 11
Fax: +32 2 639 36 99
211

Belgium - ELC
149 Avenue Louise
Eighth Floor
1050 Brussels
Belgium
Tel: +32 2 639 36 11
Fax: +32 2 639 36 99
Brazil - Brasilia
Trench, Rossi e Watanabe Advogados
SAF/S Quadra 02, Lote 04, Sala 203
Edificio Comercial Via Esplanada
Braslia - DF - 70070-600
Brazil
Tel: +55 61 2102 5000
Fax: +55 61 3327 3274
Brazil - Porto Alegre
Avenida Borges de Medeiros, 2233,
4 andar - Centro
Porto Alegre, RS, 90110-150
Brazil
Tel: +55 51 3220 0900
Fax: +55 51 3220 0901
Brazil - Rio de Janeiro
Av. Rio Branco, 1, 19 andar, Setor B
Rio de Janeiro, RJ, 20090-003
Brazil
Tel: +55 21 2206 4900
Fax: +55 21 2206 4949
Brazil - Sao Paulo
Av. Dr. Chucri Zaidan, 920, 13 andar
Market Place Tower I
Sao Paulo, SP, 04583-904
Brazil
Tel: +55 11 3048 6800
Fax: +55 11 5506 3455
212
Canada - Toronto
Baker & McKenzie LLP
Brookfield Place
181 Bay Street, Suite 2100
P.O. Box 874
Toronto, Ontario M5J 2T3
Canada
Tel: +1 416 863 1221
Fax: +1 416 863 6275
Chile - Santiago
Baker & McKenzie Ltda.
Nueva Tajamar 481
Torre Norte, Piso 21
Las Condes, Santiago
Chile
Tel: +56 2 367 7000
Fax: +56 2 362 9876
China - Beijing
Baker & McKenzie LLP - Beijing
Representative Office
Suite 3401, China World Office 2
China World Trade Center
1 Jianguomenwai Dajie
Beijing 100004
Peoples Republic of China
Tel: +86 10 6535 3800
Fax: +86 10 6505 2309
China - Hong Kong - SAR
Baker & McKenzie
14th Floor, Hutchison House
10 Harcourt Road
Hong Kong, SAR
and
23rd Floor, One Pacific Place
88 Queensway
Hong Kong SAR
Tel: +852 2846 1888
Fax: +852 2845 0476
Baker & McKenzie

China - Shanghai
Unit 1601, Jin Mao Tower
88 Century Avenue, Pudong
Shanghai 200121
Peoples Republic of China
Tel: +86 21 6105 8558
Fax: +86 21 5047 0020
Colombia - Bogota
Baker & McKenzie Colombia S.A.
Avenida 82 No. 10-62, piso 6
Bogot, D.C.
Colombia
Tel: +57 1 634 1500
Fax: +57 1 376 2211
England - London
100 New Bridge Street
London EC4V 6JA
England
Tel: +44 20 7919 1000
Fax: +44 20 7919 1999
France - Paris
Baker & McKenzie SCP
1 rue Paul Baudry
75008 Paris
France
Tel: +33 1 44 17 53 00
Fax: +33 1 44 17 45 75
Czech Republic - Prague

Baker & McKenzie, v.o.s., advoktn
kancelr
Praha City Center
Klimentsk 46
110 02 Prague 1
Czech Republic
Tel: +420 236 045 001
Fax: +420 236 045 055
Germany - Berlin
Baker & McKenzie
Partnerschaft von Rechtsanwlten,
Wirtschaftsprfern, Steuerberatern und
Solicitors
Friedrichstrae 88/Unter den Linden
10117 Berlin
Germany
Tel: +49 30 2200281 0
Fax: +49 30 2200281 199
Egypt - Cairo
Baker & McKenzie
(Helmy, Hamza & Partners)
Nile City Building, North Tower
Twenty-First Floor
Cornich El Nil
Ramlet Beaulac, Cairo
Egypt
Tel: +20 2 2461 9301
Fax: +20 2 2461 9302
Germany - Dusseldorf
Baker & McKenzie
Solicitors
Neuer Zollhof 2
40221 Dusseldorf
Germany
Tel: +49 211 31 11 6 0
Fax: +49 211 31 11 6 199
Baker & McKenzie
213

Germany - Frankfurt
Baker & McKenzie
Solicitors
Bethmannstrasse 50-54
60311 Frankfurt/Main
Germany
Tel: +49 69 29 90 8 0
Fax: +49 69 29 90 8 108
Germany - Munich
Baker & McKenzie
Solicitors
Theatinerstrasse 23
80333 Munich
Germany
Tel: +49 89 55 23 8 0
Fax: +49 89 55 23 8 199
Hungary - Budapest
Kajtr Takcs Hegymegi-Barakonyi
Baker & McKenzie gyvdi Iroda
Dorottya utca 6.
1051 Budapest
Hungary
Tel: +36 1 302 3330
Fax: +36 1 302 3331
Indonesia - Jakarta
Hadiputranto, Hadinoto & Partners
The Indonesia Stock Exchange Building
Tower II, 21st Floor
Sudirman Central Business District
Jl. Jendral Sudirman Kav. 52-53
Jakarta 12190
Indonesia
Tel: +62 21 515 5090
Fax: +62 21 515 4840
214
Italy - Milan
Studio Professionale Associato a
Baker & McKenzie
3 Piazza Meda
20121 Milan
Italy
Tel: +39 02 76231 1
Fax: +39 02 76231 620
Italy - Rome
Studio Professionale Associato a
Baker & McKenzie
Viale di Villa Massimo, 57
00161 Rome
Italy
Tel: +39 06 44 06 31
Fax: +39 06 44 06 33 06
Japan - Tokyo
Baker & McKenzie
(Gaikokuho Joint Enterprise)
Ark Hills Sengokuyama Mori Tower,
28th Floor
1-9-10 Roppongi, Minato-ku
Tokyo 106-0032
Japan
Tel: +81 (0)3 6271 9900
Fax: +81 (0)3 5549 7720
Kazakhstan - Almaty
Samal Towers, Samal-2, 8th Fl.
97 Zholdasbekov Street
Almaty 050051
Kazakhstan
Tel: +7 727 330 05 00
Fax: +7 727 258 40 00
Baker & McKenzie

Luxembourg
Baker & McKenzie
12 rue Eugne Ruppert
2453 Luxembourg
Luxembourg
Tel.: +352 26 18 44 1
Fax: + 352 26 18 44 99
Malaysia - Kuala Lumpur
Wong & Partners
Level 21, The Gardens South Tower
Mid Valley City
Lingkaran Syed Putra
59200 Kuala Lumpur
Malaysia
Tel: Tel: +60 3 2298 7888
Fax: +60 3 2282 2669
Mexico - Guadalajara
Baker & McKenzie Abogados, S.C.
Blvd. Puerta de Hierro 5090
Fracc. Puerta de Hierro
45110 Zapopan, Jalisco
Mxico
Tel: +52 33 3848 5300
Fax: +52 33 3848 5399
Mexico - Juarez
P.T. de la Republica 3304, Piso 1
32330 Cd. Jurez, Chihuahua
Mxico
Tel: +52 656 629 1300
Fax: +52 656 629 1399
Mexico - Mexico City
Baker & McKenzie, S.C.
Edificio Scotiabank Inverlat, Piso 12
Blvd. M. Avila Camacho 1
11009 Mxico, D.F.
Mxico
Tel: +52 55 5279 2900
Fax: +52 55 5279 2999
Baker & McKenzie
Mexico - Monterrey
Oficinas en el Parque-Piso 10
Blvd. Antonio L. Rodrguez 1884 Pte.
64650 Monterrey, Nuevo Len
Mexico
Tel: +52 81 8399 1300
Fax: +52 81 8399 1399
Mexico - Tijuana
Blvd. Agua Caliente 10611, Piso 1
22420 Tijuana, B.C.
Mxico
Mailing Address: P.O. Box 1205
Chula Vista, CA 91912
Tel: +52 664 633 4300
Fax: +52 664 633 4399
Morocco - Casablanca
Baker & McKenzie Maroc
Ghandi Mall - Immeuble 9
Boulevard Ghandi
20380 Casablanca
Morocco
Tel: +212 522 77 95 95
Fax: +212 522 77 95 96
The Netherlands - Amsterdam
Baker & McKenzie Amsterdam N.V.
Claude Debussylaan 54
1082 MD Amsterdam
P.O. Box 2720
1000 CS Amsterdam
The Netherlands
Tel: +31 20 551 7555
Fax: +31 20 626 7949
215

Peru - Lima
Estudio Echecopar
Av. De la Floresta 497, Piso 5
San Borja, Lima 41
Peru
Tel: +51 (1) 618 8500
Fax: +51 (1) 372 7171
Philippines - Manila
Quisumbing Torres
12th Floor, Net One Center
26th Street corner 3rd Avenue
Crescent Park West
Bonifacio Global City
Taguig, Metro Manila 1634
Philippines
Tel: +63 2 819 4700
Fax: +63 2 816 0080
Poland - Warsaw
Baker & McKenzie Gruszczynski i
Wspolnicy Attorneys at Law LP
Rondo ONZ 1
00-124 Warsaw
Poland
Tel: +48 22 445 31 00
Fax: +48 22 445 32 00
Qatar - Doha
Al Fardan Office Tower
8th Floor
Al Funduq 61
Doha, PO Box 31316
Qatar
Tel: +974 4410 1817
Fax: +974 4410 1500
216
Russia - Moscow
White Gardens
9 Lesnaya Street
Moscow 125047
Russia
Tel: +7 495 787 2700
Fax: +7 495 787 2701
Russia - St. Petersburg
BolloevCenter, 2nd Floor
4A Grivtsova Lane
St. Petersburg 190000
Russia
Tel: +7 812 303 90 00
Fax: +7 812 325 60 13
Saudi Arabia - Riyadh
Legal Advisors in Association
with Baker & McKenzie Limited
Olayan Complex
Tower II, 3rd Floor
Al Ahsa Street, Malaz
P.O. Box 4288
Riyadh 11491
Saudi Arabia
Tel: +966 1 291 5561
Fax: +966 1 291 5571
Singapore
Baker & McKenzie.Wong & Leow
8 Marina Boulevard #05-01
Marina Bay Financial Centre Tower 1
Singapore 018981
Tel: +65 6338 1888
Fax: +65 6337 5100
Baker & McKenzie

South Africa Johannesburg

Baker & McKenzie Johannesburg
4 Sandown Valley Crescent,
Sandown
Sandton, 2196
Johannesburg
South Africa
Tel: +27 11 911 4300
Fax: +27 11 784 2855
South Korea - Seoul
Foreign Legal Consultant Office
17/F, Two IFC
10 Gukjegeumyung-ro
Yeongdeungpo-gu
Seoul 150-945
South Korea
T +82 2 6137 6800
F +82 2 6137 9433
Spain - Barcelona
Baker & McKenzie Barcelona S.L.P.
Avda. Diagonal, 652, Edif. D, 8th floor
08034 Barcelona
Spain
Tel: +34 93 206 08 20
Fax: +34 93 205 49 59
Spain - Madrid
Baker & McKenzie Madrid S.L.P.
Paseo de la Castellana 92
28046 Madrid
Spain
Tel: +34 91 230 45 00
Fax: +34 91 391 5145
Sweden - Stockholm
Baker & McKenzie Advokatbyr KB
P.O. Box 180
SE-101 23 Stockholm
Sweden
Tel: +46 8 566 177 00
Fax: +46 8 566 177 99
Baker & McKenzie
Switzerland - Geneva
Baker & McKenzie Geneva
Rue Pedro-Meylan 5
1208 Geneva
Switzerland
Tel: +41 22 707 98 00
Fax: +41 22 707 98 01
Switzerland - Zurich
Baker & McKenzie Zurich
Holbeinstrasse 30
P.O. Box
8034 Zurich
Switzerland
Tel: +41 44 384 14 14
Fax: +41 44 384 12 84
Taiwan - Taipei
Baker & McKenzie
15th Floor, Hung Tai Center
No. 168, Tun Hwa North Road
Taipei 105
Taiwan
Tel: +886 2 2712 6151
Fax: +886 2 2716-9250
Thailand - Bangkok
Baker & McKenzie Limited
25th Floor, Abdulrahim Place
990 Rama IV Road
Bangkok 10500
Thailand
Tel: +66 2636 2000
Fax: +66 2626 2111
Turkey Istanbul
Esin Attorney Partnership
Levent Caddesi
Yeni Sulun Sokak No. 1
34330 1. Levent Besiktas Istanbul
Turkey
Tel: +90 212 376 64 00
Fax: +90 212 376 64 64
217

Ukraine - Kyiv
Renaissance Business Center
24 Vorovskoho St.
Kyiv 01054, Ukraine
Tel: +380 44 590 0101
Fax: +380 44 590 0110
United Arab Emirates Abu Dhabi
Baker & McKenzie LLP - Abu Dhabi
Villa A12, Marina Office Park
Breakwater, P.O. Box 42325 Abu Dhabi
United Arab Emirates
Tel: +971 2 658 1911
Fax: +971 2 658 1811
United Arab Emirates - Dubai
Baker & McKenzie Habib Al Mulla
Level 14, O14 Tower
Al Abraj Street, Business Bay,
P.O. Box 2268 Dubai
United Arab Emirates
T +971 4 423 0000
F +971 4 447 9777
United States Houston

700 Louisiana, Suite 3000
Houston, Texas 77002
Tel: +1 713 427 5000
Fax: +1 713 427 5099
United States - Miami
Mellon Financial Center
1111 Brickell Avenue
Suite 1700
Miami, Florida 33131
USA
Tel: +1 305 789 8900
Fax: +1 305 789 8953
United States - New York
452 Fifth Avenue
New York, NY 10018
USA
Tel: +1 212 626 4100
Fax: +1 212 310 1600
United States - Chicago

300 East Randolph Street, Suite 5000
Chicago, IL 60601
USA
Tel: +1 312 861 8800
Fax: +1 312 861 2899
United States - Palo Alto

660 Hansen Way
Palo Alto, California 94304
USA
Tel: +1 650 856 2400
Fax: +1 650 856 9299
United States - Dallas

2300 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
USA
Tel: +1 214 978 3000
Fax: +1 214 978 3099
United States - San Francisco

Two Embarcadero Center, 11th Floor
San Francisco, California 94111-3909
USA
Tel: +1 415 576 3000
Fax: +1 415 576 3099; 576 3098
218
Baker & McKenzie

United States - Washington, DC

815 Connecticut Avenue, N.W.
Washington, DC 20006-4078
USA
Tel: +1 202 452 7000
Fax: +1 202 452 7074
Venezuela - Caracas
Baker & McKenzie SC
(Despacho de Abogados)
Centro Bancaribe, Interseccin
Av. Principal de Las Mercedes
con inicio de Calle Pars
Urbanizacin Las Mercedes
Caracas 1060
Venezuela
Tel: +58 212 276 5111
Fax: +58 212 264 1532
Vietnam - Hanoi
Baker & McKenzie (Vietnam) Ltd.
(Hanoi Branch Office)
Unit 1001, 10th floor,
Indochina Plaza Hanoi
241 Xuan Thuy Street, Cau Giay District
Hanoi 10000
Vietnam
Tel: +84 4 3 825 1428
Fax: +84 4 3 825 1432
Vietnam - Ho Chi Minh City
Baker & McKenzie (Vietnam) Ltd.
12th Floor, Saigon Tower
29 Le Duan Blvd.
District 1, Ho Chi Minh City
Vietnam
Tel: +84 8 3 829 5585
Fax: +84 8 3 829 5618
Venezuela - Valencia
Baker & McKenzie SC
Edificio Torre Venezuela, Piso No. 4
Av. Bolivar cruce con Calle 154
(Misael Delgado)
Urbanizacin La Alegria
Valencia, Estado Carabobo
Venezuela
Tel: +58 241 824 8711
Fax: +58 241 824 6166
Baker & McKenzie
219

Related Publications
Related Publications
Post-Acquisition Integration Handbook. This handbook focuses on
the challenges of integrating an existing and newly acquired business
following a multinational business acquisition. It discusses major legal
issues and provides a guide to planning the business integration and its
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generate value for shareholders.
Guide to Business Dispositions. This guide focuses on the business
and legal considerations associated with disposition transactions. It
provides an organized collection of practical know-how and tools for
those contemplating disposing of a business.
International Joint Ventures Handbook. This handbook is a
practical guide to assist business and legal teams when assessing,
structuring and implementing joint ventures. It discusses major
business and legal considerations associated with international joint
ventures and provides tools to assist in gathering and assessing key
information that impacts joint venture planning.
A Legal Guide to Acquisitions and Doing Business in the United
States. This guide is intended primarily to help non-US clients
(lawyers and non-lawyers) understand the breadth and depth of
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Public Company Survival Guide. This guide provides tools designed
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attendant to being a US public company.
All above publications may be ordered by emailing
na.cs@bakermckenzie.com.
If you are interested in other Baker & McKenzie publications, please
contact the Baker &McKenzie attorney with whom you work or visit
www.bakermckenzie.com/publicationform.
Baker & McKenzie
221
www.bakermckenzie.com
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Baker & McKenzie is continuously ranked as the No. 1 cross-border
M&A firm by deal count. With more than 800 corporate & securities
lawyers in 74 offices globally, we have one of the largest and most
active transactional practices in the world and we do more crossborder deals than any other global law firm. Our clients trust the
unparalleled experience and on-the-ground insight we bring to
cross-border transactions, and value our depth in developed and
emerging economies. As a trusted advisor for successful companies
doing business globally, we provide ongoing guidance on managing
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2014 Baker & McKenzie. All rights reserved. Baker & McKenzie International is a Swiss Verein
with member law firms around the world. In accordance with the common terminology used in
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Baker & McKenzie 2014

Cross-Border Transactions Handbook

Cross-Border Transactions Handbook

Baker & McKenzie

Cross-Border Transactions Handbook

Organizing Principle .........................................................6

Section 3 Budgeting for the Transaction ............................................17

Scope of Diligence ..........................................................17

Section 4 Discrete Financing Issues ...................................................27

Debt vs. Equity Financing ...............................................27

Section 5 Preliminary Agreements .....................................................41

Confidentiality Agreements ............................................42

Section 6 Diligence .............................................................................55

Role of Review ................................................................55

Baker & McKenzie

Cross-Border Transactions Handbook

Diligence Requests ..........................................................59

Section 7 Regulatory Framework .......................................................77

Section 8 Employee Transfers and Benefits .......................................95

Automatic Transfer vs. Termination/Rehire ...................97

Section 9 Documenting the Transaction .......................................... 117

The Governing Law Debate ......................................... 117

Baker & McKenzie

Cross-Border Transactions Handbook

Section 10 Closing the Transaction ................................................. 133

Availability of Key Personnel ...................................... 133

Section 11 "Day One" Readiness and Post-Closing Actions .......... 143

Licenses, Permits and Registrations............................. 144

Section 12 Dispute Resolution ......................................................... 153

Key Initial Questions.................................................... 153

Baker & McKenzie

Cross-Border Transactions Handbook

Appendix 2.1 Acquisitions Flowchart ............................................. 169

Baker & McKenzie

Cross-Border Transactions Handbook

Baker & McKenzie

Cross-Border Transactions Handbook

While cross-border transactions will involve most of the complexities

Baker & McKenzie

Cross-Border Transactions Handbook

In discussing the project and risk management aspects of cross-border

Baker & McKenzie

Cross-Border Transactions Handbook

Exchange control approvals or consents;

Clearances under local or international competition laws;

Unusual problems arising in the acquisition review (or due

Language and cultural barriers;

The necessity of agreeing on an allocation of the purchase

Burdensome or unusual mechanics required to comply with

Baker & McKenzie

Cross-Border Transactions Handbook

A major cross-border transaction such as an acquisition, disposition,

Baker & McKenzie

Cross-Border Transactions Handbook

Scope of the Project

As a threshold matter the parties involved must fully understand the

Assembling the Transaction Team

Perhaps the most critical element in a successful cross-border

Officers/Senior Managers (including General Counsel).

Baker & McKenzie