Foreign Collaborations - Contracts; JVs; M&As

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There can be three routes to have a foriegn collaboration - Contractual route; Joint Ventures and Merger and Acqusition transactions. This presentation attempts to guide the Indo-Foriegn Collaborator to understand the basics of 3 routes.

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Foreign Collaborations - Contracts; JVs; M&As

  1. 1. FOREIGN COLLABORATIONS THE LEGAL ASPECTS Interactive Session on Foreign Collaborations - The Legal Aspects South Gujarat Chamber of Commerce Surat, May 3rd, 2009 UTKARSH JANI JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  2. 2. Cross Border Relations Types of Relationships Limited Liability Partnerships Contractual Mergers, Takeovers Or Acquisitions Joint Venture / Collaboration JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  3. 3. Contractual Relationship Two routes for reaching the stage of entering into a contract General Conditions of Contract and Self Contained Contract Special Conditions of Route Contract (GCC/SCC) JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  4. 4. Price • Three aspects of price have to be dealt with: – Price basis – Base level to which the price is related; and – Break up of the price, particularly where the contract covers, apart from the main equipment, other supplies and services, such as initial supply of spares, documentation, training and technical assistance. For e.g.: USD 100,000 May 2009 base – Particularly when there are repetitive orders JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  5. 5. Terms of Payment • The supplier expects advance and the buyer like to pay as late as possible! • This can be resolved by negotiations and mutually agreed terms of payment • In long terms contract it is advisable for buyer to stipulate for a bank guarantee since the buyer does not have anything against the advance payment made • Mode of payment could be through normal banking channels or by a LC • The time limits should be prescribed for the stage payments and LC as against the banks guarantee supplied by the supplier • It is in the interest of the supplier not to delay the BG since the advance shall start only upon the furnishing of the BG JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  6. 6. Price Variation • Economic conditions and price levels do not remain static and stationary, the input costs tend to vary upwards or downwards in the long term • Price variation clause is the remedy to protect the supplier from the rising costs and the to protect the buyer from having to pay excessive costs for future estimates built in the price by the supplier • The ‘Base Price’ is the level at which the input costs of the supplier and any downward or upward fluctuation is passed on the parties accordingly • Price Escalation Clause V/s Price Variation Clause • Fixation of base price and a ceiling on Price Variation. For example World Bank procedures allow two percent and above price variation and nothing under that • No price variation is allowed beyond the cut-off date provided in reference to the scheduled delivery dates JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  7. 7. Price Variation • Formula is written as F+M+L (F stands for Fixed elements, M stands for material elements and L stands for labour element) • Mathematical Formula: P1=P0 x {(F+a (M1/M0) + b (L1/L0)} – P0, where P1 = adjustment amount payable to the supplier (a minus figure will indicate reduction in the contract price); P0 = contract price (base price) F = Fixed element not subject to price variation a = assigned percentage to the material element in the contract price; b = assigned percentage o the labour element in the contact price; L0 and L1 = labour indices; and M0 and M1 = material indices (L0 and M0 represent the indices at Base Level) JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  8. 8. Bank Guarantees • BGs could be: – Towards earnest money – As security against performance of the contract; – As security against initial (advance) and stage payments made by the buyer/ principal to the supplier/ contractor; – Towards liquidated damages in exceptional cases, where contracts are of large value; – Towards liquidated damages in exceptional cases, where contracts are of large value; JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  9. 9. Bank Guarantees • BGs could be: – Towards guaranteeing specified operational parameters of the equipment; – Towards meeting warranty claims in respect of equipment; or – Towards performance of maintenance during a specified period (usually one year) in respect of civil works contracts JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  10. 10. Bank Guarantees • Whether it is a financial guarantee, a performance guarantee or a letter of credit established by a bank, it a contract under section 126 of the Contract Act to perform the promise or discharge the liability of a third person on that third person’s default • Independent of the main contract • Two contracts and three parties come into existence when a contract is entered into which provides for BGs being furnished • Notwithstanding any disputed between the parties to the contract, the bank has to honour the BG upon invocation JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  11. 11. Bank Guarantees • Judicial View: – In Hindustan Copper V/s Ran Builders Ltd, the Supreme Court held that law relating to bank guarantees is well settled that the party seeking injunction against enforcement of a bank guarantee had to show a prima facie case of established fraud and irretrievable injury to it, and the courts should avoid interfering with autonomy of bank guarantees, except in very exceptional circumstances to protect the fabric of trading companies JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  12. 12. Bank Guarantees • Judicial View – In a case decided by the Gujarat High Court, in Prem Conductors Pvt. Ltd. V/s State Bank of India & Another it was held that when the defendant failed to supply the raw material as per the contract with the result that the plaintiff could not manufacture and supply the goods; such act of the defendant to invoke bank guarantee would amount to fraud and thus the BG could not be invoked – In Hindustan Steelworks Construction Ltd. V/s Tarapore and Co, it was held that encashment of an unconditional bank guarantee does not depend upon the adjudication of disputes JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  13. 13. Bank Guarantees • Safeguards taken by the banks: – Limits – Margins – Counter Guarantees – Discharge • Extension of Bank Guarantee • Procedure for Custody and Review • Stand-By Letter of Credit: – Issued by the banks in USA and Japan due to legal restrictions placed on banks in those countries against bonds and bank guarantees. The practice of issuance of Insurance Policy instead also prevails in these countries – They are risky in since issued by banks of the suppliers’ country unless confirmed by the bank of the buyers’ country JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  14. 14. Letters of Credit (LCs) • Issued by the buyer’s bank in favour of the supplier guaranteeing that payments will be made against documents inter alia evidencing completion of supplies/services/stages of progress of work before the delivery dates specified in the LC, provided the documents are presented for payment before the last date for negotiation of documents, which is mentioned in the LC JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  15. 15. LCs • Two banks involved in the transaction – Issuing Bank in which the buyer opens an account in his country and it guarantees the payment – Advising Bank (normally, the supplier nominates the advising bank in his country) and it advises the supplier the last date for delivery of the goods, the documents which the supplier has to deliver to the bank and the time within which he must do so. • System also know as documentary credit • Operates as a contingent liability for the issuing bank and the buyer until converted into definite liability by the supplier JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  16. 16. LCs • In international trade, Confirmed LC is preferred over an unconfirmed LC and the parties mutually agree who shall bear the additional bank charges for the confirmed charge over the LC JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  17. 17. LCs Buyer’s Buyer’s Buyer Buyer Bank Bank Supplier’s Supplier’s Supplier Supplier Bank Bank Forwarding operating Cycle of a LC Reverse operating Cycle of a LC JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  18. 18. Taxes and Duties • Domestic Contracts: – It is necessary not only to specify the nature of taxes and duties attracted, but also to indicate the rate of such taxes and levies prevailing in the effective date of the Contract • International Contracts: – The clause shall read as: “All taxes and duties in the Supplier’s country shall be borne by the Supplier. All the other taxes and duties shall be borne by the buyer” JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  19. 19. Taxes and Duties • International Contracts: – Question arises generally in Technology Transfer Agreements where the license fee is payable by the licensee to the licensor and the licensor invariably insists on the license fee payable being net of taxes in the licensee’s country – This can be remedied by the ‘Double Taxation Relief Agreement’ (DTRA) – While drafting the clause on taxes and duties involving transfer of technology and the payment of license fee net of taxes, a sub-clause should be added providing that the tax benefits obtained by the licensor in his country, due to the operation of the DTRA, should be passed on to the licensee immediately after the assessment is completed – The clause should also survive the termination or expiry of the contract JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  20. 20. Scheduled Delivery Date • Specifies the point of time when the delivery of various items of equipment, other items such as documentation, and services are required to be provided by the supplier to the buyer • Force Majeure situations and suitable amendment in the contract • Provision of Liquidated damages in case of delayed deliveries JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  21. 21. Defaults, Liquidated Damages and Penalty • This section predetermines the compensation or damages payable by the party who has broken the contract to the party suffering inconvenience or damage due to the breach • Such predetermined damages are referred to as ‘liquidated damages’, as the clause in the contract enables the defaulter to liquidate the damages suffered by the buyer that arise due to such default • Penalty clause includes forfeiture of earnest money deposit, security deposit, installment of hire or forfeiture of a right to money or other property already delivered JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  22. 22. Defaults, Liquidated Damages and Penalty • English courts do not allow penalty since they are viewed as ‘vindictive’ and though Indian law does not have any distinction between liquidated damages and penalty, penalty is generally not allowed if it is unduly harsh and unilateral • The liquidated clause in a contract has to cover both the long-term and short-term defaults, and provides remedies for both the situations. • Remedy normally accepted is to allow the buyer to terminate the contract in case of a default, it should not be drafted as “the buyer shall terminate” in which case the buyer does not get the choice to tolerate the defaults to an extent before terminating the contract JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  23. 23. Defaults, Liquidated Damages and Penalty • If there is a price variation clause then liquidated damages should be leviable at such percentage if the value as varied in accordance with that clause • Finally, the clause should provide the mode of recovery of liquidated damages/ risks purchase costs and the point of time when this will be recoverable JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  24. 24. Export License • In international contracts, a separate clause is incorporated about export licenses, making it obligatory for the supplier to obtain and maintain export licenses; where it is cancelled or withdrawn and the supplier is unable to have it restored, within, say 30 days from the date of cancellation/withdrawal, providing a remedy to the buyer of a right to terminate the contract; and on such termination for the supplier to return all the advance payments forthwith to the buyer, with or without interest • Should it be included in the ‘Force Majeure’ clause? JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  25. 25. Inspection and Acceptance • Advance notification by the supplier of the consignment reaching for inspection • The costs of inspection • Remedies in case of rejection – Re-trial / Re-Inspection, and maximum how many trials – Replacement – Termination and return of advances or securities JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  26. 26. Passing of Title and Risk • It can be covered in the Price clause, where price basis is shared; alternatively it can be covered in a separate clause in a contract • A reference can be made in the specific clause to ‘INCOTERMS’ which define for each trade term. For e.g.: FOB, CIF, C&F etc., the supplier’s obligation vis-à-vis the buyer, and vice versa; the delivery point of supplier; the party who is responsible to pay the freight; the party who is responsible to buy the insurance; the time at which the risk of loss/damage passes from the supplier to the buyer JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  27. 27. Passing of Title and Risk • Unpaid seller’s lien clause • The seller can negotiate for delivery into a warehouse and claiming the payment against the warehouse receipt instead of a bill of lading or their right to nominate the vessel, or load the items on a vessel next arriving at the port decided upon; but the buyer would prefer allowing the supplier to load the cargo in any other vessel which would call at the port decided upon, imposing a condition that the ship should not fly the flag of a country with which the buyer may not have good relations especially in case of sensitive items JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  28. 28. Warranty • Supplier gives the warranty that the equipment supplied shall be free from any defects • Supplier must negotiate against an open ended warranty • Patent and Latent Defects • Survival clause in case of Latent Defects and the chances of disputes for enforcing the Latent defects clause JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  29. 29. IP Rights • The supplier has to indemnify the buyer against any suit or claim for the equipments supplied by him carrying someone else’s IP rights • The supplier absolved if the buyer has used his equipment in combination with some other equipment carrying IP rights • Assignment of IP rights can be obtained by the seller on behalf of the buyer • IP clause added like TM rights are the sole property of the respective parties JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  30. 30. Options • Option clause is usually inserted by the government organizations who have to strictly follow the tendering procedure for their procurements • This clause shall give the right to the buyer to exercise an option to order more quantities under the same terns and conditions (which would include price variation clause) including the price in the contract, provided it is exercised within a specified period of the effective date in the contract JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  31. 31. Resolution of Disputes • Dispute escalation mechanism • Resort to the remedy of approaching the court or resorting to Arbitration • Advantage Arbitration: – No court fees and thus less expensive – Speedy settlement – Continuance of Business relationships – Simpler procedure – Maintenance of confidentiality – Award final and binding except in certain rare cases • The Arbitration and Conciliation Act of 1996 JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  32. 32. Resolution of Disputes • The Arbitration and Conciliation Act of 1996: – Part I deals with arbitration (an award under this part is considered as a domestic award), – Part II deals with enforcement of certain foreign awards, – Part III deals with conciliation, and – Part IV contains supplementary provisions about the powers to make rules, repeal and savings etc • The arbitral award delivered in a foreign arbitration is referred to as a foreign award JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  33. 33. Resolution of Disputes • Institutional Arbitration: Reference is made to trade associations such as chambers of commerce or other bodies who have a machinery for adjudication of disputes by arbitration JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  34. 34. Resolution of Disputes • In such contracts, the parties stipulate that disputes shall be referred for resolution to a particular institution of national or international character. Some leading Indian institutes are, Indian Council of Arbitration (ICA), New Delhi; FICCI, New Delhi; and International Centre for Alternative Dispute Resolution (ICADR), New Delhi. Some of the leading international institutions are International Chamber of Commerce (ICC), Paris; London Court of International Arbitration (LCIA), London; and International Centre of Settlement of Investments Disputes (ICSD), London. Some contracts also refer to United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules. JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  35. 35. Resolution of Disputes • Judicial Decisions: – In MMTC V/s Shyam Singh Chaudhary, it was held that though there was a arbitration clause in he contract, one of parties chose to bypass arbitration clause in the contract which was disallowed – In Gujarat Water Supply and Sewerage Board v. Unique Erectors (Guj) Pvt. Ltd. it is observed that ‘Reasonableness as such if an award unless the award is per se preposterous or absurd is not a matter for the Court to consider. Appraisement of evidence by the arbitrator is ordinarily not a matter for the Court – Lotus hotels case: Promissory Estoppel JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  36. 36. Termination • Terminations occur in three situations: – Force Majeure – Prolonged Default; and – Cancellation/ withdrawal of export license • Buyer has a right to unilaterally terminate the contract in case of above by way of a notice as per the clause in the contract also termed as ‘Termination of Convenience’ in some contracts JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  37. 37. Confidentiality • During negotiations and implementation of a contract, the parties exchange various organizational information which is not desirable for these to become public knowledge • Clause requiring to protect such confidential information is thus added • Exceptions to be added as well • Survival clause to be incorporated JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  38. 38. Governing Laws • Performance/ implementation closely linked to buyer’s country and thus most contracts refer to buyer’s country as the governing law • In international contract either supplier country, the buyer’s country or a neutral location familiar to the parties chosen; • Arbitration clause also refers to the choice of the venue and institution for the settlement of disputes JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  39. 39. Contract Management • A letter of intent, Acceptance of bid/ tender, MOU should be converted into a formal contract as soon as possible • A sequence of events must be calked out and if need be prepare a master schedule and a subsidiary schedule in order to monitor them effectively • To keep a tab on the effective dates like the date of scheduled delivery, payments, JANI ADVOCATES notices LAWYERS AND CORPORATE CONSULTANTS
  40. 40. Contract Management • Strict enforcement of terms and conditions – Issuance of notices – Reminders for defaults – Extensions of delivery dates, and bank guarantees – Invocation of Bank Guarantees on time – Writing to the bank to either extend or invoke the guarantee instead writing to the supplier who may delay taking the action till the limitation expires or the document expires JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  41. 41. Contract Management • Proper procedure to be put in place for the safe custody and of the maintenance of a record of all the bank guarantees and insurance policies in the order of their expiry dates • Regular audits and reviews of the said records • Creation of an in-house software tool for the Contract Life Cycle Management • Timely initiation of the invoking the Arbitration or initiation of the judicial process considering the limitation period for the enforcement of the rights flowing under the Contract JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  42. 42. Contractual Relationship JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  43. 43. Joint Ventures (JVs): A special combination or persons undertaking jointly some special adventure or profit without any actual partnership JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  44. 44. JVs JV Constituents: • As agreement by the parties manifesting their intention to associate for joint profit not amounting to a partnership or a corporation; • A contribution of money, property, effort, knowledge, skill, or other assets to a common undertaking; • A joint property interest in all or parts of the subject matter of the venture; • A right to participate in the control or management of the enterprise; • As expectation of profit; • A right to share in profits; • An express or implied duty to share in losses; and • A limitation to a single undertaking (or possibly a small number of enterprises) JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  45. 45. Types of JVs: • R&D Joint Venture • Risk Sharing Joint Venture • Pro-Competitive Joint Venture • Management Contracts – Joint Ventures – Contract Marketing – Contract Manufacturing • Product Services • International Joint Venture Agreements JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  46. 46. International JV Agreements: • It is one of most acceptable, common and effective means of conducting business internationally, often called as one of “Modes of Entry” by professionals • Documents and Agreements – critical to the success of the venture • Critical to determine the goals and key objectives in advance and ensure that your interests are reflected in the agreement. JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  47. 47. JVs Traditional Modes of Entry: 1. Exporting 7. Strategic Alliances 2. Licensing 8. Partnership 3. Subsidiaries Agreements 4. Contract 9. Joint Venture Manufacturing 10.Wholly-Owned 5. Contract Assembly Venture 6. Contract Marketing JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  48. 48. Merger Acquisitions Takeovers Categories of Mergers Cogeneric Conglomerate Horizontal Vertical Merger Merger JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  49. 49. Merger Acquisitions Takeovers Further Categories of Merger Triangular Cash Merger Merger Defacto Down Stream Up stream Reverse Merger Merger Merger Merger Short-form Merger JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  50. 50. Merger Acquisitions Takeovers • Motivations behind Cross-border Acquisitions: – Growth Orientation: To escape small home market, to extend markets served, to achieve economy of scale – Access to inputs: To access raw materials to ensure consistent supply, to access technology, to access latest innovations, to access cheap and productive labour – Exploit unique advantage: To exploit the company’s brands, reputation, design, production and management capabilities JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  51. 51. Merger Acquisitions Takeovers • Motivations behind Cross-border Acquisitions: – Defensive: To diversify across products and markets to reduce earnings volatility, to reduce dependence on exports, to avoid home country political and economic instability, to compete with foreign competitors in their own territory, to circumvent protective trade barriers in the host country – Response to client needs: To provide home country clients with service for their overseas subsidiaries, e.g.: banks and accountancy firms – Opportunism: To exploit temporary advantages, e.g.: a favourable exchange rate making foreign acquisitions cheap JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  52. 52. Merger Acquisitions Takeovers THE BCG MATRIX JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  53. 53. Merger Acquisitions Takeovers • On the horizontal axis: relative market share - this serves as a measure of SBU (Strategic Business Unit) strength in the market • On the vertical axis: market growth rate - this provides a measure of market attractiveness By dividing the matrix into four areas, four types of SBU can be distinguished: • Stars - Stars are high growth businesses or products competing in markets where they are relatively strong compared with the competition. Often they need heavy investment to sustain their growth. Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows. JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  54. 54. Merger Acquisitions Takeovers • Cash Cows - Cash cows are low-growth businesses or products with a relatively high market share. These are mature, successful businesses with relatively little need for investment. They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars. • Question marks - Question marks are businesses or products with low market share but which operate in higher growth markets. This suggests that they have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors. Management have to think hard about "question marks" - which ones should they invest in? Which ones should they allow to fail or shrink? • Dogs - Unsurprisingly, the term "dogs" refers to businesses or products that have low relative share in unattractive, low-growth markets. Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in. JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  55. 55. M&A Law in India: • M&A law in India is to be found in the Companies Act, 1956 in Sections 390 to 396A • Sec. 390 and 391: Power to enter into a compromise or arrangement with the Creditors or shareholders • Sec. 392 Power of the court/tribunal to enforce compromise and arrangement • Sec 393: Information as to compromises or arrangements with creditors and members • Sec. 394: ‘Single-Window Clearance’ for facilitating the process of amalgamation or reconstruction • Sec. 394A: Notice to be given to Central Govt. for applications under sections 391 and 394 • Sec. 395: Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority, particularly in case of ‘Takeovers’ JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  56. 56. M&A Law in US: • State laws govern the procedures relating to mergers, while the Federal laws are concerned with the ‘antitrust’ issues • Another most important document that has to be understood is the Merger Agreement which lays down the details of the transactions between the parties JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  57. 57. M&A Law in US: Examine the Merger Agreement Examine Examine State Merger Securities Laws Laws {SEC} Examine Federal Antitrust Laws JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  58. 58. M&A Law in US: State Systems • Merger procedure usually governed by the State Laws • Modern State Business Corporation Statutes (MSBCA) now known as Model Business Corporation Act of ABA has been adopted by most states; notable exceptions being Delaware, California, and New York • Inter-State merger: State statutes are parochial in nature – surviving corporation to be domestic JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  59. 59. M&A Law in US; Procedure: • Letter of Intent • Merger Plan • Notice of Meeting to Shareholders • Signed Papers filed with the Secretary of State • Secretary of State Issues a Certificate of Merger • Freedom of Contract, embodied in the Merger Agreement JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  60. 60. M&A Law in US; Federal Antitrust Legislation • Laws passed to prevent the creation of monopolies • Response to large ‘Trusts’ in 1880s and 1890s, which operated as virtual monopolies, e.g.: there existed trust in oil (controlled by famous D. Rockefeller), sugar, whiskey, and steel (controlled by famous J.P. Morgan) • Enforcement by two Agencies: – Federal Trade Commission, issues ‘cease and desist’ order to violators – Department of Justice’s Antitrust Division, litigates JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  61. 61. M&A Law in US; Important Legislation • Four Main Acts to look out for: – The Sherman Act – The Clayton Act – The Federal Trade Commission Act – The Robinson-Patman Act JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  62. 62. M&A Law in US The Sherman Act, 1980 • Sec. 1: Prohibits contracts or conspiracies in ‘restraint of trade’ • Sec. 2: Prohibits monopolisation, or attempts at monopolisation; used with S.7 of the Clayton Act • Violation is a felony, fine upto $350,000 for individuals and $10 million for corporations JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  63. 63. M&A Law in US The Clayton Act, 1914 • Sec. 4: Damage recovery provision –Treble damages, cost of suit, and reasonable attorney’s fee • Sec. 7: Bans anticompetitive stock acquisitions. Decisions are based on study of market, Justice Department’s Merger Guidelines are an indicator of how they will examine mergers, and also have persuasive value in courts • Sec. 7A: Hart-Scott-Rodino Act – Pre-merger notification, if size of transaction ($59.8 million), and size of parties ($119.6 million and $12 million annual net sales or total assets) thresholds crossed JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  64. 64. M&A Law in US Further Antitrust Legislation • Federal Trade Commission Act, 1914: Prohibits ‘unfair methods of competition’, and ‘unfair or deceptive acts’ in commerce • Robinson-Patman Act, 1936: Prohibits price discrimination • Per se offences: Price fixing, tying arrangements, etc. • Rule of Reason offenses: Court will examine the reasonableness of acts. This category is more related to mergers JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  65. 65. M&A Law in US: • A typical Merger Agreement contains: – The Deal Mechanics – Representations and Warranties and disclosure schedule – Closing Provisions – Indemnification – Confidentiality Provisions – Escrow, if necessary JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS
  66. 66. THANK YOU! UTKARSH JANI JANI ADVOCATES In Association with MEGHANI ADVOCATES – SURAT Add: 7, VASANT VIHAR BUNG, VASTRAPUR, AHMEDABAD – 380015 PH: 09825555612 079-26751466 EMAIL: utkarsh@janiadvocates.com info@janiadvocates.com utkarsh.jani78@gmail.com JANI ADVOCATES LAWYERS AND CORPORATE CONSULTANTS

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